Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
The statements in the discussion and analysis regarding industry outlook, our expectations regarding the performance of our business and the other non-historical statements in the discussion and analysis are forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described in Item 1A "Risk Factors." Our actual results may differ materially from those contained in or implied by any forward-looking statements. You should read the following discussion together with Item 8, "Financial Statements and Supplementary Data."
Introduction
We are a diversified manufacturer and provider of products for customers primarily in the consumer products, aerospace & defense and industrial markets. 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.
In December 2019, we completed the sale of our Lamons division ("Lamons"), a manufacturer and distributor of industrial sealing, fastening and specialty products primarily used in the petrochemical and petroleum-refining industries, to two wholly-owned subsidiaries of an investment fund sponsored by First Reserve. The sale of Lamons was an important strategic step for TriMas, in streamlining our portfolio of businesses, as it significantly reduced our exposure to the oil and gas market from over 20% of net sales in 2019 to less than 2% in 2020, and allowed us to further invest in our Packaging and Aerospace segments. We received net after-tax proceeds from the sale of approximately $112.7 million. The financial results of Lamons were previously reported within our Specialty Products segment. The financial position, results of operations and cash flows of Lamons are reported as discontinued operations for all periods presented through the date of disposition.
Key Factors and Risks 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.
In March 2020, the President of the United States declared the coronavirus ("COVID-19") outbreak a national emergency, as the World Health Organization determined it was a pandemic. In response to the COVID-19 pandemic, federal, provincial, state, county and local governments and public health organizations or authorities around the world have implemented a variety of measures intended to control the spread of the virus, including quarantines, "shelter-in-place" or "stay-at-home" and similar orders, travel restrictions, business curtailments and closures, social distancing, personal hygiene requirements, and other measures.
We have been, and continue to be, focused on making sure the working environments for our employees are safe so our operations have the ability to deliver the products needed to support efforts to mitigate the COVID-19 pandemic. Nearly all of our manufacturing sites have been deemed essential operations and remained open during the pandemic, at varying levels of capacity and efficiency, experiencing only temporary shutdowns due to country-specific government mandates or for thorough cleaning as a result of suspected COVID-19 cases. The health of our employees, and the ability of our facilities to remain operational in the current regulated environment, is critical to our future results of operations.
Our divisions were impacted in first quarter 2020 at differing levels and times, beginning with our Asian facilities and strategic supply network, both primarily in China, in late January, followed by our European (primarily Italy) and North American facilities in February and March. We implemented new work rules and processes, which promote social distancing and increased hygiene to ensure the safety of our employees, particularly at our production facilities. These measures, while not easily quantifiable, have increased the level of manufacturing inefficiencies due to elevated levels of absenteeism, resulting in less efficient production scheduling and, in certain cases, short-term idling of production. We expect that we will continue to operate with these protocols in place, which have impacted our 2020 results.
Overall, our 2020 net sales increased approximately $46.4 million compared to 2019, primarily as a result of robust organic sales growth in our Packaging segment, particularly for dispensing and closure products we supply that are used in applications to fight the spread of germs, and as a result of acquisitions. These increases more than offset declines in sales in our Aerospace and Specialty Products segments, primarily related to the effects of the COVID-19 pandemic.
The most significant drivers of change in results of operations in 2020 compared with 2019, other than as directly impacted by demand level changes as a result of the COVID-19 pandemic, were goodwill and intangible asset impairment charges in our Aerospace segment, our election to change our accounting policy for asbestos-related defense costs, realignment actions we undertook, primarily in our Aerospace and Specialty Products segments, in response to reduced end-market demand following the outbreak of COVID-19, the impact of our recent acquisitions and the recognition of income tax benefits related to tax-planning actions with respect to our intercompany debt restructuring.
During 2020, we determined there was a triggering event requiring an interim quantitative impairment assessment for goodwill and indefinite-lived intangible assets within our Aerospace segment. While third quarter operating results were below pre-pandemic projected levels, the larger driver of the triggering event was a significant reduction in the July financial projection update for the remainder of 2020 compared with prior projections, and uncertainty around the duration and magnitude of the impact of the COVID-19 pandemic on future financial results given the dependence of our Aerospace segment reporting units on future levels of air travel and new aircraft builds. We determined the carrying value of both of our Aerospace reporting units, as well as of certain trade names, exceeded the fair value, resulting in non-cash, pre-tax impairment charges of approximately $126.8 million to goodwill and $7.8 million to indefinite lived intangible assets.
The techniques used in our interim impairment tests incorporated a number of assumptions that we believe to be reasonable and to reflect the current market conditions. Assumptions in estimating future cash flows and earnings were based on Level 3 inputs under the fair value hierarchy and were primarily related to customer demand and revenue growth, and associated profitability and cash flows, all as part of an aerospace industry recovery post-pandemic. Data from aerospace publications and public companies was used to assess the reasonableness of management’s assumptions regarding the timing and extent of the industry recovery. To provide a level of sensitivity analysis, a 1% change in the discount rate would have impacted the total goodwill impairment charge by approximately $20 million, while a 0.5% change in the terminal growth rate would have impacted the total goodwill impairment charge by approximately $5 million.
Changes in future results, assumptions, and estimates from those used in the interim impairment test may lead to an outcome where additional impairment charges would be required in future periods. Specifically, actual results may vary from management's forecasts and such variations may be material and unfavorable, thereby triggering the need for future impairment tests where the conclusions may differ in reflection of prevailing market conditions. Further, continued adverse or worsening market conditions could result in the recognition of additional impairment if we determine that the fair value of our Aerospace Fasteners reporting unit has fallen below its carrying value. Certain circumstances that could reasonably be expected to negatively affect the underlying key assumptions and impact the estimated fair value of the Company’s Aerospace Fastener reporting unit may include such items as: (i) a decrease in expected future cash flows, due to the pandemic adversely impacting the aerospace industry longer or more deeply than currently estimated, (ii) inability to achieve the sales targeted as part of the Company’s strategic growth initiatives, and (iii) inability to efficiently leverage the projected sales growth at expected margin rates.
During 2020, we elected to change our accounting policy for asbestos-related defense costs from accruing for probable and reasonably estimable defense costs associated with known claims expected to settle to accruing for all future defense costs for both known and unknown claims, which we now believe can be reasonably estimated. This accounting change has been reflected as a change in accounting estimate effected by a change in accounting principle. We recorded a non-cash, pre-tax charge in second quarter 2020 for asbestos-related costs of approximately $23.4 million, which is included in selling, general and administrative expenses.
Following the onset of the COVID-19 pandemic, we undertook certain realignment actions, primarily in our Aerospace and Specialty Products segments, in response to current and expected future reduced end market demand. We recorded non-cash charges of approximately $13.8 million related to inventory reductions, primarily as a result of a strategic decision in our Arrow Engine division to streamline its product line offering. We also recorded charges of approximately $2.3 million related to certain production equipment removed from service given reduced demand levels. In addition, we reduced our employment levels given lower customer demand, incurring approximately $3.8 million in severance charges.
In December 2020, we completed the acquisition of Affaba & Ferrari Srl ("Affaba & Ferrari"), which specializes in the design, development and manufacture of precision caps and closures for food & beverage and industrial product applications, for an aggregate amount of approximately $98.4 million, net of cash acquired, subject to normal course adjustments, which are expected to be completed by mid-2021. Affaba & Ferrari, which is reported in the Company's Packaging segment, operates out of a highly automated manufacturing facility and support office located in Borgo San Giovanni, Italy. Affaba & Ferrari contributed approximately $0.7 million of net sales during 2020 within our Packaging segment.
In April 2020, we acquired the Rapak brand, including certain bag-in-box product lines and assets ("Rapak") for an aggregate amount of approximately $11.4 million. Rapak, which is reported in our Packaging segment, has three manufacturing locations in the United States. Rapak contributed approximately $13.9 million of net sales during 2020 within our Packaging segment, although it is performing below break-even operating profit as demand for its products, particularly those used in quick service restaurant applications, has significantly declined from pre-acquisition levels in 2019 due to the impact of the COVID-19 pandemic.
In February 2020, we completed the acquisition of RSA Engineered Products ("RSA"), a provider of highly-engineered and proprietary components for air management systems used in critical flight applications, for an aggregate amount of approximately $83.7 million, net of cash acquired. RSA, located in Simi Valley, California, designs, engineers and manufactures highly-engineered components, including air ducting products, connectors and flexible joints, predominantly used in aerospace and defense engine bleed air, anti-icing and environmental control system applications. RSA contributed approximately $19.4 million of net sales during 2020 within our Aerospace segment.
During 2020, we also undertook certain tax-planning actions with respect to intercompany debt restructuring, resulting in the recognition of approximately $6.4 million of income tax benefit.
Additional Key Risks that May Affect Our Reported Results
The COVID-19 pandemic significantly impacted our 2020 results, and we expect it will continue to impact us in the future at varying degrees. We expect the robust customer demand for our Packaging segment's dispensing pumps and closure products used in personal care and home care applications that fight the spread of germs will continue, as we believe there is a new secular trend for higher levels of health and cleanliness. We are actively collaborating with our customers and strategic supply partners to manage production capacity and supply chain availability as efficiently as possible. Industrial demand in North America was lower than 2019 levels, and we are uncertain how and when demand will be impacted as many of the shelter-in-place orders are adjusted or lifted, particularly in North America, where orders for our industrial cylinders, for example, are heavily influenced by the levels of construction and HVAC activity. We expect the aerospace market to continue to experience the most severe dislocation going forward. With the current travel restrictions and significant drop in passenger miles, aircraft manufacturers have now significantly slowed production, and since second quarter we have experienced a significant drop in aerospace-related sales compared to prior year levels. We expect this trend to continue for the foreseeable future.
We have executed realignment actions in 2020, primarily in our Aerospace and Specialty Products segments, and also in certain Packaging product areas where demand has fallen, such as in the quick-serve and restaurant applications, to protect against the uncertain end market demand. We will continue to assess further actions if required. However, as a result of the COVID-19 pandemic's impact on global economic activity, and the continued potential impact to our future results of operations, as well if there is an impact to TriMas' market capitalization, we may record additional cash and non-cash charges related to incremental realignment actions, as well as for uncollectible customer account balances, excess inventory and idle production equipment.
Despite the potential decline in future demand levels and results of operations as a result of the COVID-19 pandemic, at present, we believe our capital structure is in a solid position, and we have ample cash and available liquidity under our revolving credit facility to meet our debt service obligations, capital expenditure requirements and other short-term and long-term obligations for the foreseeable future. Even after deploying nearly $200 million in our three acquisitions and completing stock purchases totaling $39.4 million during 2020, our December 31, 2020 net leverage ratio, as defined in our credit agreement, is below our long-term target of 2.0x.
The extent of the COVID-19 pandemic's effect on our operational and financial performance will depend in large part on future developments, which cannot be predicted with confidence at this time. Future developments include the duration, scope and severity of the pandemic, the actions taken to contain or mitigate its impact, timing of widespread vaccine availability, and the resumption of widespread economic activity. Due to the inherent uncertainty of the unprecedented and rapidly evolving situation, we are unable to predict with any confidence the likely impact of the COVID-19 pandemic on our future operations.
Beyond the unique risks presented by the COVID-19 pandemic, other critical factors affecting our ability to succeed include: our ability to create organic growth through product development, cross-selling and extending product-line offerings, and our ability to quickly and cost-effectively introduce and successfully launch new products; our ability to acquire and integrate companies or products that supplement existing product lines, add new distribution channels or customers, expand our geographic coverage or enable better absorption of overhead costs; our ability to manage our cost structure more efficiently via supply base management, internal sourcing and/or purchasing of materials, selective outsourcing and/or purchasing of support functions, working capital management, and greater leverage of our administrative functions.
Our overall business does not experience significant seasonal fluctuation, other than our fourth quarter, which has tended to be the lowest net sales quarter of the year due to holiday shutdowns at certain customers or other customers deferring capital spending to the following year. Given the short-cycle nature of most of our businesses, we do not consider sales order backlog to be a material factor. A growing amount of our sales is derived from international sources, which exposes us to certain risks, including currency risks.
We are sensitive to price movements 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. While material cost changes did not have a significant impact in 2020 compared with 2019, 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. As needed, we have taken actions, and 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 lags the underlying material cost increase, and we cannot be assured of full cost recovery in the open market.
Our Arrow Engine business in our Specialty Products segment is sensitive to the demand for natural gas and crude oil in North America. For example, demand for engine, pump jack and compressor products are impacted by active oil and gas rig counts and wellhead investment activities. Separately, oil-based commodity costs are a significant driver of raw materials and purchased components used within our Packaging segment.
Each year, as a core tenet of the TBM, 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 2020, 2019 and 2018, we purchased 1,582,049, 1,230,050 and 442,632 shares of our outstanding common stock for approximately $39.4 million, $36.7 million and $12.1 million, respectively.
As of December 31, 2020, the Company has approximately $161.7 million remaining under the repurchase authorization. We will continue to evaluate opportunities to return capital to shareholders through the purchase of our common stock, depending on market conditions and other factors.
Segment Information and Supplemental Analysis
The following table summarizes financial information for our three reportable segments (dollars in thousands):
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
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2020
|
|
As a Percentage of Net Sales
|
|
2019
|
|
As a Percentage of Net Sales
|
|
2018
|
|
As a Percentage of Net Sales
|
Net Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
Packaging
|
|
$
|
488,340
|
|
|
63.4
|
%
|
|
$
|
392,340
|
|
|
54.2
|
%
|
|
$
|
368,200
|
|
|
52.2
|
%
|
Aerospace
|
|
167,740
|
|
|
21.8
|
%
|
|
194,110
|
|
|
26.8
|
%
|
|
185,920
|
|
|
26.4
|
%
|
Specialty Products
|
|
113,890
|
|
|
14.8
|
%
|
|
137,080
|
|
|
19.0
|
%
|
|
150,910
|
|
|
21.4
|
%
|
Total
|
|
$
|
769,970
|
|
|
100.0
|
%
|
|
$
|
723,530
|
|
|
100.0
|
%
|
|
$
|
705,030
|
|
|
100.0
|
%
|
Gross Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
Packaging
|
|
$
|
142,410
|
|
|
29.2
|
%
|
|
$
|
116,180
|
|
|
29.6
|
%
|
|
$
|
119,620
|
|
|
32.5
|
%
|
Aerospace
|
|
27,020
|
|
|
16.1
|
%
|
|
53,060
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|
|
27.3
|
%
|
|
49,630
|
|
|
26.7
|
%
|
Specialty Products
|
|
12,650
|
|
|
11.1
|
%
|
|
24,660
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|
|
18.0
|
%
|
|
30,860
|
|
|
20.4
|
%
|
Total
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|
$
|
182,080
|
|
|
23.6
|
%
|
|
$
|
193,900
|
|
|
26.8
|
%
|
|
$
|
200,110
|
|
|
28.4
|
%
|
Selling, General and Administrative
|
|
|
|
|
|
|
|
|
|
|
|
|
Packaging
|
|
$
|
47,850
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|
|
9.8
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%
|
|
$
|
35,340
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|
|
9.0
|
%
|
|
$
|
35,030
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|
|
9.5
|
%
|
Aerospace
|
|
25,550
|
|
|
15.2
|
%
|
|
24,070
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|
|
12.4
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%
|
|
22,340
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|
|
12.0
|
%
|
Specialty Products
|
|
7,890
|
|
|
6.9
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%
|
|
8,620
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|
|
6.3
|
%
|
|
9,780
|
|
|
6.5
|
%
|
Corporate expenses
|
|
53,190
|
|
|
N/A
|
|
34,500
|
|
|
N/A
|
|
24,060
|
|
|
N/A
|
Total
|
|
$
|
134,480
|
|
|
17.5
|
%
|
|
$
|
102,530
|
|
|
14.2
|
%
|
|
$
|
91,210
|
|
|
12.9
|
%
|
Operating Profit (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
Packaging
|
|
$
|
93,990
|
|
|
19.2
|
%
|
|
$
|
80,770
|
|
|
20.6
|
%
|
|
$
|
84,590
|
|
|
23.0
|
%
|
Aerospace
|
|
(133,440)
|
|
|
(79.6)
|
%
|
|
28,950
|
|
|
14.9
|
%
|
|
27,290
|
|
|
14.7
|
%
|
Specialty Products
|
|
4,350
|
|
|
3.8
|
%
|
|
16,000
|
|
|
11.7
|
%
|
|
20,990
|
|
|
13.9
|
%
|
Corporate
|
|
(53,190)
|
|
|
N/A
|
|
(34,500)
|
|
|
N/A
|
|
(24,060)
|
|
|
N/A
|
Total
|
|
$
|
(88,290)
|
|
|
(11.5)
|
%
|
|
$
|
91,220
|
|
|
12.6
|
%
|
|
$
|
108,810
|
|
|
15.4
|
%
|
Capital Expenditures
|
|
|
|
|
|
|
|
|
|
|
|
|
Packaging
|
|
$
|
30,730
|
|
|
6.3
|
%
|
|
$
|
16,400
|
|
|
4.2
|
%
|
|
$
|
13,590
|
|
|
3.7
|
%
|
Aerospace
|
|
5,770
|
|
|
3.4
|
%
|
|
8,110
|
|
|
4.2
|
%
|
|
1,190
|
|
|
0.6
|
%
|
Specialty Products
|
|
3,890
|
|
|
3.4
|
%
|
|
5,090
|
|
|
3.7
|
%
|
|
3,750
|
|
|
2.5
|
%
|
Corporate(a)
|
|
90
|
|
|
N/A
|
|
70
|
|
|
N/A
|
|
4,890
|
|
|
N/A
|
Total
|
|
$
|
40,480
|
|
|
5.3
|
%
|
|
$
|
29,670
|
|
|
4.1
|
%
|
|
$
|
23,420
|
|
|
3.3
|
%
|
Depreciation
|
|
|
|
|
|
|
|
|
|
|
|
|
Packaging
|
|
$
|
18,330
|
|
|
3.8
|
%
|
|
$
|
15,070
|
|
|
3.8
|
%
|
|
$
|
12,510
|
|
|
3.4
|
%
|
Aerospace
|
|
7,110
|
|
|
4.2
|
%
|
|
6,560
|
|
|
3.4
|
%
|
|
6,570
|
|
|
3.5
|
%
|
Specialty Products
|
|
3,450
|
|
|
3.0
|
%
|
|
2,960
|
|
|
2.2
|
%
|
|
2,870
|
|
|
1.9
|
%
|
Corporate
|
|
130
|
|
|
N/A
|
|
280
|
|
|
N/A
|
|
280
|
|
|
N/A
|
Total
|
|
$
|
29,020
|
|
|
3.8
|
%
|
|
$
|
24,870
|
|
|
3.4
|
%
|
|
$
|
22,230
|
|
|
3.2
|
%
|
Amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
Packaging
|
|
$
|
9,270
|
|
|
1.9
|
%
|
|
$
|
9,580
|
|
|
2.4
|
%
|
|
$
|
9,110
|
|
|
2.5
|
%
|
Aerospace
|
|
11,020
|
|
|
6.6
|
%
|
|
8,530
|
|
|
4.4
|
%
|
|
8,620
|
|
|
4.6
|
%
|
Specialty Products
|
|
460
|
|
|
0.4
|
%
|
|
520
|
|
|
0.4
|
%
|
|
530
|
|
|
0.4
|
%
|
Corporate
|
|
—
|
|
|
N/A
|
|
—
|
|
|
N/A
|
|
—
|
|
|
N/A
|
Total
|
|
$
|
20,750
|
|
|
2.7
|
%
|
|
$
|
18,630
|
|
|
2.6
|
%
|
|
$
|
18,260
|
|
|
2.6
|
%
|
________________________________________
(a) Corporate capital expenditures for the year ended December 31, 2018 are primarily related to purchases of machinery and equipment formerly held under operating leases. These purchased assets were subsequently transferred from Corporate to the segment utilizing the assets.
Results of Operations
Year Ended December 31, 2020 Compared with Year Ended December 31, 2019
The principal factors impacting us during the year ended December 31, 2020, compared with the year ended December 31, 2019 were:
•increases in our Packaging segment's organic sales and related operating profit as a result of significantly higher demand, primarily for our products used in applications to help fight the spread of germs;
•approximately $134.6 million of non-cash, pre-tax goodwill and indefinite-lived intangible asset impairment charges during 2020 in our Aerospace segment, primarily as a result of lower current and expected future financial results due to uncertainty around the duration and magnitude of the impact of the COVID-19 pandemic;
•reduced sales and related profit within our Aerospace and Specialty Products segments, primarily as a result of the COVID-19 pandemic;
•a change in our accounting policy for asbestos-related defense costs during 2020;
•the impact of our recent acquisitions, primarily RSA in February 2020 and Rapak in April 2020;
•realignment expenses, primarily in our Aerospace and Specialty Products segments, in response to reduced end-market demand following the outbreak of COVID-19; and
•an income tax benefit related to intercompany debt restructuring.
Overall, net sales increased approximately $46.4 million, or approximately 6.4%, to $770.0 million in 2020, as compared to $723.5 million in 2019. Our recent acquisitions contributed approximately $44.1 million of inorganic sales growth. Organic sales, excluding the impact of currency exchange, increased approximately $3.4 million, as approximately $72.4 million of sales increases in our Packaging segment, primarily for products used in applications that help fight the spread of germs, were more than offset by approximately $45.8 million of lower sales in our Aerospace segment and $23.2 million lower sales in our Specialty Products segment, both primarily due to lower demand as a result of the COVID-19 pandemic. In addition, net sales were lower by approximately $1.1 million due to unfavorable currency exchange, as our reported results in U.S. dollars were negatively impacted as a result of the stronger U.S. dollar relative to foreign currencies.
Gross profit margin (gross profit as a percentage of sales) approximated 23.6% and 26.8% in 2020 and 2019, respectively. Gross profit margin decreased, as the impact of higher sales levels was more than offset by the impact of approximately $17.1 million of realignment expenses during 2020, approximately $15.0 million of which were non-cash and approximately $2.1 million of which were cash expenses, primarily in our Aerospace and Specialty Products segments, where we executed actions to lower our cost structure in response to reduced end market demand following the outbreak of the COVID-19 pandemic. In addition, we recorded approximately $2.8 million of non-cash purchase accounting charges during 2020 for the step-up of inventory to fair value and subsequent amortization related to our RSA and Rapak acquisitions as compared to approximately $0.3 million of such charges in 2019. Gross profit margin was also negatively impacted by approximately $2.0 million for an updated estimate of a pre-acquisition contingent liability within our Aerospace segment during 2020, as well as lower fixed cost absorption, higher production inefficiencies and a less favorable product sales mix, all due primarily to the COVID-19 pandemic.
Operating profit (loss) margin (operating profit as a percentage of sales) approximated (11.5)% and 12.6% in 2020 and 2019, respectively. Operating profit (loss) decreased $179.5 million, to $88.3 million of operating loss in 2020, as compared to $91.2 million operating profit in 2019. This decrease was primarily a result of approximately $134.6 million of non-cash goodwill and indefinite-lived intangible asset impairment charges within our Aerospace segment and an approximate $23.4 million non-cash charge due to a change in accounting policy, both recorded during 2020. Operating profit further decreased due to approximately $19.9 million of realignment expenses recorded during 2020, of which $16.1 million were non-cash and $3.8 million were cash expenses, primarily in our Aerospace and Specialty Products segments, where we executed actions to lower our cost structure in response to reduced end market demand. Operating profit (loss) also decreased as a result of increased purchase accounting expenses, a less favorable product sales mix and as a result of unfavorable currency exchange.
