TriMas Corp (TRS) 2010 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the TriMas fourth quarter, full year 2010 earnings 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 introduce your host for today's conference, Ms. Sherry Lauderback. Ms. Lauderback, you may begin.

Thank you. Welcome to the TriMas Corporation fourth-quarter and full-year 2010 earnings call. Participating on the call today are Dave Wathen, TriMas's President and CEO, and Mark Zeffiro, our Chief Financial Officer. Dave and Mark will review TriMas's fourth-quarter and full-year results as well as provide some additional details on our 2011 outlook. After our prepared remarks, we will then open the call to your questions.

In order to assist with your review of our results, we have included a press release and a PowerPoint presentation on our Company website, www.TriMasCorp.com, under the investor section. In addition, a replay this call will be available later today by calling 866-837-8032 with an access code of 1512995.

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. Please refer to our form 10-K 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 statement 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, and good morning. All of us here at TriMas appreciate your attention and continued support. We are all fully committed to fast continuous improvement of this Company. And I believe that the information we share with you today helps prove that TriMas is truly continuously improving.

Our agenda is that I will provide an overview of what we accomplished in fourth quarter and Mark will then expand on these results and financial highlights for TriMas and our reporting segments. Then, I will look forward with our 2011 outlook and summary. And then we will gladly answer your questions.

Everybody at TriMas is proud of our overall results in 2010. Many events went our way, including a stronger than anticipated recovery in our industrial markets, but we also executed well on many programs and initiatives.

Full-year revenue increased 17% versus last year, driven by improving markets, some nice share wins against competitors still suffering due to the recession, and our increased emphasis on new products to solve our customers' needs.

Our diluted EPS nearly tripled versus 2009 due to positive operating leverage, better operating performance, and the permanently lower fixed cost structure we have achieved for consolidation actions over the past two years. I may wear you out talking about productivity, but continuous cost out in every cost item yields the savings that we utilized for margin expansion and to fund growth programs. And you know that we keep after improvements in turns and working capital so that we generate cash and reduce our debt.

Going forward on slide 5, we are continuing to achieve and encouraging profitable growth from our new product and market share gain projects. Both our Huntsville specialty cylinder acquisition and specialty bolt acquisition based in Houston are achieving the results we expected. 2010 was our time to boost on the ground activity, selling into Asian markets, and our ramp-up is underway.

In 2010, we added our Global Sourcing Organization to leverage multi-business opportunities. The GSO is yielding incremental productivity and in late 2010, we kicked off our increased emphasis on lean initiatives in all businesses including hiring several manufacturing managers with strong track records of implementing six Sigma and lean programs.

Overall, our TriMas business system is working well to position TriMas for ongoing success.

Now Mark will share our financial and operating metrics that I believe help prove that TriMas is a much improved and improving Company.

Thank you, Dave, and good morning. Before we move to the financial results, there are a few areas on which I would like to reflect. Q4 represents another quarter in which we outperformed our internal expectations here at TriMas, making for a very good 2010. Our structured operating model is working. We capitalized on opportunity while mitigating significant risks we face throughout the year. This disciplined management approach has enabled us to attain good growth out of our businesses, enhance our margin levels and generate significant cash flow.

Our successes in these areas have enabled us to improve the health of our balance sheet and enhance our financial flexibility.

Let's start with a summary of the fourth-quarter results on slide 7. Our fourth-quarter sales were $223 million, an increase approximately 17% compared to fourth quarter 2009 with continued double-digit percentage sales increases in several of our segments. This growth was a result of new products, our ability to capture additional market share and continued demand improvement across our businesses.

Gross profits improved to 29% during the quarter, a margin improvement of 80 basis points compared to Q4 2009. Q4 adjusted EBITDA was $29 million or 12.9% of sales, which is compared to $17 million or 14% of sales in 2009, which was a particularly strong quarter compared to historical Q4s. We increased our investment in future growth initiatives and faced some higher costs including acquisition costs within the quarter.

We remain committed to continuous productivity and we are convinced that our lower cost structure will continue to leverage well as our growth initiatives continue to accelerate.

Our Q4 2010 income from continuing operations and EPS both improved over Q4 2009 levels. Fourth-quarter 2010 income from continuing operations increased to $8.2 million and diluted EPS increased to $0.23 per diluted share including a $0.10 benefit from a lower effective tax rate in Q4 2010.

We are also pleased with our ability to continue to generate strong cash flow from our businesses even in periods of significant growth. We generated $16 million in free cash flow during the quarter by proactively managing on our working capital levels despite a 17% sales increase. We also continued to reduce our debt levels, ending the quarter with a total debt of $495 million and cash on balance sheet of over $46 million.

Now let's turn to our full year 2010 financial results on slide 8. As Dave mentioned, our 2010 sales were $943 million, an increase of over 17% compared to 2009 and at the top end of our previous sales growth outlook. The significant reductions in fixed costs and productivity initiatives as well as topline improvement lead to an increase in adjusted EBITDA margin of 250 basis points excluding special items and compared to 2009.

