UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
| | | | | | | | | | | |
| (Mark One) | | | |
| ☒ | | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
| | | |
| For the Quarterly Period Ended | September 30, 2022March 31, 2023 |
| Or |
| ☐ | | 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)
| | | | | | | | |
| Delaware | | 38-2687639 |
(State or other jurisdiction of
incorporation or organization) | | (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)
| | | | | | | | |
| Title of each class | Trading symbol(s) | Name of exchange on which registered |
| Common stock, $0.01 par value | TRS | The NASDAQ Stock Market LLC |
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 ☒ No ☐.
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 during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐.
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 definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | | | | |
| Large accelerated filer | ☒ | | Accelerated filer | ☐ |
| | | | |
| Non-accelerated filer | ☐ | | Smaller reporting company | ☐ |
| | | | |
| | | Emerging growth company | ☐ |
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. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of OctoberApril 20, 2022,2023, the number of outstanding shares of the Registrant's common stock, $0.01 par value, was 41,964,69641,496,268 shares.
TriMas Corporation
Index
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: general economic and currency conditions; 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 thereto, 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, and customers; interest rate volatility; risks and uncertainties associated with intangible assets, including goodwill or other intangible asset impairment charges;pandemic; competitive factors; future trends;market demand; 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 technologypressures on our supply chain, including availability of raw materials and other cyber-related risks;inflationary pressures on raw material and energy costs, and customers; the performance of our subcontractors and suppliers; supply constraints,risks and uncertainties associated with intangible assets, including goodwill or other intangible asset impairment charges; risks associated with a concentrated customer base; information technology and other cyber-related risks; risks related to our international operations, including, but not limited to, risks relating to rising tensions between the availabilityUnited States and cost of raw materials; market demand; intellectual property factors; litigation;China; government and regulatory actions, including, without limitation, climate change legislation and other environmental regulations, as well as the impact of tariffs, quotas and surcharges; changes to fiscal and tax policies; intellectual property factors; uncertainties associated with our ability to meet customers’ and suppliers’ sustainability and environmental, social and governance (“ESG”) goals and achieve our sustainability and ESG goals in alignment with our own announced targets; litigation; contingent liabilities relating to acquisition activities; interest rate volatility; our leverage; liabilities imposed by our debt instruments; labor 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, but not limited to, natural disasters, geopolitical conflicts and public health crises;crises, such as the ongoing coronavirus pandemic; the amount and timing of future dividends and/or share repurchases, which remain subject to 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," in our Annual Report on Form 10-K for the year ended December 31, 20212022 and elsewhere in this report. The risks described in our Annual Report on Form 10-K and elsewhere 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 I, Item 2, "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.
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
TriMas Corporation
Consolidated Balance Sheet
(Dollars in thousands)
| | | September 30,
2022 | | December 31,
2021 | | March 31,
2023 | | December 31,
2022 |
| Assets | Assets | | (unaudited) | | | Assets | | (unaudited) | | |
| Current assets: | Current assets: | | Current assets: | |
| Cash and cash equivalents | Cash and cash equivalents | | $ | 80,340 | | | $ | 140,740 | | Cash and cash equivalents | | $ | 51,890 | | | $ | 112,090 | |
| Receivables, net of reserves of $1.6 million as of September 30, 2022 and December 31, 2021 | | 142,610 | | | 125,630 | | |
| Receivables, net of reserves of $1.7 million as of March 31, 2023 and December 31, 2022 | | Receivables, net of reserves of $1.7 million as of March 31, 2023 and December 31, 2022 | | 149,580 | | | 132,370 | |
| Inventories | Inventories | | 173,740 | | | 152,450 | | Inventories | | 171,750 | | | 163,360 | |
| Prepaid expenses and other current assets | Prepaid expenses and other current assets | | 20,130 | | | 12,950 | | Prepaid expenses and other current assets | | 18,020 | | | 14,840 | |
| Total current assets | Total current assets | | 416,820 | | | 431,770 | | Total current assets | | 391,240 | | | 422,660 | |
| Property and equipment, net | Property and equipment, net | | 271,960 | | | 265,630 | | Property and equipment, net | | 295,220 | | | 277,750 | |
| Operating lease right-of-use assets | Operating lease right-of-use assets | | 49,170 | | | 50,650 | | Operating lease right-of-use assets | | 47,040 | | | 47,280 | |
| Goodwill | Goodwill | | 332,280 | | | 315,490 | | Goodwill | | 361,590 | | | 339,810 | |
| Other intangibles, net | Other intangibles, net | | 189,500 | | | 196,730 | | Other intangibles, net | | 194,840 | | | 188,110 | |
| Deferred income taxes | Deferred income taxes | | 13,370 | | | 9,740 | | Deferred income taxes | | 9,100 | | | 9,400 | |
| Other assets | Other assets | | 28,790 | | | 33,630 | | Other assets | | 20,340 | | | 19,990 | |
| Total assets | Total assets | | $ | 1,301,890 | | | $ | 1,303,640 | | Total assets | | $ | 1,319,370 | | | $ | 1,305,000 | |
| Liabilities and Shareholders' Equity | Liabilities and Shareholders' Equity | | | | | Liabilities and Shareholders' Equity | | | | |
| Current liabilities: | Current liabilities: | | Current liabilities: | |
| | Accounts payable | Accounts payable | | $ | 93,370 | | | $ | 87,800 | | Accounts payable | | $ | 85,770 | | | $ | 85,210 | |
| Accrued liabilities | Accrued liabilities | | 56,850 | | | 58,980 | | Accrued liabilities | | 53,930 | | | 46,660 | |
| Operating lease liabilities, current portion | | 8,320 | | | 8,120 | | |
| Lease liabilities, current portion | | Lease liabilities, current portion | | 9,040 | | | 8,280 | |
| Total current liabilities | Total current liabilities | | 158,540 | | | 154,900 | | Total current liabilities | | 148,740 | | | 140,150 | |
| Long-term debt, net | Long-term debt, net | | 394,500 | | | 393,820 | | Long-term debt, net | | 394,960 | | | 394,730 | |
| Operating lease liabilities | | 42,740 | | | 43,780 | | |
| | Lease liabilities | | Lease liabilities | | 42,190 | | | 41,010 | |
| Deferred income taxes | Deferred income taxes | | 21,260 | | | 21,260 | | Deferred income taxes | | 26,080 | | | 20,940 | |
| Other long-term liabilities | Other long-term liabilities | | 50,280 | | | 59,030 | | Other long-term liabilities | | 58,640 | | | 56,340 | |
| Total liabilities | Total liabilities | | 667,320 | | | 672,790 | | Total liabilities | | 670,610 | | | 653,170 | |
Preferred stock, $0.01 par: Authorized 100,000,000 shares;
Issued and outstanding: None | Preferred stock, $0.01 par: Authorized 100,000,000 shares;
Issued and outstanding: None | | — | | | — | | 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: 41,983,792 shares at September 30, 2022 and 42,836,574 shares at December 31, 2021 | | 420 | | | 430 | | |
Common stock, $0.01 par: Authorized 400,000,000 shares; Issued and outstanding: 41,509,463 shares at March 31, 2023 and 41,724,762 shares at December 31, 2022 | | Common stock, $0.01 par: Authorized 400,000,000 shares; Issued and outstanding: 41,509,463 shares at March 31, 2023 and 41,724,762 shares at December 31, 2022 | | 420 | | | 420 | |
| Paid-in capital | Paid-in capital | | 702,670 | | | 732,490 | | Paid-in capital | | 684,730 | | | 696,160 | |
| Accumulated deficit | Accumulated deficit | | (54,970) | | | (102,300) | | Accumulated deficit | | (31,220) | | | (36,130) | |
| Accumulated other comprehensive income (loss) | Accumulated other comprehensive income (loss) | | (13,550) | | | 230 | | Accumulated other comprehensive income (loss) | | (5,170) | | | (8,620) | |
| Total shareholders' equity | Total shareholders' equity | | 634,570 | | | 630,850 | | Total shareholders' equity | | 648,760 | | | 651,830 | |
| Total liabilities and shareholders' equity | Total liabilities and shareholders' equity | | $ | 1,301,890 | | | $ | 1,303,640 | | Total liabilities and shareholders' equity | | $ | 1,319,370 | | | $ | 1,305,000 | |
The accompanying notes are an integral part of these consolidated financial statements.
TriMas Corporation
Consolidated Statement of Income
(Unaudited—dollars in thousands, except for per share amounts)
| | | | | Three months ended
September 30, | | Nine months ended
September 30, | | | | Three months ended
March 31, |
| | | | 2022 | | 2021 | | 2022 | | 2021 | | | | 2023 | | 2022 |
| Net sales | Net sales | | $ | 218,530 | | | $ | 222,420 | | | $ | 680,520 | | | $ | 648,140 | | Net sales | | | $ | 215,460 | | | $ | 224,310 | |
| Cost of sales | Cost of sales | | (170,200) | | | (163,980) | | | (517,800) | | | (480,340) | | Cost of sales | | | (167,770) | | | (170,600) | |
| Gross profit | Gross profit | | 48,330 | | | 58,440 | | | 162,720 | | | 167,800 | | Gross profit | | | 47,690 | | | 53,710 | |
| Selling, general and administrative expenses | Selling, general and administrative expenses | | (32,110) | | | (27,620) | | | (94,480) | | | (90,170) | | Selling, general and administrative expenses | | | (37,700) | | | (31,780) | |
| Net gain (loss) on dispositions of assets | | 4,760 | | | — | | | 4,540 | | | (130) | | |
| | | Operating profit | Operating profit | | 20,980 | | | 30,820 | | | 72,780 | | | 77,500 | | Operating profit | | | 9,990 | | | 21,930 | |
| Other expense, net: | Other expense, net: | | | | | | Other expense, net: | | | |
| Interest expense | Interest expense | | (3,600) | | | (3,440) | | | (10,510) | | | (11,110) | | Interest expense | | | (3,700) | | | (3,410) | |
| Debt financing and related expenses | | — | | | — | | | — | | | (10,520) | | |
| | Other income (expense), net | Other income (expense), net | | 860 | | | (540) | | | 850 | | | (800) | | Other income (expense), net | | | (70) | | | (280) | |
| Other expense, net | Other expense, net | | (2,740) | | | (3,980) | | | (9,660) | | | (22,430) | | Other expense, net | | | (3,770) | | | (3,690) | |
| Income before income tax expense | Income before income tax expense | | 18,240 | | | 26,840 | | | 63,120 | | | 55,070 | | Income before income tax expense | | | 6,220 | | | 18,240 | |
| Income tax expense | Income tax expense | | (4,940) | | | (7,250) | | | (15,790) | | | (10,580) | | Income tax expense | | | (1,310) | | | (4,070) | |
| | Net income | Net income | | $ | 13,300 | | | $ | 19,590 | | | $ | 47,330 | | | $ | 44,490 | | Net income | | | $ | 4,910 | | | $ | 14,170 | |
| Basic earnings per share: | Basic earnings per share: | | | | | | | | | Basic earnings per share: | | | | | |
| | Net income per share | Net income per share | | $ | 0.32 | | | $ | 0.46 | | | $ | 1.12 | | | $ | 1.03 | | Net income per share | | | $ | 0.12 | | | $ | 0.33 | |
| Weighted average common shares—basic | Weighted average common shares—basic | | 41,995,027 | | | 42,889,922 | | | 42,363,919 | | | 43,061,707 | | Weighted average common shares—basic | | | 41,543,625 | | | 42,799,206 | |
| Diluted earnings per share: | Diluted earnings per share: | | | | | | | | | Diluted earnings per share: | | | | | |
| | Net income per share | Net income per share | | $ | 0.32 | | | $ | 0.45 | | | $ | 1.11 | | | $ | 1.03 | | Net income per share | | | $ | 0.12 | | | $ | 0.33 | |
| Weighted average common shares—diluted | Weighted average common shares—diluted | | 42,181,440 | | | 43,094,099 | | | 42,590,777 | | | 43,345,777 | | Weighted average common shares—diluted | | | 41,802,037 | | | 43,109,693 | |
The accompanying notes are an integral part of these consolidated financial statements.
TriMas Corporation
Consolidated Statement of Comprehensive Income
(Unaudited—dollars in thousands)
| | | Three months ended
September 30, | | Nine months ended
September 30, | | | Three months ended
March 31, |
| | 2022 | | 2021 | | 2022 | | 2021 | | | 2023 | | 2022 |
| Net income | Net income | | $ | 13,300 | | | $ | 19,590 | | | $ | 47,330 | | | $ | 44,490 | | Net income | | | $ | 4,910 | | | $ | 14,170 | |
| Other comprehensive income (loss): | Other comprehensive income (loss): | | | | | | | | | Other comprehensive income (loss): | | | | | |
| Defined benefit plans (Note 18) | | 100 | | | 160 | | | 430 | | | 470 | | |
| Defined benefit plans (Note 16) | | Defined benefit plans (Note 16) | | | 20 | | | 240 | |
| Foreign currency translation | Foreign currency translation | | (15,180) | | | (4,550) | | | (32,950) | | | (6,570) | | Foreign currency translation | | | 5,290 | | | (4,040) | |
| Derivative instruments (Note 11) | | 7,070 | | | 3,880 | | | 18,740 | | | 7,210 | | |
| Derivative instruments (Note 9) | | Derivative instruments (Note 9) | | | (1,860) | | | 1,560 | |
| Total other comprehensive income (loss) | Total other comprehensive income (loss) | | (8,010) | | | (510) | | | (13,780) | | | 1,110 | | Total other comprehensive income (loss) | | | 3,450 | | | (2,240) | |
| Total comprehensive income | Total comprehensive income | | $ | 5,290 | | | $ | 19,080 | | | $ | 33,550 | | | $ | 45,600 | | Total comprehensive income | | | $ | 8,360 | | | $ | 11,930 | |
The accompanying notes are an integral part of these consolidated financial statements.
TriMas Corporation
Consolidated Statement of Cash Flows
(Unaudited—dollars in thousands)
| | | Nine months ended September 30, | | Three months ended March 31, |
| | 2022 | | 2021 | | 2023 | | 2022 |
| Cash Flows from Operating Activities: | Cash Flows from Operating Activities: | | | | | Cash Flows from Operating Activities: | | | | |
| Net income | Net income | | $ | 47,330 | | | $ | 44,490 | | Net income | | $ | 4,910 | | | $ | 14,170 | |
| | Adjustments to reconcile net income to net cash provided by operating activities, net of acquisition impact: | Adjustments to reconcile net income to net cash provided by operating activities, net of acquisition impact: | | Adjustments to reconcile net income to net cash provided by operating activities, net of acquisition impact: | |
| | (Gain) loss on dispositions of assets | (Gain) loss on dispositions of assets | | (4,540) | | | 130 | | (Gain) loss on dispositions of assets | | (10) | | | 20 | |
| Depreciation | Depreciation | | 25,340 | | | 23,740 | | Depreciation | | 8,760 | | | 8,470 | |
| Amortization of intangible assets | Amortization of intangible assets | | 14,600 | | | 16,150 | | Amortization of intangible assets | | 4,590 | | | 5,290 | |
| Amortization of debt issue costs | Amortization of debt issue costs | | 680 | | | 740 | | Amortization of debt issue costs | | 230 | | | 220 | |
| Deferred income taxes | Deferred income taxes | | (6,950) | | | 3,480 | | Deferred income taxes | | 2,070 | | | 3,000 | |
| Non-cash compensation expense | Non-cash compensation expense | | 7,680 | | | 7,320 | | Non-cash compensation expense | | 2,940 | | | 2,820 | |
| | Debt financing and related expenses | | — | | | 10,520 | | |
| | Increase in receivables | Increase in receivables | | (14,830) | | | (23,260) | | Increase in receivables | | (11,850) | | | (22,330) | |
| Increase in inventories | Increase in inventories | | (18,980) | | | (5,850) | | Increase in inventories | | (1,590) | | | (910) | |
| Increase in prepaid expenses and other assets | | (1,170) | | | (3,830) | | |
| Increase (decrease) in accounts payable and accrued liabilities | | (6,890) | | | 450 | | |
| Decrease (increase) in prepaid expenses and other assets | | Decrease (increase) in prepaid expenses and other assets | | 1,490 | | | (680) | |
| Decrease in accounts payable and accrued liabilities | | Decrease in accounts payable and accrued liabilities | | (2,360) | | | (5,210) | |
| Other operating activities | Other operating activities | | 4,370 | | | 3,660 | | Other operating activities | | 510 | | | 810 | |
| | Net cash provided by operating activities, net of acquisition impact | Net cash provided by operating activities, net of acquisition impact | | 46,640 | | | 77,740 | | Net cash provided by operating activities, net of acquisition impact | | 9,690 | | | 5,670 | |
| Cash Flows from Investing Activities: | Cash Flows from Investing Activities: | | | | | Cash Flows from Investing Activities: | | | | |
| Capital expenditures | Capital expenditures | | (31,840) | | | (29,850) | | Capital expenditures | | (14,790) | | | (11,890) | |
| Acquisition of businesses, net of cash acquired | Acquisition of businesses, net of cash acquired | | (64,100) | | | — | | Acquisition of businesses, net of cash acquired | | (37,790) | | | (63,950) | |
| Cross-currency swap terminations | | 26,230 | | | — | | |
| | Net proceeds from disposition of property and equipment | Net proceeds from disposition of property and equipment | | 180 | | | 160 | | Net proceeds from disposition of property and equipment | | 10 | | | 20 | |
| | Net cash used for investing activities | Net cash used for investing activities | | (69,530) | | | (29,690) | | Net cash used for investing activities | | (52,570) | | | (75,820) | |
| Cash Flows from Financing Activities: | Cash Flows from Financing Activities: | | | | | 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 | Proceeds from borrowings on revolving credit facilities | | 12,000 | | | — | | Proceeds from borrowings on revolving credit facilities | | 10,840 | | | — | |
| Repayments of borrowings on revolving credit facilities | Repayments of borrowings on revolving credit facilities | | (12,000) | | | (48,620) | | Repayments of borrowings on revolving credit facilities | | (10,840) | | | — | |
| | Debt financing fees and senior notes redemption premium | | — | | | (13,570) | | |
| | | Payments to purchase common stock | Payments to purchase common stock | | (29,960) | | | (18,160) | | Payments to purchase common stock | | (10,400) | | | (9,060) | |
| Shares surrendered upon exercise and vesting of equity awards to cover taxes | Shares surrendered upon exercise and vesting of equity awards to cover taxes | | (2,380) | | | (4,690) | | Shares surrendered upon exercise and vesting of equity awards to cover taxes | | (2,310) | | | (970) | |
| | Dividends paid | Dividends paid | | (5,170) | | | — | | Dividends paid | | (1,660) | | | (1,740) | |
| Other financing activities | | Other financing activities | | (2,950) | | | — | |
| | Net cash provided by (used for) financing activities | | (37,510) | | | 14,960 | | |
| Net cash used for financing activities | | Net cash used for financing activities | | (17,320) | | | (11,770) | |
| Cash and Cash Equivalents: | Cash and Cash Equivalents: | | | | | Cash and Cash Equivalents: | | | | |
| Increase (decrease) for the period | | (60,400) | | | 63,010 | | |
| Decrease for the period | | Decrease for the period | | (60,200) | | | (81,920) | |
| At beginning of period | At beginning of period | | 140,740 | | | 73,950 | | At beginning of period | | 112,090 | | | 140,740 | |
| At end of period | At end of period | | $ | 80,340 | | | $ | 136,960 | | At end of period | | $ | 51,890 | | | $ | 58,820 | |
| Supplemental disclosure of cash flow information: | Supplemental disclosure of cash flow information: | | | | | Supplemental disclosure of cash flow information: | | | | |
| Cash paid for interest | Cash paid for interest | | $ | 5,480 | | | $ | 6,490 | | Cash paid for interest | | $ | 210 | | | $ | 310 | |
| Cash paid for taxes | Cash paid for taxes | | $ | 14,620 | | | $ | 8,250 | | Cash paid for taxes | | $ | 1,780 | | | $ | 620 | |
The accompanying notes are an integral part of these consolidated financial statements.
