UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
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x☒ | | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the fiscal year ended | December 31, 20182021 |
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o☐ | | TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the transition period from to |
Commission file number 001-10716
TRIMAS CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
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Delaware | | 38-2687639 |
| (State or Other Jurisdiction of Incorporation or
Organization)
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(IRS Employer Identification No.) |
38505 Woodward Avenue, Suite 200
Bloomfield Hills, Michigan 48304
(Address of Principal Executive Offices, Including Zip Code)
(248) 631-5450
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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| Title of Each Class: | Trading symbol(s) | Name of Each Exchange on Which Registered: |
| Common stock, $0.01 par value | TRS | The NASDAQ Stock Market LLC |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x☒ No o☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 andor Section 15(d) of the Act. Yes o☐ No x☒
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x☒ No o☐
Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x☒ No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o☐
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of "accelerated"large accelerated filer," "large accelerated"accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
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| Large accelerated filer | ☒ | | Accelerated filer | ☐ | | Non-accelerated filer | ☐ | | Smaller reporting company | ☐ |
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Large accelerated filer x
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o☐ No x☒
The aggregate market value of the voting common equity held by non-affiliates of the Registrant as of June 29, 201830, 2021 was approximately $1.3 billion, based upon the closing sales price of the Registrant's common stock, $0.01$0.01 par value, reported for such date on the NASDAQ Global Select Market. For purposes of this calculation only, directors, executive officers and the principal controlling shareholder or entities controlled by such controlling shareholder are deemed to be affiliates of the Registrant.
As of February 22, 2019,2022, the number of outstanding shares of the Registrant's common stock, $0.01 par value, was 45,530,61542,835,700 shares.
Portions of the Registrant's Proxy Statement for the 20192022 Annual Meeting of Stockholders are incorporated herein by reference in Part III of this Annual Report on Form 10-K to the extent stated herein.
Forward-Looking Statements
This report may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 about our financial condition, results of operations and business. These forward-looking statements can be identified by the use of forward-looking words, such as “may,” “could,” “should,” “estimate,” “project,” “forecast,” “intend,” “expect,” “anticipate,” “believe,” “target,” “plan” or other comparable words, or by discussions of strategy that may involve risks and uncertainties.
These forward-looking statements are subject to numerous assumptions, risks and uncertainties which could materially affect our business, financial condition or future results including, but not limited to: the severity and duration of the ongoing coronavirus (“COVID-19”) pandemic on our operations, customers and suppliers, as well as related actions taken by governmental authorities and other third parties in response, each of which is uncertain, rapidly changing and difficult to predict; general economic and currency conditions; inflationary pressures on our supply chain, including raw material and energy costs;costs, and customers; interest rate volatility; risks and uncertainties associated with intangible assets, including goodwill or other intangible asset impairment charges; competitive factors; future trends; our ability to realize our business strategies; our ability to identify attractive acquisition candidates, successfully integrate acquired operations or realize the intended benefits of such acquisitions; information technology and other cyber-related risks; the performance of our subcontractors and suppliers; supply constraints;constraints, including the availability and cost of raw materials; market demand; intellectual property factors; litigation; government and regulatory actions, including, without limitation, climate change legislation and other environmental regulations, as well as the impact of tariffs, quotas and surcharges; our leverage; liabilities imposed by our debt instruments; labor disputes;disputes and shortages; changes to fiscal and tax policies; contingent liabilities relating to acquisition activities; the disruption of operations from catastrophic or extraordinary events, including natural disasters;disasters and public health crises; the potential impactamount and timing of Brexit; tax considerations relatingfuture dividends and/or share repurchases, which remain subject to the Cequent spin-off;Board approval and depend on market and other conditions; our future prospects; and other risks that are discussed in Part I, Item 1A, "Risk Factors." The risks described in this report are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deemed to be immaterial also may materially adversely affect our business, financial position and results of operations or cash flows.
The cautionary statements set forth above should be considered in connection with any subsequent written or oral forward-looking statements that we or persons acting on our behalf may issue. We caution readers not to place undue reliance on the statements, which speak only as of the date of this report. We do not undertake any obligation to review or confirm analysts' expectations or estimates or to release publicly any revisions to any forward-looking statement to reflect events or circumstances after the date of this report or to reflect the occurrence of unanticipated events, except as required by law.
We disclose important factors that could cause our actual results to differ materially from our expectations implied by our forward-looking statements under Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," and elsewhere in this report. These cautionary statements qualify all forward-looking statements attributed to us or persons acting on our behalf. When we indicate that an event, condition or circumstance could or would have an adverse effect on us, we mean to include effects upon our business, financial and other conditions, results of operations, prospects and ability to service our debt.
Trademarks and Service Marks
We own or have rights to trademarks, service marks or trade names that we use in connection with the operation of our business. Solely for convenience, some of the copyrights, trademarks, service marks and trade names referred to in this Annual Report on Form 10-K are listed without the ©, ® and ™ symbols, but we will assert, to the fullest extent under applicable law, our rights to our copyrights, trademarks, service marks, trade names and domain names. The trademarks, service marks and trade names of other companies appearing in this Annual Report on Form 10-K are, to our knowledge, the property of their respective owners.
PART I
Item 1. Business
Overview
We areTriMas designs, develops and manufactures a diversified global manufacturer and providerdiverse set of products primarily for customers in the consumer products, aerospace and industrial petrochemical, refinery,markets through its TriMas Packaging, TriMas Aerospace and oil and gas end markets. Our wide range of innovative product solutions are engineered and designed to solve application-specific challenges that our customers face.Specialty Products groups. We believe our businesses share important and distinguishing characteristics, including: well-recognized and leading brand names in the focused markets we serve; innovative product technologies and features; customer approved processes and qualified products; established distribution networks; relatively low ongoing capital investment requirements; strong cash flow conversion and long-term growth opportunities. We manufactureHeadquartered in Bloomfield Hills, Michigan, TriMas has approximately 3,500 employees who serve our customers from 38 manufacturing and supply products globally to a wide range of companies, with approximately 80%support locations in twelve countries.
During 2021, our net sales were $857.1 million, operating profit was $95.1 million, and net cash provided by operating activities was $134.2 million. Approximately 70% of our 2018 revenue2021 net sales were generated from sales into North America. In addition, we generated more than 50% of our 2018 revenue from sales to less cyclical consumer product and aerospace markets.
During 2018, our net sales were $877.1 million, operating profit was $122.1 million, and net cash provided by operating activities was $129.3 million.
Our Competitive Strengths
TriMas operates businessesreports its operating activities in three reportable segments: Packaging, Aerospace and Specialty Products. Our management team believes TriMas is uniquely positioned because of a number of competitive strengths, including:
•Well-Recognized and Established Brands. Our main brands include RiekeRieke®, Affaba & Ferrari™, Taplast™, Rapak® and Omega Plastics (reported in Packaging); TriMas Aerospace™, Monogram Aerospace Fasteners™, Allfast Fastening Systems®, Mac Fasteners™, RSA Engineered Products, Martinic Engineering™ and Martinic Engineering™TFI Aerospace (reported in Aerospace); and Lamons,®Norris Cylinder,™Cylinder™ and Arrow® Engine Company (reported in Specialty Products). We believe TriMas is uniquely positioned because of a number of competitive strengths, including:
Well-Recognized and Established Brands. We believe each of our go-to-market brands are well-recognized and firmly established in the focused markets we serve. We believe our brands represent high standards and a commitment to quality and service that our customers rely on, and in many cases certify or audit, when they make their sourcing decisions. In most applications, the products we sell under our brand names meet rigorous industry standards or customer qualifications, providing an advantage over a broad base of competitors. Moreover, we enhance our brand offerings with ongoing investments in new products to help us capture additional customer share and identify new customer or market opportunities.
•Innovative and Proprietary Manufacturing and Product Technologies. We believe each of our businesses is well-positioned through years of refined manufacturing know-how, innovative product development, and application engineering and solutions design. We believe our manufacturing competenciesfootprint and installed capital baseoperational competencies would be difficult and costly to replicate, providing us an advantage over prospective competitors.advantage. We continue to place a priority on investing in innovation to protect and enhance our product designs, brand names, and manufacturing methods. TriMas continues to place a priority on driving growth through both productprocesses and process innovation within each of its businesses.
competencies.•Customer-Focused Solutions Drive Deep and Long-Term Customer Relationships. We work collaboratively with our customers to design new product applications that help satisfy rapidly changing preferences in today’s consumer productthe marketplace. As a recognized leader in many of our markets, customers partner with us during both the design, product development and production life cycle. These ongoing relationships, often developed over decades, coupled with our expertise in innovation and application engineering, position us to win new and replacement business with our customers when they launch new products or programs. Customers look to TriMas’ businesses for these
•Experienced Management Team. Given the range of product innovations because of our long-standing, trusted relationships, which have provided the enablingand process technologies for their existing products, and our commitment to collaborate on designs for their future products.
Well-Established, Extensive Distribution Channels. Eachwithin each of our businesses, provides products through established distribution channels that cater to the specific needsTriMas' success is a function of our customers’ purchasing preferences. We developed manyexperienced management team. In each of these channels over decades,our businesses, including businesses we have acquired, we have members of our leadership team that have served the vast majority of their careers, and believe they are a competitive differentiator for us acrosshave extensive and often times unique experience, in the marketsindustries we serve. In many cases, we provide products directlyoperate. The TriMas management team is focused and committed to our end marketscontinuously improving Company performance and growing shareholder value. Management compensation is tied to financial results through our locations, while in other cases, we supply to distribution companies that provide our customers with flexible purchasing solutions.
short-term incentive plans, long-term equity incentive programs and Company-established stock ownership guidelines.
Our Strategy
Guided by our experienced management team, we are focused on the following components that comprise our core strategy:
•Leverage the TriMas Business Model.We implemented theThe TriMas Business Model ("TBM") in late 2016serves as the platform to improvemanage our diverse set of businesses under a common set of standards focused on driving long-term exceptional performance. Through the management and performance of our businesses. The TBM, provides a platform towe set near- and long-term performance objectives and goals, including safety, financial, and talent development, measure these against defined objectives, and utilize a reliable communication and escalation process that provides for flexibility and adjustments if market expectations change. We believe the TBM connects our operations, and allows us to benefit from sharing best practices across each of our businesses. We believe that the TBM, through a culture of Kaizen and continuous improvement, helps drive long-term improvement in our performance. For example, since August 2016, we have rationalized 13 manufacturing, warehousing and office locations, streamlined fixed expenses and selling, general and administrative expenses in certain of our businesses, increased our focus on optimizing inventory levels and improved certain of our manufacturing processes. We believe actions driven by the TBM have provided an economic benefit to us and have augmented our cash conversion characteristics and performance overall. Specifically, we reduced our debt from $374.7 million at December 31, 2016 to $293.6 million at December 31, 2018, and we ended 2018 with $108.2 million of cash and cash equivalents on the balance sheet. We will continue to rely on the TBM to drive continuous improvement and to unlock TriMas’ value potential.
Our Strategy
Guided by our experienced management team and our commitment to operational excellence, we are focused on the following components that form our core strategy:
Leverage The TriMas Business Model to Drive Performance.A key tenet of the TBM is our commitment to operational excellence and continuous improvement. We adoptedleverage the use of Kaizen methodology, within our operations, which is predicated on engaging our employees to identify cost effective ways to improve all aspects of our businesses.businesses, throughout our manufacturing operations and support services. We believe our operating performance will continue to benefit from the use of Kaizen as a means to drive our decision-making and investment processes. In addition to continuous improvement and goal setting, the TBM is also focused on environmental, health and safety, annual goal settingtalent development, and measurement, flawless launches,new product and talent development.
process launches.Enhance Long-term•Accelerate Growth through Innovation. Each ofWe continue to invest in organic growth in our businesses sells products under well-recognized brand names inmost compelling market segments with the focused markets they serve.highest long-term return potential. We intend to leverage our brands, expand our product offerings to current and new customers, and introduce innovative products to meet our customers' needs and help solve their challenges. We believe thisoperate under a disciplined approach will allow us to defend and expand our product offerings, and grow our business over the longer term. In addition to product innovation, we also value process innovation and believe we can solidify our customer relationships asusing new innovative new processes and manufacturing "know-how" allow us to improve our quality, speed to marketdevelop and commercialize, sustainability and overall competitiveness, increasing customer satisfaction, as well as our performance.
Operate•Augment Growth with Strategic Acquisitions. We believe TriMas, through its relatively low debt profile and its strong free cash flow, is uniquely positioned to enhance organic growth with strategic acquisitions. Our acquisition priority is to build out the Packaging platform, continuing our initiative to increase TriMas’ weight in a Culture Committedpackaging-related end markets, which comprise more than 60% of consolidated net sales in 2021, as well as explore opportunities to further expand our Aerospace platform. We typically seek to acquire adjacent product lines that expand our existing product offerings, gain access to new customers and end markets, expand our geographic footprint and/or capitalize on scale and cost efficiencies.
•Drive Enhanced Cash Conversion.We useleverage the TBM to drive management’s decision-making processes to achieve our annual growth and profitability targets, as well as drive our businesses towardstoward achieving market-leading returns and cash flow conversion. We believe our commitment to havingestablishing well-defined strategies, in place, setting and executing against annual goals and long-range targets, operating in a data-driven, fact-based environment, and awarding our team on annual cash flow achievementgeneration will allow us to invest in and growexpand our businesses.
Utilize a Disciplined Approach to Capital Allocation. We believe we have the ability to generate substantial free cash flow and create shareholder value. We plan to use this cash for reinvestment in our businesses, consistent with our capital allocation priorities. We will continue to execute our disciplined approach to capital allocationstrategic acquisitions and other investments. We will invest in organic growth in our most compelling market segments with the highest return potential, and manage indebtedness consistent with our long-term net leverage target. We will also consider strategic bolt-on acquisitions, as well as other capital allocation actions, consistent with our long-term, financial goals, such as repurchasing sharesshare buybacks and dividends, which we initiated in 2021.
•Engage our People.We believe our talented and dedicated global team is the foundation of our outstanding common stock.success. We strive to be a great employer through our demonstrated commitment to employee safety, diversity, equity and inclusion, talent development and workplace culture. We embrace the tools of Kaizen and foster a culture of employee engagement to drive performance improvements, operational excellence and a sustainable future.
•Focus on Sustainability in Everything We Do. We view sustainability and Environmental, Social and Governance ("ESG") practices as important components of our culture and rooted in our core values representing who we are as a company. We proactively seek new ways to make progress in each of the four key areas of our sustainability strategy: Governance & Ethics, People, Environment and Products. We believe that sustainability is broader than caring for the environment, and encompasses care for our employees, as well as the communities where we live and work. It means continuously enhancing our products and our processes to make the world a better place. We strive to incorporate the concept of sustainability into our decision-making model, and continue to increase the importance of sustainability in everything we do.
Our Reportable SegmentsBusinesses
We report the results of our operations in three segments, which had net sales and operating profit for the year ended December 31, 20182021 as follows: Packaging (net sales: $368.2$533.3 million; operating profit: $84.6$96.5 million), Aerospace (net sales: $185.9$183.3 million; operating profit: $27.3$13.3 million) and Specialty Products (net sales: $323.0$140.5 million; operating profit: $34.3$22.6 million). For information pertaining to the net sales and operating profit attributed to our reportable segments, refer to Note 18,22, "Segment Information," included in Item 8, "Financial Statements and Supplementary Data," within this Form 10-K.
Effective with the first quarter of 2019, we will report the machined components operations, located in Stanton, California and Tolleson, Arizona, in the Specialty Products segment. Prior to this change, it has been reported in the Aerospace segment. This modification allows us to better leverage our machining competencies and resources across the businesses within the Specialty Products segment, as well as provides us with the opportunity to expand sales of these products to customers outside of the aerospace market. In addition, this change enables our TriMas Aerospace team to better focus on driving growth and innovation in our aerospace fastener and related product lines.
In addition, effective with the first quarter of 2018, we realigned our reportable segment structure from four segments to three. While there were no changes to the Packaging and Aerospace segments, we combined the former Energy and Engineered Components segments into a single segment, titled Specialty Products. This change was made in connection with our business realignment efforts, to provide a more streamlined operating structure and to better leverage resources across the Norris Cylinder, Lamons and Arrow Engine businesses.
Each of our reportable segments is described in more detail on the following pages.
Packaging (42%(62% of 20182021 net sales)
OurTriMas' Packaging segment is comprised primarilyconsists of TriMas Packaging, which includes the Rieke, business, who weAffaba & Ferrari, Taplast, Rapak and Omega Plastics brands. We believe TriMas Packaging is a leading designer, developer and manufacturer of specialty, highly-engineered polymeric and steel closure and dispensing systems for a range of end markets, including steel and plastic industrial and consumer packaging and industrial markets. Rieke manufacturesWe manufacture high-performance, value-added products that are designed to enhance itsour customers’ ability to store, transport, process and dispense various products.
TriMas Packaging designs and manufactures dispensing products (including foaming pumps, lotion and hand soap pumps, sanitizer pumps, beverage dispensers, perfume sprayers, nasal sprayers and trigger sprayers), polymeric and steel caps and closures (including food lids, flip-top closures, child resistance caps, drum and pail closures and flexible spouts), polymeric jar products, and fully integrated dispensers for the health,fill-ready, flexible bag-in-box applications, for a variety of consumer product markets including, but not limited to, beauty and personal care, home care, food and beverage, and industrial markets. These enhancements help to enable our customers to distinguish their products and related applications from that of their competition.
Rieke designs and manufacturers specialty dispensing systems that include products such as foamers, lotion pumps, fine mist sprayers, airless dispensers and other packaging solutions for the cosmetic, personal care,medical, pharmaceutical and household product markets. Rieke also provides specialty dispensers that serve the food and beverage andnutraceutical, as well as industrial markets.
The specialty closure portionIn December 2021, we acquired Omega Plastics, a manufacturer of Rieke's business includescustom injection molded components and devices for drug delivery, diagnostic and orthopedic medical applications, as well as various injection molded products made from steel or polymeric materials for industrial products. Omega Plastics adds rapid prototyping and advanced in-house tool making capabilities to enhance our speed-to-market advantage for innovative new product designs, as well as an ISO13485-certified injection molding facility and an ISO Class 8 clean room.
In April 2020, we acquired the Rapak brand of flexible bag-in-box product lines and assets used in dairy, soda, smoothie and wine applications. In December 2020, we acquired Affaba & Ferrari Srl, a varietyhighly-automated manufacturer of end markets. Rieke's specialty closure products include steel drum enclosures, plastic drum closures, plastic pail dispensers and plugs, and plastic enclosures for sub-20 liter-sized containers, commonly sold into the industrial end markets. Rieke's closure products also include specialty plasticaseptic closures for bottlesenergetic, juice and jars for the fooddairy drinks, as well as industrial closures and beverage markets.flex spouts, in December.
RiekeTriMas Packaging has the capability of manufacturing the majority of itsour products in North America, Europe or Asia, which allows Riekeus to evaluate manufacturing location decisions based on customer needs, timing, cost and capacity.
Competitive Strengths
We believe RiekeTriMas Packaging benefits from the following competitive strengths:strengths in coordination with operating under TriMas' overarching strategy:
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• | •Strong Product Innovation. Through a multi-layered approach to product and process innovation starting with subject matter experts, our TriMas Packaging team is focused on driving innovation across a broad range of solutions for our customers. Our New Product Development teams are also supported by our Engineering Resource Center ("ERC"), located in India, to enhance our technical innovation and development. TriMas Packaging has a consistent pipeline of new products ready for launch and continues to innovate to make products more sustainable and environmentally friendly. For example, TriMas Packaging's product development programs have provided innovative and proprietary product solutions, such as the patented single-polymer MonoTM-2e pump, which features six parts, all made from one material, making it 100% recyclable. We are also developing additional dispensing products made from a single-material without compromising quality, aesthetics, performance or formula compatibility, under the SingoloTMbrand. In addition, TriMas Packaging partnered with Amazon to develop a range of products designed to meet the requirements of the high-growth e-commerce retail channel, including a proprietary dispenser locking mechanism to protect the integrity of packages and prevent liquids from leaking during shipment, meeting consumers' demands and ISTA 6 standards as required by Amazon. TriMas Packaging's emphasis on highly-engineered solutions and product development has yielded numerous issued and enforceable patents, with many other patent applications pending. For example, 44 patents were filed and 64 patents were issued in 2021, related to both new and existing patent families. Strong Product Innovation. We believe that Rieke’s product development capability is a competitive advantage. Through its Global Innovation Centers located in the United States, United Kingdom and India, Rieke is focused on driving innovation across a broad range of dispensing and closure solutions for its customers. Rieke’s product development programs have provided innovative and proprietary product solutions, such as the Visegrip® steel flange and plug closure, and the all-plastic, environmentally safe, self-venting FlexSpout® flexible pouring spout. Rieke, partnering with Amazon, also developed a range of products designed to meet the requirements of the high-growth e-commerce retail channel, including a proprietary dispenser locking mechanism to protect the integrity of packages and prevent liquids from leaking during shipment. As a result of this innovation, Rieke was honored as a Diamond Finalist for Packaging Innovation by Dow Chemical in 2018 for the development of a new lotion dispensing pump for e-commerce solutions. Other developments include a measured-dose dispenser that provides exact doses of highly-concentrated liquids for the health and beauty market. Rieke’s emphasis on highly-engineered solutions and product development has yielded numerous issued and enforceable patents, with many other patent applications pending.
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•Customized Solutions that Enhance Customer Loyalty and Relationships. A significant portion of Rieke’sour products arehave customized designs that are developed and engineered to address specific customercustomer-specific technical, marketing and sustainability needs, helping to distinguish our customers’ products from thatthose of their competitors. For example, the customization of specialty plastic caps, closures and closuresdispensers including branding, unique colors, collar sizes, lining and venting results in substantial customer loyalty. The substantial investment in flexible manufacturing cells allows Riekeus to offer both short lead-times for high volume products and extensive customization for low order volumes,more moderate volume orders, which provides significant advantages to our consumer packaged goods customer base. In addition, Rieke provideswe provide customized dispensing solutions including unique pump designs, precision metering, unique colors and special collar sizes to fit the customer’s bottles. Rieke hascontainers. TriMas Packaging collaborates with customers to develop innovative products that are more eco-friendly and easier to recycle. We have also been successful in promoting the sale of complementary products in an effort to achieve preferred supplier status with several customers.
Leading Market Positions and •Global Presence. RiekeManufacturing Footprint. TriMas Packaging maintains a global network of sales, manufacturing and distribution sites, to serve our increasingly global customer base. Rieke’s globalOur customers, including larger consumer products customers, often desire supply chain capability and a flexible manufacturing footprint close to their end markets which resultresults in shortermore efficient supply chains, reduced carbon footprint and better sustainability. In light of recent market forces that impact logistics, we are expanding our North American manufacturing presence by launching a new, highly automated facility in New Albany, Ohio, which will be operational in 2022. This new facility will enable TriMas Packaging to shift production of a variety of products currently produced outside of the United States and provide significant incremental capacity for new business growth closer to our customers in North America as needed. To serve our customers in Asia, we have design and manufacturing capacity and offer highly engineered dispensing solutions through locations in China, India and Vietnam, and have increased our Asian market sales coverage. Additionally, RiekeTriMas Packaging opened a facility in San Miguel de Allende, Mexico, during 2017, to replace an older facility in Mexico City, and provide additionalincremental manufacturing capacity to support growth. Thisour growth in North America. We have also increased our sales coverage in Europe and Asia. Our acquisitions of Affaba & Ferrari in 2020, and Plastic Srl and Taplast in 2019, provide us with additional sales, design and manufacturing capacity in Europe, with additional manufacturing facilities in Italy and Slovakia. In addition, we are starting to expand into South America, opening our first warehouse in Brazil for planned commercial activity beginning in 2022. We believe TriMas Packaging's flexible manufacturing footprint provides Riekeus with multiple alternatives for production to best meet customer requirements and helps mitigate the impacts of potential trade disruption. The majority of Rieke’sTriMas Packaging's manufacturing facilities around the world have advanced injection molding machines required to manufacture precision engineered dispensing and closure components, as well as automated, high-speed assembly equipment for multi-component products.
We believe Rieke has significant opportunities to grow, including the following strategies:
Innovate New Products and New Applications. Rieke has focused product development capabilities on consumer applications requiring special packaging forms, stylized containers and dispensing systems requiring a high degree of functionality and engineering, as well as evolving its industrial applications to include child resistant closures and other applications. Rieke has a consistent pipeline of new products ready for launch. For example, 52 patents were filed and 25 patents were issued in 2018. Being a leader in e-commerce packaging allows Rieke to collaborate with Amazon, resulting in innovative solutions, including the E-Commerce Trigger Sprayer, that meets consumers' demands and meets ISTA 6 standards as required by Amazon.
Increase Global Presence. Rieke successfully globalizes its products by customizing products to meet regional market requirements. Our global network of manufacturing and distribution sites ensures customers have a global product standard manufactured locally resulting in reduced order lead-times and product support where our customers require. We believe Rieke is able to offer a wider variety of products to our global customers with enhanced service support and has entered into supply agreements with many of these customers based on our broad product offering. Over the past few years, Rieke has increased its global manufacturing and sales presence, with advanced manufacturing capabilities in China, India, Vietnam and Mexico. We have also increased our sales coverage in Europe and Asia, and in January 2019, closed on the acquisition of Plastic Srl, a manufacturer of polymeric caps and closures for home care product applications, located in Forlì, Italy, which provides us with additional manufacturing capacity and sales presence in Europe. By maintaining a presence in international locations, Rieke focuses on developing new markets and new applications for its products, capitalizing on its global design and manufacturing capabilities.
Leverage The TriMas Business Model to Drive Performance. Rieke is committed to operational excellence and continuous improvement and has utilized the Kaizen methodology within its operations. For example, Rieke is continuously evaluating its floor plans and flow to maximize the efficiency and cost of the manufacturing and assembly processes. Rieke also works diligently to effectively use it materials and to eliminate as much scrap as possible in the manufacturing process. In addition to continuous improvement, Rieke is focused on quality and safety of its products and processes.
Marketing, Customers and Distribution
RiekeTriMas Packaging accesses its markets through direct sales to end-use customers, as well as through leading distributors, where it has enjoyed favorable, long-standing relationships. Rieke employs an internal sales forceWe employ commercial teams in North America, Europe and Asia. Rieke focuses its businessAsia, organized by product line and sales organization into the health, beauty and home care, food and beverage, and industrial end markets by region, to better provide the breadth of its product portfolio and solutions to its customers, and has recently establishedcombined with a Global Strategic AccountAccounts sales team. Rieketeam, led by a chief commercial officer. We also usesat times use third-party agents and distributors in key geographic markets, including Europe, South America and Asia. Rieke’sAsia, as well as agents and distributors primarily to sell to container manufacturers and to users or fillers of containers.
Rieke’sTriMas Packaging's end customers include, but are not limited to, agricultural chemical, consumer packaged goods, beauty and cosmetic, food, industrial chemical, paint, personal care, petroleum,medical, pharmaceutical, nutraceutical, food and beverage, industrial, agricultural, chemical, and cleaning and sanitary supply chemical companies,companies. We also provide products into applications used by warehouse clubs, retailerse-retailers and fast food retailers. RiekeWe may provide its products directly to the end customer, but the end customers may also specify that our products be provided to fillers or packagers. WeIn addition, we also supplyprovide products to major container manufacturers, around the world. Rieke maintainsand maintain a customer service center that provides technical support, as well as other technical assistance to customers.
RiekeTriMas Packaging has manufacturing and distributionsupport facilities in the United States, Mexico, the United Kingdom, Germany, Italy, (as a result of the January 2019 acquisition of Plastic Srl),Slovakia, China, India and Vietnam.
Competition
RiekeTriMas Packaging has a broad range of products in both closuresclosure, dispensing and dispensingflexible packaging systems, and therefore has various competitors in each of our product offerings. We do not believe that there is a single competitor that matches our entire product offering. Depending on the product and customers served, Rieke’sour competitors include Albea, Aptar, Bericap, Berry Global, Greif, Mold-Rite, Phoenix Closures, Silgan, Technocraft and TKPC.other smaller private companies located in Asia.
Aerospace (21%(22% of 20182021 net sales)
Our Aerospace segment is comprised of TriMas Aerospace, which includes the Monogram Aerospace Fasteners, Allfast Fastening Systems, Mac Fasteners, andRSA Engineered Products, Martinic Engineering and TFI Aerospace brands. We believe TriMas Aerospace is a leading designer and manufacturer of a diverse range of products, including, but not limited to, highly-engineered fasteners, collars, blind bolts, rivets, ducting and precision-machinedconnectors for air management systems, and other highly-engineered machined parts and components, for use in focused markets within the aerospace industry. In general, these products are customer-specific and are manufactured utilizing customer-qualified and proprietary processes. The products also satisfy rigorous customer approvals or meet unique aerospace industry standards, and as such, we believe there are a limited set of competitors.
We provide products tofor commercial, maintenance, repairbusiness jet, and operations ("MRO"),military and militarydefense aerospace applications and platforms with sales to original equipment manufacturers ("OEMs"), supply chain distributors, MRO/aftermarket providers and tier one suppliers. Our customer-specified and/or qualified products are used in production of significant long-term aircraft programs, including several Boeing and Airbus commercial jetliner programs. Based on Boeing and Airbus' future aircraft delivery projections, it is estimated that commercial production will remain at stable levels through the next several years.
We believe our brands are well established and recognized in their markets. TheEach of our brands are long-term, certified suppliers of aerospace OEMs or Tier 1 suppliers, and have been serving the aerospace industry for decades. Our TriMas Aerospace product offering is as follows:
go-to-market fastener brands include Monogram Aerospace Fasteners (“Monogram”), Allfast Fastening Systems (“Allfast”), Mac Fasteners and TFI Aerospace (“TFI”), and our engineered product brands include RSA Engineered Products ("RSA") and Martinic Engineering ("Martinic"). The
TriMas Aerospace's product offering includes a broad line of fastener products, including permanent threaded blind bolts, including high-strength, rotary-actuated blind bolts that allow sections of aircraft to be joined together when access is limited to only one side of the airframe, providing cost efficiencies over conventional two piece fastening devices. Monogram also provides collars and temporary fasteners used in aircraft construction and assembly.
Allfast Fastening Systems (“Allfast”). The product offering includes solid and blind rivets, blind bolts, temporary fasteners and installation tools for the aerospace industry.
Mac Fasteners. The product offering consists of high-volume, standard aerospace screws and bolts includingmanufactured to meet NAS, MS, AN and AS standards.
Martinic Engineering. The product offering includesstandards, collars, temporary fasteners and other specialty fasteners. TriMas Aerospace also manufactures and assembles complex, highly-engineered precision machined,and proprietary ducting, connectors and related products for air management systems, and other complex machine-to-print parts for aerospace applications, including auxiliary power units, as well as electrical, hydraulic and pneumatic systems. EffectiveIn December 2021, we acquired TFI, amanufacturer and supplier of specialty fasteners used in a variety of applications, predominantly for the first quarter of 2019, Martinic Engineering will be reported within the Specialty Products segment.
aerospace end market.Competitive Strengths
We believe TriMas Aerospace benefits from the following competitive strengths:strengths in coordination with operating under TriMas' overarching strategy:
•Broad Product Portfolio of Established Brands. We believe that TriMas Aerospace is a leading designer, developer and manufacturer of broad range of engineered fasteners and other complex, precision-machined components for the aerospace industry.industry, as well as other complex machined components such as those used in air ducting systems. The combination of the Monogram, Allfast, and Mac Fasteners and TFI brands enables TriMas Aerospace to offer a wide range of fastener products which address a broad scope of customer requirements, providing scale to customers who continue to rationalize their supply base. In several of the product categories, including rotary-actuated blind bolts and blind and solid rivets, TriMas Aerospace has a meaningful market share with well-known and established brands.
The combined product sets of the Monogram, Allfast, Mac Fasteners and TFI brands uniquely position us to benefit from platform-wide supply opportunities. In addition, RSA has extensive experience in providing air ducting, connectors and flexible joints used in hot engine bleed air, anti-icing and environmental control system applications. Martinic has a reputation, with more than 40 years of experience, of specializing in the high complexity machining of castings, forgings and bar stock for leading tier-one commercial and defense aerospace OEMs.
•Product Innovation. We believe that TriMas Aerospace’s engineering, research and development capability and new product focus are competitive advantages. For many years, TriMas Aerospace’s product development programs have provided innovative and proprietary product solutions. We believeThe close working relationship between our customer-focused approachsales and engineering teams and our customers’ engineering teams is key to provide cost-effective technical solutions will drive the development of newdeveloping future products desired and create new opportunities for growth.required by our customers. Our innovation team addsteams add value by working directly with our customers to address assembly and manufacturing process challenges to increase productivity, quality, speed and efficiency, while reducing overall installed cost.
TriMas Aerospace has developed new fastener products that offer a flush break upon installation and is developing and testing other fastener designs which offer improved clamping characteristics on composite structures, improved aerodynamics and enhanced installed aesthetics. One of our recent product innovations is the Composi-Lok4® fastener evolution, providing significant installed weight savings, helping to improve fuel efficiency. TriMas Aerospace has also designed the next generation temporary fastener with a significant increase in clamping force called Fastack® SC (Super Clamp). TriMas Aerospace has also expanded its fastener offerings to include other fastening product applications on current aircraft, including the expansion of its suite of collar families used in traditional two-sided assembly. We believe our customer-focused approach to provide cost-effective technical solutions will drive the development of new products and create new opportunities for growth.•Leading Manufacturing Capabilities and Processes. We believe that TriMas Aerospace is a leading manufacturer of precision engineeredprecision-engineered components for the aerospace industry. Given industry regulatory requirements, as well as customer requirements, it is required that these products needare required to be manufactured within tight tolerances and specifications, often out of hard-to-work-with and exotic materials including titanium, inconelInconel and specialty steels. TriMas Aerospace is also capable of advanced precision computer numerical controlled ("CNC") milling, high performance CNC turning and assembly, working in a variety of metals including super alloys, stainless steel, aircraft steel alloys, carbon steel alloys and aluminum alloys. Many of TriMas Aerospace’s products, facilities and manufacturing processes are required to be qualified and/or certified. Key certifications in TriMas Aerospace include: AS9100:2009 Revision D; ISO9001:2008; TSO; and NADCAP for non-destructive testing, heat treatment, wet processes and materials testing. While proprietary products and patents are important, having proprietary manufacturing processes and capabilities makes TriMas Aerospace’s products difficult to replicate. We believe TriMas Aerospace’s manufacturing processes, capabilities and quality focus create a competitive strength for the business.
Strategies
We believe TriMas Aerospace has significant opportunities to grow and improve, based on the following strategies:
Develop, Qualify and Commercialize Innovative Fastener Products. TriMas Aerospace has a history of successfully developing and introducing new products and there are currently several new product initiatives underway. We focus on expanding our current products into new applications on the aircraft, as well as securing qualified products onto new programs. TriMas Aerospace products contain patent protection, with additional patents pending, and are manufactured using proprietary manufacturing processes and “know-how.” TriMas Aerospace has developed new fastener products that offer a flush break upon installation and is developing and testing other fastener designs which offer improved clamping characteristics on composite structures. An example of such would include the newer Composi-Lite™ fastener, affording significant installed weight savings in concert with fuel efficient aircraft designs. TriMas Aerospace has also recently designed the next generation temporary fastener with an 800% increase in clamping force called Fastack® SC (Super Clamp). TriMas Aerospace has also expanded its fastener offerings to include other fastening product applications on current aircraft, including the expansion of its suite of collar families used in traditional two-sided assembly. The close working relationship between our sales and engineering teams and our customers’ engineering teams is key to developing future products desired and required by our customers.
Leverage the TriMas Business Model. TriMas Aerospace is focused on continuously improving its processes and manufacturing operations by using the tools of Kaizen and automation, as applicable. The aerospace industry has strict requirements for quality and delivery, making process innovation and continuous improvement vital to TriMas Aerospace's success. In addition, the combined product sets of the Monogram, AllfastWe believe TriMas Aerospace’s manufacturing processes, capabilities and Mac Fasteners brands uniquely position us to benefit from platform-wide supply opportunities. In addition, our aerospace platform should benefit from leveraging combined purchasing activities and other back-office functions, joint commercial and product development efforts, and sharing of best practices among previously separate businesses. TriMas Aerospace customers benefit fromquality focus create a combined product portfolio of proprietary products and product development efforts. As a result of these strong customer relationships and operational excellence in 2018, TriMas Aerospace has been recognized by our customers, including receipt of the Boeing Performance Excellence Awardcompetitive strength for the seventh year in a row and the 2018 Best Performer Award from Airbus.
business.Marketing, Customers and Distribution
TriMas Aerospace serves both OEM and aftermarket customers on a wide variety of platforms. Given the focused nature of many of our products, TriMas Aerospace relies upon a global sales forceand technical team that is knowledgeable of both OEM customers and the established network of independent distributors. Although the markets for fasteners and complex machine components are highly competitive, we provide products and services primarily for specialized markets,applications, and compete principally on technology, quality and service. TriMas Aerospace works directly with aircraft manufacturers to develop and test new products and improve existing products. TriMas Aerospace’s primary customers include OEMs, supply chain distributors, tier one suppliers and the United States government.
TriMas Aerospace's manufacturing facilities are located in the United States and Canada. In addition to TriMas Aerospace's facilities in California, we are also ramping up a new facility in Mesa, Arizona. Given the nature of the components TriMas Aerospace manufactures, it exportscan ship products efficiently to Europe, South America and Asia.
Competition
Depending on the product and customers served, our primary competitors include Ateliers de la Haute Garonne, Arconic, Inc., Cherry Aerospace (Precision- Precision Castparts Corp.), Howmet Aerospace, LISI Aerospace and LISI Aerospace.Senior Aerospace, as well as a variety of aerospace and general industrial machined component manufacturers. We believe that we are a leader in the blind bolt market with significant market share in all blind fastener product categories in which we compete.
Specialty Products (37%(16% of 20182021 net sales)
Our Specialty Products segment is comprised of our Norris Cylinder Lamons and Arrow Engine Company.Company businesses. We believe these businesses are well established and recognized in their respectivethe end markets and in general, their products are highly-engineered, customer-specific items that are sold into focused markets.they serve.
TriMas' Norris Cylinder. We believe Norris Cylinder business is a leading designer, manufacturer and distributor of highly-engineered steel cylinders for use in industrial, heating, ventilation and air conditioning ("HVAC"), construction, health care and defense end markets. We believe that Norris Cylinder is a leading provider of a complete line of large, intermediate and small size, high and low-pressure steel cylinders for the transportation, storage and dispensing of compressed gases. Norris Cylinder’s large high-pressure seamless gas cylinders are used principally for shipping, storing and dispensing oxygen, nitrogen, argon, helium and other compressed gases. In addition, Norris Cylinder offers a complete line of steel cylinders used to contain and dispense acetylene gas for the welding and cutting industries. Norris Cylinder's products meet the rigorous standards required by the Department of Transportation ("DOT") or International Standards Organization ("ISO"), which certifies a cylinder's adequacy to perform in specific applications. Norris Cylinder markets cylinders primarily to domestic and international industrial gas producers and distributors, welding equipment distributors and equipment manufacturers. Given this customer base, Norris Cylinder tends to grow in times of increased industrial and infrastructure investment.
Lamons. We believe LamonsArrow Engine is a leading designer, manufacturerprovider of natural gas powered wellhead engines, compressors and distributor of industrial sealing, fastenerreplacement parts, all engineered for use in oil and specialty products for the petrochemical, petroleum refining, oil field, water/waste water treatmentnatural gas production and other industrial and commercial markets. TheseAs Arrow's engines can operate from the natural gas produced at the wellhead, we believe Arrow is uniquely positioned to provide its products are used in recurring MRO activities, as well asfor remote pump jack installations. Arrow Engine distributes its products through a worldwide distribution network, primarily focused in the constructionUnited States and Canada. Arrow Engine manufactures its own engine line and also offers a wide variety of new facilities or capacity expansionsspare parts for various industrial OEMs. Our sealing and fastener solutions typically represent a low-cost element of an overall project spend, but many times are needed with quick-turn capabilities to minimize our customers' facility down-time, as well as operate in harsh conditions with severe consequences of failure. As a result, we believe customers often choose to work with Lamons, given its long-standing, reputable brand name known for quality products and expedited customer service.engines not manufactured by Arrow Engine.
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• | Arrow Engine. We believe that Arrow Engine is a leading provider of natural gas powered wellhead engines, compressors and replacement parts, all engineered for use in oil and natural gas production and other industrial and commercial markets. As Arrow's engines can operate from the natural gas produced at the wellhead, we believe Arrow is uniquely positioned to provide its products for remote pump jack installations. Arrow Engine distributes its products through a worldwide distribution network with a particularly strong presence in the United States and Canada. Arrow Engine manufactures its own engine line and also offers a wide variety of spare parts for various industrial engines not manufactured by Arrow Engine, including selected engines manufactured and sold under the Caterpillar®, Waukesha® and Ajax® brands. Arrow Engine has expanded its product line to include compressors and compressor packaging, as well as certain gas production equipment.
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Competitive Strengths
We believe Norris Cylinder, Lamons and Arrow Engine benefitour Specialty Products segment benefits from the following competitive strengths:strengths in coordination with operating under TriMas' overarching strategy:
•Leading Market Positions and Strong Brand Names. Norris Cylinder, withWith more than 70 years of experience, Norris Cylinder is one of the worlds' largest manufacturers of high- and low-pressure steel cylinders, and the only manufacturer in the United States. In 2021, Norris Cylinder became an official “Made in the USA” designated manufacturer, which we believe allows Norris to locally address customers' needs, while maintaining more control over lead times and quality. We believe that Norris has a reputation for high-quality cylinders used in a variety of applications, including industrial gas, welding and cutting, government, medical, laboratories, food and beverage technology, breathing air, fire protection and aviation. We also believe Lamons is one of the largest gasket and bolt suppliers to the U.S. energy market. We believe that Lamons is known as a quality brand and offers premium service to the industry. We also believe that our facilities have the latest proprietary technology and equipment to be able to produce urgent requirement gaskets and bolts locally to meet our customers’ demands. We believe that Arrow Engine also has also built a reputation for quality equipment, parts and accessories used in oil and natural gas production, and has a leading market position in the niche it serves.
•Comprehensive Product Offering. We believe that both Norris Cylinder and Arrow Engine offer a comprehensive product offering that meets their customers' needs. Norris Cylinder offers a complete line of large, intermediate and small size, high and low-pressure steel cylinders to its customers across a variety of end markets. Lamons offers a full suite of custom and standard metallic and nonmetallic gasket and bolt products to the petroleum refining, petrochemical, oil field and industrial markets. Over the years, Lamons expanded its product offering to include custom-manufactured, specialty bolts of various sizes, other CNC-machined components and isolation gasket kits. Arrow Engine also provides a comprehensive product offering, including engines, compressors, chemical pumps, generator sets, electronics and replacement parts to a variety of oilfield and industrial markets.
During 2021, utilizing the tools of Kaizen, Arrow Engine developed and launched a new reduced emission EPA-certified A54-E engine platform for stationary and off-road mobile applications.•Established and Extensive Distribution Channels. Lamons utilizes an established hub-and-spoke distribution system whereby our primary manufacturing facility supplies products to our own branches and a highly knowledgeable network of worldwide distributors and licensees, which are located in close proximity to our primary customers. Enabled by its branch network and close proximity to its customers, Lamons' ability to provide quick turn-around and customized solutions for its customers provides a competitive advantage. Norris Cylinder hasOur Specialty Products businesses have long-standing customer relationships and distributes directly to major gas companies, as well as distributing to domestic buying groups, OEMs, medium and small independent gas companies, and independent gas and welding distributors.
Strategies
Over the past several years, we realigned these Our long-standing supply positions in this well-established network has allowed our Specialty Products businesses to better align with demand levels, especiallysuccessfully navigate some of the most robust, as well as harshest, economic cycles.
•Difficult and Costly to Replicate Manufacturing Base. Our Norris Cylinder business has locations in our energy-facing businesses. We are now focused on continuous improvement opportunities that will positively impact these businesses. We believeLongview, Texas, and Huntsville, Alabama, which have numerous forging and metalworking pieces of equipment and processes. While there are additional opportunitiesother manufacturers of steel cylinders globally, the installation of manufacturing processes and adding new capacity tends to improve margins, while maintaining market leadership, including:be a lengthy process and a costly investment to implement. As such, in periods of rising demand, as we have experienced in 2021, Norris Cylinder's installed capacity and manufacturing presence in the United States provides an advantage when compared to non-U.S. suppliers dealing with logistic constraints.
Leverage The TriMas Business Model to Drive Performance. Over the past couple of years, we reduced our cost structure through ongoing manufacturing, overhead and administrative productivity initiatives, and global sourcing of certain components. At Lamons and Arrow Engine, we performed a comprehensive review of our physical footprint and have closed or consolidated locations to reduce and realign our fixed cost structure to current market demand levels. We have also reconfigured our facilities to increase efficiency and reduce our operating cost structure, allowing for incremental capacity. Norris Cylinder has deployed previously acquired assets to mitigate risk, improve efficiency and support its future expected growth, increasing its manufacturing flexibility for both large and small high pressure cylinders. We have also variablized Arrow Engine's cost structure to respond quickly to end market changes and enhance flexibility, driving low cost sourcing efforts, and focusing on additional productivity and Lean initiatives. We are also working to mitigate material cost increases and indirect impacts of tariffs through commercial negotiations, sourcing actions, leveraging existing footprint and cost savings initiatives. We believe that there are also additional opportunities to improve our operational efficiency through continued implementation of Lean-based manufacturing initiatives. Through the methods of Kanban and improved production planning, inventory management and order fulfillment processes, we believe Lamons can improve its margins, while reducing product lead-times and increasing customer fill-rates.10
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• | Expand Offering and Markets. Norris Cylinder has been pursuing new end markets such as cylinders for use as hydrogen fuel cells in storage (cell towers), transport (fork trucks), breathing air applications and in fire suppression. Norris Cylinder has also created new designs for seamless acetylene applications in marine and international markets. Over the past few years, we have also launched several new highly-engineered and specialty products and have broadened our specialty bolt offering at Lamons. Examples of new products include: WRI-LP gaskets, a hydrofluoric acid gasket solution; inhibitor gaskets designed to prevent corrosion in offshore platform flanges; IsoTekTM Gaskets, an engineered sealing solution for flanged pipe connections; hose products; and intelligent bolts, which provide more reliable load indication. Arrow Engine continues to expand its product portfolio to serve new customers and new applications for oil and natural gas production in all areas of the industry, including shale drilling. Arrow Engine has also launched an offering of customizable compressors and gas production equipment, which are used by existing end customers in the oil and natural gas extraction markets, as well as developed a natural gas compressor used for compressed natural gas filling stations. Although tempered by lower drilling levels over the past few years, Arrow Engine has also been focused on expanding its international sales, particularly in Mexico.
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Marketing, Customers and Distribution
The primary customers of our Specialty Products businessessegment predominantly operate in the industrial end markets, and to a lesser extent, the upstream oil and gas industrial and commercial end markets. Given the focused nature of many of our products, we rely upon a combination of a direct sales force and an established network of distributors with familiarity of the end-users. Lamons,Norris Cylinder, for example, relies upon a combination of a direct sales force and an established network of independent distributors and licensees. The close proximity of the sales and distribution network to the customer makes it possible for Lamons to respond to customer-specific engineered applications and provide a high degree of customer service. Norris Cylinder also sells directly to customers and through distributors. Our primary customers include industrial gas producers and distributors, welding equipment distributors, and equipment manufacturers, petrochemical companies and refineries.manufacturers.
The Norris Cylinder'sCylinder and Arrow Engine'sEngine manufacturing facilities are located are in the United States. Lamons' primary manufacturing facility and the majority of sales and service locations are located in the United States, with additional locations in Belgium, Canada, Singapore, Spain and Thailand.States.
Competition
Norris Cylinder competes against Worthington, Beijing Tianhai Industry Co., Faber and Vitkovice Cylinders, but is the only remaining steel cylinder manufacturer in the United States. In May 2012, the U.S. International Trade Commission made a unanimous final determination that Norris Cylinder had been materially injured by imports of DOT high-pressure steel cylinders that were being subsidized by the Government of China, as well as being dumped in the U.S. market by producers in China. As a result, trade duties were imposed on the subject imports for a five-year period to create a fairer competitive environment in the United States. The duty was extended and increased for an additional five-year period in 2017, and will be subject to renewal in 2022. We believe Lamons offers a broader gasket and bolt product portfolio than its competitors, as most tend to focus on either gaskets or bolts, but not both. Also, there is a wide range of end markets that consume gasket and bolt products, and Lamons primarily serves midstream and downstream petrochemical and refinery applications. As such, Lamons competes with a wide variety of companies depending on geography and product content, including ERIKS, Flexitallic Group, Garlock (EnPro), GHX, Klinger and Lone Star, but rarely is directly competing with another company across all products.2017. Arrow Engine tends to compete against natural gas powered, lower horsepower, multi-cylinder engines from manufacturers such as Caterpillar, Chevy, Cummins and Ford industrial engines and electric motors.
TriMas' Acquisition Strategy
TriMas'TriMas views the pursuit of strategic acquisitions as core to augmenting its growth and achieving its overarching corporate strategy. We believe TriMas is uniquely positioned to leverage its relatively low debt profile and its strong free cash flow profile to identify and complete bolt-on acquisitions annually as part of its capital allocation priorities include reinvestingphilosophy. TriMas’ acquisition priority is to build out our Packaging platform, continuing our initiative to increase TriMas’ weight in production capability and capacitypackaging-related end markets, which currently comprises nearly 65% of our businesses, executing treasury actions, suchconsolidated net sales, as share buybacks, and accelerating product and geographic expansion through mergers and acquisitions, all while maintaining a disciplined approach to net leverage. We believe that TriMas haswell as explore unique opportunities to grow through strategic acquisitions that enhance the strengths ofbuild out our core businesses.Aerospace platform. We typically seek "bolt-on" acquisitions, in which weto acquire another industry participant or adjacent product lines that expand our existing product offerings, gain access to new customers and end markets, and distribution channels, expand our geographic footprint and/or capitalize on scale and cost efficiencies. Our primary focus is on bolt-on acquisition candidates inSince the Packagingbeginning of 2019, TriMas has completed seven acquisitions and Aerospace segments, as we believe these segments offer the highest growth and performance profile. While we would also consider opportunistic bolt-on acquisitions in our other, or even a new segment, such transactions are of secondary focus.one divestiture.
Materials and Supply Arrangements
Our largest raw material purchases are for resins (such as polypropylene and polyethylene), steel, polyethylenealuminum and other resins, aluminum, titaniumoil and copper.metal-based purchased components. Raw materials and other supplies used in our operations are normally available from a variety of competing suppliers. In addition to raw materials, we purchase a variety of components and finished products from low-cost sources in China, India, Mexico, South Korea, Thailandlower-cost countries.
Polypropylene and Vietnam.
polyethylene are generally commodity resins with multiple suppliers capable of providing product globally. Steel is purchased primarily from steel mills and service centers with pricing contracts principally in the three-to-six month time frame.centers. Changing global dynamics for steel production and supply will continue to present a challenge to our business. Polyethylene is generally a commodity resin with multiple suppliers capable of providing product globally.
Historically, we have experienced volatility in costs and availability of our raw material purchases and have worked with our suppliers to manage costs and disruptions in supply. We also utilize pricing programs to pass increased steel, resin and other raw material costs to customers. Although we may experience delays in our ability to implement price increases, we have been generally able to recover such increased costs.
Employees and Labor RelationsHuman Capital Resources
As of December 31, 2018,2021, we employed approximately 4,0003,500 people, of which approximately 44%52% were located outside the United States and 16% were unionized.States. We currently have one facility, located in Commerce, California where our hourly employees operate under a collective bargaining agreements coveringagreement, and which represents approximately 14% of our U.S. employees. We have four facilities worldwide, twooutside of which are in the United States. The two facilities outside the United States with collective bargaining agreementswhere our employees are associatedaffiliated with state-controlled unions.or trade unions, which covers approximately 47% of our non-U.S. employees.
We believe employee relations throughout our organization are good and we are not aware of any present active union organizing activities at any of our facilities. We cannot predict the impact of any further unionization of our workplace. Our labor agreement with the United Automobile, Aerospace and Agricultural Implement Workers of America at our TriMas Aerospace facility in Commerce, California expired in August 2018,2021, at which time we revised theentered into a new three-year collective bargaining agreement,agreement.
TriMas focuses on a number of human capital resources objectives in managing its business, including our commitment to health and safety, employee engagement, diversity, equity & inclusion, and talent development. These human capital resources objectives, taken together, may be material to understanding our business under certain circumstances. These objectives are reinforced by our Code of Conduct, our global policies, including our Global Human Rights Policy and our Diversity, Equity & Inclusion Statement, and our commitment to sustainability as evidenced by our Sustainability Reports.
Commitment to Safety
One of our primary objectives under the TBM is the health and safety of our employees and anyone who conducts business on our behalf. The commitment to safety starts at the top levels of our organization. We believe a safe and secure workplace is fundamental to our success. TriMas is committed to providing a safe and healthy workplace, and complying with applicable safety and health laws, regulations and internal requirements. We are also committed to engaging our employees to continually improve health and safety by acting upon opportunities to reduce risk and improve our safety and health performance, and offer training programs on a regular basis. TriMas maintains comprehensive safety programs focused on identifying hazards and eliminating risks that can lead to work-place injuries.
Employee Engagement
At TriMas, a commitment to continuous improvement is one of our core values and imperative to our long-term success. We embrace the tools of Kaizen and work to foster a culture of employee engagement to drive performance improvements and operational excellence. We believe that employee feedback is important which now extendsis why, in 2021, we administered an employee engagement survey globally. We will continue to 2021.work on our engagement as a company, with managers actively facilitating engagement discussions with their teams and developing action plans to ensure progress and continuous improvement.
