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(Exact name of registrant as specified in its charter)
iDelaware
i38-2687639
(State
or other jurisdiction of incorporation or organization)
(IRS Employer Identification No.)
i38505 Woodward Avenue, iSuite 200
iBloomfield
Hills, iMichigani48304
(Address of principal executive offices, including zip code)
(i248) i631-5450
(Registrant's telephone number, including area code)
Title of each class
Trading symbol(s)
Name of exchange on which registered
iCommon stock, $0.01 par value
iTRS
iThe
NASDAQ Stock Market LLC
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. iYes☒ No ☐.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). iYes☒ No ☐.
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of "large accelerated filer,""accelerated filer,""smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
iLarge
accelerated filer
☒
Accelerated filer
☐
Non-accelerated filer
☐
Smaller reporting company
i☐
Emerging
growth company
i☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes i☐ No ☒
As of July 21, 2022, the number of outstanding shares of the Registrant's common stock, $0.01 par value, was i42,002,294
shares.
This report may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 about our financial condition, results of operations and business. These forward-looking statements can be identified by the use of forward-looking words, such as “may,”“could,”“should,”“estimate,”“project,”“forecast,”“intend,”“expect,”“anticipate,”“believe,”“target,”“plan” or other comparable words, or by discussions of strategy that may involve risks and uncertainties.
These forward-looking statements are subject to numerous assumptions, risks and uncertainties which could materially affect our business, financial condition or
future results, including, but not limited to: the severity and duration of the ongoing coronavirus (“COVID-19”) pandemic on our operations, customers and suppliers, as well as related actions taken by governmental authorities and other third parties in response thereto, each of which is uncertain, rapidly changing and difficult to predict; general economic and currency conditions; inflationary pressures on our supply chain, including raw material and energy costs, and customers; interest rate volatility; risks and uncertainties associated with intangible assets, including goodwill or other intangible asset impairment charges; competitive factors; future trends; our ability to realize our business strategies; our ability to identify attractive acquisition candidates, successfully integrate acquired operations or realize the intended benefits of such acquisitions; information technology and other cyber-related risks; the performance of our subcontractors and suppliers;
supply constraints, including the availability and cost of raw materials; market demand; intellectual property factors; litigation; government and regulatory actions, including, without limitation, climate change legislation and other environmental regulations, as well as the impact of tariffs, quotas and surcharges; our leverage; liabilities imposed by our debt instruments; labor disputes and shortages; changes to fiscal and tax policies; contingent liabilities relating to acquisition activities; the disruption of operations from catastrophic or extraordinary events, including natural disasters, geopolitical conflicts and public health crises; the amount and timing of future dividends and/or share repurchases, which remain subject to Board approval and depend on market and other conditions; our future prospects; and other risks that are discussed in Part I, Item 1A, "Risk Factors," in our Annual Report on Form 10-K for the year ended December
31, 2021 and elsewhere in this report. The risks described in our Annual Report on Form 10-K and elsewhere in this report are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deemed to be immaterial also may materially adversely affect our business, financial position and results of operations or cash flows.
The cautionary statements set forth above should be considered in connection with any subsequent written or oral forward-looking statements that we or persons acting on our behalf may issue. We caution readers not to place undue reliance on the statements, which speak only as of the date of this report. We do not undertake any obligation to review or confirm analysts' expectations or estimates or to release publicly any revisions to any forward-looking statement
to reflect events or circumstances after the date of this report or to reflect the occurrence of unanticipated events, except as required by law.
We disclose important factors that could cause our actual results to differ materially from our expectations implied by our forward-looking statements under Part I, Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations," and elsewhere in this report. These cautionary statements qualify all forward-looking statements attributed to us or persons acting on our behalf. When we indicate that an event, condition or circumstance could or would have an adverse effect on us, we mean to include effects upon our business, financial and other conditions, results of operations, prospects and ability to service our debt.
Common
stock, $0.01 par: Authorized 400,000,000 shares; Issued and outstanding: 42,050,893 shares at June 30, 2022 and 42,836,574 shares at December 31, 2021
i420
i430
Paid-in
capital
i704,170
i732,490
Accumulated
deficit
(i68,270)
(i102,300)
Accumulated
other comprehensive income (loss)
(i5,540)
i230
Total
shareholders' equity
i630,780
i630,850
Total
liabilities and shareholders' equity
$
i1,302,760
$
i1,303,640
The
accompanying notes are an integral part of these consolidated financial statements.
TriMas Corporation ("TriMas" or the "Company"), and its consolidated subsidiaries, designs, engineers and manufactures innovative products under leading brand names for customers primarily in the consumer products, aerospace & defense, and industrial markets.
The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries and, in the opinion of management, contain all adjustments, including adjustments of a normal and recurring nature, necessary for a fair presentation of financial position and results of operations. The preparation
of financial statements requires management of the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities. Actual results may differ from such estimates and assumptions due to risks and uncertainties, including uncertainty in the current economic environment due to the ongoing outbreak of the coronavirus and related variants (“COVID-19”) as well as input cost inflation, supply chain disruptions, and shortages in global markets for commodities, logistics and labor. To the extent there are differences between these estimates and actual results, the Company's consolidated financial statements may be materially affected.
Results of operations for interim periods are not necessarily indicative of results for the
full year. The accompanying consolidated financial statements and notes thereto should be read in conjunction with the Company's 2021 Annual Report on Form 10-K.
2. iNew Accounting Pronouncements
Recently Issued Accounting Pronouncements
In
November 2021, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2021-10, "Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance" ("ASU 2021-10"), which requires annual disclosures about transactions with a government that are accounted for by applying a grant or contribution accounting model by analogy. ASU 2021-10 is effective for annual filings in fiscal years beginning after December 15, 2021, with early adoption permitted. The Company is in the process of assessing the impact of adoption on its consolidated financial statements.