Interest expense increased approximately $0.7 million, to $14.7 million in 2020, as compared to $14.0 million in 2019, primarily as a result of increased weighted average borrowings from approximately $338.0 million in 2019 to $368.9 million in 2020. We drew $150 million on our revolving credit facility in first quarter 2020 to ensure availability of cash on hand at the onset of the pandemic, but subsequently repaid this amount in second quarter 2020.
Other income decreased approximately $0.8 million to $0.2 million in 2020, from $1.0 million in 2019, primarily due to lower year-over-year interest income on cash balances and higher defined benefit pension expenses.
The effective income tax rate for 2020 was 22.3%, compared to 20.9% for 2019. We recorded an income tax benefit of approximately $23.0 million in 2020, as compared to $16.3 million of income tax expense in 2019. During 2020, we reported a domestic income tax loss of approximately $134.6 million and foreign pre-tax income of approximately $31.9 million, compared to 2019 domestic and foreign pre-tax income of approximately $52.2 million and $26.1 million, respectively. The effective tax rate for 2020 was impacted by a decrease in profitability in the U.S. resulting from various one-time charges, including impairment of goodwill and indefinite-lived intangible assets and a change in our accounting policy for asbestos-related defense costs. During 2020, we also undertook certain tax-planning actions with respect to restructuring our intercompany debt, resulting in the recognition of a $6.4 million deferred tax benefit.
Income (loss) from continuing operations decreased approximately $141.7 million to a loss of approximately $79.8 million in 2020, compared to income of $61.9 million in 2019. The decrease was primarily the result of a decrease in operating profit (loss) of approximately $179.5 million, which was significantly impacted by the goodwill and indefinite-lived intangibles impairment charge, an increase in interest expense of approximately $0.7 million, and a decrease in other income of approximately $0.8 million, partially offset by an increase in income tax benefit of approximately $39.3 million.
See below for a discussion of operating results by segment.
Packaging. Net sales increased approximately $96.0 million, or 24.5%, to $488.3 million in 2020, as compared to $392.3 million in 2019. Acquisition-related growth was approximately $24.7 million, comprised of approximately $13.9 million of sales from our April 2020 acquisition of Rapak, approximately $0.7 million of sales from our December 2020 acquisition of Affaba & Ferrari, and approximately $10.1 million of January through April 2020 sales for Taplast, which was acquired in late April 2019. Sales of dispensing products used in beauty and personal care and home care applications increased by approximately $53.5 million, primarily as a result of increased demand for personal hygiene applications due to heightened awareness of reducing the spread of germs following the onset of the COVID-19 pandemic. Sales of products used in food and beverage markets increased by approximately $15.4 million, primarily due to higher sales of beverage dispensers, including pumps and related products, in North America. Sales of products used in industrial markets increased by approximately $2.1 million, primarily due to higher demand within North America, some of which we believe is attributable to higher sales of products used in the transportation of bulk sanitizer and industrial cleaning solutions. These increases were partially offset by approximately $1.1 million of unfavorable currency exchange, as our reported results in U.S. dollars were negatively impacted as a result of the stronger U.S. dollar relative to foreign currencies.
Packaging's gross profit increased approximately $26.2 million to $142.4 million, or 29.2% of sales, in 2020, as compared to $116.2 million, or 29.6% of sales, in 2019, primarily due to increased sales levels. These increases were partially offset by approximately $1.1 million in non-cash realignment costs during 2020 primarily related to the disposal of certain equipment that was taken out of service and approximately $0.8 million for a purchase accounting non-cash charge related to the step-up of Rapak's inventory to fair value and subsequent amortization. Gross profit margin was lower than 2019 due to a less favorable product sales mix as well as Rapak generating low gross profit at current demand levels, all as a result of the impacts of the COVID-19 pandemic.
Packaging's selling, general and administrative expenses increased approximately $12.5 million to $47.9 million, or 9.8% of sales, in 2020, as compared to $35.3 million, or 9.0% of sales, in 2019, as we incurred approximately $4.4 million of higher ongoing selling, general and administrative costs associated with our acquisitions, higher incentive costs in 2020 given the higher profit levels and higher employment levels given the higher sales levels. Additionally, we incurred approximately $1.2 million in charges associated with our realignment actions, primarily for severance in 2020, as well as recognized an approximate $3.9 million non-cash reversal of a contingent liability for which the underlying obligation expired during 2019, which did not repeat in 2020. These increases were partially offset by an approximate $0.8 million non-cash charge during 2019 related to the write-off of the trade name acquired in the Plastic Srl acquisition that was not used.
Packaging's operating profit increased approximately $13.2 million to $94.0 million, or 19.2% of sales, in 2020, as compared to $80.8 million, or 20.6% of sales, in 2019, primarily as a result of increased sales, which was partially offset by realignment charges taken during 2020, the recognition of the purchase accounting adjustment related to Rapak's inventory step-up to fair value and subsequent amortization, a less favorable product sales mix and higher selling, general and administrative expenses.
Aerospace. Net sales decreased approximately $26.4 million, or 13.6%, to $167.7 million in 2020, as compared to $194.1 million in 2019. The February 2020 acquisition of RSA contributed approximately $19.4 million of sales. Sales of our fastener and machined components products declined by approximately $35.5 million and $10.3 million, respectively, both due to lower demand resulting from current and expected future reduced air travel due to the COVID-19 pandemic, with fastener sales also lower, as expected, due to the 737 Max grounding.
Gross profit within Aerospace decreased approximately $26.0 million to $27.0 million, or 16.1% of sales, in 2020, from $53.1 million, or 27.3% of sales, in 2019, due primarily to the decrease in sales levels and related lower fixed cost absorption and production inefficiencies due to the impact of the COVID-19 pandemic. In 2020, we also undertook certain realignment actions to protect against uncertain end-market demand related to the COVID-19 pandemic, resulting in charges of approximately $4.6 million related to inventory reductions, $2.1 million related to severance as we reduced our manufacturing employment levels and $0.3 million related to production equipment removed from service given current demand levels. In addition, we recorded charges during 2020 of approximately $2.0 million related to the non-cash step-up of RSA's inventory to fair value under purchase accounting and subsequent amortization as well as approximately $2.0 million for an update to a pre-acquisition contingent liability.
Selling, general and administrative expenses increased approximately $1.5 million to $25.6 million, or 15.2% of sales, in 2020, as compared to $24.1 million, or 12.4% of sales, in 2019, primarily due to approximately $3.8 million of ongoing costs of RSA. This increase was partially offset by cost reduction efforts to mitigate the impact of lower sales levels.
Operating profit (loss) within Aerospace decreased approximately $162.4 million to an operating loss of $133.4 million, or (79.6)% of sales, in 2020, as compared to an operating profit of $29.0 million, or 14.9% of sales, in 2019. Operating profit and related margin decreased primarily due to approximately $134.6 million of pre-tax, non-cash goodwill and indefinite-lived intangible asset impairment charges in 2020. Operating profit also declined due to realignment charges, as well as the impact of lower sales levels, which resulted in lower fixed cost absorption and higher production inefficiencies as a result of the COVID-19 pandemic, the recognition of the purchase accounting adjustment related to RSA's inventory step-up to fair value and subsequent amortization, the update of a pre-acquisition contingent liability and higher selling, general and administrative expenses.
Specialty Products. Net sales decreased approximately $23.2 million, or 16.9%, to $113.9 million in 2020, as compared to $137.1 million in 2019. Sales of our cylinder products decreased by approximately $14.6 million, as low demand for steel cylinders used in construction and HVAC activity in North America was partially offset by a modest increase in the sale of cylinders used for oxygen and other medical applications. Sales of engines, compressors and related parts used in upstream oil and gas applications decreased by approximately $8.6 million, primarily as a result of low oil-field activity in North America given the low price of oil.
Gross profit within Specialty Products decreased approximately $12.0 million to $12.7 million, or 11.1% of sales, in 2020, as compared to $24.7 million, or 18.0% of sales, in 2019. During 2020, we undertook certain realignment actions in response to reduced end market demand, resulting in approximately $9.0 million of non-cash charges, primarily related to Arrow Engine streamlining its product line offering and liquidating its non-core inventory. The remainder of the decrease is primarily due to the decrease in sales levels, as well as to the related lower fixed cost absorption and production inefficiencies, all as a result of the COVID-19 pandemic.
Selling, general and administrative expenses within Specialty Products decreased approximately $0.7 million to $7.9 million, or 6.9% of sales, in 2020, as compared to $8.6 million, or 6.3% of net sales, in 2019. During 2020, we incurred realignment expenses of approximately $0.7 million related to severance for sales and administrative employees, which was more than offset by reduced year-over-year spending levels as a result of lower activity and employee levels.
Operating profit within Specialty Products decreased approximately $11.7 million to $4.4 million, or 3.8% of sales, in 2020, as compared to $16.0 million, or 11.7% of sales, in 2019, primarily as a result of the 2020 realignment actions, as well as due to the impact of lower sales and related lower fixed cost absorption and production inefficiencies.
Corporate Expenses. Corporate expenses included in operating profit consist of the following (dollars in millions):
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|
|
|
|
|
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Year ended December 31,
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2020
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2019
|
Corporate operating expenses
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$
|
20.8
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$
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25.4
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|
Non-cash stock compensation
|
|
8.2
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|
|
5.8
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|
Legacy (income) expenses, net
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24.2
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|
|
3.3
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Corporate expenses
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|
$
|
53.2
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|
|
$
|
34.5
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|
Corporate expenses included in operating profit increased approximately $18.7 million to $53.2 million in 2020, from $34.5 million in 2019, primarily as a result of the $23.4 million non-cash charge due to the change of our accounting policy for asbestos-related defense costs during 2020 from accruing for probable and reasonably estimable defense costs associated with known claims expected to settle to accrue for all future defense costs for both known and unknown claims, which we now believe can be reasonably estimated. Non-cash stock compensation expense increased due to the timing and nature of equity awards in 2020 compared with 2019. We also incurred lower corporate operating expenses in 2020 and favorably resolved certain legacy matters during 2020.
Discontinued Operations. The results of discontinued operations consist of our former Lamons business, which was sold in December 2019. Income from discontinued operations, net of income tax expenses, was $36.7 million for the year ended December 31, 2019. See Note 5, “Discontinued Operations,” to our consolidated financial statements attached herein.
Year Ended December 31, 2019 Compared with Year Ended December 31, 2018
The principal factors impacting us during the year ended December 31, 2019 compared with the year ended December 31, 2018 were:
•the impact of our two acquisitions, Plastic Srl and Taplast, acquired in January 2019 and April 2019, respectively, which drove the overall sales growth but at lower operating margins;
•a decline in North American industrial end market sales and related operating profit, primarily in our Specialty Products and Packaging segments;
•the termination of a Corporate liability, resulting in an approximate $8.2 million reduction in selling, general and administrative expenses during 2018 which did not repeat in 2019;
•an approximate $3.9 million non-cash reversal of a contingent liability in our Packaging segment, for which the underlying obligation expired in 2019; and
•the settlement of defined benefit obligations in 2018, which resulted in an approximate $2.5 million non-cash settlement charge that did not repeat in 2019.
Overall, net sales increased approximately $18.5 million, or approximately 2.6%, to $723.5 million in 2019, as compared to $705.0 million in 2018. The acquisitions of Taplast, in April 2019, and Plastic Srl, in January 2019, contributed approximately $35.3 million of sales in our Packaging segment. Organic sales overall, excluding the impact of currency exchange, decreased by approximately $11.0 million compared to 2018. We experienced approximately $12.2 million higher sales to the Packaging segment's health, beauty and home care end markets and $8.2 million higher sales within our Aerospace segment, both due to solid demand levels primarily in North America. These increases were more than offset by an approximate $19.6 million decline in sales of industrial-related products in our Specialty Products and Packaging segments, primarily as a result of end market conditions in North America, as well as approximately $11.8 million lower sales of products for food and beverage applications. Additionally, net sales were lower by approximately $5.8 million due to unfavorable currency exchange, as our reported results in U.S. dollars were negatively impacted as a result of the stronger U.S. dollar relative to foreign currencies.
Gross profit margin (gross profit as a percentage of sales) approximated 26.8% and 28.4% in 2019 and 2018, respectively. Gross profit margin decreased, as the impact of higher sales levels was more than offset by a less favorable product sales mix, resulting from higher levels of sales growth in product applications and end markets typically with lower margin profiles, and acquisition sales with gross margins below TriMas' overall gross margin rate. Gross profit margin further declined due to higher freight and conversion costs in 2019 and as a result of unfavorable currency exchange.
Operating profit margin (operating profit as a percentage of sales) approximated 12.6% and 15.4% in 2019 and 2018, respectively. Operating profit decreased approximately $17.6 million, to $91.2 million in 2019, as compared to an operating profit of $108.8 million in 2018. Operating profit and margin decreased primarily due to the year-over-year impact of an approximate $8.2 million non-cash reduction of our recorded liability to Metaldyne in 2018 following the U.S. Bankruptcy Court's final decree to close all remaining cases and terminate the Metaldyne bankruptcy distribution trust that did not repeat in 2019. In addition, during 2019, we also recognized a $3.9 million non-cash reversal of a contingent liability in our Packaging segment. Operating profit and related margin further declined as the impact of higher sales levels was more than offset by a less favorable product sales mix, increased purchase accounting expenses, increased professional fees primarily in support of corporate development activities, higher freight and conversion costs, and as a result of unfavorable currency exchange.
Interest expense increased approximately $0.1 million, to $14.0 million in 2019, as compared to $13.9 million in 2018, as a result of higher intra-period revolving credit borrowings in 2019 as compared to 2018.
Other income (expense), net increased approximately $3.5 million to $1.0 million in 2019, from $2.5 million in 2018, primarily due to a one-time charge of $2.5 million related to the settlement of defined benefit obligations in the second quarter of 2018 that did not repeat in 2019.
Income tax expense decreased approximately $2.3 million, to $16.3 million in 2019 as compared to $18.7 million in 2018. The effective income tax rate for 2019 was 20.9%, compared to 20.2% for 2018. During 2019, we reported domestic and foreign pre-tax income of approximately $52.2 million and $26.1 million, respectively, and recognized tax benefits of approximately $1.2 million resulting from research and manufacturing tax incentives. We also incurred tax charges of approximately $3.6 million directly attributable to increases in valuation allowances on certain deferred tax assets including foreign tax operating loss carryforwards. In 2018, we reported domestic and foreign pre-tax income of approximately $64.7 million and $27.7 million, and recognized a net tax benefit of approximately $2.7 million related to provision to return adjustments for our U.S. Federal tax return, which included an approximate $1.1 million benefit due to additional regulations that were issued in connection with the Tax Cuts and Jobs Act ("Tax Reform Act").
Income from continuing operations decreased approximately $11.8 million to $61.9 million in 2019, from $73.7 million in 2018. The decrease was primarily the result of a decrease in operating profit of approximately $17.6 million, partially offset by a decrease in income tax expense of approximately $2.3 million and an increase of other income (expense) of approximately $3.5 million.
See below for a discussion of operating results by segment.
Packaging. Net sales increased approximately $24.1 million, or 6.6%, to $392.3 million in 2019, as compared to $368.2 million in 2018. The Taplast and Plastic Srl acquisitions contributed approximately $35.3 million in 2019. Sales to the health, beauty and home care end market increased approximately $12.2 million, primarily due to higher demand in North America and Europe as well as sales growth in Asia. These increases were partially offset by a decrease in sales of products to the food and beverage end market by approximately $11.8 million, primarily due to lower sales of pumps as well as labor and capacity constraints to manufacture caps for certain food applications. Sales of products to the industrial end market declined by approximately $5.8 million due to lower demand in North America. Additionally, net sales were lower by approximately $5.8 million due to unfavorable currency exchange, as our reported results in U.S. dollars were negatively impacted as a result of the stronger U.S. dollar relative to foreign currencies.
Packaging's gross profit decreased approximately $3.4 million to $116.2 million, or 29.6% of sales, in 2019, as compared to $119.6 million, or 32.5% of sales, in 2018. Gross profit decreased by approximately $3.2 million due to higher freight costs, more than half of which was as a result of expediting shipments to fulfill committed delivery dates, and by approximately $2.0 million due to unfavorable currency exchange, as our reported results in U.S. dollars were negatively impacted as a result of the stronger U.S. dollar relative to foreign currencies. While the increase in net sales contributed incremental gross profit dollars, we experienced a less favorable product sales mix, primarily due to gross margins of the acquired businesses being below the current overall segment margin, which impacted gross margin by nearly 100 basis points. In addition, sales to the health, beauty and home care end market comprised a larger percentage of net sales in 2019 compared to 2018, and yield a lower gross profit margin.
Packaging's selling, general and administrative expenses increased approximately $0.3 million to $35.3 million, or 9% of sales, in 2019, as compared to $35.0 million, or 9.5% of sales, in 2018, primarily due to higher ongoing selling, general and administrative costs associated with the acquisitions completed in 2019 as well as non-cash purchase accounting-related expenses of approximately $0.8 million related to the write-off of the trade name acquired in the Plastic Srl acquisition that will not be used. These increases were partially offset by an approximate $3.9 million non-cash reversal of a contingent liability for which the underlying obligation expired in 2019.
Packaging's operating profit decreased approximately $3.8 million to $80.8 million, or 20.6% of sales, in 2019, as compared to $84.6 million, or 23.0% of sales, in 2018, as the impact of higher freight costs, unfavorable foreign currency exchange, a less favorable product sales mix, and higher selling, general and administrative expenses more than offset the impact of higher sales levels.
Aerospace. Net sales increased approximately $8.2 million, or 4.4%, to $194.1 million in 2019, as compared to $185.9 million in 2018, due to an increase of approximately $8.5 million due to steady demand levels for fastener products combined with improved production throughput at our manufacturing facilities, partially offset by a decrease of approximately $0.3 million due to lower sales of machined components products.
Gross profit within Aerospace increased approximately $3.4 million to $53.1 million, or 27.3% of sales, in 2019, from $49.6 million, or 26.7% of sales, in 2018, as the higher sales were more profitable as a result of production efficiencies. In addition, gross profit and related margin increased due to a favorable product sales mix of more highly-engineered fasteners.
Selling, general and administrative expenses increased approximately $1.7 million to $24.1 million, or 12.4% of sales, in 2019, as compared to $22.3 million, or 12.0% of sales, in 2018, primarily due to higher employee costs.
Operating profit within Aerospace increased approximately $1.7 million to $29.0 million, or 14.9% of sales, in 2019, as compared to $27.3 million, or 14.7% of sales, in 2018, primarily due to higher sales levels, improved production efficiencies and a more favorable product sales mix, which were partially offset by higher selling, general and administrative expenses.
Specialty Products. Net sales for 2019 decreased approximately $13.8 million, or 9.2%, to $137.1 million, as compared to $150.9 million in 2018. Sales of engines, compressors and related parts used in upstream oil and gas applications decreased approximately $7.1 million due to lower oil and gas drilling investment activity in the U.S. and Canada. Sales of our industrial cylinder products decreased approximately $6.7 million, primarily due to decreased demand for both high pressure and acetylene steel cylinders, we believe, as a result of customer consolidation and related asset cylinder inventory management.
Gross profit within Specialty Products decreased approximately $6.2 million to $24.7 million, or 18.0% of sales, in 2019, as compared to $30.9 million, or 20.4% of sales, in 2018. Gross profit decreased primarily due to lower sales, reduced fixed cost absorption, and higher conversion costs for our cylinder products.
Selling, general and administrative expenses within Specialty Products decreased approximately $1.2 million to $8.6 million, or 6.3% of sales, in 2019, as compared to $9.8 million, or 6.5% of sales, in 2018. Selling, general and administrative expenses decreased as we have continued to manage spending levels consistent with current lower demand levels.
Operating profit within Specialty Products decreased approximately $5.0 million to $16.0 million, or 11.7% of sales, in 2019, as compared to $21.0 million, or 13.9% of sales, in 2018, primarily due to lower sales levels, reduced fixed cost absorption and higher conversion costs.
Corporate Expenses. Corporate expenses included in operating profit consist of the following (dollars in millions):
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|
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Year ended December 31,
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2019
|
|
2018
|
Corporate operating expenses
|
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$
|
25.4
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|
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$
|
22.3
|
|
Non-cash stock compensation
|
|
5.8
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|
|
7.2
|
|
Legacy expenses
|
|
3.3
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|
|
(5.4)
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Corporate expenses
|
|
$
|
34.5
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|
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$
|
24.1
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|
Corporate expenses included in operating profit increased approximately $10.4 million to $34.5 million in 2019, from $24.1 million in 2018. Legacy (income) expenses, net increased approximately $8.7 million, primarily due to the termination of the liability to Metaldyne in first quarter 2018, which resulted in an approximate $8.2 million non-cash reduction in legacy (income) expenses, net, that did not occur in 2019. Corporate operating expenses increased approximately $3.1 million, primarily due to increased professional fees in support of corporate development activities.
Discontinued Operations. The results of discontinued operations consists of our former Lamons business, which was sold on December 20, 2019. Income from discontinued operations, net of income tax expenses, was $36.7 million for the year ended December, 31 2019, as compared to a loss from discontinued operations, net of income taxes, of $9.6 million for the year ended December 31, 2018. See Note 5, “Discontinued Operations,” to our consolidated financial statements attached herein.
Liquidity and Capital Resources
Cash Flows
Cash flows provided by operating activities of continuing operations in 2020 were approximately $127.4 million, as compared to approximately $95.7 million in 2019. Significant changes in cash flows provided by operating activities of continuing operations and the reasons for such changes are as follows:
•In 2020, the Company generated approximately $105.0 million in cash flows, based on the reported net loss of approximately $79.8 million and after considering the effects of non-cash items related to depreciation, amortization, loss on dispositions of assets, changes in deferred income taxes, stock-based compensation, change in legacy liability estimate, impairment of goodwill and indefinite-lived intangible assets and other operating activities. In 2019, the Company generated approximately $111.4 million in cash flows based on the reported net income from continuing operations of approximately $61.9 million and after considering the effects of similar non-cash items.
•Decreases in accounts receivable resulted in a source of cash of approximately $9.6 million and $3.3 million in 2020 and 2019, respectively, primarily due to timing of cash collections. Days sales outstanding of receivables decreased by approximately four days compared to 2019, as we placed a significant focus on our credit and collections process, particularly in those businesses most impacted by the pandemic where credit risk was heightened.
•We decreased our investment in inventory by approximately $4.0 million and $0.7 million in 2020 and 2019, respectively. Our days sales in inventory decreased by approximately eight days in 2020 as compared to 2019, primarily as a result of the strategic decision in our Arrow Engine division to streamline its product line offering during 2020. We continue to moderate inventory levels in line with sales levels.
•Decreases in prepaid expenses and other assets resulted in a source of cash of approximately $4.4 million in 2020, while increases in prepaid expense and other assets resulted in a use of cash of approximately $6.9 million in 2019. The changes in both 2020 and 2019 are primarily as a result of the timing of payments made for income taxes and certain operating expenses.