We also more than doubled the income from continuing operations in EPS levels generated in 2009. For the year, we reported free cash flow of $83 million equivalent to about $2.50 per share. Our strong free cash flow has enabled us to continue to reduce our debt and delever the Company.

I would now like to spend a few moments discussing our margin improvements on slide 9. As you know, 2009 and 2010 were years of fixed cost reductions and significant productivity improvements at TriMas. We believe that these actions have permanently lowered our cost of doing business and we expect our ongoing productivity initiatives and topline growth to provide for sustainable margin improvement in 2011 and beyond.

Our margin levels are not just higher than 2009, which was a recessionary year, but are also significantly higher than the 2008 pre-recession. The 2010 operating profit margin of 12.1% is a 200 basis point improvement compared to 2008. To be clear, in 2010, we generated $16 million more in operating profit on about $71 million less in sales compared to 2008.

Our margin expansion is not a story about easy comparisons but a fundamental shift in our operating model and our relentless efforts to make the enterprise more efficient.

Move on to slide 10. In addition to profitability improvements, we are also improving working capital as a percentage of sales with a 2010 ratio of 12.6% compared to 14.5% in 2009 and 17.3% in 2008. While all of our businesses are focused on reducing working capital, our Packaging, Aerospace, and Cequent Asia Pacific businesses not only reduced their working capital as a percentage of sales but also the absolute dollars of working capital.

We are pleased with these results and believe long-term target remains at approximately 13% of sales. While some businesses are at record lows, there is still more work to be done in others.

On slide in we ended the quarter with approximately $495 million in total debt, a decrease of $20 million compared to year-end 2009. After consideration of $46 million in cash on the balance sheet as of year-end 2010, total indebtedness net of that cash was $448 million as compared to $505 million as of year-end 2009.

During 2010, we also funded $31 million in acquisitions. TriMas ended 2010 with $167 million of cash and aggregate availability in our financing facilities. We are also pleased to have ended the quarter with a leverage ratio of 3.06 times, which represents a significant improvement versus 2009.

Before I move onto the segment discussion, I would like to briefly note that we will file a universal shelf today later with the SEC. From a Company perspective, this effort maintains our maximum flexibility for opportunities as they may arise.

At this point, I would like to shift gears in the review to focus on our business performance by reportable segment. All of my segment discussion will be excluding special items to provide you with a better understanding of the underlying business trends. I also wanted to point out that during the quarter, we relaligned our reportable segments to be consistent with our current operating structure and strategic priorities. I will comment on these specific changes as I provide segment color.

Let's begin with the Packaging segment on slide 13. For full year 2010, Packaging sales grew 18% compared to 2009. This was driven by improved demand for our industrial closures and continued growth in new specialty dispensing products. Sales declined slightly in Q4 year-over-year primarily due to H1N1-related sales in Q4 2009 that did not recur in Q4 2010 and unfavorable currency exchange.

We continue to get good execution in launching new dispensing products into growing end markets such as medical, pharmaceutical, and personal care. 2010 operating profit increased 45% compared to a year ago, resulting from higher sales and productivity initiatives. Margins improved substantially with operating profit margin improving 530 basis points to 28.5% compared to 2009. Our key initiatives for this segment remain as product extension and geographic expansion.

Moving on to slide 14, Energy, which now consists of our Lamons business, including the acquisition of South Texas Bolt & Fitting, completed during the fourth quarter. Energy sales increased 23% for the fourth quarter and 16% for the year compared to the year ago periods, resulting from increased demand for specialty gaskets and bolts as refinery turnarounds and branch expansions in Rotterdam, Salt Lake City, Edmonton, and the United Kingdom added to our sales efforts.

Our acquisition of South Texas Bolt contributed to the quarter and both the integration and its performance are going well.

Operating profit margin improved 100 basis points for the full year, although margin levels declined slightly during Q4 due to incremental costs associated with the acquisition. We will continue to expand our footprint at a faster pace as we remain committed to supporting our global customers in new markets. Also the synergies related to the acquisition of South Texas Bolt are still ahead of us.

On slide 15, Aerospace & Defense sales increased 14% in Q4 2010, compared to Q4 2009 due to improved demand from aerospace distribution customers and increased sales in the defense business. This sales increase and the improvement of absorption of fixed costs led to a 49% increase in operating profit and a margin improvement of 580 basis points compared to Q4 2009.

We feel that these Q4 results represent the earning power of the Aerospace business as it recovers from its cyclical low.

For the full year 2010, our results were impacted by lower demand from aerospace distribution customers, offset by increased sales in the defense business which due to the higher percentage related to the BRAC contracts was at a lower margin level.

As we move forward, we feel we are uniquely positioned to take advantage of the trend to build composite structure aircraft and our plans support increases in our content per aircraft. This business remains very profitable and we firmly expect that the business to show strong revenue growth and margin expansion as aircraft build rates increase.

