TriMas (TRS) - 2021 Q4 - Annual Report

PART I Business TriMas Corporation manufactures engineered products across Packaging, Aerospace, and Specialty Products segments, achieving $857.1 million in 2021 net sales through innovation and strategic acquisitions - 2021 Net Sales: $857.1 million[19] - Operating Profit: $95.1 million[19] - Net Cash from Operating Activities: $134.2 million[19] - The company operates through three primary business segments: Packaging (62% of 2021 net sales), Aerospace (22% of 2021 net sales), and Specialty Products (16% of 2021 net sales)[20][25][36][45] - TriMas's core strategy includes leveraging the TriMas Business Model (TBM) for operational excellence, accelerating growth through innovation, augmenting growth with strategic acquisitions (prioritizing the Packaging platform), driving cash conversion, and focusing on sustainability[22] - As of December 31, 2021, TriMas employed approximately 3,500 people, with about 52% located outside the United States, and a significant portion of its workforce covered by collective bargaining or union agreements[56] Packaging Segment The Packaging segment, 62% of 2021 net sales, manufactures specialty closure and dispensing systems, driven by innovation and strategic acquisitions 2021 Packaging Segment Performance | Metric | Value | | :--- | :--- | | 2021 Net Sales | $533.3 million | | % of Total 2021 Sales | 62% | - The segment focuses on innovative and sustainable products, exemplified by the patented, single-polymer, 100% recyclable Mono™-2e pump and products designed for e-commerce that prevent leakage during shipment[30] - Recent acquisitions to expand capabilities and market reach include Omega Plastics (Dec 2021) for medical components, Affaba & Ferrari (Dec 2020) for aseptic closures, and Rapak (Apr 2020) for bag-in-box products[27][28] Aerospace Segment The Aerospace segment, 22% of 2021 net sales, designs and manufactures highly-engineered fasteners and components for aircraft 2021 Aerospace Segment Performance | Metric | Value | | :--- | :--- | | 2021 Net Sales | $183.3 million | | % of Total 2021 Sales | 22% | - The segment provides customer-specified and qualified products for significant long-term aircraft programs, including those from Boeing and Airbus[37] - Product innovation is a key advantage, with developments like the Composi-Lok4® fastener for weight savings and the Fastack® SC temporary fastener with increased clamping force[41] Specialty Products Segment The Specialty Products segment, 16% of 2021 net sales, includes Norris Cylinder and Arrow Engine, serving industrial and energy markets 2021 Specialty Products Segment Performance | Metric | Value | | :--- | :--- | | 2021 Net Sales | $140.5 million | | % of Total 2021 Sales | 16% | - Norris Cylinder is the only manufacturer of high- and low-pressure steel cylinders in the United States and is an official "Made in the USA" designated manufacturer[48] - Arrow Engine launched a new reduced-emission EPA-certified A54-E engine platform in 2021 for stationary and off-road mobile applications[48] Risk Factors The company faces significant risks from the COVID-19 pandemic, economic conditions, raw material costs, and substantial debt obligations - The COVID-19 pandemic continues to pose significant risks, including supply chain disruptions, shifts in customer demand, increased costs, and potential for asset impairment[76][77] - Goodwill and intangible assets were approximately $512.2 million (39.3% of total assets) at year-end 2021, posing a material risk of impairment if financial performance declines[85] - The company faces risks from raw material and energy cost increases, incurring approximately $11 million more in cost increases for materials like resin than it was able to recover in 2021[86] - The company retained asbestos-related liability exposure from its divested Lamons business, with 4,754 pending claims and total settlement costs of approximately $10.6 million to date as of December 31, 2021[106][107] - As of December 31, 2021, the company had approximately $393.8 million of outstanding long-term debt, with instruments containing restrictive covenants that limit actions such as paying dividends and incurring additional debt[111][113] Properties TriMas operates numerous owned and leased manufacturing facilities globally, with headquarters in Bloomfield Hills, Michigan - The company's principal manufacturing facilities are generally well-maintained, in