•Increases in accounts payable and accrued liabilities resulted in a source of cash of approximately $4.5 million in 2020, while decreases in accounts payable and accrued liabilities resulted in a use of cash of approximately $12.8 million in 2019. Our days accounts payable on hand decreased by approximately 15 days in 2020 as we paid certain key Packaging vendors more quickly in 2020 to ensure our orders remained a top priority for them given our robust demand levels and minimal available capacity in the marketplace. This decrease was more than offset by our increase in accrued liabilities during 2020, primarily as a result of the timing and amount of wage-related accruals. Our days accounts payable on hand increased by approximately seven days in 2019 due to the timing and mix of payment terms with our vendors. The decrease in accounts payable and accrued liabilities was further impacted by net non-cash reductions of obligations of approximately $3.9 million in 2019.
Net cash used for investing activities of continuing operations was approximately $232.1 million in 2020, while net cash provided by investing activities of continuing operations was approximately $31.3 million in 2019. During 2020, we paid approximately $193.5 million, net of cash acquired, in the aggregate to acquire RSA, Rapak, and Affaba & Ferrari. We invested approximately $40.5 million in capital expenditures as we have continued our investment in growth, capacity and productivity-related capital projects. Cash received from the disposition of business, property and equipment was approximately $2.0 million in 2020. During 2019, we invested approximately $29.7 million in capital expenditures and received cash from the disposition of business, property and equipment of approximately $128.1 million, primarily related to the sale of Lamons. During 2019, we paid approximately $67.1 million, net of cash acquired, to acquire Plastic Srl and Taplast.
Net cash provided by financing activities in 2020 was approximately $6.1 million, while net cash used for financing activities was approximately $40.4 million in 2019. During 2020, we received proceeds from borrowings, net of repayments, of approximately $48.2 million on our revolving credit facilities. We also purchased approximately $39.4 million of outstanding common stock and used a net cash amount of approximately $2.6 million related to our stock compensation arrangements. During 2019, we made net repayments of approximately $0.3 million on our revolving credit facilities, purchased approximately $36.7 million of outstanding common stock and used a net cash amount of approximately $3.3 million related to our stock compensation arrangements.
Our Debt and Other Commitments
The $300.0 million aggregate principal amount of our senior notes due 2025 ("Senior Notes") accrues interest at a rate of 4.875% per annum, payable semi-annually in arrears on April 15 and October 15, and mature on October 15, 2025. The payment of principal and interest is jointly and severally guaranteed, on a senior unsecured basis by certain named subsidiaries of the Company (each a "Guarantor" and collectively the "Guarantors"). The Senior Notes are pari passu in right of payment with all existing and future senior indebtedness and subordinated to all existing and future secured indebtedness to the extent of the value of the assets securing such indebtedness. In 2020, our consolidated subsidiaries that do not guarantee the Senior Notes represented approximately 22% of the total of guarantor and non-guarantor net sales, treating each as a consolidated group and excluding intercompany transactions between guarantor and non-guarantor subsidiaries. In addition, our non-guarantor subsidiaries represented approximately 34% and 54% of the total guarantor and non-guarantor assets and liabilities, respectively, as of December 31, 2020, treating the guarantor and non-guarantor subsidiaries each as a consolidated group.
We may redeem all or part of the Senior Notes at a redemption price equal to 102.438% (reducing to 101.219% from October 15, 2021 through October 15, 2022 and 100% thereafter) of the principal amount thereof, plus accrued and unpaid interest, if any, to the redemption date.
We are party to a credit agreement ("Credit Agreement"), 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. The Credit Agreement matures on September 20, 2022 and is subject to interest at London Interbank Offered Rate ("LIBOR") plus 1.50%. The interest rate spread is based upon the leverage ratio, as defined, as of the most recent determination date. The Credit Agreement allows issuance of letters of credit, not to exceed $40.0 million in aggregate, against revolving credit facility commitments.
The Credit Agreement also provides for incremental revolving credit commitments in an amount not to exceed the greater of $200 million and an amount such that, after giving effect to such incremental commitments and the incurrence of any other indebtedness substantially simultaneously with the making of such commitments, the senior secured net leverage ratio, as defined in the Credit Agreement, is no greater than 3.00 to 1.00. The terms and conditions of any incremental revolving credit facility commitments must be no more favorable than the existing credit facility.
Amounts drawn under our revolving credit facility fluctuate daily based upon our working capital and other ordinary course needs. Availability under our revolving credit facility depends upon, among other things, compliance with our Credit Agreement's financial covenants. Our Credit Agreement contains various negative and affirmative covenants and other requirements affecting us and our subsidiaries, including the ability to, subject to certain exceptions and limitations, incur debt, liens, mergers, investments, loans, advances, guarantee obligations, acquisitions, assets dispositions, sale-leaseback transactions, hedging agreements, dividends and other restricted payments, transactions with affiliates, restrictive agreements and amendments to charters, bylaws, and other material documents. The terms of our Credit Agreement require us and our subsidiaries to meet certain restrictive financial covenants and ratios computed quarterly, including a maximum total net leverage ratio (total consolidated indebtedness plus outstanding amounts under any accounts receivable securitization facility, less the aggregate amount of certain unrestricted cash and unrestricted permitted investments, as defined, over consolidated EBITDA, as defined), a maximum senior secured net leverage ratio (total consolidated senior secured indebtedness, less the aggregate amount of certain unrestricted cash and unrestricted permitted investments, as defined, over consolidated EBITDA, as defined) and a minimum interest expense coverage ratio (consolidated EBITDA, as defined, over the sum of consolidated cash interest expense, as defined, and preferred dividends, as defined). Our permitted total net leverage ratio under the Credit Agreement is 4.00 to 1.00 as of December 31, 2020. If we were to complete an acquisition which qualifies for a Covenant Holiday Period, as defined in our Credit Agreement, then our permitted total net leverage ratio cannot exceed 4.50 to 1.00 during that period. Our actual total net leverage ratio was 1.83 to 1.00 at December 31, 2020. Our permitted senior secured net leverage ratio under the Credit Agreement is 3.50 to 1.00 as of December 31, 2020. If we were to complete an acquisition which qualifies for a Covenant Holiday Period, as defined in our Credit Agreement, then our permitted senior secured net leverage ratio cannot exceed 4.00 to 1.00 during that period. Our actual senior secured net leverage ratio was 0.08 at December 31, 2020. Our permitted interest expense coverage ratio under the Credit Agreement is 3.00 to 1.00 and, our actual interest expense coverage ratio was 13.26 to 1.00 as of December 31, 2020. At December 31, 2020, we were in compliance with our financial and other covenants contained in the Credit Agreement.
The following is a reconciliation of net income (loss), as reported, which is a GAAP measure of our operating results, to Consolidated Bank EBITDA, as defined in our Credit Agreement, for the year ended December 31, 2020. We present Consolidated Bank EBITDA to show our performance under our financial covenants. Dollars are in thousands in the below tables.
|
|
|
|
|
|
|
|
|
|
|
Year ended
December 31, 2020
|
Net loss
|
|
$
|
(79,760)
|
|
Bank stipulated adjustments:
|
|
|
Interest expense, net (as defined)
|
|
14,660
|
|
Income tax benefit
|
|
(14,810)
|
|
Depreciation and amortization
|
|
49,770
|
|
Impairment charges and asset write-offs
|
|
134,600
|
|
Non-cash compensation expense(1)
|
|
8,170
|
|
Other non-cash expenses or losses
|
|
17,420
|
|
Non-recurring expenses or costs(2)
|
|
5,860
|
|
Extraordinary, non-recurring or unusual gains or losses
|
|
22,340
|
|
|
|
|
Effects of purchase accounting adjustments
|
|
2,110
|
|
Business and asset dispositions
|
|
1,010
|
|
Permitted acquisitions
|
|
9,570
|
|
|
|
|
Consolidated Bank EBITDA, as defined
|
|
$
|
170,940
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
Total Indebtedness, as defined
|
|
$
|
312,970
|
|
|
Consolidated Bank EBITDA, as defined
|
|
170,940
|
|
|
Actual total net leverage ratio
|
|
1.83
|
|
x
|
Covenant requirement
|
|
4.00
|
|
x
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
Total senior secured indebtedness
|
|
$
|
12,970
|
|
|
Consolidated Bank EBITDA, as defined
|
|
170,940
|
|
|
Senior secured net leverage ratio
|
|
0.08
|
|
x
|
Covenant requirement
|
|
3.50
|
|
x
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
Interest expense, as defined
|
|
$
|
14,660
|
|
Bank stipulated adjustments:
|
|
|
Interest income
|
|
(440)
|
|
Non-cash amounts attributable to amortization of financing costs
|
|
(1,320)
|
|
|
|
|
Total Consolidated Cash Interest Expense, as defined
|
|
$
|
12,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
Consolidated Bank EBITDA, as defined
|
|
$
|
170,940
|
|
|
Total Consolidated Cash Interest Expense, as defined
|
|
12,900
|
|
|
Actual interest expense coverage ratio
|
|
13.26
|
|
x
|
Covenant requirement
|
|
3.00
|
|
x
|
________________________________________
(1) Non-cash compensation expenses resulting from the grant of equity awards.
(2) Non-recurring costs and expenses relating to severance, relocation, restructuring and curtailment expenses.
During 2018, we terminated our $75.0 million accounts receivable facility, under which we had the ability to sell eligible accounts receivable to a third-party multi-seller receivables funding company.
In 2020, we placed cash on deposit with a financial institution to be held as cash collateral for our outstanding letters of credit; therefore, as of December 31, 2020, we had no letters of credit issued against our revolving credit facility. At December 31, 2020, we had $50.5 million outstanding under our revolving credit facility and had $249.5 million potentially available. At December 31, 2019, we had no amounts outstanding under our revolving credit facility and had $283.9 million potentially available after giving effect to approximately $16.1 million of letters of credit issued and outstanding. The letters of credit 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. Our borrowing capacity was not reduced by leverage restrictions contained in the Credit Agreement as of December 31, 2020 and December 31, 2019.
We rely upon our cash flow from operations and available liquidity under our revolving credit facility to fund our debt service obligations and other contractual commitments, working capital and capital expenditure requirements, as well as for discretionary spending such as any repurchases of our common stock. At the end of each quarter, we have historically used cash on hand from our domestic and certain foreign subsidiaries to pay down amounts outstanding under our revolving credit facility, as applicable.
Our weighted average borrowings approximated $368.9 million during 2020, compared to $338.0 million during 2019, due to our March 2020 proactive $150 million draw on our revolving credit facility to ensure availability of cash on hand given the potential uncertainty surrounding the financial markets as a result of the COVID-19 pandemic, and as a result of an increase in December 2020 as part of funding the Affaba & Ferrari acquisition. We repaid the $150 million during second quarter 2020.
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.
In considering the economic uncertainty surrounding the potential business impacts from the COVID-19 pandemic with respect to our operations, supply chains, distribution channels, and end-market customers, during 2020, we took certain defensive actions as we monitored our cash position and available liquidity. Those actions included suspending our repurchase of our common stock during second quarter 2020, borrowing on our revolving credit facility, tightening our capital expenditures, advanced monitoring of our accounts receivable balances and flexing cost structures of operations expected to be most impacted by COVID-19. Given strong cash generation and our current liquidity position, we relaxed certain of these actions in the third quarter of 2020, choosing to further invest in capital expenditures and resume purchasing shares of our common stock.
The majority of our cash on hand as of December 31, 2020 is located in jurisdictions outside the United States. We have aggregate available funding under our revolving credit facility of $249.5 million at December 31, 2020, which is not reduced by leverage restrictions. Based on forecasted cash sources and requirements inherent in our business plans, we believe that our liquidity and capital resources, including anticipated cash flows from operations, will be sufficient to meet our debt service, capital expenditure and other short-term and long-term obligation needs for the foreseeable future. In addition, we may evaluate opportunities to refinance our Senior Notes and/or the Credit Agreement ahead of their maturity dates. There can be no assurance, however, that we will be able to refinance our Senior Notes or the Credit Agreement on more favorable terms.
We are subject to variable interest rates on our revolving credit facility. At December 31, 2020, 1-Month LIBOR approximated 0.14%. Based on our variable rate-based borrowings outstanding at December 31, 2020, a 1% increase in the per annum interest rate would increase our interest expense by approximately $0.5 million annually.
In addition to our long-term debt, we have other cash commitments related to leases. We account for these lease transactions primarily as operating leases, and incurred expense from continuing operations related thereto of approximately $9.4 million in 2020. We continue to be party to non-cancelable leases for certain facilities we have exited as part of restructuring activities, and have entered into sublease agreements to minimize our net lease payments. We expect leasing will continue to be an available financing option to fund future capital expenditure requirements.
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 previous authorization. During 2020, 2019 and 2018, we purchased 1,582,049, 1,230,050 and 442,632 shares of our outstanding common stock for approximately $39.4 million, $36.7 million and $12.1 million, respectively. Since the initial authorization through December 31, 2020, we have purchased 3,254,731 shares of our outstanding common stock for an aggregate purchase price of approximately $88.3 million. We will continue to evaluate opportunities to return capital to shareholders through the purchase of our common stock, depending on market conditions, including the potential impact of the COVID-19 pandemic, and other factors.
Under various agreements, we are obligated to make future cash payments in fixed amounts. These include payments under our long-term debt agreements, rent payments required under operating lease agreements, certain benefit obligations and interest obligations on our long-term debt. The following table summarizes our significant contractual cash obligations as of December 31, 2020 (dollars in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Periods
|
|
|
Total
|
|
Less than
One Year
|
|
1 - 3 Years
|
|
3 - 5 Years
|
|
More than
5 Years
|
Contractual cash obligations:
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
$
|
350,450
|
|
|
$
|
—
|
|
|
$
|
50,450
|
|
|
$
|
300,000
|
|
|
$
|
—
|
|
Operating lease obligations
|
|
43,880
|
|
|
8,070
|
|
|
13,590
|
|
|
9,520
|
|
|
12,700
|
|
Benefit obligations
|
|
13,980
|
|
|
1,160
|
|
|
2,450
|
|
|
2,660
|
|
|
7,710
|
|
Interest obligations (a)
|
|
73,130
|
|
|
14,630
|
|
|
29,250
|
|
|
29,250
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations
|
|
$
|
481,440
|
|
|
$
|
23,860
|
|
|
$
|
95,740
|
|
|
$
|
341,430
|
|
|
$
|
20,410
|
|
__________________________
(a) Our Senior Notes bear interest at 4.875%. The future interest obligations calculation excludes the impact of our cross-currency swap agreements. See Note 14, "Derivative Instruments," included in Item 8, "Financial Statements and Supplementary Data," within this Form 10-K for additional information.
The liability related to unrecognized tax benefits has been excluded from the contractual obligations table because a reasonable estimate of the timing and amount of cash flows from future tax settlements cannot be determined. For additional information, refer to Note 23, "Income Taxes," included in Item 8, "Financial Statements and Supplementary Data," within this Form 10-K.
Market Risk
We conduct business in various locations throughout the world and are subject to market risk due to changes in the value of foreign currencies. The functional currencies of our foreign subsidiaries are primarily the local currency in the country of domicile. We manage these operating activities at the local level and revenues and costs are generally denominated in local currencies; however, results of operations and assets and liabilities reported in U.S. dollars will fluctuate with changes in exchange rates between such local currencies and the U.S. dollar.
We have historically used derivative financial instruments to manage currency risks, as we seek to to mitigate the risk associated with fluctuations in currency rates impacting cash flows related to certain receivables, payables and intercompany transactions denominated in foreign currencies. We also use cross-currency swap agreements to mitigate currency risks associated with the net investment in certain of our foreign subsidiaries. See Note 14, "Derivative Instruments," included in Item 8, "Financial Statements and Supplementary Data," within this Form 10-K for additional information.
We are also subject to interest risk as it relates to our long-term debt. We have historically used interest rate swap agreements to fix the variable portion of our debt to manage this risk. See Note 14, "Derivative Instruments," included in Item 8, "Financial Statements and Supplementary Data," within this Form 10-K for additional information.
Common Stock
TriMas is listed in the NASDAQ Global Select MarketSM. Our stock trades under the symbol "TRS."
Credit Rating
We and certain of our outstanding debt obligations are rated by Standard & Poor's and Moody's. On June 12, 2020, Moody's affirmed a Ba3 rating to our Senior Notes, as presented in Note 13, "Long-term Debt" included in Item 8, "Financial Statements and Supplementary Data" within this Form 10-K. Moody's also affirmed a Ba2 Corporate Family Rating and maintained its outlook as stable. On February 12, 2020, Standard & Poor's affirmed a BB- rating to our senior unsecured debt, 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
On the whole, 2020 was an unprecedented and particularly challenging year following the onset of the COVID-19 pandemic, which significantly affected each of our businesses and how we operate, albeit in different ways and magnitudes. We believe our financial results demonstrate our ability to effectively leverage our TriMas Business Model, working across our businesses with a high degree of connectivity to respond to changing market conditions. We capitalized on opportunities where market demand was high, while also taking swift actions where market demand was sharply reduced. In 2020, we experienced year-over-year overall growth in sales, driven by robust organic growth in our Packaging segment and from acquisitions, which were partially offset by significant sales decreases in our Aerospace and Specialty Products segments, where we took proactive realignment actions to mitigate the effects of lower demand from the pandemic as much as practical.
Looking forward, we believe there will be a continued period of uncertainty related to demand levels for our products, whether it be when new aircraft builds will ramp-up that require our fasteners or engineered products, if industrial production will increase over the lower 2020 levels that may require our cylinder or closure products, and how long and at what rate the recent high demand will continue for our dispenser and closure product applications that help fight the spread of germs. We expect to continue to mitigate, as much as practical, the impact of lower volumes in the most challenged end markets, executing realignment actions as necessary so we are positioned to gain operating leverage when these end markets begin to recover. We believe we remain well positioned to capitalize on the recovery of the aerospace and industrial markets, as well as available market growth opportunities. We believe the availability and effectiveness of vaccines, as well as continued measures intended to control the spread of the virus, are among the most significant factors that could impact demand for our products.
As a result of continued uncertainties resulting from the COVID-19 pandemic, and their potential impact to our future results of operations, as well as to TriMas' market capitalization, we may record additional cash and non-cash charges related to further realignment actions, as well for uncollectible customer account balances, excess inventory and idle production equipment. At this time, we are not able to practically estimate the extent or amount of any such potential cash and non-cash charges.
At present, we believe our capital structure is strong and that we have sufficient headroom under our financial covenants, and ample 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 the foreseeable future.
We expect to continue to leverage the tenets of our TriMas Business Model to manage our multi-industry businesses and address the ongoing challenges presented by the COVID-19 pandemic, and on a longer-term basis, achieve our growth plans, execute continuous improvement initiatives to offset inflationary pressures, and seek lower-cost sources for input costs, all while continuously assessing the appropriateness of our manufacturing footprint and fixed-cost structure.
Impact of New Accounting Standards
See Note 2, "New Accounting Pronouncements," included in Item 8, "Financial Statements and Supplementary Data," within this Form 10-K.
Critical Accounting Policies
The following discussion of accounting policies is intended to supplement the accounting policies presented in Note 3, "Summary of Significant Accounting Policies" included in Item 8, "Financial Statements and Supplementary Data," within this Form 10-K. Certain of our accounting policies require the application of significant judgment by management in selecting the appropriate assumptions for calculating financial estimates. By their nature, these judgments are subject to an inherent degree of uncertainty. These judgments are based on our historical experience, our evaluation of business and macroeconomic trends, and information from other outside sources, as appropriate.
Receivables. Receivables are presented net of allowances for doubtful accounts of approximately $2.1 million at December 31, 2020 and 2019. We monitor our exposure for credit losses and maintain adequate allowances for doubtful accounts. We determine these allowances based on our historical write-off experience and/or specific customer circumstances and provide such allowances when amounts are reasonably estimable and it is probable a loss has been incurred. Although we have been growing business with certain of our larger customers, and there has been some industry consolidation where certain of our customers are merging, we do not believe that significant credit risk exists or that we have a significant concentration of accounts receivable with a single customer or group of customers due to our diverse customer base. See Item 1A, "Risk Factors," for additional information regarding risks associated with a concentrated customer base.
Depreciation and Amortization. Depreciation is computed principally using the straight-line method over the estimated useful lives of the assets. Annual depreciation rates are as follows: building and land/building improvements three to 40 years, and machinery and equipment, three to 15 years. Capitalized debt issuance costs are amortized over the underlying terms of the related debt securities. Customer relationship intangibles are amortized over periods ranging from five to 25 years, while technology and other intangibles are amortized over periods ranging from one to 30 years.
Impairment of Long-Lived Assets and Definite-Lived Intangible Assets. We review, on at least a quarterly basis, the financial performance of each business unit for indicators of impairment. In reviewing for impairment indicators, we also consider events or changes in circumstances such as business prospects, customer retention, market trends, potential product obsolescence, competitive activities and other economic factors. An impairment loss is recognized when the carrying value of an asset group exceeds the future net undiscounted cash flows expected to be generated by that asset group. The impairment loss recognized is the amount by which the carrying value of the asset group exceeds its fair value.
Goodwill and Indefinite-Lived Intangibles. We assess goodwill and indefinite-lived intangible assets for impairment at the reporting unit level on an annual basis as of October 1, by reviewing relevant qualitative and quantitative factors. More frequent evaluations may be required if we experience changes in our business climate or as a result of other triggering events that take place. An impairment loss is recognized when the carrying value of the asset exceeds its fair value.
We determine our reporting units at the individual operating segment level, or one level below, when there is discrete financial information available that is regularly reviewed by segment management for evaluating operating results. For purposes of our 2020 goodwill impairment test, we had six reporting units, three of which had goodwill, within our three reportable segments.
We first perform a qualitative assessment for our annual goodwill impairment test and for our indefinite-lived intangible asset impairment test, which involves significant use of management's judgment and assumptions to determine whether it is more likely than not that the fair value of a reporting unit or indefinite-lived intangible asset is less than its carrying amount. In conducting the qualitative assessment, we consider macroeconomic conditions, industry and market considerations, overall financial performance, entity and reporting unit specific events, capital markets pricing, recent fair value estimates and carrying amounts, as well as legal, regulatory, and contractual factors. These factors are all considered in reaching a conclusion about whether it is more likely than not that the fair values of the intangible assets are less than the carrying values. If we conclude that further testing is required, we would perform a quantitative valuation to estimate the fair value of our intangible assets.
For purposes of the 2020 annual impairment tests, based on the qualitative assessments, we determined there were no indications that the fair value of a reporting unit or indefinite-lived intangible asset was less than its carrying amount; therefore, we determined that quantitative assessments were not required.