vTriMasTriMas Corporation
Consolidated Statement of Shareholders' Equity
NineThree Months Ended September 30,March 31, 2023 and 2022 and 2021
(Unaudited—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, December 31, 2021 | | $ | 430 | | | $ | 732,490 | | | $ | (102,300) | | | $ | 230 | | | $ | 630,850 | | |
| Balances, December 31, 2022 | | Balances, December 31, 2022 | | $ | 420 | | | $ | 696,160 | | | $ | (36,130) | | | $ | (8,620) | | | $ | 651,830 | |
| Net income | Net income | | — | | | — | | | 14,170 | | | — | | | 14,170 | | Net income | | — | | | — | | | 4,910 | | | — | | | 4,910 | |
| Other comprehensive loss | | — | | | — | | | — | | | (2,240) | | | (2,240) | | |
| Other comprehensive income | | Other comprehensive income | | — | | | — | | | — | | | 3,450 | | | 3,450 | |
| | Purchase of common stock | Purchase of common stock | | — | | | (9,060) | | | — | | | — | | | (9,060) | | Purchase of common stock | | — | | | (10,400) | | | — | | | — | | | (10,400) | |
| Shares surrendered upon exercise and vesting of equity awards to cover taxes | Shares surrendered upon exercise and vesting of equity awards to cover taxes | | — | | | (970) | | | — | | | — | | | (970) | | Shares surrendered upon exercise and vesting of equity awards to cover taxes | | — | | | (2,310) | | | — | | | — | | | (2,310) | |
| | Non-cash compensation expense | Non-cash compensation expense | | — | | | 2,820 | | | — | | | — | | | 2,820 | | Non-cash compensation expense | | — | | | 2,940 | | | — | | | — | | | 2,940 | |
| Dividends declared | Dividends declared | | — | | | (1,740) | | | — | | | — | | | (1,740) | | Dividends declared | | — | | | (1,660) | | | — | | | — | | | (1,660) | |
| | Balances, March 31, 2022 | | $ | 430 | | | $ | 723,540 | | | $ | (88,130) | | | $ | (2,010) | | | $ | 633,830 | | |
| Net income | | — | | | — | | | 19,860 | | | — | | | 19,860 | | |
| Other comprehensive loss | | — | | | — | | | — | | | (3,530) | | | (3,530) | | |
| Purchase of common stock | | (10) | | | (18,820) | | | — | | | — | | | (18,830) | | |
| Shares surrendered upon exercise and vesting of equity awards to cover taxes | | — | | | (1,310) | | | — | | | — | | | (1,310) | | |
| Balances, March 31, 2023 | | Balances, March 31, 2023 | | $ | 420 | | | $ | 684,730 | | | $ | (31,220) | | | $ | (5,170) | | | $ | 648,760 | |
| | Non-cash compensation expense | | — | | | 2,480 | | | — | | | — | | | 2,480 | | |
| Dividends declared | | — | | | (1,720) | | | — | | | — | | | (1,720) | | |
| Balances, June 30, 2022 | | $ | 420 | | | $ | 704,170 | | | $ | (68,270) | | | $ | (5,540) | | | $ | 630,780 | | |
| Net income | | — | | | — | | | 13,300 | | | — | | | 13,300 | | |
| Other comprehensive loss | | — | | | — | | | — | | | (8,010) | | | (8,010) | | |
| Purchase of common stock | | — | | | (2,070) | | | — | | | — | | | (2,070) | | |
| Shares surrendered upon exercise and vesting of equity awards to cover taxes | | — | | | (100) | | | — | | | — | | | (100) | | |
| | Non-cash compensation expense | | — | | | 2,380 | | | — | | | — | | | 2,380 | | |
| Dividends declared | | — | | | (1,710) | | | — | | | — | | | (1,710) | | |
| Balances, September 30, 2022 | | $ | 420 | | | $ | 702,670 | | | $ | (54,970) | | | $ | (13,550) | | | $ | 634,570 | | |
| |
TriMas Corporation
Consolidated Statement of Shareholders' Equity (Continued)
Nine Months Ended September 30, 2022 and 2021
(Unaudited—dollars in thousands) | | | Common
Stock | | Paid-in
Capital | | Accumulated
Deficit | | Accumulated
Other
Comprehensive
Loss | | Total | | Common
Stock | | Paid-in
Capital | | Accumulated
Deficit | | Accumulated
Other
Comprehensive
Income (Loss) | | Total |
| Balances, December 31, 2020 | | $ | 430 | | | $ | 749,050 | | | $ | (159,610) | | | $ | (5,620) | | | $ | 584,250 | | |
| Balances, December 31, 2021 | | Balances, December 31, 2021 | | $ | 430 | | | $ | 732,490 | | | $ | (102,300) | | | $ | 230 | | | $ | 630,850 | |
| Net income | Net income | | — | | | — | | | 13,060 | | | — | | | 13,060 | | Net income | | — | | | — | | | 14,170 | | | — | | | 14,170 | |
| Other comprehensive income | | — | | | — | | | — | | | 630 | | | 630 | | |
| Other comprehensive loss | | Other comprehensive loss | | — | | | — | | | — | | | (2,240) | | | (2,240) | |
| | Purchase of common stock | Purchase of common stock | | — | | | (2,640) | | | — | | | — | | | (2,640) | | Purchase of common stock | | — | | | (9,060) | | | — | | | — | | | (9,060) | |
| Shares surrendered upon exercise and vesting of equity awards to cover taxes | Shares surrendered upon exercise and vesting of equity awards to cover taxes | | — | | | (1,770) | | | — | | | — | | | (1,770) | | Shares surrendered upon exercise and vesting of equity awards to cover taxes | | — | | | (970) | | | — | | | — | | | (970) | |
| | Non-cash compensation expense | Non-cash compensation expense | | — | | | 2,440 | | | — | | | — | | | 2,440 | | Non-cash compensation expense | | — | | | 2,820 | | | — | | | — | | | 2,820 | |
| | Balances, March 31, 2021 | | $ | 430 | | | $ | 747,080 | | | $ | (146,550) | | | $ | (4,990) | | | $ | 595,970 | | |
| Net income | | — | | | — | | | 11,840 | | | — | | | 11,840 | | |
| Other comprehensive loss | | — | | | — | | | — | | | 990 | | | 990 | | |
| Purchase of common stock | | — | | | (11,570) | | | — | | | — | | | (11,570) | | |
| Shares surrendered upon exercise and vesting of equity awards to cover taxes | | — | | | (2,850) | | | — | | | — | | | (2,850) | | |
| Non-cash compensation expense | | — | | | 3,220 | | | — | | | — | | | 3,220 | | |
| Balances, June 30, 2021 | | $ | 430 | | | $ | 735,880 | | | $ | (134,710) | | | $ | (4,000) | | | $ | 597,600 | | |
| Net income | | — | | | — | | | 19,590 | | | — | | | 19,590 | | |
| Other comprehensive loss | | — | | | — | | | — | | | (510) | | | (510) | | |
| Purchase of common stock | | — | | | (3,950) | | | — | | | — | | | (3,950) | | |
| Shares surrendered upon exercise and vesting of equity awards to cover taxes | | — | | | (70) | | | — | | | — | | | (70) | | |
| Dividends declared | | Dividends declared | | — | | | (1,740) | | | — | | | — | | | (1,740) | |
| Balances, March 31, 2022 | | Balances, March 31, 2022 | | $ | 430 | | | $ | 723,540 | | | $ | (88,130) | | | $ | (2,010) | | | $ | 633,830 | |
| | Non-cash compensation expense | | — | | | 1,660 | | | — | | | — | | | 1,660 | | |
| Balances, September 30, 2021 | | $ | 430 | | | $ | 733,520 | | | $ | (115,120) | | | $ | (4,510) | | | $ | 614,320 | | |
| |
The accompanying notes are an integral part of these consolidated financial statements.
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Basis of Presentation
TriMas Corporation ("TriMas" or the "Company"), and its consolidated subsidiaries, designs, engineers and manufactures innovative products under leading brand names for customers primarily in the consumer products, aerospace & defense, and industrial markets.
The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries and, in the opinion of management, contain all adjustments, including adjustments of a normal and recurring nature, necessary for a fair presentation of financial position and results of operations. The preparation of financial statements requires management of the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities. Actual results may differ from such estimates and assumptions due to risks and uncertainties, including uncertainty and volatility in the current economic environment due to the ongoing outbreak of the coronavirus and related variants (“COVID-19”) as well as input cost inflation, supply chain disruptions, and shortages in global markets for commodities, logistics and labor. To the extent there are differences between these estimates and actual results, the Company's consolidated financial statements may be materially affected.
Results of operations for interim periods are not necessarily indicative of results for the full year, and certain prior year amounts have been reclassified to conform to current year presentation.year. The accompanying consolidated financial statements and notes thereto should be read in conjunction with the Company's 20212022 Annual Report on Form 10-K.
2. New Accounting Pronouncements
Recently Issued Accounting Pronouncements
In November 2021, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2021-10, "Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance" ("ASU 2021-10"), which requires annual disclosures about transactions with a government that are accounted for by applying a grant or contribution accounting model by analogy. ASU 2021-10 is effective for annual filings in fiscal years beginning after December 15, 2021, with early adoption permitted. The Company is in the process of assessing the impact of adoption on its consolidated financial statements.
In October 2021, the FASB issued ASU 2021-08, "Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers" ("ASU 2021-08"), which requires that an acquirer recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606, "Revenue from Contracts with Customers." ASU 2021-08 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2022, with early adoption permitted. The Company is in the process of assessing the impact of adoption on its consolidated financial statements.
3. Revenue
The following table presents the Company’s disaggregated net sales by primary market served (dollars in thousands):
| | | Three months ended September 30, | | Nine months ended September 30, | | | Three months ended March 31, |
| Customer Markets | Customer Markets | | 2022 | | 2021 | | 2022 | | 2021 | Customer Markets | | | 2023 | | 2022 |
| Consumer Products | Consumer Products | | $ | 105,030 | | | $ | 110,200 | | | $ | 332,420 | | | $ | 328,220 | | Consumer Products | | | $ | 95,290 | | | $ | 107,560 | |
| Aerospace & Defense | Aerospace & Defense | | 45,420 | | | 46,510 | | | 137,330 | | | 135,680 | | Aerospace & Defense | | | 49,990 | | | 44,520 | |
| Industrial | Industrial | | 68,080 | | | 65,710 | | | 210,770 | | | 184,240 | | Industrial | | | 70,180 | | | 72,230 | |
| Total net sales | Total net sales | | $ | 218,530 | | | $ | 222,420 | | | $ | 680,520 | | | $ | 648,140 | | Total net sales | | | $ | 215,460 | | | $ | 224,310 | |
The Company’s Packaging segment earns revenues from the consumer products (comprised of the beauty and personal care, food and beverage, home care, pharmaceutical, nutraceutical and medical submarkets) and industrial markets. The Aerospace segment earns revenues from the aerospace & defense market (comprised of commercial, regional and business jet and military submarkets). The Specialty Products segment earns revenues from a variety of submarkets within the industrial market.
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
4.3. Realignment Actions
2022 Realignment Actions
During the ninethree months ended September 30,March 31, 2022, the Company incurred realignment charges in its Packaging segment related to adjusting its labor force in facilities with lower demand, finalizing its Indianapolis, Indiana facility consolidation, costs incurred to reorganize its benefit plans in the United Kingdom, and for costs incurred as part of the Company's start-up and relocation to a new, larger facility in New Albany, Ohio. The Company also completed the Aerospace segment footprint realignment which began in 2021. In connection with these actions, the Company recorded pre-tax realignment charges of $0.6$2.3 million, and $4.3 million during the three and nine months ended September 30, 2022, respectively, of which $0.4$1.4 million were for employee-related costs and $2.5$0.9 million respectively, related to facility move and consolidation costs and $0.2 million and $1.8 million, respectively, were for employee-related costs. For the three and nine months ended September 30, 2022, $0.4 million and $2.6 million, respectively, of these charges were included in cost of sales, and $0.2 million and $1.7 million, respectively, of these charges were included in selling, general and administrative expenses in the accompanying consolidated statement of income.
2021 Realignment Actions
During the nine months ended September 30, 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 three leased Stanton, California facilities into its owned Tolleson, Arizona facility. In addition, the Company also reorganized and streamlined its corporate office legal and finance groups. The Company recorded pre-tax realignment charges of $0.6 million and $8.8 million during the three and nine months ended September 30, 2021, respectively. Of these costs, $0.5 million and $2.7 million during the three and nine months ended September 30, 2021, respectively, related to facility consolidations, and $0.1 million and $6.1 million, respectively, were for employee separation costs. As of September 30, 2021, $1.5 million of the employee separation costs had been paid. For the three months ended September 30, 2021, $0.6 million of these charges were included in cost of sales. For the nine months ended September 30, 2021, $3.3March 31, 2022, $0.9 million and $5.5$1.4 million of these charges were included in cost of sales and selling, general and administrative expenses, respectively, in the accompanying consolidated statement of income.
5.
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
4. Acquisitions
2023 Acquisitions
On February 1, 2023, the Company acquired Aarts Packaging B.V. ("Aarts"), a luxury packaging solutions provider for beauty and lifestyle brands, as well as for customers in the food and life sciences end markets, for a purchase price of $37.8 million, net of cash acquired. The fair value of assets acquired and liabilities assumed included $20.4 million of goodwill, $10.9 million of intangible assets, $8.5 million of property and equipment, $7.4 million of net working capital, $3.9 million of net deferred tax liabilities and $5.5 million of other liabilities. Aarts, which is reported in the Company's Packaging segment, is located in Waalwijk, The Netherlands and historically generated €23 million in annual revenue.
2022 Acquisitions
On February 28, 2022, the Company acquired Intertech Plastics LLC and related companies (collectively, "Intertech") for a purchase price of $64.1 million, net of cash acquired. Intertech is a manufacturer of custom injection molded products used in medical applications, as well as products and assemblies for consumer and industrial applications. The fair value of assets acquired and liabilities assumed included $32.4 million of goodwill, $13.5 million of intangible assets, $12.2 million of property and equipment and $6.0 million of net working capital. Intertech, which is reported in the Company's Packaging segment, has two manufacturing facilities located in the Denver, Colorado area and historically generated $32 million in annual revenue.
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 $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 $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 $11.8 million, with additional contingent consideration ranging from zero to $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 $6 million in annual revenue. As of September 30, 2022, the recorded contingent consideration liability was $3.5 million.
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
6. Cash and Cash Equivalents
Cash and cash equivalents consists of the following components (dollars in thousands):
| | | | | | | | | | | | | | |
| | | September 30,
2022 | | December 31,
2021 |
| Cash and cash equivalents - unrestricted | | $ | 80,340 | | | $ | 129,790 | |
Cash - restricted (a) | | — | | | 10,950 | |
| Total cash and cash equivalents | | $ | 80,340 | | | $ | 140,740 | |
__________________________
(a) Includes cash placed on deposit with a financial institution to be held as cash collateral for the Company's outstanding letters of credit.