In October 2021, the FASB issued ASU 2021-08, "Business Combinations (Topic 805): Accounting for Contract
Assets and Contract Liabilities from Contracts with Customers" ("ASU 2021-08"), which requires that an acquirer recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606, "Revenue from Contracts with Customers." ASU 2021-08 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2022, with early adoption permitted. The
Company is in the process of assessing the impact of adoption on its consolidated financial statements.
3. iRevenue
i
The
following table presents the Company’s disaggregated net sales by primary market served (dollars in thousands):
Three months ended June 30,
Six
months ended June 30,
Customer Markets
2022
2021
2022
2021
Consumer Products
$
i119,830
$
i112,900
$
i227,390
$
i218,020
Aerospace
& Defense
i47,390
i44,560
i91,910
i89,170
Industrial
i70,460
i61,530
i142,690
i118,530
Total
net sales
$
i237,680
$
i218,990
$
i461,990
$
i425,720
/
The
Company’s Packaging segment earns revenues from the consumer products (comprised of the beauty and personal care, food and beverage, home care, pharmaceutical, nutraceutical and medical submarkets) and industrial markets. The Aerospace segment earns revenues from the aerospace & defense market (comprised of commercial, regional and business jet and military submarkets). The Specialty Products segment earns revenues from a variety of submarkets within the industrial market.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
4. iRealignment Actions
2022 Realignment Actions
During the six months ended June 30, 2022, the Company incurred realignment charges in its Packaging
segment related to adjusting its labor force in facilities with lower demand, finalizing its Indianapolis, Indiana facility consolidation, costs incurred to reorganize its benefit plans in the United Kingdom, and for costs incurred as part of the Company's start-up and relocation to a new, larger facility in New Albany, Ohio. The Company also completed the Aerospace segment footprint realignment which began in 2021. In connection with these actions, the Company recorded pre-tax realignment charges of approximately $i1.5 million
and $i3.8 million during the three and six months ended June 30, 2022, respectively, of which approximately $i1.4 million and $i2.2 million,
respectively, related to facility move and consolidation costs and approximately $i0.1 million and $i1.6 million, respectively, were for employee-related costs. For the three and six months ended June
30, 2022, approximately $i1.4 million and $i2.3 million, respectively, of these charges were included in cost of sales, and approximately $i0.1 million
and $i1.5 million, respectively, of these charges were included in selling, general and administrative expenses in the accompanying consolidated statement of income.
2021 Realignment Actions
During the six months ended June 30, 2021, the Company executed certain realignment actions in response to reductions in current and expected future end market demand. First, the
Company closed its Packaging segment's Union City, California manufacturing facility, consolidating the operation into its Indianapolis, Indiana and Woodridge, Illinois facilities. The Company also realigned its Aerospace segment footprint, consolidating certain activities previously in its three leased Stanton, California facilities into its owned Tolleson, Arizona facility. In addition, the Company also reorganized and streamlined its corporate office legal and finance groups. The Company recorded pre-tax realignment charges of approximately $i4.2 million
and $i8.2 million during the three and six months ended June 30, 2021, respectively. Of these costs, approximately $i0.7 million and
$i2.2 million during the three and six months ended June 30, 2021, respectively, related to facility consolidations, and approximately $i3.5 million
and $i6.0 million, respectively, were for employee separation costs. As of June 30, 2021, approximately $i1.0 million of the employee separation costs had been paid.
For the three and six months ended June 30, 2021, approximately $i0.9 million and $i2.7 million, respectively, of these charges were included in cost of sales, and approximately $i3.3 million
and $i5.5 million, respectively, were included in selling, general and administrative expenses in the accompanying consolidated statement of income.
5. iAcquisitions
2022
Acquisitions
On February 28, 2022, the Company acquired Intertech Plastics LLC and related companies (collectively, "Intertech") for a purchase price of approximately $i64.1 million, net of cash acquired. Intertech is a manufacturer of custom injection molded products used in medical applications, as well as products and assemblies for consumer
and industrial applications. The fair value of assets acquired and liabilities assumed included approximately $i32.4 million of goodwill, $i13.5 million
of intangible assets, $i12.2 million of property and equipment and $i6.0 million
of net working capital. Intertech, which is reported in the Company's Packaging segment, has two manufacturing facilities located in the Denver, Colorado area and historically generated approximately $i32 million in annual revenue.
2021 Acquisitions
On December 17, 2021, the Company acquired Omega Plastics
("Omega"), which specializes in manufacturing custom components and devices for drug delivery, diagnostic and orthopedic medical applications, as well as components for industrial applications, for an aggregate amount of approximately $i22.5 million, net of cash acquired. Omega, which is reported in the Company's Packaging segment, is located in Clinton Township, Michigan and historically generated approximately $i18 million
in annual revenue.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
On December 5, 2021, the Company acquired TFI Aerospace ("TFI"), a manufacturer and supplier of specialty fasteners used in a variety of applications, predominately for the aerospace end market, for an aggregate amount of approximately $i11.8 million,
with additional contingent consideration ranging from izero to approximately $i12.0 million
to be paid based on 2023 and 2024 earnings per the purchase agreement. The Company recorded $i3.7 million as its best estimate of the additional contingent consideration, with such estimate based on Level 3 inputs under the fair value hierarchy, as defined. TFI, which is reported in the Company's Aerospace segment, is located near Toronto, Canada and historically
generated approximately $i6 million in annual revenue. As of June 30, 2022, the recorded contingent consideration liability was approximately $i3.7 million.