Diversity, Equity and Inclusion
We believe we are at our best when we bring together unique perspectives, experiences and ideas, and actively build diverse teams and inclusive work environments across our global locations. We believe that tapping into our employees’ diverse backgrounds and experiences ensures we make better decisions and supports stronger operating performance. Our goal is to foster working environments that are fair, equitable and safe, where rights are respected and everyone can achieve their full potential. Our policies and practices strive to assure equal employment and advancement opportunities for all qualified people. We also work to maintain appropriate standards of conduct in the workplace and to be sensitive to the concerns of our diverse group of employees. We strive to maintain workplaces that are free from discrimination or harassment on the basis of race, ethnicity, color, national origin, religion, age, gender, gender identity and expression, genetic information, sexual orientation, protected veteran status, disability or any other characteristic protected by applicable laws.
Talent Development
We believe that a talented, engaged and dynamic workforce is vital to our success. We seek to hire, develop and retain individuals who embrace and thrive in our culture. Our culture is grounded in our values: Integrity, Customer-focused, Teamwork, Results-driven and Continuous Improvement. Our businesses strive to build robust talent pipelines through targeted recruitment initiatives across our global footprint. Our programs are intended to ensure seamless onboarding for our new employees. We identify and nurture talent through a culture that is designed to enable employees to succeed and grow into leadership positions. We believe that our diverse businesses and structure provide many opportunities for employees to follow their own path and advance their careers.
We support a culture of continuous development, and we provide employees with the opportunity to receive frequent performance feedback. On a regular basis throughout the year, employees have goal alignment, performance and career development discussions with their managers (via annual goal setting, mid-year and year-end performance and talent reviews). At these times, employees receive candid feedback on their performance against set objectives. These reviews evaluate each employee’s strengths, skills and areas for opportunity, which are important for career development.
Seasonality and Backlog
Our businessTriMas does not experience significant seasonal fluctuation, other than our fourth quarter, which has tended to be the lowest net sales quarter of the year given holiday shutdowns by certain of our customers and other customers deferring capital spending to the newfollowing year. We do not consider sales order backlog to be a material factor in our businesses. Our TriMas Aerospace customers often provide a forward view
Government Regulations
Environmental Matters
We are subject to increasingly stringent environmental laws and regulations, including those relating to air emissions, wastewater discharges, and chemical and hazardous waste management and disposal. Some of these environmental laws hold owners or operators of land or businesses liable for their own and for previous owners' or operators' releases of hazardous or toxic substances or wastes. Other environmental laws and regulations require the obtainmentobtaining and compliancecomplying with environmental permits. To date, costs of complying with environmental, health and safety requirements have not been material. However, the nature of our operations and our long history of industrial activities at certain of our current or former facilities, as well as those acquired, could potentially result in material environmental liabilities.
Current environmental laws and regulations have not had a material impact on our business, capital expenditures or financial position. However, we must comply with existing and pending climate change legislation, regulation and international treaties or accords. Future events, including those relating to climate change or greenhouse gas regulation could require us to incur expenses related to the modification or curtailment of operations, installation of pollution control equipment or investigation and cleanup of contaminated sites. In addition to environmental laws and regulations, our operations are governed by variety of laws and regulations, including those relating to workplace safety and worker health, principally the Occupational Safety and Health Act and regulations thereunder. We believe that we are in material compliance with these laws and regulations and do not believe that future compliance with such laws and regulations will have a material adverse effect on our business, financial condition, results of operations and cash flows.
Trade Policies and Regulations
We believe that we are in material compliance with free trade laws and regulations. While there may be an impact to our financial condition as a result of changes in the amount of duties or tariffs levied on products we sell, we do not believe that costs to remain in compliance with such laws and regulations will have a material adverse effect on our business, financial condition, results of operations and cash flows.
Intangible Assets
Our identified intangible assets, consisting of customer relationships, trademarks and trade names, and technology, are recorded at approximately $174.5$196.7 million at December 31, 2018,2021, net of accumulated amortization. The valuation of each of the identified intangibles was performed using broadly accepted valuation methodologies and techniques.
Customer Relationships. We have developed and maintained stable, long-term selling relationships with customer groups for specific branded products and/or focused market product offerings within each of our businesses. Useful lives assigned to customer relationship intangibles range from five to 25 years and have been estimated using historic customer retention and turnover data. Other factors considered in evaluating estimated useful lives include the diverse nature of focused markets and products of which we have significant share, how customers in these markets make purchases and these customers' position in the supply chain. We also monitor and evaluate the impact of other evolving risks including the threat of lower cost competitors and evolving technology.
Trademarks and Trade Names. Each of our businesses designs and manufactures products for focused markets under various trade names and trademarks (see prior discussion above by reportable segment). Our trademark/trade name intangibles are well-established and considered long-lived assets that require maintenance through advertising and promotion expenditures. Because it is our practice and intent to maintain and to continue to support, develop and market these trademarks/trade names for the foreseeable future, we consider our rights in these trademarks/trade names to have an indefinite life, except as otherwise dictated by applicable law.
Technology. We hold a number of United States and foreign patents, patent applications, and proprietary product and process-oriented technologies within all three of our reportable segments. We have, and will continue to dedicate, technical resources toward the further development of our products and processes in order to maintain our competitive position in the industrial, commercial and consumer end markets that we serve. Estimated useful lives for our technology intangibles range from one to 30 years and are determined in part by any legal, regulatory or contractual provisions that limit useful life. For example, patent rights have a maximum limit of 20 years in the United States. Other factors considered include the expected use of the technology by the operating groups, the expected useful life of the product and/or product programs to which the technology relates, and the rate of technology adoption by the industry.
International Operations
Approximately 13.9%25.3% of our net sales for the year ended December 31, 20182021 were derived from sales by our businesses located outside of the United States, and we may expand our international operations through organic growth actions and acquisitions. In addition, approximately 15.8%37.1% of our long-lived assets as of December 31, 20182021 were located outside of the United States. We operate manufacturing facilities in Belgium, Canada, China, Germany, India, Italy, (as a result of the January 2019 acquisition of Plastic Srl), Mexico, Singapore, Spain, Thailand,Slovakia, the United Kingdom and Vietnam.Vietnam, in addition to our U.S. operations. In addition to the net sales derived from sales by our businesses located outside of the United States, we also generated approximately $72.7$80.6 million of export sales from the United States. For information pertaining to the net sales and long-lived assets attributed to our international operations, refer to Note 18, "Segment Information," included in Item 8, "Financial Statements and Supplementary Data," within this Form 10-K.
Website Access to Company Reports
We use our corporate website, www.trimascorp.com, as a channel for routine distribution of important information, including news releases, company presentation,presentations and links to our businesses' websites, andas well as reinforcing our commitment to sustainability as evidenced by our Sustainability Reports. We also provide financial information. Weinformation on our website and post filings as soon as reasonably practicable after they are electronically filed with, or furnished to, the Securities and Exchange Commission ("SEC"), including our annual, quarterly, and current reports on Forms 10-K, 10-Q and 8-K, our proxy statements and any amendments to those reports or statements. All such postings and filings are available under our Investors section of the website free of charge. The SEC also maintains a website, www.sec.gov, that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. The content on any website referred to in this Annual Report on Form 10-K is not incorporated by reference into this Annual Report on Form 10-K unless expressly noted.
Item 1A. Risk Factors
You should carefully consider each of the risks described below, together with information included elsewhere in this Annual Report on Form 10-K and other documents we file with the SEC. The risks and uncertainties described below are those that we have identified as material, but are not the only risks and uncertainties facing us. Although the risks are organized by headings, and each risk is discussed separately, many of the risks are interrelated. Readers should not interpret the disclosure of any risk factor to imply that the risk has not already materialized. Additional risks and uncertainties not currently known to us or that we currently believe are immaterial may also impact our business operations, financial results and liquidity.
Risks Relating to the COVID-19 Pandemic
The COVID-19 pandemic has had, and is expected to continue to have, a significant impact on the Company's operations and results.
Since late January 2020, we have been managing matters related to the global COVID-19 pandemic, including impacts to our operations and strategic supplier-partners in Asia, as well as our manufacturing operations in Europe and North America. We have experienced temporary disruptions in the operation of certain of our facilities due to elevated levels of absenteeism, which has impacted workforce staffing. In response, we were early adopters of many of the workplace guidelines published by the U.S. Centers for Disease Control and Prevention ("CDC") and implemented other precautionary measures as necessary to maintain social distancing. The COVID-19 pandemic has also affected our customers and suppliers, and we have been and will continue to collaborate with them to minimize supply chain disruptions. We have also implemented pandemic and business continuity plans, as well as other precautionary measures on behalf of our customers and employees, including supporting remote work opportunities for certain of our employees. While we believe that all of these measures have been necessary and appropriate, they have resulted in additional costs and may adversely impact our business and financial performance in the future or expose us to additional unknown risks.
The COVID-19 pandemic has impacted our results of operations, and we expect it will continue to impact us in the future at varying levels. For example, sales for our dispensing and closure products used to help fight the spread of gems continue to be much stronger than before the COVID-19 pandemic, while sales in our Aerospace segment have been lower than historical levels as a result of the reduction of new commercial aircraft builds. Although it is not possible to predict the ultimate impact of COVID-19, including on our business, results of operations, financial position or cash flows, such impacts that have been or may be material and include, but are not limited to: (i) shifting customer demand for many of our products, including those used in cosmetic, personal care, pharmaceutical, home care, food and beverage, and industrial markets, as well as aerospace markets; (ii) delays and disruptions in the availability of and timely delivery of materials and components used in our operations, as well as increased costs for such materials and components; (iii) reduced availability and productivity of employees, as well as increased costs associated with our high-deductible medical insurance plan if our employees become ill; (iv) increased operational risks as a result of manufacturing facility disruptions or remote work arrangements, including the potential effects on internal controls and procedures, as well as cybersecurity risks and increased vulnerability to security breaches, information technology disruptions and other similar events; (v) increased credit risk, including increased failure by customers experiencing business disruptions to make timely payments; (vi) customer requirements to accelerate the relocation of certain of our production lines to North America, which may increase our capital investment needs and launch costs; (vii) a negative impact on liquidity position; (viii) any impairment in value of tangible or intangible assets which could be recorded as a result of weaker economic conditions; and (ix) increased costs and less ability to access amounts available under our existing credit facility or more generally, access to and the availability of capital markets.
The extent of the COVID-19 pandemic's effect on our operational and financial performance will depend in large part on future developments, which cannot be predicted with confidence at this time. Future developments include the duration, scope and severity of the pandemic, the actions taken to contain or mitigate its impact, and the resumption of widespread economic activity, including air travel. The emergence of new variants of COVID-19, evolving governmental plans to institute vaccination mandates and limited availability of vaccines in various jurisdictions create uncertainty that may impact our employees and result in labor shortages and unforeseen costs. In addition, because we cannot predict the impact that COVID-19 will ultimately have, the actual impact may also exacerbate other risks discussed in this Item 1A.
Risks Relating to Our Business
Our businesses depend upon general economic conditions and we serve some customers in highly cyclical industries; as such, we may be subject to the loss of sales and margins due to an economic downturn or recession.
Our financial performance depends, in large part, on conditions in the markets that we serve in both the U.S. and global economies. Someglobally. Although with the sale of our Lamons business ("Lamons") in December 2019 we significantly reduced our exposure to the oil and gas end markets thatmarket, we servestill are exposed to highly cyclical such as the end markets for industrial goods (including our remaining exposure in oil and gas products and industrial goods,gas), and to a lesser extent, aerospace and consumer products. When combined with ongoing customer consolidation activity and periodic inventory reduction initiatives, an uncertain macro-economic and political climate could lead to reduced demand from our customers, variations in timing of sales to our customers, increased price competition for our products, increased risk of excess and obsolete inventories, uncollectible receivables, and higher overhead costs as a percentage of revenue, all of which could impact our operating margins. If our customers are adversely affected by these factors, we may experience lower product volume orders, which could have an unfavorable impact on our revenue and operating profit. Our inabilityability to precisely forecast precisely the level of our customers’ orders is limited and can causeresult in inefficiencies withinin scheduling our installed manufacturing capacity and result in sub-optimal business and financial results.
Many of the markets we serve are highly competitive, which could limit sales volumes and reduce our operating margins.
Many of our products are sold in competitive markets. We believe that the principal points of competition in our markets are price, product quality, delivery performance, design and engineering capabilities, product development, conformity to customer specifications, customer service and effectiveness of distribution. Maintaining and improving our competitive position will require continued investment by us in manufacturing, engineering, quality standards, marketing, customer service and support of our distribution networks. We may have insufficient resources in the future to continue to make such investments and, even if we make such investments, we may not be able to maintain or improve our competitive position. We also face the risk of lower-cost manufacturers located in China, India and other regions competing in the markets for our products and we may be driven as a consequence of this competition to increase our investment overseas. Making overseas investments can be highly complicated and we may not always realize the advantages we anticipate from any such investments. Competitive pressure may limit the volume of products that we sell and reduce our operating margins.
We may be unable to successfully implement our business strategies and achieve our strategic and financial objectives.
We have a long history of acquisitions and divestitures, and we continuously evaluate strategic opportunities and other investment activities. From time to time, we may engage in one or more strategic transactions. If we do so, it may or may not meet the intended strategic or financial objective.
Strategic acquisitions may require integration expense and actions that may negatively affect our results of operations and that could not have been fully anticipated beforehand. In addition, attractive strategic transaction opportunities may not be identified or pursued in the future, financing for strategic transactions may be unavailable on satisfactory terms and we may be unable to accomplish our strategic objectives in effecting a particular strategic transaction. We may encounter various risks in pursuing such strategic transactions, including the possible inability to integrate an acquired business into our operations, increased expenses, increased debt obligations to finance such strategic transactions and unanticipated problems or liabilities.
In addition, we may dispose of assets or businesses at a price or on terms that are less favorable than we had anticipated, or with the exclusion of assets that must be divested or run off separately. As we seek to sell or separate certain assets, equity interests or businesses, we may also encounter difficulty in finding buyers, managing interdependencies across multiple transactions and other Company initiatives, implementing separation plans or executing alternative exit strategies on acceptable terms, which could delay or prevent the accomplishment of our strategic and financial objectives. Moreover, the effect of dispositions over time will reduce our cash flow and earnings capacity and result in a less diversified portfolio of businesses, and we will have a greater dependency on remaining businesses for our financial results.
Accordingly, risks related to strategic acquisitions or dispositions may result in the disruption of our ongoing business, diversion of management’s attention, the failure of such transactions to be completed, or the failure to realize the financial and strategic benefits contemplated at the time of a transaction, some or all of which could materially and adversely affect our business strategy, financial condition and results of operations.
We have significant goodwill and intangible assets, and future impairment of our goodwill and intangible assets could have a material negative impact on our financial results.
At December 31, 2021, our goodwill and intangible assets were approximately $512.2 million and represented approximately 39.3% of our total assets. If we experience declines in sales and operating profit or do not meet our current and forecasted operating budget, we may be subject to goodwill and/or other intangible asset impairments in the future. While the fair value of our remaining goodwill exceeds its carrying value, significantly worse financial performance of our businesses, significantly different assumptions regarding future performance of our businesses or significant declines in our stock price could result in future impairment losses. Because of the significance of our goodwill and intangible assets, and based on the magnitude of historical impairment charges, any future impairment of these assets could have a material adverse effect on our financial results.
Increases in our raw material or energy costs or the loss of critical suppliers could adversely affect our profitability and other financial results.
We are sensitive to price movements in our raw materials supply base. Our largest material purchases are for resins (such as polypropylene and polyethylene), steel, aluminum and other oil and metal-based purchased components. Prices for these products, along with costs for transportation and energy, fluctuate with market conditions, and have generally increased over time. For example, during 2021, commodity costs related to certain types of resins significantly increased from prior years, and we estimate that we incurred approximately $11 million more in cost increases than we were able to recover via commercial actions. We may be unable to offset the impact with price increases on a timely basis due to outstanding commitments to our customers, competitive considerations or our customers’ resistance to accepting such price increases and our financial performance could be adversely impacted. A failure by our suppliers to continue to supply us with certain raw materials, component parts, or at all, could have a material adverse effect on us. To the extent there are energy supply disruptions or material fluctuations in energy costs, our margins could be materially adversely impacted.
Our business may be exposed to risks associated with an increasingly concentrated customer base.
While no individual customer accounted for 10% or more of our consolidated net sales for 2021, 2020 or 2019, our customer base has become, and may further become, increasingly concentrated as a result of our strategy to focus on grow sales with existing customers in packaging end markets, or due to customer consolidations. In 2021, our Aerospace and Specialty Products segments each had customers that comprised 10% or more of its segment revenue. As a result of these factors, changes to or reductions in the buying patterns of these larger customers may expose our business and results of operations to greater volatility. For example, prior to the outbreak of COVID-19, a large commercial aircraft manufacturer announced significant production delays and/or reductions on certain of its platforms for which we provide products, which has impacted our sales, profit and production efficiencies compared with historical levels.
The mix and type of customers, and sales to any single customer, may vary significantly from quarter to quarter and from year to year, and have a significant impact on our financial condition, results of operations and cash flows. If customers do not place orders, or they substantially reduce, delay or cancel orders, we may not be able to replace the business, which may have a significant adverse impact on our results of operations and financial condition. Major customers may require that we localize manufacturing and supply capacity rather than sourcing from lower cost countries, or seek pricing, payment, intellectual property-related, or other commercial terms that are less favorable to us, which may have a negative impact on our business. The concentration of our customer base also increases our risks related to the financial condition of our customers, and the deterioration in financial condition of customers or the failure of customers to perform their obligations could have a material adverse effect on our results of operations and cash flows.
We are dependent on our manufacturing facilities for the production of our highly engineered products, which subjects us to risks associated with disruptions and changing technology and manufacturing techniques that could place us at a competitive disadvantage.
If our manufacturing facilities become unavailable either temporarily or permanently due weather, earthquakes or other natural disasters related to labor disruptionsglobal climate change, or circumstances beyond our control, such as geopolitical developments or logistical complications arising from acts of war, cyber-attacks, weather, global climate change, earthquakespublic health crises or other natural disasters,labor disruptions, we may be unable to shift production to other facilities or to make up for lost production. For example, our Aerospace manufacturing facilities are predominately located in southern California, an area known for earthquakes, and are thus vulnerable to damage. Any new facility would need to comply with the necessary regulatory requirements, satisfy our specialized manufacturing requirements and require specialized equipment. Even though we carry business interruption insurance policies, any business interruption losses could exceed the coverage available or be excluded from our insurance policies. Any disruption of our ability to operate our business could result in a material decrease in our revenues or significant additional costs to replace, repair or insure our assets, which could have a material adverse impact on our financial condition and results of operations.
In addition, we believe that our customers rigorously evaluate their suppliers on the basis of price competitiveness, product quality, reliability and timeliness of delivery, technical expertise and development capability, new product innovation, product design capability, manufacturing expertise, operational flexibility, customer service and overall management. Our success depends on our ability to continue to meet our customers’ changing expectations with respect to these criteria. We may be unable to install, maintain and certify equipment needed to produce products or upgrade or transition our manufacturing facilities without impacting production rates or requiring other operational efficiency measures at our facilities. We anticipate that we will remain committed to product research and development, advanced manufacturing techniques and service to remain competitive, which entails significant costs; however, we may be unable to address technological advances, implement new and more cost-effective manufacturing techniques, or introduce new or improved products, whether in existing or new markets, so as to maintain our businesses’ competitive positions or to grow our businesses as desired.
Many of the markets we serve are highly competitive, which could limit sales volumes and reduce our operating margins.
Many of our products are sold in competitive markets. We believe that the principal points of competition in our markets are price, product quality, delivery performance, design and engineering capabilities, product development, conformity to customer specifications, customer service and effectiveness of distribution. Maintaining and improving our competitive position will require continued investment by us in manufacturing, engineering, quality standards, marketing, customer service and support of our distribution networks. We may have insufficient resources in the future to continue to make such investments and, even if we make such investments, we may not be able to maintain or improve our competitive position. We also face the risk of lower-cost foreign manufacturers located in China, Southeast Asia, India and other regions competing in the markets for our products and we may be driven as a consequence of this competition to increase our investment overseas. Making overseas investments can be highly complicated and we may not always realize the advantages we anticipate from any such investments. Competitive pressure may limit the volume of products that we sell and reduce our operating margins.
We may be unable to successfully implement our business strategies.
We have a long history of acquisitions and divestitures, and we continuously evaluate strategic opportunities and other investment activities. From time to time, we may engage in one or more strategic transactions. If we do so, it may or may not meet the intended strategic objective. These strategic transactions may require integration expense and actions that may negatively affect our results of operations and that could not have been fully anticipated beforehand. In addition, attractive strategic transaction opportunities may not be identified or pursued in the future, financing for strategic transactions may be unavailable on satisfactory terms and we may be unable to accomplish our strategic objectives in effecting a particular strategic transaction. We may encounter various risks in pursuing such strategic transactions, including the possible inability to integrate an acquired business into our operations, the disruption of our ongoing business, diversion of management’s attention, increased expenses, increased debt obligations to finance such strategic transactions, unanticipated problems or liabilities, the failure of such transactions to be completed, or the failure to realize the financial and strategic benefits contemplated at the time of a transaction, some or all of which could materially and adversely affect our business strategy and financial condition and results of operations.
Trends in oil and natural gas prices may affect the demand for, and profitability of, our energy-related products and services, which could have a material adverse effect on our business, consolidated results of operations, and consolidated financial condition.
The oil and gas industry historically has experienced periodic downturns. Demand for our energy-related products, such as pump jack engines and compressors, gaskets, fasteners, hoses and compression products is sensitive to the level of production activity of, and the corresponding capital spending by, oil and natural gas companies. The level of production activity is directly affected by trends in oil (and related derivatives) and natural gas prices, which have been at lower levels over the past three years, and may continue to remain at depressed levels and be subject to future volatility.
Prices for oil and natural gas are subject to large fluctuations in response to changes in the supply of and demand for oil and natural gas, market uncertainty, geopolitical developments, alternative production methods and a variety of other factors that are beyond our control. Even the perception of longer-term lower oil and natural gas prices can reduce or defer major capital expenditures by our customers in the oil and gas industry. Given the long-term nature of many large-scale development projects, a significant or extended downturn in the oil and gas industry could result in the reduction in demand for our energy-related products, and could have a material adverse effect on our business, consolidated results of operations and consolidated financial condition.
Compliance with and changes in tax laws, including tax reform legislation in the United States, could materially and adversely impact our financial condition, results of operations and cash flows.
We are subject to extensive tax liabilities, including federal, state and foreign income taxes and transactional taxes such as excise, sales and use, payroll, franchise, withholding and property taxes. Many tax liabilities are subject to periodic audits by taxing authorities, and such audits could subject us to additional tax as well as interest and penalties. New tax laws and regulations and changes in existing tax laws and regulations could result in increased expenditures by us for tax liabilities in the future and could materially and adversely impact our financial condition, results of operations and cash flows.
The 2017 Tax Cuts and Jobs Act included substantial changes to U.S. tax law, including a reduction in the corporate tax rate, a limitation on deductibility of interest expense, a limitation on the use of net operating losses to offset future taxable income, the allowance of immediate expensing of capital expenditures and deemed repatriation of foreign earnings. The Company recorded charges of approximately $12.3 million, net, between 2017 and 2018 as a result of adopting the 2017 Tax Cuts and Jobs Act. Any future clarification of the tax law or required change in these charges could adversely affect the Company's business and financial condition.
Increases in our raw material or energy costs or the loss of critical suppliers could adversely affect our profitability and other financial results.
We are sensitive to price movements in our raw materials supply base. Our largest material purchases are for steel, polyethylene and other resins, aluminum, titanium and copper. Prices for these products fluctuate with market conditions, and have generally increased over time. We may be unable to offset the impact with price increases on a timely basis due to outstanding commitments to our customers, competitive considerations or our customers’ resistance to accepting such price increases and our financial performance could be adversely impacted. A failure by our suppliers to continue to supply us with certain raw materials or component parts on commercially reasonable terms, or at all, could have a material adverse effect on us. To the extent there are energy supply disruptions or material fluctuations in energy costs, our margins could be materially adversely impacted.
Our business may be exposed to risks associated with an increasingly concentrated customer base.
While no individual customer accounted for 10% or more of our consolidated net sales for 2018, 2017 or 2016, our customer base has become, and may further become, increasingly concentrated as a result of customer consolidations and/or through our sales growth to new and existing customers. In 2018, our Packaging and Aerospace reportable segments each had either one or two customers that comprised more than 10% of its segment revenue. As a result of these factors, certain customers may expose our business and results of operations to greater volatility. The mix and type of customers, and sales to any single customer, may vary significantly from quarter to quarter and from year to year, and have a significant impact on our financial condition, results of operations and cash flows. If customers do not place orders, or they substantially reduce, delay or cancel orders, we may not be able to replace the business, which may have a significant adverse impact on our results of operations and financial condition. Major customers may also seek pricing, payment, intellectual property-related, or other commercial terms that are less favorable to us, which may have a negative impact on our business. The concentration of our customer base also increases our risks related to the financial condition of our customers, and the deterioration in financial condition of customers or the failure of customers to perform their obligations could have a material adverse effect on our results of operations and cash flows.
A major failure of our information systems could harm our business; increased IT security threats and more sophisticated and targeted computer crime could pose a risk to our systems, networks, and products.
We depend on integrated information systems to conduct our business. While we maintain some of our critical information systems, we are also dependent on third parties to provide important services relating to, among other things, operational technology at our facilities, human resources, electronic communications and certain finance functions. We may experience operating problems with our information systems as a result of system failures, viruses, computer hackers or other causes. Any significant disruption or slowdown of our systems could cause customers to cancel orders or cause standard business processes to become inefficient or ineffective.
We have experienced cyber-attacks in the past and, while none of these cyber-attacks resulted in a material disruption to our business, we may experience additional cyber-attacks in the future. Increased global IT security threats and more sophisticated and targeted computer crime pose a risk to the security of our systems and networks and the confidentiality, availability and integrity of our data and communications. While we attempt to mitigate these risks by employing a number of measures, including employee training, comprehensive monitoring of our networks and systems, and maintenance of backup and protective systems, our networks and systems remain potentially vulnerable to advanced persistent threats. Furthermore, we may have little or no oversight with respect to security measures employed by third-party service providers, which may ultimately prove to be ineffective at countering threats. Depending on their nature and scope, such threats could potentially lead to the compromising of confidential information and communications, improper use of our systems and networks, manipulation and destruction of data, defective products, production downtimes and operational disruptions, which in turn could adversely affect our reputation, competitiveness and results of operations.
Our ability to deliver products that satisfy customer requirements is dependent on the performance of our subcontractors and suppliers, as well as on the availability of raw materials and other components.
We rely on other companies, including subcontractors and suppliers, to provide and produce raw materials, integrated components and sub-assemblies and production commodities included in, or used in the production of, our products. If one or more of our suppliers or subcontractors experiences delivery delays or other performance problems, we may be unable to meet commitments to our customers or incur additional costs and penalties. In some instances, we depend upon a single source of supply. During 2021, we experienced many supply chain delays and inconsistencies with our subcontractors and suppliers as a result of the ongoing COVID-19 pandemic, resulting in labor and manufacturing inefficiencies given the challenges in production scheduling. Any material service disruption from one of these suppliers, either due to circumstances beyond the supplier’s control, such as geopolitical developments or logistical complications due to weather, global climate change, earthquakes or other natural disasters, or as a result of performance problems or financial difficulties, could have a material adverse effect on our ability to meet commitments to our customers or increase our operating costs.
A growing portion of our sales and earnings may be derived from international sources, which exposes us to certain risks which may adversely affect our financial results and impact our ability to service debt.
We have operations outside of the United States. Approximately 25.3% of our net sales for the year ended December 31, 2021 were derived from sales by our subsidiaries located outside of the U.S. In addition, we may expand our international operations through internal growth or acquisitions. International operations, particularly sales to emerging markets and manufacturing in non-U.S. countries, are subject to risks that are not present within U.S. markets, which include, but are not limited to, the following:
•volatility of currency exchange between the U.S. dollar and currencies in international markets;
•changes in local government regulations and policies including, but not limited to, foreign currency exchange controls or monetary policy, governmental embargoes, repatriation of earnings, expropriation of property, duty or tariff restrictions, investment limitations and tax policies;
•political and economic instability and disruptions, including labor unrest, civil strife, public health crises (including viral outbreaks such as the coronavirus), acts of war, guerrilla activities, insurrection and terrorism;
•legislation that regulates the use of chemicals;
•disadvantages of competing against companies from countries that are not subject to U.S. laws and regulations, including the Foreign Corrupt Practices Act ("FCPA");
•compliance with international trade laws and regulations, including export control and economic sanctions, such as anti-dumping duties;
•difficulties in staffing and managing multi-national operations;
•limitations on our ability to enforce legal rights and remedies;
•tax inefficiencies in repatriating cash flow from non-U.S. subsidiaries that could affect our financial results and reduce our ability to service debt;
•reduced protection of intellectual property rights; and
•other risks arising out of foreign sovereignty over the areas where our operations are conducted.
In addition, we could be adversely affected by violations of the FCPA and similar worldwide anti-bribery laws as well as export controls and economic sanction laws. The FCPA and similar anti-bribery laws in other jurisdictions generally prohibit companies and their intermediaries from making improper payments to non-U.S. officials for the purpose of obtaining or retaining business.
Our acquisition and disposition agreements by which we have acquired or sold companies, include indemnification provisions that may not fully protect us and may result in unexpected liabilities.
Certain of the agreements related to the acquisition and disposition of businesses require indemnification against certain liabilities related to the operations of the company for the previous owner. We cannot be assured that any of these indemnification provisions will fully protect us, and as a result we may incur unexpected liabilities that adversely affect our profitability and financial position.
We could be negatively impacted by stakeholder and market focus on ESG matters.
There has been an increasing focus on corporate ESG practices and disclosures over the past few years, and expectations in this area are rapidly evolving. We have announced certain areas of focus, which include health and safety, environmental matters, diversity, equity and inclusion, talent development, and innovation for sustainable products. The criteria used to evaluate ESG practices may continue to evolve, which could result in greater expectations and may cause us to undertake costly initiatives to satisfy new criteria. The increasing attention to sustainability could also result in reduced demand for certain of our products and/or reduced profits. If we are unable to respond effectively, investors may conclude that our ESG policies and/or actions are inadequate. If we are perceived to have failed to achieve our ESG initiatives or accurately disclose our progress on such matters, our reputation, business, financial condition and results of operations could be adversely impacted.
Regulatory, Legal and Environmental Risks
Significant developments from the recent and potential changes in U.S. trade policies could have a material adverse effect on us and our financial condition and results of operations.
Existing freeFree trade laws and regulations such as the North American Free Trade Agreement and/or other trade agreements, provide certain beneficial duties and tariffs on qualifying imports and exports, subject to compliance with the applicable classification and other requirements. The U.S.United States government has indicated its intent to alter its approach to international trade policy and in some cases to renegotiate, or potentially terminate, certain existing bilateral or multi-lateral trade agreements and treaties with foreign countries. For example, throughoutbeginning in October 2018, the U.S. government implemented additional tariffs on certain goods imported from China. These tariffs, and other governmental actions relating to international trade agreements or policies, the adoption and expansion of trade restrictions, or the occurrence of a trade war may adversely impact demand for our products, costs, customers, suppliers and/or the U.S. economy or certain sectors thereof and, as a result, adversely impact our business. These tariffs and actions may, directly or indirectly, lead to higher costs and cause us to increase prices to our customers which may reduce demand, or, if we are unable to increase prices, result in lowering our margin on products sold. For example, in 2018,the past few years, we have experienced higher input costs as a direct result of recentlytariffs imposed tariffs on certain raw materials and components imported from China. In certain cases, we have passed-through these incremental costs to the customer, while in some cases we have not changed pricing to retain or expand volume, and in other cases we continue to work to install capacity in facilities where there currently is no tariff. In addition, certain of our U.S. suppliers raised prices for certain components in response to an overall increase in demand for domestic sources as a result of recently imposed tariffs.sources. It remains unclear what the U.S. or foreign governments will or will not do with respect to tariffs, international trade agreements and policies on a short-term or long-term basis. Additional changes in laws or policies governing the terms of foreign trade, and in particular increased trade restrictions, tariffs or taxes on imports from countries where we manufacture or purchase products could have a material adverse effect on our business and financial results.
Our ability to deliver products that satisfy customer requirements is dependent on the performance of our subcontractorsCompliance with and suppliers, as well as on the availability of raw materials and other components.
We rely on other companies,changes in tax laws, including subcontractors and suppliers, to provide and produce raw materials, integrated components and sub-assemblies and production commodities included in, or usedtax reform legislation in the production of, our products. If one or more of our suppliers or subcontractors experiences delivery delays or other performance problems, we may be unable to meet commitments to our customers or incur additional costsUnited States, could materially and penalties. In some instances, we depend upon a single source of supply. Any service disruption from one of these suppliers, either due to circumstances beyond the supplier’s control, such as geopolitical developments or logistical complications due to weather, global climate change, earthquakes or other natural disasters, or as a result of performance problems or financial difficulties, could have a material adverse effect on our ability to meet commitments to our customers or increase our operating costs.
We have significant goodwill and intangible assets, and future impairment of our goodwill and intangible assets could have a material negativeadversely impact on our financial results.
At December 31, 2018, our goodwill and intangible assets were approximately $491.2 million and represented approximately 44.6% of our total assets. Based on thecondition, results of our annual goodwill and indefinite-lived intangible asset impairment tests, we recorded pre-tax goodwill and indefinite-lived intangible asset impairment charges in 2016 of approximately $98.9 million within our Aerospace reporting unit. If we experience declines in sales and operating profit or do not meet our current and forecasted operating budget, we may be subject to additional goodwill and/or other intangible asset impairments in the future. While the fair value of our remaining goodwill exceeds its carrying value, significantly worse financial performance of our businesses, significantly different assumptions regarding future performance of our businesses or significant declines in our stock price could result in future impairment losses. Because of the significance of our goodwill and intangible assets, and based on the magnitude of historical impairment charges, any future impairment of these assets could have a material adverse effect on our financial results.
We have debt principal and interest payment requirements that may restrict our future operations and impair our ability to meet our obligations.cash flows.
As of December 31, 2018, we have approximately $293.6 million of outstanding debt. We are subject to variableextensive tax liabilities, including federal, state and foreign income taxes and transactional taxes such as excise, sales and use, payroll, franchise, withholding and property taxes. Many tax liabilities are subject to periodic audits by taxing authorities, and such audits could subject us to additional tax as well as interest rates on our revolving credit facility. We may experience increases in our interest expense as a result of general increases in interest rate levels. We have no amounts outstanding under our revolving credit facility as of December 31, 2018.
Our degree of leverage and level of interest expense may have important consequences, including:
should our leverage increase, it may place us at a competitive disadvantage as compared with our less leveraged competitorspenalties. New tax laws and make us more vulnerable in the event of a downturn in general economic conditions or in any of our businesses;
our flexibility in planning for, or reacting to,regulations and changes in our businessesexisting tax laws and the industriesregulations could result in which we operate may be limited;
a substantial portion of our cash flow from operations will be dedicated to the payment of annual interest and future principal obligations on our indebtedness, thereby reducing the funds available toincreased expenditures by us for operations, capital expenditures, acquisitions, future business opportunities or obligations to pay rent in respect of our operating leases; and
our operations are restricted by our debt instruments, which contain certain financial and operating covenants, and those restrictions may limit, among other things, our ability to borrow moneytax liabilities in the future for working capital, capital expenditures, acquisitions, rent expense or other purposes.
Our ability to service our debt and other obligations will depend on our future operating performance, which will be affected by prevailing economic conditions and financial, business and other factors, many of which are beyond our control. Our business may not generate sufficient cash flow, and future financings may not be available to provide sufficient net proceeds, to meet these obligations or to successfully execute our business strategies. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources."
Restrictions in our debt instruments limit our ability to take certain actions and breaches thereof could impair our liquidity.
Our revolving credit facility and the indenture governing our senior notes contain covenants that restrict our ability to:
pay dividends or redeem or repurchase capital stock;
incur additional indebtedness and grant liens;
make acquisitions and joint venture investments; and
sell assets.
Our debt instruments also require us to comply with financial covenants relating to, among other things, interest coverage and leverage. We may not be able to satisfy these covenants in the future or be able to pursue our strategies within the constraints of these covenants. Substantially all of the assets of our domestic subsidiaries are pledged as collateral. Borrowings under the foreign currency sub limit are secured by a pledge of the assets of the foreign subsidiary borrowers that are party to our revolving credit facility. A breach of a covenant contained in our debt instruments could result in an event of default under one or more of our debt instruments and our lease financing arrangements. Such breaches would permit the lenders to declare all amounts borrowed thereunder to be due and payable, and the commitments of such lenders to make further extensions of credit could be terminated. Each of these circumstances could materially and adversely impairimpact our liquidity.financial condition, results of operations and cash flows.
We may face liability associated with the use of products for which patent ownership or other intellectual property rights are claimed.
We may be subject to claims or inquiries regarding alleged unauthorized use of a third party’s intellectual property. An adverse outcome in any intellectual property litigation could subject us to significant liabilities to third parties, require us to license technology or other intellectual property rights from others, require us to comply with injunctions to cease marketing or using certain products or brands, or require us to redesign, re-engineer, or re-brand certain products or packaging, any of which could affect our business, financial condition and operating results. If we are required to seek licenses under patents or other intellectual property rights of others, we may not be able to acquire these licenses on acceptable terms, if at all. In addition, the cost of responding to an intellectual property infringement claim, in terms of legal fees and expenses and the diversion of management resources, whether or not the claim is valid, could have a material adverse effect on our business, results of operations and financial condition.
We may be unable to adequately protect our intellectual property.
While we believe that our patents, trademarks, know howknow-how and other intellectual property have significant value, it is uncertain that this intellectual property or any intellectual property acquired or developed by us in the future, will provide a meaningful competitive advantage. Our patents or pending applications may be challenged, invalidated or circumvented by competitors or rights granted thereunder may not provide meaningful proprietary protection. Moreover, competitors may infringe on our patents or successfully avoid them through design innovation. Policing unauthorized use of our intellectual property is difficult and expensive, and we may not be able to, or have the resources to, prevent misappropriation of our proprietary rights, particularly in countries where the laws may not protect such rights as fully as in the U.S. The cost of protecting our intellectual property may be significant and have a material adverse effect on our financial condition and future results of operationsoperations.
We may incur material losses and costs as a result of product liability, recall and warranty claims brought against us.
We are, from time to time, subject to a variety of claims or litigation incidental to our businesses, including claimsdemands for damages arising out of use of our products, claims relating to intellectual property matters and claims involving employment matters and commercial disputes. We currently carry insurance and maintain reserves for potential product liability claims. However, our insurance coverage may be inadequate if such claims do arise and any liability not covered by insurance could have a material adverse effect on our business. Although we have been able to obtain insurance in amounts we believe to be appropriate to cover such liability to date, our insurance premiums may increase in the future as a consequence of conditions in the insurance business generally or our situation in particular. Any such increase could result in lower operating profit or cause the need to reduce our insurance coverage. In addition, a future claim may be brought against us that could have a material adverse effect on us. Any product liability claim may also include the imposition of punitive damages, the award of which, pursuant to certain state laws, may not be covered by insurance. Our product liability insurance policies have limits that, if exceeded, may result in material costs that could have an adverse effect on our future profitability. In addition, warranty claims are generally not covered by our product liability insurance. Further, any product liability or warranty issues may adversely affect our reputation as a manufacturer of high-quality, safe products, divert management’s attention, and could have a material adverse effect on our business.
In addition, theour former Lamons business within our Specialty Products reportable segment is a party to lawsuits related to asbestos contained in gaskets formerly manufactured by it or its predecessors. While we sold the Lamons business in December 2019, we retained the asbestos-related liability exposure. Some of this litigation includes claims for punitive and consequential as well as compensatory damages. We are not able to predict the outcome of these matters given that, among other things, claims may be initially made in jurisdictions without specifying the amount sought or by simply stating the minimum or maximum permissible monetary relief, and may be amended to alter the amount sought. Of the 4,8204,754 claims pending at December 31, 2018, 492021, 27 set forth specific amounts of damages (other than those stating the statutory minimum or maximum). See Note 13,17, "Commitments and Contingencies," included in Item 8, "Financial Statements and Supplementary Data," within this Form 10-K for additional information.
Total settlement costs (exclusive of defense costs) for all such cases, some of which were filed over 25 years ago, have been approximately $8.9$10.6 million. All relief sought in the asbestos cases is monetary in nature. To date, approximately 40% of our costs related to settlement and defense of asbestos litigation have been covered by our primary insurance. Effective February 14, 2006, we entered into a coverage-in-place agreement with our first level excess carriers regarding the coverage to be provided to us for asbestos-related claims when the primary insurance is exhausted. The coverage-in-place agreement makes asbestos defense costs and indemnity insurance coverage available to us that might otherwise be disputed by the carriers and provides a methodology for the administration of such expenses. The Company's primary insurance exhausted in November 2018, and the Company will beis solely responsible for defense costs and indemnity payments prior to the commencement of coverage under this agreement, the duration of which would be subject to the scope of damage awards and settlements paid. During this period, we may incur significant litigation costs in defending these matters. We also may be required to incur additional defense costs and pay damage awards or settlements or become subject to equitable remedies in the future that could adversely affect our businesses.
Our business may be materially and adversely affected by compliance obligations and liabilities under environmental laws and regulations.regulations, including related to climate change.
We are subject to increasingly stringent environmental laws and regulations, including those relating to air emissions, wastewater discharges and chemical and hazardous waste management and disposal. A number of governments or governmental bodies have introduced or are contemplating introducing regulatory changes in response to climate change, including regulating greenhouse gas emissions. Some of these environmental laws hold owners or operators of land or businesses liable for their own and for previous owners’ or operators’ releases of hazardous or toxic substances or wastes. Other environmental laws and regulations require the obtainmentobtaining and compliancecomplying with environmental permits. To date, costs of complying with environmental, health and safety requirements have not been material. However, the nature of our operations and our long history of industrial activities at certain of our current or former facilities, as well as those acquired, could potentially result in material environmental liabilities.
While we must comply with existing and pending climate change legislation, regulation and international treaties or accords, current laws and regulations have not had a material impact on our business, capital expenditures or financial position. Future events, including those relating to climate change or greenhouse gas regulation, could require us to incur expenses related to fund energy efficiency activities, fees or restrictions on certain activities, the modification or curtailment of operations, installation of pollution control equipment or investigation and cleanup of contaminated sites. Any adopted future regulations could also negatively impact our ability to compete with companies situated in areas not subject to such limitations, and we may not be able to recover the cost of compliance with new or more stringent laws and regulations, which could adversely impact our results of operations, cash flow or financial condition.
Our reputation, ability to do business, and results of operations may be impaired by legal compliance risks.
While we strive to maintain high standards, our internal controls and compliance systems may not always protect us from acts committed by our employees, agents, or business partners that would violate U.S. and/or non-U.S. laws or adequately protect our confidential information, including the laws governing payments to government officials, bribery, fraud, anti-kickback and false claims rules, competition, export and import compliance, money laundering, and data privacy laws, as well as the improper use of proprietary information or social media. Any such allegations, violations of law or improper actions could subject us to civil or criminal investigations in the U.S. and in other jurisdictions, could lead to substantial civil or criminal, monetary and non-monetary penalties, and related shareholder lawsuits, could lead to increased costs of compliance, could damage our reputation and could have a material effect on our financial statements.
Risks Related to our Debt and Other Financial Obligations
We have debt principal and interest payment requirements that may restrict our future operations and impair our ability to meet our obligations.
As of December 31, 2021, we have approximately $393.8 million of outstanding long-term debt. We are subject to variable interest rates on our revolving credit facility. Such interest rates are based on the London Interbank Offered Rate ("LIBOR") plus 1.50%. We may experience increases in our interest expense as a result of general increases in interest rate levels. In addition, we could be further impacted by changes in variable interest rates. Although we have amended our credit facility to utilize the Secured Overnight Financing Rate ("SOFR") beginning in 2022, SOFR has a limited history and may perform differently from U.S. dollar LIBOR, which may affect our net interest expense and require changes to our future risk, pricing and hedging strategies. We had no amounts outstanding under our revolving credit facility as of December 31, 2021.
Our degree of leverage and level of interest expense may have important consequences, including:
•should our leverage increase, it may place us at a competitive disadvantage as compared with our less leveraged competitors and make us more vulnerable in the event of a downturn in general economic conditions or in any of our businesses;
•our flexibility in planning for, or reacting to, changes in our businesses and the industries in which we operate may be limited;
•a substantial portion of our cash flow from operations will be dedicated to the payment of annual interest and future principal obligations on our indebtedness, thereby reducing the funds available to us for operations, capital expenditures, acquisitions, future business opportunities or obligations to pay rent in respect of our operating leases; and
•our operations are restricted by our debt instruments, which contain certain financial and operating covenants, and those restrictions may limit, among other things, our ability to borrow money in the future for working capital, capital expenditures, acquisitions, rent expense or other purposes.
Our ability to service our debt and other obligations will depend on our future operating performance, which will be affected by prevailing economic conditions and financial, business and other factors, many of which are beyond our control. Our business may not generate sufficient cash flow, and future financings may not be available to provide sufficient net proceeds, to meet these obligations or to successfully execute our business strategies. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources."
Restrictions in our debt instruments limit our ability to take certain actions and breaches thereof could impair our liquidity.
Our revolving credit facility and the indenture governing our senior notes contain covenants that restrict our ability to:
•pay dividends or redeem or repurchase capital stock;
•incur additional indebtedness and grant liens;
•make acquisitions and joint venture investments; and
•sell assets.
Our debt instruments also require us to comply with financial covenants relating to, among other things, interest coverage and leverage. We may not be able to satisfy these covenants in the future or be able to pursue our strategies within the constraints of these covenants. Substantially all of the assets of our domestic subsidiaries are pledged as collateral. Borrowings under the foreign currency sub limit are secured by a pledge of the assets of the foreign subsidiary borrowers that are party to our revolving credit facility. A breach of a covenant contained in our debt instruments could result in an event of default under one or more of our debt instruments and our lease financing arrangements. Such breaches would permit the lenders to declare all amounts borrowed thereunder to be due and payable, and the commitments of such lenders to make further extensions of credit could be terminated. Each of these circumstances could materially and adversely impair our liquidity.
Our borrowing costs may be impacted by our credit ratings developed by various rating agencies.
Two major ratings agencies, Standard & Poor’s and Moody’s, evaluate our credit profile on an ongoing basis and have each assigned ratings for our long-term debt. If our credit ratings were to decline, our ability to access certain financial markets may become limited, the perception of us in the view of our customers, suppliers and security holders may worsen and as a result, we may be adversely affected.
We have significant operating lease obligations and our failure to meet those obligations could adversely affect our financial condition.
We lease many of our manufacturing and distribution branch facilities, and certain capital equipment. Our rental expense in 20182021 under these operating leases was approximately $12.3$11.0 million. A failure to pay our rental obligations would constitute a default allowing the applicable landlord to pursue any remedy available to it under applicable law, which would include taking possession of our property and, in the case of real property, evicting us. These leases are categorized as operating leases and are not considered indebtedness for purposes of our debt instruments.
Human Capital Risks
Our success will depend, in part, on the efforts of our key leadership, including key operational, technical, commercial, manufacturing and financial personnel. Our business leadership teams have served a vast majority of their careers in, and are deeply experienced in, the industries we operate. Our future success will also depend on, among other factors, our ability to retain or attract other qualified personnel. The loss of the services of any of our key employees or the failure to retain or attract employees could have a material adverse effect on us.
We may be subject to further unionization and work stoppages at our facilities or our customers may be subject to work stoppages, which could seriously impact the profitability of our business.
As of December 31, 2018,2021, we have one facility, located in Commerce, California, where our hourly employees operate under a collective bargaining agreement, and which represents approximately 16%14% of our work force was unionized under several different unions and bargaining agreements. We have collective bargaining agreements covering four facilities worldwide, two of which areemployees located in the United States. We have four facilities outside of the United States where our employees are affiliated with state-controlled or trade unions, which covers approximately 47% of our non-U.S. employees. Our labor agreement with the United Automobile, Aerospace and Agricultural Implement Workers of America at our TriMas Aerospace facility in Commerce, California, expired in August 2021, at which time we entered into a new three-year collective bargaining agreement. We are not aware of any present active union organizing drives at any of our other facilities. We cannot predict the impact of any further unionization of our workplace. Our labor agreement with the United Automobile, Aerospace and Agricultural Implement Workers of America at our TriMas Aerospace facility in Commerce, California expired during 2018, at which time we revised the collective bargaining agreement which now extends until 2021.
Many of our direct or indirect customers have unionized work forces. Strikes, work stoppages or slowdowns experienced by these customers or their suppliers could result in slowdowns or closures of assembly plants where our products are included.utilized. In addition, organizations responsible for shipping our customers' products may be impacted by occasional strikes or other activity. Any interruption in delivery of our customers' products may reduce demand for our products and have a material adverse effect on us.
Healthcare costs for active employees may exceed projections and may negatively affect our financial results.
We maintain a range of healthcare benefits for our active employees pursuant to labor contracts and otherwise. Healthcare benefits for active employees are provided through comprehensive hospital, surgical and major medical benefit provisions or through health maintenance organizations, all of which are subject to various cost-sharing features. Some of these benefits are provided for in fixed amounts negotiated in labor contracts with the respective unions. If our costs under our benefit programs for active employees exceed our projections, our business and financial results could be materially adversely affected. Additionally, foreign competitors and many domestic competitors provide fewer benefits to their employees, and this difference in cost could adversely impact our competitive position.
A growing portion of our sales may be derived from international sources, which exposes us to certain risks which may adversely affect our financial results and impact our ability to service debt.We have operations outside of the United States. Approximately 13.9% of our net sales for the year ended December 31, 2018 were derived from sales by our subsidiaries located outside of the U.S. In addition, we may expand our international operations through internal growth or acquisitions. International operations, particularly sales to emerging markets and manufacturing in non-U.S. countries, are subject to risks that are not present within U.S. markets, which include, but are not limited to, the following:
volatility of currency exchange between the U.S. dollar and currencies in international markets;
changes in local government regulations and policies including, but not limited to, foreign currency exchange controls or monetary policy, governmental embargoes, repatriation of earnings, expropriation of property, duty or tariff restrictions, investment limitations and tax policies;
political and economic instability and disruptions, including labor unrest, civil strife, acts of war, guerrilla activities, insurrection and terrorism;
legislation that regulates the use of chemicals;
disadvantages of competing against companies from countries that are not subject to U.S. laws and regulations, including the Foreign Corrupt Practices Act ("FCPA");
compliance with international trade laws and regulations, including export control and economic sanctions, such as anti-dumping duties;
difficulties in staffing and managing multi-national operations;
limitations on our ability to enforce legal rights and remedies;
tax inefficiencies in repatriating cash flow from non-U.S. subsidiaries that could affect our financial results and reduce our ability to service debt;
reduced protection of intellectual property rights; and
other risks arising out of foreign sovereignty over the areas where our operations are conducted.
In addition, we could be adversely affected by violations of the FCPA and similar worldwide anti-bribery laws as well as export controls and economic sanction laws. The FCPA and similar anti-bribery laws in other jurisdictions generally prohibit companies and their intermediaries from making improper payments to non-U.S. officials for the purpose of obtaining or retaining business.
Our acquisition and disposition agreements by which we have acquired or sold companies, include indemnification provisions that may not fully protect us and may result in unexpected liabilities.
Certain of the agreements related to the acquisition and disposition of businesses require indemnification against certain liabilities related to the operations of the company for the previous owner. We cannot be assured that any of these indemnification provisions will fully protect us, and as a result we may incur unexpected liabilities that adversely affect our profitability and financial position.
We depend on the services of key individuals and relationships, the loss of which could materially harm us.
Our success will depend, in part, on the efforts of our key leadership, including key technical, commercial and manufacturing personnel. Our future success will also depend on, among other factors, our ability to retain or attract other qualified personnel. The loss of the services of any of our key employees or the failure to retain or attract employees could have a material adverse effect on us.
Economic conditions and regulatory changes leading up to and following the United Kingdom's anticipated exit from the European Union could have a material adverse effect on our business and results of operations.
The United Kingdom's anticipated exit from the European Union and the resulting significant change to the United Kingdom's relationship with the European Union and with countries outside the European Union (and the laws, regulations and trade deals impacting business conducted between them) could disrupt the overall economic growth or stability of the United Kingdom and the European Union and negatively impact our operations. The United Kingdom is currently negotiating the terms of the anticipated exit, with the United Kingdom due to exit the European Union on March 29, 2019. There is significant uncertainty about the terms and timing under which the United Kingdom will leave the European Union. These developments, or the perception that any of them could occur, have had and may continue to have a material adverse effect on global economic conditions and the stability of global financial markets, and may significantly reduce global market liquidity and restrict the ability of key market participants to operate in certain financial markets. Any of these factors could depress economic activity and restrict our access to capital, which could have a material adverse effect on our business, financial condition and results of operations and reduce the price of our equity shares. We operate manufacturing facilities internationally, including in the United Kingdom. Accordingly, the United Kingdom's withdrawal from the European Union may have an adverse impact on our international operations, particularly in the United Kingdom.
Our reputation, ability to do business, and results of operations may be impaired by legal compliance risks.
While we strive to maintain high standards, our internal controls and compliance systems may not always protect us from acts committed by our employees, agents, or business partners that would violate U.S. and/or non-U.S. laws or adequately protect our confidential information, including the laws governing payments to government officials, bribery, fraud, anti-kickback and false claims rules, competition, export and import compliance, money laundering, and data privacy laws, as well as the improper use of proprietary information or social media. Any such allegations, violations of law or improper actions could subject us to civil or criminal investigations in the U.S. and in other jurisdictions, could lead to substantial civil or criminal, monetary and non-monetary penalties, and related shareholder lawsuits, could lead to increased costs of compliance, could damage our reputation and could have a material effect on our financial statements.
If the Cequent spin-off does not qualify as a tax-free transaction, the Company and its shareholders could be subject to substantial tax liabilities.
The separation of our former Cequent businesses from TriMas in 2015 was conditioned on our receipt of an opinion from our tax advisors, in form and substance satisfactory to us, that the distribution of shares of our Cequent businesses in the spin-off qualifies as tax-free to the Cequent businesses, the Company and our shareholders for U.S. federal income tax purposes under Sections 355 and 368(a)(1)(D) and related provisions of the U.S. Internal Revenue Code of 1986, as amended (the “Code”), the Company and other members of our consolidated tax reporting group. The opinion relied on, among other things, various assumptions and representations as to factual matters made by the Company and the Cequent businesses which, if inaccurate or incomplete in any material respect, could jeopardize the conclusions reached by our advisor in its opinion. The opinion is not binding on the Internal Revenue Service (“IRS”), or the courts, and there is no assurance that the IRS or the courts will not challenge the qualification of the spin-off as a transaction under Sections 355 and 368(a) of the Code or that any such challenge would not prevail.