good operating condition, and adequate for current production needs, with the majority owned and leases expiring between 2022 and 2032[123] - Key manufacturing locations are spread across the U.S. and internationally, supporting the company's three segments, including facilities in California, Indiana, Texas, China, Italy, and Mexico[124] Legal Proceedings Legal proceedings information is incorporated by reference from Note 17, 'Commitments and Contingencies,' in the financial statements - For details on legal proceedings, the report refers to Note 17, "Commitments and Contingencies" in the Financial Statements and Supplementary Data section[125] Information about our Executive Officers This section provides biographical information for the company's key executive officers as of December 31, 2021 - Thomas A. Amato has served as President and CEO since July 2016[127] - Scott A. Mell was appointed Chief Financial Officer in May 2021[128] PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities TriMas common stock trades on NASDAQ (TRS); the company initiated its first dividend in 2021 and maintains a share repurchase program - The company's common stock trades on the NASDAQ under the symbol "TRS"[132] - In 2021, the Board of Directors declared the first dividend since the 2007 IPO, at $0.04 per share, paying a total of $1.7 million[133] Q4 2021 Share Repurchases | Period | Total Shares Purchased | Average Price Paid | Value Remaining in Program | | :--- | :--- | :--- | :--- | | Q4 2021 | 26,000 | $35.58 | $142,615,349 | Management's Discussion and Analysis of Financial Condition and Results of Operations In 2021, net sales increased 11.3% to $857.1 million, with operating profit recovering to $95.1 million due to acquisitions and absence of prior impairment Consolidated Financial Performance | Metric | 2021 | 2020 | % Change | | :--- | :--- | :--- | :--- | | Net Sales | $857.1M | $770.0M | 11.3% | | Gross Profit | $217.2M | $182.1M | 19.3% | | Operating Profit (Loss) | $95.1M | ($88.3M) | N/A | | Net Income (Loss) | $57.3M | ($79.8M) | N/A | - Key drivers for 2021 performance included the absence of 2020's goodwill impairment charge ($134.6 million), the impact of recent acquisitions (adding $46.9 million in sales), higher material costs (negative $11 million impact), and debt refinancing activities[147][156][174][176] - In 2021, the company refinanced its debt by issuing $400 million of 4.125% senior notes due 2029 and redeeming its $300 million senior notes due 2025, incurring $10.5 million in related expenses[157][178] - The company generated $134.2 million in cash from operations in 2021, up from $127.4 million in 2020, and had $300.0 million available under its revolving credit facility as of year-end[197][208] Segment Results of Operations In 2021, Packaging sales grew 9.2%, Aerospace 9.3%, and Specialty Products 23.4%, with varying impacts on operating profit Segment Financial Performance | Segment | 2021 Net Sales | 2020 Net Sales | % Change | 2021 Operating Profit | 2020 Operating Profit (Loss) | | :--- | :--- | :--- | :--- | :--- | :--- | | Packaging | $533.3M | $488.3M | 9.2% | $96.5M | $94.0M | | Aerospace | $183.3M | $167.7M | 9.3% | $13.3M | ($133.4M) | | Specialty Products | $140.5M | $113.9M | 23.4% | $22.6M | $4.4M | - Packaging's operating margin was compressed by approximately $11 million in higher material costs (primarily resin) that were not fully recovered through price increases during 2021[184] - Aerospace operating profit improvement was primarily due to the absence of $134.6 million in goodwill and intangible asset impairment charges recorded in 2020[190] - Specialty Products' operating profit surged due to higher sales and the non-recurrence of approximately $9.0 million in 2020 realignment charges related to streamlining its Arrow Engine product line[192][194] Liquidity and Capital Resources The company maintained strong liquidity in 2021 with $134.2 million cash from operations, refinancing debt and remaining compliant with covenants Cash Flow Activities | Cash Flow Activity | 2021 | 2020 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $134.2M | $127.4M | | Net Cash used for Investing Activities | ($79.2M) | ($232.1M) | | Net Cash from Financing Activities | $11.8M | $6.1M | - In March 2021, the company issued $400 million of 4.125% Senior Notes due 2029 and used the proceeds to redeem its $300 million 4.875% Senior Notes due 2025, repay