7.5. Goodwill and Other Intangible Assets
Goodwill
Changes in the carrying amount of goodwill for the ninethree months ended September 30, 2022March 31, 2023 are summarized as follows (dollars in thousands):
| | | | Packaging | | Aerospace | | Specialty Products | | Total | | Packaging | | Aerospace | | Specialty Products | | Total |
| Balance, December 31, 2021 | $ | 238,740 | | | $ | 70,190 | | | $ | 6,560 | | | $ | 315,490 | | |
| Balance, December 31, 2022 | | Balance, December 31, 2022 | $ | 263,550 | | | $ | 69,700 | | | $ | 6,560 | | | $ | 339,810 | |
| Goodwill from acquisitions | Goodwill from acquisitions | 32,370 | | | — | | | — | | | 32,370 | | Goodwill from acquisitions | 20,420 | | | — | | | — | | | 20,420 | |
| | Foreign currency translation and other | Foreign currency translation and other | (14,950) | | | (630) | | | — | | | (15,580) | | Foreign currency translation and other | 1,340 | | | 20 | | | — | | | 1,360 | |
| Balance, September 30, 2022 | $ | 256,160 | | | $ | 69,560 | | | $ | 6,560 | | | $ | 332,280 | | |
| Balance, March 31, 2023 | | Balance, March 31, 2023 | $ | 285,310 | | | $ | 69,720 | | | $ | 6,560 | | | $ | 361,590 | |
Other Intangible Assets
The Company amortizes its other intangible assets over periods ranging from one to 30 years. The gross carrying amounts and accumulated amortization of the Company's other intangibles are summarized below (dollars in thousands):
| | | As of September 30, 2022 | | As of December 31, 2021 | | As of March 31, 2023 | | As of December 31, 2022 |
| Intangible Category by Useful Life | 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: | | | | | | | | | Finite-lived intangible assets: | | | | | | | | |
| Customer relationships, 5 – 12 years | Customer relationships, 5 – 12 years | | $ | 129,470 | | | $ | (77,290) | | | $ | 124,310 | | | $ | (71,150) | | Customer relationships, 5 – 12 years | | $ | 140,720 | | | $ | (82,380) | | | $ | 131,660 | | | $ | (80,000) | |
| Customer relationships, 15 – 25 years | Customer relationships, 15 – 25 years | | 129,500 | | | (72,830) | | | 130,190 | | | (68,190) | | Customer relationships, 15 – 25 years | | 129,670 | | | (75,930) | | | 129,650 | | | (74,380) | |
| Total customer relationships | Total customer relationships | | 258,970 | | | (150,120) | | | 254,500 | | | (139,340) | | Total customer relationships | | 270,390 | | | (158,310) | | | 261,310 | | | (154,380) | |
| Technology and other, 1 – 15 years | Technology and other, 1 – 15 years | | 56,660 | | | (38,260) | | | 57,060 | | | (36,140) | | Technology and other, 1 – 15 years | | 56,910 | | | (39,710) | | | 56,860 | | | (38,990) | |
| Technology and other, 17 – 30 years | Technology and other, 17 – 30 years | | 43,300 | | | (40,240) | | | 43,300 | | | (39,920) | | Technology and other, 17 – 30 years | | 43,300 | | | (40,430) | | | 43,300 | | | (40,330) | |
| Total technology and other | Total technology and other | | 99,960 | | | (78,500) | | | 100,360 | | | (76,060) | | Total technology and other | | 100,210 | | | (80,140) | | | 100,160 | | | (79,320) | |
| Indefinite-lived intangible assets: | Indefinite-lived intangible assets: | | Indefinite-lived intangible assets: | |
| Trademark/Trade names | Trademark/Trade names | | 59,190 | | | — | | | 57,270 | | | — | | Trademark/Trade names | | 62,690 | | | — | | | 60,340 | | | — | |
| Total other intangible assets | Total other intangible assets | | $ | 418,120 | | | $ | (228,620) | | | $ | 412,130 | | | $ | (215,400) | | Total other intangible assets | | $ | 433,290 | | | $ | (238,450) | | | $ | 421,810 | | | $ | (233,700) | |
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Amortization expense related to intangible assets as included in the accompanying consolidated statement of income is summarized as follows (dollars in thousands):
| | | Three months ended September 30, | | Nine months ended September 30, | | | Three months ended March 31, |
| | 2022 | | 2021 | | 2022 | | 2021 | | | 2023 | | 2022 |
| Technology and other, included in cost of sales | Technology and other, included in cost of sales | | $ | 800 | | | $ | 950 | | | $ | 2,510 | | | $ | 2,850 | | Technology and other, included in cost of sales | | | $ | 810 | | | $ | 900 | |
| Customer relationships, included in selling, general and administrative expenses | Customer relationships, included in selling, general and administrative expenses | | 3,760 | | | 4,420 | | | 12,090 | | | 13,300 | | Customer relationships, included in selling, general and administrative expenses | | | 3,780 | | | 4,390 | |
| Total amortization expense | Total amortization expense | | $ | 4,560 | | | $ | 5,370 | | | $ | 14,600 | | | $ | 16,150 | | Total amortization expense | | | $ | 4,590 | | | $ | 5,290 | |
8.6. Inventories
Inventories consist of the following components (dollars in thousands):
| | | | | September 30,
2022 | | December 31,
2021 | | | March 31,
2023 | | December 31,
2022 |
| Finished goods | Finished goods | | $ | 76,490 | | | $ | 74,600 | | Finished goods | | $ | 76,980 | | | $ | 74,280 | |
| Work in process | Work in process | | 40,800 | | | 28,790 | | Work in process | | 40,990 | | | 38,090 | |
| Raw materials | Raw materials | | 56,450 | | | 49,060 | | Raw materials | | 53,780 | | | 50,990 | |
| Total inventories | Total inventories | | $ | 173,740 | | | $ | 152,450 | | Total inventories | | $ | 171,750 | | | $ | 163,360 | |
9.7. Property and Equipment, Net
Property and equipment consists of the following components (dollars in thousands):
| | | | | September 30,
2022 | | December 31,
2021 | | | March 31,
2023 | | December 31,
2022 |
| Land and land improvements | Land and land improvements | | $ | 18,700 | | | $ | 19,630 | | Land and land improvements | | $ | 19,850 | | | $ | 15,220 | |
| Buildings | Buildings | | 90,380 | | | 93,170 | | Buildings | | 96,030 | | | 90,910 | |
| Machinery and equipment | Machinery and equipment | | 442,980 | | | 422,500 | | Machinery and equipment | | 478,720 | | | 461,480 | |
| | 552,060 | | | 535,300 | | | 594,600 | | | 567,610 | |
| Less: Accumulated depreciation | Less: Accumulated depreciation | | 280,100 | | | 269,670 | | Less: Accumulated depreciation | | 299,380 | | | 289,860 | |
| Property and equipment, net | Property and equipment, net | | $ | 271,960 | | | $ | 265,630 | | Property and equipment, net | | $ | 295,220 | | | $ | 277,750 | |
Depreciation expense as included in the accompanying consolidated statement of income is as follows (dollars in thousands):
| | | Three months ended September 30, | | Nine months ended September 30, | | | Three months ended March 31, |
| | 2022 | | 2021 | | 2022 | | 2021 | | | 2023 | | 2022 |
| Depreciation expense, included in cost of sales | Depreciation expense, included in cost of sales | | $ | 7,980 | | | $ | 7,660 | | | $ | 24,550 | | | $ | 22,890 | | Depreciation expense, included in cost of sales | | | $ | 8,560 | | | $ | 8,170 | |
| Depreciation expense, included in selling, general and administrative expenses | Depreciation expense, included in selling, general and administrative expenses | | 210 | | | 250 | | | 790 | | | 850 | | Depreciation expense, included in selling, general and administrative expenses | | | 200 | | | 300 | |
| Total depreciation expense | Total depreciation expense | | $ | 8,190 | | | $ | 7,910 | | | $ | 25,340 | | | $ | 23,740 | | Total depreciation expense | | | $ | 8,760 | | | $ | 8,470 | |
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
10.8. Long-term Debt
The Company's long-term debt consists of the following (dollars in thousands):
| | | | | September 30,
2022 | | December 31,
2021 | | | March 31,
2023 | | December 31,
2022 |
| 4.125% Senior Notes due April 2029 | 4.125% Senior Notes due April 2029 | | $ | 400,000 | | | $ | 400,000 | | 4.125% Senior Notes due April 2029 | | $ | 400,000 | | | $ | 400,000 | |
| | Debt issuance costs | Debt issuance costs | | (5,500) | | | (6,180) | | Debt issuance costs | | (5,040) | | | (5,270) | |
| | Long-term debt, net | Long-term debt, net | | $ | 394,500 | | | $ | 393,820 | | Long-term debt, net | | $ | 394,960 | | | $ | 394,730 | |
Senior Notes due 2029
In March 2021, the Company issued $400.0 million aggregate principal amount of 4.125% senior notes due April 15, 2029 ("2029 Senior Notes") at par value in a private placement under Rule 144A of the Securities Act of 1933, as amended ("Securities Act"). The Company used the proceeds from the 2029 Senior Notes offering to pay fees and expenses of $5.1 million related to the offering and pay fees and expenses of $1.1 million related to amending its existing credit agreement. In connection with the issuance, during the second quarter of 2021, 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 cash proceeds from the 2029 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 were capitalized as debt issuance costs, while the $7.3 million redemption premium, as well as $3.0 million of unamortized debt issuance costs associated with the 2025 Senior Notes, were included in debt financing and related expenses in the accompanying consolidated statement of income.
The 2029 Senior Notes accrue interest at a rate of 4.125% per annum, payable semi-annually in arrears on April 15 and October 15. The payment of principal and interest is jointly and severally guaranteed, on a senior unsecured basis, by certain subsidiaries of the 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 April 15, 2024, the Company may redeem up to 40% of the principal amount of the 2029 Senior Notes at a redemption price of 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 April 15, 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 April 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.
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Credit Agreement
In March 2021, theThe Company amended its existingis a party to a credit agreement ("Credit Agreement") in connection with the issuance of the 2029 Senior Notes to extend the maturity date. The Company incurred fees and expenses of $1.1 million related to the amendment, all of which was capitalized as debt issuance costs. The Company also recorded $0.2 million of non-cash expense related to the write-off of previously capitalized deferred financing fees. The Credit Agreement consistsconsisting of 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, maturing on March 29, 2026.
In November 2021, the Company amended the The Credit Agreement is subject to replace LIBOR with a benchmark interest raterates determined based on the currency denomination of borrowings. Effective January 1, 2022, the amendment replaced the reference rate terms for U.S. dollar LIBOR borrowings, to the Secured Overnight Financing Rate ("SOFR"),with British pound sterling LIBOR borrowings subject to the Sterling Overnight Index Average ("SONIA") and Euro LIBOR borrowings to the Euro Short TermInterBank Offered Rate ("ESTR"(“EURIBOR”), allboth plus a spread of 1.50%1.625%, and U.S. dollar borrowings subject to the Secured Overnight Financing Rate ("SOFR") plus a spread of 1.725%. The interest rate spread is based upon the leverage ratio, as defined, as of the most recent determination date. The Company's revolving credit facility allows for the issuance of letters of credit, not to exceed $40.0 million in aggregate.
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
(unaudited)
At March 31, 2023 and December 31, 2021, the Company placed 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, 2021, the Company had no letters of credit issued against its revolving credit facility. See Note 6, "Cash and Cash Equivalents," for further information on its cash deposit. At September 30, 2022, the Company had no amounts outstanding under its revolving credit facility and had $293.9 million potentially available after giving effect to $6.1 million of letters of credit issued and outstanding. At DecemberAfter consideration of leverage restrictions contained in the Credit Agreement, as of March 31, 2021,2023, the Company had no amounts outstanding under its revolving credit facility and had $300.0$246.8 million potentially available.of borrowing capacity available for general corporate purposes. The Company's borrowing capacity was not reduced by leverage restrictions contained in the Credit Agreement as of September 30, 2022 and December 31, 2021.2022.
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, subject to certain exceptions and limitations, to 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 the 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 September 30, 2022,March 31, 2023, the Company was in compliance with its financial covenants contained in the Credit Agreement.
Other Revolving Loan Facility
In May 2021, the Company, through one of its 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 outstanding on this loan facility as of September 30, 2022March 31, 2023 and December 31, 2021.
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
2022.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):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2022 | | December 31, 2021 |
| | Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value |
| 4.125% Senior Notes due April 2029 | | $ | 400,000 | | | $ | 336,000 | | | $ | 400,000 | | | $ | 399,000 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2023 | | December 31, 2022 |
| | Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value |
| 4.125% Senior Notes due April 2029 | | $ | 400,000 | | | $ | 353,000 | | | $ | 400,000 | | | $ | 344,000 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
11.9. Derivative Instruments
Derivatives Designated as Hedging Instruments
In July 2022, the Company entered into cross-currency swap agreements 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 converts a portion of its U.S. dollar-based long-term debt into Euro-denominated long-term debt. The agreements have notional amounts totaling $150.0 million, which decline to $75.0 million over contract periods ending on October 15, 2023 and April 15, 2024. Under the terms of the agreements, the Company is to receive net interest payments at fixed rates of approximately 2.4% to 2.6% of the notional amounts. At inception, the cross-currency swaps were designated as net investment hedges.
In July 2022, immediately prior to 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 $26.2 million of cash. The cross-currency swap agreements had notional amounts totaling $250.0 million, which declined to $25.0 million over various contract periods ending between October 15, 2023 and October 15, 2027. Under the terms of the agreements, the Company was to receive net interest payments at fixed rates ranging from approximately 0.8% to 2.9% of the notional amounts.
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
As of September 30, 2022March 31, 2023 and December 31, 2021,2022, the fair value carrying amount of the Company's derivatives designated as hedging instruments are recorded as follows (dollars in thousands):
| | | | | | | Asset / (Liability) Derivatives | | | | | Asset / (Liability) Derivatives |
| Derivatives designated as hedging instruments | Derivatives designated as hedging instruments | | Balance Sheet Caption | | September 30,
2022 | | December 31,
2021 | Derivatives designated as hedging instruments | | Balance Sheet Caption | | March 31,
2023 | | December 31,
2022 |
| Net Investment Hedges | Net Investment Hedges | | | | | | | Net Investment Hedges | | | | | | |
| | Cross-currency swaps | Cross-currency swaps | | Other assets | | $ | 5,310 | | | $ | 7,590 | | Cross-currency swaps | | Other long-term liabilities | | (9,590) | | | (7,090) | |
| | |
The following table summarizes the income recognized in accumulated other comprehensive income (loss) ("AOCI") on derivative contracts designated as hedging instruments as of September 30, 2022March 31, 2023 and December 31, 2021,2022, and the amounts reclassified from AOCI into earnings for the three and ninethree months ended September 30,March 31, 2023 and 2022 and 2021 (dollars in thousands):
| | | Amount of Income Recognized
in AOCI on Derivatives
(Effective Portion, net of tax) | | Amount of Income (Loss) Reclassified
from AOCI into Earnings | | Amount of Income Recognized
in AOCI on Derivatives
(Effective Portion, net of tax) | | Amount of Income (Loss) Reclassified
from AOCI into Earnings | |
| | Three months ended
September 30, | | Nine months ended
September 30, | | Three months ended
March 31, | |
| | As of
September 30,
2022 | | As of December 31, 2021 | | Location of Income Reclassified from AOCI into Earnings (Effective Portion) | | 2022 | | 2021 | | 2022 | | 2021 | | As of
March 31,
2023 | | As of December 31, 2022 | | Location of Income Reclassified from AOCI into Earnings (Effective Portion) | | 2023 | | 2022 | |
| Net Investment Hedges | Net Investment Hedges | | | | | | | | | | | | | | Net Investment Hedges | | | | | | | | | | |
| Cross-currency swaps | Cross-currency swaps | $ | 24,650 | | | $ | 5,910 | | | Other income (expense), net | | $ | — | | | $ | — | | | $ | — | | | $ | — | | Cross-currency swaps | $ | 13,460 | | | $ | 15,320 | | | Other income (expense), net | | $ | — | | | $ | — | | |
|
Over the next 12 months, the Company does not expect to reclassify any pre-tax deferred amounts from AOCI into earnings.
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Derivatives Not Designated as Hedging Instruments
As of September 30, 2022,March 31, 2023, the Company was party to foreign currency exchange forward contracts to economically hedge changes in foreign currency rates with notional amounts of $130.4$185.7 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 JuneSeptember 2023. These contracts are not designated as hedge instruments; therefore, gains and losses on these contracts are recognized each period directly into the consolidated statement of income.
The following table summarizes the effects of derivatives not designated as hedging instruments on the Company's consolidated statement of income (dollars in thousands):
| | | Amount of Income Recognized in
Earnings on Derivatives | | Amount of Income (Loss) Recognized in
Earnings on Derivatives | |
| | Three months ended
September 30, | | Nine months ended
September 30, | | Three months ended
March 31, | |
| | Location of Income
Recognized in
Earnings on Derivatives | | 2022 | | 2021 | | 2022 | | 2021 | | Location of Income (Loss)
Recognized in
Earnings on Derivatives | | 2023 | | 2022 | |
| Derivatives not designated as hedging instruments | Derivatives not designated as hedging instruments | | | | | | | | | | | Derivatives not designated as hedging instruments | | | | | | | |
| Foreign exchange contracts | Foreign exchange contracts | | Other income (expense), net | | $ | 2,860 | | | $ | 2,220 | | | $ | 6,170 | | | $ | 5,080 | | Foreign exchange contracts | | Other income (expense), net | | $ | (760) | | | $ | 810 | | |
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Fair Value of Derivatives
The fair value of the Company's derivatives 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 and foreign exchange contracts 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 September 30, 2022March 31, 2023 and December 31, 20212022 are shown below (dollars in thousands):
| | Description | 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) | 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) |
| September 30, 2022 | | | | | | | | | | | |
| March 31, 2023 | | March 31, 2023 | | | | | | | | | | |
| Cross-currency swaps | Cross-currency swaps | | Recurring | | $ | 5,310 | | | $ | — | | | $ | 5,310 | | | $ | — | | Cross-currency swaps | | Recurring | | $ | (9,590) | | | $ | — | | | $ | (9,590) | | | $ | — | |
| Foreign exchange contracts | Foreign exchange contracts | | Recurring | | $ | 5,230 | | | $ | — | | | $ | 5,230 | | | $ | — | | Foreign exchange contracts | | Recurring | | $ | (2,200) | | | $ | — | | | $ | (2,200) | | | $ | — | |
| December 31, 2021 | | |
| December 31, 2022 | | December 31, 2022 | |
| Cross-currency swaps | Cross-currency swaps | | Recurring | | $ | 7,590 | | | $ | — | | | $ | 7,590 | | | $ | — | | Cross-currency swaps | | Recurring | | $ | (7,090) | | | $ | — | | | $ | (7,090) | | | $ | — | |
| Foreign exchange contracts | Foreign exchange contracts | | Recurring | | $ | (110) | | | $ | — | | | $ | (110) | | | $ | — | | Foreign exchange contracts | | Recurring | | $ | (1,790) | | | $ | — | | | $ | (1,790) | | | $ | — | |
12.10. Leases
The Companymajority of the Company's lease obligations are non-cancelable operating leases for certain equipment and facilities under non-cancelable operating leases.facilities. The Company's finance leases are for certain equipment as part of the Company's acquisition of Aarts. Leases with an initial term of 12 months or less are not recorded on the balance sheet; expense related to these leases is recognized on a straight-line basis over the lease term.
Supplemental balance sheet information related to the Company's leases are shown below (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | |
| | Balance Sheet Location | | March 31, 2023 | | December 31, 2022 |
| Assets | | | | | | |
| Operating leases | | Operating lease right-of-use assets | | $ | 47,040 | | | $ | 47,280 | |
| Finance leases | | Property and equipment, net (a) | | 2,580 | | | — | |
| Total lease assets | | | | $ | 49,620 | | | $ | 47,280 | |
| Liabilities | | | | | | |
| Current: | | | | | | |
| Operating leases | | Lease liabilities, current portion | | $ | 8,550 | | | $ | 8,280 | |
| Finance leases | | Lease liabilities, current portion | | 490 | | | — | |
| Long-term: | | | | | | |
| Operating leases | | Lease liabilities | | 40,150 | | | 41,010 | |
| Finance leases | | Lease liabilities | | 2,040 | | | — | |
| Total lease liabilities | | | | $ | 51,230 | | | $ | 49,290 | |
| | | | | | |
__________________________
(a) Finance leases were recorded net of accumulated depreciation of $0.1 million as of March 31, 2023.