If the spin-off were determined not to qualify under Section 355 of the Code, each U.S. holder of our common shares who received shares of the Cequent businesses in connection with the spin-off would generally be treated as having received a taxable distribution of property in an amount equal to the fair market value of the shares of the Cequent businesses that were received. That distribution would be taxable to each such shareholder as a dividend to the extent of our current and accumulated earnings and profits. For each such shareholder, any amount that exceeded our earnings and profits would be treated first as a non-taxable return of capital to the extent of such shareholder’s tax basis in his or her common shares of the Company with any remaining amount being taxed as a capital gain. We would be subject to tax as if we had sold common shares in a taxable sale for their fair market value and we would recognize taxable gain in an amount equal to the excess of the fair market value of such common shares over our tax basis in such common shares, which could have a material adverse impact on our financial condition, results of operations and cash flows.
Item 1B. Unresolved Staff Comments
Not applicable.
Item 2. Properties
Properties
Our principal manufacturing facilities range in size from approximately 10,000 square feet to approximately 255,000 square feet. Except as set forth in the table below, all of our manufacturing facilities are owned. The leases for our manufacturing facilities have terms that expire from 20192022 through 20292032 and are generally renewable, at our option, for various terms, provided that we are not in default under the lease agreements. Substantially all of our owned U.S. real properties are subject to liens in connection with our credit facility. OurTriMas' corporate executive offices areoffice is located in Bloomfield Hills, Michigan, under a leasewhich is leased through February 2028. Our buildings have been generally well maintained, are in good operating condition and are adequate for current production requirements.
The following list sets forth the location of our principal owned and leased manufacturing and other facilities used in continuing operations and identifies the principal reportable segment utilizing such facilities as of December 31, 2018:
| | | | | | | | | | | | | | | | | | | | | | | |
| | | Packaging | | Aerospace | | Specialty Products |
| United States: | | | | | | |
| Alabama | | | | | | Huntsville |
| Arkansas | | Atkins(1) | | | | |
| Arizona | | | | Mesa(1) Tolleson | | |
| California | | Irwindale(1)
Rohnert Park(1) | | City of Industry Commerce(1) Simi Valley(1) | |
|
| Illinois | | Woodridge(1) | | | | |
| Indiana | | Auburn
Hamilton(1) Indianapolis(1) | | | | |
| Kansas | | | | Ottawa | | |
| Michigan | | Clinton Township(1) | | | | |
| Ohio | | New Albany(1) | | | | |
| Oklahoma | | | | | | Tulsa |
| Texas | | | | | | Longview |
| | | | | | | |
| International: | | | Packaging | | Aerospace | | Specialty Products |
United States: | Canada | | | | Orangeville(1) | | |
| AlabamaChina | | Haining City(1) Hangzhou(1) | | | | Huntsville |
| ArkansasGermany | | Atkins(1)
Neunkirchen | | | | |
| ArizonaIndia | | | | Tempe(1)
Tolleson
| | |
| California | | Irwindale(1)
Rohnert Park(1)
| | City of Industry
Commerce(1)
Stanton(1)
| | |
| Indiana | | Auburn
Hamilton(1)
| | | | |
| Kansas | | | | Ottawa | | |
| Ohio | | New Albany(1)
| | | | |
| Oklahoma | | | | | | Tulsa |
| Texas | | | | | | Houston(1)
Longview
|
| | | | | | | |
International: | | | | | | |
| Belgium | | | | | | Geel, Antwerp(1)
|
| Canada | | | | | | Sarnia, Ontario(1)
|
| China | | Haining City(1)
Hangzhou(1)
| | | | |
| Germany | | Neunkirchen | | | | |
| India | | Baddi New Delhi(1) | | | | |
| MexicoItaly | | Borgo San Giovanni(1) Forli Pieve Fissiraga(1) Povolaro | | | | |
| Mexico | | San Miguel de Allende(1) | | | | |
| SingaporeSlovakia | | | | | | SingaporeLevice(1)
| | | | |
| ThailandUnited Kingdom | | Leicester | | | | Muang Rayong(1)
|
| United KingdomVietnam | | Leicester | | | | |
| Vietnam | | Thu Dau Mot(1) | | | | |
__________________________
| |
(1)Represents a leased facility. All such leases are operating leases. (1)
| Represents a leased facility. All such leases are operating leases. |
Item 3. Legal Proceedings
See Note 13,17, "Commitments and Contingencies" included in Item 8, "Financial Statements and Supplementary Data," within this Form 10-K.
Item 4. Mine Safety Disclosures
Not applicable.
Supplementary Item. Information about our Executive Officers of the Company
As of December 31, 2018,2021, the following were executive officers of the Company:
Thomas A. Amato. Mr. Amato, age 55,58, was appointed the Company's president and chief executive officer in July 2016. Previously, he served as chief executive officer and president of Metaldyne, LLC, an international engineered products manufacturing company, from 2009 through 2015, and co-president and chief integration officer of Metaldyne Performance Group, a global manufacturing company formed in mid-2014 and taken public in the same year, from August 2014 through December 2015. Prior to 2009, he served as chairman, chief executive officer, and president of Metaldyne Corporation, a global components manufacturer, and co-chief executive officer of Asahi Tec, a publicly traded Japanese casting and forging company. Prior to this, Mr. Amato worked at MascoTech in positions of increasing responsibility, and successfully completed several acquisitions and divestitures. During this time, one of his roles was vice president of corporate development for TriMas. From 1987 to 1994, Mr. Amato worked at Imperial Chemical Industries, a large multinational chemical company, as an applications development engineer and, eventually, a group leader. Mr. Amato also serves on the Board of Directors of Ametek, a publicly traded diversified industrial manufacturing company, and is appointed as its Compensation Committee Chair.
Robert J. Zalupski.Scott A. Mell. Mr. Zalupski,Mell, age 59,50, was appointed the Company’s chief financial officer in January 2015. Previously, heMay 2021. Prior to joining the Company, Mr. Mell served as vice president, finance and treasurer of the Company since 2003 and assumed responsibility for corporate development in March 2010. He joined the Company asmanaging director of financerecovery and treasury in 2002, prior to which he worked in the Detroit office of Arthur Andersen. From 1996 through 2001, Mr. Zalupski wastransformation services for Riveron, a partner in the audit andnational business advisory firm, from October 2018 through April 2021. In his role with Riveron, Mr. Mell led projects at TriMas to support continuous improvement efforts within TriMas’ Packaging and Aerospace segments. Mr. Mell has more than 25 years of leadership experience providing strategic, financial and operational advisory services practicefocused on value creation and transformational change management. Prior to Riveron, Mr. Mell served as managing director at Ernst & Young from October 2017 to October 2018. Mr. Mell also served as Vice President of Arthur Andersen providing audit, businessCorporate Strategy at Motus Integrated Technologies from January 2017 to October 2017. Mr. Mell has held senior leadership positions within several global consulting firms including McKinsey & Company and risk management services toAlixPartners. Mr. Mell’s previous experience also includes serving in multiple C-Suite roles for both public and privately held companies in the industrial manufacturing, defense,aerospace and automotiveenergy industries.
Fabio L. Matheus Salik. Mr. Salik, age 53, was appointed president of TriMas Packaging in July 2020. He has more than 20 years of global management experience working for a variety of plastic packaging companies. From 2012 to 2020, he worked for Logoplaste, a Carlyle Group-owned company which is headquartered in Portugal. In his last assignment as CEO of Americas from July 2017 to May 2020, and as Chief Operating Officer from December 2016 to July 2017, Mr. Salik had full P&L responsibility for more than 20 facilities, servicing blue-chip consumer packaged goods companies including P&G, Nestle, L’Oreal, Dannon, Reckitt Benckiser and Henkel. Prior to 1996, Mr. Zalupski held various positionshis tenure at Logoplaste, he was president of Valmari, a Brazilian skincare company. He also worked for Rexam in the United States, France and Brazil, where he served in a number of roles of increasing responsibility, within the audit practice of Arthur Andersen serving publicincluding positions like managing director worldwide for Rexam Make Up and privately held clients in a variety of industries.managing director worldwide for Rexam Healthcare - Primary Packaging and Prescription Divisions.
Joshua A. Sherbin.John P. Schaefer. Mr. Sherbin,Schaefer, age 55,50, was appointed president of TriMas Aerospace in December 2016. Previously, he served in various strategic advisory capacities for private equity firms focused in the Company’sAerospace & Defense industry. From 2010 through 2015, he served in operations and general counsel and corporate secretary in 2005, vice president and chief compliance officer in May 2008, and senior vice president in March 2016.management executive roles with TransDigm Group. Prior to joininghis leadership roles at TransDigm, he served from 2005 through 2009 as an operating executive with Meggitt PLC. Mr. Schaefer is also a 22-year veteran and retired as a Lieutenant Colonel of the Company, he was employed as the North American corporate counsel and corporate secretary for Valeo, a diversified Tier 1 international automotive supplier headquartered in Europe. Prior to joining Valeo in 1997, Mr. Sherbin was senior counsel, assistant corporate secretary for Kelly Services, Inc., an employment staffing company, from 1995 to 1997. From 1988 until 1995, he was an associate with the law firm Butzel Long in its general business practice.United States Marine Corps.
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Our common stock, par value $0.01$0.01 per share, is listed for trading on the NASDAQ Global Select Market under the symbol "TRS." As of February 22, 2019,2022, there were 222160 holders of record of our common stock.
Our credit agreement andIn 2021 our Board of Directors declared the indenture governingfirst dividend since our senior notes restrict the paymentinitial public offering in 2007. We declared dividends of dividends on$0.04 per share of common stock as suchand we did not paypaid dividends in 2018 or 2017. Our current policy isof $1.7 million for the year ended December 31, 2021. Holders of common stock are entitled to retain earnings to repay debt and financedividends at the discretion of our operations and acquisitions. Board of Directors.
See the discussion under Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources" and Note 1020 to the Company's financial statements captioned "Long-term Debt,Earnings per Share," included in Item 8, "Financial Statements and Supplementary Data," within this Form 10-K.
Performance GraphsGraph
The following graph compares the cumulative total stockholder return from December 31, 20132016 through December 31, 20182021 for TriMas common stock, the Russell 2000 Index and the S&P SmallCap 600 Capped Industrials Index. We have assumed that dividends have been reinvested (and taking into account the value of Horizon Global shares distributed in the spin-off) and returns have been weighted-averaged based on market capitalization. The graph assumes that $100 was invested on December 31, 2013 in each of TriMas common stock, the stocks comprising the Russell 2000 Index and the stocks comprising the S&P SmallCap 600 Capped Industrials Index.
The following graph also compares TriMas common stock, the Russell 2000 Index and the S&P SmallCap 600 Capped Industrials Index, but displays the cumulative total stockholder return over a three year period from December 31, 2015 through December 31, 2018. Management believes this comparison of more recent relative returns is helpful information, as it highlights TriMas' improved results following the implementation of the TriMas Business Model in 2016. The TriMas Business Model is the common framework under which we operate our multi-industry set of business. We have assumed that dividends have been reinvested and returns have been weighted-averaged based on market capitalization. The graph assumes that $100 was invested on December 31, 20152016 in each of TriMas common stock, the stocks comprising the Russell 2000 Index and the stocks comprising the S&P SmallCap 600 Capped Industrials Index.
Issuer Purchases of Equity Securities
The following table provides information about purchases made by the Company, or on behalf of the Company by an affiliated purchaser, of shares of the Company's common stock during the three months ended December 31, 2018.2021.
|
| | | | | | | | | | | | | | |
| Period | | Total Number of Shares Purchased | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1) | | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program (1) |
| October 1, 2018 to October 31, 2018 | | 112,036 |
| | $ | 27.76 |
| | 112,036 |
| | $ | 43,298,871 |
|
| November 1, 2018 to November 30, 2018 | | — |
| | $ | — |
| | — |
| | $ | 43,298,871 |
|
| December 1, 2018 to December 31, 2018 | | 206,458 |
| | $ | 26.39 |
| | 206,458 |
| | $ | 37,851,045 |
|
| Total | | 318,494 |
| | $ | 26.87 |
| | 318,494 |
| | $ | 37,851,045 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Period | | Total Number of Shares Purchased | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1) | | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program (1) |
| October 1, 2021 to October 31, 2021 | | — | | | $ | — | | | — | | | $ | 143,540,446 | |
| November 1, 2021 to November 30, 2021 | | 25,000 | | | $ | 35.61 | | | 25,000 | | | $ | 142,650,103 | |
| December 1, 2021 to December 31, 2021 | | 1,000 | | | $ | 34.75 | | | 1,000 | | | $ | 142,615,349 | |
| Total | | 26,000 | | | $ | 35.58 | | | 26,000 | | | $ | 142,615,349 | |
__________________________
| |
(1)
| Pursuant to a publicly announced share repurchase program from November 2015, during the three months ended December 31, 2018, the Company repurchased 318,494 shares of its common stock at a cost of approximately $8.6 million. The share repurchase program, pursuant to which the Company is authorized to purchase up to $50 million in aggregate of its common stock, is effective and has no expiration date. On February 28, 2019, the Company announced that its Board of Directors increased the Company’s common stock share repurchase authorization to $75 million in the aggregate. The increased authorization includes the value of shares already purchased under the previous authorization. |
(1) In March 2020, the Company announced its Board of Directors had authorized the Company to increase the purchase of its common stock up to $250 million in the aggregate from its previous authorization of $150 million. The increased authorization includes the value of shares already purchased under the previous authorization. Pursuant to this share repurchase program, during the three months ended December 31, 2021, the Company repurchased 26,000 shares of its common stock at a cost of approximately $0.9 million. The share repurchase program is effective and has no expiration date.
Item 6. Selected Financial Data
The financial data for each of the five years presented has been derived from our financial statements and notes to those financial statements, which have been audited by Deloitte & Touche LLP. The following data should be read in conjunction with Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," and our audited financial statements included in Item 8, "Financial Statements and Supplementary Data," within this Form 10-K. The following tables set forth our selected historical financial data from continuing operations for the five years ended December 31, 2018 (dollars and shares in thousands, except per share data).Reserved.
|
| | | | | | | | | | | | | | | | | | | | |
| | | Year ended December 31, |
| | | 2018 | | 2017 | | 2016 | | 2015 | | 2014 |
| Statement of Operations Data: | | | | | | | | | | |
| Net sales | | $ | 877,140 |
| | $ | 817,740 |
| | $ | 794,020 |
| | $ | 863,980 |
| | $ | 887,300 |
|
| Gross profit | | 244,120 |
| | 219,390 |
| | 210,800 |
| | 236,430 |
| | 237,250 |
|
Operating profit (loss) (a) | | 122,070 |
| | 89,170 |
| | (41,930 | ) | | (3,170 | ) | | 87,460 |
|
Income (loss) from continuing operations (a) | | 83,300 |
| | 30,960 |
| | (39,800 | ) | | (28,660 | ) | | 46,890 |
|
| Per Share Data: | | | | | | | | | | |
| Basic: | | | | | | | | | | |
Continuing operations (a) | | $ | 1.82 |
| | $ | 0.68 |
| | $ | (0.88 | ) | | $ | (0.64 | ) | | $ | 1.03 |
|
| Weighted average shares | | 45,825 |
| | 45,683 |
| | 45,407 |
| | 45,124 |
| | 44,882 |
|
| Diluted: | | | | | | | | | | |
Continuing operations (a) | | $ | 1.80 |
| | $ | 0.67 |
| | $ | (0.88 | ) | | $ | (0.64 | ) | | $ | 1.02 |
|
| Weighted average shares | | 46,170 |
| | 45,990 |
| | 45,407 |
| | 45,124 |
| | 45,269 |
|
|
| | | | | | | | | | | | | | | | | | | | |
| | | Year ended December 31, |
| | | 2018 | | 2017 | | 2016 | | 2015 | | 2014 |
| Balance Sheet Data: | | | | | | | | | | |
Total assets (b) | | $ | 1,100,520 |
| | $ | 1,033,200 |
| | $ | 1,051,650 |
| | $ | 1,170,300 |
| | $ | 1,625,430 |
|
Total debt (b) | | 293,560 |
| | 303,080 |
| | 374,650 |
| | 419,630 |
| | 630,810 |
|
Goodwill and other intangibles (a) | | 491,180 |
| | 513,610 |
| | 529,000 |
| | 652,790 |
| | 757,500 |
|
__________________________
| |
(a)
| During 2016 and 2015, we recorded goodwill and indefinite-lived intangible asset impairment charges totaling approximately $98.9 million and $75.7 million, respectively. See Note 6, "Goodwill and Other Intangibles Assets," included in Item 8, "Financial Statements and Supplementary Data," within this Form 10-K for further information.
|
| |
(b)
| During 2015, we completed the spin-off of our Cequent businesses, thereby reducing the amount of our total assets and total debt as compared to prior periods. Total assets at December 31, 2014 include approximately $333.3 million of assets related to our Cequent businesses. |
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
The statements in the discussion and analysis regarding industry outlook, our expectations regarding the performance of our business and the other non-historical statements in the discussion and analysis are forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described in Item 1A "Risk Factors." Our actual results may differ materially from those contained in or implied by any forward-looking statements. You should read the following discussion together with Item 8, "Financial Statements and Supplementary Data."
Introduction
We areTriMas designs, develops and manufactures a diversified global manufacturer and providerdiverse set of products primarily for customers in the consumer products, aerospace & defense and industrial petrochemical, refinery,markets through its TriMas Packaging, TriMas Aerospace and oil and gas end markets.Specialty Products groups. Our wide range of innovative product solutionsproducts are engineereddesigned and designedengineered to solve application-specific challenges that our customers face. We believe our businesses share important and distinguishing characteristics, including: well-recognized and leading brand names in the focused markets we serve; innovative product technologies and features; a high-degree of customer approved processes and qualified products;qualifications; established distribution networks; relatively low ongoing capital investment requirements; strong cash flow conversion and long-term growth opportunities. While the majority of our revenue is in the United States, we manufacture and supply products globally to a wide range of companies. We are principally engagedreport our business activity in three reportable segments: Packaging, Aerospace and Specialty Products.
Key Factors and Risks Affecting Our Reported Results
Our businesses and results of operations depend upon general economic conditions. We serve customers in cyclical industries that are highly competitive, cyclical and are themselvesthat may be significantly impacted by changes in economic or geopolitical conditions.
There were six significant factors impactingIn March 2020, the President of the United States declared the coronavirus ("COVID-19") outbreak a national emergency, as the World Health Organization determined it was a pandemic. In response to the COVID-19 pandemic, federal, provincial, state, county and local governments and public health organizations or authorities around the world implemented a variety of measures intended to control the spread of the virus, including quarantines, "shelter-in-place" or "stay-at-home" and similar orders, travel restrictions, business curtailments and closures, social distancing, personal hygiene requirements, and other measures.
We have been, and continue to be, focused on making sure the working environments for our reported results in 2018 compared with 2017.
The first factor was an increase in sales levels across mostemployees are safe so our operations have the ability to deliver the products needed to support efforts to mitigate the COVID-19 pandemic. Nearly all of our end markets. manufacturing sites have been deemed essential operations and remained open during the COVID-19 pandemic, at varying levels of capacity and efficiency, experiencing only temporary shutdowns due to country-specific government mandates or for thorough cleaning as a result of suspected COVID-19 cases. The health of our employees, and the ability of our facilities to remain operational in the current regulated environment, will be critical to our future results of operations.
Our 2018divisions were impacted in 2020 at differing levels and times, beginning with our Asian facilities and strategic supply network, both primarily in China, in late January, followed by our European (primarily Italy) and North American facilities in February and March. We implemented new work rules and processes, which promote social distancing and increased hygiene to ensure the safety of our employees, particularly at our production facilities. These measures, while not easily quantifiable, have increased the level of manufacturing inefficiencies due to elevated levels of absenteeism, resulting in less efficient production scheduling and, in certain cases, short-term idling of production. We expect that we will continue to operate with these protocols in place for the foreseeable future.
Overall, 2021 net sales increased by 7.3%approximately $87.1 million, or 11.3%, compared with 2017, with increasesto 2020, primarily as a result of increased industrial demand in each of our three reportable segments. The sales increase was driven primarily by growth in our health, beauty and home care end market within our Packaging reportable segment, and higher sales levels of steel cylinder and oil and gas-related products within our Specialty Products reportablesegment, acquisitions in our Packaging segment and the impact of customers' stocking orders within our Aerospace segment. WeThese increases were partially offset by a decline in sales of our Packaging segment's dispensing and closure products that are used in applications to fight the spread of germs, which sales reached record-high levels in 2020 when there was a significant spike in demand following the onset of the COVID-19 pandemic, but now have abated to what we believe general industrial activity levels have beenis a new, and higher, normalized level.
The most significant drivers affecting our results of operations in 2018 versus 2017, particularly2021 compared with 2020, other than as directly impacted by demand level changes as a result of the COVID-19 pandemic, were goodwill and intangible asset impairment charges in 2020 in our Aerospace segment, our election to change our accounting policy for asbestos-related defense costs in 2020, realignment actions we undertook in response to reduced end-market demand following the outbreak of the COVID-19 pandemic, the impact of our recent acquisitions, increases in the United States,cost of certain raw materials, the refinancing of our long term debt in 2021 and we were well positioned to take advantagethe recognition of the incremental volume opportunities.benefit of certain tax planning strategies.
During 2020, we determined there was continued positive momentum as we further leverageda triggering event requiring an interim quantitative impairment assessment for goodwill and indefinite-lived intangible assets within our Aerospace segment. While third quarter 2020 operating results were below pre-pandemic projected levels, the TriMas Business Model ("TBM"), which provideslarger driver of the triggering event was a significant reduction in the July 2020 financial projection update for a common platform to operatethe remainder of 2020 compared with prior projections, and manageuncertainty around the duration and magnitude of the impact of the COVID-19 pandemic on future financial results given the dependence of our multi-industry setAerospace segment reporting units on future levels of businesses. Usingair travel and new aircraft builds. We determined the TBM, we drive and leverage operating improvements through Kaizen and continuous improvement activities,carrying value of both of our Aerospace reporting units, as well as continuously evaluate, realignof certain trade names, exceeded the fair value, resulting in non-cash, pre-tax impairment charges of approximately $126.8 million to goodwill and streamline fixed$7.8 million to indefinite lived intangible assets.
During 2020, we elected to change our accounting policy for asbestos-related defense costs from accruing for probable and reasonably estimable defense costs associated with known claims expected to settle to accruing for all future defense costs for both known and unknown claims, which we now believe can be reasonably estimated. This accounting change has been reflected as a change in accounting estimate effected by a change in accounting principle. We recorded a non-cash, pre-tax charge in second quarter 2020 for asbestos-related costs of approximately $23.4 million, which is included in selling, general and administrative expenses. Operating underIn 2021, we commissioned our actuary to update the TBM contributed to increased operating profitasbestos study based on higher sales levels,data as we leveraged our fixed costs at a greater rate than in 2017.
The third factor affecting our year-over-year results was the enactment of the Tax Cuts and Jobs Act (the "Tax Reform Act") on December 22, 2017. We adopted the new legislation in the fourth quarter of 2017,September 30, 2021, and recorded one-time provisional chargesa non-cash, pre-tax charge of approximately $12.7 million related to taxing previously deferred foreign income and revaluing our net deferred tax assets. In 2018, we finalized these provisional charges, resulting in a tax benefit of approximately $0.4 million. The impact of these one-time charges resulting from adopting the Tax Reform Act, as well as the impact from the reduction in the U.S. Federal corporate tax rate from 35% to 21%, are the primary reasons for the decrease in our overall effective tax rate from 53.2% in 2017 to 21.4% in 2018.
The fourth factor impacting our 2018 results was an increase of approximately $7 million in material costs over 2017 levels, primarily related to oil and metal-based commodities. These increases primarily impacted our Packaging and Specialty Products reportable segments. Historically, we have been able to work with our suppliers to manage costs. Tactics we employ in mitigating commodity cost increases include commercial pricing adjustments, both contractual and negotiated, resourcing to alternate suppliers to secure better pricing or avoid import and transportation costs, and insourcing to better leverage our global manufacturing footprint. Certain of these measures take time, and in some cases some investment, to implement. We worked diligently on these efforts in 2018, and we believe we recovered or mitigated the majority of the cost increases. Historically, we have been generally able to mitigate the impact of increased commodity costs over time.
The fifth factor impacting our reported results was an adjustment in 2018 to terminate a legacy liability of approximately $8.2$1.5 million, which resultedis included in a reduction to corporate office selling, general and administrative expenses. Priorexpenses, to 2002,increase the liability estimate.
Beginning in second quarter 2020, we were wholly-owned by Metaldyne Corporationhave been executing certain realignment actions in response to reductions in current and expected future end market demand following the onset of the COVID-19 pandemic. We recorded pre-tax facility consolidation and employee separation costs of approximately $3.5 million and $6.2 million, respectively, in 2021. In 2020, we recorded a pre-tax charge of approximately $13.8 million related to inventory reductions, primarily as a result of a strategic decision in our Arrow Engine division to streamline its product line offering. We also recorded charges of approximately $2.3 million related to certain production equipment removed from service given reduced demand levels, and employee separation costs of approximately $3.8 million.
In December 2021, we completed the acquisition of Omega Plastics ("Metaldyne"Omega"). , which specializes in manufacturing custom components and devices for drug delivery, diagnostic and orthopedic medical applications, as well as components for industrial applications, for an aggregate amount of approximately $22.5 million, net of cash acquired. Omega, which is reported in the Company's Packaging segment, is located in Clinton Township, Michigan. Omega contributed approximately $0.7 million of net sales during 2021.
In connectionDecember 2021, we acquired TFI Aerospace ("TFI"), a manufacturer and supplier of specialty fasteners used in a variety of applications, predominately for the aerospace end market, for an aggregate amount of approximately $11.8 million, with the reorganization between TriMas and Metaldyne in June 2002, we assumed certain liabilities and obligations of Metaldyne, mainly comprised of contractual obligationsadditional contingent consideration ranging from zero to former TriMas employees, tax-related matters, benefit plan liabilities and reimbursements to Metaldyne of normal course paymentsapproximately $12.0 million to be madepaid based on TriMas' behalf. Metaldyne2023 and its U.S. subsidiaries filed voluntary petitions2024 earnings per the purchase agreement. TFI, which is reported in the Company's Aerospace segment, is located near Toronto, Canada. TFI contributed approximately $0.3 million of net sales during 2021.
In December 2020, we completed the acquisition of Affaba & Ferrari Srl ("Affaba & Ferrari"), which specializes in the design, development and manufacture of precision caps and closures for food & beverage and industrial product applications, for an aggregate amount of approximately $98.4 million, net of cash acquired. Affaba & Ferrari, which is reported in our Packaging segment, operates out of a highly automated manufacturing facility and support office located in Borgo San Giovanni, Italy. Affaba & Ferrari contributed approximately $36.3 million of incremental net sales during 2021.
In April 2020, we acquired the Rapak brand, including certain bag-in-box product lines and assets ("Rapak") for an aggregate amount of approximately $11.4 million. Rapak, which is reported in our Packaging segment, has two manufacturing locations in the United States Bankruptcy Court under Chapter 11States. Rapak contributed approximately $5.3 million of incremental net sales resulting from the January through March 2021 sales. Rapak has been performing below break-even operating profit as demand for its products, particularly those used in quick service restaurant applications, has significantly declined from pre-acquisition levels in 2019 due to the impact of the U.S. Bankruptcy CodeCOVID-19 pandemic.
In February 2020, we completed the acquisition of RSA Engineered Products ("RSA"), a provider of highly-engineered and proprietary components for air management systems used in 2009. critical flight applications, for an aggregate amount of approximately $83.7 million, net of cash acquired. RSA, located in Simi Valley, California, designs, engineers and manufactures highly-engineered components, including air ducting products, connectors and flexible joints, predominantly used in aerospace and defense engine bleed air, anti-icing and environmental control system applications. RSA contributed approximately $4.3 million of incremental net sales resulting from January and February 2021 sales.
In January 2018,first quarter 2021, we began experiencing an increase in material costs compared with 2020 levels, primarily for resin-based raw materials and components, as well as for certain types of steel. These material costs further increased throughout 2021. We have escalator/de-escalator clauses in our commercial contracts with certain of our customers, or can modify prices based on market conditions, and we have been taking actions to recover the U.S. Bankruptcy Court entered a final decreeincreased cost of raw materials. However, given the lag nature of the commercial pricing mechanisms, we have and will continue to close all remaining casesexperience net earnings pressure until resin costs begin to stabilize and/or decline for several consecutive months. We estimate that due to the lag in timing between incurring the cost increases and finalize the Metaldyne bankruptcy distribution trust, effectively terminating any potential obligationrecovering via commercial actions, our operating profit was negatively impacted by TriMas to Metaldyne.approximately $11 million in 2021, compared with 2020, primarily in our Packaging segment.
The sixth factor impacting our reported results was the refinancing ofIn 2021, we refinanced our long-term debt, in September 2017, whereby we issued $300issuing $400 million aggregate principal amount of 4.875%4.125% senior unsecured notes due October 2025April 15, 2029 ("2029 Senior Notes") at par value in a private placement offering. Proceedsunder Rule 144A of the Securities Act of 1933, as amended, and amending our existing credit agreement ("Credit Agreement"), extending the maturity to March 2026. We used the proceeds from the 2029 Senior Notes offering to pay fees and expenses of approximately $5.1 million related to the offering and approximately $1.1 million related to amending the Credit Agreement. The remaining cash proceeds from the 2029 Senior Notes were used to repayfor general corporate purposes, including repaying all outstanding obligationsrevolving credit facility borrowings and redeeming all of our formeroutstanding senior secured term loan A facilitynotes due 2020October 2025 ("Term Loan A Facility"2025 Senior Notes"), repaypaying cash for the entire $300.0 million outstanding principal amount plus $7.3 million as a portionredemption premium. The $5.1 million of outstanding obligations under our accounts receivable facility and pay fees and expenses related to the refinancing. In connection2029 Senior Notes were capitalized as debt issuance costs, while the $7.3 million redemption premium as well as approximately $3.0 million of unamortized debt issuance costs associated with the 2025 Senior Notes offering,were expensed in 2021.
In addition, our effective tax rate for 2021 was 17.1%, compared to 22.3% for 2020. We recorded income tax expense of approximately $11.9 million in 2021, as compared to an income tax benefit of $23.0 million in 2020. During 2021, we reported domestic and foreign pre-tax income of approximately $28.4 and $40.7 million, respectively, as compared to a 2020 domestic pre-tax loss of approximately $134.6 million and foreign pre-tax income of approximately $31.9 million. The rate for 2021 includes the impact of income tax incentives in a foreign jurisdiction, the impact of certain non-deductible expenses and an increase in the statutory tax rate in another foreign jurisdiction which increased the value of certain deferred tax assets. The effective tax rate for 2020 was impacted by a decrease in profitability in the U.S. resulting from various one-time charges, including impairment of goodwill and indefinite-lived intangible assets and a change in our accounting policy for asbestos-related defense costs. During 2020, we also amendedundertook certain tax-planning actions with respect to restructuring our existing credit agreement ("Credit Agreement") to increaseintercompany debt, resulting in the levelrecognition of permitted foreign currency borrowings, resize our revolving loan commitments and extend the maturity to September 2022. We believe the refinancing enhanced our capital structure, and also extended maturity dates and locked-in fixed rate debt at favorable long-term rates. We paid fees and expenses of approximately $10.8a $6.4 million in connection with refinancing-related activities, of which approximately $6.0 million was capitalized as deferred financing fees and $4.8 million was expensed, which was primarily related to the termination of interest rate swap agreements. In addition, we recorded non-cash charges of approximately $2.0 million related to the write-off of previously capitalized deferred financing fees.tax benefit.
Additional Key Risks that May Affect Our Reported Results
CriticalWe expect the COVID-19 pandemic will continue to impact us in the future at varying degrees. We expect the robust customer demand, compared with pre-pandemic demand levels, for our Packaging segment's dispensing pumps and closure products used in personal care and home care applications will continue, albeit with some reduction from the surge experienced in 2020 and early 2021, as we believe there is a positive secular trend focused on consumers' desire to stop the spread of germs and improve personal hygiene. Industrial demand in North America was lower in 2020 compared to previous levels, and while demand levels significantly increased in 2021, we are uncertain how and at what level demand will be impacted as governmental, travel or other restrictions are lifted, particularly in North America, where orders for our industrial cylinders, for example, are heavily influenced by the levels of construction and HVAC activity. We expect the aerospace market to continue to experience severe dislocation going forward, as except for the significant stocking orders for certain of our products received during 2021, our sales levels would be significantly lower than historical levels. With the current travel restrictions and sentiment, particularly low for international travel, aircraft manufacturers have slowed production, and since second quarter 2020 we have experienced a significant drop in aerospace-related sales related to new commercial airplane builds compared to prior levels. We expect, except as favorably impacted by the customers' stocking orders in 2021, lower levels of sales and related production to continue for the foreseeable future.
We have executed significant realignment actions since the onset of the COVID-19 pandemic, primarily in our Aerospace and Specialty Products segments, and also in certain Packaging product areas where demand has fallen, such as in the quick service and restaurant applications, to protect against the uncertain end market demand. We will continue to assess further actions if required. However, as a result of the COVID-19 pandemic's impact on global economic activity, and the continued potential impact to our future results of operations, as well if there is an impact to TriMas' market capitalization, we may record additional cash and non-cash charges related to incremental realignment actions, as well as for uncollectible customer account balances, excess inventory and idle production equipment.
Despite the potential decline in future demand levels and results of operations as a result of the COVID-19 pandemic, at present, we believe our capital structure is in a solid position. We have ample cash and available liquidity under our revolving credit facility to meet our debt service obligations, capital expenditure requirements and other short-term and long-term obligations for the foreseeable future.
The extent of the COVID-19 pandemic's effect on our operational and financial performance will depend in large part on future
developments, which cannot be predicted with confidence at this time. Future developments include the duration, scope and severity of the COVID-19 pandemic, the actions taken to contain or mitigate its impact, timing of widespread vaccine availability, and the resumption of normalized global economic activity. Due to the inherent uncertainty of the unprecedented and rapidly evolving situation, we are unable to predict with any confidence the likely impact of the COVID-19 pandemic on our future operations.
Beyond the unique risks presented by the COVID-19 pandemic, other critical factors affecting our ability to succeed include: our ability to create organic growth through product development, cross-selling and extending product-line offerings, and our ability to quickly and cost-effectively introduce and successfully launch new products; our ability to acquire and integrate companies or products that supplement existing product lines, add new distribution channels or customers, expand our geographic coverage or enable better absorption of overhead costs; our ability to manage our cost structure more efficiently via supply basechain management, internal sourcing and/or purchasing of materials, selective outsourcing and/or purchasing of support functions, working capital management, and greater leverage of our administrative functions.
Our overall business does not experience significant seasonal fluctuation, other than our fourth quarter, which has tended to be the lowest net sales quarter of the year due to holiday shutdowns at certain customers or other customers deferring capital spending to the following year. Given the short-cycle nature of most of our businesses, we do not consider sales order backlog to be a material factor. A growing amount of our sales is derived from international sources, which exposes us to certain risks, including currency risks.
We are sensitive to price movements inand availability of our raw materials supply base.supply. Our largest raw material purchases are for resins (such as polypropylene and polyethylene), steel, aluminum and other oil and metal-based purchased components. In addition to the factors affecting our 2021 results, there has been some volatility over the past two years as a direct and indirect result of foreign trade policy, where tariffs on certain of our commodity-based products sourced from Asia have been instituted, and certain North American suppliers have opportunistically increased their prices. We will continue to take actions to mitigate such increases, including implementing commercial pricing adjustments, resourcing to alternate suppliers and insourcing of previously sourced products to better leverage our global manufacturing footprint. Although we believe we are generally able to mitigate the impact of higher commodity costs over time, we may experience additional material costs and disruptions in supply in the future and may not be able to pass along higher costs to our customers in the form of price increases.increases or otherwise mitigate the impacts to our operating results.
Certain of our businesses in our Specialty Products reportable segment are sensitive to the demand for natural gas and crude oil in North America. For example, our Arrow Engine business is most directly impacted by these factors, as its engine, pump jack and compressor products are impacted by oil and gas rig counts and well completion activities. In addition, a portion of our Lamons business serves upstream customers at oil well sites that are impacted by fluctuating oil prices. The majority of this business provides parts for oil refineries and petrochemical plants, which may or may not decide to incur capital expenditures for their preventive maintenance or capacity expansion activities, both of which require use of our gaskets and bolts, in times of fluctuating oil prices. Separately, oil-based commodity costs are a significant driver of raw materials and purchased components used within our Packaging reportable segment. Although we have escalator/de-escalator clauses in commercial contracts with certain of our customers, or can modify prices based on market conditions to recover higher costs, our price increases generally lag the underlying material cost increase, and we cannot be assured of full cost recovery in the open market. If input costs increase at rapid rates, as they did during 2021, our ability to recover cost increases on a timely basis, much less at all, is made more difficult by the lag nature of these contracts.
Our Arrow Engine business in our Specialty Products segment is sensitive to the demand for natural gas and crude oil in North America. For example, demand for engine, pump jack and compressor products are impacted by active oil and gas rig counts and wellhead investment activities. Separately, oil-based commodity costs are a significant driver of raw materials and purchased components used within our Packaging segment.
Each year, as a core tenet of the TBM,TriMas Business Model, our businesses target cost savings from Kaizen and continuous improvement initiatives in an effort to lowerreduce, or otherwise offset, the impact of increased input and conversion costs or increasethrough increased throughput and yield rates, with a goal of at least covering inflationary and market cost increases. In addition, we continuously review our costsoperating cost structures to ensure alignment with current market demand.
As our businesses continue to generate cash, weWe continue to evaluate strategiesalternatives to redeploy the cash generated by our cash,businesses, one of which includes returning capital to our shareholders. In November 2015, we announced2020, our Board of Directors had authorized usincreased the authorization of share repurchases to purchase up to $50 million in the aggregatea cumulative amount of our common stock. In 2018,$250 million. During 2021, we purchased 442,632596,084 shares of our outstanding common stock for approximately $12.1 million. The 2018 share purchases represent$19.1 million. As of December 31, 2021, we had approximately $142.6 million remaining under the first stock buyback activity under thisrepurchase authorization.
On February 28, 2019, we announced
In addition, in 2021 our Board of Directors increased this authorization to $75declared the first dividend since our initial public offering in 2007. We declared dividends of $0.04 per share of common stock and we paid dividends of $1.7 million which includesfor the value of shares already purchased under the previous authorization. year ended December 31, 2021. We will continue to evaluate opportunities to return capital to shareholders through the purchase of our common stock as well as dividends, depending on market conditions and other factors.
Segment Information and Supplemental Analysis
The following table summarizes financial information for our three reportable segments (dollars in thousands): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Year ended December 31, |
| | 2021 | | As a Percentage of Net Sales | | 2020 | | As a Percentage of Net Sales | | 2019 | | As a Percentage of Net Sales |
| Net Sales | | | | | | | | | | | | |
| Packaging | | $ | 533,260 | | | 62.2 | % | | $ | 488,340 | | | 63.4 | % | | $ | 392,340 | | | 54.2 | % |
| Aerospace | | 183,340 | | | 21.4 | % | | 167,740 | | | 21.8 | % | | 194,110 | | | 26.8 | % |
| Specialty Products | | 140,510 | | | 16.4 | % | | 113,890 | | | 14.8 | % | | 137,080 | | | 19.0 | % |
| Total | | $ | 857,110 | | | 100.0 | % | | $ | 769,970 | | | 100.0 | % | | $ | 723,530 | | | 100.0 | % |
| Gross Profit | | | | | | | | | | | | |
| Packaging | | $ | 145,750 | | | 27.3 | % | | $ | 142,410 | | | 29.2 | % | | $ | 116,180 | | | 29.6 | % |
| Aerospace | | 39,970 | | | 21.8 | % | | 27,020 | | | 16.1 | % | | 53,060 | | | 27.3 | % |
| Specialty Products | | 31,470 | | | 22.4 | % | | 12,650 | | | 11.1 | % | | 24,660 | | | 18.0 | % |
| Total | | $ | 217,190 | | | 25.3 | % | | $ | 182,080 | | | 23.6 | % | | $ | 193,900 | | | 26.8 | % |
| Selling, General and Administrative | | | | | | | | | | | | |
| Packaging | | $ | 49,110 | | | 9.2 | % | | $ | 47,850 | | | 9.8 | % | | $ | 35,340 | | | 9.0 | % |
| Aerospace | | 26,690 | | | 14.6 | % | | 25,550 | | | 15.2 | % | | 24,070 | | | 12.4 | % |
| Specialty Products | | 8,950 | | | 6.4 | % | | 7,890 | | | 6.9 | % | | 8,620 | | | 6.3 | % |
| Corporate expenses | | 37,220 | | | N/A | | 53,190 | | | N/A | | 34,500 | | | N/A |
| Total | | $ | 121,970 | | | 14.2 | % | | $ | 134,480 | | | 17.5 | % | | $ | 102,530 | | | 14.2 | % |
| Operating Profit (Loss) | | | | | | | | | | | | |
| Packaging | | $ | 96,490 | | | 18.1 | % | | $ | 93,990 | | | 19.2 | % | | $ | 80,770 | | | 20.6 | % |
| Aerospace | | 13,270 | | | 7.2 | % | | (133,440) | | | (79.6) | % | | 28,950 | | | 14.9 | % |
| Specialty Products | | 22,550 | | | 16.0 | % | | 4,350 | | | 3.8 | % | | 16,000 | | | 11.7 | % |
| Corporate | | (37,220) | | | N/A | | (53,190) | | | N/A | | (34,500) | | | N/A |
| Total | | $ | 95,090 | | | 11.1 | % | | $ | (88,290) | | | (11.5) | % | | $ | 91,220 | | | 12.6 | % |
| Capital Expenditures | | | | | | | | | | | | |
| Packaging | | $ | 34,080 | | | 6.4 | % | | $ | 30,730 | | | 6.3 | % | | $ | 16,400 | | | 4.2 | % |
| Aerospace | | 5,390 | | | 2.9 | % | | 5,770 | | | 3.4 | % | | 8,110 | | | 4.2 | % |
| Specialty Products | | 5,500 | | | 3.9 | % | | 3,890 | | | 3.4 | % | | 5,090 | | | 3.7 | % |
| Corporate | | 90 | | | N/A | | 90 | | | N/A | | 70 | | | N/A |
| Total | | $ | 45,060 | | | 5.3 | % | | $ | 40,480 | | | 5.3 | % | | $ | 29,670 | | | 4.1 | % |
| Depreciation | | | | | | | | | | | | |
| Packaging | | $ | 20,950 | | | 3.9 | % | | $ | 18,330 | | | 3.8 | % | | $ | 15,070 | | | 3.8 | % |
| Aerospace | | 7,140 | | | 3.9 | % | | 7,110 | | | 4.2 | % | | 6,560 | | | 3.4 | % |
| Specialty Products | | 3,670 | | | 2.6 | % | | 3,450 | | | 3.0 | % | | 2,960 | | | 2.2 | % |
| Corporate | | 130 | | | N/A | | 130 | | | N/A | | 280 | | | N/A |
| Total | | $ | 31,890 | | | 3.7 | % | | $ | 29,020 | | | 3.8 | % | | $ | 24,870 | | | 3.4 | % |
| Amortization | | | | | | | | | | | | |
| Packaging | | $ | 9,550 | | | 1.8 | % | | $ | 9,270 | | | 1.9 | % | | $ | 9,580 | | | 2.4 | % |
| Aerospace | | 11,560 | | | 6.3 | % | | 11,020 | | | 6.6 | % | | 8,530 | | | 4.4 | % |
| Specialty Products | | 450 | | | 0.3 | % | | 460 | | | 0.4 | % | | 520 | | | 0.4 | % |
| Corporate | | — | | | N/A | | — | | | N/A | | — | | | N/A |
| Total | | $ | 21,560 | | | 2.5 | % | | $ | 20,750 | | | 2.7 | % | | $ | 18,630 | | | 2.6 | % |
|
| | | | | | | | | | | | | | | | | | | | | |
| | | Year ended December 31, |
| | | 2018 | | As a Percentage of Net Sales | | 2017 | | As a Percentage of Net Sales | | 2016 | | As a Percentage of Net Sales |
| Net Sales | | | | | | | | | | | | |
| Packaging | | $ | 368,200 |
| | 42.0 | % | | $ | 344,570 |
| | 42.1 | % | | $ | 341,340 |
| | 43.0 | % |
| Aerospace | | 185,920 |
| | 21.2 | % | | 184,310 |
| | 22.6 | % | | 174,920 |
| | 22.0 | % |
| Specialty Products | | 323,020 |
| | 36.8 | % | | 288,860 |
| | 35.3 | % | | 277,760 |
| | 35.0 | % |
| Total | | $ | 877,140 |
| | 100.0 | % | | $ | 817,740 |
| | 100.0 | % | | $ | 794,020 |
| | 100.0 | % |
| Gross Profit | | | | | | | | | | | | |
| Packaging | | $ | 119,620 |
| | 32.5 | % | | $ | 116,620 |
| | 33.8 | % | | $ | 121,030 |
| | 35.5 | % |
| Aerospace | | 49,630 |
| | 26.7 | % | | 48,910 |
| | 26.5 | % | | 35,660 |
| | 20.4 | % |
| Specialty Products | | 74,870 |
| | 23.2 | % | | 53,860 |
| | 18.6 | % | | 54,110 |
| | 19.5 | % |
| Total | | $ | 244,120 |
| | 27.8 | % | | $ | 219,390 |
| | 26.8 | % | | $ | 210,800 |
| | 26.5 | % |
| Selling, General and Administrative | | | | | | | | | | | | |
| Packaging | | $ | 35,030 |
| | 9.5 | % | | $ | 38,310 |
| | 11.1 | % | | $ | 42,030 |
| | 12.3 | % |
| Aerospace | | 22,340 |
| | 12.0 | % | | 22,370 |
| | 12.1 | % | | 27,170 |
| | 15.5 | % |
| Specialty Products | | 40,360 |
| | 12.5 | % | | 36,910 |
| | 12.8 | % | | 49,850 |
| | 17.9 | % |
| Corporate expenses | | 24,070 |
| | N/A |
| | 31,550 |
| | N/A |
| | 32,910 |
| | N/A |
|
| Total | | $ | 121,800 |
| | 13.9 | % | | $ | 129,140 |
| | 15.8 | % | | $ | 151,960 |
| | 19.1 | % |
| Operating Profit (Loss) | | | | | | | | | | | | |
| Packaging | | $ | 84,590 |
| | 23.0 | % | | $ | 80,610 |
| | 23.4 | % | | $ | 78,630 |
| | 23.0 | % |
| Aerospace | | 27,290 |
| | 14.7 | % | | 26,410 |
| | 14.3 | % | | (90,540 | ) | | (51.8 | )% |
| Specialty Products | | 34,260 |
| | 10.6 | % | | 12,280 |
| | 4.3 | % | | 2,900 |
| | 1.0 | % |
| Corporate | | (24,070 | ) | | N/A |
| | (30,130 | ) | | N/A |
| | (32,920 | ) | | N/A |
|
| Total | | $ | 122,070 |
| | 13.9 | % | | $ | 89,170 |
| | 10.9 | % | | $ | (41,930 | ) | | (5.3 | )% |
| Capital Expenditures | | | | | | | | | | | | |
| Packaging | | $ | 13,590 |
| | 3.7 | % | | $ | 17,140 |
| | 5.0 | % | | $ | 19,880 |
| | 5.8 | % |
| Aerospace | | 1,190 |
| | 0.6 | % | | 3,370 |
| | 1.8 | % | | 3,950 |
| | 2.3 | % |
| Specialty Products | | 5,380 |
| | 1.7 | % | | 6,830 |
| | 2.4 | % | | 7,470 |
| | 2.7 | % |
Corporate(a) | | 4,890 |
| | N/A |
| | 9,460 |
| | N/A |
| | 30 |
| | N/A |
|
| Total | | $ | 25,050 |
| | 2.9 | % | | $ | 36,800 |
| | 4.5 | % | | $ | 31,330 |
| | 3.9 | % |
| Depreciation | | | | | | | | | | | | |
| Packaging | | $ | 12,510 |
| | 3.4 | % | | $ | 12,240 |
| | 3.6 | % | | $ | 12,390 |
| | 3.6 | % |
| Aerospace | | 6,570 |
| | 3.5 | % | | 5,900 |
| | 3.2 | % | | 5,460 |
| | 3.1 | % |
| Specialty Products | | 5,220 |
| | 1.6 | % | | 8,630 |
| | 3.0 | % | | 6,260 |
| | 2.3 | % |
| Corporate | | 280 |
| | N/A |
| | 180 |
| | N/A |
| | 280 |
| | N/A |
|
| Total | | $ | 24,580 |
| | 2.8 | % | | $ | 26,950 |
| | 3.3 | % | �� | $ | 24,390 |
| | 3.1 | % |
| Amortization | | | | | | | | | | | | |
| Packaging | | $ | 9,110 |
| | 2.5 | % | | $ | 9,390 |
| | 2.7 | % | | $ | 9,730 |
| | 2.9 | % |
| Aerospace | | 8,620 |
| | 4.6 | % | | 8,630 |
| | 4.7 | % | | 8,630 |
| | 4.9 | % |
| Specialty Products | | 1,710 |
| | 0.5 | % | | 1,900 |
| | 0.7 | % | | 2,110 |
| | 0.8 | % |
| Corporate | | — |
| | N/A |
| | — |
| | N/A |
| | — |
| | N/A |
|
| Total | | $ | 19,440 |
| | 2.2 | % | | $ | 19,920 |
| | 2.4 | % | | $ | 20,470 |
| | 2.6 | % |
(a) Corporate capital expenditures
The following “Results of Operations Year Ended December 31, 2021 Compared with Year Ended December 31, 2020” section presents an analysis of our consolidated operating results displayed in the Consolidated Statement of Operations. A discussion regarding our financial condition and results of operations for the yearsyear ended December 31, 2018 and 2017, respectively, are primarily related to purchases of machinery and equipment formerly held under operating leases. These purchased assets were subsequently transferred from Corporate2020 compared to the reportable segment utilizingyear ended December 31, 2019 can be found under Item 7 in our Annual Report on Form 10-K for the assets.
fiscal year ended December 31, 2020, filed with the Securities and Exchange Commission on February 25, 2021.
Results of Operations
Year Ended December 31, 20182021 Compared with Year Ended December 31, 20172020
The principal factors impacting us during the year ended December 31, 2018,2021, compared with the year ended December 31, 20172020 were:
increased sales levels across our end markets, primarily driven by higher demand for our industrial•the impact on global business activity of the COVID-19 pandemic;
•approximately $134.6 million of goodwill and oil and gas-related products within our Specialty Products reportable segment and from growthindefinite-lived intangible asset impairment charges in 2020;
•a change in our health, beauty and home care end market within our Packaging reportable segment;accounting policy for asbestos-related defense costs during 2020;
benefits•realignment expenses in response to reduced end-market demand following the outbreak of leveraging the TBM, as we continue to drive operating improvements, as well as evaluate, realign and streamline fixed costs and selling, general and administrative expenses;COVID-19 pandemic;
•the impact of the Tax Reform Act, contributing to a lower overall effective tax rate;our debt refinancing activities;
higher commodity costs, primarily related to oil and steel-based raw materials, primarily impacting our Packaging reportable segment;
the termination of the liability to Metaldyne, resulting in an approximate $8.2 million reduction in selling, general and administrative expenses; and
•the impact of feesour recent acquisitions, primarily Affaba & Ferrari, in December 2020;
•the impact of material cost increase, primarily resin-related; and expenses related
•the impact of a reduction in our effective tax rate from 2020 to our issuance of Senior Notes and other refinancing activities in 2017.2021.
Overall, net sales increased approximately $59.4$87.1 million, or approximately 7.3%11.3%, to $877.1$857.1 million in 2018,2021, as compared to $817.7$770.0 million in 2017,2020, primarily as a result of acquisitions, which added approximately $46.9 million of sales. Organic sales, increased in all three reportable segments. Salesexcluding the impact of oilcurrency exchange and gas-related productsacquisitions, increased approximately $17.3$31.5 million, andprimarily due to increases in sales of products used in food and beverage applications in our Packaging segment and of industrial cylinder products increased approximately $16.2 million,in both within our Specialty Products reportable segment. Salesand Packaging segments. These increases were partially offset by the expected decline in sales of our health, beauty and home caredispensing products increased approximately $15.6 million withinthat help fight the spread of germs in our Packaging reportable segment.segment, as the demand levels decreased compared with the record-high levels in 2020. In addition, net sales increased by approximately $2.3$8.7 million due to net favorable currency exchange, as our reported results in U.S. dollars were favorably impacted as a result of the weakening U.S. dollar relative to foreign currencies.
Gross profit margin (gross profit as a percentage of sales) approximated 27.8%25.3% and 26.8%23.6% in 20182021 and 2017,2020, respectively. Gross profit margin increased primarily as a result of higher sales levels and lower facility exit costs, primarily within our Specialty Products and Packaging reportable segments. These increases were partially offset bydue the impact of higher commodity-related costs,lower realignment, contingent liability, and purchase accounting charges of approximately $13.0 million, $2.0 million, and $2.0 million, respectively, in 2021 than in 2020. These increases, plus a lessmore favorable product sales mix and pricing pressures, most notablyleveraging of our prior realignment actions in our health, beautySpecialty Products segment were partially offset by approximately $11 million higher material costs than recovered via commercial actions (primarily for resin) in our Packaging segment and home care end marketlower fixed cost absorption and labor inefficiencies within our Packaging reportableAerospace segment.