Moving on to slide 16, Engineered Components, which now includes our Arrow business as well as Norris Cylinder, Hi-Vol, and precision tool companies. Fourth-quarter and full-year sales increased 94% and 54% respectively compared to the year ago periods primarily due to improved demand for engines and other well-site products, increased demand for industrial cylinders, and the positive impact of our cylinder asset acquisition completed during the second quarter of 2010.

The specialty fittings and precision cutting tool business also experienced improved demand primarily resulting from the upturn in the domestic economy and the new product offerings. Fourth-quarter and full-year 2010 operating profit and related margins improved compared to the prior-year periods due to higher sales levels, increased absorption of fixed costs, and productivity and cost reduction efforts. The Company continues to develop new products and expand its international sales efforts in this segment.

On slide 17, we show the performance of Cequent, which has now been split into two segments to provide more transparency. Cequent North America consists of Cequent performance products and Cequent consumer products while Cequent Asia Pacific is focused on that region of the world. Cequent North America and Asia Pacific sales were both up for the full year 2010 at 10% and 19% respectively.

While Cequent North America demonstrated 8% sales growth in Q4, Cequent Asia Pacific sales declined when compared to the Q4 2009, which did benefit from an Australian government stimulus program. Combined, the Cequent segments had 111% improvement in operating profit for the year as well as operating margin improvements of 480 basis points in the North American business and 300 basis points in Asia Pacific business.

As a reminder, these segments were most positively affected by the profit improvement program in 2009 and as a result, have seen sustainable changes in its profitability levels. This is evidence in our recent ability to offset the normal seasonality of Cequent North America in the fourth quarter and generate profits. In these segments, we will continue to focus on productivity, product leverage, and regional expansion.

So, in summary, 2010 was an outstanding year with results that reflect the hard work of all of our employees. Our balance sheet has never been stronger. Our businesses are positioned for strong sustainable cash flow and our margin rates continue to increase. It's an exciting time at TriMas and we look forward to continued momentum in 2011.

That concludes my comments. Now Dave will discuss our expectations for 2011.

Thanks, Mark. So now I will look forward with TriMas's 2011 outlook. Slide 19 states our strategic aspirations that drive our 2011 playbook. These are the same aspirations that you've seen before. I am a big fan of consistency and messages and targets to avoid any confusion about what we focus on. I can assure you that our programs, metrics, and incentive systems at TriMas are fully aligned with these strategic aspirations.

Going to page 20, this slide summarizes our current outlook for TriMas's key metrics in 2011. We expect high single-digit topline growth of 6% to 9% compared to 2010. We expect this sales growth to leverage well, leading to continued earnings growth with an EPS range of $1.40 to $1.50 and free cash flow that reinforces the quality of TriMas's earnings.

On the next three charts, I will provide some additional detail on our projected revenue and earnings growth. On page 21, we have provided additional information about our end markets and expectations by segment. I would like to point out some of what we feel are helpful advantages that our TriMas businesses bring to bear.

In Packaging, products like foamers continue to displace less technical products and rapidly growing consumer spending in Asia and South America mean more spending on food and medical products, and end market where Rieke dispensers do well.

In Energy, we keep expanding our geographic footprint plus we leverage our ability to provide specialty gaskets and fasteners with fast delivery.

In Aerospace, our high fastener content on composite aircraft is boosting order rates. One reminder, the Defense portion of this segment is in the wind-down year of a defense facility relocation contract, so our Aerospace & Defense segment will show negative comps year-over-year even though our monogram business is growing in 2011.

In Engineered Components, we expect to grow because of Arrow's expanding product content at well sites and increasing our products for tools used in medical applications in our PTC business.

The two segments of Cequent each have great brand equity that is visible and useful as distribution changes occur, good intellectual property, and some encouraging new product growth.

On the next page, we list several of our larger growth initiatives. As I have said before, TriMas grows by executing well on many, many small, focused high-return growth projects for customers we know with technologies that we fully understand how to apply.

A few highlights are the market share gains Rieke is capturing in Thailand and India; Lamons' new branches in Edmonton and United Kingdom ramping up; monogram now has on the ground sales engineers in China filling orders from Chinese-based airframe constructors; continuing increases in shale gas installations for Arrow; and some nice wins in heavy duty applications for trailers and pickup trucks in North America and Asia. It's a good time for TriMas.

Our reduced cost position combined with some careful investments in growth are showing in our top and bottom line expectations for 2011.

Now let me provide some additional insights into our projected 2011 increase in EPS on slide 23. As Mark explained, we had $0.10 of tax rate advantage in 2010 plus an additional headwind of about $0.04 going into 2011 with some nonoperational items that we think will be negative year-on-year.

But we should quickly offset these headwinds as we are coming right back with $0.08 of interest cost reduction and $0.05 incremental from the two acquisitions last year. And then $0.20 to $0.30 of operational improvement in leverage. This is where we really concentrate using our tactics of mitigating risks and capturing opportunities.