6.
iCash and Cash Equivalents
i
Cash and cash equivalents consists of the following components (dollars in thousands):
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Other Intangible Assets
i
The Company amortizes its other intangible assets over periods ranging from one to i30
years. The gross carrying amounts and accumulated amortization of the Company's other intangibles are summarized below (dollars in thousands):
Amortization
expense related to intangible assets as included in the accompanying consolidated statement of income is summarized as follows (dollars in thousands):
In March 2021, the Company issued $i400.0 million aggregate principal amount of i4.125%
senior notes due iApril 15, 2029 ("2029 Senior Notes") at par value in a private placement under Rule 144A of the Securities Act of 1933, as amended ("Securities Act"). The Company used the proceeds from the 2029 Senior Notes offering to pay fees and expenses of approximately $i5.1 million
related to the offering and pay fees and expenses of $i1.1 million related to amending its existing credit agreement. In connection with the issuance, during the second quarter of 2021, the Company completed the redemption of its outstanding i4.875%
senior notes due iOctober 15, 2025 ("2025 Senior Notes"), paying $i300.0 million to retire the outstanding principal amount plus $i7.3 million
as a redemption premium. The remaining cash proceeds from the 2029 Senior Notes were used for general corporate purposes, including repaying all outstanding revolving credit facility borrowings. The $i5.1 million of fees and expenses related to the 2029 Senior Notes were capitalized as debt issuance costs, while the $i7.3 million
redemption premium, as well as approximately $i3.0 million of unamortized debt issuance costs associated with the 2025 Senior Notes, were included in debt financing and related expenses in the accompanying consolidated statement of income.
The 2029 Senior Notes accrue interest at a rate of i4.125%
per annum, payable semi-annually in arrears on April 15 and October 15. The payment of principal and interest is jointly and severally guaranteed, on a senior unsecured basis, by certain subsidiaries of the Company. The 2029 Senior Notes are pari passu in right of payment with all existing and future senior indebtedness and effectively subordinated to all existing and future secured indebtedness to the extent of the value of the assets securing such indebtedness.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Prior to April 15, 2024, the Company may redeem up to i40% of the principal amount of the 2029 Senior Notes at a redemption price of i104.125%
of the principal amount, plus accrued and unpaid interest, if any, to the redemption date, with the net cash proceeds of one or more equity offerings provided that each such redemption occurs within 90 days of the date of closing of each such equity offering. In addition, prior to April 15, 2024, the Company may redeem all or part of the 2029 Senior Notes at a redemption price equal to i100% of the principal amount thereof, plus accrued and
unpaid interest, if any, to the redemption date, plus a "make whole" premium. iOn or after April 15, 2024, the Company may redeem all or part of the 2029 Senior Notes at the redemption prices (expressed as percentages of principal amount) set forth below, plus accrued and unpaid interest, if any, to the redemption date, if redeemed during the twelve-month period beginning on April 15 of the years indicated below:
Year
Percentage
2024
i102.063
%
2025
i101.031
%
2026
and thereafter
i100.000
%
Senior Notes due 2025
In September 2017, the Company issued $i300.0
million aggregate principal amount of its 2025 Senior Notes at par value in a private placement under Rule 144A of the Securities Act. During the second quarter of 2021, and in connection with the issuance of the 2029 Senior Notes, the Company redeemed all of the outstanding 2025 Senior Notes, as permitted under the indenture, at a price of i102.438% of the principal amount.
Credit
Agreement
In March 2021, the Company amended its existing credit agreement ("Credit Agreement") in connection with the issuance of the 2029 Senior Notes to extend the maturity date. The Company incurred fees and expenses of approximately $i1.1 million related to the amendment, all of which was capitalized as debt issuance costs. The
Company also recorded approximately $i0.2 million of non-cash expense related to the write-off of previously capitalized deferred financing fees. The Credit Agreement consists of a $i300.0 million
senior secured revolving credit facility, which permits borrowings denominated in specific foreign currencies, subject to a $i125.0 million sub limit, maturing on iMarch
29, 2026.
In November 2021, the Company amended the Credit Agreement to replace LIBOR with a benchmark interest rate determined based on the currency denomination of borrowings. Effective January 1, 2022, the amendment replaced the reference rate terms for U.S. dollar LIBOR borrowings to the Secured Overnight Financing Rate ("SOFR"), British pound sterling LIBOR borrowings to the Sterling Overnight Index Average ("SONIA") and Euro LIBOR borrowings to the Euro Short Term Rate ("ESTR"), all plus a spread of i1.50%.
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 $i200.0 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 i3.00
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 $i40.0 million in aggregate. The Company places cash on deposit with a financial institution
to be held as cash collateral for the Company's outstanding letters of credit; therefore, as of December 31, 2021, the Company had ino letters of credit issued against its revolving credit facility. See Note 6, "Cash and Cash Equivalents," for further information on its cash deposit. At June 30,
2022, the Company had ino amounts outstanding under its revolving credit facility and had $i295.1
million potentially available after giving effect to approximately $i4.9 million of letters of credit issued and outstanding. At December 31, 2021, the Company had ino
amounts outstanding under its revolving credit facility and had $i300.0 million potentially available. The Company's borrowing capacity was not reduced by leverage restrictions contained in the Credit Agreement as of June 30, 2022 and December 31, 2021.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
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 $i125.0 million
(equivalent) foreign currency sub limit of the $i300.0 million senior secured revolving credit facility are secured by a cross-guarantee amongst, and a pledge of the assets of, the foreign subsidiary borrowers that are a party to the agreement. The Credit Agreement also contains various negative and affirmative covenants and other requirements affecting the Company and its subsidiaries,
including the ability, subject to certain exceptions and limitations, to incur debt, liens, mergers, investments, loans, advances, guarantee obligations, acquisitions, assets dispositions, sale-leaseback transactions, hedging agreements, dividends and other restricted payments, transactions with affiliates, restrictive agreements and amendments to charters, bylaws, and other material documents. The terms of the Credit Agreement also require the Company and its restricted subsidiaries to meet certain restrictive financial covenants and ratios computed quarterly, including a maximum total net leverage ratio (total consolidated indebtedness plus outstanding amounts under the accounts receivable securitization
facility, less the aggregate amount of certain unrestricted cash and unrestricted permitted investments, as defined, over consolidated EBITDA, as defined), a maximum senior secured net leverage ratio (total consolidated senior secured indebtedness, less the aggregate amount of certain unrestricted cash and unrestricted permitted investments, as defined, over consolidated EBITDA, as defined) and a minimum interest expense coverage ratio (consolidated EBITDA, as defined, over the sum of consolidated cash interest expense, as defined, and preferred dividends, as defined). At June 30, 2022, the Company was in compliance with its financial covenants contained in the Credit Agreement.