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
The components of lease expense are as follows (dollars in thousands):
| | | Three months ended September 30, | | Nine months ended September 30, | | | | Three months ended March 31, | |
| | 2022 | | 2021 | | 2022 | | 2021 | | | Statement of Income Location | | | 2023 | | 2022 | |
| Operating lease cost | Operating lease cost | | $ | 2,590 | | | $ | 2,090 | | | $ | 7,920 | | | $ | 6,370 | | | Operating lease cost | | Cost of sales and Selling, general and administrative expenses | | | $ | 2,580 | | | $ | 2,310 | | |
| Finance lease cost: | | Finance lease cost: | | | | |
| Depreciation of lease assets | | Depreciation of lease assets | | Cost of sales | | | 40 | | | — | | |
| Interest on lease liabilities | | Interest on lease liabilities | | Interest expense | | | 10 | | | — | | |
| Short-term, variable and other lease costs | Short-term, variable and other lease costs | | 950 | | | 1,140 | | | 2,370 | | | 2,000 | | | Short-term, variable and other lease costs | | Cost of sales and Selling, general and administrative expenses | | | 640 | | | 690 | | |
| Total lease cost | Total lease cost | | $ | 3,540 | | | $ | 3,230 | | | $ | 10,290 | | | $ | 8,370 | | | Total lease cost | | | $ | 3,270 | | | $ | 3,000 | | |
Maturities of lease liabilities are as follows (dollars in thousands):
| | Year ended December 31, | Year ended December 31, | | Operating Leases(a) | Year ended December 31, | | Operating Leases(a) | | Finance Leases(a) |
| 2022 (excluding the nine months ended September 30, 2022) | | $ | 2,560 | | |
| 2023 | | 9,890 | | |
| 2023 (excluding the three months ended March 31, 2023) | | 2023 (excluding the three months ended March 31, 2023) | | $ | 7,830 | | | $ | 410 | |
| 2024 | 2024 | | 9,080 | | 2024 | | 9,610 | | | 530 | |
| 2025 | 2025 | | 7,790 | | 2025 | | 8,200 | | | 520 | |
| 2026 | 2026 | | 7,680 | | 2026 | | 7,920 | | | 600 | |
| 2027 | | 2027 | | 6,820 | | | 690 | |
| Thereafter | Thereafter | | 20,730 | | Thereafter | | 14,830 | | | — | |
| Total lease payments | Total lease payments | | 57,730 | | Total lease payments | | 55,210 | | | 2,750 | |
| Less: Imputed interest | Less: Imputed interest | | (6,670) | | Less: Imputed interest | | (6,510) | | | (220) | |
| Present value of lease liabilities | Present value of lease liabilities | | $ | 51,060 | | Present value of lease liabilities | | $ | 48,700 | | | $ | 2,530 | |
__________________________
(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.
Other information related to the Company's leases are as follows (dollars in thousands):
| | | | | | | | | | | | | | | | | | |
| | | | Three months ended March 31, |
| | | | | | 2023 | | 2022 |
| Cash paid for amounts included in the measurement of lease liabilities: | | | | | | | | |
| Operating cash flows from operating leases | | | | | | $ | 2,590 | | | $ | 2,270 | |
| Operating cash flows from finance leases | | | | | | 10 | | | — | |
| Financing cash flows from finance leases | | | | | | 80 | | | — | |
| Lease assets obtained in exchange for new lease liabilities: | | | | | | | | |
| Operating leases | | | | | | 4,780 | | | 4,750 | |
| Finance leases | | | | | | 2,620 | | | — | |
The weighted-average remaining lease term of the Company's operating leases and finance leases as of September 30, 2022March 31, 2023 is 6.8 years.6.6 years and 4.3 years, respectively. The weighted-average discount rate for the operating leases and finance leases as of September 30, 2022March 31, 2023 is 3.7%.
Cash paid for amounts included in the measurement of operating lease liabilities was $7.4 million3.9% and $6.2 million during the nine months ended September 30, 2022 and 2021, respectively, and is included in cash flows provided by operating activities in the accompanying consolidated statement of cash flows.
Right-of-use assets obtained in exchange for lease liabilities were $5.7 million and $6.2 million during the nine months ended September 30, 2022 and 2021,2.6%, respectively.
13. Other long-term liabilities
Other long-term liabilities consist of the following components (dollars in thousands):
| | | | | | | | | | | | | | |
| | | September 30,
2022 | | December 31,
2021 |
| Non-current asbestos-related liabilities | | $ | 21,610 | | | $ | 25,210 | |
| Other long-term liabilities | | 28,670 | | | 33,820 | |
| Total other long-term liabilities | | $ | 50,280 | | | $ | 59,030 | |
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
14.11. Other long-term liabilities
Other long-term liabilities consist of the following components (dollars in thousands):
| | | | | | | | | | | | | | |
| | | March 31,
2023 | | December 31,
2022 |
| Non-current asbestos-related liabilities | | $ | 25,870 | | | $ | 26,370 | |
| Other long-term liabilities | | 32,770 | | | 29,970 | |
| Total other long-term liabilities | | $ | 58,640 | | | $ | 56,340 | |
12. Commitments and Contingencies
Asbestos
As of September 30, 2022,March 31, 2023, the Company was a party to 418434 pending cases involving an aggregate of 4,7744,817 claimants primarily alleging personal injury from exposure to asbestos containing materials formerly used in gaskets (both encapsulated and otherwise) manufactured or distributed by its former Lamons division and certain other related subsidiaries for use primarily in the petrochemical, refining and exploration industries. The following chart summarizes the number of claims, number of claims filed, number of claims dismissed, number of claims settled, the average settlement amount per claim and the total defense costs, 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 |
| Nine Months Ended September 30, 2022 | | 4,754 | | | 169 | | | 131 | | | 18 | | | 4,774 | | | $ | 102,675 | | | $ | 1,710,000 | |
| Fiscal Year Ended December 31, 2021 | | 4,655 | | | 265 | | | 134 | | | 32 | | | 4,754 | | | $ | 16,819 | | | $ | 1,950,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 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 |
| Three Months Ended March 31, 2023 | | 4,798 | | | 71 | | | 43 | | | 9 | | | 4,817 | | | $ | 27,500 | | | $ | 420,000 | |
| Fiscal Year Ended December 31, 2022 | | 4,754 | | | 236 | | | 168 | | | 24 | | | 4,798 | | | $ | 79,869 | | | $ | 2,180,000 | |
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 its 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, and 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 cost of claims 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 4,7744,817 claims pending at September 30, 2022,March 31, 2023, 40 set forth specific amounts of damages (other than those stating the statutory minimum or maximum). At September 30, 2022,March 31, 2023, of the 40 claims that set forth specific amounts, there were zero claims seeking more than $5 million for punitive damages. Below is a breakdown of the compensatory damages sought for those claims seeking specific amounts:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Compensatory | | |
| Range of damages sought (dollars in millions) | | | | | | | | $0.0 to $0.6 | | $0.6 to $5.0 | | $5.0+ | | | | | | |
| Number of claims | | | | | | | | — | | 3 | | 37 | | | | | | |
Relatively few 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 30 years ago, have been $12.4$12.7 million. All relief sought in the asbestos cases is monetary in nature. 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
(unaudited)
The Company records a liability for asbestos-related claims, which includes both known and unknown claims, 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.
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
In the fourth quarter of 2021,2022, the Company commissioned its actuary to update the study, based on data as of September 30, 2021,2022, which yielded a range of possible future liability of $28.2$29.6 million to $38.6$39.5 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$5.6 million to increase the liability estimate to $28.2$29.6 million, at the low-end of the range. As of September 30, 2022,March 31, 2023, the Company’s total asbestos-related liability is $24.0$28.6 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 these cases will have a material adverse effect on its financial position, results of operations, or cash flows.
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.
15.13. Segment Information
TriMas reports its operations in three 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 – TriMas' Packaging segment consists primarily of the Rieke® brand, as well as more recently acquired brands which include the, Affaba & Ferrari™, Taplast™, Rapak®, Plastic Srl, Aarts Packaging, Intertech and Omega brands. TriMas Packaging develops and manufactures a broad array of dispensing products (such as foaming pumps, lotion and hand soaps and 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, fragrance and cosmetic caps, drum and pail closures, and flexible spouts), polymeric jar products, fully integrated dispensers for fill-ready bag-in-box applications, and consumable vascular delivery and diagnostic test components, all for a variety of consumer products submarkets including, but not limited to, beauty and personal care, food and beverage, home care, and life sciences, including but not limited to pharmaceutical, nutraceutical, and medical, as well as industrial markets (including agricultural).
Aerospace – TriMas' 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.
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Specialty Products – TriMas' 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)
(unaudited)
Segment activity is as follows (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three months ended
September 30, | | Nine months ended
September 30, |
| | | 2022 | | 2021 | | 2022 | | 2021 |
| Net Sales | | | | | | | | |
| Packaging | | $ | 129,700 | | | $ | 138,010 | | | $ | 416,540 | | | $ | 409,730 | |
| Aerospace | | 45,420 | | | 46,510 | | | 137,330 | | | 135,680 | |
| Specialty Products | | 43,410 | | | 37,900 | | | 126,650 | | | 102,730 | |
| Total | | $ | 218,530 | | | $ | 222,420 | | | $ | 680,520 | | | $ | 648,140 | |
| Operating Profit (Loss) | | | | | | | | |
| Packaging | | $ | 17,590 | | | $ | 27,340 | | | $ | 66,720 | | | $ | 76,490 | |
Aerospace (a) | | 4,710 | | | 3,980 | | | 9,300 | | | 10,600 | |
| Specialty Products | | 6,760 | | | 6,660 | | | 20,770 | | | 17,190 | |
| Corporate | | (8,080) | | | (7,160) | | | (24,010) | | | (26,780) | |
| Total | | $ | 20,980 | | | $ | 30,820 | | | $ | 72,780 | | | $ | 77,500 | |
__________________________
(a) In the three and nine months ended September 30, 2022, the Company recognized a $4.8 million pre-tax gain on the sale of vacant land adjacent to the Company's Tolleson, Arizona manufacturing facility within the Aerospace segment. | | | | | | | | | | | | | | | | | | |
| | | | | Three months ended
March 31, |
| | | | | | | 2023 | | 2022 |
| Net Sales | | | | | | | | |
| Packaging | | | | | | $ | 116,220 | | | $ | 138,490 | |
| Aerospace | | | | | | 49,990 | | | 44,520 | |
| Specialty Products | | | | | | 49,250 | | | 41,300 | |
| Total | | | | | | $ | 215,460 | | | $ | 224,310 | |
| Operating Profit (Loss) | | | | | | | | |
| Packaging | | | | | | $ | 14,390 | | | $ | 21,330 | |
| Aerospace | | | | | | 1,430 | | | 1,840 | |
| Specialty Products | | | | | | 9,750 | | | 7,240 | |
| Corporate | | | | | | (15,580) | | | (8,480) | |
| Total | | | | | | $ | 9,990 | | | $ | 21,930 | |
16.14. Equity Awards
Restricted Stock Units
The Company awarded the following restricted stock units ("RSUs") during the ninethree months ended September 30, 2022:March 31, 2023:
•granted 200,047250,625 RSUs 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;
•granted 22,55427,560 RSUs to its non-employee independent directors, which fully vest one year from date of grant so long as the director and/or Company does not terminate the director's service prior to the vesting date;
•issued 337 RSUs 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; and
•issued 19031 RSUs to certain employees related to dividend equivalent rights on existing equity awards.
During 2022,2023, the Company also awarded 85,15695,017 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 initially earned 50% based upon the Company's achievement of an earnings per share compound annual growth rate ("EPS CAGR") metric and 50% based upon the Company's cash return on net assets ("Cash RONA") metric over a period beginning January 1, 20222023 and ending December 31, 2024.2025. The remaining 50% of the awards aretotal EPS CAGR and Cash RONA performance-based RSUs initially earned shall be subject to modification 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 trading days at the end of the performance period plus Company dividends, divided by the Company's average closing stock price for the 20 trading days prior to the start of the performance period. The Company estimates the grant-date fair value subject to a market condition using a Monte Carlo simulation model, using the following weighted average assumptions: risk-free rate of 1.88%4.36% and annualized volatility of 36.5%33.9%. Depending on the performance achieved for these two metrics, the amount of shares earned, if any, can vary for each metric from 0% of the target award to a maximum of 200%250% of the target award. For similar performance-based RSUs awarded in 2019, the Company attained 65.4% of the target on a weighted average basis, resulting in a decrease of 24,975 shares during the three months ended March 31, 2022.target.
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
During 2020, the Company awarded performance-based RSUs to certain Company key employees which were earned 50% based upon the Company's achievement of earnings per share compound annual growth rate metric over a period beginning January 1, 2020 and ending December 31, 2022. The remaining 50% of the awards were earned based on the Company's total shareholder return relative to the TSR of the common stock of a pre-defined industry peer-group, measured over the performance period. The Company attained 62.7% of the target on a weighted average basis, resulting in a decrease of 32,430 shares during the three months ended March 31, 2023.
During 2020, the Company awarded performance-based RSUs to certain Company key employees which were earned based upon the Company's stock price performance over the period beginning January 1, 2020 and ending December 31, 2022. The stock price achievement was calculated based on the Company's average closing stock price for each quarter end for the 20 trading days up to and including March 31, June 30, September 30 and December 31, 2022, respectively. The Company did not meet the minimum performance threshold resulting in a decrease of 86,275 shares during the three months ended March 31, 2023.
Information related to RSUs at September 30, 2022March 31, 2023 is as follows:
| | | Number of Unvested RSUs | | Weighted Average Grant Date Fair Value | | Average Remaining Contractual Life (Years) | | Aggregate Intrinsic Value | | Number of Unvested RSUs | | Weighted Average Grant Date Fair Value | | Average Remaining Contractual Life (Years) | | Aggregate Intrinsic Value |
| Outstanding at January 1, 2022 | | 673,732 | | | $ | 27.38 | | | | | | |
| Outstanding at January 1, 2023 | | Outstanding at January 1, 2023 | | 719,449 | | | $ | 28.40 | | | | | |
| Granted | Granted | | 308,284 | | | 33.12 | | | Granted | | 373,233 | | | 29.62 | | |
| Vested | Vested | | (231,170) | | | 30.34 | | | Vested | | (237,865) | | | 27.85 | | |
| Cancelled | Cancelled | | (40,170) | | | 35.34 | | | Cancelled | | (137,661) | | | 18.33 | | |
| Outstanding at September 30, 2022 | | 710,676 | | | $ | 28.45 | | | 1.1 | | $ | 17,816,647 | | |
| Outstanding at March 31, 2023 | | Outstanding at March 31, 2023 | | 717,156 | | | $ | 31.16 | | | 1.7 | | $ | 19,979,966 | |
As of September 30, 2022,March 31, 2023, there was $8.4$13.6 million of unrecognized compensation cost related to unvested RSUs that is expected to be recorded over a weighted average period of 1.71.8 years.
The Company recognized stock-based compensation expense related to RSUs of $2.4$2.9 million and $1.7$2.8 million during the three months ended September 30,March 31, 2023 and 2022, and 2021, respectively, and $7.7 million and $7.3 million during the nine months ended September 30, 2022 and 2021, respectively. The stock-based compensation expense is included in selling, general and administrative expenses in the accompanying consolidated statement of income.
17.15. Earnings per Share
Net income is divided by the weighted average number of common shares outstanding during the period to calculate basic earnings per share. Diluted earnings per share is calculated to give effect to stock options and RSUs. The following table summarizes the dilutive effect of RSUs and options to purchase common stock for the ninethree months ended September 30, 2022March 31, 2023 and 2021:2022:
| | | Three months ended
September 30, | | Nine months ended
September 30, | | | Three months ended
March 31, |
| | 2022 | | 2021 | | 2022 | | 2021 | | | 2023 | | 2022 |
| Weighted average common shares—basic | Weighted average common shares—basic | | 41,995,027 | | | 42,889,922 | | | 42,363,919 | | | 43,061,707 | | Weighted average common shares—basic | | | 41,543,625 | | | 42,799,206 | |
| Dilutive effect of restricted stock units | Dilutive effect of restricted stock units | | 186,413 | | | 204,177 | | | 226,858 | | | 267,675 | | Dilutive effect of restricted stock units | | | 258,412 | | | 310,487 | |
| Dilutive effect of stock options | | — | | | — | | | — | | | 16,395 | | |
| | Weighted average common shares—diluted | Weighted average common shares—diluted | | 42,181,440 | | | 43,094,099 | | | 42,590,777 | | | 43,345,777 | | Weighted average common shares—diluted | | | 41,802,037 | | | 43,109,693 | |
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. This announcement represented the most recent update from the initial authorization, approved in November 2015, of up to $50 million of purchases in the aggregate of its common stock. In the three and nine months ended September 30, 2022,March 31, 2023, the Company purchased 76,167 and 1,004,154350,862 shares of its outstanding common stock for $2.1 million and $30.0 million, respectively.$10.4 million. During the three and nine months ended September 30, 2021,March 31, 2022, the Company purchased 129,866 and 570,084282,003 shares of its outstanding common stock for $4.0 million and $18.2 million, respectively.$9.1 million. As of September 30, 2022March 31, 2023, the Company has $112.7$95.3 million remaining under the repurchase authorization.
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Holders of common stock 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. During the three months ended September 30,March 31, 2023 and 2022, the Company's cash dividends declared were $0.04 per share of common stock and total dividends declared and paid on common shares in the three and nine months ended September 30, 2022 were $1.7 million and $5.2 million, respectively. No dividends were declared or paid during the three and nine months ended September 30, 2021.million.
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
18.16. Defined Benefit Plans
Net periodic pension benefit costs for the Company's defined benefit pension plans cover certain foreign employees, union hourly employees and salaried employees. The components of net periodic pension cost (income) are as follows (dollars in thousands):
| | | | | Pension Plans | | | | | | | | | | | | | |
| | | | Three months ended
September 30, | | Nine months ended
September 30, | | | | Three months ended
March 31, |
| | | | 2022 | | 2021 | | 2022 | | 2021 | | | | 2023 | | 2022 |
| Service costs | Service costs | | $ | 170 | | | $ | 330 | | | $ | 530 | | | $ | 980 | | Service costs | | | $ | 120 | | | $ | 200 | |
| Interest costs | Interest costs | | 230 | | | 200 | | | 690 | | | 600 | | Interest costs | | | 320 | | | 230 | |
| Expected return on plan assets | Expected return on plan assets | | (430) | | | (380) | | | (1,260) | | | (1,160) | | Expected return on plan assets | | | (530) | | | (410) | |
| | Settlement/curtailment loss | Settlement/curtailment loss | | — | | | — | | | 150 | | | — | | Settlement/curtailment loss | | | — | | | 150 | |
| Amortization of net loss | Amortization of net loss | | 140 | | | 220 | | | 430 | | | 680 | | Amortization of net loss | | | 30 | | | 140 | |
| Net periodic benefit cost | | $ | 110 | | | $ | 370 | | | $ | 540 | | | $ | 1,100 | | |
| Net periodic benefit cost (income) | | Net periodic benefit cost (income) | | | $ | (60) | | | $ | 310 | |
The service cost component of net periodic benefit cost is recorded in cost of goods sold and selling, general and administrative expenses, while non-service cost components are recorded in other income (expense), net in the accompanying consolidated statement of income.