We are certainly seeing commodity inflation and we are employing every tactic to mitigate this. Our productivity focus is intense in each business plus we've added horsepower to the global sourcing and our lean initiatives.

Our businesses produce products that tend to be designed in to meet the customers' specific needs and are important to them. So we generally have pricing power and have been raising prices as appropriate. Overall, we are expecting $1.40 to $1.50 of EPS in 2011, which would be a 16% to 24% growth rate off of 2010 and 26% to 35% EPS growth year-over-year should you exclude the 2010 tax benefit.

Now I will summarize why we believe TriMas has value and will grow value for our owners. Our emerging-market programs are already showing results. We know how to right-size our costs and grow earnings. We know how to grow margins despite inflation. Our cash generation shows the quality of our earnings. Our productivity programs give us the ability to invest in growth and grow margins and we are thoughtful about capital allocation. I submit that our business processes have us on track for a future that we will like.

Now we would like to answer your questions.

(Operator Instructions) Tom Klamka, Credit Suisse.

Good morning. In the quarter you had revenues up nicely, EBITDA margins on an adjusted basis were down a little over 100 bps. Can you just talk about -- it looked like in some of the areas, Energy and Cequent specifically, margins were down and you (inaudible) case on higher revenues. Can you just talk about those two sectors?

Certainly. In the case of the Energy segment, Tom, the acquisition costs came rumbling through in Q4 as a result of that activity, and that's a clear and definable effect in those margins and I tell you obviously nonrepeating. In the Cequent business, if you were to go back and look at the mix of sales between North America versus Asia, you would also see that the effect of Asia's year-on-year negative comp in sales really does affect the overall margin rate of that business.

I would also submit that there is some effect in terms of timing between Q3 and Q4 in terms of how we recognized in 2009 some inventory reconciliation processes more than anything else.

In Cequent on the slides, it looks like the North American business had revenues up about $5 million but EBITDA down about $1 million.

Correct, and that's related to those changes between Q3 and Q4 in terms of those timings.

I see.

I would also submit that there are some higher commodity costs in the North American business, particularly the CP business, but it's largely the inventory discussion between Q3 and Q4.

Okay, and on the Energy study side, you said there was some acquisition costs?

Exactly. South Texas Bolt & Fitting was an acquisition completed in Q4. The transactional and integration costs are what we incurred in Q4 and that's what the lion's share of any change in margin rate.

And what would you -- what kind of dollars would you attribute to that?

That's not something that we anticipate sharing, Tom.

Okay, then on the Packaging side, I guess on the revenue decline, you kind of attribute part of that to H1N1. But can you quantify how much that was? And also going back to last year, it looks like last year's fourth quarter was sort of an all-time record. Is part of this performance in the quarter just really tough comp or what else should we read into that?

I don't want to use your words, but I will. Q4 was record quarter for them for a Q4 period and the H1N1 did add sizably to that Q4. Tough comp, exceptionally tough comp, but I'd look at it and say the business not only largely filled he hole on a normal organic growth rate despite not having those H1N1. And if we all reflect back on Q4 2009, you remember the pandemic that everybody was talking about, there was some pretty sizable demand.

And do you think going forward Packaging gets back to the kind of growth rates that they've had sort of mid to high single-digits organic growth rates?

Actually I think that they are the leader between them and Aerospace in terms of the growth rates for the Company for the foreseeable future.

Of course, Tom, we might have a couple other division presidents, so I will say they are in the horse race too, so watch us. But clearly the Packaging and Aerospace have got a pretty good run going, but so does Energy. So does some of the Engineered Components businesses. So --

Okay, then when you look at just the impact and we see oil prices doing what they are doing, what's the impact to you guys both on an input side in Packaging? And then as far as the customer side on the Energy segments?

Well, it's exactly that. In Packaging, it shows up in resin prices. We've got a good track record, though, of passing that on in price. Sometimes its contractual and sometimes it's price increases. And you know by our margins in Packaging that we are not shy about that.

But then on refineries, on oil and gas fields, the higher prices just plain take the activity out, as you well know. The MRO spending tends to be higher when the prices are higher. Plant expansions, changes in mix are very good for Lamons. It takes awhile, but the higher oil means some shift in natural gas -- where there's a chance and that's always good for Arrow. Both oil and natural gas are good for Arrow, but we get a pretty good offset between the two that way.

Okay, thank you very much.

Tom, I would add also that higher fuel prices accelerate the change to new aircraft, too, that tend to be more fuel-efficient.

Rick Hoss, Roth Capital Partners.

Good morning. Mark, can you break out the discontinued ops line? What was in there? Explain that.

Discontinued ops was the sale of a former manufacturing facility converted to a real estate business back many years ago. The facility was a manufacturing facility for some of our defense-oriented businesses quite some time ago. So it's a disposition of that Vernon facility back in Q2 of 2010 and its offset by the increased reserves that we took on basically in abandoned property associated with the compact deposition back in early 2009.