During the third quarter of 2020, as a result of a decline in our aerospace-related business' financial results, a significant reduction in financial projections for the remainder of 2020 compared with prior projections, and uncertainty around the duration and magnitude of the impact of the COVID-19 pandemic on future financial results given their dependence on future levels of air travel and new aircraft builds, we determined there was a triggering event requiring an interim quantitative goodwill impairment assessment of each of our two aerospace-related reporting units: Aerospace Fasteners and Aerospace Engineered Products. In conducting the quantitative analysis, we determined the estimated fair value of the Aerospace reporting units utilizing both income and market-based approaches. The income approach relies on the present value of estimated future cash flows of the business, discounted using a rate appropriately reflecting the risks inherent in the cash flows. The market approach relies on market data of other public companies that we deem comparable in operations to our reporting units. Upon completion of the goodwill impairment test, we determined that the carrying values of the Aerospace Fasteners and Aerospace Engineered Products reporting units exceeded their fair values, resulting goodwill impairment charges of approximately $70.8 million in its Aerospace Fasteners reporting unit and approximately $56.0 million in its Aerospace Engineered Products reporting unit. We note that a 1% change in the discount rate would have impacted the total goodwill impairment charge by approximately $20 million, while a 0.5% change in the terminal growth rate would have impacted the total goodwill impairment charge by approximately $5 million.
Additionally, because of the factors previously mentioned, we also performed a quantitative assessment for all of our indefinite-lived intangible assets included within the Aerospace segment, using a relief-from-royalty method. The relief-from-royalty method involves the estimation of appropriate market royalty rates for our indefinite-lived intangible assets and the application of these royalty rates to forecasted net sales attributable to the intangible assets. The resulting cash flows are then discounted to present value, using a rate appropriately reflecting the risks inherent in the cash flows, which is compared to the carrying value of the assets. Upon completion of the quantitative impairment test, we determined that certain of our aerospace-related trade names had carrying values that exceeded their fair values, and therefore recorded impairment charges of approximately $7.8 million during 2020.
Future declines in sales and/or operating profit, declines in our stock price, or other changes in our business or the markets for our products could result in further impairments of our goodwill and indefinite-lived intangible assets.
Pension Benefits. We engage independent actuaries to compute the amounts of liabilities and expenses under defined benefit pension plans, subject to the assumptions that we determine are appropriate based on historical trends, current market rates and future projections as of the measurement date. Annually, we review the actual experience compared to the most significant assumptions used and makes adjustments to the assumptions, if warranted. Discount rates are based upon an expected benefit payments duration analysis and the equivalent average yield rate for high-quality fixed-income investments. Pension benefits are funded through deposits with trustees and the expected long-term rate of return on plan assets is based upon actual historical returns modified for known changes in the market and any expected change in investment policy. Certain accounting guidance, including the guidance applicable to pensions, does not require immediate recognition of the effects of a deviation between actual and assumed experience or the revision of an estimate. This approach allows the favorable and unfavorable effects that fall within an acceptable range to be netted.
Income Taxes. We compute income taxes using the asset and liability method, whereby deferred income taxes using current enacted tax rates are provided for the temporary differences between the financial reporting basis and the tax basis of assets and liabilities and for operating loss and tax credit carryforwards. We determine valuation allowances based on an assessment of positive and negative evidence on a jurisdiction-by-jurisdiction basis and record a valuation allowance to reduce deferred tax assets to the amount more likely than not to be realized. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. We record interest and penalties related to unrecognized tax benefits in income tax expense.
Asbestos-related Matters. We accrue loss reserves for asbestos-related matters based upon an estimate of the ultimate liability for claims incurred, whether reported or not, including an estimate of future settlement costs and costs to defend. We utilize known facts and historical trends for Company-specific and general market asbestos-related activity, as well as an actuarial valuation in determining estimated required reserves which we believe are probable and reasonably estimable. Asbestos-related accruals are assessed at each balance sheet date to determine if the liability remains reasonably stated. Accruals for asbestos-related matters are included in the consolidated balance sheet in “Accrued liabilities” and “Other long-term liabilities.”
Other Loss Reserves. We have other loss exposures related to insurance, litigation and environmental claims. Establishing loss reserves for these matters requires the use of estimates and judgment in regard to risk exposure and ultimate liability. We are generally party to high deductible insurance programs for losses and liabilities related principally to workers' compensation, health and welfare claims and comprehensive general, product and vehicle liability. Generally, we are responsible for up to $0.8 million per occurrence under our retention program for workers' compensation, between $0.3 million and $1.5 million per occurrence under our retention programs for comprehensive general, product and vehicle liability, and have a $0.4 million per occurrence stop-loss limit with respect to our self-insured group medical plan. We accrue loss reserves up to our retention amounts based upon our estimates of the ultimate liability for claims incurred, including an estimate of related litigation defense costs, and an estimate of claims incurred but not reported using actuarial assumptions about future events. We accrue for such items when such amounts are reasonably estimable and probable. We utilize known facts and historical trends, as well as actuarial valuations in determining estimated required reserves. Changes in assumptions for factors such as medical costs and actual experience could cause these estimates to change significantly.
Item 8. Financial Statements and Supplementary Data
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of TriMas Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of TriMas Corporation and subsidiaries (the "Company") as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive income, cash flows, and shareholders’ equity, for each of the three years in the period ended December 31, 2020, and the related notes and the schedule listed in the Index at Item 15 (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 25, 2021, expressed an unqualified opinion on the Company's internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Asbestos— Refer to Notes 3 and 17 to the financial statements
Critical Audit Matter Description
During the second quarter of 2020, the Company elected to change its method of accounting for asbestos-related defense costs from accruing for probable and reasonably estimable defense costs associated with known claims expected to settle to accrue for all future defense costs for both known and unknown claims. The Company believes this change is preferable, and this accounting change has been reflected as a change in accounting estimate effected by a change in accounting principle. Following the change in accounting estimate, the Company’s liability for asbestos-related claims will be based on a study from the Company’s third-party actuary, the Company's review of the study, as well as the Company’s own review of asbestos claims and claim resolution activity. The study from the Company’s actuary, based on data as of December 31, 2019, provided for a range of possible future liability from $31.5 million to $43.3 million. During the second quarter 2020, the Company recorded a $23.4 million charge to increase the liability estimate to the $31.5 million noted as the low end of the range. As of December 31, 2020, the Company’s total asbestos-related liability is $28.7 million and is included in accrued liabilities and other long-term liabilities, respectively, in the accompanying consolidated balance sheet.
We identified the initial gross asbestos liability recorded as a result of the change in accounting estimate as a critical audit matter because estimating projected indemnity and defense costs of pending and future asbestos-related claims involves significant estimation by management due to variables that are difficult to predict and the range of possible outcomes. This required a high degree of auditor judgment and an increased extent of effort, including the need to involve our actuarial specialists, when performing audit procedures to evaluate whether the asbestos related reserves were appropriately recorded as of December 31, 2020.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the asbestos-related reserves included the following, among others:
•We tested the effectiveness of controls over the valuation of the liability, including controls over the inputs to the model (claims data sets, indemnity settlement payments and legal payments), and over the accounting and disclosures related to the change in accounting policy resulting in a change in estimate. This included inquires with management and inspection of documentation related to the change in accounting policy for asbestos and whether it is preferable and properly accounted for prospectively as a change in accounting estimate.
•With the assistance of our actuarial specialists that have experience in the area of asbestos-related reserves, we assessed the reasonableness of the valuation methodology, significant assumptions, and the range of probable outcomes estimated by management. Additionally, the specialists developed a range of independent estimates and compared those to management’s estimate.
•We assessed the qualifications, experience, and objectivity of management’s third-party actuary.
•We tested the underlying data that served as the basis for the actuarial analysis, including claims data sets, indemnity settlement payments, and legal payments, to test the inputs to the actuarial estimate for completeness and accuracy.
Goodwill - Aerospace Reporting Units - Refer to Notes 3 and 9 to the financial statements.
Critical Audit Matter Description
The Company assesses goodwill for impairment on an annual basis as of October 1, and more frequently if there are changes in the business climate or as a result of a triggering event taking place. The Company’s evaluation of goodwill for impairment involved the comparison of the fair value of each reporting unit to its carrying value.
If the Company concludes that conducting a quantitative assessment is required, it determines the fair value of its reporting units utilizing a discounted cash flow (income approach) and a market comparable method (market approach). The determination of the fair value using the income approach requires management to make significant estimates and assumptions, which include forward-looking projections and discount rates. The determination of the fair value using the market approach requires management to make significant estimates and assumptions, which include multiples of potentially comparable companies that are applied to management’s financial projections.
During the third quarter of 2020, as a result of a decline in its aerospace-related business' financial results, a significant reduction in its financial projections for the remainder of 2020 compared with prior projections, and uncertainty around the duration and magnitude of the impact of the COVID-19 pandemic on future financial results given their dependence on future levels of air travel and new aircraft builds, the Company determined there was a triggering event requiring an interim goodwill impairment assessment for its Aerospace Fasteners and Aerospace Engineered Products reporting units. The Company determined that the carrying values of the Aerospace Fasteners and Aerospace Engineered Products reporting units exceeded their fair values, resulting in goodwill impairment charges of $70.8 million and $56.0 million, respectively. The total Company goodwill balance was $304.0 million as of December 31, 2020, of which the Aerospace Fasteners reporting unit has $62.9 million, while the Aerospace Engineered Products reporting unit had no remaining goodwill.
Given the nature of the Aerospace Fasteners and Aerospace Engineered Products operations, sensitivity of the reporting unit’s business to changes in the economy, the reporting unit’s historical performance as compared to financial projections, and the difference between its fair value and the carrying value, auditing management’s judgments regarding financial projections, as well as selection of the discount rate and selection of multiples applied to management’s financial projections for the Aerospace Fasteners and Aerospace Engineered Products reporting units, required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the financial projections, the selection of the discount rate, and the selection of multiples applied to management’s historical financial results and financial projections (“market multiples”) for the Aerospace Fasteners and Aerospace Engineered Products reporting units included the following, among others:
•We tested the effectiveness of controls over management’s goodwill impairment evaluation including the determination of fair value, such as controls related to management’s financial projections and the selection of the discount rate and market multiples used.
•We evaluated management’s ability to accurately project by comparing actual financial results to management’s historical financial projections.
•We evaluated the reasonableness of management’s financial projections by comparing the financial projections to historical financial results and projected information included in industry reports for the various industries the reporting units operate within.
•With the assistance of our fair value specialists, we evaluated the discount rate, including testing the underlying source information and the mathematical accuracy of the calculations, and developing a range of independent estimates and comparing those to the discount rate selected by management.
•With the assistance of our fair value specialists, we evaluated the market multiples by evaluating the selected potentially comparable publicly traded companies and the adjustments made for differences in growth prospects and risk profiles between the reporting units and the potentially comparable publicly traded companies. We tested the underlying source information and mathematical accuracy of the calculations.
/s/ Deloitte & Touche LLP
Detroit, Michigan
February 25, 2021
We have served as the Company's auditor since 2013.
TriMas Corporation
Consolidated Balance Sheet
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2020
|
|
2019
|
Assets
|
|
|
|
|
Current assets:
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
73,950
|
|
|
$
|
172,470
|
|
Receivables, net
|
|
113,410
|
|
|
108,860
|
|
Inventories
|
|
149,380
|
|
|
132,660
|
|
Prepaid expenses and other current assets
|
|
15,090
|
|
|
20,050
|
|
|
|
|
|
|
Total current assets
|
|
351,830
|
|
|
434,040
|
|
Property and equipment, net
|
|
253,060
|
|
|
214,330
|
|
Operating lease right-of-use assets
|
|
37,820
|
|
|
27,850
|
|
Goodwill
|
|
303,970
|
|
|
334,640
|
|
Other intangibles, net
|
|
206,200
|
|
|
161,390
|
|
Deferred income taxes
|
|
19,580
|
|
|
500
|
|
Other assets
|
|
21,420
|
|
|
19,950
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,193,880
|
|
|
$
|
1,192,700
|
|
Liabilities and Shareholders' Equity
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
69,910
|
|
|
$
|
72,670
|
|
Accrued liabilities
|
|
60,540
|
|
|
42,020
|
|
Operating lease liabilities, current portion
|
|
6,740
|
|
|
5,100
|
|
|
|
|
|
|
Total current liabilities
|
|
137,190
|
|
|
119,790
|
|
Long-term debt, net
|
|
346,290
|
|
|
294,690
|
|
Operating lease liabilities
|
|
31,610
|
|
|
23,100
|
|
Deferred income taxes
|
|
24,850
|
|
|
16,830
|
|
Other long-term liabilities
|
|
69,690
|
|
|
40,810
|
|
|
|
|
|
|
Total liabilities
|
|
609,630
|
|
|
495,220
|
|
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: 43,178,165 shares at December 31, 2020 and 44,562,679 shares at December 31, 2019
|
|
430
|
|
|
450
|
|
Paid-in capital
|
|
749,050
|
|
|
782,880
|
|
Accumulated deficit
|
|
(159,610)
|
|
|
(79,850)
|
|
Accumulated other comprehensive loss
|
|
(5,620)
|
|
|
(6,000)
|
|
Total shareholders' equity
|
|
584,250
|
|
|
697,480
|
|
Total liabilities and shareholders' equity
|
|
$
|
1,193,880
|
|
|
$
|
1,192,700
|
|
The accompanying notes are an integral part of these financial statements.
TriMas Corporation
Consolidated Statement of Operations
(Dollars in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
2020
|
|
2019
|
|
2018
|
Net sales
|
|
$
|
769,970
|
|
|
$
|
723,530
|
|
|
$
|
705,030
|
|
Cost of sales
|
|
(587,890)
|
|
|
(529,630)
|
|
|
(504,920)
|
|
Gross profit
|
|
182,080
|
|
|
193,900
|
|
|
200,110
|
|
Selling, general and administrative expenses
|
|
(134,480)
|
|
|
(102,530)
|
|
|
(91,210)
|
|
Net loss on dispositions of assets
|
|
(1,290)
|
|
|
(150)
|
|
|
(90)
|
|
Impairment of goodwill and indefinite-lived intangible assets
|
|
(134,600)
|
|
|
—
|
|
|
—
|
|
Operating profit (loss)
|
|
(88,290)
|
|
|
91,220
|
|
|
108,810
|
|
Other expense, net:
|
|
|
|
|
|
|
Interest expense
|
|
(14,660)
|
|
|
(13,950)
|
|
|
(13,910)
|
|
|
|
|
|
|
|
|
Other income (expense), net
|
|
240
|
|
|
990
|
|
|
(2,540)
|
|
Other expense, net
|
|
(14,420)
|
|
|
(12,960)
|
|
|
(16,450)
|
|
Income (loss) before income taxes
|
|
(102,710)
|
|
|
78,260
|
|
|
92,360
|
|
Income tax benefit (expense)
|
|
22,950
|
|
|
(16,320)
|
|
|
(18,650)
|
|
Income (loss) from continuing operations
|
|
(79,760)
|
|
|
61,940
|
|
|
73,710
|
|
Income from discontinued operations, net of income taxes
|
|
—
|
|
|
36,680
|
|
|
9,590
|
|
Net income (loss)
|
|
$
|
(79,760)
|
|
|
$
|
98,620
|
|
|
$
|
83,300
|
|
Basic earnings (loss) per share:
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(1.83)
|
|
|
$
|
1.37
|
|
|
$
|
1.61
|
|
Discontinued operations
|
|
—
|
|
|
0.81
|
|
|
0.21
|
|
Net income (loss) per share
|
|
$
|
(1.83)
|
|
|
$
|
2.18
|
|
|
$
|
1.82
|
|
Weighted average common shares - basic
|
|
43,581,232
|
|
|
45,303,659
|
|
|
45,824,555
|
|
Diluted earnings (loss) per share:
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(1.83)
|
|
|
$
|
1.36
|
|
|
$
|
1.60
|
|
Discontinued operations
|
|
—
|
|
|
0.80
|
|
|
0.20
|
|
Net income (loss) per share
|
|
$
|
(1.83)
|
|
|
$
|
2.16
|
|
|
$
|
1.80
|
|
Weighted average common shares - diluted
|
|
43,581,232
|
|
|
45,595,154
|
|
|
46,170,464
|
|
The accompanying notes are an integral part of these financial statements.
TriMas Corporation
Consolidated Statement of Comprehensive Income
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
2020
|
|
2019
|
|
2018
|
Net income (loss)
|
|
$
|
(79,760)
|
|
|
$
|
98,620
|
|
|
$
|
83,300
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
Defined benefit plans (Note 18)
|
|
1,310
|
|
|
(1,470)
|
|
|
3,250
|
|
Foreign currency translation
|
|
6,880
|
|
|
10,290
|
|
|
(6,880)
|
|
Derivative instruments (Note 14)
|
|
(7,810)
|
|
|
3,300
|
|
|
4,110
|
|
Total other comprehensive income
|
|
380
|
|
|
12,120
|
|
|
480
|
|
Total comprehensive income (loss)
|
|
$
|
(79,380)
|
|
|
$
|
110,740
|
|
|
$
|
83,780
|
|
The accompanying notes are an integral part of these financial statements.
TriMas Corporation
Consolidated Statement of Cash Flows
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
2020
|
|
2019
|
|
2018
|
Cash Flows from Operating Activities:
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(79,760)
|
|
|
$
|
98,620
|
|
|
$
|
83,300
|
|
Income from discontinued operations
|
|
—
|
|
|
36,680
|
|
|
9,590
|
|
Income (loss) from continuing operations
|
|
(79,760)
|
|
|
61,940
|
|
|
73,710
|
|
Adjustments to reconcile income from continuing operations to net cash provided by operating activities, net of acquisition impact:
|
|
|
|
|
|
|
Impairment of goodwill and indefinite-lived intangible assets
|
|
134,600
|
|
|
—
|
|
|
—
|
|
Loss on dispositions of assets
|
|
1,290
|
|
|
150
|
|
|
90
|
|
Depreciation
|
|
29,020
|
|
|
24,870
|
|
|
22,230
|
|
Amortization of intangible assets
|
|
20,750
|
|
|
18,630
|
|
|
18,260
|
|
Amortization of debt issue costs
|
|
1,150
|
|
|
1,130
|
|
|
1,290
|
|
Deferred income taxes
|
|
(33,710)
|
|
|
2,100
|
|
|
5,810
|
|
Non-cash compensation expense
|
|
8,170
|
|
|
6,450
|
|
|
7,170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash change in legacy liability estimate
|
|
23,400
|
|
|
—
|
|
|
—
|
|
(Increase) decrease in receivables
|
|
9,580
|
|
|
3,280
|
|
|
(9,570)
|
|
(Increase) decrease in inventories
|
|
3,980
|
|
|
740
|
|
|
(14,680)
|
|
(Increase) decrease in prepaid expenses and other assets
|
|
4,400
|
|
|
(6,930)
|
|
|
8,790
|
|
Increase (decrease) in accounts payable and accrued liabilities
|
|
4,490
|
|
|
(12,780)
|
|
|
(2,330)
|
|
Other operating activities
|
|
50
|
|
|
(3,870)
|
|
|
10
|
|
Net cash provided by operating activities of continuing operations
|
|
127,410
|
|
|
95,710
|
|
|
110,780
|
|
Net cash provided by (used for) operating activities of discontinued operations
|
|
—
|
|
|
(20,110)
|
|
|
18,540
|
|
Net cash provided by operating activities
|
|
127,410
|
|
|
75,600
|
|
|
129,320
|
|
Cash Flows from Investing Activities:
|
|
|
|
|
|
|
Capital expenditures
|
|
(40,480)
|
|
|
(29,670)
|
|
|
(23,420)
|
|
Acquisition of businesses, net of cash acquired
|
|
(193,540)
|
|
|
(67,090)
|
|
|
—
|
|
Net proceeds from dispositions of businesses, property and equipment
|
|
1,950
|
|
|
128,080
|
|
|
60
|
|
Net cash provided by (used for) investing activities of continuing operations
|
|
(232,070)
|
|
|
31,320
|
|
|
(23,360)
|
|
Net cash used for investing activities of discontinued operations
|
|
—
|
|
|
(2,240)
|
|
|
(1,440)
|
|
Net cash provided by (used for) investing activities
|
|
(232,070)
|
|
|
29,080
|
|
|
(24,800)
|
|
Cash Flows from Financing Activities:
|
|
|
|
|
|
|
Proceeds from borrowings on revolving credit facilities
|
|
367,280
|
|
|
189,060
|
|
|
59,060
|
|
Repayments of borrowings on revolving credit facilities
|
|
(319,120)
|
|
|
(189,340)
|
|
|
(68,490)
|
|
Payments to purchase common stock
|
|
(39,420)
|
|
|
(36,740)
|
|
|
(12,140)
|
|
Shares surrendered upon exercise and vesting of equity awards to cover taxes
|
|
(2,600)
|
|
|
(3,340)
|
|
|
(2,380)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other financing activities
|
|
—
|
|
|
—
|
|
|
—
|
|
Net cash provided by (used for) financing activities of continuing operations
|
|
6,140
|
|
|
(40,360)
|
|
|
(23,950)
|
|
Net cash provided by financing activities of discontinued operations
|
|
—
|
|
|
—
|
|
|
—
|
|
Net cash provided by (used for) financing activities
|
|
6,140
|
|
|
(40,360)
|
|
|
(23,950)
|
|
Cash and Cash Equivalents:
|
|
|
|
|
|
|
Increase (decrease) for the year
|
|
(98,520)
|
|
|
64,320
|
|
|
80,570
|
|
At beginning of year
|
|
172,470
|
|
|
108,150
|
|
|
27,580
|
|
At end of year
|
|
$
|
73,950
|
|
|
$
|
172,470
|
|
|
$
|
108,150
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
13,210
|
|
|
$
|
12,430
|
|
|
$
|
13,800
|
|
Cash paid for income taxes
|
|
$
|
9,060
|
|
|
$
|
44,020
|
|
|
$
|
7,380
|
|
The accompanying notes are an integral part of these financial statements.
TriMas Corporation
Consolidated Statement of Shareholders' Equity
Years Ended December 31, 2020, 2019 and 2018
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock
|
|
Paid-In
Capital
|
|
Accumulated
Deficit
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
Total
|
Balances at December 31, 2017
|
|
$
|
460
|
|
|
$
|
823,850
|
|
|
$
|
(262,960)
|
|
|
$
|
(17,330)
|
|
|
$
|
544,020
|
|
Net income
|
|
—
|
|
|
—
|
|
|
83,300
|
|
|
—
|
|
|
83,300
|
|
Other comprehensive income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
480
|
|
|
480
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of common stock
|
|
—
|
|
|
(12,140)
|
|
|
—
|
|
|
—
|
|
|
(12,140)
|
|
Shares surrendered upon exercise and vesting of equity awards to cover taxes
|
|
—
|
|
|
(2,380)
|
|
|
—
|
|
|
—
|
|
|
(2,380)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash compensation expense
|
|
—
|
|
|
7,170
|
|
|
—
|
|
|
—
|
|
|
7,170
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2018
|
|
$
|
460
|
|
|
$
|
816,500
|
|
|
$
|
(179,660)
|
|
|
$
|
(16,850)
|
|
|
$
|
620,450
|
|
Net income
|
|
—
|
|
|
—
|
|
|
98,620
|
|
|
—
|
|
|
98,620
|
|
Other comprehensive income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
12,120
|
|
|
12,120
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of common stock
|
|
(10)
|
|
|
(36,730)
|
|
|
—
|
|
|
—
|
|
|
(36,740)
|
|
Shares surrendered upon exercise and vesting of equity awards to cover taxes
|
|
—
|
|
|
(3,340)
|
|
|
—
|
|
|
—
|
|
|
(3,340)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash compensation expense
|
|
—
|
|
|
6,450
|
|
|
—
|
|
|
—
|
|
|
6,450
|
|
Impact of accounting standards adoption
|
|
—
|
|
|
—
|
|
|
1,190
|
|
|
(1,270)
|
|
|
(80)
|
|
Balances at December 31, 2019
|
|
$
|
450
|
|
|
$
|
782,880
|
|
|
$
|
(79,850)
|
|
|
$
|
(6,000)
|
|
|
$
|
697,480
|
|
Net loss
|
|
—
|
|
|
—
|
|
|
(79,760)
|
|
|
—
|
|
|
(79,760)
|
|
Other comprehensive income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
380
|
|
|
380
|
|
Purchase of common stock
|
|
(30)
|
|
|
(39,390)
|
|
|
—
|
|
|
—
|
|
|
(39,420)
|
|
Shares surrendered upon exercise and vesting of equity awards to cover taxes
|
|
—
|
|
|
(2,600)
|
|
|
—
|
|
|
—
|
|
|
(2,600)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash compensation expense
|
|
10
|
|
|
8,160
|
|
|
—
|
|
|
—
|
|
|
8,170
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2020
|
|
$
|
430
|
|
|
$
|
749,050
|
|
|
$
|
(159,610)
|
|
|
$
|
(5,620)
|
|
|
$
|
584,250
|
|
The accompanying notes are an integral part of these financial statements.