During the ninethree months ended September 30,March 31, 2022, the Company recorded a non-cash curtailment expense of $0.2 million, as it transitioned certain active employees previously participating in a defined benefit plan in the United Kingdom to a defined contribution plan, thereby eliminating future service cost accruals for all employees under this defined benefit plan.
The Company contributed $0.4 million and $1.2$0.3 million to its defined benefit pension plans during the three and nine months ended September 30, 2022, respectively.March 31, 2023. The Company expects to contribute $1.7$1.2 million to its defined benefit pension plans for the full year 2022.2023.
19.17. Other Comprehensive Income (Loss)
Changes in AOCI by component for the ninethree months ended September 30,March 31, 2023 are summarized as follows, net of tax (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Defined Benefit Plans | | Derivative Instruments | | Foreign Currency Translation | | Total |
| Balance, December 31, 2022 | | $ | (5,380) | | | $ | 15,320 | | | $ | (18,560) | | | $ | (8,620) | |
Net unrealized gains (losses) arising during the period (a) | | — | | | (1,860) | | | 5,290 | | | 3,430 | |
| Less: Net realized losses reclassified to net income | | (20) | | | — | | | — | | | (20) | |
| Net current-period other comprehensive income (loss) | | 20 | | | (1,860) | | | 5,290 | | | 3,450 | |
| | | | | | | | |
| Balance, March 31, 2023 | | $ | (5,360) | | | $ | 13,460 | | | $ | (13,270) | | | $ | (5,170) | |
__________________________
(a) Derivative instruments, net of income tax of $0.6 million. See Note 9, "Derivative Instruments," for further details.
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Changes in AOCI by component for the three months ended March 31, 2022 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, 2021 | Balance, December 31, 2021 | | $ | (4,830) | | | $ | 5,910 | | | $ | (850) | | | $ | 230 | | Balance, December 31, 2021 | | $ | (4,830) | | | $ | 5,910 | | | $ | (850) | | | $ | 230 | |
Net unrealized gains (losses) arising during the period (a) | Net unrealized gains (losses) arising during the period (a) | | — | | | 18,740 | | | (32,950) | | | (14,210) | | Net unrealized gains (losses) arising during the period (a) | | — | | | 1,560 | | | (4,040) | | | (2,480) | |
Less: Net realized losses reclassified to net income (b) | Less: Net realized losses reclassified to net income (b) | | (430) | | | — | | | — | | | (430) | | Less: Net realized losses reclassified to net income (b) | | (240) | | | — | | | — | | | (240) | |
| Net current-period other comprehensive income (loss) | Net current-period other comprehensive income (loss) | | 430 | | | 18,740 | | | (32,950) | | | (13,780) | | Net current-period other comprehensive income (loss) | | 240 | | | 1,560 | | | (4,040) | | | (2,240) | |
| | Balance, September 30, 2022 | | $ | (4,400) | | | $ | 24,650 | | | $ | (33,800) | | | $ | (13,550) | | |
| Balance, March 31, 2022 | | Balance, March 31, 2022 | | $ | (4,590) | | | $ | 7,470 | | | $ | (4,890) | | | $ | (2,010) | |
__________________________
(a) Derivative instruments, net of income tax of $6.3$0.5 million. See Note 11,9, "Derivative Instruments," for further details.
(b) Defined benefit plans, net of income tax of $0.1 million. See Note 18, "Defined Benefit Plans," for further details.
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Changes in AOCI by component for the nine months ended September 30, 2021 are summarized as follows, net of tax (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Defined Benefit Plans | | Derivative Instruments | | Foreign Currency Translation | | Total |
| Balance, December 31, 2020 | | $ | (8,620) | | | $ | (3,580) | | | $ | 6,580 | | | $ | (5,620) | |
Net unrealized gains (losses) arising during the period (a) | | — | | | 7,210 | | | (6,570) | | | 640 | |
Less: Net realized losses reclassified to net income (b) | | (470) | | | — | | | — | | | (470) | |
| Net current-period other comprehensive income (loss) | | 470 | | | 7,210 | | | (6,570) | | | 1,110 | |
| | | | | | | | |
| Balance, September 30, 2021 | | $ | (8,150) | | | $ | 3,630 | | | $ | 10 | | | $ | (4,510) | |
__________________________
(a) Derivative instruments, net of income tax of $2.4 million. See Note 11, "Derivative Instruments," for further details.
(b) Defined benefit plans, net of income tax of $0.1 million. See Note 18,16, "Defined Benefit Plans," for further details.
20. Income Taxes
The effective income tax rate for the three months ended September 30, 2022 and 2021 was 27.1% and 27.0%, respectively. The rate for the three months ended September 30, 2022 is consistent as compared to the prior year period.
The effective income tax rate for the nine months ended September 30, 2022 and 2021 was 25.0% and 19.2%, respectively. The rate for the nine months ended September 30, 2022 is higher than in the prior year period, primarily as a result of the recognition of $3.0 million of deferred tax benefits in Italy during the nine months ended September 30, 2021, the majority of which related to a reduction in deferred tax liabilities in connection with certain tax incentives.
21.18. Subsequent Events
On OctoberApril 20, 2022,2023, the Company announced that its Board of Directors had declared a cash dividend of $0.04 per share of TriMas Corporation common stock, which will be payable on November 10, 2022May 11, 2023 to shareholders of record as of the close of business on November 3, 2022.May 4, 2023.
On October 14, 2022,April 21, 2023, the Company completedacquired the saleoperating net assets of Weldmac Manufacturing Company (“Weldmac”) for an initial purchase price of $35.7 million. The acquisition is subject to customary closing conditions, as well as additional contingent consideration of up to $10.0 million to be paid based on achievement of earnings targets, as defined in the purchase agreement. Weldmac is a non-core facility in Cityleading designer and manufacturer of Industry, California, within itshigh-performance, complex metal fabricated components and assemblies for the aerospace, defense and space launch end markets with annual net sales of $33 million. Weldmac will become part of the Aerospace segment, for pre-tax cash proceeds of $23.3 million.reportable segment.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition contains forward-looking statements regarding industry outlook and our expectations regarding the performance of our business. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described under the heading "Forward-Looking Statements," at the beginning of this report. 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 the Company's reports on file with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the year ended December 31, 2021.2022.
Introduction
TriMas designs, develops and manufactures a diverse set of products primarily for the consumer products, aerospace & defense and industrial markets through its TriMas Packaging, TriMas Aerospace and Specialty Products groups. Our wide range of innovative products are designed and engineered 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 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 report our business activity in three segments: Packaging, Aerospace and Specialty Products.
Key Factors Affecting Our Reported Results
Our businesses and results of operations depend upon general economic conditions. We serve customers in industries that are highly competitive, cyclical and that may be significantly impacted by changes in economic or geopolitical conditions.
OverOur results of operations have been materially impacted over the past twofew years by macro-economic factors, first by the onset and proliferation of the coronavirus ("COVID-19") pandemic, has then further from increased energy costs and supply chain disruptions from the Russia-Ukraine conflict, and more recently by cost inflation (raw materials, wage rates and freight) and a lack of material availability. These factors ssignificantlyignificantly affected each of our businesses and how we operate, albeit in different ways and magnitudes. Sales in our Packaging segment for dispensing and closure products used in applications to help fight the spread of germs have experienced extreme volatility in demand, with demand spiking to record highs after the onset of the pandemic, demand abating as expected from those high levels, overand for the past year, and in third quarter 2022, which normally is strong ordering period heading into a holiday selling season,last three quarters demand abruptly fellfalling as a result of some of our large consumer goodslarger customers' choices to rebalance on-hand inventory levels given the current macro-economic environment. Sales of certain of our industrial and aerospace-related products were significantly depressed from historical levels during 2020 and 2021. Our aerospace-related product sales continuefollowing the onset of the pandemic, but demand has significantly increased in recent quarters, to be lower than historicalwhere the industrial demand in our Specialty Products segment has rebounded to pre-pandemic levels, althoughwhile demand in our Aerospace segment continues to increase while certain industrial product sales have recovered to pre-pandemic levels. The pandemic(and more quickly than expected) as air travel has also led to increased uncertaintypicked-up and higher inflationnew aircraft build rates improve. Altogether, this significant level of volatility in the global business environment,demand levels, input and we have experienced increases in inputtransportation costs (raw materials, wage rates, energy and freight), supply chain disruptionsmaterial and delays, as well as labor availability challenges, all pressuringhave pressured our ability to operate efficiently and at thehistorical margin levels previously experienced.levels.
We have been, and continue to be, focused on ensuring the working environments for our employees are safe. At the onset of the pandemic, 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, plus other governmental regulation and sick-time rules, have increased the level of manufacturing inefficiencies including elevated levels of absenteeism, less efficient production scheduling and, in certain cases, short-term idling of production. While these increased costs and inefficiencies began in 2020, they continue to persist. In fact, with increased demand volatility and inflationary pressures, some of the inefficiencies have exacerbated in 2022, most notably in our Aerospace segment, and we believe all such items aggregated to more than $2 million in third quarter year-over-year cost pressure. Given these factors, we believe that labor-related availability and inefficiencies will be an ongoing challenge.
Overall, our thirdfirst quarter 20222023 net sales decreased $3.98.9 million, or (1.7)%3.9%, compared to thirdfirst quarter 2021. Sales increased within our Specialty Products segment as a result of increased industrial demand and higher oil-field activity in North America. Sales also increased as a result of recent2022. We experienced sales growth from acquisitions in our Packaging and Aerospace segments, as well as from sales of products used in food and beverage markets within our Packaging segment. These factors were more than offset primarily by an abrupt reduction in demand for personal care and home care products in our Packaging segment as well as unfavorable currency exchange.
in North America. We also believe that supply constraints, specifically the availability of certain specialized metallic raw materials, impacted our ability to capture additional sales in the quarter within TriMas Aerospace. These factors were more than offset by reduced demand for dispensers and closures used in consumer products and industrial applications within our Packaging segment, which we believe declined primarily due to initiatives by several of our larger customers to rebalance their inventory levels as well as a result of continued weaker consumer sentiment. The most significant drivers affecting our financial results in thirdfirst quarter 2022 2023 compared with thirdfirst quarter 2021, 2022, other than as directly impacted by sales changes, or as a result of the labor-related availability and and inefficiencies, were the impact of our recentrecent acquisitions the impactand $3.9 million higher third party business diligence and consulting expenses in our corporate office in support of higher energyprospective streamlining actions and other input costs, the gain on the sale of vacant land adjacent to our Tolleson, Arizona manufacturing facility within our Aerospace segment, and the settlement of our cross currency swaps.growth initiatives.
In February 2022,2023, we acquired Intertech Plastics LLC and related companies (collectively, "Intertech"Aarts Packaging B.V. ("Aarts"), a manufacturer of custom injection molded products used in medical applications,luxury packaging solutions provider for beauty and lifestyle brands, as well as productsfor customers in the food and assemblieslife sciences end markets, for consumer and industrial applications, for an aggregate amounta purchase price of $64.1$37.8 million, net of cash acquired. Intertech, which is reported in the Company's Packaging segment, has two manufacturing facilities located in the Denver, Colorado area. Intertech contributed $8.8 million of net sales during third quarter 2022.
In December 2021, we completed the acquisition of 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 $22.5 million, net of cash acquired. Omega,Aarts, which is reported in the Company's Packaging segment, is located in Clinton Township, Michigan. OmegaWaalwijk, The Netherlands and contributed $2.7$4.3 million of net sales during thirdfirst quarter 2022.
In December 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 $11.8 million, with additional contingent consideration ranging from zero to $12.0 million to be paid based on 2023 and 2024 earnings per the purchase agreement. TFI, which is reported in the Company's Aerospace segment, is located near Toronto, Canada. TFI contributed $1.3 million of net sales during third quarter 2022.
We also experienced a significant increase in the cost of energy, primarily in our Europe-based operations, as well as for other input costs in third quarter 2022 compared with third quarter 2021. Energy costs began to rise during late 2021, and have further increased into 2022, which we believe is primarily due to geopolitical tensions associated with the Russia-Ukraine conflict, as well as realized and expected energy supply constraints. Energy costs were more than $2 million and $5 million higher in the three and nine months ended September 30, 2022 than the three and nine months ended September 30, 2021, respectively. We expect there could be additional cost and supply chain pressures going forward as a result of the uncertainty surrounding the conflict in Eastern Europe.
In third quarter 2022, we completed the sale of vacant land adjacent to our Tolleson, Arizona manufacturing facility and recognized a pre-tax gain of $4.8 million within our Aerospace segment. We received pre-tax net cash proceeds of $5.0 million in October 2022.
In third quarter 2022, we terminated our existing cross-currency swap agreements, de-designating the swaps as net investment hedges and received $26.2 million of cash. The cross-currency swap agreements had notional amounts totaling $250.0 million, which declined to $25.0 million over various contract periods ending between October 15, 2023 and October 15, 2027.
On a year-to-date basis, there were three additional significant drivers of change in our year-over-year results of operations.
Beginning in second quarter 2020, we have been executing certain realignment actions in response to current and expected future end market demand following the onset of the COVID-19 pandemic, as well as for the move to our new Packaging facility in New Albany, Ohio. We recorded pre-tax facility move/consolidation and employee-related costs of $2.5 million and $1.8 million, respectively, in the nine months ended September 30, 2022. In the nine months ended September 30, 2021, we recorded pre-tax facility consolidation and employee separation costs of $2.7 million and $6.1 million, respectively.
In March 2021, we refinanced our long-term debt, issuing $400 million principal amount of 4.125% senior unsecured notes due April 15, 2029 ("2029 Senior Notes") at par value in a private placement offering, 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 $5.1 million related to the offering and $1.1 million related to amending the Credit Agreement. The remaining cash proceeds from the 2029 Senior Notes were used for general corporate purposes, including repaying all outstanding revolving credit facility borrowings. In April 2021, we completed the refinancing, redeeming all of our outstanding senior notes due October 2025 ("2025 Senior Notes"), paying cash for the entire $300.0 million outstanding principal amount plus $7.3 million as a redemption premium. 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 $3.0 million of unamortized debt issuance costs associated with the 2025 Senior Notes were expensed in the second quarter of 2021.
Our effective tax rate for the nine months ended September 30, 2022 and 2021 was 25.0% and 19.2%, respectively. The rate for the nine months ended September 30, 2022 is higher primarily as a result of the recognition of $3.0 million of deferred tax benefits in Italy during the nine months ended September 30, 2021, the majority of which related to a reduction in deferred tax liabilities in connection with certain tax incentives.2023.
Additional Key Risks that May Affect Our Reported Results
We have executed significant realignment actions sinceover the onset of the COVID-19 pandemic,past few years, primarily in our Aerospace and Specialty Products segments, and also in certain Packaging product areas where demand has fallen. We will continue to assess further actions if required. However, as a result of the current period of macroeconomic inflation and uncertainty, the continued impact of the COVID-19 pandemic, and the potential impact of such factors 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, asset impairments as well as for uncollectible customer account balances, excess inventory and idle production equipment.
Despite the potential for declines in future demand levels and results of operations, at present, we believe our capital structure is in a strong position. We have sufficient 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 and acceptance 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 criticalCritical 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 chain 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; and our ability to absorb, or recover via commercial actions, inflationary or other cost increases.
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 and availability of our raw materials 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 tocomponents, the factors affecting our 2021 and 2022 results, therecosts for each of which have been somewhat volatile over the past couple of years. 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 or otherwise mitigate the impacts to our operating results.
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 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 TriMas Business Model, our businesses target cost savings from Kaizen and continuous improvement initiatives in an effort to reduce, or otherwise offset, the impact of increased input and conversion costs through increased throughput and yield rates, with a goal of at least covering inflationary and market cost increases. In addition, we continuously review our operating cost structures to ensure alignment with current market demand.
We continue to evaluate alternatives to redeploy the cash generated by our businesses, one of which includes returning capital to our shareholders. In 2020, our Board of Directors increased the authorization of share repurchases to a cumulative amount of $250 million. During thirdfirst quarter 2022,2023, we purchased 76,167350,862 shares of our outstanding common stock for an aggregate purchase price of $2.110.4 million. As of September 30, 2022March 31, 2023, we had $112.7$95.3 million remaining under the repurchase authorization.