Other Revolving Loan Facility
In May 2021, the
Company, through one of its non-U.S. subsidiaries, entered into a revolving loan facility with a borrowing capacity of $i4 million. The facility is guaranteed by TriMas Corporation. There were ino
borrowings outstanding on this loan facility as of June 30, 2022 and December 31, 2021.
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):
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 Company designates its cross-currency swaps as net investment hedges.
As of June 30, 2022, the Company had cross-currency swap agreements at notional amounts totaling $i250.0 million,
which declines to $i25.0 million over various contract periods ending between October 15, 2023 and October 15, 2027. Under the terms of the agreements, the Company is to receive net interest payments at fixed rates ranging from approximately i0.8%
to i2.9% of the notional amounts.
i
As of June 30, 2022 and December 31,
2021, the fair value carrying amount of the Company's derivatives designated as hedging instruments are recorded as follows (dollars in thousands):
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
i
The following table summarizes the income recognized in accumulated other comprehensive income (loss) ("AOCI") on derivative contracts
designated as hedging instruments as of June 30, 2022 and December 31, 2021, and the amounts reclassified from AOCI into earnings for the three and six months ended June 30, 2022 and 2021 (dollars in thousands):
Amount
of Income Recognized in AOCI on Derivatives (Effective Portion, net of tax)
Amount of Income (Loss) Reclassified from AOCI into Earnings
Location
of Income Reclassified from AOCI into Earnings (Effective Portion)
2022
2021
2022
2021
Net Investment Hedges
Cross-currency swaps
$
i17,580
$
i5,910
Other
income (expense), net
$
i—
$
i—
$
i—
$
i—
/
Over
the next i12 months, the Company does inot
expect to reclassify any pre-tax deferred amounts from AOCI into earnings.
Derivatives Not Designated as Hedging Instruments
As of June 30, 2022, the Company was party to foreign currency exchange forward contracts to economically hedge changes in foreign currency rates with notional amounts of approximately $i130.4
million. The Company uses foreign exchange contracts to mitigate the risk associated with fluctuations in currency rates impacting cash flows related to certain of its receivables, payables and intercompany transactions denominated in foreign currencies. The foreign exchange contracts primarily mitigate currency exposures between the U.S. dollar and the Euro, Canadian dollar, Chinese yuan, and the Mexican peso, as well as between the Euro and British pound, and have various settlement dates through December 2022. These contracts are not designated as hedge instruments; therefore, gains and losses on these contracts
are recognized each period directly into the consolidated statement of income.
i
The following table summarizes the effects of derivatives not designated as hedging instruments on the Company's consolidated statement of income (dollars in thousands):
Amount
of Income (Loss) Recognized in Earnings on Derivatives
Three months ended June 30,
Six months ended June 30,
Location of Income (Loss) Recognized in Earnings on Derivatives
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Fair Value of Derivatives
The fair value of the Company's derivatives are estimated using an income approach based on valuation techniques to convert future amounts to a single, discounted amount. Estimates of the fair value of the Company's cross-currency swaps and foreign exchange contracts use observable inputs such as interest rate yield curves
and forward currency exchange rates. iFair 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 June 30, 2022 and December 31, 2021 are shown below (dollars in thousands):
Description
Frequency
Asset
/ (Liability)
Quoted Prices in Active Markets for Identical Assets (Level 1)
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.
i
The
components of lease expense are as follows (dollars in thousands):
(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 lease term of the Company's operating leases as of June 30, 2022 is approximately i7.1 years. The weighted-average discount rate as of June 30, 2022 is approximately i3.7%.
Cash
paid for amounts included in the measurement of operating lease liabilities was approximately $i4.8 million and $i4.2 million during the six months ended June
30, 2022 and 2021, respectively, and is included in cash flows provided by operating activities in the accompanying consolidated statement of cash flows.
Right-of-use assets obtained in exchange for lease liabilities were approximately $i4.8 million and $i6.1
million during the six months ended June 30, 2022 and 2021, respectively.
13. iOther long-term liabilities
i
Other
long-term liabilities consist of the following components (dollars in thousands):
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
14. iCommitments and Contingencies
Asbestos
As of June 30, 2022, the
Company was a party to i425 pending cases involving an aggregate of i4,796 claimants primarily alleging personal injury from exposure to asbestos containing materials formerly used in
gaskets (both encapsulated and otherwise) manufactured or distributed by its former Lamons division and certain other related subsidiaries for use primarily in the petrochemical, refining and exploration industries. The following chart summarizes the number of claims, number of claims filed, number of claims dismissed, number of claims settled, the average settlement amount per claim and the total defense costs, at the applicable date and for the applicable periods:
In
addition, the Company acquired various companies to distribute its products that had distributed gaskets of other manufacturers prior to acquisition. The Company believes that many of its pending cases relate to locations at which none of its gaskets were distributed or used.
The Company may be subjected to significant additional asbestos-related claims in the future, and will aggressively defend or reasonably resolve, as appropriate. The cost of settling cases in which product identification can be made may increase, and the Company may be subjected to further claims in respect of the former
activities of its acquired gasket distributors. The cost of claims varies as claims may be initially made in some jurisdictions without specifying the amount sought or by simply stating the requisite or maximum permissible monetary relief, and may be amended to alter the amount sought. The large majority of claims do not specify the amount sought. Of the i4,796 claims pending at June 30, 2022, i45
set forth specific amounts of damages (other than those stating the statutory minimum or maximum). At June 30, 2022, of the i45 claims that set forth specific amounts, there were izero
claims seeking more than $i5 million for punitive damages. iBelow is a breakdown of the compensatory damages sought for
those claims seeking specific amounts:
Compensatory
Range
of damages sought (dollars in millions)
$0.0 to $0.6
$0.6 to $5.0
$5.0+
Number of claims
i—
i3
i42
Relatively
few claims have reached the discovery stage and even fewer claims have gone past the discovery stage. Total settlement costs (exclusive of defense costs) for all such cases, some of which were filed over 30 years ago, have been approximately $i10.6 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.