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
TriMas Corporation ("TriMas" or the "Company"), and its consolidated subsidiaries, designs, engineers and manufactures innovative products under leading brand names for customers primarily in the consumer products, aerospace & defense, and industrial markets.
In the second quarter of 2020, the Company elected to change its method of accounting for asbestos-related defense costs from accruing for probable and reasonably estimable defense costs associated with known claims expected to settle to accrue for all future defense costs for both known and unknown claims, which the Company now believes are reasonably estimable. The Company believes this change is preferable, as asbestos-related defense costs represent expenditures related to legacy activities that do not contribute to current or future revenue generating activities, and recording an estimate of the full liability for asbestos-related costs, where estimable with reasonable precision, provides a more complete assessment of the liability associated with resolving asbestos-related claims. This accounting change has been reflected as a change in accounting estimate effected by a change in accounting principle. See Note 17, "Commitments and Contingencies," for further information on this change.
In the first quarter of 2020, TriMas began reporting its machined components operations, located in Stanton, California and Tolleson, Arizona, as part of its Aerospace segment. The operations were previously reported in the Specialty Products segment. The move of these operations into TriMas Aerospace facilitates achieving anticipated synergies from the February 2020 RSA Engineered Products ("RSA") acquisition, allowing the Company to better leverage the machining competencies and resources across its aerospace businesses. See Note 22, "Segment Information," for further information on each of the Company's reportable segments.
In the fourth quarter of 2019, the Company completed the sale of its Lamons division (“Lamons”), a transaction entered into with an investment fund sponsored by First Reserve. Lamons was sold for approximately $136.8 million in cash, of which approximately $135.0 million was received in 2019 and the remaining $1.8 million was received in the first quarter of 2020. The financial results of Lamons were previously reported within the Company's Specialty Products segment, and are presented as discontinued operations for all periods presented in the financial statements attached hereto. See Note 5, "Discontinued Operations," for further information on the sale of Lamons and its historical financial results.
The preparation of financial statements also 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 in the current economic environment due to the ongoing outbreak of a new strain of the coronavirus (“COVID-19”). While the full impact of COVID-19 on the Company's operations is unknown and cannot be reasonably estimated at this time, the Company has made appropriate accounting estimates based on the facts and circumstances available as of the reporting date. To the extent there are differences between these estimates and actual results, the Company's consolidated financial statements may be materially affected.
Certain prior year amounts have been reclassified to conform with current year presentation.
2. New Accounting Pronouncements
Recently Issued Accounting Pronouncements
In December 2019, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes" ("ASU 2019-12"), which removes specific exceptions to the general principles in Topic 740, simplifies the accounting for income taxes and provides clarification of certain aspects of current guidance. ASU 2019-12 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2020, with early adoption permitted. The Company is in the process of assessing the impact of adoption on its consolidated financial statements.
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Recently Adopted Accounting Pronouncements
In August 2018, the FASB issued ASU 2018-14, "Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20)" ("ASU 2018-14"), which modifies the disclosure requirements for employers who sponsor defined benefit pension or other postretirement plans. The Company adopted ASU 2018-14 in the fourth quarter of 2020. The standard relates to financial statement disclosure only and did not have an impact on the Company’s consolidated balance sheet, statement of operations or cash flows. See Note 18, "Employee Benefit Plans," for disclosure of the Company's defined benefit plans.
In January 2017, the FASB issued ASU 2017-04, "Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment" ("ASU 2017-04"), which simplifies the test for goodwill impairment by eliminating the requirement to perform a hypothetical purchase price allocation to measure the amount of goodwill impairment. Instead, under ASU 2017-04, the goodwill impairment is the amount by which a reporting unit's carrying value exceeds its fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to the reporting unit. The Company adopted ASU 2017-04 in the first quarter of 2020. See Note 3, "Summary of Significant Accounting Policies," for further information on the Company's policies regarding assessing potential goodwill impairments.
3. Summary of Significant Accounting Policies
Principles of Consolidation. The accompanying consolidated financial statements include the accounts and transactions of TriMas and its subsidiaries. Intercompany transactions have been eliminated.
Use of Estimates. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management of the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements. Such estimates and assumptions also affect the reported amounts of revenues and expenses during the reporting periods. Significant items subject to such estimates and assumptions include the carrying amount of property and equipment, goodwill and other intangibles, valuation allowances for receivables, inventories and deferred income tax assets, valuation of derivatives, estimated future unrecoverable lease costs, reserves for asbestos and ordinary course litigation, assets and obligations related to employee benefits and estimated unrecognized tax benefits. Actual results may differ from such estimates and assumptions.
Cash and Cash Equivalents. The Company considers cash on hand and on deposit and investments in all highly liquid debt instruments with initial maturities of three months or less to be cash and cash equivalents. Cash and cash equivalents also includes restricted cash held on deposit with a financial institution as cash collateral for the Company's outstanding letters of credit. See Note 8, "Cash and Cash Equivalents," for further details regarding the Company's cash and cash equivalents.
Receivables. Receivables are presented net of allowances for doubtful accounts of approximately $2.1 million at each of December 31, 2020 and 2019. The Company monitors its exposure for credit losses and maintains allowances for doubtful accounts based upon the Company's best estimate of probable losses inherent in the accounts receivable balances. The Company does not believe that significant credit risk exists due to its diverse customer base.
Inventories. Inventories are stated at the lower of cost or net realizable value, with cost determined using the first-in, first-out method. Direct materials, direct labor and allocations of variable and fixed manufacturing-related overhead are included in inventory cost.
Property and Equipment. Property and equipment additions, including significant improvements, are recorded at cost. Upon retirement or disposal of property and equipment, the cost and accumulated depreciation are removed from the accounts, and any gain or loss is included in the accompanying statement of operations. Repair and maintenance costs are charged to expense as incurred.
Depreciation and Amortization. Depreciation is computed principally using the straight-line method over the estimated useful lives of the assets. Annual depreciation rates are as follows: building and land/building improvements three to 40 years, and machinery and equipment, three to 15 years. Capitalized debt issuance costs are amortized over the underlying terms of the related debt securities. Customer relationship intangibles are amortized over periods ranging from five to 25 years, while technology and other intangibles are amortized over periods ranging from one to 30 years.
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Impairment of Long-Lived Assets and Definite-Lived Intangible Assets. The Company reviews, on at least a quarterly basis, the financial performance of its businesses for indicators of impairment. In reviewing for impairment indicators, the Company also considers events or changes in circumstances such as business prospects, customer retention, market trends, potential product obsolescence, competitive activities and other economic factors. An impairment loss is recognized when the carrying value of an asset group exceeds the future net undiscounted cash flows expected to be generated by that asset group. The impairment loss recognized is the amount by which the carrying value of the asset group exceeds its fair value.
Goodwill. The Company assesses goodwill for impairment on an annual basis (October 1 test date) by reviewing relevant qualitative and quantitative factors. More frequent evaluations may be required if the Company experiences changes in its business climate or as a result of other triggering events that take place. An impairment loss is recognized when the carrying value of a reporting unit's goodwill exceeds its fair value.
The Company determines its reporting units at the individual operating segment level, or one level below, when there is discrete financial information available that is regularly reviewed by segment management to evaluate operating results. For purposes of the Company's 2020 goodwill impairment test, the Company had six reporting units, three of which had goodwill, within its three reportable segments.
The Company begins its goodwill reviews by conducting a qualitative assessment, considering relevant events and circumstances that affect the fair value or carrying amount of a reporting unit. Such events and circumstances can include macroeconomic conditions, industry and market considerations, overall financial performance, entity and reporting unit specific events, and capital markets pricing. The Company considers the extent to which any identified adverse events and circumstances affect the comparison of a reporting unit's fair value with its carrying amount. The Company places more weight on the events and circumstances that most affect a reporting unit's fair value or the carrying amount of its net assets. The Company considers positive and mitigating events and circumstances that may affect its determination of whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. The Company also considers recent valuations of its reporting units, including the difference between the most recent fair value estimate and the carrying amount. Each of these factors is considered by management in reaching its conclusion about whether a quantitative goodwill impairment test is necessary to estimate the fair value of its reporting units.
If the Company concludes that conducting a quantitative assessment is required, it performs a quantitative goodwill impairment test. When conducting a quantitative goodwill impairment test, the Company determines the fair value of the reporting unit being evaluated utilizing a combination of three valuation techniques: discounted cash flow (income approach), market comparable method (market approach) and market capitalization (direct market data method). The income approach is based on management's operating plan and internal five-year forecast and utilizes forward-looking assumptions and projections, on a discounted basis, but considers factors unique to each reporting unit and related long-range plans that may not be comparable to other companies and that are not yet public. The market approach considers potentially comparable companies and transactions within the industries where the Company's reporting units participate, and applies their trading multiples to the financial projections of the Company's reporting units. This approach utilizes data from actual marketplace transactions, but reliance on its results is limited by difficulty in identifying companies that are specifically comparable to the Company's reporting units, considering the diversity of the Company's businesses, the relative sizes and levels of complexity. The Company also uses the direct market data method by comparing its book value and the estimates of fair value of the reporting units to the Company's market capitalization. Management uses this comparison as additional evidence of the fair value of the Company, as its market capitalization may be suppressed by other factors such as the control premium associated with a controlling shareholder, the Company's degree of leverage and the float of the Company's common stock. Management evaluates and weights the results based on a combination of the income and market approaches, and, in situations where the income approach results differ significantly from the market and direct data approaches, management re-evaluates and adjusts, if necessary, its assumptions.
Based on the quantitative test, if it is determined that the carrying value of the reporting unit is higher than its fair value, goodwill is impaired and is written down to the fair value amount; however, the loss recognized will not exceed the total amount of goodwill allocated to the reporting unit. See Note 9, "Goodwill and Other Intangible Assets," for further details regarding the Company's goodwill impairment testing.
Indefinite-Lived Intangibles. The Company assesses indefinite-lived intangible assets (primarily trademark/trade names) for impairment on an annual basis (October 1 test date) by reviewing relevant qualitative and quantitative factors. More frequent evaluations may be required if the Company experiences changes in its business climate or as a result of other triggering events that take place. An impairment loss is recognized when the carrying value of the asset exceeds its fair value.
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In conducting a qualitative assessment, the Company considers relevant events and circumstances to determine whether it is more likely than not that the fair values of the indefinite-lived intangible assets are less than the carrying values. In addition to the events and circumstances that the Company considers above in its qualitative analysis for potential goodwill impairment, the Company also considers legal, regulatory and contractual factors that could affect the fair value or carrying amount of the Company's indefinite-lived intangible assets. The Company also considers recent valuations of its indefinite-lived intangible assets, including the difference between the most recent fair value estimates and the carrying amounts. These factors are all considered by management in reaching its conclusion about whether it is more likely than not that the fair values of the indefinite-lived intangible assets are less than the carrying values. If management concludes that further testing is required, the Company performs a quantitative valuation to estimate the fair value of its indefinite-lived intangible assets. In conducting the quantitative impairment analysis, the Company determines the fair value of its indefinite-lived intangible assets using the relief-from-royalty method. The relief-from-royalty method involves the estimation of appropriate market royalty rates for the indefinite-lived intangible assets and the application of these royalty rates to forecasted net sales attributable to the intangible assets. The resulting cash flows are then discounted to present value, using a rate appropriately reflecting the risks inherent in the cash flows, which then is compared to the carrying value of the assets. If the carrying value exceeds fair value, an impairment is recorded. See Note 9, "Goodwill and Other Intangible Assets," for further details regarding the Company's indefinite-lived intangible asset impairment testing.
High Deductible Insurance. The Company generally has high deductible insurance programs for losses and liabilities related to workers' compensation, health and welfare claims and comprehensive general, product and vehicle liability. The Company is generally responsible for up to $0.8 million per occurrence under its retention program for workers' compensation, between $0.3 million and $1.5 million per occurrence under its retention programs for comprehensive general, product and vehicle liability, and has a $0.4 million per occurrence stop-loss limit with respect to its group medical plan. Total insurance limits under these retention programs vary by year for comprehensive general, product and vehicle liability and extend to the applicable statutory limits for workers' compensation. Reserves for claims losses, including an estimate of related litigation defense costs, are recorded based upon the Company's estimates of the aggregate liability for claims incurred using actuarial assumptions about future events. Changes in assumptions for factors such as medical costs and actual experience could cause these estimates to change.
Pension Plans. The Company engages independent actuaries to compute the amounts of liabilities and expenses under defined benefit pension plans, subject to the assumptions that the Company determines are appropriate based on historical trends, current market rates and future projections. Assumptions used in the actuarial calculations could have a significant impact on plan obligations, and a lesser impact on current period expense. Annually, the Company reviews the actual experience compared to the significant assumptions used and makes adjustments to the assumptions, if warranted. Discount rates are based on an expected benefit payments duration analysis and the equivalent average yield rate for high-quality fixed-income investments. Pension benefits are funded through deposits with trustees and the expected long-term rate of return on fund assets is based on actual historical returns and a review of other public company pension asset return data, modified for known changes in the market and any expected change in investment policy. See Note 18, “Employee Benefit Plans,” for further information.
Asbestos-related Matters. The Company accrues loss reserves for asbestos-related matters based upon an estimate of the ultimate liability for claims incurred, whether reported or not, including an estimate of future settlement costs and costs to defend. The Company utilizes known facts and historical trends for Company-specific and general market asbestos-related activity, as well as an actuarial valuation in determining estimated required reserves which it believes are probable and reasonably estimable. Asbestos-related accruals are assessed at each balance sheet date to determine if the liability remains reasonably stated. Accruals for asbestos-related matters are included in the consolidated balance sheet in “Accrued liabilities” and “Other long-term liabilities.” See Note 17, “Commitments and Contingencies,” for further information.
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Revenue Recognition. Revenue is recognized when control of promised goods is transferred to customers, which generally occurs when products are shipped from the Company’s facilities to its customers. The amount of revenue recorded reflects the consideration the Company expects to be entitled to receive in exchange for transferring those goods. Net sales are comprised of gross revenues, based on observed stand-alone selling prices, less estimates of expected returns, trade discounts and customer allowances, which include incentives such as volume and other discounts in connection with various supply programs. Such deductions are estimated and recorded during the period the related revenue is recognized. The Company may adjust these estimates when the expected amount of consideration changes based on sales volumes or other contractual terms. Sales and other consumption taxes the Company collects from customers and remits to government agencies are excluded from revenue. The Company accounts for freight and shipping costs that occur after control of the related goods transfer to the customer as a fulfillment cost within cost of sales. The nature and timing of the Company's revenue transactions are similar, as substantially all revenue is based on point-in-time transactions with customers under industry-standard payment terms. The Company may require shortened payment terms, including cash-in-advance, on an individual customer basis depending on its assessment of the customer's credit worthiness.
Cost of Sales. Cost of sales includes material, labor and overhead costs incurred in the manufacture of products sold in the period. Material costs include raw material, purchased components, outside processing and freight costs. Overhead costs consist of variable and fixed manufacturing costs, wages and fringe benefits, and purchasing, receiving and inspection costs.
Selling, General and Administrative Expenses. Selling, general and administrative expenses include the following: costs related to the advertising, sale, marketing and distribution of the Company's products, amortization of customer intangible assets, costs of finance, human resources, legal functions, executive management costs and other administrative expenses.
Income Taxes. The Company computes income taxes using the asset and liability method, whereby deferred income taxes using current enacted tax rates are provided for the temporary differences between the financial reporting basis and the tax basis of assets and liabilities and for operating loss and tax credit carryforwards. The Company determines valuation allowances based on an assessment of positive and negative evidence on a jurisdiction-by-jurisdiction basis and records a valuation allowance to reduce deferred tax assets to the amount more likely than not to be realized. The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. The Company records interest and penalties related to unrecognized tax benefits in income tax expense. See Note 23, "Income Taxes," for further information.
Foreign Currency Translation. The financial statements of subsidiaries located outside of the United States are measured using the currency of the primary economic environment in which they operate as the functional currency. When translating into U.S. dollars, income and expense items are translated at average monthly exchange rates and assets and liabilities are translated at exchange rates in effect at the balance sheet date. Adjustments resulting from translating the functional currency into U.S. dollars are deferred as a component of accumulated other comprehensive income (loss) ("AOCI") in the consolidated statement of shareholders' equity. Net foreign currency transaction gains were approximately $0.6 million, $0.3 million and $1.0 million for the years ended December 31, 2020, 2019 and 2018, respectively, and are included in other expense, net in the accompanying consolidated statement of operations.
Derivative Financial Instruments. The Company records derivative financial instruments at fair value on the balance sheet as either assets or liabilities, and changes in their fair values are immediately recognized in earnings if the derivatives do not qualify as effective hedges. If a derivative is designated as a fair value hedge, then changes in the fair value of the derivative are offset against the changes in the fair value of the underlying hedged item. If a derivative is designated as a cash flow hedge, then the effective portion of the changes in the fair value of the derivative is recognized as a component of other comprehensive income until the underlying hedged item is recognized in earnings or the forecasted transaction is no longer probable of occurring. If a derivative is designated as a net investment hedge, then the effective portion of the changes in the fair value of the derivative is recognized in other comprehensive income and will be subsequently reclassified to earnings when the hedged net investment is either sold or substantially liquidated. The Company formally documents hedging relationships for its derivative transactions and the underlying hedged items, as well as its risk management objectives and strategies for undertaking the hedge transactions. See Note 14, "Derivative Instruments," for further information.
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Fair Value of Financial Instruments. In accounting for and disclosing the fair value of financial instruments, the Company uses the following hierarchy:
•Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date;
•Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly; and
•Level 3 inputs are unobservable inputs for the asset or liability.
Valuation of the Company's interest rate swaps and cross-currency swaps are based on the income approach, which uses observable inputs such as interest rate yield curves and forward currency exchange rates, as applicable.
The carrying value of financial instruments reported in the balance sheet for current assets and current liabilities approximates fair value due to the short maturity of these instruments.
Business Combinations. The Company records assets acquired and liabilities assumed from acquisitions at fair value. The fair value of working capital accounts generally approximates book value. The valuation of inventory, property, plant and equipment, and intangible assets requires significant assumptions. Inventory is recorded at fair value based on the estimated selling price less costs to sell, including completion, disposal and holding period costs with a reasonable profit margin. Property and equipment is recorded at fair value using a combination of both the cost and market approaches for both the real and personal property acquired. Under the cost approach, consideration is given to the amount required to construct or purchase a new asset of equal value at current prices, with adjustments in value for physical deterioration, as well as functional and economic obsolescence. Under the market approach, recent transactions for similar types of assets are used as the basis for estimating fair value. For trademark/trade names and technology and other intangible assets, the estimated fair value is based on projected discounted future net cash flows using the relief-from-royalty method. For customer relationship intangible assets, the estimated fair value is based on projected discounted future cash flows using the excess earnings method. The relief-from-royalty and excess earnings method are both income approaches that utilize key assumptions such as forecasts of revenue and expenses over an extended period of time, royalty rate percentages, tax rates, and estimated costs of debt and equity capital to discount the projected cash flows.
Stock-based Compensation. The Company recognizes compensation expense related to equity awards based on their fair values as of the grant date. For awards with only a service condition, expense is recognized ratably over the vesting period. Performance based equity awards may have targets tied to performance and/or market-based conditions. Market-based conditions are taken into consideration in determining the grant date fair value, and the related compensation expense is recognized regardless of whether the market condition is satisfied, provided the requisite service has been provided. For performance condition components, the Company periodically updates the probability that the performance conditions will be achieved and adjusts expense accordingly, reflecting the change from prior estimate, if any, in current period non-cash stock compensation expense. The disclosed number of awards granted considers only the targeted number of units until such time that the performance condition has been satisfied. If the performance conditions are not achieved, no award is earned. See Note 19, “Equity Awards,” for further information.
Other Comprehensive Income (Loss). The Company refers to other comprehensive income (loss) as revenues, expenses, gains and losses that under accounting principles generally accepted in the United States of America are included in comprehensive income (loss) but are excluded from net earnings as these amounts are recorded directly as an adjustment to stockholders' equity. Other comprehensive income (loss) is comprised of foreign currency translation adjustments, amortization of prior service costs and unrecognized gains and losses in actuarial assumptions for pension and postretirement plans and changes in unrealized gains and losses on derivative instruments.
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. Acquisitions
2020 Acquisitions
On December 15, 2020, the Company acquired Affaba & Ferrari Srl ("Affaba & Ferrari"), which specializes in the design, development and manufacture of precision caps and closures for food & beverage and industrial product applications, for an aggregate amount of approximately $98.4 million, net of cash acquired, subject to normal course adjustments, which are expected to be completed by mid-2021. The fair value of assets acquired and liabilities assumed included approximately $49.1 million of goodwill, $35.1 million of intangible assets, $9.4 million of net working capital, $17.4 million of property and equipment, and $12.6 million of net deferred tax liabilities. Affaba & Ferrari, which is reported in the Company's Packaging segment, operates out of a highly automated manufacturing facility and support office located in Borgo San Giovanni, Italy and historically generated approximately $34 million in annual revenue.
On April 17, 2020, the Company acquired the Rapak® brand, including certain bag-in-box product lines and assets ("Rapak") for an aggregate amount of approximately $11.4 million. Rapak, which is reported in the Company's Packaging segment, has manufacturing locations in Indiana, California and Illinois, and historically generated approximately $30 million in annual revenue.
On February 27, 2020, the Company acquired RSA Engineered Products ("RSA"), a manufacturer of complex, highly-engineered and proprietary ducting, connectors and related products for air management systems used in aerospace and defense applications, for an aggregate amount of approximately $83.7 million, net of cash acquired. The fair value of assets acquired and liabilities assumed included approximately $43.3 million of goodwill, $36.9 million of intangible assets, $10.1 million of net working capital, $2.1 million of property and equipment, and $8.7 million of net deferred tax liabilities. RSA, which is reported in the Company's Aerospace segment, is located in Simi Valley, California and historically generated approximately $30 million in annual revenue.