Operating profit (loss) margin (operating profit as a percentage of sales) approximated 13.9%11.1% and 10.9%(11.5)% in 20182021 and 2017,2020, respectively. Operating profit (loss) increased $32.9$183.4 million, to $122.1an operating profit of approximately $95.1 million in 2018,2021, as compared to $89.2an operating loss of approximately $88.3 million in 2017. Operating profit increased2020, primarily due to overallapproximately $134.6 million of goodwill and indefinite-lived intangible asset impairment charges as well as the impact of the $2.0 million pre-acquisition contingent liability charge within our Aerospace segment, which were recorded in 2020 and did not repeat in 2021. Operating profit and margin further increased due to higher sales levels and lower realignment and purchase accounting costs to exit, movein 2021 than in 2020. These increases were partially offset by higher material costs (primarily resin) in our Packaging segment and consolidate facilities in 2018 as compared to 2017. Operating profit also increased by approximately $8.2 million due to a reduction oflabor inefficiencies and lower fixed cost absorption within our recorded liability to Metaldyne following the U.S. Bankruptcy Court's final decree to close all remaining cases and terminate the Metaldyne bankruptcy distribution trust.Aerospace segment.
Interest expense decreased approximately $0.5$0.2 million, to $13.9$14.5 million in 2018,2021, as compared to $14.4$14.7 million in 2017,2020, as a lower weighted average borrowingseffective interest rate more than offset an increase in our interest rates.weighted average borrowings.
In 2017, weWe incurred approximately $10.5 million of debt financing and related expense in 2021, of which approximately $10.3 million was related to expenses incurred associated with the redemption of our 2025 Senior Notes and approximately $6.6$0.2 million related to coststhe write-off of previously capitalized deferred financing fees associated with the issuance of our Senior Notes, repayment of all outstanding obligations of our former Term Loan A Facility, termination of the interest rate swaps and the amendment of our Credit Agreement.
Other expense, net increasedincome (expense) decreased approximately $0.3$1.2 million to $2.2other expense of approximately $1.0 million in 2018,2021, from $1.9other income of approximately $0.2 million in 2017,2020, primarily due to ana year-over-year increase in losses on transactions denominated in foreign currencies.
Income tax expense decreased approximately $12.6 million, to $22.7 million in 2018, as compared to $35.3 million in 2017. The effective income tax rate for 20182021 was 21.4%17.1%, compared to 53.2%22.3% for 2017.2020. We recorded income tax expense of approximately $11.8 million in 2021, as compared to an income tax benefit of $23.0 million in 2020. During 2018,2021, we reported domestic and foreign pre-tax income of approximately $75.8$28.4 million and $30.2$40.7 million, respectively, and recognized tax benefitsas compared to a 2020 domestic pre-tax loss of approximately $1.7$134.6 million resulting from research and manufacturing tax incentives. We also recognized approximately $0.4 million of income tax benefit in connection with finalizing the 2017 provisional tax charges recorded associated with adopting the Tax Reform Act. In finalizing these charges, we recorded an approximate $1.1 million income tax benefit related to revaluing our net deferred tax assets at the lower U.S. corporate tax rate, which was partially offset by an approximate $0.7 million income tax expense related to the deemed repatriation of undistributed non-U.S. subsidiary earnings. We also incurred tax charges of approximately $0.7 million directly attributable to increases in valuation allowances on certain deferred tax assets including foreign tax operating loss carryforwards. In 2017, we reported domestic and foreign pre-tax income of approximately $50.8 million and $15.5 million, respectively, and recognized$31.9 million. The effective tax benefits of approximately $2.0 million due to a change in an uncertain tax positionrate for which2021 varied from the statute of limitations expired and research and manufacturing tax incentives. We recognized approximately $12.7 million of income tax expenseU.S. federal statutory rate primarily as a result of income tax incentives in a foreign jurisdiction, the Tax Reform Act, including $3.7 millionimpact of provisional expense related to revaluing our net deferred tax assets atcertain non-deductible expenses and an increase in the lower U.S. corporatestatutory tax rate and a $9.0 millionin another foreign jurisdiction which increased the value of provisional tax expense related to the deemed repatriation of approximately $110.0 million of undistributed non-U.S. subsidiary earnings. We also incurred tax charges of approximately $0.5 million directly attributable to increases in valuation allowances on certain deferred tax assets. Our effective tax rate for 2020 was impacted by a decrease in profitability in the U.S. resulting from various one-time charges, including impairment of goodwill and indefinite-lived intangible assets including foreignand a change in our accounting policy for asbestos-related defense costs. During 2020, we also undertook certain tax-planning actions with respect to restructuring our intercompany debt, resulting in the recognition of a $6.4 million deferred tax operating loss carryforwards. benefit.
Net income (loss) increased approximately $52.3$137.1 million to $83.3net income of approximately $57.3 million in 2018, from $31.02021, compared to a net loss of $79.8 million in 2017. The2020. This increase was primarily thea result of an approximately $32.9 million increase in operating profit a decrease in income tax expense of approximately $12.6 million, a decrease in debt financing and related expenses of approximately $6.6$183.4 million and a decrease in interest expense of approximately $0.5$0.2 million, partially offset by debt financing and related expenses of approximately $10.5 million, an increase in tax expense of approximately $34.8 million and an increase in other expense net of approximately $0.3$1.2 million.
See below for a discussion of operating results by reportable segment.
Packaging. Net sales increased approximately $23.6$44.9 million,, or 6.9%9.2%, to $368.2$533.3 million in 2018,2021, as compared to $344.6$488.3 million in 2017. Sales2020. Acquisition-related sales growth was approximately $42.3 million, comprised of $36.3 million of sales from our health, beauty and home care products increased approximately $15.6December 2020 acquisition of Affaba & Ferrari, $5.3 million driven by higher sales in Asia and North America as well asresulting from the ramp up of new products. Sales of our industrial closures increased approximately $5.7 million andJanuary through March 2021 sales of our April 2020 acquisition of Rapak and $0.7 million of sales from our December 2021 acquisition of Omega. Sales of products used in food and beverage productsmarkets increased by approximately $0.6$19.1 million, bothprimarily due to increased demand for caps and closures and flexible packaging as the hospitality sector began to rebound from prior COVID-19 pandemic-related shutdowns. Sales of products used in industrial markets increased by approximately $13.5 million, primarily as a result of higher demand for closure products in North America. Additionally, netSales of dispensing products used in beauty and personal care as well as home care applications that help fight the spread of germs decreased by approximately $42.4 million, as demand has abated for these products from the peak levels in 2020 as a result of the COVID-19 pandemic. Net sales also increased by approximately $1.7$8.7 million due to favorable currency exchange, as our reported results in U.S. dollars were favorably impacted as a result of the weakening of the U.S. dollar relative to foreign currencies.
Packaging's gross profit increased approximately $3.0$3.3 million to $119.6$145.8 million, or 32.5%27.3% of sales, in 2018,2021, as compared to $116.6$142.4 million, or 33.8%29.2% of sales, in 2017,2020, primarily as a resultdue to the higher sales levels, as well asplus approximately $2.7$3.1 million of costs incurred in 2017 to consolidate manufacturing facilities in India and to finalize the move to a new facility in Mexico that did not recur. In addition, gross profit increased due to approximately $0.8 million of favorable currency exchange, as our reported results in U.S. dollars were favorably impacted as a result of the weakening of the U.S. dollar relative to foreign currencies. These increases were partially offset by approximately $3.5 million higher steel and resin-based material costs,Although gross profit dollars increased, gross profit margin decreased as well asthe impact of a lessmore favorable product sales mix, as higher margin industrial and pricing pressures, most notablyfood and beverage products comprised a larger percentage of total sales, was offset by approximately $11 million of higher material costs (primarily resin) than were recovered via sales price increases during 2021. Gross profit margin was also unfavorably impacted by inflationary headwinds on utilities costs, higher labor costs driven by pandemic-related shortages and higher freight costs driven by increased container costs and freight lane rates. In addition, we recognized approximately $1.6 million of realignment costs during 2021 primarily related to the closure of our Union City, California manufacturing facility and consolidation into our Indianapolis, Indiana and Woodridge, Illinois facilities as compared to $1.1 million of realignment costs in our health, beauty and home care end market.2020, primarily related to the disposal of certain equipment removed from service.
Packaging's selling, general and administrative expenses decreasedincreased approximately $3.3$1.3 million to $35.0$49.1 million, or 9.5%9.2% of sales, in 2018,2021, as compared to $38.3$47.9 million, or 11.1%9.8% of sales, in 2017,2020, primarily due to approximately $2.7 million lower third-party professional fees in 2018, as well as a charge of approximately $1.0 million in 2017 to reserve for an outstanding accounts receivable deemed uncollectable from a European customer who filed for insolvency. These decreases werehigher ongoing selling, general and administrative costs associated with our acquisitions, partially offset by higher employee-related costsapproximately $1.2 million in 2018 supporting our sales growth initiatives.charges associated with realignment actions in 2020, primarily for severance, that did not repeat in 2021.
Packaging's operating profit increased approximately $4.0$2.5 million to $84.6$96.5 million, or 23.0%18.1% of sales, in 2018,2021, as compared to $80.6$94.0 million, or 23.4%19.2% of sales, in 2017. Operating profit increased2020, primarily due to higher sales levels, lower consolidationa more favorable product sales mix and move costs than in 2017, lower selling, general, and administrative expenses and approximately $0.6 million due to favorable currency exchange, all of which were partially offset by the impact of higher material and other manufacturing input costs, a gain of approximately $2.5 million related to the the sale of the former Mexico facility in 2017 that did not recur, a less favorable product sales mixincremental realignment charges and pricing pressures.higher selling, general and administrative expenses.
Aerospace. Net sales increased approximately $1.6$15.6 million, or 0.9%9.3%, to $185.9$183.3 million in 2018,2021, as compared to $184.3$167.7 million in 2017.2020. RSA, acquired in February 2020, added approximately $4.3 million of sales for January and February 2021 and TFI, acquired in December 2021, added approximately $0.3 million of sales. Sales of our fastener products increased by approximately $2.3$11.2 million, as we achieved higherapproximately $29.4 million of sales levels consistent with new aircraft build rates.of customers' stocking orders for highly-engineered fasteners in 2021 were partially offset by lower year-over-year sales resulting from current and expected future reduced air travel due to the COVID-19 pandemic. Sales of our machinedengineered components products decreaseddeclined by approximately $0.7 million, as new product sales and the benefit of improved commercial terms with our largest customer for machined components were more than offset by our decision to exit certain less profitable components.
$0.2 million.
Gross profit within Aerospace increased approximately $0.7$13.0 million to $49.6$40.0 million, or 26.7%21.8% of sales, in 2018,2021, from $48.9$27.0 million, or 26.5%16.1% of sales, in 2017,2020, primarily due to charges recorded in 2020 that did not repeat in 2021. First, we recorded approximately $4.5 million lower realignment charges in 2021 compared with 2020, which were principally related to inventory reductions and facility consolidations in response to the COVID-19 pandemic. In addition, in 2020, we recorded a $2.0 million charge related to an updated estimate of a pre-acquisition contingent liability, as well as an approximate $2.0 million purchase accounting non-cash charge related to the step-up of RSA's inventory to fair value and subsequent amortization, each of which did not repeat in 2021. Gross profit margin was further aided by a more favorable product sales mix in 2021, as the stocking orders were primarily for highly-engineered fasteners that command above-average profit margins. All of these factors were partially offset by lower absorption of fixed costs and labor inefficiencies during 2021 driven by the COVID-19 pandemic.
Selling, general and administrative expenses increased approximately $1.1 million to $26.7 million, or 14.6% of sales, in 2021, as compared to $25.6 million, or 15.2% of sales, in 2020, primarily due to the impact of higher ongoing selling, general and administrative costs associated with our acquisitions.
Operating profit (loss) within Aerospace increased approximately $146.7 million to an operating profit of $13.3 million, or 7.2% of sales, in 2021, as compared to an operating loss of $133.4 million, or 79.6% of sales, in 2020, primarily due to approximately $134.6 million of goodwill and indefinite-lived intangible asset impairment charges during 2020. Operating profit also improved due to realignment and other charges recorded in 2020 that did not repeat in 2021, as well as through a more favorable product sales mix, partially offset by labor inefficiencies, lower absorption of fixed costs and higher selling, general and administrative expenses.
Specialty Products. Net sales increased approximately $26.6 million, or 23.4%, to $140.5 million in 2021, as compared to $113.9 million in 2020. Sales of our cylinder products increased by approximately $17.9 million due to a higher demand for steel cylinders in North America as industrial activity continues to rebound following significantly depressed demand in 2020 as result of the COVID-19 pandemic. Sales of engines, compressors and related parts used in upstream oil and gas applications increased by approximately $8.7 million primarily as a result of higher sales levels. Gross profit margin increased slightly, as a more favorable product sales mix and increased profitability for machined components more than offset the impact of lower profit generated by our standard fastener product facility in Ottawa, Kansas.
Selling, general and administrative expenses remained relatively flat at $22.3 million, or 12.0% of sales, in 2018, as compared to $22.4 million, or 12.1% of sales, in 2017.
Operating profit within Aerospace increased approximately $0.9 million to $27.3 million, or 14.7% of sales, in 2018, as compared to $26.4 million, or 14.3% of sales, in 2017, primarily due to higher sales levels, as well as a more favorable product sales mix and increased profitability for machined components, which was partially offset by the impact of lower profit generated by our standard fastener product facility in Ottawa, Kansas.
Specialty Products. Net sales increased approximately $34.1 million, or 11.8%, to $323.0 million in 2018, as compared to $288.9 million in 2017. Sales of our oil and gas related products increased by approximately $17.3 million, due to higher levels of petrochemical and refinery production site turnaround activity as well as increased sales of engines and compressors to wellhead sites due to higher levels of extractionoil-field activity in North America. Our 2020 sales included approximately $0.7 million related to the United States and Canada. Salesliquidation of non-core inventory following our steel cylinders for the compressed gas market increased by approximately $16.2 million, as we have captured increased general industrial and defense demand for steel cylinders. In addition, net sales increased by approximately $0.6 million duestrategic decision to favorable currency exchange, as our reported results in U.S. dollars were positively impacted as a result of the weaker U.S. dollar relative to foreign currencies.streamline Arrow Engine's product line offering.
Gross profit within Specialty Products increased approximately $21.0$18.8 million to $74.9$31.5 million, or 23.2%22.4% of sales, in 2018,2021, as compared to $53.9$12.7 million, or 18.6%11.1% of sales, in 2017. Gross profit and margin increased primarily2020. During 2020, we executed certain realignment actions in response to reduced end market demand as a result of higher sales levels, as we continuethe COVID-19 pandemic, resulting in approximately $9.0 million of non-cash charges, primarily related to leverage our lower fixed cost footprint.Arrow Engine streamlining its product line offering and liquidating its non-core inventory, which did not repeat in 2021. In addition, gross profit dollarsincreased in 2021 due to higher sales levels, while margins improved due to favorable product sales mix and margin increased as a result of approximately $6.7 million lower costs related to the exit of our former Reynosa, Mexico and Bangalore, India facilities in 2018 compared with 2017. These increases were partially offset by approximately $3 million higher input costs, primarily related to steel.leveraging previous realignment actions.
Selling, general and administrative expenses within Specialty Products increased approximately $3.5$1.1 million to $40.4$9.0 million, or 12.5%6.4% of sales, in 2018,2021, as compared to $36.9$7.9 million, or 12.8%6.9% of net sales, in 2017. Selling,2020. Our 2021 selling, general and administrative expenses have increased primarily due to higher employment and spending levels incurred to support the increase in sales levelslevels. We incurred selling, general and administrative realignment expenses of approximately $0.7 million ofin 2020 related to severance and restructuring costs associated with the exit of our Bangalore, India facilitythat did not repeat in 2018. However, we were able to leverage our lower cost structure, reducing expenses as a percentage of sales.2021.
Operating profit within Specialty Products increased approximately $22.0$18.2 million to $34.3$22.6 million, or 10.6%16.0% of sales, in 2018,2021, as compared to $12.3$4.4 million, or 4.3%3.8% of sales, in 2017,2020, primarily due to the impact of 2020 realignment costs that did not repeat in 2021, as a result ofwell as higher sales levels whileand related profit conversion leveraging a lower cost structure as a result of our facility exits. In addition, we exited our Wolverhampton, United Kingdom facility in 2017 and recorded a pre-tax charge of approximately $3.5 million within net loss on disposition of assets. These decreases were partially offset by higher selling, general and administrative expenses in 2018the 2020 realignment actions without the need to support the higher sales levels and higher steeladd significant incremental fixed costs.
Corporate Expenses. Corporate expenses included in operating profit consist of the following (dollars in millions):
| | | | | | | | | | | | | | |
| | | Year ended December 31, |
| | | 2021 | | 2020 |
| Corporate operating expenses | | $ | 26.1 | | | $ | 20.8 | |
| Non-cash stock compensation | | 9.5 | | | 8.2 | |
| Legacy (income) expenses, net | | 1.6 | | | 24.2 | |
| Corporate expenses | | $ | 37.2 | | | $ | 53.2 | |
|
| | | | | | | | |
| | | Year ended December 31, |
| | | 2018 | | 2017 |
| Corporate operating expenses | | $ | 22.3 |
| | $ | 20.9 |
|
| Non-cash stock compensation | | 7.2 |
| | 6.8 |
|
| Legacy (income) expenses, net | | (5.4 | ) | | 2.4 |
|
| Corporate expenses | | $ | 24.1 |
| | $ | 30.1 |
|
Corporate expenses included in operating profit decreased approximately $6.0$16.0 million to $24.1$37.2 million in 2018,2021, from $30.1$53.2 million in 2017,2020, primarily as a result of the $23.4 million non-cash charge recorded in 2020 due to the terminationchange of our accounting policy for asbestos-related defense costs. In 2021, we commissioned our actuary to update the asbestos study, and recorded a non-cash charge of $1.5 million to increase the liability to Metaldyne in 2018, resulting in an approximate $8.2 million non-cash reduction in legacy (income) expenses, net.estimate. Corporate operating expenses increased approximately $1.4 million, primarily dueas a result of realignment charges related to the corporate office legal and finance groups in 2021 as well as an increase in professional fees related to corporate development activities and an increase in expense related to our short-term incentive compensation plans. Non-cash stock compensation increased approximately $0.4 million, primarily due to the amount of equity grants in 2018 compared with 2017 as well as the estimated attainment of certain performance-based equity awards.activities.
Year Ended December 31, 2017 Compared with Year Ended December 31, 2016
The principal factors impacting us during the year ended December 31, 2017 compared with the year ended December 31, 2016 were:
the impact of improved throughput and productivity in our Aerospace reportable segment, enabling this segment to achieve higher sales and profit levels in 2017;
the continued benefits of the realigned footprint within our Specialty Products reportable segment, with lower ongoing operating costs following several facility consolidations and closures;
the impact of Hurricane Harvey, primarily within our Specialty Products reportable segment;
the impact of fees and expenses related to our issuance of Senior Notes and other refinancing activities in 2017;
the impact of the Tax Reform Act, primarily impacting our 2017 income tax expense; and
approximately $98.9 million goodwill and intangible asset impairment charges in 2016 in our Aerospace reportable segment.
Overall, net sales increased approximately $23.7 million, or approximately 3.0%, to $817.7 million in 2017, as compared to $794.0 million in 2016, as sales increased in all three reportable segments. Sales within our Aerospace reportable segment increased approximately $9.4 million, primarily as a result of improved manufacturing throughput to meet customer demand levels. Sales in our Specialty Products reportable segment increased approximately $10.8 million, excluding the impact of currency exchange, due to increased U.S. industrial and oilfield activity and higher sales in North America resulting from improved delivery performance, partially offset by lower sales in Europe as a result of the closure of our Wolverhampton, United Kingdom facility. Sales within our Packaging reportable segment increased by approximately $5.0 million, excluding the impact of currency exchange, primarily due to increased demand for our industrial closures and food and beverage products in North America. These increases were partially offset by approximately $1.4 million of net unfavorable currency exchange, primarily in our Packaging reportable segment, as our reported results in U.S. dollars were negatively impacted as a result of the stronger U.S. dollar relative to foreign currencies.
Gross profit margin (gross profit as a percentage of sales) approximated 26.8% and 26.5% in 2017 and 2016, respectively. Gross profit margin increased primarily due to improved manufacturing efficiency levels and reduced manufacturing spend, primarily within our Aerospace reportable segment, and as a result of the footprint realignment actions within our Specialty Products reportable segment. This increase was partially offset by costs associated with the closure and consolidation of manufacturing facilities in India and Mexico within our Packaging reportable segment, and the Mexico facility within our Specialty Products reportable segment. In addition, gross profit was impacted by approximately $0.8 million of unfavorable currency exchange, as our reported results in U.S. dollars were negatively impacted as a result of the stronger U.S. dollar relative to foreign currencies.
Operating profit (loss) margin (operating profit (loss) as a percentage of sales) approximated 10.9% and (5.3)% in 2017 and 2016, respectively. Operating profit increased approximately $131.1 million, to $89.2 million in 2017, as compared to an operating loss of $41.9 million in 2016, Operating profit and margin increased primarily due to approximately $98.9 million in goodwill and intangible asset impairment charges in our Aerospace reportable segment in 2016 that did not repeat in 2017. Operating profit and margin also increased as a result of higher sales levels across all reportable segments and productivity initiatives to improve scheduling and throughput, particularly in our Aerospace reportable segment, and the impact of our footprint realignment activities within our Specialty Products reportable segment. These factors were partially offset by the costs incurred in 2017 associated with footprint consolidation and relocation projects within our Packaging and Specialty Products reportable segments.
Interest expense increased approximately $0.7 million, to $14.4 million in 2017, as compared to $13.7 million in 2016. The increase in interest expense was primarily due to an increase in our interest rates, which more than offset lower average borrowings. Our weighted average borrowings decreased to approximately $381.8 million in 2017, from approximately $454.1 million in 2016. The effective weighted average interest rate on our outstanding variable rate borrowings, including our Credit Agreement and accounts receivable facilities, increased to approximately 2.8% for 2017, from approximately and 2.2% for 2016. In addition, in September 2017, we repaid our former Term Loan A facility with proceeds from the Senior Notes, which bear interest at 4.875%.
We incurred debt financing and related expenses of approximately $6.6 million in 2017 related to costs associated with the issuance of our Senior Notes, repayment of all outstanding obligations of the Term Loan A Facility, termination of the interest rate swaps and the amendment of our existing credit agreement.
Other expense, net decreased approximately $0.7 million to $1.9 million in 2017, from $2.6 million in 2016. The decrease was primarily due to one-time settlement and curtailment charges of approximately $1.3 million for defined benefit pension plans in 2016 that did not recur, partially offset by an increase in losses on transactions denominated in foreign currencies.
Income tax expense increased approximately $53.7 million, to $35.3 million of tax expense in 2017, as compared to $18.4 million of tax benefit in 2016. The effective income tax rate for 2017 was 53.2%, compared to 31.7% for 2016. During 2017, we reported domestic and foreign pre-tax income of approximately $50.8 million and $15.5 million, respectively, and recognized tax benefits of approximately $2.0 million due to a change in an uncertain tax position for which the statute of limitations expired and research and manufacturing tax incentives. We also recognized approximately $12.7 million of income tax expense as a result of the Tax Reform Act, including $3.7 million of provisional expense related to revaluing our net deferred tax assets at the lower U.S. corporate tax rate, and $9.0 million of provisional tax expense related to the deemed repatriation of approximately $110.0 million of undistributed non-U.S. subsidiary earnings. We also incurred tax charges of approximately $0.5 million directly attributable to increases in valuation allowances on certain deferred tax assets including foreign tax operating loss carryforwards. In 2016, we reported domestic pre-tax losses of approximately $69.9 million and foreign pre-tax income of approximately $11.6 million, and recognized tax benefits of approximately $2.2 million due to a change in an uncertain tax position for which the statute of limitations expired and research and manufacturing tax incentives. In addition, we were unable to record tax benefit of approximately $5.1 million related to pre-tax goodwill impairment charges in the U.S. We also incurred tax charges of approximately $2.1 million directly attributable to increases in valuation allowances on certain deferred tax assets including foreign tax operating loss carryforwards.
Net income (loss) increased approximately $70.8 million, to income of $31.0 million in 2017, from a loss of $39.8 million in 2016. The increase was primarily the result of an approximately $131.1 million increase in operating profit and decreases in other expenses, net of approximately $0.7 million, partially offset by an increase in income tax expense of approximately $53.7 million, an increase in debt financing and related expenses of approximately $6.6 million in connection with the refinancing of our our long-term debt and an increase in interest expense of approximately $0.7 million.
See below for a discussion of operating results by reportable segment.
Packaging. Net sales increased approximately $3.3 million, or 0.9%, to $344.6 million in 2017, as compared to $341.3 million in 2016. Sales of our industrial closures increased approximately $2.7 million due to higher demand in North America and Europe. Sales of our food and beverage products increased approximately $2.3 million due to increased demand in North America. Additionally, sales of our health, beauty and home care products were flat year-over-year, as higher demand in Asia and Europe was offset by lower demand in North America. The sales increase was partially offset by approximately $1.7 million of unfavorable currency exchange, as our reported results in U.S. dollars were negatively impacted as a result of the stronger U.S. dollar relative to foreign currencies.
Packaging's gross profit decreased approximately $4.4 million to $116.6 million, or 33.8% of sales, in 2017, as compared to $121.0 million, or 35.5% of sales, in 2016. While sales increased, gross profit dollars and margin decreased, primarily as a result of costs associated with facility moves. During 2017, we ramped up production in our new manufacturing facility in Mexico, incurring approximately $1.9 million higher costs than in the former, and now closed Mexican facility in 2016, as costs related to the capacity expansion plus inefficiencies and start-up costs more than offset initial move costs incurred in 2016. In addition, we incurred approximately $1.1 million of costs in 2017 to consolidate manufacturing facilities in India. Gross profit also declined due to an unfavorable product sales mix in North America and by approximately $0.9 million due to unfavorable currency exchange, as our reported results in U.S. dollars were negatively impacted as a result of the stronger U.S. dollar relative to foreign currencies.
Packaging's selling, general and administrative expenses decreased approximately $3.7 million to $38.3 million, or 11.1% of sales, in 2017, as compared to $42.0 million, or 12.3% of sales, in 2016. The decrease was primarily due to higher costs incurred in 2016 in connection with re-organizing our go-to-market strategy based on global product categories, as well as generally lower go-forward spending levels resulting from this reorganization. Additionally, we recognized approximately $1.0 million of severance and other costs related to the move of our Mexican facilities during 2016, and recorded an approximate $1.0 million charge in 2017 to reserve an outstanding accounts receivable amount for a European customer who filed for bankruptcy.
Packaging's operating profit increased approximately $2.0 million to $80.6 million, or 23.4% of sales, in 2017, as compared to $78.6 million, or 23.0% of sales, in 2016. Operating profit increased primarily due to lower ongoing selling, general and administrative expenses associated with our re-organization efforts as well as an approximate $2.5 million gain on the sale of the former Mexico facility. These impacts were partially offset by the charge recorded in 2017 to reserve an outstanding accounts receivable amount, costs associated with our India facility consolidation and new facility in Mexico and approximately $0.6 million of unfavorable currency exchange.
Aerospace. Net sales increased approximately $9.4 million, or 5.4%, to $184.3 million in 2017, as compared to $174.9 million in 2016. We continued to improve production scheduling and manufacturing efficiencies, which enabled us to increase daily production rates and ship higher levels of net sales in 2017 as compared to 2016. Sales to our distribution customers increased approximately $7.0 million, as order patterns from our customers continued to stabilize and increase in 2017 as compared to the lower and more volatile levels throughout 2016. Sales to our OE customers increased approximately $2.4 million.
Gross profit within Aerospace increased approximately $13.2 million to $48.9 million, or 26.5% of sales, in 2017, from $35.7 million, or 20.4% of sales, in 2016, primarily as a result of higher sales levels. Further, in 2016, we incurred additional costs and experienced lower fixed cost absorption associated with production scheduling and manufacturing inefficiencies, primarily in our Commerce, California facility. We have improved the efficiency levels during 2017 and reduced manufacturing spend levels despite higher demand level in this facility.
Selling, general and administrative expenses decreased approximately $4.8 million to $22.4 million, or 12.1% of sales, in 2017, as compared to $27.2 million, or 15.5% of sales, in 2016, primarily due to approximately $2.0 million of lower estimated uncollectable accounts receivable expenses as a result of collection of previously reserved customer balances and approximately $2.8 million of reduced professional fees and certain administrative support costs.
Operating profit (loss) within Aerospace increased approximately $116.9 million to an operating profit of $26.4 million, or 14.3% of sales, in 2017, as compared to an operating loss of $90.5 million, or 51.8% of sales, in 2016. Operating profit and related margin increased primarily due to approximately $98.9 million in goodwill and intangible asset impairment charges in 2016 that did not repeat in 2017. Operating profit also increased as a result of higher sales levels, improved production scheduling and manufacturing efficiencies and lower selling, general and administrative expenses.
Specialty Products. Net sales for 2017increased approximately $11.1 million, or 4.0%, to $288.9 million, as compared to $277.8 million in 2016. Sales of our oil and gas related products increased by approximately $11.3 million due to increased customer demand following improvements in our on-time delivery, increasing our share of turnaround activity and increases in drilling activity in the United States and Canada and the continued stabilization of oil prices. Sales of our industrial cylinders increased by approximately $4.1 million, primarily due to increased U.S. industrial activity and enhanced responsiveness to support shorter customer order lead-times. These increases were partially offset by a decrease in net sales of oil and gas related products of approximately $4.3 million in Europe, primarily due to exiting our facility in the United Kingdom.
Gross profit within Specialty Products decreased approximately $0.2 million to $53.9 million, or 18.6% of sales, in 2017, as compared to $54.1 million, or 19.5% of sales, in 2016. While gross profit increased as a result of higher sales levels and improved leverage resulting from our lower fixed cost structure, these impacts were essentially offset by $1.6 million higher facility closure costs in 2017 than in 2016, primarily related to costs incurred in 2017 to close our Mexico facility and costs incurred in 2016 to close our United Kingdom facility, and higher costs, inefficiencies and a less favorable oil and gas product sales mix as a result of Hurricane Harvey in 2017.
Selling, general and administrative expenses within Specialty Products decreased approximately $13.0 million to $36.9 million, or 12.8% of sales, in 2017, as compared to $49.9 million, or 17.9% of sales, in 2016. Selling, general and administrative expenses decreased by approximately $7.2 million as a result of elimination of costs related to closed facilities and by approximately $1.0 million as a result of an increase in reserves for past due accounts receivable in 2016 that did not repeat in 2017. The remaining $4.8 million decrease was primarily due to lowering our ongoing operating costs associated with the Company's current operating footprint following completion of significant realignment activities.
Operating profit within Specialty Products increased approximately $9.4 million to $12.3 million, or 4.3% of sales, in 2017, as compared to $2.9 million, or 1.0% of sales, in 2016, primarily as a result of lower selling, general and administrative expenses related to prior footprint realignment activities, partially offset by a pre-tax charge of approximately $3.5 million recorded within net loss on disposition of assets related to our 2017 exit of our Wolverhampton, United Kingdom facility.
Corporate Expenses. Corporate expenses included in operating profit consist of the following (dollars in millions):
|
| | | | | | | | |
| | | Year ended December 31, |
| | | 2017 | | 2016 |
| Corporate operating expenses | | $ | 20.9 |
| | $ | 23.9 |
|
| Non-cash stock compensation | | 6.8 |
| | 6.9 |
|
| Legacy expenses | | 2.4 |
| | 2.1 |
|
| Corporate expenses | | $ | 30.1 |
| | $ | 32.9 |
|
Corporate expenses included in operating profit decreased approximately $2.8 million to $30.1 million in 2017, from $32.9 million in 2016, primarily due to separation costs incurred in 2016 associated with the change in our President and CEO as well as elimination of several corporate positions during 2017, partially offset by an increase in expense related to our short-term incentive compensation plans.
Liquidity and Capital Resources
Cash Flows
Cash flows provided by operating activities of continuing operations in 20182021 were approximately $129.3$134.2 million, as compared to $120.1approximately $127.4 million in 2017.2020. Significant changes in cash flows provided by operating activities of continuing operations and the reasons for such changes are as follows:
•In 2018,2021, the Company generated $146.0approximately $139.2 million in cash flows, based on the reported net income of $83.3approximately $57.3 million and after considering the effects of non-cash items related to lossesdepreciation, amortization, loss on dispositions of businesses and other assets, depreciation, amortization, changes in deferred income taxes, debt financing and related expenses, stock-based compensation, change in legacy liability estimate, and other operating activities. In 2017,2020, the Company generated $111.2approximately $105.0 million in cash flows based on the reported net incomeloss of $31.0approximately $79.8 million and after considering the effects of similar non-cash items.items and the impairment of goodwill and indefinite-lived intangible assets.
•Increases in accounts receivable resulted in a use of cash of approximately $11.4$11.2 million in 2018, primarily due to the increase in sales levels and the timing of sales and collection of cash. Decreases2021, while decreases in accounts receivable resulted in a source of cash of approximately $1.2$9.6 million in 2017.2020, primarily due to timing of net sales and related cash collections. Days sales outstanding of receivables remained flat year-over-year.relatively consistent in 2021 compared to 2020, and decreased by approximately four days through 2020 compared to 2019, as we placed a significant focus on our credit and collections process, particularly in those businesses most impacted by the pandemic where credit risk was heightened.
•We increased our investment in inventory by approximately $18.7$1.0 million in 2018 to support the increased sales levels, nearly $8.0 million of which occurred in the fourth quarter as we received foreign-sourced goods ahead of the expected increase in tariff rates. We reduced2021, while decreasing our investment in inventory by approximately $4.4$4.0 million in 2017, primarily due to our facility consolidation efforts.2020. Our days sales in inventory increaseddecreased by fiveapproximately nine days in 20182021 compared with 2020 through active inventory management and selling through certain inventory items that were at elevated levels at the end of 2020 due to lower demand as a result of the COVID-19 pandemic. Our days sales in inventory decreased by approximately eight days in 2020 compared to 2017, 2019, primarily as a result of the fourth quarter 2018 increase.strategic decision in our Arrow Engine division to streamline its product line offering during 2020. We continue to moderate inventory levels in line with sales levels.
•Decreases in prepaid expenses and other assets resulted in a source of cash of approximately $9.1$5.0 million and $4.4 million in 2018,2021 and 2020, respectively. The changes in 2021 and 2020 are primarily as a result of the timing of payments made for income taxes and certain operating expenses. Increases in prepaid expenses and other assets resulted in a use of cash of approximately $0.3 million in 2017.
•Increases in accounts payable and accrued liabilities resulted in a source of cash of approximately $4.3$2.1 million and $3.6$4.5 million in 20182021 and 2017, respectively, primarily a result of higher purchases of inventory and other supplies to support higher sales demand.2020, respectively. Our days accounts payable on hand increased by 10approximately five days year-over-year, primarilyin 2021 due to thetiming and mix of paymentpayments terms in December 2018, which increased2021 while days payables decreased by approximately 15 days in 2020, primarily as we paid certain key Packaging vendors more quickly in 2020 to ensure our orders remained a top priority for them given longer payment terms to certain foreign vendors.our robust demand levels and minimal available capacity in the marketplace. This decrease was more than offset by our increase in accrued liabilities in 2020, primarily as a result of the timing and amount of wage-related accruals.
Net cash used for investing activities in 2018 was approximately $24.8$79.2 million as compared to $32.4and $232.1 million in 2017.2021 and 2020, respectively. During 2018,2021, we incurredpaid approximately $25.1$34.3 million, net of cash acquired, to acquire Omega and TFI. We invested approximately $45.1 million in capital expenditures as we have continued our investment in growth, capacity and productivity-related capital projects. Cash received from the dispositionDuring 2020, we paid approximately $193.5 million, net of assets was approximately $0.3 million in 2018. During 2017,cash acquired, to acquire RSA, Rapak and Affaba & Ferrari. In 2020, we invested approximately $36.8$40.5 million in capital expenditures and received cash from the disposition of assetsbusiness, property and equipment of approximately $4.5$2.0 million.
Net cash used forprovided by financing activities in 2018was approximately $24.0$11.8 million as compared to $80.8and $6.1 million in 2017.2021 and 2020, respectively. During 2018,2021, we issued $400.0 million principal amount of senior notes, made net repayments of approximately $9.4$48.6 million on our revolving credit facilities, and accounts receivable facilities.redeemed $300.0 million principal amount of senior notes. In connection with refinancing our long-term debt, we paid approximately $13.6 million of debt financing fees and redemption premium. We also purchased approximately $12.1$19.1 million of outstanding common stock, used a net cash amount of approximately $5.2 million related to our stock compensation arrangements and paid dividends of approximately $1.7 million. During 2020, we received proceeds from borrowings, net of repayments, of approximately $48.2 million on our revolving credit facilities, purchased approximately $39.4 million of outstanding common stock and used a net cash amount of approximately $2.4$2.6 million related to our stock compensation arrangements. During 2017, we issued $300.0 million principal amount of Senior Notes, repaid approximately $257.9 million on our former Term Loan A facility and made net repayments of approximately $116.0 million on our revolving credit and accounts receivable facilities. In connection with refinancing our long-term debt in 2017, we paid approximately $6.1 million of debt financing fees. We also used a net cash amount of approximately $0.8 million related to our stock compensation arrangements and other financing activities.
Our Debt and Other Commitments
TheIn March 2021, we issued the 2029 Senior Notes in a private placement under Rule 144A of the Securities Act of 1933, as amended. We used the proceeds from the 2029 Senior Notes offering to pay fees and expenses of approximately $5.1 million related to the offering and pay fees and expenses of $1.1 million related to amending our Credit Agreement. In connection with the issuance, we completed the redemption of our 2025 Senior Notes, paying $300.0 million aggregateto retire the outstanding principal amount ofplus $7.3 million as a redemption premium. The remaining cash proceeds from the 2029 Senior Notes accrueswere used for general corporate purposes, including repaying all outstanding revolving credit facility borrowings. The $5.1 million of fees and expenses related to the 2029 Senior Notes were capitalized as debt issuance costs, while the $7.3 million redemption premium, as well as approximately $3.0 million of unamortized debt issuance costs associated with the 2025 Senior Notes were recorded as expense within debt financing and related expenses in the accompanying consolidated statement of operations.
The 2029 Senior Notes accrue interest at a rate of 4.875%4.125% per annum, payable semi-annually in arrears on April 15 and October 15, commencing on April 15, 2018, and mature on October 15, 2025.2021. The payment of principal and interest is jointly and severally guaranteed, on a senior unsecured basis by certain named subsidiaries of the Company (each a "Guarantor" and collectively the "Guarantors").Company. The 2029 Senior Notes are pari passu in right of payment with all existing and future senior indebtedness and subordinated to all existing and future secured indebtedness to the extent of the value of the assets securing such indebtedness. For the twelve months ended December 31, 2018,In 2021, our consolidated subsidiaries that do not guarantee the Senior Notes represented approximately 13%28% of the total of guarantor and non-guarantor net sales, treating each as a consolidated group and excluding intercompany transactions between guarantor and non-guarantor subsidiaries. In addition, our non-guarantor subsidiaries represented approximately 29%42% and 8%50% of the total guarantor and non-guarantor assets and liabilities, respectively, as of December 31, 2018,2021, treating the guarantor and non-guarantor subsidiaries each as a consolidated group and excluding intercompany transactions between such groups.group.
Prior to OctoberApril 15, 2020,2024, we may redeem up to 35%40% of the principal amount of the 2029 Senior Notes at a redemption price of 104.875%104.125% of the principal amount, plus accrued and unpaid interest, if any, to the redemption date, with the net cash proceeds of one or more equity offerings provided that each such redemption occurs within 90 days of the date of closing of each such equity offering. In addition, prior to April 15, 2024, we may redeem all or part of the 2029 Senior Notes at a redemption price equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if any, to the redemption date, plus a "make whole" premium.
We are party to aIn March 2021, we amended our Credit Agreement consistingin connection with the issuance of the 2029 Senior Notes to extend the maturity date. We incurred fees and expenses of approximately $1.1 million related to the amendment, all of which were capitalized as debt issuance costs. We also recorded approximately $0.2 million of non-cash expense related to the write-off of previously capitalized deferred financing fees.
Below is a $300.0 million senior secured revolving credit facility, which permits borrowings denominated in specific foreign currencies, subject to a $125.0 million sub limit. Thesummary of key terms under the Credit Agreement matures on September 20, 2022 and is subjectas of December 31, 2021, compared to interest at the key terms prior to the amendment (showing gross availability):
| | | | | | | | | | | | | | | | | | | | |
| Instrument | | Amount
($ in millions) | | Maturity
Date | | Interest Rate |
| Credit Agreement (as amended) | | | | | | |
| Senior secured revolving credit facility | | $300.0 | | 3/29/2026 | | LIBOR(a) plus 1.500%(b) |
| | | | | | |
| Credit Agreement (prior to amending) | | | | | | |
| Senior secured revolving credit facility | | $300.0 | | 9/20/2022 | | LIBOR(a) plus 1.500%(b) |
__________________________(a) London Interbank Offered Rate ("LIBOR") plus 1.50%.
(a) The interest rate spread is based upon the leverage ratio, as defined, as of the most recent determination date.
The Credit Agreement allows issuance of letters of credit, not to exceed $40.0 million in aggregate, againstsenior secured revolving credit facility commitments.
under the Credit Agreement permits borrowings denominated in specific foreign currencies, subject to a $125.0 million sub limit. The Credit Agreement also provides for incremental revolving credit commitments in an amount not to exceed the greater of $200 million and an amount such that, after giving effect to such incremental commitments and the incurrence of any other indebtedness substantially simultaneously with the making of such commitments, the senior secured net leverage ratio, as defined in the Credit Agreement, is no greater than 3.00 to 1.00. The terms and conditions of any incremental revolving credit facility commitments must be no more favorable than the existing credit facility.
Amounts drawn under our revolving credit facility fluctuate daily based upon our working capital and other ordinary course needs. Availability under our revolving credit facility depends upon, among other things, compliance with our Credit Agreement's financial covenants. Our Credit Agreement contains various negative and affirmative covenants and other requirements affecting us and our subsidiaries, including the ability to, subject to certain exceptions and limitations, incur debt, liens, mergers, investments, loans, advances, guarantee obligations, acquisitions, assets dispositions, sale-leaseback transactions, hedging agreements, dividends and other restricted payments, transactions with affiliates, restrictive agreements and amendments to charters, bylaws, and other material documents. The terms of our Credit Agreement require us and our subsidiaries to meet certain restrictive financial covenants and ratios computed quarterly, including a maximum total net leverage ratio (total consolidated indebtedness plus outstanding amounts under theany accounts receivable securitization facility, less the aggregate amount of certain unrestricted cash and unrestricted permitted investments, as defined, over consolidated EBITDA, as defined), a maximum senior secured net leverage ratio (total consolidated senior secured indebtedness, less the aggregate amount of certain unrestricted cash and unrestricted permitted investments, as defined, over consolidated EBITDA, as defined) and a minimum interest expense coverage ratio (consolidated EBITDA, as defined, over the sum of consolidated cash interest expense, as defined, and preferred dividends, as defined). Our permitted total net leverage ratio under the Credit Agreement is 4.00 to 1.00 as of December 31, 2018.2021. If we were to complete an acquisition which qualifies for a Covenant Holiday Period, as defined in our Credit Agreement, then our permitted total net leverage ratio cannot exceed 4.50 to 1.00 during that period. Our actual total net leverage ratio was 1.271.60 to 1.00 at December 31, 2018. Our permitted senior secured net leverage ratio under the Credit Agreement is 3.50 to 1.00 as of December 31, 2018. If we were to complete an acquisition which qualifies for a Covenant Holiday Period, as defined in our Credit Agreement, then our permitted senior secured net leverage ratio cannot exceed 4.00 to 1.00 during that period. Our actual senior secured net leverage ratio was not meaningful at December 31, 2018.2021. Our permitted interest expense coverage ratio under the Credit Agreement is 3.00 to 1.00, and our actual interest expense coverage ratio was 13.6313.31 to 1.00 as of December 31, 2018.2021. At December 31, 2018,2021, we were in compliance with our financial and other covenants contained in the Credit Agreement.
The following is a reconciliation of net income (loss), as reported, which is a GAAP measure of our operating results, to Consolidated Bank EBITDA, as defined in our Credit Agreement, for the year ended December 31, 2018.2021. We present Consolidated Bank EBITDA to show our performance under our financial covenants. Dollars are in thousands in the below tables.
|
| | | | |
| | | Year ended
December 31, 2018 |
| Net income | | $ | 83,300 |
|
| Bank stipulated adjustments: | | |
| Interest expense, net (as defined) | | 13,910 |
|
| Income tax expense | | 20,950 |
|
| Depreciation and amortization | | 44,020 |
|
Non-cash compensation expense(1) | | 7,170 |
|
| Other non-cash expenses or losses | | 3,420 |
|
Non-recurring expenses or costs(2) | | 1,830 |
|
| Extraordinary, non-recurring or unusual gains or losses | | (3,800 | ) |
| Business and asset dispositions | | 380 |
|
| Casualty or business interruption expenses covered and reimbursed by insurance | | 460 |
|
| Consolidated Bank EBITDA, as defined | | $ | 171,640 |
|
|
| | | | | |
| | | December 31, 2018 |
Total Indebtedness, as defined(3) | | $ | 217,990 |
| |
| Consolidated Bank EBITDA, as defined | | 171,640 |
| |
| Actual total net leverage ratio | | 1.27 |
| x |
| Covenant requirement | | 4.00 |
| x |
|
| | | | | |
| | | December 31, 2018 |
Total senior secured indebtedness(4) | | $ | (85,950 | ) | |
| Consolidated Bank EBITDA, as defined | | 171,640 |
| |
| Senior secured net leverage ratio | | n/m |
| x |
| Covenant requirement | | 3.50 |
| x |
|
| | | | |
| | | December 31, 2018 |
| Interest expense, as defined | | $ | 13,910 |
|
| Bank stipulated adjustments: | | |
| Interest income | | (210 | ) |
| Non-cash amounts attributable to amortization of financing costs | | (1,110 | ) |
| Total Consolidated Cash Interest Expense, as defined | | $ | 12,590 |
|
|
| | | | | |
| | | December 31, 2018 | |
| Consolidated Bank EBITDA, as defined | | $ | 171,640 |
| |
| Total Consolidated Cash Interest Expense, as defined | | 12,590 |
| |
| Actual interest expense coverage ratio | | 13.63 |
| x |
| Covenant requirement | | 3.00 |
| x |
| | | | | | | | |
| | Year ended
December 31, 2021 |
| Net income | | $ | 57,310 | |
| Bank stipulated adjustments: | | |
| Interest expense, net (as defined) | | 14,510 | |
| Income tax expense | | 11,800 | |
| Depreciation and amortization | | 53,450 | |
| | |
(1)
| Non-cash compensation expense(1) | | 9,500 | |
| Non-cash charges for deferred tax asset valuation allowances | | 250 | |
Other non-cash expenses resulting from the grant of equity awards.or losses | | 1,210 | |
Non-recurring expenses or costs(2) | | 19,290 | |
| Extraordinary, non-recurring or unusual gains or losses | | 2,000 | |
| | |
(2)
Effects of purchase accounting adjustments | Non-recurring costs | 830 | |
Business and expenses relating to severance, relocation, restructuring and curtailment expenses.asset dispositions | | 130 | |
| Net losses on early extinguishment of debt | | 3,000 | |
| Permitted acquisitions | | 3,290 | |
| | |
(3)
Currency gains and losses | Includes approximately $4.0 million of acquisition related deferred purchase price | 890 | |
Consolidated Bank EBITDA, as of December 31, 2018.defined | | $ | 177,460 | |
| | | | | | | | | | | |
(4)
| Senior secured indebtedness is negative at | December 31, 2018 due2021 |
Total Indebtedness, as defined(3) | | $ | 283,960 | | |
| Consolidated Bank EBITDA, as defined | | 177,460 | | |
| Actual total net leverage ratio | | 1.60 | | x |
| Covenant requirement | | 4.00 | | x |
| | | | | | | | |
| | Year ended
December 31, 2021 |
| Interest expense, as defined | | $ | 14,510 | |
| Bank stipulated adjustments: | | |
| Interest income | | (210) | |
Non-cash amounts attributable to the deductionamortization of certain unrestricted cash and unrestricted permitted investmentsfinancing costs | | (960) | |
| | |
Total Consolidated Cash Interest Expense, as allowed under the Credit Agreement.defined | | $ | 13,340 | |
During 2018, we terminated | | | | | | | | | | | |
| | December 31, 2021 | |
| Consolidated Bank EBITDA, as defined | | $ | 177,460 | | |
| Total Consolidated Cash Interest Expense, as defined | | 13,340 | | |
| Actual interest expense coverage ratio | | 13.31 | | x |
| Covenant requirement | | 3.00 | | x |
(1) Non-cash compensation expenses resulting from the grant of equity awards.
(2) Non-recurring costs and expenses relating to diligence and transaction costs, purchase accounting costs, severance, relocation and restructuring expenses.
(3) Includes approximately $3.8 million of acquisition related contingent consideration as of December 31, 2021.
The Credit Agreement allows issuance of letters of credit, not to exceed $40.0 million in aggregate, against revolving credit facility commitments. We placed cash on deposit with a financial institution to be held as cash collateral for our $75.0 million accounts receivable facility, under whichoutstanding letters of credit; therefore, as of December 31, 2021 and December 31, 2020, we had the ability to sell eligible accounts receivable to a third-party multi-seller receivables funding company.no letters of credit issued against our revolving credit facility. At December 31, 2017, we had no amounts outstanding under the facility and approximately $57.8 million available but not utilized.
At December 31, 2018,2021, we had no amounts outstanding under our revolving credit facility and had $284.9$300.0 million potentially available after giving effect to approximately $15.1 million of letters of credit issued and outstanding. At December 31, 2017,2020, we had $10.8$50.5 million amounts outstanding under our revolving credit facility and had $274.3$249.5 million potentially available after giving effect to approximately $14.9 million of letters of credit issued and outstanding. The letters of creditOur restricted cash deposits are used for a variety of purposes, including support of certain operating lease agreements, vendor payment terms and other subsidiary operating activities, and to meet various states' requirements to self-insure workers' compensation claims, including incurred but not reported claims. Including availability under our accounts receivable facility and after consideration ofOur borrowing capacity was not reduced by leverage restrictions contained in the Credit Agreement as of December 31, 20182021 and December 31, 2017, we had $284.9 million and $332.1 million, respectively, of borrowing capacity available for general corporate purposes.2020.
We rely upon our cash flow from operations and available liquidity under our revolving credit facility to fund our debt service obligations and other contractual commitments, working capital and capital expenditure requirements, as well as for discretionary spending such as any repurchases of our common stock.requirements. At the end of each quarter, we usehave historically used cash on hand from our domestic and certain foreign subsidiaries to pay down amounts outstanding under our revolving credit facility, as applicable.
Our weighted average borrowings approximated $315.2 million and $381.8$401.9 million during 2018 and 2017, respectively. The overall decrease is2021, compared to $368.9 million during 2020, primarily due to repaymentsa higher aggregate principal balance on our senior notes due to the issuance of the 2029 Senior Notes and the redemption of the 2025 Senior Notes during 2021.
In May 2021, we, through one of our non-U.S. subsidiaries, entered into a revolving loan facility with a borrowing capacity of $4 million. The facility is guaranteed by TriMas Corporation. There were no borrowings using cash flow generated by operating activities.on this loan facility as of December 31, 2021.
Cash management related to our revolving credit and accounts receivable facilitiesfacility is centralized. We monitor our cash position and available liquidity on a daily basis and forecast our cash needs on a weekly basis within the current quarter and on a monthly basis outside the current quarter over the remainder of the year. Our business and related cash forecasts are updated monthly.
In considering the economic uncertainty surrounding the potential business impacts from the COVID-19 pandemic with respect to our operations, supply chains, distribution channels, and end-market customers, we took certain defensive actions during 2020 as we monitored our cash position and available liquidity. These actions included suspending our repurchase of our common stock, borrowing on our revolving credit facility, tightening our capital expenditures, advanced monitoring of our accounts receivable balances and flexing cost structures of operations expected to be most impacted by COVID-19. Given strong cash generation and our current liquidity position, we subsequently relaxed certain of these actions, choosing to further invest in capital expenditures, resume purchasing shares of our common stock and initiating a cash dividend.
The majority of our cash on hand as of December 31, 2018 is recorded as a Corporate asset and2021 is located within the United States. We have aggregateStates, and given available funding under our revolving credit and accounts receivable facilitiesfacility of $284.9$300.0 million at December 31, 2018 after2021 (after consideration of the aforementioned leverage restrictions. Basedrestrictions) and based on forecasted cash sources and requirements inherent in our business plans, we believe that our liquidity and capital resources, including anticipated cash flows from operations, will be sufficient to meet our debt service, capital expenditure and other short-term and long-term obligation needs for the foreseeable future.future, as well as dividends and share repurchases.
We are subject to variable interest rates on our revolving credit facility. At December 31, 2018,2021, 1-Month LIBOR approximated 2.50%0.10%. At December 31, 2018,2021, we had no amounts outstanding on our revolving credit facility and, therefore, no variable rate-based borrowings outstanding.
In November 2021, we amended the Credit Agreement to replace LIBOR with a benchmark interest rate determined based on the currency denomination of borrowings, effective January 1, 2022.
In addition to our long-term debt, we have other cash commitments related to leases. We account for these lease transactions primarily as operating leases, and incurred rent expense fromfor continuing operations related thereto of approximately $12.3$11.0 million in 2018.2021. We continue to be party to non-cancelable leases for certain facilities we have exited as part of restructuring activities, and have entered into sublease agreements to minimize our net lease payments. We expect leasing will continue to be an available financing option to fund future capital expenditure requirements.
We continuously evaluate strategies to redeploy our cash, including returning capital to our shareholders. In November 2015,March 2020, we announced our Board of Directors had authorized us to increase the purchase of our common stock up to $50$250 million in the aggregate, an increase of $100 million from the previous authorization. During 2021, 2020 and 2019, we purchased 596,084, 1,582,049 and 1,230,050 shares of our outstanding common stock. During 2018,stock for approximately $19.1 million, $39.4 million and $36.7 million, respectively. Since the initial authorization through December 31, 2021, we have purchased 442,6323,850,815 shares of our outstanding common stock for an aggregate purchase price of approximately $12.1$107.4 million. We will continue to evaluate opportunities to return capital to shareholders through the purchase of our common stock, depending on market conditions, including the potential impact of the COVID-19 pandemic, and other factors.