The Company records a liability for asbestos-related claims, which includes both known and unknown claims, based on a study from the Company’s third-party actuary, the Company's review of the study, as well as the Company’s own review of asbestos claims and claim resolution activity.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
In the fourth quarter of 2021, the Company commissioned its actuary to update the study, based on data as of September 30, 2021, which yielded a range of possible future liability of $i28.2
million to $i38.6 million. The Company did not believe any amount within the range of potential outcomes represented a better estimate than another given the many factors and assumptions inherent in the projections, and therefore recorded a non-cash, pre-tax charge of $i1.5 million
to increase the liability estimate to $i28.2 million, at the low-end of the range. As of June 30, 2022, the Company’s total asbestos-related liability is $i26.3
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 i40% of historical costs related to settlement and defense of asbestos litigation, expired in November 2018, upon which the Company became
solely responsible for defense costs and indemnity payments. The Company is party to a coverage-in-place agreement (entered into in 2006) with its first level excess carriers regarding the coverage to be provided to the Company for asbestos-related claims. The coverage-in-place agreement makes asbestos defense costs and indemnity insurance coverage available to the Company that might otherwise be disputed by the carriers and provides a methodology for the administration of such expenses. The Company will continue to be solely responsible for defense costs and indemnity payments prior to the commencement of coverage under this agreement,
the duration of which would be subject to the scope of damage awards and settlements paid. Based upon the Company’s review of the actuarial study, the Company does not believe it is probable that it will reach the threshold of qualified future settlements required to commence excess carrier insurance coverage under the coverage-in-place agreement.
Based upon the Company's experience to date, including the trend in annual defense and settlement costs incurred to date, and other available information (including the availability of excess insurance), the Company does not believe these cases will
have a material adverse effect on its financial position, results of operations, or cash flows.
Claims and Litigation
The Company is subject to other claims and litigation in the ordinary course of business, but does not believe that any such claim or litigation will have a material adverse effect on its financial position and results of operations or cash flows.
15. iSegment
Information
TriMas reports its operations in three segments: Packaging, Aerospace, and Specialty Products. Each of these segments has discrete financial information that is regularly evaluated by TriMas' president and chief executive officer (chief operating decision maker) in determining resource, personnel and capital allocation, as well as assessing strategy and performance. The Company utilizes its proprietary TriMas Business Model as its platform which is based upon a standardized set of processes to manage and drive results and strategy across its multi-industry businesses.
Within each of the Company's reportable segments, there are no individual products or product families for which reported net sales
accounted for more than 10% of the Company's consolidated net sales. See below for more information regarding the types of products and services provided within each reportable segment:
Packaging – TriMas' Packaging segment consists primarily of the Rieke® brand, as well as more recently acquired brands which include the Affaba & Ferrari™, Taplast™, Rapak®, Plastic Srl, Intertech and Omega brands. TriMas Packaging develops and manufactures a broad array of dispensing products (such as foaming pumps, lotion and hand soaps and sanitizer pumps, beverage dispensers, perfume sprayers, nasal sprayers and trigger sprayers), polymeric
and steel caps and closures (such as food lids, flip-top closures, child resistance caps, beverage closures, drum and pail closures, and flexible spouts), polymeric jar products, fully integrated dispensers for fill-ready bag-in-box applications, and consumable vascular delivery and diagnostic test components, all for a variety of consumer products submarkets including, but not limited to, beauty and personal care, food and beverage, home care, and life sciences, including but not limited to pharmaceutical, nutraceutical, and medical, as well as industrial markets (including agricultural).
Aerospace – TriMas' Aerospace segment, which includes the Monogram Aerospace Fasteners™, Allfast Fastening Systems®, Mac Fasteners™, TFI Aerospace, RSA Engineered Products and
Martinic Engineering brands, develops, qualifies and manufactures highly-engineered, precision fasteners, tubular products and assemblies for fluid conveyance, and machined products and assemblies to serve the aerospace and defense market.
Specialty Products – TriMas' Specialty Products segment, which includes the Norris Cylinder™ and Arrow® Engine brands, designs, manufactures and distributes highly-engineered steel cylinders, wellhead engines and compression systems for use within industrial markets.
The Company awarded the following restricted stock units ("RSUs") during the six months ended June 30, 2022:
•granted i195,398
RSUs to certain employees, which are subject only to a service condition and vest ratably over ithree years so long as the employee remains with the Company;
•granted i22,554
RSUs to its non-employee independent directors, which fully vest ione year from date of grant so long as the director and/or Company does not terminate the director's service prior to the vesting date;
•issued i337
RSUs related to director fee deferrals as certain of the Company's directors elected to defer all or a portion of their directors fees and to receive the amount in Company common stock at a future date; and
•issued i126 RSUs to certain employees related to dividend equivalent
rights on existing equity awards.
During 2022, the Company also awarded i85,156 performance-based RSUs to certain Company key employees which vest ithree
years from the grant date as long as the employee remains with the Company. These awards are earned i50% based upon the Company's achievement of an earnings per share compound annual growth rate ("EPS CAGR") metric over a period
beginning January 1, 2022 and ending December 31, 2024. The remaining i50% 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 i1.88%
and annualized volatility of i36.5%. Depending on the performance achieved for these two metrics, the amount of shares earned, if any, can vary for each metric from i0%
of the target award to a maximum of i200% of the target award. For similar performance-based RSUs awarded in 2019, the Company attained i65.4%
of the target on a weighted average basis, resulting in a decrease of i24,975 shares during the three months ended March 31, 2022.
As
of June 30, 2022, there was approximately $i10.7 million of unrecognized compensation cost related to unvested RSUs that is expected to be recorded over a weighted average period of i1.8
years.