The Australian floods, did that hit at all in the Q4? I know your slide says that it's going to hit Q1, but did we see any of that in Q4?

There was some in Q4, yes. It hits general activity. That ultimately winds up being a timing thing, because a lot of vehicles had to be replaced after the flooding. But yes, that's all been pretty hard on the Australian economy.

Of course, remember in that business unit, we've also got a growing business based in Thailand that makes components for all the small pickup trucks assembled there. But yes, the floods had some impact in fourth quarter and will have some ongoing for a while.

And are you currently seeing revenue from the cellphone tower, the cylinders geared at the cellphone towers?

Yes, it's not big numbers, but yes, we are getting orders for what winds up being fuel for fuel cells used at cellphone towers in the Norris business.

And, Dave, how would you explain that opportunity? Is it growing quickly? Is it further out? How should we think of that opportunity?

It is off a very low base, it's growing quickly in percentage. But it's probably a sustained business for a while, just like putting more mine safety cylinders in place in mine safety applications. But there does seem to be a genuine conversion of cell towers to fuel-cell driven power rather than the alternative fossil fuel things.

[That is] environment for that particular product?

You know, we are the producer in the Americas now for large cylinders after the acquisition of the Taylor-Wharton assets.

Do you own that market in the Americas?

Well, you never owned anything, but we've got the product. We are stacked, we are certified, and so we intend to keep doing well with it.

Last question, it's probably a combination between Dave and Mark. Where do you see the greatest opportunity for productivity initiatives today? Is it sourcing because of commodity? Is it SG&A? Just cutting out additional costs? I know your answer is not going to be both in all. But what should we focus on as far as where you think are the most potential for improving your productivity?

Of course you know my answer is it's everyplace. You can't leave any stone unturned and it's how much does Josh pay for a legal contract? What do we pay for services? We've got programs going on or how we buy energy at each plant and on and on.

But from a numbers standpoint, we are a high material content kind of company. Labor content is a lower percentage for us. So material is where the big dollars wind up showing. That's why we made the investment in the global sourcing organization. That's why we keep adding more productivity engineers in the businesses doing redesigns and that sort of thing to drive up productivity. That's still an area that's got upside for us.

We also -- our lean initiatives have -- they've been around but we've taken them up a notch in seriousness and that's just everything in how we flow through the business, yield rates in the factories, and again ultimately that comes out in material costs. So watch material.

The only thing I would add to that, Rick, and this is Mark, would be you will see working capital expenditure CapEx as a percent of sales a pretty sizable uptick for us but still absolutely in line with our strategic imperatives. And that's the businesses recognizing the opportunity to get after material costs through less waste, through more efficient production vehicles as well. So that's the other if you will trail sign that you will see in the financial statements.

I like investments in machine tools that take yield rates up. That's instant savings that you tend to keep that lasts and lasts, and it's less quality cost. That's an area that we are scrubbing for more opportunities.

Perfect. Thank you, gentlemen.

Steve Barger, KeyBanc Capital.

Good morning, guys. You just alluded to some of the CapEx, but looking in 2010 free cash flow from a cash from ops minus CapEx standpoint, you probably put up a mid $60 million number I think last year. If that's right, the free cash flow guidance looks down a little bit at the midpoint. Can you talk about what you are thinking there from a change in working cap and CapEx, maybe a little more detail?

Yes, if you think about it, Steve, the step year-on-year of [circuit] almost $10 million in capital expenditures increase year on year. Again, you can point to a couple big areas there. You can talk to our Australian business taking a pretty sizable opportunity to consolidate some facilities. You can look at our ability and need to invest a little more heavily in the Packaging business in terms of its capacity and capability. Those are a couple of the bigger investments along the way.

But I would also submit that that's part of a step year-on-year in terms of cash spend. The other one is working capital as a percent of sales. If you think about it, we landed at let's call it 12.6%. We are modeling kind of a 13% number plus minus and obviously when you have 9%, 6% to 9% topline growth, there's an increase in working capital that gets tied up in that effort.

Now again, that doesn't mean that we are not working on it. It doesn't mean any of those things other than the fact that some of the businesses are at record lows and we've got to work on some of those other businesses to continue to take working capital out.

I'd also add one last thing that you probably haven't modeled yet and that is US tax purposes from a federal perspective, the NOL on our books, we expect that we're going to run through that this year, 2011, and as such, will become for the first time federal taxpayers, cash taxpayers for the first time in 2011.

Got it, okay. So all right. And when I think about the slide that shows the earnings bridge, you talked about $0.08 from lower interest expense. Can you talk about what that implies in terms of what you are expecting to pay down in terms of principle, what the interest rate is on that?

Yes, for certain. If you look at the credit agreement, Steve, there's obviously elements that when we refinanced in 2009 that don't -- did not extend at that point in time. As such, those elements will not exist at the end of the year 2011 as a result of just normal maturity. So those amounts which are circa let's call it $22 million, if my memory serves correct here, and if part of its revolver or part of its term loan, between those two amounts, you are looking at circa 6% on a funded basis for those debts.