2019 Acquisitions
In April 2019, the Company acquired Taplast S.p.A. ("Taplast"), a designer and manufacturer of dispensers, closures and containers for the beauty and personal care, household, and food and beverage packaging end markets, for an aggregate amount of approximately $44.7 million, net of cash acquired. With manufacturing locations in both Italy and Slovakia, Taplast serves end markets in Europe and North America and historically generated approximately $32 million in annual revenue. Taplast is reported in the Company's Packaging segment.
In January 2019, the Company acquired Plastic Srl, a manufacturer of single-bodied and assembled polymeric caps and closures for use in home care products, for an aggregate amount of approximately $22.4 million, net of cash acquired. Located in Italy, Plastic Srl serves the home care market throughout Italy and other European countries and historically generated approximately $12 million in annual revenue. Plastic Srl is reported in the Company's Packaging segment.
5. Discontinued Operations
On December 20, 2019, the Company completed the sale of Lamons to two wholly-owned subsidiaries of an investment fund sponsored by First Reserve, pursuant to an Asset and Stock Purchase Agreement dated as of November 1, 2019 (the “Purchase Agreement”), for a purchase price of $136.8 million.
The Company recognized net cash proceeds of approximately $112.7 million, which represented the purchase price, less estimated tax payments of approximately $20.9 million, transaction costs of approximately $3.2 million. The Company recorded a pre-tax gain on sale of approximately $38.9 million, which includes the recognition of previously deferred non-cash foreign currency translation losses of approximately $12.4 million.
The Company determined that Lamons met the criteria to be classified as a discontinued operation. As a result, the historical results for Lamons are reported in the accompanying consolidated statement of operations as a discontinued operation.
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Results of discontinued operations are summarized as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
|
2019
|
|
2018
|
Net sales
|
|
|
|
$
|
182,590
|
|
|
$
|
172,110
|
|
Cost of sales
|
|
|
|
(138,100)
|
|
|
(128,100)
|
|
Gross profit
|
|
|
|
44,490
|
|
|
44,010
|
|
Selling, general and administrative expenses
|
|
|
|
(32,920)
|
|
|
(30,590)
|
|
Net gain (loss) on dispositions of assets
|
|
|
|
38,900
|
|
|
(160)
|
|
Operating profit
|
|
|
|
50,470
|
|
|
13,260
|
|
|
|
|
|
|
|
|
Other income (expense), net
|
|
|
|
(30)
|
|
|
360
|
|
Other income (expense), net
|
|
|
|
(30)
|
|
|
360
|
|
Income from discontinued operations, before income taxes
|
|
|
|
50,440
|
|
|
13,620
|
|
Income tax expense
|
|
|
|
(13,760)
|
|
|
(4,030)
|
|
Income from discontinued operations, net of tax
|
|
|
|
$
|
36,680
|
|
|
$
|
9,590
|
|
6. Realignment Actions
During 2020, the Company executed certain realignment actions, primarily in its Aerospace and Specialty Products segments, in response to reductions in current and expected future end-market demand. The Company recorded non-cash charges of approximately $13.8 million related to inventory reductions, primarily as a result of a strategic decision in its Arrow Engine division to narrow its product line focus. The Company also recorded non-cash charges of approximately $2.3 million related to certain production equipment removed from service given reduced demand levels. In addition, the Company reduced its employment levels given lower customer demand, incurring approximately $3.8 million in severance charges, of which approximately $3.7 million was paid by December 31, 2020. During 2020, approximately $17.1 million of these charges were included in cost of sales and approximately $2.8 million were included in selling, general and administrative expenses in the accompanying consolidated statement of operations.
7. Revenue
The following table presents the Company’s disaggregated net sales by primary market served (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
Customer End Markets
|
|
2020
|
|
2019
|
|
2018
|
Consumer Products
|
|
$
|
402,080
|
|
|
$
|
307,640
|
|
|
$
|
276,740
|
|
Aerospace & Defense
|
|
167,740
|
|
|
194,110
|
|
|
185,920
|
|
Industrial
|
|
200,150
|
|
|
221,780
|
|
|
242,370
|
|
|
|
|
|
|
|
|
Total net sales
|
|
$
|
769,970
|
|
|
$
|
723,530
|
|
|
$
|
705,030
|
|
The Company’s Packaging segment earns revenues from the consumer products (comprised of the beauty and personal care, home care, food and beverage, pharmaceutical and nutraceutical submarkets) and industrial 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)
8. Cash and Cash Equivalents
Cash and cash equivalents consists of the following components (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2020
|
|
December 31,
2019
|
Cash and cash equivalents - unrestricted
|
|
$
|
62,790
|
|
|
$
|
172,470
|
|
Cash - restricted
|
|
11,160
|
|
|
—
|
|
Total cash and cash equivalents
|
|
$
|
73,950
|
|
|
$
|
172,470
|
|
During 2020, the Company placed cash on deposit with a financial institution to be held as cash collateral for the Company's outstanding letters of credit. In prior years, the Company used a portion of its credit agreement as collateral for letters of credit, which decreased availability under its revolving credit facility. See Note 13, "Long-term Debt," for further information on the Company's credit agreement.
9. Goodwill and Other Intangible Assets
Goodwill
The Company performed a qualitative assessment as part of its 2020, 2019 and 2018 annual impairment tests (October 1 annual test date) for all reporting units, which included a review of the Company’s market capitalization. Based on results of the qualitative assessments for the 2020, 2019 and 2018 annual impairment tests, the Company determined there were no indications that the fair value of a reporting unit was less than its carrying amount; therefore, the Company determined that quantitative goodwill impairment tests were not required.
During the third quarter of 2020, as a result of a decline in its aerospace-related business' financial results, a significant reduction in its financial projections for the remainder of 2020 compared with prior projections, and uncertainty around the duration and magnitude of the impact of the COVID-19 pandemic on future financial results given their dependence on future levels of air travel and new aircraft builds, the Company determined there was a triggering event requiring an interim quantitative goodwill impairment assessment of each of its two aerospace-related reporting units: Aerospace Fasteners and Aerospace Engineered Products.
In preparing the quantitative analysis, the Company utilized both income and market-based approaches. The income-based approach was conducted using the discounted cash flow method, for which management updated its internal five-year forecast, and reflected its current best estimates of when, and at what level, a recovery of air travel, new aircraft builds, and resulting customer orders would occur and the related impact on each reporting unit's future sales, earnings and cash flows. Assumptions in estimating the future cash flows were based on Level 3 inputs under the fair value hierarchy. The Company also selected appropriate terminal growth rates as well as discount rates, which considered various factors including the level of inherent risk in achieving the forecast based on prior history and current market conditions. The market-based approach considered potentially comparable publicly traded companies and transactions within the aerospace industry and applied their trading multiples to management's forecast estimates.
Upon completion of the quantitative goodwill impairment tests, the Company determined that the carrying values of the Aerospace Fasteners and Aerospace Engineered Products reporting units exceeded their fair values, resulting in goodwill impairment charges of approximately $70.8 million in its Aerospace Fasteners reporting unit and approximately $56.0 million in its Aerospace Engineered Products reporting unit. Following the impairment charges, the Aerospace Fasteners reporting unit has $62.9 million of remaining goodwill, while the Aerospace Engineered Products reporting unit has no remaining goodwill. The Company notes that a 1% change in the discount rate would have impacted the total goodwill impairment charge by approximately $20 million, while a 0.5% change in the terminal growth rate would have impacted the total goodwill impairment charge by approximately $5 million. If the future financial results of the aerospace-related businesses significantly differ from the assumptions inherent in this analysis, the Company may be subject to further impairment charges.
In the first quarter of 2020, the Company began reporting its machined components operations within the Aerospace segment. These operations were previously reported in the Company's Specialty Products segment. As a result of the reporting structure change, goodwill of approximately $12.7 million was reassigned from the Specialty Products segment to the Aerospace segment.
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Changes in the carrying amount of goodwill for the years ended December 31, 2020 and 2019 are as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Specialty
|
|
|
|
|
|
Packaging
|
|
Aerospace
|
|
Products
|
|
|
|
Total
|
Balance, December 31, 2018
|
$
|
163,660
|
|
|
$
|
146,430
|
|
|
$
|
6,560
|
|
|
|
|
$
|
316,650
|
|
Goodwill from acquisitions
|
18,400
|
|
|
—
|
|
|
—
|
|
|
|
|
18,400
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill reassigned in segment realignment
|
—
|
|
|
(12,740)
|
|
|
12,740
|
|
|
|
|
—
|
|
Foreign currency translation and other
|
(410)
|
|
|
—
|
|
|
—
|
|
|
|
|
(410)
|
|
Balance, December 31, 2019
|
$
|
181,650
|
|
|
$
|
133,690
|
|
|
$
|
19,300
|
|
|
|
|
$
|
334,640
|
|
Goodwill from acquisitions
|
49,130
|
|
|
43,260
|
|
|
—
|
|
|
|
|
92,390
|
|
Impairment charge
|
—
|
|
|
(126,840)
|
|
|
—
|
|
|
|
|
(126,840)
|
|
Goodwill reassigned in segment realignment
|
—
|
|
|
12,740
|
|
|
(12,740)
|
|
|
|
|
—
|
|
Foreign currency translation and other
|
3,780
|
|
|
—
|
|
|
—
|
|
|
|
|
3,780
|
|
Balance, December 31, 2020
|
$
|
234,560
|
|
|
$
|
62,850
|
|
|
$
|
6,560
|
|
|
|
|
$
|
303,970
|
|
Other Intangible Assets
For the purposes of the Company's 2020, 2019 and 2018 annual indefinite-lived intangible asset impairment tests (as of October 1), the Company performed a qualitative assessment to determine whether it was more likely than not that the fair values of the indefinite-lived intangible assets were less than the carrying values. Based on the qualitative assessment performed, the Company did not believe that it is more likely than not that the fair values of each of its indefinite-lived intangible assets were less than the carrying values; therefore, a fair value calculation of the indefinite-lived intangible assets was not required for the 2020, 2019 and 2018 annual indefinite-lived intangible asset impairment tests.
During the third quarter of 2020, as a result of the significant forecast reduction in the Company's aerospace-related businesses, the Company also performed an interim quantitative assessment for the indefinite-lived intangible assets within the Aerospace segment, using the relief-from-royalty method. Significant management assumptions used under the relief-from-royalty method reflected the Company's current assessment of the risks and uncertainties associated with the aerospace industry. Upon completion of the quantitative impairment test, the Company determined that certain of the Company's aerospace-related trade names had carrying values that exceeded their fair values, and therefore recorded impairment charges of approximately $7.8 million.
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The gross carrying amounts and accumulated amortization of the Company's other intangibles as of December 31, 2020 and 2019 are summarized below (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2020
|
|
As of December 31, 2019
|
Intangible Category by Useful Life
|
|
Gross Carrying
Amount
|
|
Accumulated
Amortization
|
|
Gross Carrying
Amount
|
|
Accumulated
Amortization
|
Finite-lived intangible assets:
|
|
|
|
|
|
|
|
|
Customer relationships, 5 - 12 years
|
|
$
|
122,970
|
|
|
$
|
(59,470)
|
|
|
$
|
73,860
|
|
|
$
|
(49,910)
|
|
Customer relationships, 15 - 25 years
|
|
122,280
|
|
|
(62,450)
|
|
|
122,280
|
|
|
(56,010)
|
|
Total customer relationships
|
|
245,250
|
|
|
(121,920)
|
|
|
196,140
|
|
|
(105,920)
|
|
Technology and other, 1 - 15 years
|
|
57,180
|
|
|
(32,800)
|
|
|
52,430
|
|
|
(29,790)
|
|
Technology and other, 17 - 30 years
|
|
43,300
|
|
|
(39,450)
|
|
|
43,300
|
|
|
(37,620)
|
|
Total technology and other
|
|
100,480
|
|
|
(72,250)
|
|
|
95,730
|
|
|
(67,410)
|
|
Indefinite-lived intangible assets:
|
|
|
|
|
|
|
|
|
Trademark/Trade names
|
|
54,640
|
|
|
—
|
|
|
42,850
|
|
|
—
|
|
Total other intangible assets
|
|
$
|
400,370
|
|
|
$
|
(194,170)
|
|
|
$
|
334,720
|
|
|
$
|
(173,330)
|
|
Amortization expense related to intangible assets as included in the accompanying consolidated statement of operations is summarized as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
2020
|
|
2019
|
|
2018
|
Technology and other, included in cost of sales
|
|
$
|
4,930
|
|
|
$
|
4,780
|
|
|
$
|
4,890
|
|
Customer relationships, included in selling, general and administrative expenses
|
|
15,820
|
|
|
13,850
|
|
|
13,370
|
|
Total amortization expense
|
|
$
|
20,750
|
|
|
$
|
18,630
|
|
|
$
|
18,260
|
|
Estimated amortization expense for the next five fiscal years beginning after December 31, 2020 is as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
Estimated Amortization Expense
|
2021
|
|
$
|
21,790
|
|
2022
|
|
$
|
18,230
|
|
2023
|
|
$
|
16,330
|
|
2024
|
|
$
|
14,830
|
|
2025
|
|
$
|
14,480
|
|
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. Inventories
Inventories consist of the following components (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2020
|
|
December 31,
2019
|
Finished goods
|
|
$
|
78,010
|
|
|
$
|
68,350
|
|
Work in process
|
|
29,680
|
|
|
30,560
|
|
Raw materials
|
|
41,690
|
|
|
33,750
|
|
Total inventories
|
|
$
|
149,380
|
|
|
$
|
132,660
|
|
11. Property and Equipment, Net
Property and equipment consists of the following components (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2020
|
|
December 31,
2019
|
Land and land improvements
|
|
$
|
20,040
|
|
|
$
|
19,110
|
|
Building and building improvements
|
|
91,970
|
|
|
84,880
|
|
Machinery and equipment
|
|
384,010
|
|
|
326,990
|
|
|
|
496,020
|
|
|
430,980
|
|
Less: Accumulated depreciation
|
|
242,960
|
|
|
216,650
|
|
Property and equipment, net
|
|
$
|
253,060
|
|
|
$
|
214,330
|
|
Depreciation expense as included in the accompanying consolidated statement of operations is as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
2020
|
|
2019
|
|
2018
|
Depreciation expense, included in cost of sales
|
|
$
|
27,920
|
|
|
$
|
23,700
|
|
|
$
|
20,890
|
|
Depreciation expense, included in selling, general and administrative expense
|
|
1,100
|
|
|
1,170
|
|
|
1,340
|
|
Total depreciation expense
|
|
$
|
29,020
|
|
|
$
|
24,870
|
|
|
$
|
22,230
|
|
12. Accrued Liabilities
Accrued liabilities consist of the following components (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2020
|
|
December 31,
2019
|
Accrued payroll
|
|
$
|
23,140
|
|
|
$
|
16,390
|
|
High deductible insurance
|
|
4,980
|
|
|
5,720
|
|
Other
|
|
32,420
|
|
|
19,910
|
|
Total accrued liabilities
|
|
$
|
60,540
|
|
|
$
|
42,020
|
|
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13. Long-term Debt
The Company's long-term debt consists of the following (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2020
|
|
December 31,
2019
|
4.875% Senior Notes due October 2025
|
|
$
|
300,000
|
|
|
$
|
300,000
|
|
Credit Agreement
|
|
50,450
|
|
|
—
|
|
|
|
|
|
|
Debt issuance costs
|
|
(4,160)
|
|
|
(5,310)
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, net
|
|
$
|
346,290
|
|
|
$
|
294,690
|
|
Senior Notes
The Company has $300.0 million aggregate principal amount of 4.875% senior notes outstanding due October 15, 2025 ("Senior Notes"). The Senior Notes accrue interest at a rate of 4.875% 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 (each a "Guarantor" and collectively the "Guarantors"). The Senior Notes are pari passu in right of payment with all existing and future senior indebtedness and subordinated to all existing and future secured indebtedness to the extent of the value of the assets securing such indebtedness.
The Company may redeem all or part of the Senior Notes at the redemption prices (expressed as percentages of principal amount) set forth below, plus accrued and unpaid interest, if any, to, but excluding, the redemption date, if redeemed during the twelve-month period beginning on October 15 of the years indicated below:
|
|
|
|
|
|
|
|
|
Year
|
|
Percentage
|
2020
|
|
102.438
|
%
|
2021
|
|
101.219
|
%
|
2022 and thereafter
|
|
100.000
|
%
|
Credit Agreement
The Company is party to a credit agreement ("Credit Agreement") 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 September 20, 2022 and is subject to interest at London Interbank Offered Rate ("LIBOR") plus 1.50%. The interest rate spread is based upon the leverage ratio, as defined, as of the most recent determination date.
The Credit Agreement also provides incremental revolving credit facility commitments in an amount not to exceed the greater of $200.0 million and an amount such that, after giving effect to such incremental commitments and the incurrence of any other indebtedness substantially simultaneously with the making of such commitments, the senior secured net leverage ratio, as defined, is no greater than 3.00 to 1.00. The terms and conditions of any incremental revolving credit facility commitments must be no more favorable than the existing credit facility.
The Company's revolving credit facility allows for the issuance of letters of credit, not to exceed $40.0 million in aggregate. During 2020, 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, 2020, the Company had no letters of credit issued against its revolving credit facility. See Note 8, "Cash and Cash Equivalents," for further information on its cash deposits. At December 31, 2020, the Company had $50.5 million outstanding under its revolving credit facility and had $249.5 million potentially available. At December 31, 2019, the Company had no amounts outstanding under its revolving credit facility and had $283.9 million potentially available after giving effect to approximately $16.1 million of letters of credit issued and outstanding. The Company's borrowing capacity was not reduced by leverage restrictions contained in the Credit Agreement as of December 31, 2020 and December 31, 2019.
The Company previously drew $150 million on its revolving credit facility in March 2020 to defend against potential uncertainty or liquidity issues in the financial markets as a result of the COVID-19 pandemic, but repaid this amount during second quarter 2020.
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The debt under the Credit Agreement is an obligation of the Company and certain of its domestic subsidiaries and is secured by substantially all of the assets of such parties. Borrowings under the $125.0 million (equivalent) foreign currency sub limit of the $300.0 million senior secured revolving credit facility are secured by a cross-guarantee amongst, and a pledge of the assets of, the foreign subsidiary borrowers that are a party to the agreement. The Credit Agreement also contains various negative and affirmative covenants and other requirements affecting the Company and its subsidiaries, including the ability to, subject to certain exceptions and limitations, incur debt, liens, mergers, investments, loans, advances, guarantee obligations, acquisitions, assets dispositions, sale-leaseback transactions, hedging agreements, dividends and other restricted payments, transactions with affiliates, restrictive agreements and amendments to charters, bylaws, and other material documents. The terms of the Credit Agreement also require the Company and its restricted subsidiaries to meet certain restrictive financial covenants and ratios computed quarterly, including a maximum total net leverage ratio (total consolidated indebtedness plus outstanding amounts under any accounts receivable securitization facility, less the aggregate amount of certain unrestricted cash and unrestricted permitted investments, as defined, over consolidated EBITDA, as defined), a maximum senior secured net leverage ratio (total consolidated senior secured indebtedness, less the aggregate amount of certain unrestricted cash and unrestricted permitted investments, as defined, over consolidated EBITDA, as defined) and a minimum interest expense coverage ratio (consolidated EBITDA, as defined, over the sum of consolidated cash interest expense, as defined, and preferred dividends, as defined). At December 31, 2020, the Company was in compliance with the financial covenants contained in the Credit Agreement.
Long-term Debt Maturities
Future maturities of the face value of long-term debt at December 31, 2020 are as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
Year Ending December 31:
|
|
Future Maturities
|
2021
|
|
$
|
—
|
|
2022
|
|
50,450
|
|
2023
|
|
—
|
|
2024
|
|
—
|
|
2025
|
|
300,000
|
|
Thereafter
|
|
—
|
|
Total
|
|
$
|
350,450
|
|
Fair Value of Debt
The valuations of the Senior Notes and revolving credit facility were determined based on Level 2 inputs under the fair value hierarchy, as defined. The carrying amounts and fair values were as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
December 31, 2019
|
|
|
Carrying Amount
|
|
Fair Value
|
|
Carrying Amount
|
|
Fair Value
|
Senior Notes
|
|
$
|
300,000
|
|
|
$
|
305,630
|
|
|
$
|
300,000
|
|
|
$
|
309,000
|
|
Revolving credit facility
|
|
50,450
|
|
|
50,450
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Debt Issuance Costs
The Company's unamortized debt issuance costs approximated $4.2 million and $5.3 million at December 31, 2020 and 2019, respectively, and are included as a direct reduction from the related debt liability in the accompanying consolidated balance sheet. These amounts consisted primarily of legal, accounting and other transaction advisory fees as well as facility fees paid to the lenders. Amortization expense for these items was approximately $1.2 million, $1.1 million and $1.3 million in 2020, 2019 and 2018, respectively, and is included in interest expense in the accompanying consolidated statement of operations.
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
14. Derivative Instruments
Derivatives Designated as Hedging Instruments
The Company uses cross-currency swap contracts 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. At inception, the cross-currency swaps were designated as net investment hedges.
In November 2020, the Company entered into additional cross-currency swap agreements at notional amounts declining from $50.0 million to $25.0 million over the contract period ending April 15, 2025. Under the terms of the swap agreements, the Company is to receive net interest payments at a fixed rate of approximately 0.8% of the notional amount. As of December 31, 2020, the notional amount of these cross-currency swaps was $50.0 million.
In October 2018, the Company entered into cross-currency swap agreements at notional amounts declining from $125.0 million to $75.0 million over the contract period ending October 15, 2023. Under the terms of the swap agreements, the Company is to receive net interest payments at a fixed rate of approximately 2.9% of the notional amount. As of December 31, 2020, the notional amount of these cross-currency swaps was $100.0 million.
In October 2018, 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 approximately $1.1 million of cash.
As of December 31, 2020 and 2019, the fair value carrying amount of the Company's derivatives designated as hedging instruments are recorded as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset / (Liability) Derivatives
|
Derivatives designated as hedging instruments
|
|
Balance Sheet Caption
|
|
December 31, 2020
|
|
December 31, 2019
|
Net Investment Hedges
|
|
|
|
|
|
|
Cross-currency swaps
|
|
Other assets
|
|
$
|
—
|
|
|
$
|
4,460
|
|
Cross-currency swaps
|
|
Other long-term liabilities
|
|
(5,000)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes the income recognized in AOCI on derivative contracts designated as hedging instruments as of December 31, 2020 and 2019, and the amounts reclassified from AOCI into earnings for the years ended December 31, 2020, 2019 and 2018 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Income (Loss) Recognized
in AOCI on Derivative
(Effective Portion, net of tax)
|
|
Location of Loss Reclassified from AOCI into Earnings
(Effective Portion)
|
|
Amount of Loss Reclassified from
AOCI into Earnings
|
|
|
As of December 31,
|
|
|
Year ended December 31,
|
|
|
2020
|
|
2019
|
|
|
2020
|
|
2019
|
|
2018
|
|
Net Investment Hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
Cross-currency swaps
|
|
$
|
(3,580)
|
|
|
$
|
4,230
|
|
|
Other expense, net
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Over the next 12 months, the Company does not expect to reclassify any pre-tax deferred amounts from AOCI into earnings.