The Company recognized stock-based compensation expense related to RSUs of approximately $i2.5 million and $i3.2
million during the three months ended June 30, 2022 and 2021, respectively, and approximately $i5.3 million and $i5.7
million during the six months ended June 30, 2022 and 2021, respectively. The stock-based compensation expense is included in selling, general and administrative expenses in the accompanying consolidated statement of income.
17. iEarnings per Share
Net income is divided by the weighted
average number of common shares outstanding during the period to calculate basic earnings per share. Diluted earnings per share is calculated to give effect to stock options and RSUs. iThe following table summarizes the dilutive effect of RSUs and options to purchase common stock for the six months ended June 30, 2022 and 2021:
In
March 2020, the Company announced its Board of Directors had authorized the Company to increase the purchase of its common stock up to $i250 million in the aggregate. This announcement represented the most recent update from the initial authorization, approved in November 2015, of up to $i50
million of purchases in the aggregate of its common stock. In the three and six months ended June 30, 2022, the Company purchased i645,984 and i927,987
shares of its outstanding common stock for approximately $i18.8 million and $i27.9 million,
respectively. During the three and six months ended June 30, 2021, the Company purchased i358,047 and i440,218
shares of its outstanding common stock for approximately $i11.6 million and $i14.2 million,
respectively. As of June 30, 2022, the Company has approximately $i114.7 million remaining under the repurchase authorization.
Holders of common stock are entitled to dividends at the discretion of the
Company's Board of Directors. In 2021, the Company's Board of Directors declared the first dividend since the Company's initial public offering in 2007. During the three months ended June 30, 2022,the Company's cash dividends declared were $i0.04
per share of common stock, and total dividends declared and paid on common shares in the three and six months ended June 30, 2022were approximately $i1.7 million and $i3.5 million,
respectively. iiNo/ dividends were declared or paid during
the three and six months ended June 30, 2021.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
18. iDefined
Benefit Plans
Net periodic pension benefit costs for the Company's defined benefit pension plans cover certain foreign employees, union hourly employees and salaried employees. iThe components of net periodic pension cost are as follows (dollars in thousands):
The
service cost component of net periodic benefit cost is recorded in cost of goods sold and selling, general and administrative expenses, while non-service cost components are recorded in other income (expense), net in the accompanying consolidated statement of income.
During the six months ended June 30, 2022, the Company recorded a non-cash curtailment expense of approximately $i0.2 million,
as it transitioned certain active employees previously participating in a defined benefit plan in the United Kingdom to a defined contribution plan, thereby eliminating future service cost accruals for all employees under this defined benefit plan.
The Company contributed approximately $i0.5 million and $i0.8 million
to its defined benefit pension plans during the three and six months ended June 30, 2022, respectively. The Company expects to contribute approximately $i1.7 million to its defined benefit pension plans for the full year 2022.
19.
iOther Comprehensive Income (Loss)
i
Changes in AOCI by component for the six months ended June
30, 2022 are summarized as follows, net of tax (dollars in thousands):
(a)
Derivative instruments, net of income tax of approximately $i1.1 million. See Note 11, "Derivative Instruments," for further details.
/
(b) Defined benefit plans, net of income tax of approximately $i0.1 million.
See Note 18, "Defined Benefit Plans," for further details.
20. iIncome Taxes
The effective income tax rate for the three months ended June 30, 2022 and 2021 was i25.5%
and (i0.3)%, respectively. The rate for the three months ended June 30, 2022 is higher than in the prior year period, primarily as a result of the recognition of approximately $i3.0 million
of deferred tax benefits in Italy during the three months ended June 30, 2021, the majority of which related to a reduction in deferred tax liabilities in connection with certain tax incentives.
The effective income tax rate for the six months ended June 30, 2022 and 2021 was i24.2% and i11.8%,
respectively. The rate for the six months ended June 30, 2022 is higher than in the prior year period, primarily as a result of the recognition of approximately $i3.0 million of deferred tax benefits in Italy during the six months ended June 30, 2021, the majority of which related to a reduction in deferred tax liabilities in connection with certain tax incentives.
21.
iSubsequent Events
On iJuly 21, 2022, the
Company announced that its Board of Directors had declared a cash dividend of $i0.04 per share of TriMas Corporation common stock, which will be payable on iAugust 11, 2022
to shareholders of record as of the close of business on iAugust 4, 2022.
On July 26, 2022, the Company initiated steps to terminate all of its existing $i250 million
notional amount cross-currency swaps, as well as to enter into new cross-currency swaps with notional amounts totaling $i150 million which are subject to various contract periods through 2024. The Company expects to receive cash proceeds from the termination of the swaps of approximately $i27 million.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition contains forward-looking statements regarding industry outlook and our expectations regarding the performance of our business. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described under the heading "Forward-Looking Statements," at
the beginning of this report. Our actual results may differ materially from those contained in or implied by any forward-looking statements. You should read the following discussion together with the Company's reports on file with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the year ended December 31, 2021.
Introduction
TriMas designs, develops and manufactures a diverse set of products primarily for the consumer products, aerospace & defense and industrial markets through its TriMas Packaging, TriMas Aerospace and Specialty Products groups. Our
wide range of innovative products are designed and engineered to solve application-specific challenges that our customers face. We believe our businesses share important and distinguishing characteristics, including: well-recognized and leading brand names in the focused markets we serve; innovative product technologies and features; a high-degree of customer approved processes and qualifications; established distribution networks; relatively low ongoing capital investment requirements; strong cash flow conversion and long-term growth opportunities. While the majority of our revenue is in the United States, we manufacture and supply products globally to a wide range of companies. We report our business activity in three segments: Packaging, Aerospace and Specialty Products.
Key Factors Affecting Our Reported Results
Our businesses and results of operations
depend upon general economic conditions. We serve customers in industries that are highly competitive, cyclical and that may be significantly impacted by changes in economic or geopolitical conditions.