credit facility borrowings, and pay related fees[199] Debt Covenant Compliance (as of Dec 31, 2021) | Covenant | Requirement | Actual (as of Dec 31, 2021) | | :--- | :--- | :--- | | Total Net Leverage Ratio | ≤ 4.00x | 1.60x | | Interest Expense Coverage Ratio | ≥ 3.00x | 13.31x | - The company repurchased 596,084 shares of its common stock for approximately $19.1 million during 2021[169][217] Quantitative and Qualitative Disclosures About Market Risk The company manages market risks from foreign currency, interest rates, and commodity prices, maintaining stable credit ratings - The company is subject to market risks from changes in foreign currency values, interest rates, and commodity prices[243][244] - Derivative financial instruments, such as cross-currency swaps and foreign exchange contracts, are used to mitigate risks associated with foreign currency fluctuations[221][244] - The company's corporate credit rating is 'BB' from Standard & Poor's and its Corporate Family Rating is 'Ba2' from Moody's, both with a stable outlook as of March 2021[223] Financial Statements and Supplementary Data This section presents audited financial statements and the independent auditor's unqualified opinion, noting goodwill assessment as a critical audit matter Consolidated Balance Sheet Highlights | Balance Sheet Item | Dec 31, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Total Assets | $1,303.6M | $1,193.9M | | Total Liabilities | $672.8M | $609.6M | | Total Shareholders' Equity | $630.9M | $584.3M | | Goodwill | $315.5M | $304.0M | | Long-term debt, net | $393.8M | $346.3M | - The independent auditor, Deloitte & Touche LLP, issued an unqualified opinion on the financial statements and internal controls[247][248] - The auditor identified the qualitative assessment of goodwill for the Aerospace Fasteners Reporting Unit as a critical audit matter, given the subjective judgments involved regarding macroeconomic conditions and financial performance[252][254] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure No changes or disagreements with accountants on accounting and financial disclosure were reported - Not applicable; no disagreements were reported[443] Controls and Procedures Management concluded disclosure controls and internal controls over financial reporting were effective, with an unqualified auditor's opinion - Management concluded that disclosure controls and procedures were effective as of December 31, 2021[444] - The assessment of internal controls excluded the recently acquired TFI Aerospace and Omega Plastics, which were acquired in December 2021[445][448] - The independent registered public accounting firm, Deloitte & Touche LLP, issued an unqualified opinion on the effectiveness of the company's internal control over financial reporting as of December 31, 2021[451] PART III Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the 2022 proxy statement - Required information is incorporated by reference from the 2022 Annual Meeting of Shareholders proxy statement[464] Executive Compensation Executive compensation information is incorporated by reference from the 2022 proxy statement - Required information is incorporated by reference from the 2022 Annual Meeting of Shareholders proxy statement[465] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Security ownership information is incorporated by reference from the 2022 proxy statement - Required information is incorporated by reference from the 2022 Annual Meeting of Shareholders proxy statement[466] Certain Relationships and Related Transactions, and Director Independence Related transactions and director independence information is incorporated by reference from the 2022 proxy statement - Required information is incorporated by reference from the 2022 Annual Meeting of Shareholders proxy statement[467] Principal Accountant Fees and Services Principal accountant fees and services information is incorporated by reference from the 2022 proxy statement - Required information is incorporated by reference from the 2022 Annual Meeting of Shareholders proxy statement[468] PART IV Exhibits and Financial Statement Schedules This section lists all financial statements, schedules, and exhibits filed with the annual report, including certifications - This item lists all financial statements, schedules, and exhibits filed with the annual report[471][472][473] Form 10-K Summary No Form 10-K summary is provided in this report - None[476]