Under various agreements, we are obligated to make future cash payments in fixed amounts. These include payments under our long-term debt agreements, rent payments required under operating lease agreements, certain benefit obligations and interest obligations on our long-term debt. The following table summarizes our material contractual cash obligations as of December 31, 2021 (dollars in thousands).
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Payments Due by Periods |
| | Total | | Less than
One Year | | 1 - 3 Years | | 3 - 5 Years | | More than
5 Years |
| Contractual cash obligations: | | | | | | | | | | |
| Long-term debt | | $ | 400,000 | | | $ | — | | | $ | — | | | $ | — | | | $ | 400,000 | |
| Operating lease obligations | | 57,500 | | | 8,500 | | | 16,860 | | | 13,210 | | | 18,930 | |
| Benefit obligations | | 14,220 | | | 1,170 | | | 2,470 | | | 2,660 | | | 7,920 | |
Interest obligations (a) | | 123,750 | | | 16,500 | | | 33,000 | | | 33,000 | | | 41,250 | |
| Contingent consideration | | 3,760 | | | — | | | 3,760 | | | — | | | — | |
| | | | | | | | | | |
| Total contractual obligations | | $ | 599,230 | | | $ | 26,170 | | | $ | 56,090 | | | $ | 48,870 | | | $ | 468,100 | |
__________________________
(a) Our Senior Notes bear interest at 4.125%. The future interest obligations calculation excludes the impact of our cross-currency swap agreements. See Note 14, "Derivative Instruments," included in Item 8, "Financial Statements and Supplementary Data," within this Form 10-K for additional information.
The liability related to unrecognized tax benefits has been excluded from the contractual obligations table because a reasonable estimate of the timing and amount of cash flows from future tax settlements cannot be determined. For additional information, refer to Note 23, "Income Taxes," included in Item 8, "Financial Statements and Supplementary Data," within this Form 10-K.
Market Risk
We conduct business in various locations throughout the world and are subject to market risk due to changes in the value of foreign currencies. The functional currencies of our foreign subsidiaries are primarily the local currency in the country of domicile. We manage these operating activities at the local level and revenues and costs are generally denominated in local currencies; however, results of operations and assets and liabilities reported in U.S. dollars will fluctuate with changes in exchange rates between such local currencies and the U.S. dollar.
We have historically used derivative financial instruments to manage currency risks, albeit in immaterial notional contracts, as we exploredseek to mitigate the predictability of our procurement activitiesrisk associated with fluctuations in currency rates impacting cash flows related to certain receivables, payables and intercompany transactions denominated in currencies other than the functional currency of our subsidiaries and the impact of currency rate volatility on our earnings.foreign currencies. We also use cross-currency swap agreements to mitigate currency risks associated with the net investment in certain of our foreign subsidiaries. See Note 11,14, "Derivative Instruments," included in Item 8, "Financial Statements and Supplementary Data," within this Form 10-K for additional information.
We are also subject to interest risk as it relates to our long-term debt. We have historically used interest rate swap agreements to fix the variable portion of our debt to manage this risk. See Note 11,14, "Derivative Instruments," included in Item 8, "Financial Statements and Supplementary Data," within this Form 10-K for additional information.
Common Stock
TriMas is listed in the NASDAQ Global Select MarketSM. Our stock trades under the symbol "TRS."
Contractual Obligations and Off-Balance Sheet Arrangements
Under various agreements, we are obligated to make future cash payments in fixed amounts. These include payments under our long-term debt agreements, rent payments required under operating lease agreements, certain benefit obligations and interest obligations on our long-term debt.
The following table summarizes our significant contractual cash obligations as of December 31, 2018 (dollars in thousands).
|
| | | | | | | | | | | | | | | | | | | | |
| | | Payments Due by Periods |
| | | Total | | Less than One Year | | 1 - 3 Years | | 3 - 5 Years | | More than 5 Years |
| Contractual cash obligations: | | | | | | | | | | |
| Long-term debt | | $ | 300,000 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 300,000 |
|
| Operating lease obligations | | 65,950 |
| | 12,730 |
| | 23,610 |
| | 13,780 |
| | 15,830 |
|
| Benefit obligations | | 13,150 |
| | 1,030 |
| | 2,260 |
| | 2,520 |
| | 7,340 |
|
Interest obligations (a) | | 102,380 |
| | 14,630 |
| | 29,250 |
| | 29,250 |
| | 29,250 |
|
| Other | | 3,950 |
| | 3,950 |
| | — |
| | — |
| | — |
|
| Total contractual obligations | | $ | 485,430 |
| | $ | 32,340 |
| | $ | 55,120 |
| | $ | 45,550 |
| | $ | 352,420 |
|
__________________________
| |
(a)
| Our Senior Notes bear interest at 4.875%. Interest on our senior secured revolving credit facility is based on LIBOR plus 150.0 basis points at December 31, 2018. These rates were used to estimate our future interest obligations with respect to the long-term debt. These rates exclude the impact of our cross-currency swap agreements. See Note 11, "Derivative Instruments," included in Item 8, "Financial Statements and Supplementary Data," within this Form 10-K for additional information.
|
As of December 31, 2018, we had a $300.0 million revolving credit facility, with no outstanding balance.
As of December 31, 2018, we are contingently liable for standby letters of credit totaling $15.1 million issued on our behalf by financial institutions under the Credit Agreement. These letters of credit are used for a variety of purposes, including to support certain operating lease agreements, vendor payment terms and other subsidiary operating activities, and to meet various states' requirements to self-insure workers' compensation claims, including incurred but not reported claims.
The liability related to unrecognized tax benefits has been excluded from the contractual obligations table because a reasonable estimate of the timing and amount of cash flows from future tax settlements cannot be determined. For additional information, refer to Note 19, "Income Taxes," included in Item 8, "Financial Statements and Supplementary Data," within this Form 10-K.
Credit Rating
We and certain of our outstanding debt obligations are rated by Standard & Poor's and Moody's. On June 7, 2018,March 24, 2021, Moody's upgraded our Senior Notesassigned a Ba3 rating to Ba3 from B1,our 2029 Senior Notes, as presented in Note 10, 13, "Long-term Debt" included in Item 8, "Financial Statements and Supplementary Data" within this Form 10-K. Moody's also upgraded ouraffirmed a Ba2 Corporate Family Rating to Ba2 from Ba3 and maintained its outlook as stable. On May 11, 2018,March 15, 2021, Standard & Poor's upgraded our senior unsecured debtassigned a BB- rating to BB- from B+, upgraded our 2029 Senior Notes. On February 26, 2021 Standard & Poor's affirmed a BB corporate credit rating to BB from BB- and maintained its outlook as stable. If our credit ratings were to decline, our ability to access certain financial markets may become limited, our cost of borrowings may increase, the perception of us in the view of our customers, suppliers and security holders may worsen and as a result, we may be adversely affected.
Outlook
2018 was a strong operationalOver the past two years, the COVID-19 pandemic has significantly affected each of our businesses and financial yearhow we operate, albeit in different ways and magnitudes. Sales in our Packaging segment for TriMas, markingdispensing and closure products we supply that are used in applications to fight the spread of germs have continued to be much stronger than before the COVID-19 pandemic, although, as expected, have abated from peak levels in 2020 at the onset of the COVID-19 pandemic. Sales in our second full yearSpecialty Products segment had been depressed by low levels of successfully operating underindustrial activity in the TriMas Business Model, which provides a standardized setU.S. during 2020, but have since strongly rebounded in the last nine months of processes that we follow2021. Sales in our Aerospace segment are expected to drive results across our multi-industry set of businesses. We experienced year-over-year increases in sales, and leveraged those increases into higher operating profit and related margin, with further improvement in net incomebe lower than historical levels for an indefinite period as a result of low new commercial aircraft builds, but have been significantly boosted by customers' stocking orders throughout 2021.
We believe our 2021 financial results demonstrate our ability to effectively leverage our TriMas Business Model, working across our businesses with a high degree of connectivity to respond to changing market conditions, including the ongoing challenges presented by the COVID-19 pandemic. We have capitalized on opportunities where market demand was high, while also taking swift actions where market demand was sharply reduced. We have continued to take proactive realignment actions to mitigate the effects of lower tax rate followingdemand from the enactmentCOVID-19 pandemic as much as practical, while at the same time growing our businesses through organic new products as well as via bolt-on acquisitions.
Looking forward, we believe there will be a continued period of the Tax Reform Act. We also generated significant cash flow in 2018, strengtheninguncertainty related to demand levels for our balance sheetproducts, whether it be when production rates for future capital deployment while affording us the opportunitynew aircraft builds, which require our fasteners and engineered products, will ramp-up, or whether general industrial activity will continue to buy back more than $12 million of our common stock.
increase toward pre-pandemic levels. We expect to continue our positive momentumto mitigate, as much as practical, the impact of low volumes in 2019,the most challenged end markets, executing realignment actions as necessary so we are positioned to gain operating leverage when these end markets recover. We believe we areremain well positioned to capitalize on growth opportunities,the recovery of the aerospace market, just as we have with the improvement in the industrial markets in the back half of 2021, as well as have instilled a culture of Kaizen and continuous improvement to generate additional efficiencies, cost savings and leveragecapture available market growth opportunities. We believe the continued effectiveness of vaccines, as well as continued measures intended to control the spread of the virus and future variants thereof, are among the most significant factors that could impact demand for our products.
As a result of continued uncertainties resulting from the COVID-19 pandemic, and their potential impact to our future results of operations, as well as to TriMas' market capitalization, we may record additional cash and non-cash charges related to further realignment actions, as well for uncollectible customer account balances, excess inventory and idle production equipment. At this time, we are not counting on end market improvement, particularly given economic uncertainty around directable to estimate the extent or amount of any such potential cash and indirect impactsnon-cash charges.
Following the issuance of tariffs on foreign-sourced materials. We will continue our efforts2029 Senior Notes and the amendment of our Credit Agreement in 2021, we believe our capital structure remains strong and that we have sufficient headroom under our financial covenants, and ample cash and available liquidity under our revolving credit facility, to mitigatemeet our debt service, capital expenditure and other short-term and long-term obligations for the impact of external factors, while focusing on those areas we can control.
foreseeable future, as well as dividends and share repurchases.
We will continueexpect to prioritize growth programs, particularly in our Packaging and Aerospace reportable segments, where we have many initiatives underway that we expect will benefit us in 2019. We will also continue to ensure our cost structures remain aligned with customer demand in the end markets we serve, most notably in our Specialty Products reportable segment. We will continue to leverage the tenets of theour TriMas Business Model to manage our multi-industry businesses and address the ongoing challenges presented by the COVID-19 pandemic, and on a longer-term basis, achieve our growth plans, execute continuous improvement initiatives to offset inflationary pressures, and seek lower-cost sources for input costs, all while continuously assessing the appropriateness of our manufacturing footprint productivity and fixed-cost structure.
Impact of New Accounting Standards
See Note 2,, "New Accounting Pronouncements," included in Item 8, "Financial Statements and Supplementary Data," within this Form 10-K.
Critical Accounting Policies
The following discussion of accounting policies is intended to supplement the accounting policies presented in Note 3,, "Summary of Significant Accounting Policies" included in Item 8, "Financial Statements and Supplementary Data," within this Form 10-K. Certain of our accounting policies require the application of significant judgment by management in selecting the appropriate assumptions for calculating financial estimates. By their nature, these judgments are subject to an inherent degree of uncertainty. These judgments are based on our historical experience, our evaluation of business and macroeconomic trends, and information from other outside sources, as appropriate.
Receivables. Receivables are presented net of allowances for doubtful accounts of approximately $3.4$1.6 million and $4.1$2.1 million at December 31, 20182021 and 2017,2020, respectively. We monitor our exposure for credit losses and maintain adequate allowances for doubtful accounts. We determine these allowances based on our historical write-off experience and/or specific customer circumstances and provide such allowances when amounts are reasonably estimable and it is probable a loss has been incurred. WeAlthough we have been growing business with certain of our larger customers, and there has been some industry consolidation where certain of our customers are merging, we do not believe that significant credit risk exists or that we have concentrationsa significant concentration of accounts receivable with a single customer or group of customers and do not believe that significant credit risk exists due to our diverse customer base. See Item 1A, "Risk Factors," for additional information regarding risks associated with a concentrated customer base. Prior to March 2018, when we terminated this facility, trade accounts receivable of substantially all domestic business operations may have been sold, on an ongoing basis, to a wholly-owned, special purpose entity, but remained included in our consolidated balance sheet.
Depreciation and Amortization. Depreciation is computed principally using the straight-line method over the estimated useful lives of the assets. Annual depreciation rates are as follows: building and land/building improvements three to 40 years, and machinery and equipment, three to 15 years. Capitalized debt issuance costs are amortized over the underlying terms of the related debt securities. Customer relationship intangibles are amortized over periods ranging from five to 25 years, while technology and other intangibles are amortized over periods ranging from one to 30 years.
Impairment of Long-Lived Assets and Definite-Lived Intangible Assets. We review, on at least a quarterly basis, the financial performance of each business unit for indicators of impairment. In reviewing for impairment indicators, we also consider events or changes in circumstances such as business prospects, customer retention, market trends, potential product obsolescence, competitive activities and other economic factors. An impairment loss is recognized when the carrying value of an asset group exceeds the future net undiscounted cash flows expected to be generated by that asset group. The impairment loss recognized is the amount by which the carrying value of the asset group exceeds its fair value.
Goodwill and Indefinite-Lived Intangibles. We assess goodwill and indefinite-lived intangible assets for impairment at the reporting unit level on an annual basis as of October 1, by reviewing relevant qualitative and quantitative factors. More frequent evaluations may be required if we experience changes in our business climate or as a result of other triggering events that take place. IfAn impairment loss is recognized when the carrying value of the asset exceeds its fair value, a possible impairment exists and further evaluation is performed.value.
We determine our reporting units at the individual operating segment level, or one level below, when there is discrete financial information available that is regularly reviewed by segment management for evaluating operating results. For purposes of our 20182021 goodwill impairment test, we had five reporting units, three of which had goodwill, within our three reportable segments.
We first perform a qualitative assessment for our annual goodwill impairment test and for our indefinite-lived intangible asset impairment test, which involves significant use of management's judgment and assumptions to determine whether it is more likely than not that the fair value of a reporting unit or indefinite-lived intangible asset is less than its carrying amount. In conducting the qualitative assessment, we consider macroeconomic conditions, industry and market considerations, overall financial performance, entity and reporting unit specific events, capital markets pricing, recent fair value estimates and carrying amounts, as well as legal, regulatory, and contractual factors. These factors are all considered in reaching a conclusion about whether it is more likely than not that the fair values of the intangible assets are less than the carrying values. If we conclude that further testing is required, we would perform a quantitative valuation to estimate the fair value of our intangible assets.
For purposes of the 20182021 annual impairment tests, based on the qualitative assessments, we determined there were no indications that the fair value of a reporting unit or indefinite-lived intangible asset was less than its carrying amount; therefore, we determined that quantitative assessments were not required.
Future declines in sales and/or operating profit, declines in our stock price, or other changes in our business or the markets for our products could result in further impairments of our goodwill and indefinite-lived intangible assets.
Pension Benefits. We engage independent actuaries to compute the amounts of liabilities and expenses under defined benefit pension plans, subject to the assumptions that we determine are appropriate based on historical trends, current market rates and future projections as of the measurement date. Annually, we review the actual experience compared to the most significant assumptions used and makes adjustments to the assumptions, if warranted. Discount rates are based upon an expected benefit payments duration analysis and the equivalent average yield rate for high-quality fixed-income investments. Pension benefits are funded through deposits with trustees and the expected long-term rate of return on plan assets is based upon actual historical returns modified for known changes in the market and any expected change in investment policy. Certain accounting guidance, including the guidance applicable to pensions, does not require immediate recognition of the effects of a deviation between actual and assumed experience or the revision of an estimate. This approach allows the favorable and unfavorable effects that fall within an acceptable range to be netted.
Income Taxes. We compute income taxes using the asset and liability method, whereby deferred income taxes using current enacted tax rates are provided for the temporary differences between the financial reporting basis and the tax basis of assets and liabilities and for operating loss and tax credit carryforwards. We determine valuation allowances based on an assessment of positive and negative evidence on a jurisdiction-by-jurisdiction basis and record a valuation allowance to reduce deferred tax assets to the amount more likely than not to be realized. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. We record interest and penalties related to unrecognized tax benefits in income tax expense.
On December 22, 2017,Asbestos-related Matters. We accrue loss reserves for asbestos-related matters based upon an estimate of the Tax Reform Act was signed into law. Amongultimate liability for claims incurred, whether reported or not, including an estimate of future settlement costs and costs to defend. We utilize known facts and historical trends for Company-specific and general market asbestos-related activity, as well as an actuarial valuation in determining estimated required reserves which we believe are probable and reasonably estimable. Asbestos-related accruals are assessed at each balance sheet date to determine if the provisions, the Tax Reform Act reduces the Federal statutory corporate income tax rate from 35% to 21% effective January 1, 2018, implements a territorial tax system and imposes a one-time tax on the deemed repatriation of undistributed earnings of non-U.S. subsidiaries, introduces additional limitations on the deductibility of interest, allowsliability remains reasonably stated. Accruals for the immediate expensing of capital expenditures through 2023 and modifies or repeals many business deductions and credits.
While the Tax Reform Act provides for a territorial tax system, beginning in 2018, it includes two new U.S. tax base erosion provisions, the global intangible low-taxed income (“GILTI”) provisions and the base-erosion and anti-abuse tax (“BEAT”) provisions. The GILTI provisions impose a tax on foreign income in excess of a deemed return on tangible assets of foreign corporations. Authoritative guidance has been published that allows companies to make an accounting policy election to either account for deferred taxes related to GILTI inclusions or treat any taxes on GILTI inclusions as period costs. We have elected to account for GILTI taxasbestos-related matters are included in the periodconsolidated balance sheet in which it is incurred,“Accrued liabilities” and therefore have not provided any deferred tax impacts on GILTI in our consolidated financial statements for the years ended December 31, 2018 and 2017.“Other long-term liabilities.”
The BEAT provisions in the Tax Reform Act eliminate the deduction of certain base-erosion payments made to related foreign corporations, and impose a minimum tax if greater than regular tax. We do not expect the BEAT provisions to have a significant impact to our consolidated financial statements, and have not included any tax impacts of BEAT in our consolidated financial statements for the years ended December 31, 2018 and 2017.
Other Loss Reserves. We have other loss exposures related to insurance, litigation and environmental claims, asbestos claims and litigation.claims. Establishing loss reserves for these matters requires the use of estimates and judgment in regard to risk exposure and ultimate liability. We are generally self-insuredparty to high deductible insurance programs for losses and liabilities related principally to workers' compensation, health and welfare claims and comprehensive general, product and vehicle liability. Generally, we are responsible for up to $0.8$0.8 million per occurrence under our retention program for workers' compensation, between $0.3up to $1.5 million and $1.5 million per occurrence under our retention programs for comprehensive general, product and vehicle liability, and have a $0.3$0.4 million per occurrence stop-loss limit with respect to our self-insured group medical plan. We accrue loss reserves up to our retention amounts based upon our estimates of the ultimate liability for claims incurred, including an estimate of related litigation defense costs, and an estimate of claims incurred but not reported using actuarial assumptions about future events. We accrue for such items when such amounts are reasonably estimable and probable. We utilize known facts and historical trends, as well as actuarial valuations in determining estimated required reserves. Changes in assumptions for factors such as medical costs and actual experience could cause these estimates to change significantly.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
In the normal course of business, we are exposed to market risk associated with fluctuations in commodity prices, insurable risks due to property damage, employee and liability claims, and other uncertainties in the financial and credit markets, which may impact demand for our products.
We conduct business in various locations throughout the world and are subject to market risk due to changes in the value of foreign currencies. The functional currencies of our foreign subsidiaries are primarily the local currency in the country of domicile. We manage these operating activities at the local level and revenues and costs are generally denominated in local currencies; however, results of operations and assets and liabilities reported in U.S. dollars will fluctuate with changes in exchange rates between such local currencies and the U.S. dollar. We may use derivative financial instruments to manage currency risks associated with our procurement activities denominated in currencies other than the functional currency of our subsidiaries and the impact of currency rate volatility on our earnings.
We aremay also be subject to interest risk as it relates to long-term debt, for which we have historically and may prospectively employ derivative instruments such as interest rate swaps to mitigate the risk of variable interest rates. See Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" for details about our primary market risks, and the objectives and strategies used to manage these risks. Also see Note 10,13, "Long-term Debt," and Note 11,14, "Derivative Instruments," included in Item 8, "Financial Statements and Supplementary Data," within this Form 10-K for additional information.
Item 8. Financial Statements and Supplementary Data
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of TriMas Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of TriMas Corporation and subsidiaries (the "Company") as of December 31, 20182021 and 2017,2020, the related consolidated statements of operations, comprehensive income, cash flows, and shareholders’ equity, for each of the three years in the period ended December 31, 2018,2021, and the related notes and the schedule listed in the Index at Item 15 (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20182021 and 2017,2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018,2021, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2018,2021, based on criteria established in Internal Control -— Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 28, 2019,March 01, 2022, expressed an unqualified opinion on the Company's internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) related to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Goodwill - Aerospace Fasteners Reporting Unit - Refer to Notes 3 and 9 to the financial statements.
Critical Audit Matter Description
The Company assesses goodwill for impairment on an annual basis as of October 1, and more frequently if there are changes in the business climate or as a result of a triggering event taking place. The Company’s evaluation of goodwill impairment involves a qualitative assessment to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount. The qualitative assessment involves significant use of management’s judgment and assumptions related to macroeconomic conditions, industry and market considerations, overall financial performance, entity and reporting unit specific events, and capital markets pricing. The Company also considered recent valuations of its reporting units, including the difference between the most recent fair value estimate and the carrying amount. Changes in these assumptions could have a significant effect on management’s conclusion about whether a quantitative goodwill impairment test is necessary to estimate the fair value of its reporting units.
The Company’s goodwill balance was $315 million as of December 31, 2021, of which $70 million was allocated to the Aerospace Fasteners Reporting Unit (“Aerospace Fasteners”). The Company concluded there were no indications that the fair value of any reporting unit was less than the carrying amount, therefore a quantitative assessment was not performed, and no impairment was recognized.
Given the nature of the Aerospace Fasteners operations, the assumptions used in the qualitative assessment, and the difference between the most recent fair value estimate and the carrying amount of Aerospace Fasteners, auditing management’s judgments related to the impact of macroeconomic conditions, overall financial performance for Aerospace Fasteners, and capital markets pricing involved especially subjective judgment.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to management’s qualitative evaluation of goodwill impairment for Aerospace Fasteners included the following, among others:
•We tested the effectiveness of controls over goodwill, including those over management's judgments and assumptions related to macroeconomic conditions, industry and market considerations, overall financial performance, entity and reporting unit specific events, capital markets pricing, recent fair value estimates and carrying amounts.
•We evaluated management's ability to accurately forecast future revenues and EBITDA margins by comparing actual results to management's historical forecasts.
•We evaluated the reasonableness of management’s qualitative assessment of factors affecting revenue and EBITDA margin forecasts by comparing the forecasts to:
◦Historical revenues and EBITDA.
◦Internal communications to management and the Board of Directors.
◦Forecasted information included in industry reports for the Company and certain of its peer companies.
•We evaluated the impact of changes in management’s forecasts from the October 1, 2021, annual measurement date to December 31, 2021.
•With the assistance of our fair value specialists, we evaluated the reasonableness of management’s qualitative assessment by performing the following: (1) Researching GDP growth, inflation and/or other macroeconomic variables, as well as industry growth rates; (2) Estimate industry discount rates; (3) Research and analyze valuation multiple of guideline public companies to understand valuation trends, and research trends in growth and margins in guideline public companies; and (4) Obtain information to analyze the trend of market capitalization of the entity and public peer companies.
/s/ Deloitte & Touche LLP
Detroit, Michigan
February 28, 2019March 1, 2022
We have served as the Company's auditor since 2013.
TriMas Corporation
Consolidated Balance Sheet
(Dollars in thousands)
| | | | | | | | | | | | | | |
| | | December 31, |
| | | 2021 | | 2020 |
| Assets | | | | |
| Current assets: | | | | |
| Cash and cash equivalents | | $ | 140,740 | | | $ | 73,950 | |
| Receivables, net | | 125,630 | | | 113,410 | |
| Inventories | | 152,450 | | | 149,380 | |
| Prepaid expenses and other current assets | | 12,950 | | | 15,090 | |
| | | | |
| Total current assets | | 431,770 | | | 351,830 | |
| Property and equipment, net | | 265,630 | | | 253,060 | |
| Operating lease right-of-use assets | | 50,650 | | | 37,820 | |
| Goodwill | | 315,490 | | | 303,970 | |
| Other intangibles, net | | 196,730 | | | 206,200 | |
| Deferred income taxes | | 9,740 | | | 19,580 | |
| Other assets | | 33,630 | | | 21,420 | |
| | | | |
| Total assets | | $ | 1,303,640 | | | $ | 1,193,880 | |
| Liabilities and Shareholders' Equity | | | | |
| Current liabilities: | | | | |
| | | | |
| Accounts payable | | $ | 87,800 | | | $ | 69,910 | |
| Accrued liabilities | | 58,980 | | | 60,540 | |
| Operating lease liabilities, current portion | | 8,120 | | | 6,740 | |
| | | | |
| Total current liabilities | | 154,900 | | | 137,190 | |
| Long-term debt, net | | 393,820 | | | 346,290 | |
| Operating lease liabilities | | 43,780 | | | 31,610 | |
| Deferred income taxes | | 21,260 | | | 24,850 | |
| Other long-term liabilities | | 59,030 | | | 69,690 | |
| | | | |
| Total liabilities | | 672,790 | | | 609,630 | |
Preferred stock $0.01 par: Authorized 100,000,000 shares;
Issued and outstanding: None | | — | | | — | |
Common stock, $0.01 par: Authorized 400,000,000 shares;
Issued and outstanding: 42,836,574 shares at December 31, 2021 and 43,178,165 shares at December 31, 2020 | | 430 | | | 430 | |
| Paid-in capital | | 732,490 | | | 749,050 | |
| Accumulated deficit | | (102,300) | | | (159,610) | |
| Accumulated other comprehensive loss | | 230 | | | (5,620) | |
| Total shareholders' equity | | 630,850 | | | 584,250 | |
| Total liabilities and shareholders' equity | | $ | 1,303,640 | | | $ | 1,193,880 | |
|
| | | | | | | | |
| | | December 31, |
| | | 2018 | | 2017 |
| Assets | | | | |
| Current assets: | | | | |
| Cash and cash equivalents | | $ | 108,150 |
| | $ | 27,580 |
|
| Receivables, net | | 123,110 |
| | 112,220 |
|
| Inventories | | 173,120 |
| | 155,350 |
|
| Prepaid expenses and other current assets | | 7,430 |
| | 16,120 |
|
| Total current assets | | 411,810 |
| | 311,270 |
|
| Property and equipment, net | | 187,800 |
| | 190,250 |
|
| Goodwill | | 316,650 |
| | 319,390 |
|
| Other intangibles, net | | 174,530 |
| | 194,220 |
|
| Deferred income taxes | | 1,080 |
| | 9,100 |
|
| Other assets | | 8,650 |
| | 8,970 |
|
| Total assets | | $ | 1,100,520 |
| | $ | 1,033,200 |
|
| Liabilities and Shareholders' Equity | | | | |
| Current liabilities: | | | | |
| Accounts payable | | $ | 93,430 |
| | $ | 72,410 |
|
| Accrued liabilities | | 48,300 |
| | 49,470 |
|
| Total current liabilities | | 141,730 |
| | 121,880 |
|
| Long-term debt, net | | 293,560 |
| | 303,080 |
|
| Deferred income taxes | | 5,560 |
| | 5,650 |
|
| Other long-term liabilities | | 39,220 |
| | 58,570 |
|
| Total liabilities | | 480,070 |
| | 489,180 |
|
Preferred stock $0.01 par: Authorized 100,000,000 shares;
Issued and outstanding: None | | — |
| | — |
|
Common stock, $0.01 par: Authorized 400,000,000 shares;
Issued and outstanding: 45,527,993 shares at December 31, 2018 and 45,724,453 shares at December 31, 2017 | | 460 |
| | 460 |
|
| Paid-in capital | | 816,500 |
| | 823,850 |
|
| Accumulated deficit | | (179,660 | ) | | (262,960 | ) |
| Accumulated other comprehensive loss | | (16,850 | ) | | (17,330 | ) |
| Total shareholders' equity | | 620,450 |
| | 544,020 |
|
| Total liabilities and shareholders' equity | | $ | 1,100,520 |
| | $ | 1,033,200 |
|
The accompanying notes are an integral part of these financial statements.
TriMas Corporation
Consolidated Statement of Operations
(Dollars in thousands, except per share amounts)
| | | | | | | | | | | | | | | | | | | | |
| | | Year ended December 31, |
| | | 2021 | | 2020 | | 2019 |
| Net sales | | $ | 857,110 | | | $ | 769,970 | | | $ | 723,530 | |
| Cost of sales | | (639,920) | | | (587,890) | | | (529,630) | |
| Gross profit | | 217,190 | | | 182,080 | | | 193,900 | |
| Selling, general and administrative expenses | | (121,970) | | | (134,480) | | | (102,530) | |
| Net loss on dispositions of assets | | (130) | | | (1,290) | | | (150) | |
| Impairment of goodwill and indefinite-lived intangible assets | | — | | | (134,600) | | | — | |
| Operating profit (loss) | | 95,090 | | | (88,290) | | | 91,220 | |
| Other expense, net: | | | | | | |
| Interest expense | | (14,510) | | | (14,660) | | | (13,950) | |
| Debt financing and related expenses | | (10,520) | | | — | | | — | |
| Other income (expense), net | | (950) | | | 240 | | | 990 | |
| Other expense, net | | (25,980) | | | (14,420) | | | (12,960) | |
| Income (loss) before income taxes | | 69,110 | | | (102,710) | | | 78,260 | |
| Income tax benefit (expense) | | (11,800) | | | 22,950 | | | (16,320) | |
| Income (loss) from continuing operations | | 57,310 | | | (79,760) | | | 61,940 | |
| Income from discontinued operations, net of income taxes | | — | | | — | | | 36,680 | |
| Net income (loss) | | $ | 57,310 | | | $ | (79,760) | | | $ | 98,620 | |
| Basic earnings (loss) per share: | | | | | | |
| Continuing operations | | $ | 1.33 | | | $ | (1.83) | | | $ | 1.37 | |
| Discontinued operations | | — | | | — | | | 0.81 | |
| Net income (loss) per share | | $ | 1.33 | | | $ | (1.83) | | | $ | 2.18 | |
| Weighted average common shares - basic | | 43,006,922 | | | 43,581,232 | | | 45,303,659 | |
| Diluted earnings (loss) per share: | | | | | | |
| Continuing operations | | $ | 1.32 | | | $ | (1.83) | | | $ | 1.36 | |
| Discontinued operations | | — | | | — | | | 0.80 | |
| Net income (loss) per share | | $ | 1.32 | | | $ | (1.83) | | | $ | 2.16 | |
| Weighted average common shares - diluted | | 43,281,076 | | | 43,581,232 | | | 45,595,154 | |
|
| | | | | | | | | | | | |
| | | Year ended December 31, |
| | | 2018 | | 2017 | | 2016 |
| Net sales | | $ | 877,140 |
| | $ | 817,740 |
| | $ | 794,020 |
|
| Cost of sales | | (633,020 | ) | | (598,350 | ) | | (583,220 | ) |
| Gross profit | | 244,120 |
| | 219,390 |
| | 210,800 |
|
| Selling, general and administrative expenses | | (121,800 | ) | | (129,140 | ) | | (151,960 | ) |
| Net loss on dispositions of assets | | (250 | ) | | (1,080 | ) | | (1,870 | ) |
| Impairment of goodwill and indefinite-lived intangible assets | | — |
| | — |
| | (98,900 | ) |
| Operating profit (loss) | | 122,070 |
| | 89,170 |
| | (41,930 | ) |
| Other expense, net: | | | | | | |
| Interest expense | | (13,910 | ) | | (14,400 | ) | | (13,720 | ) |
| Debt financing and related expenses | | — |
| | (6,640 | ) | | — |
|
| Other expense, net | | (2,180 | ) | | (1,920 | ) | | (2,580 | ) |
| Other expense, net | | (16,090 | ) | | (22,960 | ) | | (16,300 | ) |
| Income (loss) before income taxes | | 105,980 |
| | 66,210 |
| | (58,230 | ) |
| Income tax benefit (expense) | | (22,680 | ) | | (35,250 | ) | | 18,430 |
|
| Net income (loss) | | 83,300 |
| | 30,960 |
| | (39,800 | ) |
| Basic earnings (loss) per share: | | | | | | |
| Net income (loss) per share | | $ | 1.82 |
| | $ | 0.68 |
| | $ | (0.88 | ) |
| Weighted average common shares - basic | | 45,824,555 |
| | 45,682,627 |
| | 45,407,316 |
|
| Diluted earnings (loss) per share: | | | | | | |
| Net income (loss) per share | | $ | 1.80 |
| | $ | 0.67 |
| | $ | (0.88 | ) |
| Weighted average common shares - diluted | | 46,170,464 |
| | 45,990,252 |
| | 45,407,316 |
|
The accompanying notes are an integral part of these financial statements.
TriMas Corporation
Consolidated Statement of Comprehensive Income
(Dollars in thousands)
| | | | | | | | | | | | | | | | | | | | |
| | Year ended December 31, |
| | 2021 | | 2020 | | 2019 |
| Net income (loss) | | $ | 57,310 | | | $ | (79,760) | | | $ | 98,620 | |
| Other comprehensive income (loss): | | | | | | |
| Defined benefit plans (Note 18) | | 3,790 | | | 1,310 | | | (1,470) | |
| Foreign currency translation | | (7,430) | | | 6,880 | | | 10,290 | |
| Derivative instruments (Note 14) | | 9,490 | | | (7,810) | | | 3,300 | |
| Total other comprehensive income | | 5,850 | | | 380 | | | 12,120 | |
| Total comprehensive income (loss) | | $ | 63,160 | | | $ | (79,380) | | | $ | 110,740 | |
|
| | | | | | | | | | | | |
| | | Year ended December 31, |
| | | 2018 | | 2017 | | 2016 |
| Net income (loss) | | $ | 83,300 |
| | $ | 30,960 |
| | $ | (39,800 | ) |
| Other comprehensive income (loss): | | | | | | |
| Defined benefit plans (Note 14) | | 3,250 |
| | 1,670 |
| | 250 |
|
| Foreign currency translation | | (6,880 | ) | | 6,050 |
| | (12,620 | ) |
| Derivative instruments (Note 11) | | 4,110 |
| | (650 | ) | | (730 | ) |
| Total other comprehensive income (loss) | | 480 |
| | 7,070 |
| | (13,100 | ) |
| Total comprehensive income (loss) | | $ | 83,780 |
| | $ | 38,030 |
| | $ | (52,900 | ) |
The accompanying notes are an integral part of these financial statements.
TriMas Corporation
Consolidated Statement of Cash Flows
(Dollars in thousands) | | | | | | | | | | | | | | | | | | |
| | | Year ended December 31, |
| | | 2021 | | 2020 | | 2019 |
| Cash Flows from Operating Activities: | | | | | | |
| Net income (loss) | | $ | 57,310 | | | $ | (79,760) | | | $ | 98,620 | |
| Income from discontinued operations | | — | | | — | | | 36,680 | |
| Income (loss) from continuing operations | | 57,310 | | | (79,760) | | | 61,940 | |
| Adjustments to reconcile income from continuing operations to net cash provided by operating activities, net of acquisition impact: | | | | | | |
| Impairment of goodwill and indefinite-lived intangible assets | | — | | | 134,600 | | | — | |
| Loss on dispositions of assets | | 130 | | | 1,290 | | | 150 | |
| Depreciation | | 31,890 | | | 29,020 | | | 24,870 | |
| Amortization of intangible assets | | 21,560 | | | 20,750 | | | 18,630 | |
| Amortization of debt issue costs | | 960 | | | 1,150 | | | 1,130 | |
| Deferred income taxes | | 1,680 | | | (33,710) | | | 2,100 | |
| Non-cash compensation expense | | 9,500 | | | 8,170 | | | 6,450 | |
| | | | | | |
| Debt financing and related expenses | | 10,520 | | | — | | | — | |
| Change in legacy liability estimate | | 1,450 | | | 23,400 | | | — | |
| (Increase) decrease in receivables | | (11,180) | | | 9,580 | | | 3,280 | |
| (Increase) decrease in inventories | | (960) | | | 3,980 | | | 740 | |
| (Increase) decrease in prepaid expenses and other assets | | 5,030 | | | 4,400 | | | (6,930) | |
| Increase (decrease) in accounts payable and accrued liabilities | | 2,120 | | | 4,490 | | | (12,780) | |
| Other operating activities | | 4,210 | | | 50 | | | (3,870) | |
| Net cash provided by operating activities of continuing operations | | 134,220 | | | 127,410 | | | 95,710 | |
| Net cash provided by (used for) operating activities of discontinued operations | | — | | | — | | | (20,110) | |
| Net cash provided by operating activities | | 134,220 | | | 127,410 | | | 75,600 | |
| Cash Flows from Investing Activities: | | | | | | |
| Capital expenditures | | (45,060) | | | (40,480) | | | (29,670) | |
| Acquisition of businesses, net of cash acquired | | (34,340) | | | (193,540) | | | (67,090) | |
| Net proceeds from dispositions of businesses, property and equipment | | 220 | | | 1,950 | | | 128,080 | |
| Net cash provided by (used for) investing activities of continuing operations | | (79,180) | | | (232,070) | | | 31,320 | |
| Net cash used for investing activities of discontinued operations | | — | | | — | | | (2,240) | |
| Net cash provided by (used for) investing activities | | (79,180) | | | (232,070) | | | 29,080 | |
| Cash Flows from Financing Activities: | | | | | | |
| Retirement of senior notes | | (300,000) | | | — | | | — | |
| Proceeds from issuance of senior notes | | 400,000 | | | — | | | — | |
| Proceeds from borrowings on revolving credit facilities | | — | | | 367,280 | | | 189,060 | |
| Repayments of borrowings on revolving credit facilities | | (48,620) | | | (319,120) | | | (189,340) | |
| Debt financing fees and senior notes redemption premium | | (13,570) | | | — | | | — | |
| Payments to purchase common stock | | (19,090) | | | (39,420) | | | (36,740) | |
| Shares surrendered upon exercise and vesting of equity awards to cover taxes | | (5,230) | | | (2,600) | | | (3,340) | |
| Dividends paid | | (1,740) | | | — | | | — | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| Net cash provided by (used for) financing activities of continuing operations | | 11,750 | | | 6,140 | | | (40,360) | |
| Net cash provided by financing activities of discontinued operations | | — | | | — | | | — | |
| Net cash provided by (used for) financing activities | | 11,750 | | | 6,140 | | | (40,360) | |
| Cash and Cash Equivalents: | | | | | | |
| Increase (decrease) for the year | | 66,790 | | | (98,520) | | | 64,320 | |
| At beginning of year | | 73,950 | | | 172,470 | | | 108,150 | |
| At end of year | | $ | 140,740 | | | $ | 73,950 | | | $ | 172,470 | |
| Supplemental disclosure of cash flow information: | | | | | | |
| Cash paid for interest | | $ | 13,280 | | | $ | 13,210 | | | $ | 12,430 | |
| Cash paid for income taxes | | $ | 10,520 | | | $ | 9,060 | | | $ | 44,020 | |
|
| | | | | | | | | | | |
| | Year ended December 31, |
| | 2018 | | 2017 | | 2016 |
| Cash Flows from Operating Activities: | | | | | |
| Net income (loss) | $ | 83,300 |
| | $ | 30,960 |
| | $ | (39,800 | ) |
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | | | |
| Impairment of goodwill and indefinite-lived intangible assets | — |
| | — |
| | 98,900 |
|
| Loss on dispositions of assets | 250 |
| | 1,080 |
| | 1,870 |
|
| Depreciation | 24,580 |
| | 26,950 |
| | 24,390 |
|
| Amortization of intangible assets | 19,440 |
| | 19,920 |
| | 20,470 |
|
| Amortization of debt issue costs | 1,290 |
| | 1,320 |
| | 1,370 |
|
| Deferred income taxes | 7,200 |
| | 15,260 |
| | (32,160 | ) |
| Non-cash compensation expense | 7,170 |
| | 6,780 |
| | 6,940 |
|
| Debt financing and related expenses | — |
| | 6,640 |
| | — |
|
| (Increase) decrease in receivables | (11,420 | ) | | 1,220 |
| | 7,990 |
|
| (Increase) decrease in inventories | (18,690 | ) | | 4,350 |
| | 5,180 |
|
| (Increase) decrease in prepaid expenses and other assets | 9,060 |
| | (310 | ) | | 2,550 |
|
| Increase (decrease) in accounts payable and accrued liabilities | 4,340 |
| | 3,640 |
| | (18,120 | ) |
| Other operating activities | 2,800 |
| | 2,250 |
| | 890 |
|
| Net cash provided by operating activities | 129,320 |
| | 120,060 |
| | 80,470 |
|
| Cash Flows from Investing Activities: | | | | | |
| Capital expenditures | (25,050 | ) | | (36,800 | ) | | (31,330 | ) |
| Net proceeds from dispositions of property and equipment | 250 |
| | 4,450 |
| | 220 |
|
| Net cash used for investing activities | (24,800 | ) | | (32,350 | ) | | (31,110 | ) |
| Cash Flows from Financing Activities: | | | | | |
| Proceeds from borrowings on revolving credit and accounts receivable facilities | 59,060 |
| | 401,300 |
| | 402,420 |
|
| Repayments of borrowings on revolving credit and accounts receivable facilities | (68,490 | ) | | (517,310 | ) | | (433,350 | ) |
| Payments to purchase common stock | (12,140 | ) | | — |
| | — |
|
| Shares surrendered upon exercise and vesting of equity awards to cover taxes | (2,380 | ) | | (510 | ) | | (1,590 | ) |
| Proceeds from issuance of senior notes | — |
| | 300,000 |
| | — |
|
| Repayments of borrowings on term loan facilities | — |
| | (257,940 | ) | | (13,850 | ) |
| Debt financing fees | — |
| | (6,070 | ) | | — |
|
| Payments for deferred purchase price | — |
| | — |
| | (2,530 | ) |
| Other financing activities | — |
| | (310 | ) | | 800 |
|
| Net cash used for financing activities | (23,950 | ) | | (80,840 | ) | | (48,100 | ) |
| Cash and Cash Equivalents: | | | | | |
| Increase for the year | 80,570 |
| | 6,870 |
| | 1,260 |
|
| At beginning of year | 27,580 |
| | 20,710 |
| | 19,450 |
|
| At end of year | $ | 108,150 |
| | $ | 27,580 |
| | $ | 20,710 |
|
| Supplemental disclosure of cash flow information: | | | | | |
| Cash paid for interest | $ | 13,800 |
| | $ | 9,430 |
| | $ | 11,800 |
|
| Cash paid for income taxes | $ | 7,380 |
| | $ | 16,230 |
| | $ | 17,210 |
|
The accompanying notes are an integral part of these financial statements.
TriMas Corporation
Consolidated Statement of Shareholders' Equity
Years Ended December 31, 2018, 20172021, 2020 and 20162019
(Dollars in thousands)
| | | | | | | | | | | | | | | Common
Stock | | Paid-In
Capital | | Accumulated
Deficit | | Accumulated
Other
Comprehensive
Income (Loss) | | Total |
| | | Common Stock | | Paid-In Capital | | Accumulated Deficit | | Accumulated Other Comprehensive Income (Loss) | | Total | |
| Balances at December 31, 2015 | | $ | 450 |
| | $ | 812,160 |
| | $ | (254,120 | ) | | $ | (11,300 | ) | | $ | 547,190 |
| |
| Net loss | | — |
| | — |
| | (39,800 | ) | | — |
| | (39,800 | ) | |
| Other comprehensive loss | | — |
| | — |
| | — |
| | (13,100 | ) | | (13,100 | ) | |
| Shares surrendered upon exercise and vesting of equity awards to cover taxes | | — |
| | (1,590 | ) | | — |
| | — |
| | (1,590 | ) | |
| Stock option exercises and restricted stock vestings | | 10 |
| | 150 |
| | — |
| | — |
| | 160 |
| |
| Tax effect from stock based compensation | | — |
| | (80 | ) | | — |
| | — |
| | (80 | ) | |
| Non-cash compensation expense | | — |
| | 6,940 |
| | — |
| | — |
| | 6,940 |
| |
| Balances at December 31, 2016 | | $ | 460 |
| | $ | 817,580 |
| | $ | (293,920 | ) | | $ | (24,400 | ) | | $ | 499,720 |
| |
| Balances at December 31, 2018 | | Balances at December 31, 2018 | | $ | 460 | | | $ | 816,500 | | | $ | (179,660) | | | $ | (16,850) | | | $ | 620,450 | |
| Net income | | — |
| | — |
| | 30,960 |
| | — |
| | 30,960 |
| Net income | | — | | | — | | | 98,620 | | | — | | | 98,620 | |
| Other comprehensive income | | — |
| | — |
| | — |
| | 7,070 |
| | 7,070 |
| Other comprehensive income | | — | | | — | | | — | | | 12,120 | | | 12,120 | |
| | Purchase of common stock | | Purchase of common stock | | (10) | | | (36,730) | | | — | | | — | | | (36,740) | |
| Shares surrendered upon exercise and vesting of equity awards to cover taxes | | — |
| | (510 | ) | | — |
| | — |
| | (510 | ) | Shares surrendered upon exercise and vesting of equity awards to cover taxes | | — | | | (3,340) | | | — | | | — | | | (3,340) | |
| | Non-cash compensation expense | | — |
| | 6,780 |
| | — |
| | — |
| | 6,780 |
| Non-cash compensation expense | | — | | | 6,450 | | | — | | | — | | | 6,450 | |
| Balances at December 31, 2017 | | $ | 460 |
| | $ | 823,850 |
| | $ | (262,960 | ) | | $ | (17,330 | ) | | $ | 544,020 |
| |
| Impact of accounting standards adoption | | Impact of accounting standards adoption | | — | | | — | | | 1,190 | | | (1,270) | | | (80) | |
| Balances at December 31, 2019 | | Balances at December 31, 2019 | | $ | 450 | | | $ | 782,880 | | | $ | (79,850) | | | $ | (6,000) | | | $ | 697,480 | |
| Net loss | | Net loss | | — | | | — | | | (79,760) | | | — | | | (79,760) | |
| Other comprehensive income | | Other comprehensive income | | — | | | — | | | — | | | 380 | | | 380 | |
| | Purchase of common stock | | Purchase of common stock | | (30) | | | (39,390) | | | — | | | — | | | (39,420) | |
| Shares surrendered upon exercise and vesting of equity awards to cover taxes | | Shares surrendered upon exercise and vesting of equity awards to cover taxes | | — | | | (2,600) | | | — | | | — | | | (2,600) | |
| | Non-cash compensation expense | | Non-cash compensation expense | | 10 | | | 8,160 | | | — | | | — | | | 8,170 | |
| | Balances at December 31, 2020 | | Balances at December 31, 2020 | | $ | 430 | | | $ | 749,050 | | | $ | (159,610) | | | $ | (5,620) | | | $ | 584,250 | |
| Net income | | — |
| | — |
| | 83,300 |
| | — |
| | 83,300 |
| Net income | | — | | | — | | | 57,310 | | | — | | | 57,310 | |
| Other comprehensive income | | — |
| | — |
| | — |
| | 480 |
| | 480 |
| Other comprehensive income | | — | | | — | | | — | | | 5,850 | | | 5,850 | |
| Purchase of common stock | | — |
| | (12,140 | ) | | — |
| | — |
| | (12,140 | ) | Purchase of common stock | | — | | | (19,090) | | | — | | | — | | | (19,090) | |
| Shares surrendered upon exercise and vesting of equity awards to cover taxes | | — |
| | (2,380 | ) | | — |
| | — |
| | (2,380 | ) | Shares surrendered upon exercise and vesting of equity awards to cover taxes | | — | | | (5,230) | | | — | | | — | | | (5,230) | |
| | Non-cash compensation expense | | — |
| | 7,170 |
| | — |
| | — |
| | 7,170 |
| Non-cash compensation expense | | — | | | 9,500 | | | — | | | — | | | 9,500 | |
| Balances at December 31, 2018 | | $ | 460 |
| | $ | 816,500 |
| | $ | (179,660 | ) | | $ | (16,850 | ) | | $ | 620,450 |
| |
| Dividends declared | | Dividends declared | | — | | | (1,740) | | | — | | | — | | | (1,740) | |
| Balances at December 31, 2021 | | Balances at December 31, 2021 | | $ | 430 | | | $ | 732,490 | | | $ | (102,300) | | | $ | 230 | | | $ | 630,850 | |
The accompanying notes are an integral part of these financial statements.
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
TriMas Corporation ("TriMas" or the "Company"), and its consolidated subsidiaries, is a diversified industrial manufacturer ofdesigns, engineers and manufactures innovative products under leading brand names for customers primarily in the consumer products, aerospace industrial, petrochemical, refinery& defense, and oil and gas endindustrial markets.
InThe preparation of financial statements requires management of the first quarterCompany to make estimates and assumptions that affect the reported amounts of 2018, TriMas realigned its reporting structureassets and liabilities. Actual results may differ from four segmentssuch estimates and assumptions due to three. While there were no changesrisks and uncertainties, including uncertainty in the current economic environment due to the Packagingongoing outbreak of the coronavirus and Aerospace reportable segments,related variants (“COVID-19”). While the full impact of the COVID-19 pandemic is unknown and cannot be reasonably estimated at this time, the Company combined its previous Energyhas made appropriate accounting estimates based on the facts and Engineered Components reportable segments into a new reportable segment titled Specialty Products. This change was made in connection with recent realignment efforts, providing a more streamlined operating structure and to better leverage resources across the divisions in this segment. See Note 18, "Segment Information," for further information on eachcircumstances available as of the reporting date. To the extent there are differences between these estimates and actual results, the Company's reportable segments.consolidated financial statements may be materially affected.
2.2. New Accounting Pronouncements
Recently Issued Accounting Pronouncements
In August 2018,November 2021, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2018-14, "Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20)"2021-10, "Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance" ("ASU 2018-14"2021-10"), which modifies the disclosure requirementsrequires annual disclosures about transactions with a government that are accounted for employers who sponsor defined benefit pensionby applying a grant or other postretirement plans.contribution accounting model by analogy. ASU 2018-142021-10 is effective for fiscal years ending after December 15, 2020, with early adoption permitted. ASU 2018-14 is to be applied retrospectively to all periods presented. The Company is in the process of assessing the impact of adoption on its consolidated financial statements.
In February 2018, the FASB issued ASU 2018-02, "Income Statement - Reporting Comprehensive Income (Topic 220)" ("ASU 2018-02"), which provides for the option to reclassify stranded tax effects resulting from the Tax Cuts and Jobs Act ("Tax Reform Act") classified within accumulated other comprehensive income to retained earnings. ASU 2018-02 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018, with early adoption permitted. ASU 2018-02 is to be applied retrospectively to each period in which the effect of the change in the U.S. federal corporate income tax rate related to the Tax Reform Act is recorded. The Company is in the process of assessing the impact of adoption on its consolidated financial statements.
In January 2017, the FASB issued ASU 2017-04, "Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment" ("ASU 2017-04"), which simplifies the test for goodwill impairment by eliminating the requirement to perform a hypothetical purchase price allocation to measure the amount of goodwill impairment. ASU 2017-04 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2019,2021, with early adoption permitted. The Company is in the process of assessing the impact of adoption on its consolidated financial statements.
In February 2016,October 2021, the FASB issued ASU 2016-02, "Leases2021-08, "Business Combinations (Topic 842)"805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers" ("ASU 2016-02"2021-08"), which requires that lessees, at the lease commencement date,an acquirer recognize and measure contract assets and contract liabilities acquired in a lease liability representing the lessee's obligation to make lease payments arising from a lease as well as a right-of-use asset, which represents the lessee's right to use, or control the use of a specified asset, for the lease term. The new guidance also aligns lessor accounting to the lessee accounting model and tobusiness combination in accordance with Topic 606, "Revenue from Contracts with Customers." Since the issuance of the original standard, the FASB has issued several subsequent updates. ASU 2016-022021-08 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018, and is to be applied using a modified retrospective approach2022, with early adoption permitted. The Company plans to adoptis in the standard effective January 1, 2019. While the Company continues to assessprocess of assessing the impact of adoption of this standard, the Company anticipates the most significant impact will be toon its consolidated balance sheet, adding approximately $40 million of right-of-use assets and lease liabilities.financial statements.
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3.3. Summary of Significant Accounting Policies
Principles of Consolidation. The accompanying consolidated financial statements include the accounts and transactions of TriMas and its subsidiaries. Intercompany transactions have been eliminated.
Use of Estimates. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management of the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements. Such estimates and assumptions also affect the reported amounts of revenues and expenses during the reporting periods. Significant items subject to such estimates and assumptions include the carrying amount of property and equipment, goodwill and other intangibles, valuation allowances for receivables, inventories and deferred income tax assets, valuation of derivatives, estimated future unrecoverable lease costs, reserves for asbestos and ordinary course litigation, assets and obligations related to employee benefits and estimated unrecognized tax benefits. Actual results may differ from such estimates and assumptions.
Cash and Cash Equivalents. The Company considers cash on hand and on deposit and investments in all highly liquid debt instruments with initial maturities of three months or less to be cash and cash equivalents. Cash and cash equivalents also includes restricted cash held on deposit with a financial institution as cash collateral for the Company's outstanding letters of credit. See Note 8, "Cash and Cash Equivalents," for further details regarding the Company's cash and cash equivalents.
Receivables. Receivables are presented net of allowances for doubtful accounts of approximately $3.4$1.6 million and $4.1$2.1 million at December 31, 20182021 and 2017,2020, respectively. The Company monitors its exposure for credit losses and maintains allowances for doubtful accounts based upon the Company's best estimate of probable losses inherent in the accounts receivable balances. The Company does not believe that significant credit risk exists due to its diverse customer base.