Over the past two years, the coronavirus ("COVID-19") pandemic has significantly affected each of our businesses and how we operate, albeit in different ways and magnitudes. Sales in our Packaging segment for dispensing and closure products used in applications to fight the spread of germs experienced significant increases in demand, while sales of our industrial and aerospace-related products were significantly depressed from historical levels. Our aerospace-related product sales continue to be depressed while industrial product sales have recovered to pre-pandemic levels. The pandemic has also led to increased uncertainty and inflation in the global business environment, and we have experienced
increases in input costs (raw materials, wage rates, energy and freight), supply chain disruptions and delays, as well as labor availability challenges, all pressuring our ability to operate efficiently and at the margin levels previously experienced.
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. 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. While these increased costs
and inefficiencies began in second quarter 2020, they continue to persist into 2022. We expect that we will continue to operate with these protocols in place, and that labor-related availability and inefficiencies will be an ongoing challenge.
We continue to actively monitor the spread of certain variants of the virus, and plan for potential future impacts. While conditions related to the pandemic generally have improved compared to 2021, we anticipate conditions will continue to vary by industry as well as geography. Late in first quarter 2022, and continuing in second quarter, an increase of COVID-19 related cases in certain parts of China resulted in widespread shut-downs and restrictions (in light of China's zero-covid policy), including the re-institution of stay-at-home and quarantine mandates. While these restrictions have not yet had a significant impact on our overall financial results, and started to ease in June
2022, further restrictions could have a more significant impact in the second half of 2022 and beyond.
Overall, our second quarter 2022 net sales increased approximately $18.7 million, or 8.5%, compared to second quarter 2021, primarily as a result of increased industrial demand in our Specialty Products segment, the impact of our recent acquisitions in our Packaging and Aerospace segments and increased sales of products used in food and beverage markets and industrial markets within our Packaging segment. These factors more than offset unfavorable currency exchange and the expected decline in sales of our Packaging segment's dispensing and closure products that are used in applications to fight the spread of germs, which reached record-high levels in 2020 and first half of 2021 when
there was a significant spike in demand following the onset of the COVID-19 pandemic, but now have abated to what we believe is a new, and higher, normalized level.
The most significant drivers affecting our results of operations in second quarter 2022 compared with second quarter 2021, other than as directly impacted by demand level changes as a result of the COVID-19 pandemic, were the impact of our recent acquisitions, our continued realignment actions in response to reduced certain end-market demand following the outbreak of COVID-19, the impact of higher energy
costs, the refinancing of our long-term debt agreements in 2021, and an increase in our effective tax rate primarily as a result of the recognition of deferred tax benefits in Italy in second quarter 2021.
In February 2022, we acquired Intertech Plastics LLC and related companies (collectively, "Intertech"), a manufacturer of custom injection molded products used in medical applications, as well as products and assemblies for consumer and industrial applications, for an aggregate amount of approximately $64.1 million, net of cash acquired. Intertech, which is reported in the Company's Packaging segment, has two manufacturing facilities located in the Denver, Colorado area. Intertech contributed approximately $8.8 million of net sales during second quarter 2022.
In
December 2021, we completed the acquisition of Omega Plastics ("Omega"), which specializes in manufacturing custom components and devices for drug delivery, diagnostic and orthopedic medical applications, as well as components for industrial applications, for an aggregate amount of approximately $22.5 million, net of cash acquired.Omega, which is reported in the Company's Packaging segment, is located in Clinton Township, Michigan. Omega contributed approximately $5.6 million of net sales during second quarter 2022.
In December 2021, we acquired TFI Aerospace ("TFI"), a manufacturer and supplier of specialty fasteners used in a variety of applications, predominately for the aerospace end market, for an aggregate amount of approximately
$11.8 million, with additional contingent consideration ranging from zero to approximately $12.0 million to be paid based on 2023 and 2024 earnings per the purchase agreement. TFI, which is reported in the Company's Aerospace segment, is located near Toronto, Canada.TFI contributed approximately $1.4 million of net sales during second quarter 2022.
Beginning in second quarter 2020, we have been executing certain realignment actions in response to current and expected future end market demand following the onset of the COVID-19 pandemic, as well as for the move to our new facility in New Albany, Ohio. We recorded pre-tax facility move/consolidation and employee-related costs of approximately $1.4 million and $0.1 million, respectively, in the three
months ended June 30, 2022. In the three months ended June 30, 2021, we recorded pre-tax facility consolidation and employee separation costs of approximately $0.7 million and $3.5 million, respectively.
We also experienced a significant increase in the cost of energy in second quarter 2022 compared with second quarter 2021, primarily in our Europe-based operations. Energy costs began to rise during late 2021, and have further increased into 2022, which we believe is primarily due to geopolitical tensions associated with the Russia-Ukraine conflict, as well as realized and expected energy supply constraints. We expect there could be additional cost and supply chain pressures going forward in 2022 as a result of the uncertainty surrounding
the conflict in Eastern Europe.
In March 2021, we refinanced our long-term debt, issuing $400 million principal amount of 4.125% senior unsecured notes due April 15, 2029 ("2029 Senior Notes") at par value in a private placement offering, and amending our existing credit agreement ("Credit Agreement"), extending the maturity to March 2026. We used the proceeds from the 2029 Senior Notes offering to pay fees and expenses of approximately $5.1 million related to the offering and approximately $1.1 million related to amending the Credit Agreement. The remaining cash proceeds from the 2029 Senior Notes were used for general corporate purposes, including repaying all outstanding revolving credit facility borrowings.In April 2021, we completed the refinancing, redeeming all of our outstanding senior
notes due October 2025 ("2025 Senior Notes"), paying cash for the entire $300.0 million outstanding principal amount plus $7.3 million as a redemption premium. The $5.1 million of fees and expenses related to the 2029 Senior Notes were capitalized as debt issuance costs, while the $7.3 million redemption premium as well as approximately $3.0 million of unamortized debt issuance costs associated with the 2025 Senior Notes were expensed in the second quarter of 2021.
Our effective tax rate in second quarter 2022 was 25.5%, compared to (0.3)% in second quarter of 2021. The rate for the second quarter 2022 is higher primarily as a result of the recognition of approximately $3.0 million of deferred tax benefits in Italy in second quarter 2021,
the majority of which related to a reduction in deferred tax liabilities in connection with certain tax incentives.