In addition, in thirdfirst quarter 2022,2023, we declared dividends of $0.04 per share of common stock and paid dividends of $1.7 million. 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 reportable segments for the three months ended September 30,March 31, 2023 and 2022 and 2021 (dollars in thousands):
| | | Three months ended September 30, | | Three months ended March 31, |
| | | 2022 | | As a Percentage
of Net Sales | | 2021 | | As a Percentage
of Net Sales | | 2023 | | As a Percentage
of Net Sales | | 2022 | | As a Percentage
of Net Sales |
| Net Sales | Net Sales | | | | | | | | Net Sales | | | | | | | |
| Packaging | Packaging | $ | 129,700 | | | 59.3 | % | | $ | 138,010 | | | 62.1 | % | Packaging | $ | 116,220 | | | 53.9 | % | | $ | 138,490 | | | 61.8 | % |
| Aerospace | Aerospace | 45,420 | | | 20.8 | % | | 46,510 | | | 20.9 | % | Aerospace | 49,990 | | | 23.2 | % | | 44,520 | | | 19.8 | % |
| Specialty Products | Specialty Products | 43,410 | | | 19.9 | % | | 37,900 | | | 17.0 | % | Specialty Products | 49,250 | | | 22.9 | % | | 41,300 | | | 18.4 | % |
| Total | Total | $ | 218,530 | | | 100.0 | % | | $ | 222,420 | | | 100.0 | % | Total | $ | 215,460 | | | 100.0 | % | | $ | 224,310 | | | 100.0 | % |
| Gross Profit | Gross Profit | | | | | | | | Gross Profit | | | | | | | |
| Packaging | Packaging | $ | 31,210 | | | 24.1 | % | | $ | 39,410 | | | 28.6 | % | Packaging | $ | 27,240 | | | 23.4 | % | | $ | 36,360 | | | 26.3 | % |
| Aerospace | Aerospace | 8,110 | | | 17.9 | % | | 10,150 | | | 21.8 | % | Aerospace | 8,580 | | | 17.2 | % | | 8,030 | | | 18.0 | % |
| Specialty Products | Specialty Products | 9,010 | | | 20.8 | % | | 8,880 | | | 23.4 | % | Specialty Products | 11,870 | | | 24.1 | % | | 9,320 | | | 22.6 | % |
| Total | Total | $ | 48,330 | | | 22.1 | % | | $ | 58,440 | | | 26.3 | % | Total | $ | 47,690 | | | 22.1 | % | | $ | 53,710 | | | 23.9 | % |
| Selling, General and Administrative Expenses | Selling, General and Administrative Expenses | | | | | | | | Selling, General and Administrative Expenses | | | | | | | |
| Packaging | Packaging | $ | 13,570 | | | 10.5 | % | | $ | 12,070 | | | 8.7 | % | Packaging | $ | 12,850 | | | 11.1 | % | | $ | 15,030 | | | 10.9 | % |
| Aerospace | Aerospace | 8,220 | | | 18.1 | % | | 6,160 | | | 13.2 | % | Aerospace | 7,150 | | | 14.3 | % | | 6,190 | | | 13.9 | % |
| Specialty Products | Specialty Products | 2,240 | | | 5.2 | % | | 2,230 | | | 5.9 | % | Specialty Products | 2,120 | | | 4.3 | % | | 2,080 | | | 5.0 | % |
| Corporate | Corporate | 8,080 | | | N/A | | 7,160 | | | N/A | Corporate | 15,580 | | | N/A | | 8,480 | | | N/A |
| Total | Total | $ | 32,110 | | | 14.7 | % | | $ | 27,620 | | | 12.4 | % | Total | $ | 37,700 | | | 17.5 | % | | $ | 31,780 | | | 14.2 | % |
| Operating Profit (Loss) | Operating Profit (Loss) | | | | | | | | Operating Profit (Loss) | | | | | | | |
| Packaging | Packaging | $ | 17,590 | | | 13.6 | % | | $ | 27,340 | | | 19.8 | % | Packaging | $ | 14,390 | | | 12.4 | % | | $ | 21,330 | | | 15.4 | % |
| Aerospace | Aerospace | 4,710 | | | 10.4 | % | | 3,980 | | | 8.6 | % | Aerospace | 1,430 | | | 2.9 | % | | 1,840 | | | 4.1 | % |
| Specialty Products | Specialty Products | 6,760 | | | 15.6 | % | | 6,660 | | | 17.6 | % | Specialty Products | 9,750 | | | 19.8 | % | | 7,240 | | | 17.5 | % |
| Corporate | Corporate | (8,080) | | | N/A | | (7,160) | | | N/A | Corporate | (15,580) | | | N/A | | (8,480) | | | N/A |
| Total | Total | $ | 20,980 | | | 9.6 | % | | $ | 30,820 | | | 13.9 | % | Total | $ | 9,990 | | | 4.6 | % | | $ | 21,930 | | | 9.8 | % |
| Depreciation | Depreciation | | | | | | | | Depreciation | | | | | | | |
| Packaging | Packaging | $ | 5,490 | | | 4.2 | % | | $ | 5,280 | | | 3.8 | % | Packaging | $ | 5,950 | | | 5.1 | % | | $ | 5,540 | | | 4.0 | % |
| Aerospace | Aerospace | 1,820 | | | 4.0 | % | | 1,670 | | | 3.6 | % | Aerospace | 1,860 | | | 3.7 | % | | 1,900 | | | 4.3 | % |
| Specialty Products | Specialty Products | 850 | | | 2.0 | % | | 930 | | | 2.5 | % | Specialty Products | 920 | | | 1.9 | % | | 990 | | | 2.4 | % |
| Corporate | Corporate | 30 | | | N/A | | 30 | | | N/A | Corporate | 30 | | | N/A | | 40 | | | N/A |
| Total | Total | $ | 8,190 | | | 3.7 | % | | $ | 7,910 | | | 3.6 | % | Total | $ | 8,760 | | | 4.1 | % | | $ | 8,470 | | | 3.8 | % |
| Amortization | Amortization | | | | | | | | Amortization | | | | | | | |
| Packaging | Packaging | $ | 1,440 | | | 1.1 | % | | $ | 2,380 | | | 1.7 | % | Packaging | $ | 1,560 | | | 1.3 | % | | $ | 2,170 | | | 1.6 | % |
| Aerospace | Aerospace | 3,010 | | | 6.6 | % | | 2,870 | | | 6.2 | % | Aerospace | 2,910 | | | 5.8 | % | | 3,010 | | | 6.8 | % |
| Specialty Products | Specialty Products | 110 | | | 0.3 | % | | 120 | | | 0.3 | % | Specialty Products | 120 | | | 0.2 | % | | 110 | | | 0.3 | % |
| Corporate | Corporate | — | | | N/A | | — | | | N/A | Corporate | — | | | N/A | | — | | | N/A |
| Total | Total | $ | 4,560 | | | 2.1 | % | | $ | 5,370 | | | 2.4 | % | Total | $ | 4,590 | | | 2.1 | % | | $ | 5,290 | | | 2.4 | % |
The following table summarizes financial information for our reportable segments for the nine months ended September 30, 2022 and 2021 (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine months ended September 30, |
| | 2022 | | As a Percentage
of Net Sales | | 2021 | | As a Percentage
of Net Sales |
| Net Sales | | | | | | | |
| Packaging | 416,540 | | | 61.2 | % | | 409,730 | | | 63.2 | % |
| Aerospace | 137,330 | | | 20.2 | % | | 135,680 | | | 21.0 | % |
| Specialty Products | 126,650 | | | 18.6 | % | | 102,730 | | | 15.8 | % |
| Total | $ | 680,520 | | | 100.0 | % | | $ | 648,140 | | | 100.0 | % |
| Gross Profit | | | | | | | |
| Packaging | 109,350 | | | 26.3 | % | | 113,770 | | | 27.8 | % |
| Aerospace | 25,760 | | | 18.8 | % | | 30,430 | | | 22.4 | % |
| Specialty Products | 27,610 | | | 21.8 | % | | 23,600 | | | 23.0 | % |
| Total | $ | 162,720 | | | 23.9 | % | | $ | 167,800 | | | 25.9 | % |
| Selling, General and Administrative Expenses | | | | | | | |
| Packaging | 42,400 | | | 10.2 | % | | 37,090 | | | 9.1 | % |
| Aerospace | 21,270 | | | 15.5 | % | | 19,840 | | | 14.6 | % |
| Specialty Products | 6,800 | | | 5.4 | % | | 6,460 | | | 6.3 | % |
| Corporate | 24,010 | | | N/A | | 26,780 | | | N/A |
| Total | $ | 94,480 | | | 13.9 | % | | $ | 90,170 | | | 13.9 | % |
| Operating Profit (Loss) | | | | | | | |
| Packaging | 66,720 | | | 16.0 | % | | 76,490 | | | 18.7 | % |
| Aerospace | 9,300 | | | 6.8 | % | | 10,600 | | | 7.8 | % |
| Specialty Products | 20,770 | | | 16.4 | % | | 17,190 | | | 16.7 | % |
| Corporate | (24,010) | | | N/A | | (26,780) | | | N/A |
| Total | $ | 72,780 | | | 10.7 | % | | $ | 77,500 | | | 12.0 | % |
| Depreciation | | | | | | | |
| Packaging | 16,690 | | | 4.0 | % | | 15,680 | | | 3.8 | % |
| Aerospace | 5,730 | | | 4.2 | % | | 5,260 | | | 3.9 | % |
| Specialty Products | 2,820 | | | 2.2 | % | | 2,710 | | | 2.6 | % |
| Corporate | 100 | | | N/A | | 90 | | | N/A |
| Total | $ | 25,340 | | | 3.7 | % | | $ | 23,740 | | | 3.7 | % |
| Amortization | | | | | | | |
| Packaging | 5,230 | | | 1.3 | % | | 7,180 | | | 1.8 | % |
| Aerospace | 9,030 | | | 6.6 | % | | 8,630 | | | 6.4 | % |
| Specialty Products | 340 | | | 0.3 | % | | 340 | | | 0.3 | % |
| Corporate | — | | | N/A | | — | | | N/A |
| Total | $ | 14,600 | | | 2.1 | % | | $ | 16,150 | | | 2.5 | % |
Results of Operations
The principal factors impacting us during the three months ended September 30, 2022,March 31, 2023, compared with the three months ended September 30, 2021,March 31, 2022, were:
•the impact on global business activity of the COVID-19 pandemic, as well as volatility and inflationary pressure on input costs, supply chain and labor availability;
•an abrupt reductionreductions in demand for beauty and personal care and home care products in our Packaging segment;certain end markets due to significant customer inventory rebalancing;
•the impact of recent acquisitions, primarily OmegaIntertech and TFI in December 2021, and Intertech in February 2022;Aarts;
•the sale of vacant land in Tolleson, Arizona and the related pre-tax gain recognizedsignificant demand increases in our Aerospace segment.
•the impact of higher energy costs;and Specialty Products segments; and
•the terminationhigher business diligence and consulting fees in support of our existing cross-currency swaps.growth initiatives.
Three Months Ended September 30, 2022March 31, 2023 Compared with Three Months Ended September 30, 2021March 31, 2022
Overall, net sales decreased $3.9$8.9 million, or 1.7%3.9%, to $218.5$215.5 million for the three months ended September 30, 2022,March 31, 2023, as compared with $222.4$224.3 million in the three months ended September 30, 2021. OurMarch 31, 2022. Acquisition-related sales growth was $9.5 million, comprised of $5.2 million resulting from the January through February 2023 sales of our February 2022 acquisition of Intertech Omega and TFI acquisitions collectively added $12.8$4.3 million from our February 2023 acquisition of sales for third quarter 2022. Aarts. Organic sales, excluding thethe impact of currency exchange and acquisitions, decreased $10.6$15.9 million, as increases in our Specialty Products segment as well as for food and beverageAerospace segments driven by end market demand improvements were more than offset by decreases in ourthe Packaging segment were partially offset by declinesdue to lower market demand, primarily as a result of industrial products and dispensing products that help fight the spreadseveral of germs in our Packaging segment and the expected reduction in sales oflarger customers' stocking orders for highly-engineered fasteners in our Aerospace segment.choices to rebalance their inventory levels. In addition, net sales decreased by $6.1 million due to currency exchange, as our reported results in U.S. dollars were unfavorably impacted as a result of a strengthening U.S. dollar relative to foreign currencies.
Gross profit margin (gross profit as a percentage of sales) approximated 22.1% and 26.3% for the three months ended September 30, 2022 and 2021, respectively. Gross profit margin decreased due to a less favorable sales mix, primarily as a result of lower sales of Aerospace segment customers' stocking orders for highly-engineered fasteners, as well as production inefficiencies resulting from supply chain constraints and volatility in labor availability during the three months ended September 30, 2022. In addition, improved recovery of resin costs in our Packaging segment was more than offset by higher energy costs, primarily in our Packaging segment's European facilities, higher steel costs in our Specialty Products segment, and unfavorable currency exchange.
Operating profit margin (operating profit as a percentage of sales) approximated 9.6% and 13.9% for the three months ended September 30, 2022 and 2021, respectively. Operating profit decreased $9.8 million to $21.0 million in the three months ended September 30, 2022, from $30.8 million for the three months ended September 30, 2021, primarily due to lower sales levels, a less favorable product sales mix, higher energy and steel costs, increased production inefficiencies resulting from supply chain constraints and volatility in labor availability, as well as unfavorable currency exchange, all partially offset by a pre-tax gain of $4.8 million within our Aerospace segment for the sale of vacant land adjacent to our Tolleson, Arizona manufacturing facility.
Interest expense increased $0.2 million, to $3.6 million for the three months ended September 30, 2022, compared to $3.4 million for the three months ended September 30, 2021, due to a higher effective interest rate as a result of lower notional amounts of cross-currency swaps.
Other income (expense) increased $1.4 million to $0.9 million of income for the three months ended September 30, 2022, as compared to $0.5 million of expense for the three months ended September 30, 2021, primarily due to an increase in foreign currency transaction gains.
The effective income tax rate for the three months ended September 30, 2022 and 2021 was 27.1% and 27.0%, respectively. We recorded income tax expense of $4.9 million and $7.3 million for the three months ended September 30, 2022 and 2021, respectively.
Net income decreased $6.3 million, to $13.3 million for the three months ended September 30, 2022, as compared to $19.6 million for the three months ended September 30, 2021. The decrease was primarily the result of a decrease in operating profit of $9.8 million and an increase in interest expense of $0.2 million, partially offset by a decrease in income tax expense of $2.3 million and an increase in other income of $1.4 million.
See below for a discussion of operating results by segment.
Packaging. Net sales decreased $8.3 million, or 6.0%, to $129.7 million in the three months ended September 30, 2022, as compared to $138.0 million in the three months ended September 30, 2021. Our recent Intertech and Omega acquisitions collectively contributed $11.5 million of sales during the three months ended September 30, 2022. Sales of products used in food and beverage markets increased by $0.9 million, primarily due to strong demand for closures, dispensers and flexible packaging as the hospitality sector continues to rebound from prior COVID-19 pandemic-related shutdowns. Sales of products used in industrial markets decreased by $2.2 million, primarily as a result of lower demand for drum closure products in North America. Sales of dispensing products used in beauty and personal care, as well as home care, applications that help fight the spread of germs decreased by $13.7 million, primarily due to a reduction in demand from our large consumer goods customers that are choosing to rebalance on-hand inventory levels given the current macro-economic environment. Net sales decreased by $6.1 million due to currency exchange, as our reported results in U.S. dollars were unfavorably impacted as a result of the strengthening U.S. dollar relative to foreign currencies, as compared to third quarter 2021.
Gross profit decreased $8.2 million to $31.2 million, or 24.1% of sales, in the three months ended September 30, 2022, as compared to $39.4 million, or 28.6% of sales, in the three months ended September 30, 2021. During third quarter 2021, we were impacted by $3 million of higher resin costs than we were able to recover via commercial actions, while in third quarter 2022, we were generally able to recover current resin costs. Gross profit declined in third quarter 2022 due to lower sales levels, $2.2 million of higher energy costs, primarily in our European manufacturing facilities, and $1.6 million of unfavorable currency exchange, as our reported results in U.S. dollars were impacted as a result of the strengthening U.S. dollar relative to foreign currencies. Gross profit margin was also adversely impacted by a less favorable product sales mix.
Selling, general and administrative expenses increased $1.5 million to $13.6 million, or 10.5% of sales, in the three months ended September 30, 2022, as compared to $12.1 million, or 8.7% of sales, in the three months ended September 30, 2021, primarily due to higher ongoing selling, general and administrative costs associated with our acquisitions as we continue to integrate them into our portfolio. Selling, general and administrative expenses would have been approximately flat year-over-year in third quarter without consideration of the Omega and Intertech expenses.
Operating profit decreased $9.8 million to $17.6 million, or 13.6% of sales, in the three months ended September 30, 2022, as compared to $27.3 million, or 19.8% of sales, in the three months ended September 30, 2021, as the impact of improved recovery of material costs was offset by lower sales levels, a less favorable product sales mix, higher energy costs, higher selling, general and administrative expenses and the impact of $0.7 million of unfavorable currency exchange.
Aerospace. Net sales for the three months ended September 30, 2022 decreased $1.1 million, or 2.3%, to $45.4 million, as compared to $46.5 million in the three months ended September 30, 2021. Our December 2021 acquisition of TFI contributed $1.3 million in sales. Sales of our fasteners products decreased by $2.5 million, as increases in demand for fasteners used in new aircraft builds plus market share gains were more than offset by the expected loss of more than $6 million of third quarter 2021 sales of customers' stocking orders for highly-engineered fasteners. Sales of our engineered components products increased by $0.1 million.
Gross profit decreased $2.0 million to $8.1 million, or 17.9% of sales, in the three months ended September 30, 2022, from $10.2 million, or 21.8% of sales, in the three months ended September 30, 2021, primarily due to a less favorable product sales mix in third quarter 2022, with lower sales of the customers' stocking orders for highly-engineered fasteners, as well as production inefficiencies resulting from supply chain constraints and volatility in labor availability.
Selling, general and administrative expenses increased $2.1 million to $8.2 million, or 18.1% of sales, in the three months ended September 30, 2022, as compared to $6.2 million, or 13.2% of sales, in the three months ended September 30, 2021, primarily due to higher ongoing selling, general and administrative costs associated with our acquisition of TFI and due to higher employee-related costs.
Operating profit increased $0.7 million to $4.7 million, or 10.4% of sales, in the three months ended September 30, 2022, as compared to $4.0 million, or 8.6% of sales, in the three months ended September 30, 2021, primarily due to a $4.8 million pre-tax gain on the sale of vacant land adjacent to our Tolleson, Arizona manufacturing facility in third quarter 2022, which was largely offset by a less favorable product sales mix, production inefficiencies resulting from supply chain constraints and volatility in labor availability and higher employee-related costs.
Specialty Products. Net sales for the three months ended September 30, 2022 increased $5.5 million, or 14.5%, to $43.4 million, as compared to $37.9 million in the three months ended September 30, 2021. Sales of our cylinder products increased $2.2 million due to higher demand for steel cylinders in North America, as industrial activity continues to increase from depressed levels as a result of the COVID-19 pandemic. Sales of engines, compressors and related parts used in stationary power generation and assistance applications for natural gas and crude oil extraction increased by $3.3 million, primarily as a result of higher oil-field activity in North America.
Gross profit increased $0.1 million to $9.0 million, or 20.8% of sales, in the three months ended September 30, 2022, as compared to $8.9 million, or 23.4% of sales, in the three months ended September 30, 2021. Gross profit increased in the third quarter of 2022 due to higher sales levels, while margins decreased due to higher steel costs as well as a less favorable product sales mix.
Selling, general and administrative expenses stayed relatively flat at $2.2 million, or 5.2% of sales, in the three months ended September 30, 2022, as compared to $2.2 million, or 5.9% of sales, in the three months ended September 30, 2021.
Operating profit increased $0.1 million to $6.8 million, or 15.6% of sales, in the three months ended September 30, 2022, as compared to $6.7 million, or 17.6% of sales, in the three months ended September 30, 2021, primarily due to increased sales levels which were partially offset by higher steel costs as well as a less favorable product sales mix.
Corporate. Corporate expenses consist of the following (dollars in millions):
| | | | | | | | | | | | | | |
| | | Three months ended September 30, |
| | | 2022 | | 2021 |
| Corporate operating expenses | | $ | 5.5 | | | $ | 5.5 | |
| Non-cash stock compensation | | 2.4 | | | 1.6 | |
| Legacy expenses | | 0.2 | | | 0.1 | |
| Corporate expenses | | $ | 8.1 | | | $ | 7.2 | |
Corporate expenses increased $0.9 million to $8.1 million for the three months ended September 30, 2022, from $7.2 million for the three months ended September 30, 2021, primarily as a result of an increase in non-cash stock compensation due to timing differences in expense recognition as well as higher estimated attainment of awards in three months ended September 30, 2022 compared to the three months ended September 30, 2021.