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Inventories. Inventories are stated at the lower of cost or net realizable value, with cost determined using the first-in, first-out method. Direct materials, direct labor and allocations of variable and fixed manufacturing-related overhead are included in inventory cost.
Property and Equipment. Property and equipment additions, including significant improvements, are recorded at cost. Upon retirement or disposal of property and equipment, the cost and accumulated depreciation are removed from the accounts, and any gain or loss is included in the accompanying statement of operations. Repair and maintenance costs are charged to expense as incurred.
Depreciation and Amortization. Depreciation is computed principally using the straight-line method over the estimated useful lives of the assets. Annual depreciation rates are as follows: building and land/building improvements three to 40 years, and machinery and equipment, three to 15 years. Capitalized debt issuance costs are amortized over the underlying terms of the related debt securities. Customer relationship intangibles are amortized over periods ranging from five to 25 years, while technology and other intangibles are amortized over periods ranging from one to 30 years.
Impairment of Long-Lived Assets and Definite-Lived Intangible Assets. The Company reviews, on at least a quarterly basis, the financial performance of its businesses for indicators of impairment. In reviewing for impairment indicators, the Company also considers events or changes in circumstances such as business prospects, customer retention, market trends, potential product obsolescence, competitive activities and other economic factors. An impairment loss is recognized when the carrying value of an asset group exceeds the future net undiscounted cash flows expected to be generated by that asset group. The impairment loss recognized is the amount by which the carrying value of the asset group exceeds its fair value.
Goodwill. The Company assesses goodwill for impairment on an annual basis (October 1 test date) by reviewing relevant qualitative and quantitative factors. More frequent evaluations may be required if the Company experiences changes in its business climate or as a result of other triggering events that take place. IfAn impairment loss is recognized when the carrying value of a reporting unit's goodwill exceeds its fair value, a possible impairment exists and further evaluation is performed.value.
The Company determines its reporting units at the individual operating segment level, or one level below, when there is discrete financial information available that is regularly reviewed by segment management for evaluatingto evaluate operating results. For purposes of the Company's 20182021 goodwill impairment test, the Company had five5 reporting units, three3 of which had goodwill, within its three3 reportable segments. See Note 6, "Goodwill and Other Intangible Assets," for further details regarding the Company's goodwill impairment testing.
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company begins its goodwill reviews by conducting a qualitative assessment, ("Step Zero"), considering relevant events and circumstances that affect the fair value or carrying amount of a reporting unit. Such events and circumstances can include macroeconomic conditions, industry and market considerations, overall financial performance, entity and reporting unit specific events, and capital markets pricing. The Company considers the extent to which each of theany identified adverse events and circumstances identified affect the comparison of a reporting unit's fair value with its carrying amount. The Company places more weight on the events and circumstances that most affect a reporting unit's fair value or the carrying amount of its net assets. The Company considers positive and mitigating events and circumstances that may affect its determination of whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. The Company also considers recent valuations of its reporting units, including the difference between the most recent fair value estimate and the carrying amount. TheseEach of these factors are allis considered by management in reaching its conclusion about whether a quantitative goodwill impairment test is necessary to estimate the fair value of its reporting units.
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
If the Company concludes that conducting a quantitative assessment is required, it performs the first step of a two-stepquantitative goodwill impairment test. For the first step ("Step I"),When conducting a quantitative goodwill impairment test, the Company estimatesdetermines the fair value of the reporting unit being evaluated utilizing a combination of three valuation techniques: discounted cash flow (income approach), market comparable method (market approach) and market capitalization (direct market data method). The income approach is based on management's operating plan and internal five-year forecast and utilizes forward-looking assumptions and projections, on a discounted basis, but considers factors unique to each reporting unit and related long-range plans that may not be comparable to other companies and that are not yet public. The market approach considers potentially comparable companies and transactions within the industries where the Company's reporting units participate, and applies their trading multiples to the financial projections of the Company's reporting units. This approach utilizes data from actual marketplace transactions, but reliance on its results is limited by difficulty in identifying companies that are specifically comparable to the Company's reporting units, considering the diversity of the Company's businesses, the relative sizes and levels of complexity. The Company also uses the direct market data method by comparing its book value and the estimates of fair value of the reporting units to the Company's market capitalization. Management uses this comparison as additional evidence of the fair value of the Company, as its market capitalization may be suppressed by other factors such as the control premium associated with a controlling shareholder, the Company's degree of leverage and the float of the Company's common stock. Management evaluates and weights the results based on a combination of the income and market approaches, and, in situations where the income approach results differ significantly from the market and direct data approaches, management re-evaluates and adjusts, if necessary, its assumptions.
Based on the Step Iquantitative test, if it is determined that the carrying value of the reporting unit is higher than its fair value, there is an indication that an impairment may exist and the second step ("Step II") is performed to measure the amount of impairment loss, if any. In Step II, the Company determines the implied fair value of the reporting unit goodwill in the same manner as if the reporting unit was being acquired in a business combination and compares the implied fair value of the reporting unit goodwill to the carrying value of the goodwill. If the implied fair value of the goodwill is less than the carrying value, goodwill is impaired and is written down to the implied fair value amount.amount; however, the loss recognized will not exceed the total amount of goodwill allocated to the reporting unit. See Note 9, "Goodwill and Other Intangible Assets," for further details regarding the Company's goodwill impairment testing.
Indefinite-Lived Intangibles. The Company assesses indefinite-lived intangible assets (primarily trademark/trade names) for impairment on an annual basis (October 1 test date) by reviewing relevant qualitative and quantitative factors. More frequent evaluations may be required if the Company experiences changes in its business climate or as a result of other triggering events that take place. IfAn impairment loss is recognized when the carrying value of the asset exceeds its fair value, a possible impairment exists and further evaluation is performed.value.
In conducting a qualitative assessment, the Company considers relevant events and circumstances to determine whether it is more likely than not that the fair values of the indefinite-lived intangible assets are less than the carrying values. In addition to the events and circumstances that the Company considers above in its qualitative analysis for potential goodwill impairment, the Company also considers legal, regulatory and contractual factors that could affect the fair value or carrying amount of the Company's indefinite-lived intangible assets. The Company also considers recent valuations of its indefinite-lived intangible assets, including the difference between the most recent fair value estimates and the carrying amounts. These factors are all considered by management in reaching its conclusion about whether it is more likely than not that the fair values of the indefinite-lived intangible assets are less than the carrying values. If management concludes that further testing is required, the Company performs a quantitative valuation to estimate the fair value of its indefinite-lived intangible assets. In conducting the quantitative impairment analysis, the Company determines the fair value of its indefinite-lived intangible assets using the relief-from-royalty method. The relief-from-royalty method involves the estimation of appropriate market royalty rates for the indefinite-lived intangible assets and the application of these royalty rates to forecasted net sales attributable to the intangible assets. The resulting cash flows are then discounted to present value, using a rate appropriately reflecting the risks inherent in the cash flows, which then is compared to the carrying value of the assets. If the carrying value exceeds fair value, an impairment is recorded. See Note 6,9, "Goodwill and Other Intangible Assets," for further details regarding the Company's indefinite-lived intangible asset impairment testing.
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
High Deductible Insurance. The Company generally has a high deductible insurance planprograms for losses and liabilities related to workers' compensation, health and welfare claims and comprehensive general, product and vehicle liability. The Company is generally responsible for up to $0.8 million per occurrence under its retention program for workers' compensation, between $0.3 million andup to $1.5 million per occurrence under its retention programs for comprehensive general, product and vehicle liability, and has a $0.3$0.4 million per occurrence stop-loss limit with respect to its group medical plan. Total insurance limits under these retention programs vary by year for comprehensive general, product and vehicle liability and extend to the applicable statutory limits for workers' compensation. Reserves for claims losses, including an estimate of related litigation defense costs, are recorded based upon the Company's estimates of the aggregate liability for claims incurred using actuarial assumptions about future events. Changes in assumptions for factors such as medical costs and actual experience could cause these estimates to change.
Pension Plans. The Company engages independent actuaries to compute the amounts of liabilities and expenses under defined benefit pension plans, subject to the assumptions that the Company determines are appropriate based on historical trends, current market rates and future projections. Assumptions used in the actuarial calculations could have a significant impact on plan obligations, and a lesser impact on current period expense. Annually, the Company reviews the actual experience compared to the more significant assumptions used and makes adjustments to the assumptions, if warranted. Discount rates are based on an expected benefit payments duration analysis and the equivalent average yield rate for high-quality fixed-income investments. Pension benefits are funded through deposits with trustees and the expected long-term rate of return on fund assets is based on actual historical returns and a review of other public company pension asset return data, modified for known changes in the market and any expected change in investment policy. See Note 18, “Employee Benefit Plans,” for further information.
Asbestos-related Matters. The Company accrues loss reserves for asbestos-related matters based upon an estimate of the ultimate liability for claims incurred, whether reported or not, including an estimate of future settlement costs and costs to defend. The Company utilizes known facts and historical trends for Company-specific and general market asbestos-related activity, as well as an actuarial valuation in determining estimated required reserves which it believes are probable and reasonably estimable. Asbestos-related accruals are assessed at each balance sheet date to determine if the liability remains reasonably stated. Accruals for asbestos-related matters are included in the consolidated balance sheet in “Accrued liabilities” and “Other long-term liabilities.” See Note 17, “Commitments and Contingencies,” for further information.
Revenue Recognition. Revenue is recognized when control of promised goods areis transferred to customers, which generally occurs when products are shipped from the Company’s facilities to its customers. The amount of revenue recorded reflects the consideration the Company expects to be entitled to receive in exchange for transferring those goods. Net sales are comprised of gross revenues, based on observed stand-alone selling prices, less estimates of expected returns, trade discounts and customer allowances, which include incentives such as volume and other discounts in connection with various supply programs. Such deductions are estimated and recorded during the period the related revenue is recognized. The Company may adjust these estimates when the expected amount of consideration changes based on sales volumes or other contractual terms. Sales and other consumption taxes the Company collects from customers and remits to government agencies are excluded from revenue. The Company accounts for freight and shipping costs that occur after control of the related goods transfer to the customer as a fulfillment cost within cost of sales. The nature and timing of the Company's revenue transactions are similar, as substantially all revenue is based on point-in-time transactions with customers under industry-standard payment terms. The Company may require shortened payment terms, including cash-in-advance, on an individual customer basis depending on its assessment of the customer's credit risk.worthiness.
Cost of Sales. Cost of sales includes material, labor and overhead costs incurred in the manufacture of products sold in the period. Material costs include raw material, purchased components, outside processing and freight costs. Overhead costs consist of variable and fixed manufacturing costs, wages and fringe benefits, and purchasing, receiving and inspection costs.
Selling, General and Administrative Expenses. Selling, general and administrative expenses include the following: costs related to the advertising, sale, marketing and distribution of the Company's products, amortization of customer intangible assets, costs of finance, human resources, legal functions, executive management costs and other administrative expenses.
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Income Taxes. The Company computes income taxes using the asset and liability method, whereby deferred income taxes using current enacted tax rates are provided for the temporary differences between the financial reporting basis and the tax basis of assets and liabilities and for operating loss and tax credit carryforwards. The Company determines valuation allowances based on an assessment of positive and negative evidence on a jurisdiction-by-jurisdiction basis and records a valuation allowance to reduce deferred tax assets to the amount more likely than not to be realized. The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. The Company records interest and penalties related to unrecognized tax benefits in income tax expense.
On December 22, 2017, the Tax Reform Act was signed into law. Among the provisions, the Tax Reform Act reduces the Federal statutory corporate income tax rate from 35% to 21% effective January 1, 2018, implements a territorial tax system and imposes a one-time tax on the deemed repatriation of undistributed earnings of non-U.S. subsidiaries, introduces additional limitations on the deductibility of interest, allows for the immediate expensing of capital expenditures through 2023 and modifies or repeals many business deductions and credits.
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
While the Tax Reform Act provides for a territorial tax system, beginning in 2018, it includes two new U.S. tax base erosion provisions, the global intangible low-taxed income (“GILTI”) provisions and the base-erosion and anti-abuse tax (“BEAT”) provisions. The GILTI provisions impose a tax on foreign income in excess of a deemed return on tangible assets of foreign corporations. The FASB provided guidance that allows companies to make an accounting policy election to either account for deferred taxes related to GILTI inclusions or treat any taxes on GILTI inclusions as period costs. The Company has elected to account for GILTI tax in the period in which it is incurred, and therefore has not provided any deferred tax impacts on GILTI in its consolidated financial statements for the years ended December 31, 2018 and 2017.
The BEAT provisions in the Tax Reform Act eliminate the deduction of certain base-erosion payments made to related foreign corporations, and impose a minimum tax if greater than regular tax. The Company does not expect the BEAT provisions to have a significant impact to its consolidated financial statements, and has not included any tax impacts of BEAT in its consolidated financial statements for the year ended December 31, 2018 and 2017.
See Note 19,23, "Income Taxes," for further information regarding the impact of the Tax Reform Act to the Company.information.
Foreign Currency Translation. The financial statements of subsidiaries located outside of the United States are measured using the currency of the primary economic environment in which they operate as the functional currency. When translating into U.S. dollars, income and expense items are translated at average monthly exchange rates and assets and liabilities are translated at exchange rates in effect at the balance sheet date. Adjustments resulting from translating the functional currency into U.S. dollars are deferred as a component of accumulated other comprehensive income (loss) ("AOCI") in the consolidated statement of shareholders' equity. NetThe impact of net foreign currency transaction gains (losses) weretransactions was an approximate gainloss of $1.3$0.9 million for the year ended December 31, 2018, a loss2021, and approximate gains of $0.8$0.6 million and $0.3 million for the yearyears ended December 31, 20172020 and a gain of $0.8 million for the year ended December 31, 2016,2019, respectively, and are included in other expense, net in the accompanying consolidated statement of operations.
Derivative Financial Instruments. The Company records derivative financial instruments at fair value on the balance sheet as either assets or liabilities, and changes in their fair values are immediately recognized in earnings if the derivatives do not qualify as effective hedges. If a derivative is designated as a fair value hedge, then changes in the fair value of the derivative are offset against the changes in the fair value of the underlying hedged item. If a derivative is designated as a cash flow hedge, then the effective portion of the changes in the fair value of the derivative is recognized as a component of other comprehensive income until the underlying hedged item is recognized in earnings or the forecasted transaction is no longer probable of occurring. If a derivative is designated as a net investment hedge, then the effective portion of the changes in the fair value of the derivative is recognized in other comprehensive income and will be subsequently reclassified to earnings when the hedged net investment is either sold or substantially liquidated. The Company formally documents hedging relationships for allits derivative transactions and the underlying hedged items, as well as its risk management objectives and strategies for undertaking the hedge transactions. See Note 11,14, "Derivative Instruments," for further information on the Company's financial instruments.information.
Fair Value of Financial Instruments. In accounting for and disclosing the fair value of financial instruments, the Company uses the following hierarchy:
•Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date;
•Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly; and
•Level 3 inputs are unobservable inputs for the asset or liability.
Valuation of the Company's interest rate swaps and cross-currency swaps are based on the income approach, which uses observable inputs such as interest rate yield curves and forward currency exchange rates, as applicable.
The carrying value of financial instruments reported in the balance sheet for current assets and current liabilities approximates fair value due to the short maturity of these instruments.
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Business Combinations. The Company records assets acquired and liabilities assumed from acquisitions at fair value. The fair value of working capital accounts generally approximates book value. The valuation of inventory, property, plant and equipment, and intangible assets requires significant assumptions. Inventory is recorded at fair value based on the estimated selling price less costs to sell, including completion, disposal and holding period costs with a reasonable profit margin. Property and equipment is recorded at fair value using a combination of both the cost and market approaches for both the real and personal property acquired. Under the cost approach, consideration is given to the amount required to construct or purchase a new asset of equal value at current prices, with adjustments in value for physical deterioration, as well as functional and economic obsolescence. Under the market approach, recent transactions for similar types of assets are used as the basis for estimating fair value. For trademark/trade names and technology and other intangible assets, the estimated fair value is based on projected discounted future net cash flows using the relief-from-royalty method. For customer relationship intangible assets, the estimated fair value is based on projected discounted future cash flows using the excess earnings method. The relief-from-royalty and excess earnings method are both income approaches that utilize key assumptions such as forecasts of revenue and expenses over an extended period of time, royalty rate percentages, tax rates, and estimated costs of debt and equity capital to discount the projected cash flows.
Stock-based Compensation. The Company recognizes compensation expense related to equity awards based on their fair values as of the grant date. For awards with only a service condition, expense is recognized ratably over the vesting period. Performance based equity awards may have targets tied to performance and/or market-based conditions. Market-based conditions are taken into consideration in determining the grant date fair value, and the related compensation expense is recognized regardless of whether the market condition is satisfied, provided the requisite service has been provided. For performance condition components, the Company periodically updates the probability that the performance conditions will be achieved and adjusts expense accordingly, reflecting the change from prior estimate, if any, in current period non-cash stock compensation expense. The disclosed number of awards granted considers only the targeted number of units until such time that the performance condition has been satisfied. If the performance conditions are not achieved, no award is earned. See Note 19, “Equity Awards,” for further information.
Other Comprehensive Income (Loss). The Company refers to other comprehensive income (loss) as revenues, expenses, gains and losses that under accounting principles generally accepted in the United States of America are included in comprehensive income (loss) but are excluded from net earnings as these amounts are recorded directly as an adjustment to stockholders' equity. Other comprehensive income (loss) is comprised of foreign currency translation adjustments, amortization of prior service costs and unrecognized gains and losses in actuarial assumptions for pension and postretirement plans and changes in unrealized gains and losses on derivatives.derivative instruments.
Reclassifications. Certain prior year amounts have been reclassified to conform with the current year presentation.
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. Acquisitions
2021 Acquisitions
On December 17, 2021, the Company acquired Omega Plastics ("Omega"), which specializes in manufacturing custom components and devices for drug delivery, diagnostic and orthopedic medical applications, as well as components for industrial applications, for an aggregate amount of approximately $22.5 million, net of cash acquired. Omega, which is reported in the Company's Packaging segment, is located in Clinton Township, Michigan and historically generated approximately $18 million in annual revenue.
On December 5, 2021, the Company acquired TFI Aerospace ("TFI"), a manufacturer and supplier of specialty fasteners used in a variety of applications, predominately for the aerospace end market, for an aggregate amount of approximately $11.8 million, with additional contingent consideration ranging from zero to approximately $12.0 million to be paid based on 2023 and 2024 earnings per the purchase agreement. The Company recorded $3.7 million as its best estimate of the additional contingent consideration, with such estimate based on Level 3 inputs under the fair value hierarchy, as defined. TFI, which is reported in the Company's Aerospace segment, is located near Toronto, Canada and historically generated approximately $6 million in annual revenue.
2020 Acquisitions
On December 15, 2020, the Company acquired Affaba & Ferrari Srl ("Affaba & Ferrari"), which specializes in the design, development and manufacture of precision caps and closures for food & beverage and industrial product applications, for an aggregate amount of approximately $98.4 million, net of cash acquired. The fair value of assets acquired and liabilities assumed included approximately $49.1 million of goodwill, $35.1 million of intangible assets, $9.4 million of net working capital, $17.4 million of property and equipment, and $12.6 million of net deferred tax liabilities. Affaba & Ferrari, which is reported in the Company's Packaging segment, operates out of a highly automated manufacturing facility and support office located in Borgo San Giovanni, Italy and historically generated approximately $34 million in annual revenue.
On April 17, 2020, the Company acquired the Rapak® brand, including certain bag-in-box product lines and assets ("Rapak") for an aggregate amount of approximately $11.4 million. Rapak, which is reported in the Company's Packaging segment, has manufacturing locations in Indiana, California and Illinois, and historically generated approximately $30 million in annual revenue.
On February 27, 2020, the Company acquired RSA Engineered Products ("RSA"), a manufacturer of complex, highly-engineered and proprietary ducting, connectors and related products for air management systems used in aerospace and defense applications, for an aggregate amount of approximately $83.7 million, net of cash acquired. The fair value of assets acquired and liabilities assumed included approximately $43.3 million of goodwill, $36.9 million of intangible assets, $10.1 million of net working capital, $2.1 million of property and equipment, and $8.7 million of net deferred tax liabilities. RSA, which is reported in the Company's Aerospace segment, is located in Simi Valley, California and historically generated approximately $30 million in annual revenue.
2019 Acquisitions
In April 2019, the Company acquired Taplast S.p.A. ("Taplast"), a designer and manufacturer of dispensers, closures and containers for the beauty and personal care, household, and food and beverage packaging end markets, for an aggregate amount of approximately $44.7 million, net of cash acquired. With manufacturing locations in both Italy and Slovakia, Taplast serves end markets in Europe and North America and historically generated approximately $32 million in annual revenue. Taplast is reported in the Company's Packaging segment.
In January 2019, the Company acquired Plastic Srl, a manufacturer of single-bodied and assembled polymeric caps and closures for use in home care products, for an aggregate amount of approximately $22.4 million, net of cash acquired. Located in Italy, Plastic Srl serves the home care market throughout Italy and other European countries and historically generated approximately $12 million in annual revenue. Plastic Srl is reported in the Company's Packaging segment.
5. Discontinued Operations
On December 20, 2019, the Company completed the sale of its Lamons division ("Lamons") to two wholly-owned subsidiaries of an investment fund sponsored by First Reserve, pursuant to an Asset and Stock Purchase Agreement dated as of November 1, 2019 (the “Purchase Agreement”), for a purchase price of $136.8 million.
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company recognized net cash proceeds of approximately $112.7 million, which represented the purchase price, less estimated tax payments of approximately $20.9 million, transaction costs of approximately $3.2 million. The Company recorded a pre-tax gain on sale of approximately $38.9 million, which includes the recognition of previously deferred non-cash foreign currency translation losses of approximately $12.4 million.
The Company determined that Lamons met the criteria to be classified as a discontinued operation. As a result, the historical results for Lamons are reported in the accompanying consolidated statement of operations as a discontinued operation.
Results of discontinued operations are summarized as follows (dollars in thousands):
| | | | | | | | | | | | |
| | | | | | Year ended December 31, |
| | | | | | 2019 |
| Net sales | | | | | | $ | 182,590 | |
| Cost of sales | | | | | | (138,100) | |
| Gross profit | | | | | | 44,490 | |
| Selling, general and administrative expenses | | | | | | (32,920) | |
| Net gain on dispositions of assets | | | | | | 38,900 | |
| Operating profit | | | | | | 50,470 | |
| | | | | | |
| Other income (expense), net | | | | | | (30) | |
| Other expense, net | | | | | | (30) | |
| Income from discontinued operations, before income taxes | | | | | | 50,440 | |
| Income tax expense | | | | | | (13,760) | |
| Income from discontinued operations, net of tax | | | | | | $ | 36,680 | |
6. Realignment Actions
2021 Realignment Actions
During 2021, the Company executed certain realignment actions in response to reductions in current and expected future end market demand. First, the Company closed its Packaging segment's Union City, California manufacturing facility, consolidating the operation into its Indianapolis, Indiana and Woodridge, Illinois facilities. The Company also realigned its Aerospace segment footprint, consolidating certain activities previously in its Stanton, California facilities into its Tolleson, Arizona facility. In addition, the Company also reorganized its corporate office legal and finance groups. The Company recorded pre-tax realignment charges of approximately $9.7 million, of which approximately $3.5 million related to facility consolidations and approximately $6.2 million were for employee separation costs. As of December 31, 2021, approximately $2.4 million of the employee separation costs had been paid. During 2021, approximately $4.1 million of these charges were included in cost of sales and approximately $5.6 million were included in selling, general and administrative expenses, respectively, in the accompanying consolidated statement of operations.
2020 Realignment Actions
During 2020, the Company executed certain realignment actions, primarily in its Aerospace and Specialty Products segments, in response to reductions in current and expected future end-market demand. The Company recorded non-cash charges of approximately $13.8 million related to inventory reductions, primarily as a result of a strategic decision in its Arrow Engine division to narrow its product line focus. The Company also recorded non-cash charges of approximately $2.3 million related to certain production equipment removed from service given reduced demand levels. In addition, the Company reduced its employment levels given lower customer demand, incurring approximately $3.8 million in severance charges, of which approximately $3.7 million was paid by December 31, 2020. During 2020, approximately $17.1 million of these charges were included in cost of sales and approximately $2.8 million were included in selling, general and administrative expenses in the accompanying consolidated statement of operations.
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. Revenue
The following table presents the Company’s disaggregated net sales by primary end market served (dollars in thousands):
| | | | | Year ended December 31, | | Year ended December 31, |
| Customer End Markets | | 2018 | | 2017 | | 2016 | Customer End Markets | | 2021 | | 2020 | | 2019 |
| Consumer | | $ | 276,740 |
| | $ | 259,470 |
| | $ | 259,390 |
| |
| Aerospace | | 185,920 |
| | 184,310 |
| | 174,920 |
| |
| Consumer Products | | Consumer Products | | $ | 424,320 | | | $ | 402,080 | | | $ | 307,640 | |
| Aerospace & Defense | | Aerospace & Defense | | 183,340 | | | 167,740 | | | 194,110 | |
| Industrial | | 212,160 |
| | 189,550 |
| | 182,280 |
| Industrial | | 249,450 | | | 200,150 | | | 221,780 | |
| Oil and gas | | 202,320 |
| | 184,410 |
| | 177,430 |
| |
| | Total net sales | | $ | 877,140 |
| | $ | 817,740 |
| | $ | 794,020 |
| Total net sales | | $ | 857,110 | | | $ | 769,970 | | | $ | 723,530 | |
The Company’s Packaging reportable segment earns revenues from the consumer products (comprised of the beauty and personal care, home care, food and beverage, pharmaceutical and nutraceutical submarkets) and industrial end markets. The Aerospace reportable segment earns revenues from the aerospace end market.& defense market (comprised of commercial, regional and business jet and military submarkets). The Specialty Products reportable segment earns revenues from a variety of submarkets within the industrial market.
8. Cash and oilCash Equivalents
Cash and gas end markets.
5. Facility Closures and Consolidations
During 2018, 2017 and 2016, the Company closed and consolidated several facilities. The following includes detailscash equivalents consists of the most significant actions.following components (dollars in thousands):
| | | | | | | | | | | | | | |
| | | December 31,
2021 | | December 31,
2020 |
| Cash and cash equivalents - unrestricted | | $ | 129,790 | | | $ | 62,790 | |
Cash - restricted (a) | | 10,950 | | | 11,160 | |
| Total cash and cash equivalents | | $ | 140,740 | | | $ | 73,950 | |
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2018 Facility Closures and Consolidations
During 2018, the Company exited its Bangalore, India facility within the Specialty Products reportable segment. In connection(a) Includes cash placed on deposit with this action, the Company recorded pre-tax charges of approximately $0.7 million within selling, general and administrative expenses and approximately $0.6 million within cost of sales relateda financial institution to severance benefits for employees involuntarily terminated, facility closure costs and costs related to the disposal of certain assets
2017 Facility Closures and Consolidations
During 2017, the Company announced plans within the Specialty Products reportable segment to cease production at its Reynosa, Mexico facility, and consolidate production into its Houston, Texas facility. In 2017, upon the cease use date of the facility, the Company recorded a pre-tax charge of approximately $2.3 million within cost of sales for estimated future unrecoverable lease obligations, net of estimated sublease recoveries,be held as cash collateral for the lease that expires in 2025. In addition, the Company incurred approximately $1.2 millionCompany's outstanding letters of pre-tax, non-cash charges within cost of sales related to accelerated depreciation expense as a result of shortening the expected lives on certain machinery, equipment and leasehold improvement assets that the Company no longer used following the facility closure. During 2018, following entry into a sublease agreement for the facility, the Company re-evaluated its estimate of unrecoverable future obligations, and reduced its estimate by approximately $1.1 million.credit.
Additionally, during 2017, the Company exited its Wolverhampton, United Kingdom facility within the Specialty Products reportable segment. In connection with this action, the Company recorded pre-tax charges of approximately $3.5 million within net loss on disposition of assets in the accompanying statement of operations, of which approximately $3.2 million were non-cash charges related to the disposal of certain assets.
2016 Facility Closures and Consolidations
During 2016, the Company closed and consolidated certain facilities and initiated actions toward consolidating additional facilities within each of its reportable segments. The most significant activity related to the move of production activities in Mexico within the Packaging reportable segment from Mexico City to San Miguel de Allende, for which the Company recorded pre-tax charges of approximately $2.5 million, of which approximately $0.7 million related to severance benefits for employees involuntarily terminated, approximately $0.8 million related to accelerated depreciation of machinery and equipment and the write-down of certain inventory to its estimated salvage value, with the remainder of the charges related to costs to move and start-up operations in the new facility. During 2017, the Company sold the Mexico City facility for cash proceeds of approximately $2.8 million and recognized a gain on sale of approximately $2.5 million which is included in net loss on dispositions of assets in the accompanying consolidated statement of operations.
6.9. Goodwill and Other Intangible Assets
Goodwill
The Company performed a Step Zero qualitative assessment as part of its 2018, 20172021, 2020 and 20162019 annual impairment tests (October 1 annual test date) for all reporting units, which included a review of the Company’s market capitalization. For purposesBased on results of the 2018qualitative assessments for the 2021, 2020 and 2019 annual impairment test, based on the Step Zero assessment,tests, the Company determined there were no indications that the fair value of a reporting unit was less than its carrying amount. Therefore,amount; therefore, the Company determined that quantitative goodwill impairment tests were not required.
During the third quarter of 2020, as a result of a decline in its aerospace-related business' financial results, a significant reduction in its financial projections for the remainder of 2020 compared with prior projections, and uncertainty around the duration and magnitude of the impact of the COVID-19 pandemic on future financial results given their dependence on future levels of air travel and new aircraft builds, the Company determined there was a triggering event requiring an interim quantitative goodwill impairment assessment of each of its two aerospace-related reporting units: Aerospace Fasteners and Aerospace Engineered Products.
Upon completion of the quantitative goodwill impairment tests, the Company determined that the Step I and Step II tests were not required. For purposes of the 2017 and 2016 annual impairment tests, for all reporting units with goodwill other than the Aerospace reporting unit, based on the Step Zero assessment, the Company determined that there were no indications that the fair value of a reporting unit was less than its carrying amount. Therefore, the Company determined that the Step I and Step II tests were not required for these reporting units.
For purposes of the 2017 annual impairment test for the Company's Aerospace reporting unit, management elected to perform a Step I quantitative assessment in consideration of the partial goodwill impairment charge recorded during 2016. In preparing the Step I analysis, the Company utilized both income and market-based approaches, placing a 50% weighting on each. Significant management assumptions used under the income approach were a weighted average cost of capital ("WACC") of 9.5% and an estimated residual growth rate of 3%. In determining the WACC, management considered the level of risk inherent in the cash flow projections based on reducing previously utilized sales growth and margin expansion assumptions, as well as historical attainment of its projections and current market conditions. The use of these unobservable inputs resulted in the fair value estimate being classified as a Level 3 measurement within the fair value hierarchy. Upon completion of the Step I test, the Company determined that the fair valuevalues of the Aerospace Fasteners and Aerospace Engineered Products reporting units exceeded their fair values, resulting in goodwill impairment charges of approximately $70.8 million in its Aerospace Fasteners reporting unit exceededand approximately $56.0 million in its carrying value by more than 15%.Aerospace Engineered Products reporting unit.
In the first quarter of 2020, the Company began reporting its machined components operations within the Aerospace segment. These operations were previously reported in the Company's Specialty Products segment. As a result of the reporting structure change, goodwill of approximately $12.7 million was reassigned from the Specialty Products segment to the Aerospace segment.
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For purposes of the 2016 annual impairment test for the Company's Aerospace reporting unit, management had been monitoring current and expected operating results since the first quarter of 2016, when sales and margins were significantly lower than expected, to assess whether the reductions were other than temporary. Management established and executed against recovery plans, improving sales and margin levels during the second and third quarters of 2016. However, when considering these recent financial results, plus recognizing that fourth quarter 2016 results would be lower than previously expected, and updating the Company's assessment of future expectations for growth and profit levels, the Company determined that there were indicators that the fair value of the Aerospace reporting unit was less than its carrying value. Therefore, the Company performed a Step I quantitative assessment for its Aerospace reporting unit utilizing both income and market-based approaches, placing a 50% weighting on each. Significant management assumptions used under the income approach were a WACC of 10.3% and an estimated residual growth rate of 3%. In determining the WACC, management considered the level of risk inherent in the cash flow projections and current market conditions. The use of these unobservable inputs resulted in the fair value estimate being classified as a Level 3 measurement within the fair value hierarchy.
Upon completion of the 2016 Step I test, the Company determined that the carrying value of the Aerospace reporting unit exceeded its fair value. The Company then performed a Step II test to determine whether goodwill had been impaired and, if applicable, to calculate the amount of the impairment charge. Based on the results of the Step II goodwill impairment test, the Company recorded a goodwill impairment charge of approximately $60.2 million in its Aerospace reporting unit.
Changes in the carrying amount of goodwill for the years ended December 31, 20182021 and 20172020 are as follows (dollars in thousands):
|
| | | | | | | | | | | | | | | |
|
| |
| | Specialty | |
|
| Packaging | | Aerospace | | Products | | Total |
| Balance, December 31, 2016 | $ | 162,090 |
| | $ | 146,430 |
| | $ | 6,560 |
| | $ | 315,080 |
|
| Foreign currency translation and other | 4,310 |
| | — |
| | — |
| | 4,310 |
|
| Balance, December 31, 2017 | $ | 166,400 |
| | $ | 146,430 |
| | $ | 6,560 |
| | $ | 319,390 |
|
| Foreign currency translation and other | (2,740 | ) | | — |
| | — |
| | (2,740 | ) |
| Balance, December 31, 2018 | $ | 163,660 |
| | $ | 146,430 |
| | $ | 6,560 |
| | $ | 316,650 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Specialty | | | | |
| Packaging | | Aerospace | | Products | | | | Total |
| Balance, December 31, 2019 | $ | 181,650 | | | $ | 133,690 | | | $ | 19,300 | | | | | $ | 334,640 | |
| Goodwill from acquisitions | 49,130 | | | 43,260 | | | — | | | | | 92,390 | |
| Goodwill reassigned in segment realignment | — | | | 12,740 | | | (12,740) | | | | | — | |
| Impairment charge | — | | | (126,840) | | | — | | | | | (126,840) | |
| Foreign currency translation and other | 3,780 | | | — | | | — | | | | | 3,780 | |
| Balance, December 31, 2020 | $ | 234,560 | | | $ | 62,850 | | | $ | 6,560 | | | | | $ | 303,970 | |
| Goodwill from acquisitions | 10,550 | | | 7,220 | | | — | | | | | 17,770 | |
| | | | | | | | | |
| | | | | | | | | |
| Foreign currency translation and other | (6,370) | | | 120 | | | — | | | | | (6,250) | |
| Balance, December 31, 2021 | $ | 238,740 | | | $ | 70,190 | | | $ | 6,560 | | | | | $ | 315,490 | |
Other Intangible Assets
For the purposes of the Company's 20182021, 2020 and 2019 annual indefinite-lived intangible asset impairment tests (as of October 1), the Company performed a qualitative assessment to determine whether it was more likely than not that the fair values of the indefinite-lived intangible assets are less than the carrying values. Based on the qualitative assessment performed, the Company does not believe that it is more likely than not that the fair values of each of its indefinite-lived intangible assets are less than the carrying values; therefore, a fair value calculation of the indefinite-lived intangible assets is not required for the 2018 annual indefinite-lived intangible asset impairment tests.
In 2017, the Company performed a qualitative assessment as part of its annual impairment test to determine whether it was more likely than not that the fair values of the indefinite-lived intangible assets were less than the carrying values. Based on the qualitative assessment performed, the Company determineddid not believe that there were no indicationsit is more likely than not that the fair values of anyeach of its indefinite-lived intangible assets were less than the carrying values. However, in consideration of the impairment charge recorded during 2016, the Company performed a quantitative assessment for its indefinite-lived intangible assets recorded on its balance sheet as of October 1, 2017 within the Aerospace reportable segment to supplement its qualitative assessment. Using the relief-from-royalty method with a discount rate of 9.5% and an estimated residual growth rate of 3%, the Company determined each of its Aerospace-related trade names hadvalues; therefore, a fair value that exceeded carrying values by more than 9%. The use of unobservable inputs resulted in the fair value estimates being classified as a Level 3 measurement within the fair value hierarchy.
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In 2016, the Company performed a qualitative assessment as part of its annual impairment test to determine whether it was more likely than not that the fair valuescalculation of the indefinite-lived intangible assets were less thanwas not required for the carrying values. Based on2021, 2020 and 2019 annual indefinite-lived intangible asset impairment tests.
During the assessment,third quarter of 2020, as a result of the significant forecast reduction in the Company's aerospace-related businesses, the Company determined that there were no indications thatalso performed an interim quantitative assessment for the fair values of any of its indefinite-lived intangible assets except for the Aerospace indefinite-lived intangible assets, were less than the carrying values. As such, the Company performed a quantitative assessment for all of its indefinite-lived intangible assets included within the Aerospace reportable segment, using athe relief-from-royalty method. Significant management assumptions used under the relief-from-royalty method were a discount ratereflected the Company's current assessment of 10.3%the risks and an estimated residual growth rate of 3%. The use of these unobservable inputs resulted inuncertainties associated with the fair value estimates being classified as a Level 3 measurement within the fair value hierarchy.aerospace industry. Upon completion of the quantitative impairment test, the Company determined that certain of the Company's Aerospace-relatedaerospace-related trade names had carrying values that exceeded their fair values, and therefore recorded impairment charges of approximately $38.7$7.8 million.
The Company amortizes its other intangible assets over periods ranging from one to 30 years.
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The gross carrying amounts and accumulated amortization of the Company's other intangibles as of December 31, 20182021 and 20172020 are summarized below (dollars in thousands):
| | | | | As of December 31, 2018 | | As of December 31, 2017 | | | As of December 31, 2021 | | As of December 31, 2020 |
| Intangible Category by Useful Life | | Gross Carrying Amount | | Accumulated Amortization | | Gross Carrying Amount | | Accumulated Amortization | Intangible Category by Useful Life | | Gross Carrying
Amount | | Accumulated
Amortization | | Gross Carrying
Amount | | Accumulated
Amortization |
| Finite-lived intangible assets: | | | | | | | | | Finite-lived intangible assets: | | | | | | | | |
| Customer relationships, 5 - 12 years | | $ | 73,450 |
| | $ | (48,410 | ) | | $ | 73,910 |
| | $ | (41,000 | ) | Customer relationships, 5 - 12 years | | $ | 124,310 | | | $ | (71,150) | | | $ | 122,970 | | | $ | (59,470) | |
| Customer relationships, 15 - 25 years | | 132,230 |
| | (58,790 | ) | | 132,230 |
| | (51,880 | ) | Customer relationships, 15 - 25 years | | 130,190 | | | (68,190) | | | 122,280 | | | (62,450) | |
| Total customer relationships | | 205,680 |
| | (107,200 | ) | | 206,140 |
| | (92,880 | ) | Total customer relationships | | 254,500 | | | (139,340) | | | 245,250 | | | (121,920) | |
| Technology and other, 1 - 15 years | | 57,020 |
| | (31,600 | ) | | 57,340 |
| | (29,120 | ) | Technology and other, 1 - 15 years | | 57,060 | | | (36,140) | | | 57,180 | | | (32,800) | |
| Technology and other, 17 - 30 years | | 43,300 |
| | (35,600 | ) | | 43,300 |
| | (33,490 | ) | Technology and other, 17 - 30 years | | 43,300 | | | (39,920) | | | 43,300 | | | (39,450) | |
| Total technology and other | | 100,320 |
| | (67,200 | ) | | 100,640 |
| | (62,610 | ) | Total technology and other | | 100,360 | | | (76,060) | | | 100,480 | | | (72,250) | |
| Indefinite-lived intangible assets: | |
| |
| |
| |
| Indefinite-lived intangible assets: | |
| Trademark/Trade names | | 42,930 |
| | — |
| | 42,930 |
| | — |
| Trademark/Trade names | | 57,270 | | | — | | | 54,640 | | | — | |
| Total other intangible assets | | $ | 348,930 |
| | $ | (174,400 | ) | | $ | 349,710 |
| | $ | (155,490 | ) | Total other intangible assets | | $ | 412,130 | | | $ | (215,400) | | | $ | 400,370 | | | $ | (194,170) | |
Amortization expense related to intangible assets as included in the accompanying consolidated statement of operations is summarized as follows (dollars in thousands):
| | | | | Year ended December 31, | | Year ended December 31, |
| | | 2018 | | 2017 | | 2016 | | 2021 | | 2020 | | 2019 |
| Technology and other, included in cost of sales | | $ | 4,900 |
| | $ | 5,340 |
| | $ | 5,680 |
| Technology and other, included in cost of sales | | $ | 3,820 | | | $ | 4,930 | | | $ | 4,780 | |
| Customer relationships, included in selling, general and administrative expenses | | 14,540 |
| | 14,580 |
| | 14,790 |
| Customer relationships, included in selling, general and administrative expenses | | 17,740 | | | 15,820 | | | 13,850 | |
| Total amortization expense | | $ | 19,440 |
| | $ | 19,920 |
| | $ | 20,470 |
| Total amortization expense | | $ | 21,560 | | | $ | 20,750 | | | $ | 18,630 | |
Estimated amortization expense for the next five fiscal years beginning after December 31, 20182021 is as follows (dollars in thousands):
| | | | | | | | |
| Year ended December 31, | Estimated Amortization Expense |
| 2022 | | $ | 19,100 | |
| 2023 | | $ | 17,200 | |
| 2024 | | $ | 15,700 | |
| 2025 | | $ | 15,350 | |
| 2026 | | $ | 13,630 | |
|
| | | | |
| Year ended December 31, | Estimated Amortization Expense |
| 2019 | | $ | 19,080 |
|
| 2020 | | $ | 18,140 |
|
| 2021 | | $ | 15,360 |
|
| 2022 | | $ | 11,810 |
|
| 2023 | | $ | 9,910 |
|
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7.10. Inventories
Inventories consist of the following components (dollars in thousands):
| | | | | | | | | | | | | | |
| | | December 31,
2021 | | December 31,
2020 |
| Finished goods | | $ | 74,600 | | | $ | 78,010 | |
| Work in process | | 28,790 | | | 29,680 | |
| Raw materials | | 49,060 | | | 41,690 | |
| Total inventories | | $ | 152,450 | | | $ | 149,380 | |
|
| | | | | | | | |
| | | December 31,
2018 | | December 31,
2017 |
| Finished goods | | $ | 91,780 |
| | $ | 86,310 |
|
| Work in process | | 29,080 |
| | 24,580 |
|
| Raw materials | | 52,260 |
| | 44,460 |
|
| Total inventories | | $ | 173,120 |
| | $ | 155,350 |
|
8.11. Property and Equipment, Net
Property and equipment consists of the following components (dollars in thousands):
| | | | | December 31,
2018 | | December 31,
2017 | | | December 31,
2021 | | December 31,
2020 |
| Land and land improvements | | $ | 15,580 |
| | $ | 15,500 |
| Land and land improvements | | $ | 19,630 | | | $ | 20,040 | |
| Building and building improvements | | 74,110 |
| | 73,550 |
| Building and building improvements | | 93,170 | | | 91,970 | |
| Machinery and equipment | | 318,860 |
| | 303,880 |
| Machinery and equipment | | 422,500 | | | 384,010 | |
| | | 408,550 |
| | 392,930 |
| | 535,300 | | | 496,020 | |
| Less: Accumulated depreciation | | 220,750 |
| | 202,680 |
| Less: Accumulated depreciation | | 269,670 | | | 242,960 | |
| Property and equipment, net | | $ | 187,800 |
| | $ | 190,250 |
| Property and equipment, net | | $ | 265,630 | | | $ | 253,060 | |
Depreciation expense as included in the accompanying consolidated statement of operations is as follows (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | |
| | Year ended December 31, |
| | 2021 | | 2020 | | 2019 |
| Depreciation expense, included in cost of sales | | $ | 30,770 | | | $ | 27,920 | | | $ | 23,700 | |
| Depreciation expense, included in selling, general and administrative expense | | 1,120 | | | 1,100 | | | 1,170 | |
| Total depreciation expense | | $ | 31,890 | | | $ | 29,020 | | | $ | 24,870 | |
|
| | | | | | | | | | | | |
| | | Year ended December 31, |
| | | 2018 | | 2017 | | 2016 |
| Depreciation expense, included in cost of sales | | $ | 22,940 |
| | $ | 24,950 |
| | $ | 21,620 |
|
| Depreciation expense, included in selling, general and administrative expense | | 1,640 |
| | 2,000 |
| | 2,770 |
|
| Total depreciation expense | | $ | 24,580 |
| | $ | 26,950 |
| | $ | 24,390 |
|
9.12. Accrued Liabilities
Accrued liabilities consist of the following components (dollars in thousands):
| | | | | | | | | | | | | | |
| | | December 31,
2021 | | December 31,
2020 |
| Accrued payroll | | $ | 24,960 | | | $ | 23,140 | |
| High deductible insurance | | 5,000 | | | 4,980 | |
| Other | | 29,020 | | | 32,420 | |
| Total accrued liabilities | | $ | 58,980 | | | $ | 60,540 | |
|
| | | | | | | | |
| | | December 31,
2018 | | December 31,
2017 |
| High deductible insurance | | $ | 6,090 |
| | $ | 6,250 |
|
| Accrued payroll | | 20,830 |
| | 19,060 |
|
| Other | | 21,380 |
| | 24,160 |
|
| Total accrued liabilities | | $ | 48,300 |
| | $ | 49,470 |
|
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10.13. Long-term Debt
The Company's long-term debt consists of the following (dollars in thousands):
| | | | | | | | | December 31,
2021 | | December 31,
2020 |
| | | December 31,
2018 | | December 31,
2017 | |
| 4.125% Senior Notes due April 2029 | | 4.125% Senior Notes due April 2029 | | $ | 400,000 | | | $ | — | |
| 4.875% Senior Notes due October 2025 | | $ | 300,000 |
| | $ | 300,000 |
| 4.875% Senior Notes due October 2025 | | — | | | 300,000 | |
| Credit Agreement | | — |
| | 10,810 |
| Credit Agreement | | — | | | 50,450 | |
| | Debt issuance costs | | (6,440 | ) | | (7,730 | ) | Debt issuance costs | | (6,180) | | | (4,160) | |
| | Long-term debt, net | | $ | 293,560 |
| | $ | 303,080 |
| Long-term debt, net | | $ | 393,820 | | | $ | 346,290 | |
Senior Notes due 2029
In September 2017,March 2021, the Company issued $300.0$400.0 million aggregate principal amount of 4.875%4.125% senior notes outstanding due OctoberApril 15, 20252029 ("2029 Senior Notes") at par value in a private placement under Rule 144A of the Securities Act of 1933, as amended.amended ("Securities Act"). The Company used the proceeds from the 2029 Senior Notes offering to fully repay the $250.9 million principal, plus $0.4 million related interest, outstanding on its former senior secured term loan A facility due 2020 ("Term Loan A Facility"), repay approximately $41.7 million of outstanding obligations under the Company's accounts receivable facility, pay fees and expenses of $5.0approximately $5.1 million related to the Senior Notes offering and pay fees and expenses of $1.1 million related to amending its existing credit agreement,agreement. In connection with the issuance, the Company completed the redemption of its outstanding 4.875% senior notes due October 15, 2025 ("2025 Senior Notes"), paying $300.0 million to retire the outstanding principal amount plus $7.3 million as a redemption premium. The remaining amount retained as cash on its consolidated balance sheet. Ofproceeds from the $5.02029 Senior Notes were used for general corporate purposes, including repaying all outstanding revolving credit facility borrowings. The $5.1 million of fees and expenses related to the 2029 Senior Notes approximately $4.9 million waswere capitalized as debt issuance costs, andwhile the $7.3 million redemption premium, as well as approximately $0.1$3.0 million was recorded asof unamortized debt issuance costs associated with the 2025 Senior Notes, were included in debt financing and related expenses in the accompanying consolidated statement of operations.
The 2029 Senior Notes accrue interest at a rate of 4.875%4.125% per annum, payable semi-annually in arrears on April 15 and October 15, commencing on AprilOctober 15, 2018.2021. The payment of principal and interest is jointly and severally guaranteed, on a senior unsecured basis, by certain subsidiaries of the Company (each a "Guarantor" and collectively the "Guarantors").Company. The 2029 Senior Notes are pari passu in right of payment with all existing and future senior indebtedness and effectively subordinated to all existing and future secured indebtedness to the extent of the value of the assets securing such indebtedness.
Prior to OctoberApril 15, 2020,2024, the Company may redeem up to 35%40% of the principal amount of the 2029 Senior Notes at a redemption price of 104.875%104.125% of the principal amount, plus accrued and unpaid interest, if any, to the redemption date, with the net cash proceeds of one or more equity offerings provided that each such redemption occurs within 90 days of the date of closing of each such equity offering. In addition, prior to April 15, 2024, the Company may redeem all or part of the 2029 Senior Notes at a redemption price equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if any, to the redemption date, plus a "make whole" premium. On or after OctoberApril 15, 2020,2024, the Company may redeem all or part of the 2029 Senior Notes at the redemption prices (expressed as percentages of principal amount) set forth below, plus accrued and unpaid interest, if any, to the redemption date, if redeemed during the twelve-month period beginning on OctoberApril 15 of the years indicated below:
| | | | | | | | |
| Year | | Percentage |
| 2024 | | 102.063 | % |
| 2025 | | 101.031 | % |
| 2026 and thereafter | | 100.000 | % |
Senior Notes due 2025
In September 2017, the Company issued $300.0 million aggregate principal amount of its 2025 Senior Notes at par value in a private placement under Rule 144A of the Securities Act. During the second quarter of 2021, and in connection with the issuance of the 2029 Senior Notes, the Company redeemed all of the outstanding 2025 Senior Notes, as permitted under the indenture, at a price of 102.438% of the principal amount.
|
| | | |
| Year | | Percentage |
| 2020 | | 102.438 | % |
| 2021 | | 101.219 | % |
| 2022 and thereafter | | 100.000 | % |
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Credit Agreement
TheIn March 2021, the Company is party to aamended its existing credit agreement ("Credit Agreement") consistingin connection with the issuance of the 2029 Senior Notes to extend the maturity date. The Company incurred fees and expenses of approximately $1.1 million related to the amendment, all of which was capitalized as debt issuance costs. The Company also recorded approximately $0.2 million of non-cash expense related to the write-off of previously capitalized deferred financing fees.
Below is a $300.0 million senior secured revolving credit facility, which permits borrowings denominated in specific foreign currencies, subjectsummary of key terms under the Credit Agreement as of December 31, 2021, compared to a $125.0 million sub limit, matures on September 20, 2022 and is subjectthe key terms prior to interest at the amendment (showing gross availability):
| | | | | | | | | | | | | | | | | | | | |
| Instrument | | Amount
($ in millions) | | Maturity
Date | | Interest Rate |
| Credit Agreement (as amended) | | | | | | |
| Senior secured revolving credit facility | | $300.0 | | 3/29/2026 | | LIBOR(a) plus 1.500%(b) |
| | | | | | |
| Credit Agreement (prior to amending) | | | | | | |
| Senior secured revolving credit facility | | $300.0 | | 9/20/2022 | | LIBOR(a) plus 1.500%(b) |
__________________________(a) London Interbank Offered Rate ("LIBOR") plus1.50%.
(b) The interest rate spread is based upon the leverage ratio, as defined, as of the most recent determination date.
The Credit Agreement also provides incremental revolving credit facility commitments in an amount not to exceed the greater of $200.0 million and an amount such that, after giving effect to such incremental commitments and the incurrence of any other indebtedness substantially simultaneously with the making of such commitments, the senior secured net leverage ratio, as defined, is no greater than 3.00 to 1.00. The terms and conditions of any incremental revolving credit facility commitments must be no more favorable than the existing credit facility.
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company amended its existing credit agreement in 2017 in connection with the Senior Notes offering and extended the maturity date, increased the permitted borrowings denominated in specific foreign currencies, removed the Term Loan A Facility and resized the revolving credit facility. The Company incurred fees and expenses of approximately $1.1 million related to the amendment, all of which was capitalized as debt issuance costs. The Company also recorded approximately $2.0 million non-cash expense related to the write-off of previously capitalized deferred financing fees within debt financing and related expenses in the accompanying consolidated statement of operations.
The Company's revolving credit facility allows for the issuance of letters of credit, not to exceed $40.0$40.0 million in aggregate. At The Company places cash on deposit with a financial institution to be held as cash collateral for the Company's outstanding letters of credit; therefore, as of December 31, 20182021 and December 31, 2020, the Company had no letters of credit issued against its revolving credit facility. See Note 8, "Cash and Cash Equivalents," for further information on its cash deposits. At December 31, 2021, the Company had no amounts outstanding under its revolving credit facility and had $284.9$300.0 million potentially available after giving effect to approximately $15.1 million of letters of credit issued and outstanding.available. At December 31, 2017,2020, the Company had $10.8$50.5 million amounts outstanding under its revolving credit facility and had $274.3$249.5 million potentially available after giving effect to approximately $14.9 million of letters of credit issued and outstanding. However, including availability under its accounts receivable facility and after consideration ofavailable. The Company's borrowing capacity was not reduced by leverage restrictions contained in the Credit Agreement atas of December 31, 20182021 and 2017,December 31, 2020.
The Company previously drew $150 million on its revolving credit facility in March 2020 to defend against potential uncertainty or liquidity issues in the Company had $284.9 million and $332.1 million, respectively,financial markets as a result of borrowing capacity available for general corporate purposes.the COVID-19 pandemic, but repaid this amount during second quarter 2020.