Now, what we have also done, Steve, is as we stabilize these businesses, we continue to flatten the intra -- inter quarter borrowings as you instead of having such a big uptick on the first week of any quarter, we flatten out those expenditures in terms of the cash that's required. And the result is average overall lower overall borrowings. So that actually adds to it as well.

Then the third part is the synthetic facility which again doesn't renew but we have some pretty sizable reductions that you have seen announced $40 million over the past six months that we took out as part and parcel of our normal reduction.

And sorry, even one last -- one step further is that as part and parcel of that credit agreement, there's also an excess cash flow sweep that is going to happen here in the period, that being likely Q2, that will also give us an additional delever.

Right, so really all those things are just a function of normal runoffs and your better operating characteristics, which mean you need less cash -- less borrowed cash on an ongoing basis?

Exactly right, Steve. Sorry, I give you a lengthy answer to give you all the pieces.

No, that's -- it's good color, thanks. If the free cash flow plan comes through, holding everything else constant, that into 2011 you're going to have $100 million. What are you thinking about for the uses of that cash on a forward basis? Is it primarily bolt-on deals? Any additional thoughts on further debt reduction? What can you do and what does it make sense to do?

Of course if Mark answered, he'd say best and highest use. So take that as given. We haven't changed on acquisitions. We continue to be at the top of our priority is Packaging and Aerospace. Also ideally heavy non-US sales as we try to get our -- shift our mix a little that direction.

We are active in looking for that kind of opportunity, but I can't predict that. You know we always give line of sight when we give an outlook. And so we will see it, but stay tuned on acquisitions.

And we are not shy about looking for ways to increase -- decrease our interest costs and we will keep at that. But right now there's nothing that -- we are giving you our best information.

I understand. One more and I will hop back (multiple speakers)

We are open to suggestions.

Well, my last question is with respect to the shelf. I think, Mark, you said you're going to file one today. If memory serves, you just did a 5 million share shelf on August 3. What's different now and just what's the thinking there?

What I will say is this is that it's a universal shelf that will replace obviously the 5 million shares that were already put up and that's what you will see as part of that EDGAR coming through here later today.

Is it an increase in the number of shares that you can sell or is there anything functionally different about it?

What I would say is that universal shelf allows us to structurally, in terms of the opportunity, to issue additional debt. That obviously isn't our first choice. The reality of it is it's a primary share kind of expansion of what we already had outstanding.

Okay. I'll look at the filing and follow up. Thanks, appreciate the time.

I'd call it housekeeping, normal corporate stuff.

Walt Liptak, Barrington.

Thanks. Good morning, guys. Congratulations on becoming federal cash taxpayers.

I was waiting for applause in the background.

So in 2011, when do you think the NOL will run out? How much cash taxes do you think you will pay?

Plus minus about Q3, during Q3 is my guess. It depends on how the year unfolds on us.

Okay, and do you have a forecast for corporate expenses for this year?

Yes. If you think about your modeling, you could expect corporate expenses increase for basically this is what we keep the entire LTI structure, plus about normal inflationary trends for about 3%.

Okay, and then what tax rate should we use for 2011?

37.5% is what we've got modeled.

Okay. Then I wanted to ask about the Cequent business. The revenue growth was pretty good in North America, and I wonder if you could provide a little bit more color on what's happening in that business?

Yes, I mentioned in my comments kind of quickly going after share gains against competitors struggling in the recession were the words are used. This is a business that it's good to be big. It's good to be the big full-line provider and we are finding customers who are nervous about some of our competitors. We proved -- we are out to prove that hey, we are in this business. We like it. It's growing. We keep adding products, so you don't need somebody else and that has been good for us.

It is literally hundreds of projects. When I meet with that management team and look through what they are working on, it's literally hundreds of projects. It's product, it's customers who are looking for somebody who's bigger and more sustainable. And plus it's us bringing more and more products to bear and after the consolidation of a couple years ago of turning that into one business unit and set a separate towing and all, it's really clicking now to say we can sell the whole product line. You don't have to deal with different customer service systems.

And all that just continues to be good. That's not done. That's an ongoing nice ramp for that business.

You mean in terms of -- productivity and new product development?

Productivity and new product development, but also the consolidated front-end and the ability to serve customers kind of seamlessly, whereas we use to be kind of difficult to deal with. It's hard to put specific numbers on that, but it is continuing to pay off.

Okay. In the business given the weakness of the competitors -- commodity prices, are you able to pass those along? Have you raised prices for 2011?

There have been some price changes already and there will be more, yes. We are able to. We also work hard to mitigate it too, but yes --. Of course, that's got a lot of steel and copper content in it and inflation in steel and copper isn't new. We don't intend to get caught in some squeeze between the two. It's not our style. That's not our style.