Nine Months Ended September 30, 2022 Compared with Nine Months Ended September 30, 2021
Overall, net sales increased $32.4 million, or 5.0%, to $680.5 million for the nine months ended September 30, 2022, as compared with $648.1 million in the nine months ended September 30, 2021, primarily as a result of our Intertech, Omega and TFI acquisitions, which collectively added $37.6 million of sales. Organic sales, excluding the impact of currency exchange and acquisitions, increased $8.1 million, as increases of industrial products in our Specialty Products segment as well as for food and beverage and industrial products in our Packaging segment were partially offset by declines in dispensing products that help fight the spread of germs in our Packaging segment, as demand for these products abated from peak levels following the pandemic, as well as the expected loss of sales of customers' stocking orders for highly-engineered fasteners in our Aerospace segment. In addition, net sales decreased by $13.4$2.6 million due to currency exchange, as our reported results in U.S. dollars were unfavorably impacted as a result of a strengthening U.S. dollar relative to foreign currencies.
Gross profit margin (gross profit as a percentage of sales) approximated 23.9%22.1% and 25.9%23.9% for the ninethree months ended September 30,March 31, 2023 and 2022, and 2021, respectively.respectively. Gross profit margin decreased primarily due to lower sales and lower absorption of fixed costs within the Packaging segment, a less favorable product sales mix primarily as a result of lower sales ofand inefficiencies driven by material availability delays within the Aerospace segment, customers' stocking orders for highly-engineered fasteners, as well as due to production inefficiencies resulting from supply chain constraints and volatility in labor availability during the nine months ended September 30, 2022. In addition, higher sales and improved recovery of resin costs in our Packaging segment waspartially offset by higher energy costs, primarily in our European Packaging segment facilities, higher steel costs in ourmargin improvement within the Specialty Products segment and unfavorable currency exchange.due to higher sales leveraged across our existing fixed costs.
Operating profit margin (operating profit as a percentagepercentage of sales) approximated 10.7%4.6% and 12.0%9.8% for the ninethree months ended September 30,March 31, 2023 and 2022, and 2021, respectively. Operating profit decreased $4.7$11.9 million to $72.8$10.0 million in the three months ended March 31, 2023, from $21.9 million for the ninethree months ended September 30,March 31, 2022, compared to $77.5 million for the nine months ended September 30, 2021, primarily due to lower sales levels and lower absorption of fixed costs within our Packaging segment, a less favorable product sales mix, production inefficiencies resulting from supply chain constraintsmaterial availability delays in our Aerospace segment, and volatilityhigher selling, general and administrative expenses in labor availabilityour Aerospace segment, and unfavorable currency exchange,an increase in professional fees, partially offset by improved recovery of resin costs, $4.4 million of lower realignment costshigher sales levels and a pre-tax gain of $4.8 millionfavorable product sales mix within our Aerospace segment for the sale of vacant land adjacent to our Tolleson, Arizona manufacturing facility.Specialty Products segment.
Interest expense decreased $0.6increased $0.3 million, to $10.5$3.7 million for the ninethree months ended September 30, 2022, asMarch 31, 2023, compared to $11.1$3.4 million for the ninethree months ended September 30, 2021,March 31, 2022, due to a lowerhigher effective interest rate andas a decrease in our weighted average borrowings.
In the nine months ended September 30, 2021, we incurred $10.5 millionresult of debt financing and related expenses,lower notional amounts of which $10.3 million related to expenses associated with the redemption of our 2025 Senior Notes and $0.2 million related to the write-off of previously capitalized deferred financing fees associated with our Credit Agreement.cross-currency swaps.
Other income (expense) increased $1.7decreased $0.2 million to $0.9 million of income for the nine months ended September 30, 2022, as compared to $0.8$0.1 million of expense for the ninethree months ended September 30, 2021,March 31, 2023, as compared to $0.3 million of expense for the three months ended March 31, 2022, primarily due to an increasea decrease in losses on transactions denominated in foreign currency transaction gains.currencies.
The effective income tax rate for the ninethree months ended September 30,March 31, 2023 and 2022 was 21.1% and 2021 was 25.0% and 19.2%22.3%, respectively. We recorded income tax expense of $15.8$1.3 million and $4.1 million for the ninethree months ended September 30, March 31, 2023 and 2022, respectively.
Net income decreased $9.3 million, to $4.9 million for the three months ended March 31, 2023, as compared to $10.6$14.2 million for the ninethree months ended September 30, 2021.March 31, 2022. The rate for the nine months ended September 30, 2022 is higher than in the prior year as the effective tax rate for the nine months ended September 30, 2021 was impacted by the recognition of $3.0 million of deferred tax benefits in Italy, the majority of which related to a reduction in deferred tax liabilities in connection with certain tax incentives.
Net income increased by $2.8 million, to $47.3 million for the nine months ended September 30, 2022, compared to $44.5 million for the nine months ended September 30, 2021. The increasedecrease was primarily the result of a decrease in debt financing and related expensesoperating profit of $10.5 million, an increase in other income of $1.7$11.9 million and a decreasean increase in interest expense of $0.6$0.3 million, partially offset by a decrease in operating profit of $4.7 million and an increase in income tax expense of $5.2$2.8 million and a decrease in other expense of $0.2 million.
See below for a discussion of operating results by segment.
Packaging. Net sales increased $6.8decreased $22.3 million, or 1.7%16.1%, to $416.5$116.2 million in the ninethree months ended September 30, 2022,March 31, 2023, as compared to $409.7$138.5 million in the ninethree months ended September 30, 2021. Our recentMarch 31, 2022. Acquisition-related sales growth was $9.5 million, comprised of $5.2 million resulting from the January through February 2023 sales of our February 2022 acquisition of Intertech and Omega acquisitions collectively contributed $33.5$4.3 million from our February 2023 acquisition of sales during the nine months ended September 30, 2022.Aarts. Sales of products used in food and beverage markets increaseddecreased by $21.1$9.8 million, primarily due to stronglower demand for closures dispensers and flexible packaging as the hospitality sector continues to rebound from prior COVID-19 pandemic-related shutdowns.dispensers. Sales of products used in industrial markets increaseddecreased by $4.8$9.8 million, primarily as a result of higherlower demand for drum closure products in North America. Sales of dispensing products used in beauty and personal care, as well as home care, applications that help fight the spread of germs decreased by $37.6 million,$9.7 million. We believe that the decrease in sales in each of these categories reflects ongoing actions by many of our customers to work-down elevated inventory positions and closely manage their order activity given continuing uncertainty around consumer sentiment as COVID-19-related demand levels have abated for these products froma result of the peak levels, as well as more recently due to further lower demand from large consumer goods customers who have communicated they are rebalancing on-hand inventory levels given the current macro-economicinflationary environment. Net sales decreased by $13.2$2.5 million due to currency exchange, as our reported results in U.S. dollars were unfavorably impacted as a result of the strengthening U.S. dollar relative to foreign currencies, as compared to first quarter 2022.
Gross profit decreased $9.1 million to $27.2 million, or 23.4% of sales, in the ninethree months ended 2021.
Packaging's gross profit decreased $4.4 millionMarch 31, 2023, as compared to $109.4$36.4 million, or 26.3% of sales, in the ninethree months ended September 30,March 31, 2022, as comparedprimarily due to $113.8 million, or 27.8%lower sales and resulting lower absorption of sales,fixed costs. Gross profit further declined in the nine months ended September 30, 2021. During the first nine months of 2021, we were impacted by $9quarter 2023 due to $0.8 million of higher resin costs than we were able to recover via commercial actions. We have generally been able to recover such costs during the first nine months of 2022, as market prices have generally stabilized. The increase in gross profit from higher sales levels and improved material cost recovery was more than offset by $5.2 million of higher energy costs, primarily in our European manufacturing facilities, as well as $3.4 million ofunfavorable currency exchange, as our reported results in U.S. dollars were unfavorably impacted as a result of the strengthening U.S. dollar relative to foreign currencies. In addition,The decrease in gross profit margin declined as a resultwas partially offset by $1.2 million of a less favorable product sales mix.lower energy costs compared with the spike in costs in first quarter 2022, primarily in the Europe-based operations.
Packaging's selling,Selling, general and administrative expenses increased $5.3decreased $2.2 million to $42.4$12.9 million, or 10.2%11.1% of sales, in the ninethree months ended September 30, 2022,March 31, 2023, as compared to $37.1$15.0 million, or 9.1%10.9% of sales, in the ninethree months ended September 30, 2021,March 31, 2022, primarily due to higher ongoing selling, general and administrative$1.3 million of employee-related costs associated with our acquisitions as we integrate them into our portfolio, as well as higher employee-related expenses as a result of our realignment actions partially offset byin first quarter of 2022, that did not repeat in first quarter of 2023. In addition, we incurred lower intangible asset amortization expense due to certain assets becoming fully amortized.amortized, as well as lowered overall spending levels in first quarter 2023, consistent with current lower demand levels. These decreases offset the higher ongoing selling, general and administrative costs associated with our acquisitions.
Packaging's operatingOperating profit decreased $9.8$6.9 million to $66.7$14.4 million, or 16.0%12.4% of sales, in the ninethree months ended September 30, 2022,March 31, 2023, as compared to $76.5$21.3 million, or 18.7%15.4% of sales, in the ninethree months ended September 30, 2021,March 31, 2022, as the impact of higher sales levels and improved recovery of material costs was offset by a less favorable product sales mix, higher energy costs, higherlower selling, general and administrative expenses and energy costs was more than offset by lower sales levels, lower absorption of fixed costs and the impact of $1.7$0.3 million of unfavorable currency exchange.
Aerospace. Net sales for the ninethree months ended September 30, 2022March 31, 2023 increased $1.7$5.5 million, or 1.2%12.3%, to $137.3$50.0 million, as compared to $135.7$44.5 million in the ninethree months ended September 30, 2021. Our December 2021 acquisition of TFI contributed $4.1 million in sales.March 31, 2022. Sales of our fasteners products decreasedincreased by $1.8$3.5 million asdue to increases in demand for fasteners used in new aircraft builds plus market share gains was more than offset by the expected loss of sales of customers' stocking orders for highly-engineered fasteners that were predominantly fulfilled throughout 2021.gains. Sales of our engineered components products decreasedincreased by $0.6$2.0 million primarily due to lowerhigher end market demand.
Gross profit within Aerospace decreased $4.7increased $0.6 million to $25.8$8.6 million, or 18.8%17.2% of sales, in the ninethree months ended September 30, 2022,March 31, 2023, from $30.4$8.0 million, or 22.4%18.0% of sales, in the ninethree months ended September 30, 2021,March 31, 2022. Gross profit dollars increased primarily due to higher sales levels, while gross profit margin declined due to a less favorable product sales mix in the first nine months of 2022, with lower sales of the customers' stocking orders for highly-engineered fasteners, as well as productionand inefficiencies resulting from supply chaindriven by material availability constraints and volatility in labor availability.
Selling, general and administrative expenses increased $1.4$1.0 million to $21.3$7.2 million, or 15.5%14.3% of sales, in the ninethree months ended September 30, 2022,March 31, 2023, as compared to $19.8$6.2 million, or 14.6%13.9% of sales, in the ninethree months ended September 30, 2021,March 31, 2022, primarily due to higher ongoing selling, general and administrative costs associated with our acquisition of TFI and higher employee-related costs partially offset by lower third-party expenses.in support of the increased sales levels.
Operating profit within Aerospace decreased $1.3$0.4 million to $9.3$1.4 million, or 6.8%2.9% of sales, in the ninethree months ended September 30, 2022,March 31, 2023, as compared to $10.6$1.8 million, or 7.8%4.1% of sales, in the ninethree months ended September 30, 2021,March 31, 2022, as the impact of a $4.8 million pre-tax gain on the sale of vacant land adjacent to our Tolleson, Arizona manufacturing facility in third quarter 2022 and higher sales levels was more than offset by a less favorable product sales mix, production inefficiencies resulting from supply chain constraints and volatility in labormaterial availability delays, and higher selling, general and administrative expenses.
Specialty Products. Net sales for the ninethree months ended September 30, 2022March 31, 2023 increased $23.9$8.0 million, or 23.3%19.2%, to $126.7$49.3 million, as compared to $102.7$41.3 million in the ninethree months ended September 30, 2021.March 31, 2022. Sales of our cylinder products increased $15.1$3.5 million due to higher demand for steel cylinders in North America as industrial activity continues to increase from depressed levels as a result of the COVID-19 pandemic.America. Sales of engines, compressors and related parts used in stationary power generation and assistance applications for natural gas and crude oil extraction increased by $8.8$4.5 million, primarily as a result of higher oil-field activity in North America.
Gross profit within Specialty Products increased $4.0$2.6 million to $27.6$11.9 million, or 21.8%24.1% of sales, in the ninethree months ended September 30, 2022,March 31, 2023, as compared to $23.6$9.3 million, or 23.0%22.6% of sales, in the ninethree months ended September 30, 2021.March 31, 2022. Gross profit increased due toin the first quarter of 2023 primarily as a result of higher sales levels, while margins decreasedmargin also improved due to leveraging the higher steel costs.sales levels with the existing cost footprint.
Selling, general and administrative expenses within Specialty Products increased $0.3 million to $6.8were flat at $2.1 million, or 5.4%4.3% of sales, in the ninethree months ended September 30, 2022,March 31, 2023, as compared to $6.5$2.1 million, or 6.3%5.0% of sales, in the ninethree months ended September 30, 2021,March 31, 2022, as the business leveraged the higher sales levels without need for incremental spending.
Operating profit increased $2.5 million to $9.8 million, or 19.8% of sales, in the three months ended March 31, 2023, as compared to $7.2 million, or 17.5% of sales, in the three months ended March 31, 2022, primarily due to higher employment and spending levels in support of the increase in sales levels.
Operating profit within Specialty Products increased $3.6 million to $20.8 million, or 16.4% of sales, in the nine months ended September 30, 2022, as compared to $17.2 million, or 16.7% of sales, in the nine months ended September 30, 2021, primarily due to increased sales levels.
Corporate. Corporate expenses net consist of the following (dollars in millions):
| | | | | Nine months ended September 30, | | | Three months ended March 31, |
| | | | 2022 | | 2021 | | | 2023 | | 2022 |
| Corporate operating expenses | Corporate operating expenses | | $ | 15.9 | | | $ | 18.5 | | Corporate operating expenses | | $ | 12.5 | | | $ | 5.5 | |
| Non-cash stock compensation | Non-cash stock compensation | | 7.7 | | | 7.3 | | Non-cash stock compensation | | 2.9 | | | 2.8 | |
| Legacy expenses | Legacy expenses | | 0.4 | | | 1.0 | | Legacy expenses | | 0.2 | | | 0.2 | |
| Corporate expenses | Corporate expenses | | $ | 24.0 | | | $ | 26.8 | | Corporate expenses | | $ | 15.6 | | | $ | 8.5 | |
Corporate expenses decreased $2.8increased $7.1 million to $24.0$15.6 million for the ninethree months ended September 30, 2022,March 31, 2023, from $26.8$8.5 million for the ninethree months ended September 30, 2021,March 31, 2022, due to $3.9 million higher professional fees primarily for business diligence and consulting as a resultwell as $0.6 million increased incentive compensation expense in the three months ended March 31, 2023 as compared to the three months ended March 31, 2022, in addition to $1.5 million of the realignment chargescosts now reported as corporate operating expenses related to the corporate office legal and finance groupscentralizing certain of our information technology costs in the ninethree months ended September 30, 2021.March 31, 2023.
Liquidity and Capital Resources
Cash Flows
Cash flows provided by operating activities were $46.6$9.7 million for the ninethree months ended September 30, 2022,March 31, 2023, as compared to $77.7$5.7 million for the ninethree months ended September 30, 2021.March 31, 2022. Significant changes in cash flows provided by operating activities and the reasons for such changes were as follows:
•For the ninethree months ended September 30, 2022,March 31, 2023, the Company generated $88.5$24.0 million in cash flows, based on the reported net income of $47.3$4.9 million and after considering the effects of non-cash items related to depreciation, amortization, (gain) loss on dispositions of assets, changes in deferred income taxes, stock-based compensation and other operating activities. For the ninethree months ended September 30, 2021,March 31, 2022, the Company generated $110.2$34.8 million in cash flows based on the reported net income of $44.5$14.2 million and after considering the effects of similar non-cash items and debt financing and related expenses.items.
•Increases in accounts receivable resulted in a use of cash of $14.8$11.9 million and $23.3$22.3 million for the ninethree months ended September 30,March 31, 2023 and 2022, and 2021, respectively. The increased use of cash for each of the ninethree month periods is due primarily to the timing of sales and collection of cash related thereto within the periods. Days sales outstanding of receivables increased by fourthree days through the ninethree months ended September 30, 2022March 31, 2023, and increased by twosix days through the ninethree months ended September 30, 2021.March 31, 2022.
•We increased our investment in inventory by $19.0$1.6 million and $5.9$0.9 million for the ninethree months ended September 30,March 31, 2023 and 2022, respectively. Our days sales in inventory decreased by two days through the three months ended March 31, 2023, and 2021, respectively. The increasedecreased by three days through the three months ended March 31, 2022, as we continue to moderate inventory levels in 2022 is primarily a result of proactively investing in certain raw materials and purchased components to protect against supply chain disruptions and potential cost increases.line with sales levels.
•IncreasesA decrease in prepaid expenses and other assets resulted in a source of cash of $1.5 million for the three months ended March 31, 2023, while an increase in prepaid expenses and other assets resulted in a use of cash of $1.2 million and $3.8$0.7 million for the ninethree months ended September 30, 2022 and 2021, respectively.March 31, 2022. These changes were primarily a result of the timing of payments made for income taxes and certain operating expenses.
•A decreaseDecreases in accounts payable and accrued liabilities resulted in a use of cash of $6.9$2.4 million and $5.2 million for the ninethree months ended September 30,March 31, 2023 and 2022, while an increase in accounts payable and accrued liabilities resulted in a source of cash of $0.5 million for the nine months ended September 30, 2021.respectively. Days accounts payable on hand remained consistentdecreased by three days through the ninethree months ended September 30, 2022 and 2021.March 31, 2023 while remaining consistent through the three months ended March 31, 2022. Our days accounts payable on hand fluctuate primarily as a result of the timing of payments made to suppliers and the mix of vendors and related terms.
Net cash used for investing activities for the ninethree months ended September 30,March 31, 2023 and 2022 and 2021 was $69.5$52.6 million and $29.7$75.8 million, respectively. During the first ninethree months of 2022,2023, we invested $31.8$14.8 million in capital expenditures, as we continued our investment in growth, capacity and productivity-related capital projects, and paid $64.1$37.8 million, net of cash acquired, to acquire Intertech, and received proceeds of $26.2 million from the termination of our cross-currency swap agreements.Aarts. During the first ninethree months of 2021,2022, we invested $29.9$11.9 million in capital expenditures. While we sold the land adjacentexpenditures and paid $64.0 million, net of cash acquired, to our Tolleson, Arizona manufacturing facility during third quarter 2022, we did not receive the cash proceeds until October 2022.acquire Intertech.