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The debt under the Credit Agreement is an obligation of the Company and certain of its domestic subsidiaries and is secured by substantially all of the assets of such parties. Borrowings under the $125.0 million (equivalent) foreign currency sub limit of the $300.0 million senior secured revolving credit facility are secured by a cross-guarantee amongst, and a pledge of the assets of, the foreign subsidiary borrowers that are a party to the agreement. The Credit Agreement also contains various negative and affirmative covenants and other requirements affecting the Company and its subsidiaries, including the ability to, subject to certain exceptions and limitations, incur debt, liens, mergers, investments, loans, advances, guarantee obligations, acquisitions, assets dispositions, sale-leaseback transactions, hedging agreements, dividends and other restricted payments, transactions with affiliates, restrictive agreements and amendments to charters, bylaws, and other material documents. The terms of the Credit Agreement also require the Company and its restricted subsidiaries to meet certain restrictive financial covenants and ratios computed quarterly, including a maximum total net leverage ratio (total consolidated indebtedness plus outstanding amounts under theany accounts receivable securitization facility, less the aggregate amount of certain unrestricted cash and unrestricted permitted investments, as defined, over consolidated EBITDA, as defined), a maximum senior secured net leverage ratio (total consolidated senior secured indebtedness, less the aggregate amount of certain unrestricted cash and unrestricted permitted investments, as defined, over consolidated EBITDA, as defined) and a minimum interest expense coverage ratio (consolidated EBITDA, as defined, over the sum of consolidated cash interest expense, as defined, and preferred dividends, as defined). At December 31, 2018,2021, the Company was in compliance with the financial covenants contained in the Credit Agreement.
ReceivablesIn November 2021, the Company amended the Credit Agreement to replace LIBOR with a benchmark interest rate determined based on the currency denomination of borrowings, effective January 1, 2022.
Other Revolving Loan Facility
In March 2018,May 2021, the Company, terminatedthrough one of its accounts receivablenon-U.S. subsidiaries, entered into a revolving loan facility previously utilized through TSPC, Inc. ("TSPC"),with a wholly-owned subsidiary.borrowing capacity of $4 million. The facility was used to sell trade accounts receivableis guaranteed by TriMas Corporation. There are no borrowings outstanding on this loan facility as of substantially all of the Company's domestic business operations. Under this facility, TSPC, from time to time, could sell an undivided fractional ownership interest in the pool of receivables up to $75.0 million to a third-party multi-seller receivables funding company. The cost of funds under this facility consisted of a 1-month LIBOR-based rate plus a usage fee of 1.00% and a fee on the unused portion of the facility of 0.35%.
At December 31, 2017, the Company had no amounts outstanding under the facility and $57.8 million available but not utilized. Aggregate costs incurred under the facility were $0.1 million, $1.0 million and $0.9 million for the years ended December 31, 2018, 2017 and 2016, respectively, and are included in interest expense in the accompanying consolidated statement of operations.
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2021.
Long-term Debt Maturities
Future maturities of the face value of long-term debt at December 31, 20182021 are as follows (dollars in thousands):
|
| | | | |
| Year Ending December 31: | | Future Maturities |
| 2019 | | $ | — |
|
| 2020 | | — |
|
| 2021 | | — |
|
| 2022 | | — |
|
| 2023 | | — |
|
| Thereafter | | 300,000 |
|
| Total | | $ | 300,000 |
|
| | | | | | | | |
| Year Ending December 31: | | Future Maturities |
| 2022 | | $ | — | |
| 2023 | | — | |
| 2024 | | — | |
| 2025 | | — | |
| 2026 | | — | |
| Thereafter | | 400,000 | |
| Total | | $ | 400,000 | |
Fair Value of Debt
The valuations of the Senior Notes and revolving credit facility were determined based on Level 2 inputs under the fair value hierarchy, as defined. The carrying amounts and fair values were as follows (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2021 | | December 31, 2020 |
| | Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value |
| 4.125% Senior Notes due April 2029 | | $ | 400,000 | | | $ | 399,000 | | | $ | — | | | $ | — | |
| 4.875% Senior Notes due October 2025 | | — | | | — | | | 300,000 | | | 305,630 | |
| Revolving credit facility | | — | | | — | | | 50,450 | | | 50,450 | |
| | | | | | | | |
|
| | | | | | | | | | | | | | | | |
| | | December 31, 2018 | | December 31, 2017 |
| | | Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value |
| Senior Notes | | $ | 300,000 |
| | $ | 282,750 |
| | $ | 300,000 |
| | $ | 300,750 |
|
| Revolving credit facility | | — |
| | — |
| | 10,810 |
| | 10,490 |
|
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Debt Issuance Costs
The Company's unamortized debt issuance costs approximated $6.4$6.2 million and $7.7$4.2 million at December 31, 20182021 and 2017,2020, respectively, and are included as a direct reduction from the related debt liability in the accompanying consolidated balance sheet. These amounts consisted primarily of legal, accounting and other transaction advisory fees as well as facility fees paid to the lenders. Amortization expense for these items was approximately $1.3$1.0 million, $1.3$1.2 million and $1.4$1.1 million in 2018, 20172021, 2020 and 2016,2019, respectively, and is included in interest expense in the accompanying consolidated statement of operations.
11.14. Derivative Instruments
In October 2018, theDerivatives Designated as Hedging Instruments
The Company entered intouses cross-currency swap agreementscontracts to hedge its net investment in Euro-denominated assets against future volatility in the exchange rate between the U.S. dollar and the Euro. By doing so, the Company synthetically convertedconverts a portion of its U.S. dollar-based long-term debt into Euro-denominated long-term debt. TheAt inception, the Company designates its cross-currency swaps as net investment hedges.
As of December 31, 2021, the Company had cross-currency swap agreements have a five year tenor at notional amounts declining from $125.0totaling $250.0 million, which declines to $75.0$25.0 million over thevarious contract period.periods ending between April 15, 2022 and April 15, 2027. Under the terms of the swap agreements, the Company is to receive net interest payments at a fixed rate ofranging from approximately 0.8% to 2.9% of the notional amount. At inception, the cross-currency swaps were designated as net investment hedges.
In October 2018, immediately prior entering into the new cross-currency swap agreements, the Company terminated its existing cross-currency swap agreements, de-designating the swaps as net investment hedges and receiving approximately $1.1 million of cash. The cross-currency swap agreements were entered into in October 2017 and hedged the Company's net investment in Euro-denominated assets against future volatility in the exchange rate between the U.S. dollar and the Euro. The agreements had a five year tenor at notional amounts declining from $150.0 million to $75.0 million over the contract period. Under the terms of the swap agreements, the Company was to receive net interest payments at a fixed rate of approximately 2.1% of the notional amount.
The Company has historically utilized interest rate swap agreements to fix the LIBOR-based variable portion of the interest rate on its long-term debt. Prior to its debt refinancing in September 2017, the Company had interest rate swap agreements in place that hedged a declining notional value of debt ranging from approximately $238.4 million to approximately $192.7 million, amortizing consistent with future scheduled debt principal payments. The interest rate swap agreements required the Company to receive a variable interest rate and pay a fixed interest rate in a range of 0.74% to 2.68% with various expiration terms extending to June 30, 2020. At inception, the interest rate swaps were designated as cash flow hedges.
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In September 2017, immediately following the debt refinancing, the Company determined the likelihood of the hedged transactions occurring was not probable and de-designated the interest rate swaps as cash flow hedges and terminated the interest rate swaps for a cash payment of approximately $4.7 million. There were no interest rate swaps outstanding as of December 31, 2017. The cash flows associated with the cash flow hedges are reported in net cash provided by operating activities in the accompanying consolidated statement of cash flows. Up to the date of the termination, the Company utilized hedge accounting, which allows for the effective portion of the interest rate swaps to be recorded in AOCI in the accompanying consolidated balance sheet. At the date the Company de-designated the swaps as effective hedges, there was approximately $2.9 million (net of tax of $1.8 million) of unrealized losses remaining in AOCI, which were reclassified into debt financing and related expenses in the accompanying consolidated statement of operations during 2017.amounts.
As of December 31, 20182021 and 2017,2020, the fair value carrying amount of the Company's derivatives designated as hedging instruments are recorded as follows (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | |
| | | | Asset / (Liability) Derivatives |
| Derivatives designated as hedging instruments | | Balance Sheet Caption | | December 31, 2021 | | December 31, 2020 |
| Net Investment Hedges | | | | | | |
| Cross-currency swaps | | Other assets | | $ | 7,590 | | | $ | — | |
| Cross-currency swaps | | Other long-term liabilities | | — | | | (5,000) | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
|
| | | | | | | | | | |
| | | | | Asset / (Liability) Derivatives |
| Derivatives designated as hedging instruments | | Balance Sheet Caption | | December 31, 2018 | | December 31, 2017 |
| Net Investment Hedges | | | | | | |
| Cross-currency swaps | | Other assets | | $ | 130 |
| | $ | — |
|
| Cross-currency swaps | | Other long-term liabilities | | — |
| | (4,110 | ) |
The following table summarizes the income (loss) recognized in AOCI on derivative contracts designated as hedging instruments as of December 31, 20182021 and 2017,2020, and the amounts reclassified from AOCI into earnings for the years ended December 31, 2018, 20172021, 2020 and 20162019 (dollars in thousands):
| | | | | | | | | | | | | | | | Amount of Income (Loss) Recognized
in AOCI on Derivative
(Effective Portion, net of tax) | | Location of Loss Reclassified from AOCI into Earnings
(Effective Portion) | | Amount of Loss Reclassified from
AOCI into Earnings |
| | | Amount of Income (Loss) Recognized
in AOCI on Derivative
(Effective Portion, net of tax) | | Location of Loss Reclassified from AOCI into Earnings
(Effective Portion) | | Amount of Loss Reclassified from
AOCI into Earnings | | As of December 31, | | Year ended December 31, |
| | | As of December 31, | | Year ended December 31, | | 2021 | | 2020 | | 2021 | | 2020 | | 2019 |
| | | 2018 | | 2017 | | 2018 | | 2017 | | 2016 | |
| Net Investment Hedges | | | | | | | | | | | Net Investment Hedges | | | | | | | | | | | | |
| Cross-currency swaps | | $ | 940 |
| | $ | (3,170 | ) | | Other expense, net | | $ | — |
| | $ | — |
| | $ | — |
| Cross-currency swaps | | $ | 5,910 | | | $ | (3,580) | | | Other expense, net | | $ | — | | | $ | — | | | $ | — | |
| Cash Flow Hedges | | | | | | | | | | | |
| Interest rate swaps | | $ | — |
| | $ | — |
| | Interest expense | | $ | — |
| | $ | (320 | ) | | $ | (670 | ) | |
| | | | | | | Debt financing and related expenses | | $ | — |
| | $ | (4,680 | ) | | $ | — |
| |
|
Over the next 12 months, the Company does not expect to reclassify any pre-tax deferred lossesamounts from AOCI into earnings.
Derivatives Not Designated as Hedging Instruments
As of December 31, 2021, the Company was party to foreign currency exchange forward contracts to economically hedge changes in foreign currency rates with notional amounts of approximately $131.8 million. The Company uses foreign exchange contracts to mitigate the risk associated with fluctuations in currency rates impacting cash flows related to certain of its receivables, payables and intercompany transactions denominated in foreign currencies. The foreign exchange contracts primarily mitigate currency exposures between the U.S. dollar and the Euro, Canadian dollar, Chinese yuan, and the Mexican peso, as well as between the Euro and British pound, and have various settlement dates through December 2022. These contracts are not designated as hedging instruments; therefore, gains and losses on these contracts are recognized each period directly into the consolidated statement of operations.
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table summarizes the effects of derivatives not designated as hedging instruments on the Company's consolidated statement of operations (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Amount of Income (Loss) Recognized in Earnings on Derivatives |
| | | | Year ended December 31, |
| | Location of Income (Loss)
Recognized in
Earnings on Derivatives | | 2021 | | 2020 | | 2019 |
| Derivatives not designated as hedging instruments | | | | | | | | |
| Foreign exchange contracts | | Other income (expense), net | | $ | 7,130 | | | $ | (470) | | | $ | (600) | |
Fair Value of Derivatives
The fair value of the Company's derivative instruments are estimated using an income approach based on valuation techniques to convert future amounts to a single, discounted amount. Estimates of the fair value of the Company's cross-currency swaps use observable inputs such as interest rate yield curves and forward currency exchange rates. Fair value measurements and the fair value hierarchy level for the Company's assets and liabilities measured at fair value on a recurring basis as of December 31, 20182021 and 20172020 are as follows (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Description | | Frequency | | Asset / (Liability) | | Quoted Prices in Active Markets for Identical Assets
(Level 1) | | Significant Other Observable Inputs
(Level 2) | | Significant Unobservable Inputs
(Level 3) |
| December 31, 2021 | | | | | | | | | | |
| Cross-currency swaps | | Recurring | | $ | 7,590 | | | $ | — | | | $ | 7,590 | | | $ | — | |
| Foreign exchange contracts | | Recurring | | $ | (110) | | | $ | — | | | $ | (110) | | | $ | — | |
| December 31, 2020 | | | | | | | | | | |
| Cross-currency swaps | | Recurring | | $ | (5,000) | | | $ | — | | | $ | (5,000) | | | $ | — | |
| Foreign exchange contracts | | Recurring | | $ | 140 | | | $ | — | | | $ | 140 | | | $ | — | |
|
| | | | | | | | | | | | | | | | | | | |
| | Description | | Frequency | | Asset / (Liability) | | Quoted Prices in Active Markets for Identical Assets
(Level 1) | | Significant Other Observable Inputs
(Level 2) | | Significant Unobservable Inputs
(Level 3) |
| December 31, 2018 | Cross-currency swaps | | Recurring | | $ | 130 |
| | $ | — |
| | $ | 130 |
| | $ | — |
|
| December 31, 2017 | Cross-currency swaps | | Recurring | | $ | (4,110 | ) | | $ | — |
| | $ | (4,110 | ) | | $ | — |
|
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12.15. Leases
The Company leases certain equipment and facilities under non-cancelable operating leases. RentalLeases with an initial term of 12 months or less are not recorded on the balance sheet; expense forrelated to these leases is recognized on a straight-line basis over the Company totaled approximately $12.3 million in 2018, $16.7 million in 2017 and $17.4 million in 2016.lease term.
Minimum payments for operating leases having initial or remaining non-cancelableThe components of lease terms in excess of one year at December 31, 2018expense are summarized belowas follows (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | |
| | Year ended December 31, |
| | 2021 | | 2020 | | 2019 |
| Operating lease cost | | $ | 8,510 | | | 7,870 | | | 6,380 | |
| Short-term, variable and other lease costs | | 2,460 | | | 1,540 | | | 1,140 | |
| Total lease cost | | $ | 10,970 | | | $ | 9,410 | | | $ | 7,520 | |
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
| | | | |
| Year ended December 31, | | Minimum Payments |
| 2019 | | $ | 12,730 |
|
| 2020 | | 12,530 |
|
| 2021 | | 11,080 |
|
| 2022 | | 7,510 |
|
| 2023 | | 6,270 |
|
| Thereafter | | 15,830 |
|
| Total | | $ | 65,950 |
|
| | | | | | | | |
| Year ended December 31, | | Operating Leases(a) |
| 2022 | | $ | 8,500 | |
| 2023 | | 8,870 | |
| 2024 | | 7,990 | |
| 2025 | | 6,670 | |
| 2026 | | 6,540 | |
| Thereafter | | 18,930 | |
| Total lease payments | | 57,500 | |
| Less: Imputed interest | | (5,600) | |
| Present value of lease liabilities | | $ | 51,900 | |
13__________________________
(a) The maturity table excludes cash flows associated with exited lease facilities. Liabilities for exited lease facilities are included in accrued liabilities and other long-term liabilities in the accompanying consolidated balance sheet.
The weighted-average remaining term of the Company's operating leases as of December 31, 2021 is approximately 7.5 years. The weighted-average discount rate as of December 31, 2021 is approximately 3.8%.
Cash paid for amounts included in the measurement of operating lease liabilities was approximately $7.9 million, $7.9 million and $6.4 million during 2021, 2020 and 2019 respectively, and is included in cash flows provided by operating activities in the consolidated statement of cash flows.
Right-of-use assets obtained in exchange for lease liabilities were approximately $19.6 million and $14.0 million during 2021 and 2020, respectively.
16. Other Long-term Liabilities
Other long-term liabilities consist of the following components (dollars in thousands):
| | | | | | | | | | | | | | |
| | December 31,
2021 | | December 31,
2020 |
| Non-current asbestos-related liabilities | | $ | 25,210 | | | $ | 26,170 | |
| Other long-term liabilities | | 33,820 | | | 43,520 | |
| Total other long-term liabilities | | $ | 59,030 | | | $ | 69,690 | |
17. Commitments and Contingencies
Environmental
The Company is subject to increasingly stringent environmental laws and regulations, including those relating to air emissions, wastewater discharges and chemical and hazardous waste management and disposal. Some of these environmental laws hold owners or operators of land or businesses liable for their own and for previous owners' or operators' releases of hazardous or toxic substances or wastes. Other environmental laws and regulations require the obtainment and compliance with environmental permits. To date, costs of complying with environmental, health and safety requirements have not been material. However, the nature of the Company's operations and the long history of industrial activities at certain of the Company's current or former facilities, as well as those acquired, could potentially result in material environmental liabilities.
While the Company must comply with existing and pending climate change legislation, regulation and international treaties or accords, current laws and regulations have not had a material impact on the Company's business, capital expenditures or financial position. Future events, including those relating to climate change or greenhouse gas regulation, could require the Company to incur expenses related to the modification or curtailment of operations, installation of pollution control equipment or investigation and cleanup of contaminated sites.
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Asbestos
As of December 31, 2018,2021, the Company was a party to 379389 pending cases involving an aggregate of 4,8204,754 claimants primarily alleging personal injury from exposure to asbestos containing materials formerly used in gaskets (both encapsulated and otherwise) manufactured or distributed by Lamons and certain of itsother related subsidiaries for use primarily in the petrochemical refining and exploration industries. The following chart summarizes the number of claimants,claims, number of claims filed, number of claims dismissed, number of claims settled, the average settlement amount per claim and the total defense costs, excluding amounts reimbursed under the Company's primary insurance, at the applicable date and for the applicable periods:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | | Claims pending at beginning of period | | Claims filed during period | | Claims dismissed during period | | Claims settled during period | | Claims
pending at end of period | | Average settlement amount per claim during period | | Total defense costs during period |
| Fiscal year ended December 31, 2018 | | 5,256 |
| | 171 |
| | 564 |
| | 43 |
| | 4,820 |
| | $ | 7,191 |
| | $ | 2,260,000 |
|
| Fiscal year ended December 31, 2017 | | 5,339 |
| | 173 |
| | 231 |
| | 25 |
| | 5,256 |
| | $ | 8,930 |
| | $ | 2,280,000 |
|
| Fiscal year ended December 31, 2016 | | 6,242 |
| | 140 |
| | 1,009 |
| | 34 |
| | 5,339 |
| | $ | 15,624 |
| | $ | 2,920,000 |
|
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Claims
pending at
beginning of
period | | Claims filed
during
period | | Claims
dismissed
during
period | | Claims
settled
during
period | | Claims
pending at end of period | | Average
settlement
amount per
claim during
period | | Total defense
costs during
period |
| Fiscal year ended December 31, 2021 | | 4,655 | | | 265 | | | 134 | | | 32 | | | 4,754 | | | $ | 16,819 | | | $ | 1,950,000 | |
| Fiscal year ended December 31, 2020 | | 4,759 | | | 219 | | | 287 | | | 36 | | | 4,655 | | | $ | 18,314 | | | $ | 2,130,000 | |
| Fiscal year ended December 31, 2019 | | 4,820 | | | 143 | | | 172 | | | 32 | | | 4,759 | | | $ | 16,616 | | | $ | 2,250,000 | |
In addition, the Company acquired various companies to distribute its products that had distributed gaskets of other manufacturers prior to acquisition. The Company believes that many of the pending cases relate to locations at which none of its gaskets were distributed or used.
The Company may be subjected to significant additional asbestos-related claims in the future, theand will aggressively defend or reasonably resolve, as appropriate. The cost of settling cases in which product identification can be made may increase, and the Company may be subjected to further claims in respect of the former activities of its acquired gasket distributors. The Company is unable to make a meaningful statement concerning the monetarycost of claims made in the asbestos cases given that, among other things,varies as claims may be initially made in some jurisdictions without specifying the amount sought or by simply stating the requisite or maximum permissible monetary relief, and may be amended to alter the amount sought.The large majority of claims do not specify the amount sought.Of the 4,8204,754 claims pending at December 31, 2018, 492021, 27 set forth specific amounts of damages (other than those stating the statutory minimum or maximum). At December 31, 2018,2021, of the 4927 claims that set forth specific amounts, there were no claimswas 1 claim seeking specific amountsmore than $5 million for punitive damages. Below is a breakdown of the amountcompensatory damages sought for those claims seeking specific amounts:
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Compensatory | | |
| Range of damages sought (in millions) | | | | | | | $0.0 to $0.6 | | $0.6 to $5.0 | | $5.0+ | | |
| Number of claims | | | | | | | — | | 2 | | 25 | | |
|
| | | | | |
| | Compensatory |
| Range of damages sought (in millions) | $0.0 to $0.6 | | $0.6 to $5.0 | | $5.0+ |
| Number of claims | — | | 12 | | 37 |
In addition, relativelyRelatively few of the claims have reached the discovery stage and even fewer claims have gone past the discovery stage.
Total settlement costs (exclusive of defense costs) for all such cases, some of which were filed over 25 years ago, have been approximately $8.9 million.$10.6 million. All relief sought in the asbestos cases is monetary in nature. To date, approximately 40% of the Company's costs related to settlement and defense of asbestos litigation have been covered by its primary insurance. Effective February 14, 2006, the Company entered into a coverage-in-place agreement with its first level excess carriers regarding the coverage to be provided to the Company for asbestos-related claims when the primary insurance is exhausted. The coverage-in-place agreement makes asbestos defense costs and indemnity insurance coverage available to the Company that might otherwise be disputed by the carriers and provides a methodology for the administration of such expenses. The Company's primary insurance exhausted in November 2018, and the Company will be solely responsible for defense costs and indemnity payments prior to the commencement of coverage under this agreement, the duration of which would be subject to the scope of damage awards and settlements paid.
Based on the settlements made to date and the number of claims dismissed or withdrawn for lack of product identification, the Company believes that the relief sought (when specified) does not bear a reasonable relationship to its potential liability.
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
There has been significant volatility in the historical number of claim filings and costs to defend, with previous claim counts and spend levels much higher than current levels. Management believes this volatility was associated more with tort reform, plaintiff practices and state-specific legal dockets than the Company’s underlying asbestos-related exposures. From 2017 to 2019, however, the number of new claim filings, and costs to defend, had become much more consistent. The higher degree of consistency in census data and spend levels, as well as lower claim activity levels and an evolving defense strategy, has allowed the Company to more effectively and efficiently manage claims, making process or local counsel arrangement improvements where possible. Given the consistency of activity over a multi-year period, the Company believes a trend may have formed where it could be possible to reasonably estimate its future cash exposure for all asbestos-related activity with an adequate level of precision. As such, the Company commissioned an actuary to help evaluate the nature and predictability of its asbestos-related costs, and provide an actuarial range of estimates of future exposures. Based upon its review of the actuarial study, which was completed in June 2020 using data as of December 31, 2019 and which projected spend levels through a terminal year of 2064, the Company affirmed its belief that it now has the ability to reasonably estimate its future asbestos-related exposures for pending as well as unknown future claims.
During the second quarter of 2020, the Company elected to change its method of accounting for asbestos-related defense costs from accruing for probable and reasonably estimable defense costs associated with known claims expected to settle to accrue for all future defense costs for both known and unknown claims, which the Company now believes are reasonably estimable. The Company believes this change is preferable, as asbestos-related defense costs represent expenditures related to legacy activities that do not contribute to current or future revenue generating activities, and recording an estimate of the full liability for asbestos-related costs, where estimable with reasonable precision, provides a more complete assessment of the liability associated with resolving asbestos-related claims.
This accounting change was reflected as a change in accounting estimate effected by a change in accounting principle. Following the change in accounting estimate, the Company’s liability for asbestos-related claims will be based on a study from the Company’s third-party actuary, the Company's review of the study, as well as the Company’s own review of asbestos claims and claim resolution activity. After completing its study in the second quarter of 2020, the Company recorded a non-cash, pre-tax charge of $23.4 million, which is included in selling, general and administrative expenses in the accompanying consolidated statement of operations.
In 2021, the Company commissioned its actuary to update the asbestos study based on data as of September 30, 2021, which yielded a range of possible future liability of $28.2 million to $38.6 million. The Company did not believe any amount within the range of potential outcomes represented a better estimate than another given the many factors and assumptions inherent in the projections, and therefore recorded a non-cash, pre-tax charge of $1.5 million to increase the liability estimate to $28.2 million, at the low-end of the range. This charge is included in selling, general and administrative expenses in the accompanying consolidated statement of operations. As of December 31, 2021, the Company’s total asbestos-related liability is $27.6 million, and is included in accrued liabilities and other long-term liabilities, respectively, in the accompanying consolidated balance sheet.
The Company’s primary insurance, which covered approximately 40% of historical costs related to settlement and defense of asbestos litigation, expired in November 2018, upon which the Company became solely responsible for defense costs and indemnity payments. The Company is party to a coverage-in-place agreement (entered into in 2006) with its first level excess carriers regarding the coverage to be provided to the Company for asbestos-related claims. The coverage-in-place agreement makes asbestos defense costs and indemnity insurance coverage available to the Company that might otherwise be disputed by the carriers and provides a methodology for the administration of such expenses. The Company will continue to be solely responsible for defense costs and indemnity payments prior to the commencement of coverage under this agreement, the duration of which would be subject to the scope of damage awards and settlements paid. Based upon the Company’s review of the actuarial study, the Company does not believe it is probable that it will reach the threshold of qualified future settlements required to commence excess carrier insurance coverage under the coverage-in-place agreement.
Based upon the Company's experience to date, including the trend in annual defense and settlement costs incurred to date, and other available information (including the availability of excess insurance), the Company does not believe that these cases will have a material adverse effect on its financial position, and results of operations, or cash flows.
Metaldyne Corporation
Prior to 2002, the Company was wholly-owned by Metaldyne Corporation ("Metaldyne"). In connection with the reorganization between TriMas and Metaldyne in 2002, TriMas assumed certain liabilities and obligations of Metaldyne, mainly comprised of contractual obligations to former TriMas employees, tax related matters, benefit plan liabilities and reimbursements to Metaldyne of normal course payments to be made on TriMas' behalf.
In 2007, Metaldyne merged into a subsidiary of Asahi Tec Corporation (“Asahi”) whereby Metaldyne became a wholly-owned subsidiary of Asahi, and in 2009, Metaldyne and its U.S. subsidiaries filed voluntary petitions in the United States Bankruptcy Court under Chapter 11 of the U.S. Bankruptcy Code.
In January 2018, the U.S. Bankruptcy Court entered a final decree to close all remaining cases and finalize the Metaldyne bankruptcy distribution trust, effectively terminating any potential obligation by TriMas to Metaldyne. In consideration of the final decree, the Company removed the obligation from its balance sheet during the first quarter of 2018, resulting in an approximate $8.2 million non-cash reduction in selling, general and administrative expenses in the accompanying consolidated statement of operations.
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Claims and Litigation
The Company is subject to other claims and litigation in the ordinary course of business, but does not believe that any such claim or litigation will have a material adverse effect on its financial position and results of operations or cash flows.
14.
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
18. Employee Benefit Plans
Pension and Profit-Sharing Benefits
The Company provides a defined contribution profit sharing plan for the benefit of substantially all the Company's domestic salaried and non-union hourly employees. The plan contains both contributory and noncontributory profit sharing arrangements, as defined. Aggregate charges included in the accompanying consolidated statement of operations under this plan for both continuing and discontinued operations were approximately $4.2 million, $3.8 million and $3.7$3.4 million in 2018, 2017both 2021 and 2016, respectively.2020 and $4.6 million in 2019. Certain of the Company's non-U.S. and union hourly employees participate in defined benefit pension plans.
Plan Assets, Expenses and Obligations
Net periodic pension benefit expense recorded in the Company's consolidated statement of operations for defined benefit pension plans include the following components (dollars in thousands):
| | | | | Pension Benefit | | | Pension Benefit | |
| | | 2018 | | 2017 | | 2016 | | | 2021 | | 2020 | | 2019 | |
| Service cost | | $ | 1,120 |
| | $ | 1,150 |
| | $ | 950 |
| Service cost | | $ | 1,280 | | | $ | 1,230 | | | $ | 1,050 | | |
| Interest cost | | 1,100 |
| | 1,290 |
| | 1,510 |
| Interest cost | | 800 | | | 930 | | | 1,070 | | |
| Expected return on plan assets | | (1,520 | ) | | (1,480 | ) | | (1,610 | ) | Expected return on plan assets | | (1,530) | | | (1,450) | | | (1,400) | | |
| Settlements and curtailments | | 2,620 |
| | — |
| | 1,330 |
| |
| | Amortization of net loss | | 860 |
| | 1,010 |
| | 930 |
| Amortization of net loss | | 910 | | | 890 | | | 580 | | |
| Net periodic benefit expense | | $ | 4,180 |
| | $ | 1,970 |
| | $ | 3,110 |
| Net periodic benefit expense | | $ | 1,460 | | | $ | 1,600 | | | $ | 1,300 | | |
The service cost component of net periodic benefit costexpense is recorded in cost of goods sold and selling, general and administrative expenses, while non-service cost components are recorded in other expense, net in the accompanying consolidated statement of operations.
During 2018, the Company recognized one-time settlement and curtailment charges of approximately $2.6 million, of which approximately $2.5 million was due to the purchase of an annuity contract to transfer certain U.S. retiree defined benefit obligations to an insurance company. The annuity contract was funded by plan assets.
During 2016, the Company recognized one-time settlement and curtailment charges of approximately $1.3 million primarily due to lump sum payments in the United States and the United Kingdom.
The estimated net actuarial loss and prior service cost for defined benefit pension plans that is expected to be amortized from AOCI into net periodic benefit expense in 2019 is approximately $0.6 million.
Actuarial valuations of the Company's defined benefit pension plans were prepared as of December 31, 2018, 20172021, 2020 and 2016.2019. Weighted average assumptions used in accounting for the U.S. defined benefit pension plans are as follows:
|
| | | | | | | | | |
| | | Pension Benefit |
| | | 2018 | | 2017 | | 2016 |
| Discount rate for obligations | | 4.50 | % | | 3.76 | % | | 4.35 | % |
| Discount rate for benefit costs | | 4.37 | % | | 4.35 | % | | 4.62 | % |
| Rate of increase in compensation levels | | N/A |
| | N/A |
| | N/A |
|
| Expected long-term rate of return on plan assets | | 7.13 | % | | 7.13 | % | | 7.13 | % |
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Pension Benefit | | |
| | | 2021 | | 2020 | | 2019 | | | | | | |
| Discount rate for obligations | | 3.06 | % | | 2.79 | % | | 3.41 | % | | | | | | |
| Discount rate for benefit costs | | 2.79 | % | | 3.41 | % | | 4.50 | % | | | | | | |
| Rate of increase in compensation levels | | N/A | | N/A | | N/A | | | | | | |
| Expected long-term rate of return on plan assets | | 6.13 | % | | 6.13 | % | | 7.13 | % | | | | | | |
The Company utilizes a high-quality (Aa or greater) corporate bond yield curve as the basis for its domestic discount rate for its pension benefit plans. Management believes this yield curve removes the impact of including additional required corporate bond yields (potentially considered in the above-median curve) resulting from the uncertain economic climate that does not necessarily reflect the general trend in high-quality interest rates.
Weighted average assumptions used in accounting for the non-U.S. defined benefit pension plans are as follows:
| | | | | | | | | | | | | | | | | | | | |
| | | Pension Benefit |
| | | 2021 | | 2020 | | 2019 |
| Discount rate for obligations | | 2.10 | % | | 1.50 | % | | 2.10 | % |
| Discount rate for benefit costs | | 1.50 | % | | 2.10 | % | | 3.00 | % |
| Rate of increase in compensation levels | | 3.30 | % | | 2.80 | % | | 3.00 | % |
| Expected long-term rate of return on plan assets | | 3.90 | % | | 4.10 | % | | 4.60 | % |
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
| | | | | | | | | |
| | | Pension Benefit |
| | | 2018 | | 2017 | | 2016 |
| Discount rate for obligations | | 3.00 | % | | 2.60 | % | | 2.80 | % |
| Discount rate for benefit costs | | 2.60 | % | | 2.80 | % | | 3.80 | % |
| Rate of increase in compensation levels | | 3.30 | % | | 3.30 | % | | 3.90 | % |
| Expected long-term rate of return on plan assets | | 4.60 | % | | 4.60 | % | | 4.90 | % |
The following provides a reconciliation of the changes in the Company's defined benefit pension plans' projected benefit obligations and fair value of assets for each of the years ended December 31, 20182021 and 20172020 and the funded status as of December 31, 20182021 and 20172020 (dollars in thousands):
| | | | | | | | | | | | | | |
| | Pension Benefit |
| | 2021 | | 2020 |
| Changes in Projected Benefit Obligations | | | | |
| Benefit obligations at January 1 | | $ | (40,830) | | | $ | (36,580) | |
| Service cost | | (1,280) | | | (1,230) | |
| Interest cost | | (800) | | | (930) | |
| Participant contributions | | (50) | | | (60) | |
Actuarial gain (loss) (a) | | 3,290 | | | (2,420) | |
| Benefit payments | | 1,840 | | | 1,140 | |
| | | | |
| | | | |
| | | | |
| Change in foreign currency | | 270 | | | (750) | |
| Projected benefit obligations at December 31 | | $ | (37,560) | | | $ | (40,830) | |
| Changes in Plan Assets | | | | |
| Fair value of plan assets at January 1 | | $ | 36,060 | | | $ | 30,260 | |
| Actual return on plan assets | | 2,060 | | | 4,780 | |
| Employer contributions | | 2,050 | | | 1,140 | |
| Participant contributions | | 50 | | | 60 | |
| Benefit payments | | (1,840) | | | (1,140) | |
| | | | |
| | | | |
| Change in foreign currency | | (250) | | | 960 | |
| Fair value of plan assets at December 31 | | $ | 38,130 | | | $ | 36,060 | |
| Funded status at December 31 | | $ | 570 | | | $ | (4,770) | |
__________________________
(a) The actuarial gain for the year ended December 31, 2021 was primarily due to an increase in the discount rate utilized in measuring the projected benefit obligations as well as other assumptions and experience gains. The actuarial loss for the year ended December 31, 2020 was primarily due to a decrease in the discount rate utilized in measuring the projected benefit obligations, partially offset by other assumptions and experience gains.
| | | | | | | | | | | | | | | | | | |
| | Pension Benefit | | |
| | 2021 | | 2020 | | | | |
| Amounts Recognized in Balance Sheet | | | | | | | | |
| Other assets | | $ | 7,740 | | | $ | 4,470 | | | | | |
| Current liabilities | | (300) | | | (340) | | | | | |
| Noncurrent liabilities | | (6,870) | | | (8,900) | | | | | |
| Net asset (liability) recognized at December 31 | | $ | 570 | | | $ | (4,770) | | | | | |
| | | | | | | | | | | | | | | | | | |
| | Pension Benefit | | |
| | 2021 | | 2020 | | | | |
| Amounts Recognized in Accumulated Other Comprehensive Loss | | | | | | | | |
| Unrecognized prior service cost | | $ | 310 | | | $ | 170 | | | | | |
| Unrecognized net loss | | 6,550 | | | 11,470 | | | | | |
| Total accumulated other comprehensive loss recognized at December 31 | | $ | 6,860 | | | $ | 11,640 | | | | | |
|
| | | | | | | | |
| | | Pension Benefit |
| | | 2018 | | 2017 |
| Changes in Projected Benefit Obligations | | | | |
| Benefit obligations at January 1 | | $ | (39,030 | ) | | $ | (37,640 | ) |
| Service cost | | (1,120 | ) | | (1,150 | ) |
| Interest cost | | (1,100 | ) | | (1,290 | ) |
| Participant contributions | | (60 | ) | | (60 | ) |
| Actuarial gain | | 3,020 |
| | 990 |
|
| Benefit payments | | 1,200 |
| | 1,320 |
|
| Annuity purchase | | 5,480 |
| | — |
|
| Settlements and curtailments | | 210 |
| | 710 |
|
| Change in foreign currency | | 1,100 |
| | (1,910 | ) |
| Projected benefit obligations at December 31 | | $ | (30,300 | ) | | $ | (39,030 | ) |
| Changes in Plan Assets | | | | |
| Fair value of plan assets at January 1 | | $ | 31,760 |
| | $ | 26,260 |
|
| Actual return on plan assets | | (1,520 | ) | | 2,510 |
|
| Employer contributions | | 2,440 |
| | 3,170 |
|
| Participant contributions | | 60 |
| | 60 |
|
| Benefit payments | | (1,200 | ) | | (1,320 | ) |
| Annuity purchase | | (5,480 | ) | | — |
|
| Settlements | | (210 | ) | | (710 | ) |
| Change in foreign currency | | (1,200 | ) | | 1,790 |
|
| Fair value of plan assets at December 31 | | $ | 24,650 |
| | $ | 31,760 |
|
| Funded status at December 31 | | $ | (5,650 | ) | | $ | (7,270 | ) |
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
| | | | | | | | |
| | | Pension Benefit |
| | | 2018 | | 2017 |
| Amounts Recognized in Balance Sheet | | | | |
| Prepaid benefit cost | | $ | 1,350 |
| | $ | 1,190 |
|
| Current liabilities | | (340 | ) | | (340 | ) |
| Noncurrent liabilities | | (6,660 | ) | | (8,120 | ) |
| Net liability recognized at December 31 | | $ | (5,650 | ) | | $ | (7,270 | ) |
|
| | | | | | | | |
| | | Pension Benefit |
| | | 2018 | | 2017 |
| Amounts Recognized in Accumulated Other Comprehensive Loss | | | | |
| Unrecognized prior service cost | | $ | 190 |
| | $ | 50 |
|
| Unrecognized net loss | | 11,610 |
| | 15,600 |
|
| Total accumulated other comprehensive loss recognized at December 31 | | $ | 11,800 |
| | $ | 15,650 |
|
| | | | | Accumulated Benefit Obligations | | Projected Benefit Obligations | | | Accumulated Benefit Obligations | | Projected Benefit Obligations |
| | | 2018 | | 2017 | | 2018 | | 2017 | | | 2021 | | 2020 | | 2021 | | 2020 |
| Benefit Obligations at December 31, | | | | | | | | | Benefit Obligations at December 31, | | | | | | | | |
| Total benefit obligations | | $ | (28,410 | ) | | $ | (36,720 | ) | | $ | (30,300 | ) | | $ | (39,030 | ) | Total benefit obligations | | $ | (35,970) | | | $ | (38,410) | | | $ | (37,560) | | | $ | (40,830) | |
| Plans with benefit obligations exceeding plan assets | | | | | | | | | Plans with benefit obligations exceeding plan assets | | | | | | | | |
| Benefit obligations | | $ | (12,050 | ) | | $ | (18,420 | ) | | $ | (12,080 | ) | | $ | (18,440 | ) | Benefit obligations | | $ | (16,630) | | | $ | (16,820) | | | $ | (16,780) | | | $ | (16,940) | |
| Plan assets | | 5,090 |
| | 9,980 |
| | 5,090 |
| | 9,980 |
| Plan assets | | $ | 9,610 | | | $ | 7,700 | | | $ | 9,610 | | | $ | 7,700 | |
The assumptions regarding discount rates and expected return on plan assets can have a significant impact on amounts reported for benefit plans. A 25 basis point change in benefit obligation discount rates or 50 basis point change in expected return on plan assets would have the following effect (dollars in thousands):
| | | | | | | | | | | | | | | | | | |
| | | Pension Benefit | | |
| | | December 31, 2021
Benefit Obligation | | | | 2021 Expense | | |
| Discount rate | | | | | | | | |
| 25 basis point increase | | $ | (1,570) | | | | | $ | (50) | | | |
| 25 basis point decrease | | $ | 1,670 | | | | | $ | 50 | | | |
| Expected return on assets | | | | | | | | |
| 50 basis point increase | | N/A | | | | $ | (190) | | | |
| 50 basis point decrease | | N/A | | | | $ | 190 | | | |
|
| | | | | | | | |
| | | Pension Benefit |
| | | December 31, 2018
Benefit Obligation | | 2018 Expense |
| Discount rate | | | | |
| 25 basis point increase | | $ | (1,120 | ) | | $ | (90 | ) |
| 25 basis point decrease | | $ | 1,210 |
| | $ | 100 |
|
| Expected return on assets | | | | |
| 50 basis point increase | | N/A |
| | $ | (130 | ) |
| 50 basis point decrease | | N/A |
| | $ | 130 |
|
The Company expects to make contributions of approximately $1.9$1.6 million to fund its pension plans during 2019.
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2022.
Plan Assets
The Company's overall investment goal is to provide for capital growth with a moderate level of volatility by investing assets in targeted allocation ranges. Specific long term investment goals include total investment return, diversity to reduce volatility and risk, and to achieve an asset allocation profile that reflects the general nature and sensitivity of the plans' liabilities. Investment goals are established after a comprehensive review of current and projected financial statement requirements, plan assets and liability structure, market returns and risks as well as special requirements of the plans. The Company reviews investment goals and actual results annually to determine whether stated objectives are still relevant and the continued feasibility of achieving the objectives.
The actual weighted average asset allocation of the Company's domestic and foreign pension plans' assets at December 31, 20182021 and 20172020 and target allocations by class, were as follows:
| | | | | Domestic Pension | | Foreign Pension | | | Domestic Pension | | Foreign Pension |
| | | | | Actual | | | | Actual | | | | Actual | | | Actual |
| | | Target | | 2018 | | 2017 | | Target | | 2018 | | 2017 | | | Target | | 2021 | | 2020 | | Target | | 2021 | | 2020 |
| Equity securities | | 60 | % | | 58 | % | | 63 | % | | 33 | % | | 29 | % | | 30 | % | Equity securities | | 60 | % | | 62 | % | | 67 | % | | 33 | % | | 34 | % | | 33 | % |
| Fixed income | | 36 | % | | 39 | % | | 36 | % | | 45 | % | | 47 | % | | 46 | % | Fixed income | | 36 | % | | 37 | % | | 32 | % | | 45 | % | | 44 | % | | 44 | % |
Diversified growth(a) | | — | % | | — | % | | — | % | | 22 | % | | 24 | % | | 24 | % | Diversified growth(a) | | — | % | | — | % | | — | % | | 22 | % | | 22 | % | | 22 | % |
| | Cash and other | | 4 | % | | 3 | % | | 1 | % | | — |
| | — | % | | — | % | Cash and other | | 4 | % | | 1 | % | | 1 | % | | — | | | — | % | | 1 | % |
| Total | | 100 | % | | 100 | % | | 100 | % | | 100 | % | | 100 | % | | 100 | % | Total | | 100 | % | | 100 | % | | 100 | % | | 100 | % | | 100 | % | | 100 | % |
(a) Diversified growth funds invest in a broad range of asset classes including equities, investment grade and high yield bonds, commodities, property, private equity, infrastructure and currencies.
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Actual allocations to each asset vary from target allocations due to periodic investment strategy changes, market value fluctuations and the timing of benefit payments and contributions. The expected long-term rate of return for both the domestic and foreign plans' total assets is based on the expected return of each of the above categories, weighted based on the target allocation for each class. Actual allocation is reviewed regularly and investments are rebalanced to their targeted allocation range when deemed appropriate.
In managing the plan assets, the Company reviews and manages risk associated with the funded status risk, interest rate risk, market risk, liquidity risk and operational risk. Investment policies reflect the unique circumstances of the respective plans and include requirements designed to mitigate these risks by including quality and diversification standards.
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table summarizes the level under the fair value hierarchy (see Note 3, "Summary of Significant Accounting Policies") that the Company's pension plan assets are measured, on a recurring basis as of December 31, 20182021 (dollars in thousands):
| | | | | Total | | Level 1 | | Level 2 | | Level 3 | | | Total | | Level 1 | | Level 2 | | Level 3 |
| Plan assets subject to leveling | | | | | | | | | Plan assets subject to leveling | | | | | | | | |
| Investment funds | | | | | | | | | Investment funds | |
| Equity securities | | $ | 2,960 |
| | $ | 2,960 |
| | $ | — |
| | $ | — |
| Equity securities | | $ | 5,970 | | | $ | 5,970 | | | $ | — | | | $ | — | |
| Fixed income | | 1,970 |
| | 1,970 |
| | — |
| | — |
| Fixed income | | 3,510 | | | 3,510 | | | — | | | — | |
| Cash and cash equivalents | | 90 |
| | 90 |
| | — |
| | — |
| Cash and cash equivalents | | 70 | | | 70 | | | — | | | — | |
Plan assets measured at net asset value(a) | | | | | | | | | Plan assets measured at net asset value(a) | |
| Investment funds | | | | | | | | | Investment funds | |
| Equity securities | | 5,590 |
| | | | | | | Equity securities | | 9,540 | | |
| Fixed income | | 9,400 |
| | | | | | | Fixed income | | 12,360 | | |
| Diversified growth | | 4,390 |
| | | | | | | Diversified growth | | 6,380 | | |
| | Cash and cash equivalents | | 250 |
| | | | | | | Cash and cash equivalents | | 300 | | |
| | Total | | $ | 24,650 |
| | $ | 5,020 |
| | $ | — |
| | $ | — |
| Total | | $ | 38,130 | | | $ | 9,550 | | | $ | — | | | $ | — | |
(a) Certain investments that are measured at fair value using the net asset value per share as a practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amount presented in the fair value of plan assets.
The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid during the following years (dollars in thousands):
| | | | | | | | |
| | | Pension
Benefit |
| 2022 | | $ | 1,170 | |
| 2023 | | 1,210 | |
| 2024 | | 1,260 | |
| 2025 | | 1,310 | |
| 2026 | | 1,350 | |
| Years 2027-2031 | | 7,920 | |
|
| | | | |
| | | Pension Benefit |
| December 31, 2019 | | $ | 990 |
|
| December 31, 2020 | | 1,110 |
|
| December 31, 2021 | | 1,090 |
|
| December 31, 2022 | | 1,190 |
|
| December 31, 2023 | | 1,290 |
|
| Years 2024-2028 | | 7,260 |
|
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
15.19. Equity Awards
The Company maintains the following long-term equity incentive plans (collectively, the "Plans"):
|
| | | | | | | | |
| Plan Names | | Shares Approved for Issuance | |
| TriMas Corporation 2017 Equity and Incentive Compensation Plan | | 2,000,000 |
| |
| TriMas Corporation Director Retainer Share Election Program | | 100,000 |
| |
The Company previously maintained the 2006 Long Term Equity Incentive Plan, which expired in 2016, and the 2011 Omnibus Incentive Compensation Plan, which was replaced by the TriMas Corporation 2017 Equity and Incentive Compensation Plan in 2017, such that, while existing grants remain outstanding until exercised, vested or canceled, no new shares may be issued under these plans.
Stock Options
The Company granted 150,000 stock options in 2016. The Company estimated the grant-date fair value of the options using the Black-Scholes option pricing model using the following weighted average assumptions: risk-free rate of 1.1%, expected volatility of 32.3%, and an expected term of six years. The Company did not grant any stock options during 20182021, 2020 and 2017.
2019. Information related to stock options at as of and for the year ended December 31, 20182021 is as follows:
| | | | | | | | | | | | | Number of
Stock Options | | Weighted Average
Option Price | | Average
Remaining
Contractual Life (Years) | | Aggregate
Intrinsic Value |
| | | Number of Stock Options | | Weighted Average Option Price | | Average Remaining Contractual Life (Years) | | Aggregate Intrinsic Value | |
| Outstanding at January 1, 2018 | | 206,854 |
| | $ | 13.19 |
| | | | | |
| Outstanding at January 1, 2021 | | Outstanding at January 1, 2021 | | 150,000 | | | $ | 17.87 | | | | | |
| Granted | | — |
| | — |
| | | Granted | | — | | | — | | |
| Exercised | | — |
| | — |
| | | Exercised | | (150,000) | | | 17.87 | | |
| Cancelled | | — |
| | — |
| | | Cancelled | | — | | | — | | |
| Expired | | — |
| | — |
| | | Expired | | — | | | — | | |
| Outstanding at December 31, 2018 | | 206,854 |
| | $ | 13.19 |
| | 5.5 | | $ | 2,915,651 |
| |
| Outstanding at December 31, 2021 | | Outstanding at December 31, 2021 | | — | | | $ | — | | | — | | | $ | — | |
As of December 31, 2018, 156,8542021, there were no stock options outstanding were exercisable under the Plans. There was approximately $0.1 millionCompany's long-term equity incentive plans. No stock options vested during each of unrecognized2021 and 2020, and 50,000 stock options vested during 2019.
The Company recognized no stock-based compensation costexpense related to stock options that is expected to be recorded over a weighted average period of 0.6 years. Stock options of 50,000 vested during each of 20182021 and 2017, respectively, while no options vested during 2016.
The Company recognized2020, and approximately $0.3 million, $0.5 million and $0.3$0.1 million of stock-based compensation expense related to stock options during 2018, 2017 and 2016, respectively.2019. The stock-based compensation expense is included in selling, general and administrative expenses in the accompanying consolidated statement of operations.
Restricted Stock Units
The Company awarded 2,800the following restricted stock units ("RSUs") to certain employees during 2016. These shares are subject only to a service condition2021, 2020, and vest on the first anniversary date of the award so long as the employee remains with the Company.2019:
During 2018, 2017•granted 131,198, 190,650, and 2016, the Company issued 141,203, 189,062, and 235,251139,575, RSUs, respectively, to certain employees, which are subject only to a service condition and vest ratably over three years so long as the employee remains with the Company.Company;
The Company awarded 42,740 RSUs to certain employees during2016. These shares are subject only to a service condition•granted 21,112, 30,590 and vest on the first anniversary date of the award. The awards were made to participants in the Company's Short-Term Incentive Compensation Plan ("STI"), where all STI participants whose target STI annual award exceeds $20 thousand receive 80% of the value earned in cash and 20% in the form of a restricted stock award upon finalization of the award amount in the first quarter each year following the previous plan year.
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
During 2018, 2017 and 2016, the Company granted 25,830, 30,429 and 41,17425,872 RSUs, respectively, to its non-employee independent directors, which vest one year from date of grant so long as the director and/or Company does not terminate their service prior to the vesting date; and
•issued 1,792, 3,673 and 4,494 RSUs, respectively, related to director fee deferrals as certain of the Company's directors elected to defer all or a portion of their directors fees and to receive the amount in Company common stock at a future date.
The Company awarded the following RSUs during 2021:
•issued 49 RSUs to certain employees related to dividend equivalent rights on existing equity awards.
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company awarded the following RSUs during 2020:
•granted 31,816 RSUs to certain employees, which are subject only to a service condition and fully vest at the end of three years so long as the employee remains with the Company; and
•granted 2,558 RSUs to certain employees, which are subject only to a service condition and vest one year from the date of grant so long as the employee remains with the Company.
During 2018,2021, the Company awarded 104,53272,962 performance-based RSUs to certain Company key employees which vest three years from the grant date as long as the employee remains with the Company. These awards are earned 50% based upon the Company's achievement of an earnings per share compound annual growth rate ("EPS CAGR") metricsmetric over a period beginning January 1, 20182021 and ending December 31, 2020.2023. The remaining 50% of the awards are earned based on the Company's total shareholder return ("TSR") relative to the TSR of the common stock of a pre-defined industry peer-group, measured over the performance period. TSR is calculated as the Company's average closing stock price for the 20-trading20 trading days at the end of the performance period plus Company dividends, divided by the Company's average closing stock price for the 20-trading20 trading days prior to the start of the performance period. The Company estimatedestimates the grant-date fair value and term of the awards subject to a market condition using a Monte Carlo simulation model, using the following weighted average assumptions: risk-free interest rate of 2.61%0.28% and annualized volatility of 30.2%35.5%. Depending on the performance achieved for these two metrics, the amount of sharedshares earned, if any, can vary for each metric from 0% of the target award to a maximum of 200% of the target award foraward. The Company awarded 113,146 and 95,882 of similar performance-based RSUs in 2020 and 2019, respectively. For similar performance-based RSUs awarded in 2018, the EPS CAGR metric and 0%Company attained 126.2% of the target award toon a maximumweighted average basis, resulting in an increase of 200% of the target award for the TSR metric.25,993 shares during 2021.
During 2017,2020, the Company awarded 111,76187,034 performance-based RSUs to certain Company key divisional employees which vest three years from the grant date soas long as the employee remains with the Company. These awards are earned 50% based upon the Company's achievement of earnings per share compound annual growth rate ("EPS CAGR") metricsstock price performance over athe period beginningfrom January 1, 20172020 and ending December 31, 2019.2022. The remaining 50% of the awards are earned based on the Company's total shareholder return ("TSR") relative to the TSR of the common stock of a pre-defined industry peer-group, measured over the performance period. TSRprice achievement is calculated asbased on the Company's average closing stock price for the 20-trading days at theeach quarter end of the performance period plus Company dividends, divided by the Company's average closing stock price for the 20-trading20 trading days priorup to the start of the performance period.and including March 31, June 30, September 30, and December 31, 2022, respectively. The Company estimatedestimates the grant-date fair value and term of the awards subject to a market condition using a Monte Carlo simulation model, using the following weighted average assumptions: risk-free interestrisk free rate of 1.52%0.85% and annualized volatility of 35.6%25.2%. Depending on the performance achieved for these two metrics, the amount of shared earned, if any, can vary from 40% of the target award to a maximum of 200% of the target award for the EPS CAGRthis metric, and 0% of the target award to a maximum of 200% of the target award for the TSR metric.
During 2016, the Company awarded 198,956 performance-based RSUs to certain Company key employees which vest three years from the grant date so long as the employee remains with the Company. The performance criteria for these awards is based on the Company's TSR relative to the TSR of the common stock of a pre-defined industry peer-group, measured over a period beginning January 1, 2016 and ending December 31, 2018. Depending on the performance achieved, the amount of shares earned, if any, can vary from 0% of the target award to a maximum of 200% of the target award. The Company estimated the grant-date fair value and term of the awards subject to a market condition using a Monte Carlo simulation model, using the following weighted average assumptions: risk-free interest rate of 0.96% and annualized volatility of 35.8%.
During 2015, the Company awarded performance-based RSUs to certain Company key employees which were earned based upon the Company's TSR relative to the TSR of the common stock of a pre-defined industry peer-group and measured over a period beginning September 10, 2015 and ending on December 31, 2017. Depending on the performance achieved, the amount of shares earned could vary from 0%160% of the target award, to a maximum of 200% ofalthough it automatically is earned at the target award. The Company attained 126.9% of the target on a weighted average basis, resulting in an increase of 31,021 shares during 2018.