Okay, last year your leverage -- your volume leverage in Cequent was good and especially in North America, but overall, can we expect that sort of 50% plus operating leverage or is there something that gets in the way?

I tell you that the normal incremental margins that you would expect out of there, fixed costs are maybe 10% of sales, Walt, so I would model it that way.

That business leverages well, yes.

So you would model it at 50%?

I'm not going to confirm a number, but yes, it leverages well. And we are keeping after the productivity for sure.

Okay. And then I guess I'm a little bit surprised about the forecast for growth in Cequent North America. You didn't give a number. You just said up low to mid single digits for both Asia and North America. But your growth is -- you would think that fourth-quarter growth would be a low and that we would see things ramp-up as the consumer improves.

Well, if you look at those end markets, Walt, that's kind of where we are at, saying those end markets feel like they should be up mid-single digits, low to mid-single digits. Asia obviously could be stronger than that, but that's the way we are looking at it.

Okay. All right, fair enough. Thanks.

We are not ready to model any stronger than that. We all read the same news reports. We will see.

Okay, great. Thanks.

Robert Kosowsky, Sidoti & Company.

Good morning, guys. Good morning, Sherry. I was wondering if I can get more details about the sequential increase in SG&A.

Interesting question. What I would say is that if you looked at some of the costs associated with the acquisition, obviously those come -- [they've] fallen through within that period and that would be a pretty sizable step.

Okay, so a lot of those due to that acquisition?

Yes.

Other than that, we don't have any real change. We added the Global Sourcing Organization earlier in the year. So we don't have any structural change in SG&A. (multiple speakers)

I will also add for you there, Rob, is that obviously as Dave has made those investments in growth, a couple people here, a couple people there, it spreads out pretty wide across the businesses. That's something obviously you need to consider too.

Okay, and also you guys had a pretty good year, too, from an incentive standpoint as well.

That's correct.

It looked like Packaging was off about 15%, 16% sequentially. Is that kind the seasonal decline that we should be expecting going forward? Or is there anything else that kind of like was bigger in Q3 that kind of rolled off into Q4?

Actually in terms of sequentially, if you think about the Packaging business, yes, it's down 15% plus or minus. I tell you that there was pretty sizable activity that was being replaced in Q4 on a year-on-year basis, but there isn't traditionally a significant portion of seasonality here, although this is one of our businesses that is a leading indicator in terms of economic activity. So I wouldn't read too much into it, quite honestly.

Okay. So not too much from a seasonal standpoint but maybe a little bit of economic weakness, kind of little air pocket in the quarter?

Correct.

Okay, and then I guess in addition, could you maybe just go over how the Aerospace outlook looks right now? When do you expect maybe some big programs to start to hit. And kind of what the distribution model looks like in there or the distribution channel looks like for you?

Everybody watches the Boeing Dreamliner and you can figure this out reading enough industry reports. But actually the producers of structures that go into the aircraft are running at their capacity, which means finally orders have turned back on for us. In the past, I've had to say we shipped nearly two years ago all we were going to ship for a while. But now actually order have turned back on, so that's a positive.

The build rates are strong on commercial aircraft. Military aircraft is okay. Business jets are picking up a little and folks in that business, that is one that we do have a backlog in and we've actually had -- in my last operating review, we talked about that we are -- actually have backlog they could schedule against rather than scrambling more for what are they going to build next month for the thing.

So all that is a positive. I am not -- we are not being super optimistic in that space yet, though. It's -- there's a lot of stumbles going on in that. That's why we have put some resources into Asia to capture business there and we will do some more in other parts of the world, too.

That maybe doesn't sound upbeat. I don't want to get too upbeat about the business, but the indicators are good.

Okay. And then any risk to the military aircraft revenue run rate that you have with potential (multiple speakers) down the road?

Yes, there is. Luckily it's not much for us. I am not a military expert, but of course we -- drones are made out of composite materials. That tends to be good for us. Who knows where they are going to go with all this stuff? But I'd say the punch line is it's not a big enough segment for us to matter a whole lot.

Okay, this is a little bit of a long shot, but just given ITT's recent decision to split up the company, what are your thoughts on the current portfolio of businesses that you have and maybe do another acquisitions and kind of tangential businesses?

I think we will keep fine-tuning around the edges -- small, could be small divestiture kind of things, but that's part of our job is to keep thinking about it. I am -- I would like to do another -- a bolt-on acquisition or two in 2011, but it's got to be -- the price has got to be right. It's got to be strategically correct. You know how that goes. And so we keep looking.

All right. Thank you very much and good luck next year.

Scott Graham, Jefferies.

Good morning. I have a couple of housekeeping questions before I ask one or two other ones. Is it -- the segment reclassifications between Energy and Engineered, can we use those for the prior three quarters or are you going to be putting out an 8-K on this? How should we look at the first three quarters of 2010 in those two businesses?

Obviously in our K, you've got the comparable annual numbers that will get you to quarterly breakout. We hadn't contemplated putting out a revision to the quarterly at this point.