Derivatives Not Designated as Hedging Instruments
As of December 31, 2020, the Company was party to foreign currency exchange forward contracts to economically hedge changes in foreign currency rates with notional amounts of approximately $96.3 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, British pound, Mexican peso and the Chinese yuan, and have various settlement dates through April 2021. These contracts are not designated as hedging instruments; therefore, gains and losses on these contracts are recognized each period directly into the consolidated statement of operations.
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table summarizes the effects of derivatives not designated as hedging instruments on the Company's consolidated statement of operations (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Loss Recognized in Earnings on Derivatives
|
|
|
|
|
Year ended December 31,
|
|
|
Location of Loss
Recognized in
Earnings on Derivatives
|
|
2020
|
|
2019
|
|
2018
|
Derivatives not designated as hedging instruments
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
Other income (expense), net
|
|
$
|
(470)
|
|
|
$
|
(600)
|
|
|
$
|
—
|
|
Fair Value of Derivatives
The fair value of the Company's derivative instruments are estimated using an income approach based on valuation techniques to convert future amounts to a single, discounted amount. Estimates of the fair value of the Company's cross-currency swaps use observable inputs such as interest rate yield curves and forward currency exchange rates. Fair value measurements and the fair value hierarchy level for the Company's assets and liabilities measured at fair value on a recurring basis as of December 31, 2020 and 2019 are as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
|
Frequency
|
|
Asset / (Liability)
|
|
Quoted Prices in Active Markets for Identical Assets
(Level 1)
|
|
Significant Other Observable Inputs
(Level 2)
|
|
Significant Unobservable Inputs
(Level 3)
|
December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
Cross-currency swaps
|
|
Recurring
|
|
$
|
(5,000)
|
|
|
$
|
—
|
|
|
$
|
(5,000)
|
|
|
$
|
—
|
|
Foreign exchange contracts
|
|
Recurring
|
|
$
|
140
|
|
|
$
|
—
|
|
|
$
|
140
|
|
|
$
|
—
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
Cross-currency swaps
|
|
Recurring
|
|
$
|
4,460
|
|
|
$
|
—
|
|
|
$
|
4,460
|
|
|
$
|
—
|
|
Foreign exchange contracts
|
|
Recurring
|
|
$
|
(770)
|
|
|
$
|
—
|
|
|
$
|
(770)
|
|
|
$
|
—
|
|
15. Leases
The Company leases certain equipment and facilities under non-cancelable operating leases. 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.
The components of lease expense are as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2020
|
|
Year ended December 31, 2019
|
Operating lease cost
|
|
$
|
7,870
|
|
|
6,380
|
|
Short-term, variable and other lease costs
|
|
1,540
|
|
|
1,140
|
|
Total lease cost
|
|
$
|
9,410
|
|
|
$
|
7,520
|
|
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Maturities of lease liabilities are as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
Operating Leases(a)
|
2021
|
|
$
|
8,070
|
|
2022
|
|
7,250
|
|
2023
|
|
6,340
|
|
2024
|
|
5,120
|
|
2025
|
|
4,400
|
|
Thereafter
|
|
12,700
|
|
Total lease payments
|
|
43,880
|
|
Less: Imputed interest
|
|
(5,530)
|
|
Present value of lease liabilities
|
|
$
|
38,350
|
|
__________________________
(a) The maturity table excludes cash flows associated with exited lease facilities. Liabilities for exited lease facilities are included in accrued liabilities and other long-term liabilities in the accompanying consolidated balance sheet.
The weighted-average remaining term of the Company's operating leases as of December 31, 2020 is approximately 6.8 years. The weighted-average discount rate as of December 31, 2020 is approximately 4.4%.
Cash paid for amounts included in the measurement of operating lease liabilities was approximately $7.9 million and $6.4 million during 2020 and 2019, respectively, and is included in cash flows provided by operating activities in the consolidated statement of cash flows.
Right-of-use assets obtained in exchange for lease liabilities were approximately $14.0 million and $1.4 million during 2020 and 2019, respectively, primarily due to acquisitions.
Rental expense for operating leases as classified under prior authoritative lease guidance for the Company was approximately $5.8 million in 2018.
16. Other Long-term Liabilities
Other long-term liabilities consist of the following components (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2020
|
|
December 31,
2019
|
Non-current asbestos-related liabilities
|
|
$
|
26,170
|
|
|
$
|
6,200
|
|
Other long-term liabilities
|
|
43,520
|
|
|
34,610
|
|
Total other long-term liabilities
|
|
$
|
69,690
|
|
|
$
|
40,810
|
|
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
17. Commitments and Contingencies
Environmental
The Company is subject to increasingly stringent environmental laws and regulations, including those relating to air emissions, wastewater discharges and chemical and hazardous waste management and disposal. Some of these environmental laws hold owners or operators of land or businesses liable for their own and for previous owners' or operators' releases of hazardous or toxic substances or wastes. Other environmental laws and regulations require the obtainment and compliance with environmental permits. To date, costs of complying with environmental, health and safety requirements have not been material. However, the nature of the Company's operations and the long history of industrial activities at certain of the Company's current or former facilities, as well as those acquired, could potentially result in material environmental liabilities.
While the Company must comply with existing and pending climate change legislation, regulation and international treaties or accords, current laws and regulations have not had a material impact on the Company's business, capital expenditures or financial position. Future events, including those relating to climate change or greenhouse gas regulation, could require the Company to incur expenses related to the modification or curtailment of operations, installation of pollution control equipment or investigation and cleanup of contaminated sites.
Asbestos
As of December 31, 2020, the Company was a party to 337 pending cases involving an aggregate of 4,655 claimants primarily alleging personal injury from exposure to asbestos containing materials formerly used in gaskets (both encapsulated and otherwise) manufactured or distributed by Lamons and certain 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
|
Fiscal year ended December 31, 2020
|
|
4,759
|
|
|
219
|
|
|
287
|
|
|
36
|
|
|
4,655
|
|
|
$
|
18,314
|
|
|
$
|
2,130,000
|
|
Fiscal year ended December 31, 2019
|
|
4,820
|
|
|
143
|
|
|
172
|
|
|
32
|
|
|
4,759
|
|
|
$
|
16,616
|
|
|
$
|
2,250,000
|
|
Fiscal year ended December 31, 2018
|
|
5,256
|
|
|
171
|
|
|
564
|
|
|
43
|
|
|
4,820
|
|
|
$
|
7,191
|
|
|
$
|
2,260,000
|
|
In addition, the Company acquired various companies to distribute its products that had distributed gaskets of other manufacturers prior to acquisition. The Company believes that many of the pending cases relate to locations at which none of its gaskets were distributed or used.
The Company may be subjected to significant additional asbestos-related claims in the future, 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 4,655 claims pending at December 31, 2020, 40 set forth specific amounts of damages (other than those stating the statutory minimum or maximum). At December 31, 2020, of the 40 claims that set forth specific amounts, there were no claims seeking specific amounts for punitive damages. Below is a breakdown of the compensatory damages sought for those claims seeking specific amounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensatory
|
|
|
Range of damages sought (in millions)
|
|
|
|
|
|
|
$0.0 to $0.6
|
|
$0.6 to $5.0
|
|
$5.0+
|
|
|
Number of claims
|
|
|
|
|
|
|
—
|
|
6
|
|
34
|
|
|
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 25 years ago, have been approximately $10.0 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.
There has been significant volatility in the historical number of claim filings and costs to defend, with previous claim counts and spend levels much higher than current levels. Management believes this volatility was associated more with tort reform, plaintiff practices and state-specific legal dockets than the Company’s underlying asbestos-related exposures. In the past three years, however, the number of new claim filings, and costs to defend, have become much more consistent, ranging between 143 to 173 new claims per year and total defense costs ranging between $2.2 million and $2.3 million.
The higher degree of consistency in census data and spend levels, as well as lower claim activity levels and an evolving defense strategy, has allowed the Company to more effectively and efficiently manage claims, making process or local counsel arrangement improvements where possible. Given the consistency of activity over a multi-year period, the Company believed a trend may have formed where it could be possible to reasonably estimate its future cash exposure for all asbestos-related activity with an adequate level of precision. As such, the Company commissioned an actuary to help evaluate the nature and predictability of its asbestos-related costs, and provide an actuarial range of estimates of future exposures. Based upon its review of the actuarial study, which was completed in June 2020 using data as of December 31, 2019 and which projected spend levels through a terminal year of 2064, the Company affirmed its belief that it now has the ability to reasonably estimate its future asbestos-related exposures for pending as well as unknown future claims.
During the second quarter of 2020, the Company elected to change its method of accounting for asbestos-related defense costs from accruing for probable and reasonably estimable defense costs associated with known claims expected to settle to accrue for all future defense costs for both known and unknown claims, which the Company now believes are reasonably estimable. The Company believes this change is preferable, as asbestos-related defense costs represent expenditures related to legacy activities that do not contribute to current or future revenue generating activities, and recording an estimate of the full liability for asbestos-related costs, where estimable with reasonable precision, provides a more complete assessment of the liability associated with resolving asbestos-related claims.
This accounting change has been reflected as a change in accounting estimate effected by a change in accounting principle. In connection with this second quarter 2020 change, the Company recorded a non-cash, pre-tax charge for asbestos-related costs of approximately $23.4 million which is included in selling, general and administrative expenses in the accompanying consolidated statement of operations.
Following the change in accounting estimate, the Company’s liability for asbestos-related claims will be based on a study from the Company’s third-party actuary, the Company's review of the study, as well as the Company’s own review of asbestos claims and claim resolution activity. The study from the Company’s actuary, based on data as of December 31, 2019, provided for a range of possible future liability from $31.5 million to $43.3 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 the $23.4 million charge to increase the liability estimate to $31.5 million, at the low-end of the range. As of December 31, 2020, the Company’s total asbestos-related liability is $28.7 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.
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
While the Company recorded a significant non-cash charge in the six months ended June 30, 2020 in connection with its change in accounting policy, 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 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.
18. Employee Benefit Plans
Pension and Profit-Sharing Benefits
The Company provides a defined contribution profit sharing plan for the benefit of substantially all the Company's domestic salaried and non-union hourly employees. The plan contains both contributory and noncontributory profit sharing arrangements, as defined. Aggregate charges included in the accompanying consolidated statement of operations under this plan for both continuing and discontinued operations were approximately $3.4 million, $4.6 million and $4.2 million in 2020, 2019 and 2018, respectively. Certain of the Company's non-U.S. and union hourly employees participate in defined benefit pension plans.
Plan Assets, Expenses and Obligations
Net periodic pension benefit expense recorded in the Company's consolidated statement of operations for defined benefit pension plans include the following components (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefit
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
|
|
|
|
|
|
Service cost
|
|
$
|
1,230
|
|
|
$
|
1,050
|
|
|
$
|
1,120
|
|
|
|
|
|
|
|
Interest cost
|
|
930
|
|
|
1,070
|
|
|
1,100
|
|
|
|
|
|
|
|
Expected return on plan assets
|
|
(1,450)
|
|
|
(1,400)
|
|
|
(1,520)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlements and curtailments
|
|
—
|
|
|
—
|
|
|
2,620
|
|
|
|
|
|
|
|
Amortization of net loss
|
|
890
|
|
|
580
|
|
|
860
|
|
|
|
|
|
|
|
Net periodic benefit expense
|
|
$
|
1,600
|
|
|
$
|
1,300
|
|
|
$
|
4,180
|
|
|
|
|
|
|
|
The service cost component of net periodic benefit expense is recorded in cost of goods sold and selling, general and administrative expenses, while non-service cost components are recorded in other expense, net in the accompanying consolidated statement of operations.
During 2018, the Company recognized one-time settlement and curtailment charges of approximately $2.6 million, of which approximately $2.5 million was due to the purchase of an annuity contract to transfer certain U.S. retiree defined benefit obligations to an insurance company. The annuity contract was funded by plan assets.
Actuarial valuations of the Company's defined benefit pension plans were prepared as of December 31, 2020, 2019 and 2018. Weighted average assumptions used in accounting for the U.S. defined benefit pension plans are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefit
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
|
|
|
|
|
|
Discount rate for obligations
|
|
2.79
|
%
|
|
3.41
|
%
|
|
4.50
|
%
|
|
|
|
|
|
|
Discount rate for benefit costs
|
|
3.41
|
%
|
|
4.50
|
%
|
|
4.37
|
%
|
|
|
|
|
|
|
Rate of increase in compensation levels
|
|
N/A
|
|
N/A
|
|
N/A
|
|
|
|
|
|
|
Expected long-term rate of return on plan assets
|
|
6.13
|
%
|
|
7.13
|
%
|
|
7.13
|
%
|
|
|
|
|
|
|
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company utilizes a high-quality (Aa or greater) corporate bond yield curve as the basis for its domestic discount rate for its pension benefit plans. Management believes this yield curve removes the impact of including additional required corporate bond yields (potentially considered in the above-median curve) resulting from the uncertain economic climate that does not necessarily reflect the general trend in high-quality interest rates.
Weighted average assumptions used in accounting for the non-U.S. defined benefit pension plans are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefit
|
|
|
2020
|
|
2019
|
|
2018
|
Discount rate for obligations
|
|
1.50
|
%
|
|
2.10
|
%
|
|
3.00
|
%
|
Discount rate for benefit costs
|
|
2.10
|
%
|
|
3.00
|
%
|
|
2.60
|
%
|
Rate of increase in compensation levels
|
|
2.80
|
%
|
|
3.00
|
%
|
|
3.30
|
%
|
Expected long-term rate of return on plan assets
|
|
4.10
|
%
|
|
4.60
|
%
|
|
4.60
|
%
|
The following provides a reconciliation of the changes in the Company's defined benefit pension plans' projected benefit obligations and fair value of assets for each of the years ended December 31, 2020 and 2019 and the funded status as of December 31, 2020 and 2019 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefit
|
|
|
2020
|
|
2019
|
Changes in Projected Benefit Obligations
|
|
|
|
|
Benefit obligations at January 1
|
|
$
|
(36,580)
|
|
|
$
|
(30,300)
|
|
Service cost
|
|
(1,230)
|
|
|
(1,050)
|
|
Interest cost
|
|
(930)
|
|
|
(1,070)
|
|
Participant contributions
|
|
(60)
|
|
|
(60)
|
|
Actuarial loss (a)
|
|
(2,420)
|
|
|
(4,190)
|
|
Benefit payments
|
|
1,140
|
|
|
900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in foreign currency
|
|
(750)
|
|
|
(810)
|
|
Projected benefit obligations at December 31
|
|
$
|
(40,830)
|
|
|
$
|
(36,580)
|
|
Changes in Plan Assets
|
|
|
|
|
Fair value of plan assets at January 1
|
|
$
|
30,260
|
|
|
$
|
24,650
|
|
Actual return on plan assets
|
|
4,780
|
|
|
3,630
|
|
Employer contributions
|
|
1,140
|
|
|
1,930
|
|
Participant contributions
|
|
60
|
|
|
60
|
|
Benefit payments
|
|
(1,140)
|
|
|
(900)
|
|
|
|
|
|
|
|
|
|
|
|
Change in foreign currency
|
|
960
|
|
|
890
|
|
Fair value of plan assets at December 31
|
|
$
|
36,060
|
|
|
$
|
30,260
|
|
Funded status at December 31
|
|
$
|
(4,770)
|
|
|
$
|
(6,320)
|
|
__________________________
(a) The actuarial losses for the year ended December 31, 2020 and 2019 were primarily due to a decrease in the discount rate utilized in measuring the projected benefit obligations, partially offset by other assumptions and experience gains.
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefit
|
|
|
|
|
2020
|
|
2019
|
|
|
|
|
Amounts Recognized in Balance Sheet
|
|
|
|
|
|
|
|
|
Other assets
|
|
$
|
4,470
|
|
|
$
|
1,690
|
|
|
|
|
|
Current liabilities
|
|
(340)
|
|
|
(330)
|
|
|
|
|
|
Noncurrent liabilities
|
|
(8,900)
|
|
|
(7,680)
|
|
|
|
|
|
Net liability recognized at December 31
|
|
$
|
(4,770)
|
|
|
$
|
(6,320)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefit
|
|
|
|
|
2020
|
|
2019
|
|
|
|
|
Amounts Recognized in Accumulated Other Comprehensive Loss
|
|
|
|
|
|
|
|
|
Unrecognized prior service cost
|
|
$
|
170
|
|
|
$
|
190
|
|
|
|
|
|
Unrecognized net loss
|
|
11,470
|
|
|
13,240
|
|
|
|
|
|
Total accumulated other comprehensive loss recognized at December 31
|
|
$
|
11,640
|
|
|
$
|
13,430
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Benefit Obligations
|
|
Projected Benefit Obligations
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Benefit Obligations at December 31,
|
|
|
|
|
|
|
|
|
Total benefit obligations
|
|
$
|
(38,410)
|
|
|
$
|
(34,460)
|
|
|
$
|
(40,830)
|
|
|
$
|
(36,580)
|
|
Plans with benefit obligations exceeding plan assets
|
|
|
|
|
|
|
|
|
Benefit obligations
|
|
$
|
(16,820)
|
|
|
$
|
(14,840)
|
|
|
$
|
(16,940)
|
|
|
$
|
(14,910)
|
|
Plan assets
|
|
$
|
7,700
|
|
|
$
|
6,890
|
|
|
$
|
7,700
|
|
|
$
|
6,890
|
|
The assumptions regarding discount rates and expected return on plan assets can have a significant impact on amounts reported for benefit plans. A 25 basis point change in benefit obligation discount rates or 50 basis point change in expected return on plan assets would have the following effect (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefit
|
|
|
|
|
December 31, 2020
Benefit Obligation
|
|
|
|
2020 Expense
|
|
|
Discount rate
|
|
|
|
|
|
|
|
|
25 basis point increase
|
|
$
|
(1,580)
|
|
|
|
|
$
|
(110)
|
|
|
|
25 basis point decrease
|
|
$
|
1,760
|
|
|
|
|
$
|
110
|
|
|
|
Expected return on assets
|
|
|
|
|
|
|
|
|
50 basis point increase
|
|
N/A
|
|
|
|
$
|
(170)
|
|
|
|
50 basis point decrease
|
|
N/A
|
|
|
|
$
|
170
|
|
|
|
The Company expects to make contributions of approximately $3.6 million to fund its pension plans during 2021.
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Plan Assets
The Company's overall investment goal is to provide for capital growth with a moderate level of volatility by investing assets in targeted allocation ranges. Specific long term investment goals include total investment return, diversity to reduce volatility and risk, and to achieve an asset allocation profile that reflects the general nature and sensitivity of the plans' liabilities. Investment goals are established after a comprehensive review of current and projected financial statement requirements, plan assets and liability structure, market returns and risks as well as special requirements of the plans. The Company reviews investment goals and actual results annually to determine whether stated objectives are still relevant and the continued feasibility of achieving the objectives.
The actual weighted average asset allocation of the Company's domestic and foreign pension plans' assets at December 31, 2020 and 2019 and target allocations by class, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic Pension
|
|
Foreign Pension
|
|
|
|
|
Actual
|
|
|
|
Actual
|
|
|
Target
|
|
2020
|
|
2019
|
|
Target
|
|
2020
|
|
2019
|
Equity securities
|
|
60
|
%
|
|
67
|
%
|
|
62
|
%
|
|
33
|
%
|
|
33
|
%
|
|
30
|
%
|
Fixed income
|
|
36
|
%
|
|
32
|
%
|
|
34
|
%
|
|
45
|
%
|
|
44
|
%
|
|
46
|
%
|
Diversified growth(a)
|
|
—
|
%
|
|
—
|
%
|
|
—
|
%
|
|
22
|
%
|
|
22
|
%
|
|
23
|
%
|
Cash and other
|
|
4
|
%
|
|
1
|
%
|
|
4
|
%
|
|
—
|
|
|
1
|
%
|
|
1
|
%
|
Total
|
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
________________________________________
(a) Diversified growth funds invest in a broad range of asset classes including equities, investment grade and high yield bonds, commodities, property, private equity, infrastructure and currencies.
Actual allocations to each asset vary from target allocations due to periodic investment strategy changes, market value fluctuations and the timing of benefit payments and contributions. The expected long-term rate of return for both the domestic and foreign plans' total assets is based on the expected return of each of the above categories, weighted based on the target allocation for each class. Actual allocation is reviewed regularly and investments are rebalanced to their targeted allocation range when deemed appropriate.
In managing the plan assets, the Company reviews and manages risk associated with the funded status risk, interest rate risk, market risk, liquidity risk and operational risk. Investment policies reflect the unique circumstances of the respective plans and include requirements designed to mitigate these risks by including quality and diversification standards.
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table summarizes the level under the fair value hierarchy (see Note 3, "Summary of Significant Accounting Policies") that the Company's pension plan assets are measured, on a recurring basis as of December 31, 2020 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Plan assets subject to leveling
|
|
|
|
|
|
|
|
|
Investment funds
|
|
|
|
|
|
|
|
|
Equity securities
|
|
$
|
5,160
|
|
|
$
|
5,160
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Fixed income
|
|
2,500
|
|
|
2,500
|
|
|
—
|
|
|
—
|
|
Cash and cash equivalents
|
|
310
|
|
|
310
|
|
|
—
|
|
|
—
|
|
Plan assets measured at net asset value(a)
|
|
|
|
|
|
|
|
|
Investment funds
|
|
|
|
|
|
|
|
|
Equity securities
|
|
9,180
|
|
|
|
|
|
|
|
Fixed income
|
|
12,880
|
|
|
|
|
|
|
|
Diversified growth
|
|
5,870
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
160
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
36,060
|
|
|
$
|
7,970
|
|
|
$
|
—
|
|
|
$
|
—
|
|
________________________________________
(a) Certain investments that are measured at fair value using the net asset value per share as a practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amount presented in the fair value of plan assets.
The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid during the following years (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
Pension
Benefit
|
2021
|
|
$
|
1,160
|
|
2022
|
|
1,210
|
|
2023
|
|
1,240
|
|
2024
|
|
1,310
|
|
2025
|
|
1,350
|
|
Years 2026-2030
|
|
7,710
|
|
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
19. Equity Awards
The Company maintains the following long-term equity incentive plans (collectively, the "Plans"):
|
|
|
|
|
|
|
|
|
|
Plan Names
|
|
Shares Approved for Issuance
|
|
TriMas Corporation 2017 Equity and Incentive Compensation Plan
|
|
2,000,000
|
|
|
TriMas Corporation Director Retainer Share Election Program
|
|
100,000
|
|
|
The Company previously maintained the 2011 Omnibus Incentive Compensation Plan, which was replaced by the TriMas Corporation 2017 Equity and Incentive Compensation Plan in 2017, such that, while existing grants remain outstanding until exercised, vested or canceled, no new shares may be issued under the plan.