The Company allows for its non-employee independent directors to make an annual election to defer all or a portion of their director fees and to receive the deferred amount in cash or equity. Certain ofaward level if the Company's directors have electedstock price is equal to defer all or greater than a portion of their director fees and to receivespecified stock price for either five consecutive trading days or 20 total trading days during the amount in Company common stock at a future date. The Company issued 7,263, 12,912 and 16,588 shares in 2018, 2017 and 2016, respectively, related to director fee deferrals.performance period.
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Information related to restricted shares at as of and for the year ended December 31, 20182021 is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Number of
Unvested
Restricted
Shares | | Weighted
Average
Grant Date
Fair Value | | Average
Remaining
Contractual
Life (Years) | | Aggregate
Intrinsic Value |
| Outstanding at January 1, 2021 | | 784,968 | | | $ | 26.46 | | | | | |
| Granted | | 253,106 | | | 34.30 | | | | | |
| Vested | | (345,680) | | | 30.48 | | | | | |
| Cancelled | | (18,662) | | | 25.33 | | | | | |
| Outstanding at December 31, 2021 | | 673,732 | | | $ | 27.38 | | | 0.9 | | $ | 24,928,084 | |
|
| | | | | | | | | | | | | |
| | | Number of Unvested Restricted Shares | | Weighted Average Grant Date Fair Value | | Average Remaining Contractual Life (Years) | | Aggregate Intrinsic Value |
| Outstanding at January 1, 2018 | | 726,936 |
| | $ | 22.60 |
| | | | |
| Granted | | 309,849 |
| | 30.29 |
| | | | |
| Vested | | (338,141 | ) | | 21.60 |
| | | | |
| Cancelled | | (35,516 | ) | | 23.24 |
| | | | |
| Outstanding at December 31, 2018 | | 663,128 |
| | $ | 26.67 |
| | 1.0 | | $ | 18,096,763 |
|
As of December 31, 2018,2021, there was approximately $7.5$6.3 million of unrecognized compensation cost related to unvested restricted shares that is expected to be recorded over a weighted average period of 2.01.8 years.
The Company recognized stock-based compensation expense related to restricted shares of approximately $6.9$9.5 million,, $6.2 $8.2 million and $6.7$5.7 million in 2018, 2017,2021, 2020 and 2016,2019, respectively. The stock-based compensation expense is included in selling, general and administrative expenses in the accompanying statement of operations.
16.
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
20. Earnings per Share
Net income is divided by the weighted average number of common shares outstanding during the year to calculate basic earnings per share. Diluted earnings per share is calculated to give effect to stock options and RSUs. For the year ended December 31, 2016,2020, no restricted shares or stock options were included in the computation of net income (loss) per share because to do so would be anti-dilutive. The following table summarizes the dilutive effect of restricted sharesRSUs and options to purchase common stock:
| | | | | Year ended December 31, | | Year ended December 31, |
| | | 2018 | | 2017 | | 2016 | | | 2021 | | 2020 | | 2019 |
| Weighted average common shares—basic | | 45,824,555 |
| | 45,682,627 |
| | 45,407,316 |
| Weighted average common shares—basic | | 43,006,922 | | | 43,581,232 | | | 45,303,659 | |
| Dilutive effect of restricted share awards | | 242,204 |
| | 241,974 |
| | — |
| |
| Dilutive effect of restricted stock units | | Dilutive effect of restricted stock units | | 261,858 | | | — | | | 224,946 | |
| Dilutive effect of stock options | | 103,705 |
| | 65,651 |
| | — |
| Dilutive effect of stock options | | 12,296 | | | — | | | 66,549 | |
| Weighted average common shares—diluted | | 46,170,464 |
| | 45,990,252 |
| | 45,407,316 |
| Weighted average common shares—diluted | | 43,281,076 | | | 43,581,232 | | | 45,595,154 | |
In November 2015,March 2020, the Company announced its Board of Directors had authorized the Company to increase the purchase of its common stock up to $250 million in the aggregate. The initial authorization, approved in November 2015, authorized up to $50 million of purchases in the aggregate of its common stock. During 2018,2021, 2020 and 2019, the Company purchased 442,632596,084, 1,582,049 and 1,230,050 shares of its outstanding common stock for approximately $12.1 million. The$19.1 million, $39.4 million and $36.7 million, respectively. As of December 31, 2021, the Company did not purchase any shareshas approximately $142.6 million remaining under the repurchase authorization.
Holders of its outstanding common stock during 2017 or 2016.are entitled to dividends at the discretion of the Company's Board of Directors. In 2021, the Company's Board of Directors declared the first dividend since the Company's initial public offering in 2007. The Company's dividends declared were $0.04 per share of common stock and total dividends paid in cash were $1.7 million for the year ended December 31, 2021.
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
17.21. Other Comprehensive Income
Changes in AOCI by component for the year ended December 31, 20182021 are summarized as follows, net of tax (dollars in thousands):
| | | | | | | | | | | | Defined Benefit Plans | | Derivative Instruments | | Foreign Currency Translation | | Total |
| | | Defined Benefit Plans | | Derivative Instruments | | Foreign Currency Translation | | Total | |
| Balance, December 31, 2017 | | $ | (10,450 | ) | | $ | (3,170 | ) | | $ | (3,710 | ) | | $ | (17,330 | ) | |
| Balance, December 31, 2020 | | Balance, December 31, 2020 | | $ | (8,620) | | | $ | (3,580) | | | $ | 6,580 | | | $ | (5,620) | |
Net unrealized gains (losses) arising during the period (a) | | — |
| | 4,110 |
| | (6,880 | ) | | (2,770 | ) | Net unrealized gains (losses) arising during the period (a) | | 3,150 | | | 9,490 | | | (7,430) | | | 5,210 | |
Less: Net realized losses reclassified to net income (b) | | (3,250 | ) | | — |
| | — |
| | (3,250 | ) | Less: Net realized losses reclassified to net income (b) | | (640) | | | — | | | — | | | (640) | |
| Net current-period other comprehensive income (loss) | | 3,250 |
| | 4,110 |
| | (6,880 | ) | | 480 |
| Net current-period other comprehensive income (loss) | | 3,790 | | | 9,490 | | | (7,430) | | | 5,850 | |
| Balance, December 31, 2018 | | $ | (7,200 | ) | | $ | 940 |
| | $ | (10,590 | ) | | $ | (16,850 | ) | |
| | Balance, December 31, 2021 | | Balance, December 31, 2021 | | $ | (4,830) | | | $ | 5,910 | | | $ | (850) | | | $ | 230 | |
__________________________
(a) Derivative instruments, net of income tax of $1.2 million. See Note 11, "Derivative Instruments," for further details.
(b) Defined benefit plans, net of income tax of $0.9$0.8 million. See Note 14,18, "Employee Benefit Plans," for additional details. Derivative instruments, net of income tax of $3.1 million. See Note 14, "Derivative Instruments," for further details.
(b) Defined benefit plans, net of income tax of $0.2 million. See Note 18, "Employee Benefit Plans," for additional details.
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Changes in AOCI by component for the year ended December 31, 20172020 are summarized as follows, net of tax (dollars in thousands):
| | | | | | | | | | | | Defined Benefit Plans | | Derivative Instruments | | Foreign Currency Translation | | Total |
| | | Defined Benefit Plans | | Derivative Instruments | | Foreign Currency Translation | | Total | |
| Balance, December 31, 2016 | | $ | (12,120 | ) | | $ | (2,520 | ) | | $ | (9,760 | ) | | $ | (24,400 | ) | |
| Balance, December 31, 2019 | | Balance, December 31, 2019 | | $ | (9,930) | | | $ | 4,230 | | | $ | (300) | | | $ | (6,000) | |
Net unrealized gains (losses) arising during the period (a) | | 1,000 |
| | (3,750 | ) | | 6,050 |
| | 3,300 |
| Net unrealized gains (losses) arising during the period (a) | | 670 | | | (7,810) | | | 6,880 | | | (260) | |
Less: Net realized losses reclassified to net income (b) | | (670 | ) | | (3,100 | ) | | — |
| | (3,770 | ) | Less: Net realized losses reclassified to net income (b) | | (640) | | | — | | | — | | | (640) | |
| Net current-period other comprehensive income (loss) | | 1,670 |
| | (650 | ) | | 6,050 |
| | 7,070 |
| Net current-period other comprehensive income (loss) | | 1,310 | | | (7,810) | | | 6,880 | | | 380 | |
| Balance, December 31, 2017 | | $ | (10,450 | ) | | $ | (3,170 | ) | | $ | (3,710 | ) | | $ | (17,330 | ) | |
| | Balance, December 31, 2020 | | Balance, December 31, 2020 | | $ | (8,620) | | | $ | (3,580) | | | $ | 6,580 | | | $ | (5,620) | |
__________________________
(a) Defined benefit plans, net of income tax of $0.3$0.4 million. See Note 14,18, "Employee Benefit Plans," for additional details. Derivative instruments, net of income tax expense of $1.3$2.5 million. See Note 11,14, "Derivative Instruments," for further details.
(b) Defined benefit plans, net of income tax of $0.3$0.2 million. See Note 14, 18, "Employee Benefit Plans," for additional details. Derivative instruments, net of income tax expense of $1.9 million. See Note 11, "Derivative Instruments," for further details.
18.22. Segment Information
In the first quarter of 2018, TriMas realignedreports its reporting structure intooperations in three reportable segments: Packaging, Aerospace and Specialty Products. Each of these segments has discrete financial information that is regularly evaluated by TriMas’ president and chief executive officer (chief operating decision maker) in determining resource, personnel and capital allocation, as well as assessing strategy and performance. The Company utilizes its proprietary TriMas Business Model as its platform which is based upon a standardized set of processes to manage and drive results and strategy across its multi-industry businesses.
Within each of the Company's reportable segments, there are no individual products or product families for which reported net sales accounted for more than 10% of the Company's consolidated net sales. See below for more information regarding the types of products and services provided within each reportable segment:
Packaging – The Packaging segment, which consists primarily of the Rieke® brand,, Taplast, Affaba & Ferrari, Stolz, Rapak® and Omega Plastics brands, develops and manufactures specialtya broad array of dispensing products (such as foaming pumps, lotion and closurehand soap pumps, sanitizer pumps, beverage dispensers, perfume sprayers, nasal sprayers and trigger sprayers), polymeric and steel caps and closures (such as food lids, flip-top closures, child resistance caps, beverage closures, drum and pail closures, flexible spouts, and agricultural closures), polymeric jar products, and fully integrated dispensers for the health,fill-ready bag-in-box applications, all for a variety of consumer products submarkets including, but not limited to, beauty and homepersonal care, food and beverage, home care, and pharmaceutical and nutraceutical, as well as the industrial markets.market.
Aerospace – The Aerospace segment, which includes the Monogram Aerospace Fasteners™, Allfast Fastening Systems®, Mac Fasteners™, TFI Aerospace, RSA Engineered Products and Martinic Engineering™ brands, develops, qualifies and manufactures highly-engineered, precision fasteners, tubular products and assemblies for fluid conveyance, and machined products and assemblies to serve the aerospace and defense market.
Specialty Products – The Specialty Products segment, which includes the Norris Cylinder™ and Arrow® Engine brands, designs, manufactures and distributes highly-engineered steel cylinders, wellhead engines and compression systems for use within industrial markets.
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Specialty Products – The Specialty Products segment, which includes the Norris Cylinder™, Lamons® and Arrow® Engine brands, designs, manufactures and distributes highly-engineered steel cylinders, sealing and fastener products, and wellhead engines and compression systems for use within the industrial, petrochemical, and oil and gas exploration and refining markets.
Segment activity is as follows (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | |
| | | Year ended December 31, |
| | | 2021 | | 2020 | | 2019 |
| Net Sales | | | | | | |
| Packaging | | $ | 533,260 | | | $ | 488,340 | | | $ | 392,340 | |
| Aerospace | | 183,340 | | | 167,740 | | | 194,110 | |
| Specialty Products | | 140,510 | | | 113,890 | | | 137,080 | |
| Total | | $ | 857,110 | | | $ | 769,970 | | | $ | 723,530 | |
| Operating Profit (Loss) | | | | | | |
| Packaging | | $ | 96,490 | | | $ | 93,990 | | | $ | 80,770 | |
| Aerospace | | 13,270 | | | (133,440) | | | 28,950 | |
| Specialty Products | | 22,550 | | | 4,350 | | | 16,000 | |
| Corporate | | (37,220) | | | (53,190) | | | (34,500) | |
| Total | | $ | 95,090 | | | $ | (88,290) | | | $ | 91,220 | |
| Capital Expenditures | | | | | | |
| Packaging | | $ | 34,080 | | | $ | 30,730 | | | $ | 16,400 | |
| Aerospace | | 5,390 | | | 5,770 | | | 8,110 | |
| Specialty Products | | 5,500 | | | 3,890 | | | 5,090 | |
| Corporate | | 90 | | | 90 | | | 70 | |
| Total | | $ | 45,060 | | | $ | 40,480 | | | $ | 29,670 | |
| Depreciation and Amortization | | | | | | |
| Packaging | | $ | 30,500 | | | $ | 27,600 | | | $ | 24,650 | |
| Aerospace | | 18,700 | | | 18,130 | | | 15,090 | |
| Specialty Products | | 4,120 | | | 3,910 | | | 3,480 | |
| Corporate | | 130 | | | 130 | | | 280 | |
| Total | | $ | 53,450 | | | $ | 49,770 | | | $ | 43,500 | |
| Total Assets | | | | | | |
| Packaging | | $ | 739,920 | | | $ | 721,440 | | | $ | 546,950 | |
| Aerospace | | 353,800 | | | 348,190 | | | 393,260 | |
| Specialty Products | | 73,260 | | | 65,520 | | | 77,250 | |
| Corporate | | 136,660 | | | 58,730 | | | 175,240 | |
| | | | | | |
| | | | | | |
| Total | | $ | 1,303,640 | | | $ | 1,193,880 | | | $ | 1,192,700 | |
|
| | | | | | | | | | | | |
| | | Year ended December 31, |
| | | 2018 | | 2017 | | 2016 |
| Net Sales | | | | | | |
| Packaging | | $ | 368,200 |
| | $ | 344,570 |
| | $ | 341,340 |
|
| Aerospace | | 185,920 |
| | 184,310 |
| | 174,920 |
|
| Specialty Products | | 323,020 |
| | 288,860 |
| | 277,760 |
|
| Total | | $ | 877,140 |
| | $ | 817,740 |
| | $ | 794,020 |
|
| Operating Profit (Loss) | | | | | | |
| Packaging | | $ | 84,590 |
| | $ | 80,610 |
| | $ | 78,630 |
|
| Aerospace | | 27,290 |
| | 26,410 |
| | (90,540 | ) |
| Specialty Products | | 34,260 |
| | 12,280 |
| | 2,900 |
|
| Corporate | | (24,070 | ) | | (30,130 | ) | | (32,920 | ) |
| Total | | $ | 122,070 |
| | $ | 89,170 |
| | $ | (41,930 | ) |
| Capital Expenditures | | | | | | |
| Packaging | | $ | 13,590 |
| | $ | 17,140 |
| | $ | 19,880 |
|
| Aerospace | | 1,190 |
| | 3,370 |
| | 3,950 |
|
| Specialty Products | | 5,380 |
| | 6,830 |
| | 7,470 |
|
Corporate(a) | | 4,890 |
| | 9,460 |
| | 30 |
|
| Total | | $ | 25,050 |
| | $ | 36,800 |
| | $ | 31,330 |
|
| Depreciation and Amortization | | | | | | |
| Packaging | | $ | 21,620 |
| | $ | 21,630 |
| | $ | 22,120 |
|
| Aerospace | | 15,190 |
| | 14,530 |
| | 14,090 |
|
| Specialty Products | | 6,930 |
| | 10,530 |
| | 8,370 |
|
| Corporate | | 280 |
| | 180 |
| | 280 |
|
| Total | | $ | 44,020 |
| | $ | 46,870 |
| | $ | 44,860 |
|
| Total Assets | | | | | | |
| Packaging | | $ | 435,140 |
| | $ | 431,680 |
| | $ | 423,460 |
|
| Aerospace | | 392,140 |
| | 401,060 |
| | 409,040 |
|
| Specialty Products | | 181,700 |
| | 172,840 |
| | 179,160 |
|
| Corporate | | 91,540 |
| | 27,620 |
| | 39,990 |
|
| Total | | $ | 1,100,520 |
| | $ | 1,033,200 |
| | $ | 1,051,650 |
|
(a) Corporate capital expenditures for the years ended December 31, 2018 and 2017, respectively, are primarily related to purchases of machinery and equipment formerly held under operating leases. These purchased assets were subsequently transferred from Corporate to the reportable segment utilizing the assets.
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table presents the Company's net sales for each of the years ended December 31 and long-lived assets at each year ended December 31, attributed to each subsidiary's continent of domicile (dollars in thousands).
| | | | | As of December 31, | | | As of December 31, |
| | | 2018 | | 2017 | | 2016 | | | 2021 | | 2020 | | 2019 |
| | | Net Sales | | Long-lived Assets | | Net Sales | | Long-lived Assets | | Net Sales | | Long-lived Assets | | | Net
Sales | | Long-lived Assets | | Net
Sales | | Long-lived Assets | | Net
Sales | | Long-lived Assets |
| Non-U.S. | | | | | | | | | | | | | Non-U.S. | | | | | | | | | | | | |
| Europe | | $ | 62,420 |
| | $ | 54,340 |
| | $ | 62,360 |
| | $ | 54,790 |
| | $ | 65,490 |
| | $ | 45,050 |
| Europe | | $ | 160,650 | | | $ | 209,380 | | | $ | 116,350 | | | $ | 225,120 | | | $ | 87,420 | | | $ | 110,530 | |
| Asia Pacific | | 45,040 |
| | 45,160 |
| | 36,630 |
| | 51,120 |
| | 32,230 |
| | 51,060 |
| Asia Pacific | | 41,310 | | | 37,080 | | | 46,350 | | | 41,140 | | | 37,920 | | | 40,720 | |
| Other Americas | | 14,670 |
| | 7,830 |
| | 15,260 |
| | 7,930 |
| | 13,620 |
| | 7,800 |
| Other Americas | | 15,290 | | | 42,000 | | | 11,740 | | | 19,510 | | | 6,290 | | | 18,430 | |
| Total non-U.S. | | 122,130 |
| | 107,330 |
| | 114,250 |
| | 113,840 |
| | 111,340 |
| | 103,910 |
| Total non-U.S. | | 217,250 | | | 288,460 | | | 174,440 | | | 285,770 | | | 131,630 | | | 169,680 | |
| | | | | | | | | | | | | | |
| Total U.S. | | 755,010 |
| | 571,650 |
| | 703,490 |
| | 590,020 |
| | 682,680 |
| | 604,250 |
| Total U.S. | | 639,860 | | | 489,390 | | | 595,530 | | | 477,460 | | | 591,900 | | | 540,680 | |
| Total | | $ | 877,140 |
| | $ | 678,980 |
| | $ | 817,740 |
| | $ | 703,860 |
| | $ | 794,020 |
| | $ | 708,160 |
| Total | | $ | 857,110 | | | $ | 777,850 | | | $ | 769,970 | | | $ | 763,230 | | | $ | 723,530 | | | $ | 710,360 | |
The Company's export sales from the U.S. approximated $72.7$80.6 million, $79.8$70.0 million and $76.2$74.1 million in 2018, 20172021, 2020 and 2016,2019, respectively.
19.23. Income Taxes
The Company's income (loss) before income taxes and income tax expense (benefit), each by tax jurisdiction, consists of the following (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | |
| | | Year ended December 31, |
| | | 2021 | | 2020 | | 2019 |
| Income (loss) before income taxes: | | | | | | |
| Domestic | | $ | 28,380 | | | $ | (134,630) | | | $ | 52,190 | |
| Foreign | | 40,730 | | | 31,920 | | | 26,070 | |
| Total income (loss) before income taxes | | $ | 69,110 | | | $ | (102,710) | | | $ | 78,260 | |
| Current income tax expense: | | | | | | |
| Federal | | $ | 940 | | | $ | 200 | | | $ | 3,530 | |
| State and local | | 530 | | | 810 | | | 1,280 | |
| Foreign | | 8,840 | | | 7,750 | | | 7,070 | |
| Total current income tax expense | | 10,310 | | | 8,760 | | | 11,880 | |
| Deferred income tax expense (benefit): | | | | | | |
| Federal | | 5,450 | | | (16,900) | | | 4,890 | |
| State and local | | 670 | | | (4,430) | | | 500 | |
| Foreign | | (4,630) | | | (10,380) | | | (950) | |
| Total deferred income tax expense (benefit) | | 1,490 | | | (31,710) | | | 4,440 | |
| Income tax expense (benefit) | | $ | 11,800 | | | $ | (22,950) | | | $ | 16,320 | |
|
| | | | | | | | | | | | |
| | | Year ended December 31, |
| | | 2018 | | 2017 | | 2016 |
| Income (loss) before income taxes: | | | | | | |
| Domestic | | $ | 75,830 |
| | $ | 50,760 |
| | $ | (69,850 | ) |
| Foreign | | 30,150 |
| | 15,450 |
| | 11,620 |
|
| Total income (loss) before income taxes | | $ | 105,980 |
| | $ | 66,210 |
| | $ | (58,230 | ) |
| Current income tax expense: | | | | | | |
| Federal | | $ | 6,770 |
| | $ | 12,800 |
| | $ | 7,560 |
|
| State and local | | 2,440 |
| | 1,770 |
| | 1,920 |
|
| Foreign | | 7,070 |
| | 5,420 |
| | 4,250 |
|
| Total current income tax expense | | 16,280 |
| | 19,990 |
| | 13,730 |
|
| Deferred income tax expense (benefit): | | | | | | |
| Federal | | 4,540 |
| | 15,180 |
| | (28,180 | ) |
| State and local | | 1,310 |
| | 1,280 |
| | (2,550 | ) |
| Foreign | | 550 |
| | (1,200 | ) | | (1,430 | ) |
| Total deferred income tax expense (benefit) | | 6,400 |
| | 15,260 |
| | (32,160 | ) |
| Income tax expense (benefit) | | $ | 22,680 |
| | $ | 35,250 |
| | $ | (18,430 | ) |
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The components of deferred taxes are as follows (dollars in thousands):
| | | | | December 31, 2018 | | December 31, 2017 | | | December 31, 2021 | | December 31, 2020 |
| Deferred tax assets: | | | | | Deferred tax assets: | | | | |
| Accounts receivable | | $ | 310 |
| | $ | 1,000 |
| Accounts receivable | | $ | 950 | | | $ | 260 | |
| Inventories | | 1,900 |
| | 5,230 |
| Inventories | | 5,330 | | | 5,080 | |
| | Accrued liabilities and other long-term liabilities | | 7,220 |
| | 20,350 |
| Accrued liabilities and other long-term liabilities | | 15,320 | | | 19,190 | |
| Operating lease liability | | Operating lease liability | | 13,440 | | | 8,950 | |
| Tax loss and credit carryforwards | | 6,990 |
| | 7,290 |
| Tax loss and credit carryforwards | | 30,690 | | | 20,760 | |
| Other | | Other | | 340 | | | 340 | |
| Gross deferred tax asset | | 16,420 |
| | 33,870 |
| Gross deferred tax asset | | 66,070 | | | 54,580 | |
| Valuation allowances | | (5,520 | ) | | (6,400 | ) | Valuation allowances | | (19,960) | | | (10,180) | |
| Net deferred tax asset | | 10,900 |
| | 27,470 |
| Net deferred tax asset | | 46,110 | | | 44,400 | |
| Deferred tax liabilities: | | | | | Deferred tax liabilities: | | | | |
| Property and equipment | | (8,770 | ) | | (16,380 | ) | Property and equipment | | (23,920) | | | (24,140) | |
| Right of use asset | | Right of use asset | | (13,130) | | | (8,930) | |
| Goodwill and other intangible assets | | (4,940 | ) | | (5,350 | ) | Goodwill and other intangible assets | | (20,160) | | | (16,230) | |
| Investment in foreign affiliates, including withholding tax | | (1,050 | ) | | (740 | ) | Investment in foreign affiliates, including withholding tax | | (420) | | | (370) | |
| Other, principally deferred income | | (620 | ) | | (1,550 | ) | |
| | Gross deferred tax liability | | (15,380 | ) | | (24,020 | ) | Gross deferred tax liability | | (57,630) | | | (49,670) | |
| Net deferred tax asset (liability) | | $ | (4,480 | ) | | $ | 3,450 |
| |
| Net deferred tax liability | | Net deferred tax liability | | $ | (11,520) | | | $ | (5,270) | |
The following is a reconciliation of income tax expense (benefit) computed at the U.S. federal statutory rate to income tax expense (benefit) allocated to income (loss) before income taxes (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | |
| | Year ended December 31, |
| | | 2021 | | 2020 | | 2019 |
| U.S. federal statutory rate | | 21 | % | | 21 | % | | 21 | % |
| Tax at U.S. federal statutory rate | | $ | 14,550 | | | $ | (21,570) | | | $ | 16,440 | |
| State and local taxes, net of federal tax benefit | | 960 | | | (2,850) | | | 970 | |
| Differences in statutory foreign tax rates | | (1,690) | | | (1,500) | | | (870) | |
| Change in recognized tax benefits | | (550) | | | (920) | | | (920) | |
| Goodwill and other intangible assets impairment | | — | | | 13,430 | | | — | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| Tax credits and incentives | | (5,060) | | | (2,130) | | | (1,160) | |
| | | | | | |
| Net change in valuation allowance | | 2,100 | | | (6,390) | | | 3,580 | |
| Nondeductible compensation | | 2,280 | | | 260 | | | 210 | |
| | | | | | |
| | | | | | |
| Other, net | | $ | (790) | | | $ | (1,280) | | | $ | (1,930) | |
| Income tax expense (benefit) | | $ | 11,800 | | | $ | (22,950) | | | $ | 16,320 | |
|
| | | | | | | | | | | | |
| | | Year ended December 31, |
| | | 2018 | | 2017 | | 2016 |
| U.S. federal statutory rate | | 21 | % | | 35 | % | | 35 | % |
| Tax at U.S. federal statutory rate | | $ | 22,250 |
| | $ | 23,170 |
| | $ | (20,380 | ) |
| State and local taxes, net of federal tax benefit | | 3,030 |
| | 2,250 |
| | (550 | ) |
| Differences in statutory foreign tax rates | | 380 |
| | (2,580 | ) | | (1,930 | ) |
| Change in recognized tax benefits | | (270 | ) | | (480 | ) | | (1,410 | ) |
| Goodwill and other intangible assets impairment | | — |
| | — |
| | 5,050 |
|
| Nontaxable income | | (940 | ) | | (1,050 | ) | | (310 | ) |
| Research and manufacturing incentives | | (1,740 | ) | | (1,510 | ) | | (830 | ) |
| Net change in valuation allowance | | 650 |
| | 520 |
| | 2,140 |
|
| Tax Reform Act | | (400 | ) | | 12,660 |
| | — |
|
| Other, net | | (280 | ) | | 2,270 |
| | (210 | ) |
| Income tax expense (benefit) | | $ | 22,680 |
| | $ | 35,250 |
| | $ | (18,430 | ) |
The Company has recorded deferred tax assets on $31.1approximately $34.0 million of various state operating loss carryforwards and $18.3$57.6 million of various foreign operating loss carryforwards. The majority of the state tax loss carryforwards expire between 20242026 and 20282032 and the majority of the foreign losses have indefinite carryforward periods.
The Company has not made a provision for U.S. or additional foreign withholding taxes related to investments in foreign subsidiaries that are indefinitely reinvested since any excess of the amount for financial reporting over the tax basis in these investments is not significant as of December 31, 2018.2021.
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Unrecognized Tax Benefits
Tax Reform
In December 2017, the Tax Reform Act was signed into law, and, among the provisions, reduced the Federal statutory corporate income tax rate from 35% to 21% effective January 1, 2018, and implemented a territorial tax system, imposing a one-time tax on the deemed repatriation of undistributed earnings of non-U.S. subsidiaries ("Transition Tax"). The Transition Tax is payable over eight years beginning in 2019.
Coincident with the signing of the Tax Reform Act, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 118 (“SAB 118”) to address situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Reform Act. SAB 118 provided up to a one-measurement period for companies to finalize the accounting for the impacts of this new legislation.
In 2017, the Company recognized an approximate $9.0 million provisional tax expense related to the Transition Tax, and an approximate $3.7 million provisional tax expense in connection with the revaluation of its ending net deferred tax assets resulting from the reduction in the Federal income tax rate, for a total of $12.7 million provisional tax expense related to the adoption of the Tax Reform Act.
In 2018, the Company finalized the measurement of these provisional expenses. The Company recognized an approximate $1.1 million income tax benefit in connection with finalizing the revaluation of its net deferred tax assets following the filing of the Company's 2017 corporate income tax return, and recognized an approximate $0.7 million income tax expense related to finalizing the Transition Tax, resulting in a $0.4 million net reduction in 2018 to the $12.7 million provisional tax expense recorded in 2017.
On January 15, 2019, the Internal Revenue Service finalized regulations that govern the Transition Tax. The Company is in the process of analyzing these regulations, but does not expect the regulations to have a significant impact on its consolidated financial statements.
Unrecognized tax benefits
The Company had approximately $3.0$1.3 million and $3.4$1.6 million of unrecognized tax benefits ("UTBs") as of December 31, 20182021 and 2017,2020, respectively. If the UTBs were recognized, the impact to the Company's effective tax rate would be to reduce reported income tax expense for the years ended December 31, 20182021 and 20172020 by approximately $2.5$1.1 million and $2.8$1.4 million,, respectively.
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
A reconciliation of the change in the UTBs and related accrued interest and penalties for the years ended December 31, 20182021 and 20172020 is as follows (dollars in thousands):
| | | | | | | | |
| | Unrecognized
Tax Benefits |
| Balance at December 31, 2019 | | $ | 2,250 | |
| Tax positions related to current year: | | |
| Additions | | 150 | |
| Tax positions related to prior years: | | |
| Additions | | — | |
| Reductions | | — | |
| Settlements | | — | |
| Lapses in the statutes of limitations | | (760) | |
| Balance at December 31, 2020 | | $ | 1,640 | |
| Tax positions related to current year: | | |
| Additions | | 130 | |
| Tax positions related to prior years: | | |
| Additions | | 20 | |
| Reductions | | — | |
| Settlements | | — | |
| Lapses in the statutes of limitations | | (540) | |
| Balance at December 31, 2021 | | $ | 1,250 | |
|
| | | | |
| | | Unrecognized Tax Benefits |
| Balance at December 31, 2016 | | $ | 3,570 |
|
| Tax positions related to current year: | | |
| Additions | | 250 |
|
| Tax positions related to prior years: | | |
| Additions | | 860 |
|
| Reductions | | (100 | ) |
| Settlements | | — |
|
| Lapses in the statutes of limitations | | (1,210 | ) |
| Balance at December 31, 2017 | | $ | 3,370 |
|
| Tax positions related to current year: | | |
| Additions | | 60 |
|
| Tax positions related to prior years: | |
|
|
| Additions | | 390 |
|
| Reductions | | — |
|
| Settlements | | — |
|
| Lapses in the statutes of limitations | | (800 | ) |
| Balance at December 31, 2018 | | $ | 3,020 |
|
In addition to the UTBs summarized above, the Company has recorded approximately $1.8$0.8 million and $1.7$0.8 million in potential interest and penalties associated with uncertain tax positions as of December 31, 20182021 and 2017,2020, respectively.
The Company is subject to U.S. federal, state and local, and certain non-U.S. income tax examinations for tax years 20112014 through 2018.2021. In addition, there are currently several state and foreign income tax examinations in process. The Company does not believe that the results of these examinations will have a significant impact on the Company's tax position or its effective tax rate.
Management monitors changes in tax statutes and regulations and the issuance of judicial decisions to determine the potential impact to UTBs and is not aware of, nor does it anticipate, any material subsequent events that could have a significant impact on the Company's financial position during the next twelve months.
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
20. Summary Quarterly Financial Data
The Company's unaudited quarterly financial data is as follows (dollars in thousands, except for per share data):
|
| | | | | | | | | | | | | | | | |
| | | As of December 31, 2018 |
| | | First Quarter | | Second Quarter | | Third Quarter | | Fourth Quarter |
| Net sales | | $ | 217,100 |
| | $ | 224,910 |
| | $ | 223,780 |
| | $ | 211,350 |
|
| Gross profit | | 60,380 |
| | 64,780 |
| | 61,720 |
| | 57,240 |
|
| Net income | | 24,320 |
| | 19,600 |
| | 22,670 |
| | 16,710 |
|
| Earnings per share—basic: | | | | | | | | |
| Net income per share | | $ | 0.53 |
| | $ | 0.43 |
| | $ | 0.49 |
| | $ | 0.37 |
|
| Weighted average shares—basic | | 45,779,966 |
| | 45,920,307 |
| | 45,850,288 |
| | 45,747,659 |
|
| Earnings per share—diluted: | | | | | | | | |
| Net income per share | | $ | 0.53 |
| | $ | 0.42 |
| | $ | 0.49 |
| | $ | 0.36 |
|
| Weighted average shares—diluted | | 46,229,337 |
| | 46,200,757 |
| | 46,166,558 |
| | 46,085,202 |
|
|
| | | | | | | | | | | | | | | | |
| | | As of December 31, 2017 |
| | | First Quarter | | Second Quarter | | Third Quarter | | Fourth Quarter |
| Net sales | | $ | 199,830 |
| | $ | 213,370 |
| | $ | 209,330 |
| | $ | 195,210 |
|
| Gross profit | | 51,820 |
| | 59,470 |
| | 58,890 |
| | 49,210 |
|
| Net income (loss) | | 6,990 |
| | 14,850 |
| | 13,130 |
| | (4,010 | ) |
| Earnings (loss) per share—basic: | | | | | | | | |
| Net income (loss) per share | | $ | 0.15 |
| | $ | 0.32 |
| | $ | 0.29 |
| | $ | (0.09 | ) |
| Weighted average shares—basic | | 45,570,495 |
| | 45,717,697 |
| | 45,721,155 |
| | 45,721,160 |
|
| Earnings (loss) per share—diluted: | | | | | | | | |
| Net income (loss) per share | | $ | 0.15 |
| | $ | 0.32 |
| | $ | 0.29 |
| | $ | (0.09 | ) |
| Weighted average shares—diluted | | 45,908,958 |
| | 45,922,416 |
| | 46,029,361 |
| | 45,721,160 |
|
21.24. Subsequent Events
On January 11, 2019,February 28, 2022, the Company announced that it has acquired Plastic Srl,Intertech Plastics LLC and related companies (collectively, "Intertech") for a purchase price of approximately $65 million, subject to customary closing conditions. Intertech is a manufacturer of single-bodiedcustom injection molded products used in medical applications, as well as products and assembled polymeric capsassemblies for consumer and closures for use in home care product applications. Plastic Srl, located in Forli, Italy, servesindustrial applications, and has annual net sales of approximately $32 million. Intertech will become part of the home care market in Italy and other European countries and generates approximately $12 million in annual revenue. Plastic Srl will be included in the Company's Packaging reportable segment.
On February 28, 2019,18, 2022, the Company announced that its Board of Directors increased the Company’shad declared a cash dividend of $0.04 per share of TriMas Corporation common stock, share repurchase authorizationwhich will be payable on March 11, 2022 to $75 million in the aggregateshareholders of record as of the Company's common stock. The previous authorization, approved in November 2015, authorized up to $50 million in share repurchases. The increased authorization includes the valueclose of shares already purchased under the previous authorization.
business on March 4, 2022.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.
Item 9A. Controls and Procedures
Evaluation of disclosure controls and procedures
As of December 31, 2018,2021, an evaluation was carried out by management, with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as such term is defined in Rule 13a-15(e) and Rule 15d-15(e) of the Securities Exchange Act of 1934 (the "Exchange Act")), pursuant to Rule 13a-15 of the Exchange Act. Our disclosure controls and procedures are designed only to provide reasonable assurance that they will meet their objectives. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that as of December 31, 2018,2021, the Company's disclosure controls and procedures were effective to provide reasonable assurance that they would meet their objectives.
We completed the acquisitions of TFI Aerospace ("TFI") and Omega Plastics ("Omega") in December 2021 and have not yet included TFI and Omega in our assessment of the effectiveness of our internal control over financial reporting. Accordingly, pursuant to the SEC's general guidance that an assessment of a recently acquired business may be omitted from the scope of an assessment in the year of acquisition, the scope of our assessment of the effectiveness of our disclosure controls and procedures does not include TFI and Omega. For fiscal 2021, TFI and Omega accounted for approximately $0.3 million and $0.7 million of our total net sales, respectively, and as of December 31, 2021 had total assets of approximately $19.7 million and $28.5 million, respectively.
Management's Annual Report on Internal Control Over Financial Reporting
Management is responsible for the preparation and fair presentation of the consolidated financial statements included in this annual report. The consolidated financial statements have been prepared in conformity with United States generally accepted accounting principles and reflect management's judgments and estimates concerning events and transactions that are accounted for or disclosed.
Management is also responsible for establishing and maintaining effective internal control over financial reporting. The Company's internal control over financial reporting includes those policies and procedures that pertain to the Company's ability to record, process, summarize, and report reliable financial data. Management recognizes that there are inherent limitations in the effectiveness of any internal control and effective internal control over financial reporting can provide only reasonable assurance with respect to financial statement preparation. Additionally, because of changes in conditions, the effectiveness of internal control over financial reporting may vary over time.
In order to ensure that the Company's internal control over financial reporting is effective, management regularly assesses such controls and did so most recently for its financial reporting as of December 31, 2018.2021. Management's assessment of internal control over financial reporting as of December 31, 2021 excludes internal control over financial reporting related to TFI and Omega (acquired in December 2021), which accounted for approximately $0.3 million and $0.7 million of our total net sales, respectively, and as of December 31, 2021 had total assets of approximately $19.7 million and $28.5 million, respectively. Management's assessment was based on criteria for effective internal control over financial reporting described in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management asserts that the Company has maintained effective internal control over financial reporting as of December 31, 2018.
2021.
Deloitte & Touche LLP, an independent registered public accounting firm, who audited the Company's consolidated financial statements, has also audited the effectiveness of the Company's internal control over financial reporting as of December 31, 2018,2021, as stated in their report below.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of TriMas Corporation
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of TriMas Corporation and subsidiaries (the “Company”) as of December 31, 2018,2021, based on criteria established in Internal Control -— Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018,2021, based on criteria established in Internal Control -— Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements and financial statement schedule as of and for the year ended December 31, 20182021, of the Company and our report dated February 28, 2019,March 1, 2022, expressed an unqualified opinion on those financial statements and financial statement schedule.
As described in Management’s Annual Report on Internal Control over Financial Reporting, management excluded from its assessment the internal control over financial reporting at TFI Aerospace ("TFI") and Omega Plastics ("Omega"), which were acquired in December 2021, whose financial statements accounted for approximately $19.7 million and $28.5 million of total assets, respectively, and $0.3 million and $0.7 million of total net sales, respectively of the consolidated financial statements amounts as of and for the year ended December 31, 2021. Accordingly, our audit did not include the internal control over financial reporting at TFI and Omega.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Deloitte & Touche LLP
Detroit, Michigan
February 28, 2019
March 1, 2022
Changes in disclosure controls and procedures
There have been no changes in the Company's internal control over financial reporting during the quarter ended December 31, 20182021 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
Item 9B. Other Information
Not applicable.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Information regarding our executive officers is included in Part I of this Form 10-K under the heading “Information about ourExecutive Officers of the Company.Officers.”
The Company's Code of Ethics and Business Conduct is applicable to its directors, officers and employees. The Code of Ethics and Business Conduct is available on the "Investors" portion of the Company's website under the "Corporate Governance" link. The Company's website address is www.trimascorp.com.
The information required by this item is incorporated by reference from our definitive proxy statement for the 20192022 Annual Meeting of Shareholders.
Item 11. Executive Compensation
The information required by this item is incorporated by reference from our definitive proxy statement for the 20192022 Annual Meeting of Shareholders.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this item is incorporated by reference from our definitive proxy statement for the 20192022 Annual Meeting of Shareholders.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this item is incorporated by reference from our definitive proxy statement for the 20192022 Annual Meeting of Shareholders.
Item 14. Principal Accountant Fees and Services
The information about aggregate fees billed to us by our principal accountant, Deloitte & Touche LLP (PCAOB ID No. 34), as required by this item, is incorporated by reference from our definitive proxy statement for the 20192022 Annual Meeting of Shareholders.
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a) Listing of Documents
(1) Financial Statements
The Company's Financial Statements included in Item 8 hereof, as required at December 31, 20182021 and December 31, 2017,2020, and for the periods ended December 31, 2018,2021, December 31, 20172020 and December 31, 2016,2019, consist of the following:
Balance Sheet
Statement of Operations
Statement of Comprehensive Income
Statement of Cash Flows
Statement of Shareholders' Equity
Notes to Financial Statements
(2) Financial Statement Schedules
Financial Statement Schedule of the Company appended hereto, as required for the periods ended December 31, 2018,2021, December 31, 20172020 and December 31, 2016,2019, consists of the following:
Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable, not required, or the information is otherwise included in the financial statements or the notes thereto.
(3) Exhibits
|
| | | | |
2.1(p)2.2(w) | |
| 3.1(d) | |
| 3.2(i) | |
| 4.1(u) | |
10.1(a)4.2(aa) | |
10.2(c) | |
10.3(e) | |
10.4(b) | |
10.5(m)4.3(y) | |
| 10.1(m) | |
10.6(o)10.2 | |
| 10.3(o) | |
10.7(p)10.4(p) | |
10.8(s)10.5(s) | Foreign Subsidiary Borrowing Agreement and Amendment dated as of January 10, 2017, among TriMas Company LLC, TriMas Corporation, TriMas Corporation Limited, JPMorgan Chase Bank, N.A., as administrative agent for the Lenders (as defined therein) and as Fronting Lender, JPMorgan Chase Bank, N.A., Bank of America, N.A. and Wells Fargo Bank, National Association, J.P. Morgan Europe Limited, in its capacity as Foreign Currency Agent, and the Revolving Lenders party hereto. |
|
| |
10.9(s)10.6(s) | Amendment, dated as of March 8, 2017 to the Credit Agreement, dated as of October 16, 2013 (as amended, amended and restated, supplemented or otherwise modified from time to time), among TriMas Corporation, TriMas Company LLC, the subsidiary borrowers from time to time parties thereto, the Lenders party thereto, JPMorgan Chase Bank, N.A., as administrative agent, and the other agents party thereto. |
| | | | | |
10.10(u)10.7(u) | |
10.11(h)10.8(f) | |
10.12(f) | |
10.13(g)10.9(g) | |
10.14(j)10.10(t) | |
10.15(k) | |
10.16(t) | |
10.17(l)10.11(n) | |
10.18(q) | |
10.19(q) | |
10.20(q) | |
10.21(q) | |
10.22(q) | |
10.23(q) | |
10.24(r) | |
10.25(s) | |
10.26(s) | |
10.27(v) | |
10.28(v) | |
10.29(v) | |
10.30(n) | |
10.31(p)10.12(r) | |
10.32(p) | |
10.33(r) | |
21.110.13(x) | |
| 10.14(x) | |
| 10.15(x) | |
| 10.16(y) | |
| 10.17(z) | |
| 10.18(z) | |
| 10.19(z) | |
| 10.20(bb) | |
| 10.21(bb) | |
| 10.22(bb) | |
| 10.23(bb) | |
| 10.24(aa) | |
| 10.25(cc) | |
| 10.26(cc) | |
| 10.27(dd) | |
| 21.1 | |
| 23.1 | |
| 31.1 | |
| 31.2 | |
| 32.1 | |
|
| |
| 32.2 | |
101.INS101 | The following materials from TriMas Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 2021, formatted in Inline XBRL Instance Document.(eXtensible Business Reporting Language): (i) the Consolidated Balance Sheet, (ii) the Consolidated Statement of Operations, (iii) the Consolidated Statement of Comprehensive Income, (iv) the Consolidated Statement of Cash Flows, (v) the Consolidated Statement of Shareholders' Equity, (vi) Notes to Consolidated Financial Statements, and (vii) document and entity information. |
101.SCH104 | Cover Page Interactive Data File (embedded within the Inline XBRL Taxonomy Extension Schema Document. |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document. |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document. |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document. |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document.document). |
*Management contracts and compensatory plans or arrangements required to be filed as an exhibit pursuant to Item 15(b) of Form 10-K.
** Certain exhibits and schedules have been omitted and the Company agrees to furnish supplementally to the Securities and Exchange Commission a copy of any omitted exhibits and schedules upon request.
|
| | | | | | | |
(a)(d) | | Incorporated by reference to the Exhibits filed with our Registration Statement on Form S-4 filed on October 4, 2002 (File No. 333-100351). |
(b) | | Incorporated by reference to the Exhibits filed with our Registration Statement on Form S-4 filed June 9, 2003 (File No. 333-105950). |
(c) | | Incorporated by reference to the Exhibits filed with Amendment No. 1 to our Registration Statement on Form S-1 filed on September 19, 2006 (File No. 333-136263). |
(d) | | Incorporated by reference to the Exhibits filed with our Quarterly Report on Form 10-Q filed on August 3, 2007 (File No. 001-10716). |
(e)(f) | | Incorporated by reference to the Exhibits filed with our Quarterly Report on Form 10-Q filed on August 7, 2008 (File No. 001-10716). |
(f) | | Incorporated by reference to the Exhibits filed with our Report on Form 8-K filed on March 6, 2009 (File No. 001-10716). |
| (g) | | Incorporated by reference to the Exhibits filed with our Report on Form 8-K filed on December 10, 2009 (File No. 001-10716). |
(h)(i) | | Incorporated by reference to the Exhibits filed with our Report on Form 8-K filed on March 26, 2010 (File No. 001-10716). |
(i) | | Incorporated by reference to the Exhibits filed with our Report on Form 8-K filed on December 18, 2015 (File No. 001-10716). |
(j)(l) | | Incorporated by reference to the Exhibits filed with our Report on Form 8-K filed on April 4, 2011March 7, 2019 (File No. 001-10716). |
(k)(m) | | Incorporated by reference to Appendix A filed with our Definitive Proxy Statement on Schedule 14A filed on April 5, 2013 (File No. 001-10716). |
(l) | | Incorporated by reference to the Exhibits filed with our Report on Form 8-K filed on August 23, 2013 (File No. 001-10716). |
(m) | | Incorporated by reference to the Exhibits filed with our Report on Form 8-K filed on October 21, 2013 (File No. 001-10716). |
| (n) | | Incorporated by reference to the Exhibits filed with our Report on Form 8-K filed on November 13, 2013 (File No. 001-10716). |
| (o) | | Incorporated by reference to the Exhibits filed with our Current Report on Form 8-K filed on October 20, 2014 (File No. 001-10716). |
| (p) | | Incorporated by reference to the Exhibits filed with our Current Report on Form 8-K filed on July 6, 2015 (File No. 001-10716). |
(q)(r) | | Incorporated by reference to the Exhibits filed with our Quarterly Report on Form 10-Q filed on April 28, 2016 (File No. 001-10716). |
(r) | | Incorporated by reference to the Exhibits filed with our Quarterly Report on Form 10-Q filed on October 27, 2016 (File No. 001-10716). |
| (s) | | Incorporated by reference to the Exhibits filed with our Quarterly Report on Form 10-Q filed on April 27, 2017 (File No. 001-10716). |
| (t) | | Incorporated by reference to the Exhibits filed with our Quarterly Report on Form 10-Q filed on July 27, 2017 (File No. 001-10716). |
|
| (u) | | |
(u) | | Incorporated by reference to the Exhibits filed with our Current Report on Form 8-K filed on September 20, 2017 (File No. 001-10716). |
(v)(w) | | Incorporated by reference to the Exhibits filed with our Report on Form 8-K filed on December 20, 2019 (File No. 001-10716). |
| (x) | | Incorporated by reference to the Exhibits filed with our Quarterly Report on Form 10-Q filed on August 7, 2018July 30, 2019 (File No. 001-10716). |
| (y) | | Incorporated by reference to the Exhibits filed with our Annual Report on Form 10-K filed on February 27, 2020 (File No. 001-10716). |
| (z) | | Incorporated by reference to the Exhibits filed with our Quarterly Report on Form 10-Q filed on April 30, 2020 (File No. 001-10716). |
| (aa) | | Incorporated by reference to the Exhibits filed with our Current Report on Form 8-K filed on March 30, 2021 (File No. 001-10716). |
| (bb) | | Incorporated by reference to the Exhibits filed with our Quarterly Report on Form 10-Q filed on April 29, 2021 (File No. 001-10716). |
| (cc) | | Incorporated by reference to the Exhibits filed with our Quarterly Report on Form 10-Q filed on July 29, 2021 (File No. 001-10716). |
| (dd) | | Incorporated by reference to the Exhibits filed with our Current Report on Form 8-K filed on August 11, 2021 (File No. 001-10716). |
Item 16. Form 10-K Summary
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | | | | | | | | | | | | | | | | |
| | | TRIMAS CORPORATION
(Registrant) |
| | | | | |
| | | TRIMAS CORPORATION
(Registrant)
|
| BY: | | | | | |
| | | BY: | | /s/ THOMAS A. AMATO |
| DATE: | February 28, 2019March 1, 2022 | | | | Name: Thomas A. Amato Title: President and Chief Executive Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
| | | | | | | | | | | | | | |
| Name | | Title | | Date |
| | | | |
| /s/ THOMAS A. AMATO | | President and Chief Executive Officer | | March 1, 2022 |
| Thomas A. Amato | | (Principal Executive Officer) and Director | | |
| | | | |
Name | | Title | | Date |
| | | | |
/s/ THOMASSCOTT A. AMATOMELL | | President and Chief Executive Officer | | February 28, 2019 |
Thomas A. Amato | | (Principal Executive Officer) and Director | | |
| | | | |
/s/ ROBERT J. ZALUPSKI | | Chief Financial Officer | | February 28, 2019March 1, 2022 |
Robert J. ZalupskiScott A. Mell | | (Principal Financial Officer) | | |
| | | | |
| /s/ PAUL A. SWART | | Vice President Business Planning, Controller and Chief Accounting Officer | | February 28, 2019March 1, 2022 |
| Paul A. Swart | | (Principal Accounting Officer) | | |
| | | | |
| /s/ SAMUEL VALENTI III | | Chairman of the Board of Directors | | February 28, 2019March 1, 2022 |
| Samuel Valenti III | | | | |
| | | | |
/s/ RICHARDHOLLY M. GABRYSBOEHNE | | Director | | February 28, 2019March 1, 2022 |
RichardHolly M. GabrysBoehne | | | | |
| | | | |
/s/ NANCY S. GOUGARTYTERESA M. FINLEY | | Director | | February 28, 2019March 1, 2022 |
Nancy S. GougartyTeresa M. Finley | | | | |
| | | | |
| /s/ JEFFREY M. GREENE | | Director | | February 28, 2019March 1, 2022 |
| Jeffrey M. Greene | | | | |
| | | | |
/s/ EUGENE A. MILLER | | Director | | February 28, 2019 |
Eugene A. Miller | | | | |
| | | | |
| /s/ HERBERT K. PARKER | | Director | | February 28, 2019March 1, 2022 |
| Herbert K. Parker | | | | |
| | | | |
| /s/ NICK L. STANAGE | | Director | | February 28, 2019March 1, 2022 |
| Nick L. Stanage | | | | |
| | | | |
| /s/ DANIEL P. TREDWELL | | Director | | February 28, 2019March 1, 2022 |
| Daniel P. Tredwell | | | | |
SCHEDULE II
PURSUANT TO ITEM 15(a)(2)
OF FORM 10-K VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED
December 31, 2018, 20172021, 2020 AND 20162019
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | ADDITIONS | | | | |
| DESCRIPTION | | BALANCE
AT
BEGINNING
OF PERIOD | | CHARGED
TO
COSTS AND
EXPENSES | | CHARGED
(CREDITED)
TO OTHER
ACCOUNTS | | DEDUCTIONS(A) | | BALANCE
AT END
OF PERIOD |
| Allowance for doubtful accounts deducted from accounts receivable in the balance sheet | | | | | | | | | | |
| Year ended December 31, 2021 | | $ | 2,120,000 | | | $ | 830,000 | | | $ | 190,000 | | | $ | 1,570,000 | | | $ | 1,570,000 | |
| Year ended December 31, 2020 | | $ | 2,060,000 | | | $ | 2,080,000 | | | $ | 100,000 | | | $ | 2,120,000 | | | $ | 2,120,000 | |
| Year ended December 31, 2019 | | $ | 2,790,000 | | | $ | 810,000 | | | $ | 490,000 | | | $ | 2,030,000 | | | $ | 2,060,000 | |
(A)Deductions, representing uncollectible accounts written-off, less recoveries of amounts reserved in prior years.
|
| | | | | | | | | | | | | | | | | | | | |
| | | | | ADDITIONS | | | | |
| DESCRIPTION | | BALANCE AT BEGINNING OF PERIOD | | CHARGED TO COSTS AND EXPENSES | | CHARGED (CREDITED) TO OTHER ACCOUNTS | | DEDUCTIONS(A) | | BALANCE AT END OF PERIOD |
| Allowance for doubtful accounts deducted from accounts receivable in the balance sheet | | | | | | | | | | |
| Year ended December 31, 2018 | | $ | 4,130,000 |
| | $ | 1,640,000 |
| | $ | 170,000 |
| | $ | 2,550,000 |
| | $ | 3,390,000 |
|
| Year ended December 31, 2017 | | $ | 4,580,000 |
| | $ | 2,730,000 |
| | $ | (140,000 | ) | | $ | 3,040,000 |
| | $ | 4,130,000 |
|
| Year ended December 31, 2016 | | $ | 3,710,000 |
| | $ | 2,770,000 |
| | $ | (90,000 | ) | | $ | 1,810,000 |
| | $ | 4,580,000 |
|
| |
(A)
| Deductions, representing uncollectible accounts written-off, less recoveries of amounts reserved in prior years. |