Net cash used for financing activities for the ninethree months ended September 30,March 31, 2023 and 2022 was $37.5$17.3 million while net cash provided by financing activities was $15.0and $11.8 million, forrespectively. During the ninethree months ended September 30, 2021. During the nine months ended September 30, 2022,March 31, 2023, we purchased $30.0$10.4 million of outstanding common stock, used a net cash amount of $2.4$2.3 million related to our stock compensation arrangements, paid dividends of $1.7 million and paid $3.0 million related to liabilities assumed in our acquisition of Aarts. During the three months ended March 31, 2022, we purchased $9.1 million of outstanding common stock, used a net cash amount of $1.0 million related to our stock compensation arrangements, and paid dividends of $5.2$1.7 million. During the nine months ended September 30, 2021, we issued $400.0 million principal amount of the 2029 Senior Notes, made net repayments of $48.6 million on our revolving credit facilities, and redeemed $300.0 million principal amount of the 2025 Senior Notes. In connection with refinancing our long-term debt, we paid $13.6 million of debt financing fees and redemption premium. We also purchased $18.2 million of outstanding common stock and used a net cash amount of $4.7 million related to our stock compensation arrangements.
Our Debt and Other Commitments
In March 2021, we issued the$400.0 million aggregate principal amount of 4.125% senior notes due April 15, 2029 ("Senior NotesNotes") at par value in a private placement under Rule 144A of the Securities Act of 1933, as amended. We used the proceeds from the 2029amended ("Securities Act"). The Senior Notes offering to pay fees and expenses of $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 to retire the outstanding principal amount plus $7.3 million as a redemption premium. The remaining cash proceeds from the 2029 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 were capitalized as debt issuance costs, while the $7.3 million redemption premium, as well as $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 income.
The 2029 Senior Notes accrueaccrues interest at a rate of 4.125% per annum, payable semi-annually in arrears on April 15 and October 15. The payment of principal and interest is jointly and severally guaranteed, on a senior unsecured basis, by certain subsidiaries of the 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 April 15, 2024, we may redeem up to 40% of the principal amount of the 2029 Senior Notes at a redemption price of 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.
For the ninethree months ended September 30, 2022,March 31, 2023, our consolidated subsidiaries that do not guarantee the 2029 Senior Notes represented 25%29% 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 36%38% and 12%14% of the total guarantor and non-guarantor assets and liabilities, respectively, as of September 30, 2022,March 31, 2023, treating the guarantor and non-guarantor subsidiaries each as a consolidated group.
In March 2021, we amended our We are party to a credit agreement ("Credit Agreement in connection with the issuance of the 2029 Senior Notes to extend the maturity date. We incurred fees and expenses of $1.1 million related to the amendment, all of which were capitalized as debt issuance costs. We also recorded $0.2 million of non-cash expense related to the write-off of previously capitalized deferred financing fees. The Credit Agreement consistsAgreement") consisting of 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, maturing on March 29, 2026.
In November 2021, we amended the The Credit Agreement is subject to replace LIBOR with a benchmark interest raterates determined based on the currency denomination of borrowings. Effective January 1, 2022, the amendment replaced the reference rate terms for U.S. dollar LIBOR borrowings, to the Secured Overnight Financing Rate ("SOFR"),with British pound sterling LIBOR borrowings subject to the Sterling Overnight Index Average ("SONIA") and Euro LIBOR borrowings to the Euro Short TermInterBank Offered Rate ("ESTR"(“EURIBOR”), allboth plus a spread of 1.50%1.625%, and U.S. dollar borrowings subject to the Secured Overnight Financing Rate ("SOFR") plus a spread of 1.725%. The interest rate spread is based upon the leverage ratio, as defined, as of the most recent determination date. Our revolving credit facility allows for the issuance of letters of credit, not to exceed $40.0 million in aggregate.
The Credit Agreement provides for incremental revolving credit 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 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, asset 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 the accounts receivable securitization facility, 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 September 30, 2022.March 31, 2023. 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 2.002.37 to 1.00 at September 30, 2022.March 31, 2023. Our permitted interest expense coverage ratio under the Credit Agreement is 3.00 to 1.00 as of September 30, 2022.March 31, 2023. Our actual interest expense coverage ratio was 13.0711.97 to 1.00 at September 30, 2022.March 31, 2023. At September 30, 2022,March 31, 2023, we were in compliance with our financial covenants.
The following is a reconciliation of net income, as reported, which is a GAAP measure of our operating results, to Consolidated Bank EBITDA, as defined in our Credit Agreement, for the twelve months ended September 30, 2022March 31, 2023 (dollars in thousands). We present Consolidated Bank EBITDA to show our performance under our financial covenants.
| | | | | | | | | | | | | | |
| | | | | | | | |
| | | | | | | | Twelve Months
Ended
September 30, 2022March 31, 2023 |
| Net income | | | | | | | | $ | 60,15056,910 | |
| Bank stipulated adjustments: | | | | | | | | |
| Interest expense | | | | | | | | 13,91014,400 | |
| Income tax expense | | | | | | | | 17,26018,740 | |
| Depreciation and amortization | | | | | | | | 53,50052,810 | |
| | | | | | | | |
Non-cash compensation expense(1) | | | | | | | | 9,8609,960 | |
| | | | | | | | |
| Other non-cash expenses or losses | | | | | | | | 660460 | |
Non-recurring expenses or costs(2) | | | | | | | | 11,29011,740 | |
| Extraordinary, non-recurring or unusual gains or losses | | | | | | | | 1,4505,590 | |
| Effects of purchase accounting adjustments | | | | | | | | 1,160840 | |
| Business and asset dispositions | | | | | | | | (4,540)(21,970) | |
Net losses on early extinguishment of debt | | | | | | | | — | |
| Permitted acquisitions | | | | | | | | 2,8003,140 | |
| | | | | | | | |
| Currency gains and losses | | | | | | | | (960)(770) | |
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| | | | | | | | |
| Consolidated Bank EBITDA, as defined | | | | | | | | $ | 166,540151,850 | |
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| | September 30, 2022March 31, 2023 | |
| | |
| | |
Total Indebtedness, as defined(3) | $ | 333,130360,640 | | |
| Consolidated Bank EBITDA, as defined | 166,540151,850 | | |
| Total net leverage ratio | 2.002.37 | | x |
| Covenant requirement | 4.00 | | x |
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| | | | | | | | |
| | | | | | | | | Twelve Months
Ended
September 30, 2022March 31, 2023 |
| Interest expense | | | | | | | | $ | 13,91014,400 | |
| Bank stipulated adjustments: | | | | | | | | |
| Interest income | | | | | | | | (270)(800) | |
| Non-cash amounts attributable to amortization of financing costs | | | | | | | | (900)(910) | |
| | | | | | | | |
| Total Consolidated Cash Interest Expense, as defined | | | | | | | | $ | 12,74012,690 | |
| | | | | | | | |
| | September 30, 2022March 31, 2023 | |
| Consolidated Bank EBITDA, as defined | $ | 166,540151,850 | | |
| Total Consolidated Cash Interest Expense, as defined | 12,74012,690 | | |
| Actual interest expense coverage ratio | 13.0711.97 | | x |
| Covenant requirement | 3.00 | | x |
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(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, restructuring and curtailment expenses.
(3) Includes $3.5$2.5 million of acquisition related contingent considerationfinance leases as of September 30, 2022.March 31, 2023.
Our revolving credit facility allows for the issuance
At March 31, 2023 and December 31, 2021, we placed restricted cash on deposit with a financial institution to be held as cash collateral for our outstanding letters of credit; therefore, as of December 31, 2021, we had no letters of credit issued against our revolving credit facility. At September 30, 2022, we had no amounts outstanding under our revolving credit facility and had $293.9 million potentially available after giving effect to $6.1 million of letters of credit issued and outstanding. At December 31, 2021, we had no amounts outstanding under our revolving credit facility and had $300.0 million potentially available. Our letters of credit or corresponding 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. After consideration of leverage restrictions contained in the Credit Agreement, as of March 31, 2023, we had $246.8 million of borrowing capacity available for general corporate purposes. Our borrowing capacity was not reduced by leverage restrictions contained in the Credit Agreement as of September 30, 2022 and December 31, 2021.2022.
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. At the end of each quarter, we have historically used cash on hand from our domestic and foreign subsidiaries to pay down amounts outstanding under our revolving credit facility, as applicable.
Our weighted average borrowings during the first ninethree months of 20222023 approximated $400.1$403.0 million, compared to $402.5$400.0 million during the first ninethree months of 2021,2022, primarily due to a higher aggregate principal balanceborrowings made on our senior notes due to the issuance of the 2029 Senior Notes and the redemption of the 2025 Senior Notes during the first half of 2021.revolving credit facility.
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 on this loan facility as of September 30, 2022.March 31, 2023.
Cash management related to our revolving credit facility 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.
MoreWhile more than half of our cash on hand as of September 30, 2022March 31, 2023 is located withinoutside of the U.S., and given available funding under our revolving credit facility of $300.0$246.8 million at September 30, 2022March 31, 2023 (after consideration of the aforementioned leverage restrictions) 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 obligations for the foreseeable future, as well as dividends and share repurchases.
We are subject to variable interest rates on our revolving credit facility, which is subject to a benchmark interest rate determined based on the currency denomination of borrowings. At September 30, 2022,March 31, 2023, we had no amounts outstanding on our revolving credit facility and, therefore, no variable rate-based borrowings outstanding.
In addition to our long-term debt, we have other cash commitments related to leases. We account for theseThe majority of our lease transactions are accounted for as operating leases, and annual rent expense for continuing operations related thereto approximated $11.0$13.9 million in 2021.2022. We expect leasing will continue to be an available financing option to fund future capital expenditure requirements.
As part of our first quarter 2023 acquisition of Aarts, we assumed a $2.9 million liability to a bank related to the advance funding of certain accounts receivable invoices. We terminated this arrangement, and repaid the outstanding balance, in March 2023.
In March 2020, we announced our Board of Directors had authorized us to increase the purchase of our common stock up to $250 million in the aggregate, an increase of $100 million from the prior authorization. In the three and nine months ended September 30, 2022,March 31, 2023, we purchased 76,167 and 1,004,154350,862 shares of our outstanding common stock for an aggregate purchase price of $2.1 million and $30.0$10.4 million, respectively. Since the initial authorization through September 30, 2022,March 31, 2023, we have purchased 4,854,9695,465,765 shares of our outstanding common stock for an aggregate purchase price of $137.3$154.7 million. We will continue to evaluate opportunities to return capital to shareholders through the purchase of our common stock and the payment of dividends, depending on market conditions, including the potential impact of the COVID-19 pandemic, and other factors.
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 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. As of September 30, 2022,March 31, 2023, we were party to foreign exchange forward and swap contracts to hedge changes in foreign currency exchange rates with notional amounts of $130.4$185.7 million. We also use cross-currency swap agreements to mitigate currency risks associated with the net investment in certain of our foreign subsidiaries. See Note 11,9, "Derivative Instruments," included in Part 1, Item 1, "Notes to Unaudited Consolidated Financial Statements," within this quarterly report on Form 10-Q for additional information.
We are also subject to interest risk as it relates to our long-term debt. See Note 10,8, "Long-term Debt," included in Part 1, Item 1, "Notes to Unaudited Consolidated Financial Statements," within this quarterly report on Form 10-Q for additional information.
Common Stock
TriMas is listed in the NASDAQ Global Select Market. Our stock trades under the symbol "TRS."
Credit Rating
We and certain of our outstanding debt obligations are rated by Standard & Poor's and Moody's. On March 29, 2022,31, 2023, Moody's affirmed a Ba3 rating to our 2029 Senior Notes. See Note 10,8, "Long-term Debt" included in Part I, Item 1, "Notes to Unaudited Consolidated Financial Statements" within this quarterly report on Form 10-Q. Moody's also affirmed a Ba2 Corporate Family Rating and maintained its outlook as stable. On May 12, 2022, Standard & Poor's affirmed a BB- rating to our 2029 Senior Notes. Standard & Poor also affirmed a BB corporate credit rating 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
Looking forward, we believe there will be a continued period of uncertainty related to demand levels for our products, whether it be the timing of when our large consumer goods customers increase their orders for beauty and personal care and home care products given their current inventory levels and end-consumer demand, if production rates for new aircraft builds continue to increase as expected, or whether general industrial activity will continue to its upward trajectory or begin to level-off givenWe expect that the current macro-economic environment. and global market uncertainties will persist in 2023, making it a challenging environment to effectively and efficiently transact business in the end markets we serve. We continue to experience volatility in our customers' order patterns, inflationary pressures for certain input costs (raw materials and wage rates in particular), with supply chain disruptions limiting material availability for certain products, and with labor availability remaining at lower levels than prior to the pandemic. While our Specialty Products segment continues to grow to meet higher industrial demand, and is converting that demand at near record-level margins, the macro-economic impacts are more challenging in our Packaging segment, primarily due to significantly elevated inventory positions and uncertainty regarding future consumer sentiment in the current inflationary environment, all of which have reduced current demand levels, and in our Aerospace segment, which is experiencing strong order intake but is challenged with material constraints. No matter the outcome of these factors, we expect to continue to mitigate, as much as practical, the impact of the most challenged end markets,these challenges, executing realignmenton streamlining actions as necessary and taking other proactive actions where possible suchsteps as monetizing non-core properties so wenecessary, to maintain our strong balance sheet and are positioned to gain operating leverage when these end markets recover. We believe we remain well positioned to capitalize on the recoverygenerate cash in support of the aerospace market, just as we have with the improvement in the industrial markets, as well as capture available market growth opportunities.our capital allocation strategy.
Following our recent acquisitions, we continue toWe believe our capital structure remains strong and that we have sufficient headroom under our financial covenants, and sufficientample cash and available liquidity under our revolving credit facility, to meet our debt service, capital expenditure and other short-term and long-term obligations for at least the next 12 months and for the foreseeable future, thereafter, as well as fund dividends, share repurchases and share repurchases.bolt-on acquisitions consistent with our capital allocation strategy.
We expect to continue to leverage the tenets of our TriMas Business Model to manage our multi-industry businesses on a longer-term basis, to 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 and fixed-cost structure.
Impact of New Accounting Standards
See Note 2, "New Accounting Pronouncements," included in Part 1, Item 1, "NotesThere were no new accounting pronouncements issued or effective as of March 31, 2023 that are expected to Unaudited Consolidated Financial Statements," within this quarterly reporthave a material impact on Form 10-Q.our consolidated financial statements.
Critical Accounting Policies
Certain of our accounting policies require the application of significant judgment by management in selecting the appropriate assumptions used in 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.
During the quarter ended September 30, 2022,March 31, 2023, there were no material changes to the items that we disclosed as our critical accounting policies in Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," in the Annual Report on Form 10-K for the year ended December 31, 2021.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
In the normal course of business, we are exposed to market risk associated with fluctuations in foreign currency exchange rates. We are also subject to interest risk as it relates to long-term debt. See Part I, Item 2, "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 10,8, "Long-term Debt," and Note 11,9, "Derivative Instruments," in Part I, Item 1, "Notes to Unaudited Consolidated Financial Statements," included within this quarterly report on Form 10-Q for additional information.
Item 4. Controls and Procedures
The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), is recorded, processed, summarized, and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to the Company's management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.
Evaluation of disclosure controls and procedures
As of September 30, 2022,March 31, 2023, an evaluation was carried out by management, with the participation of the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company's disclosure controls and procedures (as such term is defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act) pursuant to Rule 13a-15 of the Exchange Act. The Company's 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 September 30, 2022,March 31, 2023, the Company's disclosure controls and procedures are effective to provide reasonable assurance that they would meet their objectives.
Changes in internal control over financial reporting
In response to the COVID-19 pandemic, we have required certain employees, some of whom are involved in the operation of our internal controls over financial reporting, to work from home. Despite this change, thereThere have been no changes in the Company's internal control over financial reporting during the quarter ended September 30, 2022March 31, 2023 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. We are continually monitoring and assessing the COVID-19 pandemic on our internal controls to minimize any impact it may have on their design and operating effectiveness.
PART II. OTHER INFORMATION
TRIMAS CORPORATION
Item 1. Legal Proceedings
See Note 14,12, "Commitments and Contingencies," included in Part I, Item 1, "Notes to Unaudited Consolidated Financial Statements," within this quarterly report on Form 10-Q.
Item 1A. Risk Factors
In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part 1, Item 1A., "Risk Factors," in our 20212022 Annual Report on Form 10-K, which could materially affect our business, financial condition or future results. There have been no significant changes in our risk factors as disclosed in our 20212022 Annual Report on Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
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 September 30, 2022.March 31, 2023.
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| 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) |
| July 1, 2022 to July 31, 2022 | | 70,167 | | | $ | 26.95 | | | 70,167 | | | $ | 112,834,146 | |
| August 1, 2022 to August 31, 2022 | | 6,000 | | | $ | 29.38 | | | 6,000 | | | $ | 112,657,888 | |
| September 1, 2022 to September 30, 2022 | | — | | | $ | — | | | — | | | $ | 112,657,888 | |
| Total | | 76,167 | | | $ | 27.14 | | | 76,167 | | | $ | 112,657,888 | |
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| 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) |
| January 1, 2023 to January 31, 2023 | | 190,040 | | | $ | 29.39 | | | 190,040 | | | $ | 100,108,531 | |
| February 1, 2023 to February 28, 2023 | | 105,405 | | | $ | 30.80 | | | 105,405 | | | $ | 96,861,569 | |
| March 1, 2023 to March 31, 2023 | | 55,417 | | | $ | 28.38 | | | 55,417 | | | $ | 95,289,038 | |
| Total | | 350,862 | | | $ | 29.66 | | | 350,862 | | | $ | 95,289,038 | |
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(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 September 30, 2022,March 31, 2023, the Company repurchased 76,167350,862 shares of its common stock at a cost of $2.1$10.4 million. The share repurchase program is effective and has no expiration date.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits
Exhibits Index:
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| 3.1 | |
| 3.2 | |
| 10.1 | |
| 10.2 | |
| 10.3 | |
| 31.1 | |
| 31.2 | |
| 32.1 | |
| 32.2 | |
| 101 | The following materials from TriMas Corporation's Quarterly Report on Form 10-Q for the quarter ended September 30, 2022,March 31, 2023, formatted in Inline XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheet, (ii) the Consolidated Statement of Income, (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. |
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| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
Signatures
Pursuant to the requirements 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.
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| | TRIMAS CORPORATION (Registrant) |
| | | | |
| | | | /s/ SCOTT A. MELL |
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| Date: | OctoberApril 27, 20222023 |
By: | | Scott A. Mell Chief Financial Officer |