Stock Options
The Company did not grant any stock options during 2020, 2019 and 2018. Information related to stock options as of and for the year ended December 31, 2020 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Stock Options
|
|
Weighted Average
Option Price
|
|
Average
Remaining
Contractual Life (Years)
|
|
Aggregate
Intrinsic Value
|
Outstanding at January 1, 2020
|
|
150,000
|
|
|
$
|
17.87
|
|
|
|
|
|
Granted
|
|
—
|
|
|
—
|
|
|
|
|
|
Exercised
|
|
—
|
|
|
—
|
|
|
|
|
|
Cancelled
|
|
—
|
|
|
—
|
|
|
|
|
|
Expired
|
|
—
|
|
|
—
|
|
|
|
|
|
Outstanding at December 31, 2020
|
|
150,000
|
|
|
$
|
17.87
|
|
|
5.6
|
|
$
|
2,070,000
|
|
As of December 31, 2020, the 150,000 stock options outstanding were exercisable under the Company's long-term equity incentive plans and there was no unrecognized compensation cost related to stock options. No stock options vested during 2020 and 50,000 stock options vested during each of 2019 and 2018.
The Company recognized no stock-based compensation expense related to stock options during 2020 and approximately $0.1 million and $0.2 million of stock-based compensation expense related to stock options during 2019 and 2018, respectively. The stock-based compensation expense is included in selling, general and administrative expenses in the accompanying consolidated statement of operations.
Restricted Stock Units
The Company awarded the following restricted stock units ("RSUs") during 2020, 2019, and 2018:
•granted 190,650, 139,575, and 141,203 RSUs, respectively, to certain employees, which are subject only to a service condition and vest ratably over three years so long as the employee remains with the Company;
•granted 30,590, 25,872 and 25,830 RSUs, respectively, to its non-employee independent directors, which vest one year from date of grant so long as the director and/or Company does not terminate their service prior to the vesting date; and
•issued 3,673, 4,494 and 7,263 RSUs, respectively, related to director fee deferrals as certain of the Company's directors elected to defer all or a portion of their directors fees and to receive the amount in Company common stock at a future date.
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company awarded the following RSUs during 2020:
•granted 31,816 RSUs to certain employees, which are subject only to a service condition and fully vest at the end of three years so long as the employee remains with the Company; and
•granted 2,558 RSUs to certain employees, which are subject only to a service condition and vest one year from the date of grant so long as the employee remains with the Company.
During 2020, the Company awarded 113,146 performance-based RSUs to certain key employees which vest three years from the grant date as long as the employee remains with the Company. These awards are earned 50% based upon the Company's achievement of an earnings per share compound annual growth rate ("EPS CAGR") metric over a period beginning January 1, 2020 and ending December 31, 2022. The remaining 50% of the awards are earned based on the Company's total shareholder return ("TSR") relative to the TSR of the common stock of a pre-defined industry peer-group, measured over the performance period. 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 0.56% and annualized volatility of 26.2%. 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% of the target award. The Company awarded 95,882 and 104,532 of similar performance-based RSUs in 2019 and 2018, respectively. For similar performance-based RSUs awarded in 2017, the Company attained 127.4% of the target on a weighted average basis, resulting in an increase of 27,567 shares during 2020.
In addition, the Company awarded 87,034 performance-based RSUs to certain key divisional employees which vest three years from the grant date as long as the employee remains with the Company. These awards are earned based upon the Company's stock price performance over the period from January 1, 2020 and ending December 31, 2022. The stock price achievement is 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 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 0.85% and annualized volatility of 25.2%. Depending on the performance achieved for this metric, the amount of shares earned, if any, can vary from 0% of the target award to a maximum of 160% of the target award, although it automatically is earned at the target award level if the Company's stock price is equal to or greater than a specified stock price for either five consecutive trading days or 20 total trading days during the performance period.
Information related to restricted shares as of and for the year ended December 31, 2020 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Unvested
Restricted
Shares
|
|
Weighted
Average
Grant Date
Fair Value
|
|
Average
Remaining
Contractual
Life (Years)
|
|
Aggregate
Intrinsic Value
|
Outstanding at January 1, 2020
|
|
622,528
|
|
|
$
|
30.77
|
|
|
|
|
|
Granted
|
|
487,034
|
|
|
21.43
|
|
|
|
|
|
Vested
|
|
(302,924)
|
|
|
27.88
|
|
|
|
|
|
Cancelled
|
|
(21,670)
|
|
|
27.53
|
|
|
|
|
|
Outstanding at December 31, 2020
|
|
784,968
|
|
|
$
|
26.46
|
|
|
1.2
|
|
$
|
24,859,937
|
|
As of December 31, 2020, there was approximately $8.2 million of unrecognized compensation cost related to unvested restricted shares that is expected to be recorded over a weighted average period of 1.9 years.
The Company recognized stock-based compensation expense related to restricted shares of approximately $8.2 million, $5.7 million and $6.9 million in 2020, 2019 and 2018, respectively. The stock-based compensation expense is included in selling, general and administrative expenses in the accompanying statement of operations.
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
20. Earnings per Share
Net income is divided by the weighted average number of common shares outstanding during the year to calculate basic earnings per share. For the year ended December 31, 2020, no restricted shares or stock options were included in the computation of net income (loss) per share because to do so would be anti-dilutive. The following table summarizes the dilutive effect of RSUs and options to purchase common stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
2020
|
|
2019
|
|
2018
|
Weighted average common shares—basic
|
|
43,581,232
|
|
|
45,303,659
|
|
|
45,824,555
|
|
Dilutive effect of restricted stock units
|
|
—
|
|
|
224,946
|
|
|
242,204
|
|
Dilutive effect of stock options
|
|
—
|
|
|
66,549
|
|
|
103,705
|
|
Weighted average common shares—diluted
|
|
43,581,232
|
|
|
45,595,154
|
|
|
46,170,464
|
|
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. The initial authorization, approved in November 2015, authorized up to $50 million of purchases in the aggregate of its common stock. During 2020, 2019 and 2018, the Company purchased 1,582,049, 1,230,050 and 442,632 shares of its outstanding common stock for approximately $39.4 million, $36.7 million and $12.1 million, respectively. As of December 31, 2020, the Company has approximately $161.7 million remaining under the repurchase authorization.
21. Other Comprehensive Income
Changes in AOCI by component for the year ended December 31, 2020 are summarized as follows, net of tax (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined Benefit Plans
|
|
Derivative Instruments
|
|
Foreign Currency Translation
|
|
Total
|
Balance, December 31, 2019
|
|
$
|
(9,930)
|
|
|
$
|
4,230
|
|
|
$
|
(300)
|
|
|
$
|
(6,000)
|
|
Net unrealized gains (losses) arising during the period (a)
|
|
670
|
|
|
(7,810)
|
|
|
6,880
|
|
|
(260)
|
|
Less: Net realized losses reclassified to net income (b)
|
|
(640)
|
|
|
—
|
|
|
—
|
|
|
(640)
|
|
Net current-period other comprehensive income (loss)
|
|
1,310
|
|
|
(7,810)
|
|
|
6,880
|
|
|
380
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2020
|
|
$
|
(8,620)
|
|
|
$
|
(3,580)
|
|
|
$
|
6,580
|
|
|
$
|
(5,620)
|
|
__________________________
(a) Defined benefit plans, net of income tax of $0.4 million. See Note 18, "Employee Benefit Plans," for additional details. Derivative instruments, net of income tax of $2.5 million. See Note 14, "Derivative Instruments," for further details.
(b) Defined benefit plans, net of income tax of $0.2 million. See Note 18, "Employee Benefit Plans," for additional details.
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Changes in AOCI by component for the year ended December 31, 2019 are summarized as follows, net of tax (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined Benefit Plans
|
|
Derivative Instruments
|
|
Foreign Currency Translation
|
|
Total
|
Balance, December 31, 2018
|
|
$
|
(7,200)
|
|
|
$
|
940
|
|
|
$
|
(10,590)
|
|
|
$
|
(16,850)
|
|
Net unrealized gains (losses) arising during the period (a)
|
|
(1,870)
|
|
|
3,300
|
|
|
(2,060)
|
|
|
(630)
|
|
Less: Net realized losses reclassified to net income (b)
|
|
(400)
|
|
|
—
|
|
|
(12,350)
|
|
|
(12,750)
|
|
Net current-period other comprehensive income (loss)
|
|
(1,470)
|
|
|
3,300
|
|
|
10,290
|
|
|
12,120
|
|
Reclassification of stranded tax effects
|
|
(1,260)
|
|
|
(10)
|
|
|
—
|
|
|
(1,270)
|
|
Balance, December 31, 2019
|
|
$
|
(9,930)
|
|
|
$
|
4,230
|
|
|
$
|
(300)
|
|
|
$
|
(6,000)
|
|
__________________________
(a) Defined benefit plans, net of income tax of $0.5 million. See Note 18, "Employee Benefit Plans," for additional details. Derivative instruments, net of income tax expense of $1.0 million. See Note 14, "Derivative Instruments," for further details.
(b) Defined benefit plans, net of income tax of $0.1 million. See Note 18, "Employee Benefit Plans," for additional details.
22. 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 the Company's reportable segments, there are no individual products or product families for which reported net sales accounted for more than 10% of the Company's consolidated net sales. See below for more information regarding the types of products and services provided within each reportable segment:
Packaging – The Packaging segment, which consists primarily of the Rieke®, Taplast, Affaba & Ferrari, Stolz, and Rapak® brands, develops and manufactures a broad array of dispensing products (such as foaming pumps, lotion and hand soap pumps, sanitizer pumps, beverage dispensers, perfume sprayers, nasal sprayers and trigger sprayers), polymeric and steel caps and closures (such as food lids, flip-top closures, child resistance caps, beverage closures, drum and pail closures, flexible spouts, and agricultural closures), polymeric jar products, and fully integrated dispensers for fill-ready bag-in-box applications, all for a variety of consumer products submarkets including, but not limited to, beauty and personal care, food and beverage, home care, and pharmaceutical and nutraceutical, as well as the industrial market.
Aerospace – The Aerospace segment, which includes the Monogram Aerospace Fasteners™, Allfast Fastening Systems®, Mac Fasteners™, RSA Engineered Products and Martinic Engineering™ brands, develops, qualifies and manufactures highly-engineered, precision fasteners, tubular products and assemblies for fluid conveyance, and machined products and assemblies to serve the aerospace and defense market.
Specialty Products – The Specialty Products segment, which includes the Norris Cylinder™ and Arrow® Engine brands, designs, manufactures and distributes highly-engineered steel cylinders, wellhead engines and compression systems for use within industrial markets.
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Segment activity is as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
2020
|
|
2019
|
|
2018
|
Net Sales
|
|
|
|
|
|
|
Packaging
|
|
$
|
488,340
|
|
|
$
|
392,340
|
|
|
$
|
368,200
|
|
Aerospace
|
|
167,740
|
|
|
194,110
|
|
|
185,920
|
|
Specialty Products
|
|
113,890
|
|
|
137,080
|
|
|
150,910
|
|
Total
|
|
$
|
769,970
|
|
|
$
|
723,530
|
|
|
$
|
705,030
|
|
Operating Profit (Loss)
|
|
|
|
|
|
|
Packaging
|
|
$
|
93,990
|
|
|
$
|
80,770
|
|
|
$
|
84,590
|
|
Aerospace
|
|
(133,440)
|
|
|
28,950
|
|
|
27,290
|
|
Specialty Products
|
|
4,350
|
|
|
16,000
|
|
|
20,990
|
|
Corporate
|
|
(53,190)
|
|
|
(34,500)
|
|
|
(24,060)
|
|
Total
|
|
$
|
(88,290)
|
|
|
$
|
91,220
|
|
|
$
|
108,810
|
|
Capital Expenditures
|
|
|
|
|
|
|
Packaging
|
|
$
|
30,730
|
|
|
$
|
16,400
|
|
|
$
|
13,590
|
|
Aerospace
|
|
5,770
|
|
|
8,110
|
|
|
1,190
|
|
Specialty Products
|
|
3,890
|
|
|
5,090
|
|
|
3,750
|
|
Corporate(a)
|
|
90
|
|
|
70
|
|
|
4,890
|
|
Total
|
|
$
|
40,480
|
|
|
$
|
29,670
|
|
|
$
|
23,420
|
|
Depreciation and Amortization
|
|
|
|
|
|
|
Packaging
|
|
$
|
27,600
|
|
|
$
|
24,650
|
|
|
$
|
21,620
|
|
Aerospace
|
|
18,130
|
|
|
15,090
|
|
|
15,190
|
|
Specialty Products
|
|
3,910
|
|
|
3,480
|
|
|
3,400
|
|
Corporate
|
|
130
|
|
|
280
|
|
|
280
|
|
Total
|
|
$
|
49,770
|
|
|
$
|
43,500
|
|
|
$
|
40,490
|
|
Total Assets
|
|
|
|
|
|
|
Packaging
|
|
$
|
721,440
|
|
|
$
|
546,950
|
|
|
$
|
435,140
|
|
Aerospace
|
|
348,190
|
|
|
393,260
|
|
|
392,140
|
|
Specialty Products
|
|
65,520
|
|
|
77,250
|
|
|
82,610
|
|
Corporate
|
|
58,730
|
|
|
175,240
|
|
|
95,260
|
|
Subtotal from continuing operations
|
|
1,193,880
|
|
|
1,192,700
|
|
|
1,005,150
|
|
Discontinued operations
|
|
—
|
|
|
—
|
|
|
95,370
|
|
Total
|
|
$
|
1,193,880
|
|
|
$
|
1,192,700
|
|
|
$
|
1,100,520
|
|
________________________________________
(a) Corporate capital expenditures for the year ended December 31, 2018 are primarily related to purchases of machinery and equipment formerly held under operating leases. These purchased assets were subsequently transferred from Corporate to the segment utilizing the assets.
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table presents the Company's net sales for each of the years ended December 31 and long-lived assets at each year ended December 31, attributed to each subsidiary's continent of domicile (dollars in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
2020
|
|
2019
|
|
2018
|
|
|
Net
Sales
|
|
Long-lived Assets
|
|
Net
Sales
|
|
Long-lived Assets
|
|
Net
Sales
|
|
Long-lived Assets
|
Non-U.S.
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe
|
|
$
|
116,350
|
|
|
$
|
225,120
|
|
|
$
|
87,420
|
|
|
$
|
110,530
|
|
|
$
|
54,920
|
|
|
$
|
53,770
|
|
Asia Pacific
|
|
46,350
|
|
|
41,140
|
|
|
37,920
|
|
|
40,720
|
|
|
38,920
|
|
|
44,230
|
|
Other Americas
|
|
11,740
|
|
|
19,510
|
|
|
6,290
|
|
|
18,430
|
|
|
6,170
|
|
|
7,500
|
|
Total non-U.S.
|
|
174,440
|
|
|
285,770
|
|
|
131,630
|
|
|
169,680
|
|
|
100,010
|
|
|
105,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total U.S.
|
|
595,530
|
|
|
477,460
|
|
|
591,900
|
|
|
540,680
|
|
|
605,020
|
|
|
550,990
|
|
Total
|
|
$
|
769,970
|
|
|
$
|
763,230
|
|
|
$
|
723,530
|
|
|
$
|
710,360
|
|
|
$
|
705,030
|
|
|
$
|
656,490
|
|
The Company's export sales from the U.S. approximated $70.0 million, $74.1 million and $69.9 million in 2020, 2019 and 2018, respectively.
23. Income Taxes
The Company's income (loss) before income taxes and income tax expense (benefit), each by tax jurisdiction, consists of the following (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
2020
|
|
2019
|
|
2018
|
Income (loss) before income taxes:
|
|
|
|
|
|
|
Domestic
|
|
$
|
(134,630)
|
|
|
$
|
52,190
|
|
|
$
|
64,670
|
|
Foreign
|
|
31,920
|
|
|
26,070
|
|
|
27,690
|
|
Total income (loss) before income taxes
|
|
$
|
(102,710)
|
|
|
$
|
78,260
|
|
|
$
|
92,360
|
|
Current income tax expense:
|
|
|
|
|
|
|
Federal
|
|
$
|
200
|
|
|
$
|
3,530
|
|
|
$
|
4,410
|
|
State and local
|
|
810
|
|
|
1,280
|
|
|
2,060
|
|
Foreign
|
|
7,750
|
|
|
7,070
|
|
|
6,200
|
|
Total current income tax expense
|
|
8,760
|
|
|
11,880
|
|
|
12,670
|
|
Deferred income tax expense (benefit):
|
|
|
|
|
|
|
Federal
|
|
(16,900)
|
|
|
4,890
|
|
|
4,570
|
|
State and local
|
|
(4,430)
|
|
|
500
|
|
|
1,310
|
|
Foreign
|
|
(10,380)
|
|
|
(950)
|
|
|
100
|
|
Total deferred income tax expense (benefit)
|
|
(31,710)
|
|
|
4,440
|
|
|
5,980
|
|
Income tax expense (benefit)
|
|
$
|
(22,950)
|
|
|
$
|
16,320
|
|
|
$
|
18,650
|
|
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The components of deferred taxes are as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
December 31, 2019
|
Deferred tax assets:
|
|
|
|
|
Accounts receivable
|
|
$
|
260
|
|
|
$
|
480
|
|
Inventories
|
|
5,080
|
|
|
4,390
|
|
|
|
|
|
|
Accrued liabilities and other long-term liabilities
|
|
19,190
|
|
|
12,210
|
|
Operating lease liability
|
|
8,950
|
|
|
6,790
|
|
Tax loss and credit carryforwards
|
|
20,760
|
|
|
9,200
|
|
Other
|
|
340
|
|
|
340
|
|
Gross deferred tax asset
|
|
54,580
|
|
|
33,410
|
|
Valuation allowances
|
|
(10,180)
|
|
|
(8,310)
|
|
Net deferred tax asset
|
|
44,400
|
|
|
25,100
|
|
Deferred tax liabilities:
|
|
|
|
|
Property and equipment
|
|
(24,140)
|
|
|
(20,650)
|
|
Right of use asset
|
|
(8,930)
|
|
|
(6,700)
|
|
Goodwill and other intangible assets
|
|
(16,230)
|
|
|
(13,250)
|
|
Investment in foreign affiliates, including withholding tax
|
|
(370)
|
|
|
(830)
|
|
|
|
|
|
|
Gross deferred tax liability
|
|
(49,670)
|
|
|
(41,430)
|
|
Net deferred tax liability
|
|
$
|
(5,270)
|
|
|
$
|
(16,330)
|
|
The following is a reconciliation of income tax expense (benefit) computed at the U.S. federal statutory rate to income tax expense (benefit) allocated to income (loss) before income taxes (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
2020
|
|
2019
|
|
2018
|
U.S. federal statutory rate
|
|
21
|
%
|
|
21
|
%
|
|
21
|
%
|
Tax at U.S. federal statutory rate
|
|
$
|
(21,570)
|
|
|
$
|
16,440
|
|
|
$
|
19,390
|
|
State and local taxes, net of federal tax benefit
|
|
(2,850)
|
|
|
970
|
|
|
2,730
|
|
Differences in statutory foreign tax rates
|
|
(1,500)
|
|
|
(870)
|
|
|
490
|
|
Change in recognized tax benefits
|
|
(920)
|
|
|
(920)
|
|
|
(560)
|
|
Goodwill and other intangible assets impairment
|
|
13,430
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
Nontaxable income
|
|
—
|
|
|
(570)
|
|
|
(940)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and manufacturing incentives
|
|
(2,130)
|
|
|
(1,160)
|
|
|
(1,740)
|
|
|
|
|
|
|
|
|
Net change in valuation allowance
|
|
(6,390)
|
|
|
3,580
|
|
|
280
|
|
Tax Reform Act
|
|
—
|
|
|
—
|
|
|
(400)
|
|
|
|
|
|
|
|
|
Other, net
|
|
(1,020)
|
|
|
(1,150)
|
|
|
(600)
|
|
Income tax expense (benefit)
|
|
$
|
(22,950)
|
|
|
$
|
16,320
|
|
|
$
|
18,650
|
|
During 2020, the Company undertook certain tax-planning actions with respect to intercompany debt restructuring within the group. These actions resulted in the recognition of an approximate $6.4 million deferred tax benefit related to an interest limitation carryforward.
The Company has recorded deferred tax assets on $43.4 million of various state operating loss carryforwards and $61.6 million of various foreign operating loss carryforwards. The majority of the state tax loss carryforwards expire between 2026 and 2032 and the majority of the foreign losses have indefinite carryforward periods.
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company has not made a provision for U.S. or additional foreign withholding taxes related to investments in foreign subsidiaries that are indefinitely reinvested since any excess of the amount for financial reporting over the tax basis in these investments is not significant as of December 31, 2020.
Tax Reform
In December 2017, the Tax Cuts and Jobs Act ("Tax Reform Act") was signed into law, and, among the provisions, reduced the Federal statutory corporate income tax rate from 35% to 21% effective January 1, 2018, and implemented a territorial tax system, imposing a one-time tax on the deemed repatriation of undistributed earnings of non-U.S. subsidiaries ("Transition Tax"). The Transition Tax is payable over eight years beginning in 2019.
The Company recorded provisional expenses in 2017 related to the Transition Tax and finalized the measurement of the provisional expenses in 2018. In 2018, the Company recognized an approximate $1.1 million income tax benefit in connection with finalizing the revaluation of its net deferred tax assets following the filing of the Company's 2017 corporate income tax return, and recognized an approximate $0.7 million income tax expense related to finalizing the Transition Tax, resulting in a $0.4 million net reduction in 2018 to the $12.7 million provisional tax expense recorded in 2017.
Unrecognized Tax Benefits
The Company had approximately $1.6 million and $2.3 million of unrecognized tax benefits ("UTBs") as of December 31, 2020 and 2019, respectively. If the UTBs were recognized, the impact to the Company's effective tax rate would be to reduce reported income tax expense for the years ended December 31, 2020 and 2019 by approximately $1.4 million and $1.9 million, respectively.
A reconciliation of the change in the UTBs for the years ended December 31, 2020 and 2019 is as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
Unrecognized
Tax Benefits
|
Balance at December 31, 2018
|
|
$
|
3,020
|
|
Tax positions related to current year:
|
|
|
Additions
|
|
110
|
|
Tax positions related to prior years:
|
|
|
Additions
|
|
—
|
|
Reductions
|
|
—
|
|
Settlements
|
|
—
|
|
Lapses in the statutes of limitations
|
|
(880)
|
|
Balance at December 31, 2019
|
|
$
|
2,250
|
|
Tax positions related to current year:
|
|
|
Additions
|
|
150
|
|
Tax positions related to prior years:
|
|
|
Additions
|
|
—
|
|
Reductions
|
|
—
|
|
Settlements
|
|
—
|
|
Lapses in the statutes of limitations
|
|
(760)
|
|
Balance at December 31, 2020
|
|
$
|
1,640
|
|
In addition to the UTBs summarized above, the Company has recorded approximately $0.8 million and $1.4 million in potential interest and penalties associated with uncertain tax positions as of December 31, 2020 and 2019, respectively.
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company is subject to U.S. federal, state and local, and certain non-U.S. income tax examinations for tax years 2013 through 2020. In addition, there are currently several state and foreign income tax examinations in process. The Company does not believe that the results of these examinations will have a significant impact on the Company's tax position or its effective tax rate.
Management monitors changes in tax statutes and regulations and the issuance of judicial decisions to determine the potential impact to UTBs and is not aware of, nor does it anticipate, any subsequent events that could have a significant impact on the Company's financial position during the next twelve months.