Okay, well, I guess the question would be -- that's okay, but can we take what we saw as the reclass in the fourth quarter and kind of straight-line that or reasonably straight-line that for the other three quarters? Is that reasonable?

Directionally, that's probably not a bad assumption, Scott.

Okay, the other question I had on the housekeeping side was the FX. To the extent that it affects whichever segments, could you give us some of the FX numbers?

Well, in terms of total for the year, it wasn't really material in terms of total sales or profitability FX. So we do mention it in our quarterly statements when it is indeed material. Q3 we did talk about that in terms of the pieces. But in terms of the FX effect for 2010 in total, Q4 basically about $0.5 million worth of FX total year less than 10% and -- $10 million and that was largely Australia, offset by some of the packaging activities.

All right, good enough. Last on the housekeeping items, so I'm looking at the operating margin ex charges and I'm seeing it essentially flat with the year ago quarter. Recognizing that there were some mix issues in the Packaging business, some acquisition issues, acquisition expenses, Mark, if we were to kind of normalize Packaging mix -- and I don't know if that's a fair way to look at it -- but I think like you, I expect the higher-margin business to grow maybe a little bit faster. But nevertheless, what does the operating margin look like maybe ex those items? Especially the acquisition costs?

You know, if you were to do it all in, you'd probably see circa 75 bps in terms of benefit all in for acquisition costs as well as the activities associated with mix.

Right, right, okay. And that's -- is that mix what you are referring to is across the segments or is that just a Packaging?

Across the segments.

Okay, very good. So you guys have done a tremendous job in having -- in pushing your operating margin not just above pre-recession levels but doing it so quickly. So my question is kind of what's next here? Are we still -- I know, Mark, you and I have discussed at length productivity opportunities. But maybe if you could tell us which businesses you are expecting the margin improvements to come from maybe more materially than others, is it still the Engineered and Cequent businesses?

Engineered is now -- has pretty good margin right now. Just wondering across the board where would we see some of the biggest benefits to your productivity?

If you were to put that in context, the Cequent business has probably the largest material spend and therefore has the largest material productivity opportunity yet ahead of it. So I would expect to see continued margin improvements there.

You have to go back to the concept whereby we talk about productivity by every business and the fact of the matter is, Dave expects 3% to 5% on a gross basis for every business every year. I would expect to see expansion further in the Cequent set of businesses and I would expect to see expansion in Energy.

Cequent, okay, got it. Actually that was really all I had. There were some questions asked about M&A that I obviously like I think everyone else was hoping that you would be more specific on. But when you say maybe I will just try it this way, Dave, when you say looking around the edges, is that essentially precluding adding a new standalone type of business all together?

I wouldn't preclude that at all. And two years ago I would have precluded it, but --. Now from a timing standpoint, I say that because we are getting -- I'm getting more comfortable with our business processes and how we can run, but financially we are a ways off till I would want to stretch that far. So think of it as that's out there in the future. I use the term bolt-ons this year.

I've got you, okay. Actually I just thought of one last question, I promise. Packaging, did I ask that question along is the specialty packaging business, is that higher or -- remind me -- is that higher or lower margin business than the legacy packaging business?

They tend to run pretty close on margins.

Okay, very good. Thank you. That's all I had.

(Operator Instructions). A follow-up from Walt Liptak, Barrington.

Just as a follow-up, I wanted -- I think you mentioned something about Arrow and the growth rate there. Is this more of a backlog business? What does the growth outlook specifically for the Arrow business?

It's not -- there's no backlog to speak of in the business. But what's good for that business is the product, the changes going on and the amount of equipment used at the well site, both in oil and gas. Shale fields use a whole lot of equipment. They use compressors to do injection. They have to use compression to step up the pressure to get it to the lines. And so all those new technologies have proven to be good for us.

Of course you know our strategy is real simple at Arrow on products. You walk around the field, look at anything else we ought to be making. There's a lot of fabricated equipment. We have facilities full of certified welders and all that, and so we just keep adding products.

If you went to Tulsa and walked through those facilities, you'd see more and more each time. So it's a product gain.

Okay, and what about just end market demand and investment going into the shale fields?

Well, of course you can watch rig count, which is up from the real lows of the last couple of years. More and more shale fields keep showing up. None of us know what's really going to happen with oil and natural gas and all that, but so far so good. The demand rate is good.

I don't have a specific, but the business is -- if you visited the folks in Tulsa, they would show you a lot of action going on and they are pretty fired up.

Okay, great. Thanks.

I am showing no further questions at this time.

Well, good. Thank you everybody. We sure appreciate your support. You know, we work hard at TriMas like everybody does. But in particular we are feeling like we have come through some pretty difficult restructuring actions and cost-out actions that we are able to turn a little more towards the future and growing the topline some. So business and never gets easy, but we are probably enjoying what we are doing more now.

And here's to a great 2011. We are looking forward to it. Thanks, all.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the conference and you may now disconnect. Everyone, have a wonderful day.