Additional Key Risks that May Affect Our Reported Results
We have executed significant realignment actions since the onset of the COVID-19 pandemic, primarily in our Aerospace and Specialty Products segments, and also in certain Packaging product areas where demand has fallen. 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 for declines in future demand levels and results of operations, at present, we believe our capital structure is in a strong position. We have sufficient cash and available liquidity under our revolving credit facility to meet our debt service obligations, capital expenditure requirements and other short-term and long-term obligations for the foreseeable future.
The extent of the COVID-19 pandemic's effect on our operational and financial performance will depend in large part on future
developments, which cannot be predicted with confidence at this time. Future developments include the duration, scope and severity of the COVID-19 pandemic, the actions taken to contain or mitigate its impact, timing and acceptance of widespread vaccine availability, and the resumption of normalized global economic
activity. Due to the inherent uncertainty of the unprecedented and rapidly evolving situation, we are unable to predict with any confidence the likely impact of the COVID-19 pandemic on our future operations.
Beyond the unique risks presented by the COVID-19 pandemic, other 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 chain management, internal sourcing and/or purchasing of materials, selective outsourcing and/or purchasing
of support functions, working capital management, and greater leverage of our administrative functions; and our ability to absorb, or recover via commercial actions, inflationary or other cost increases.
Our overall business does not experience significant seasonal fluctuation, other than our fourth quarter, which has tended to be the lowest net sales quarter of the year due to holiday shutdowns at certain customers or other customers deferring capital spending to the following year. Given the short-cycle nature of most of our businesses, we do not consider sales order backlog to be a material factor. A growing amount of our sales is derived from international sources, which exposes us to certain risks, including currency risks.
We are sensitive to price movements and availability of our raw materials supply. Our largest raw material purchases are for resins (such as polypropylene
and polyethylene), steel, aluminum and other oil and metal-based purchased components. In addition to the factors affecting our 2021 and 2022 results, there has been some volatility over the past two years as a direct and indirect result of foreign trade policy, where tariffs on certain of our commodity-based products sourced from Asia have been instituted, and certain North American suppliers have opportunistically increased their prices. We will continue to take actions to mitigate such increases, including implementing commercial pricing adjustments, resourcing to alternate suppliers and insourcing of previously sourced products to better leverage our global manufacturing footprint. Although we believe we are generally able to mitigate the impact of higher commodity costs over time, we may experience additional material costs and disruptions in supply in the future and may not be able to pass along higher costs to our customers in the form of price increases or otherwise
mitigate the impacts to our operating results.
Although we have escalator/de-escalator clauses in commercial contracts with certain of our customers, or can modify prices based on market conditions to recover higher costs, our price increases generally lag the underlying material cost increase, and we cannot be assured of full cost recovery in the open market. If input costs increase at rapid rates, as they did during 2021, our ability to recover cost increases on a timely basis is made more difficult by the lag nature of these contracts.
Our Arrow Engine business in our Specialty Products segment is sensitive to the demand for natural gas and crude oil in North America. For example, demand for engine,
pump jack and compressor products are impacted by active oil and gas rig counts and wellhead investment activities. Separately, oil-based commodity costs are a significant driver of raw materials and purchased components used within our Packaging segment.
Each year, as a core tenet of the TriMas Business Model, our businesses target cost savings from Kaizen and continuous improvement initiatives in an effort to reduce, or otherwise offset, the impact of increased input and conversion costs through increased throughput and yield rates, with a goal of at least covering inflationary and market cost increases. In addition, we continuously review our operating cost structures to ensure alignment with current market demand.
We continue to evaluate alternatives to redeploy the cash generated by our businesses, one of which includes returning capital to our shareholders. In 2020, our Board
of Directors increased the authorization of share repurchases to a cumulative amount of $250 million. During second quarter 2022, we purchased 645,984 shares of our outstanding common stock for approximately $18.8 million. As of June 30, 2022, we had approximately $114.7 million remaining under the repurchase authorization.
In addition, in second quarter 2022, we declared dividends of $0.04 per share of common stock and we paid dividends of $1.7 million.We will continue to evaluate opportunities to return capital to shareholders through the purchase of
our common stock, as well as dividends, depending on market conditions and other factors.
The following table summarizes financial information for our reportable segments for the three months ended June 30, 2022 and 2021 (dollars in thousands):
The following table summarizes financial information for our reportable segments for the six months ended June 30, 2022 and 2021 (dollars in thousands):
Overall, net sales increased approximately $18.7 million, or 8.5%, to $237.7 million for the three months ended June 30, 2022, as compared with $219.0 million in the three months ended June 30, 2021, primarily as a result of our Intertech, Omega and TFI acquisitions, which collectively added approximately $15.8 million of sales. Organic sales, excluding the impact of currency exchange and acquisitions, increased approximately $7.7 million, as increases in our Specialty Products segment as well as for food and beverage and industrial products in our Packaging segment were partially offset by declines in dispensing products that help fight the spread of germs in our Packaging segment, as demand for these products abated from peak levels in 2020 and the first half of 2021. In addition, net sales decreased by approximately
$4.8 million due to currency exchange, as our reported results in U.S. dollars were unfavorably impacted as a result of a strengthening U.S. dollar relative to foreign currencies.
Gross profit margin (gross profit as a percentage of sales) approximated 25.5% and 26.5% for the three months ended June 30, 2022 and 2021, respectively. Gross profit margin decreased due to a less favorable sales mix, primarily as a result of lower sales of Aerospace segment customers' stocking orders for highly-engineered fasteners during the three months ended June 30, 2022. In addition, improved recovery of resin costs in our Packaging segment was offset by higher energy costs, primarily in our Packaging segment's European facilities,
higher steel costs in our Specialty Products segment, and unfavorable currency exchange.
Operating profit margin (operating profit as a percentage of sales) approximated 12.6% and 11.7% for the three months ended June 30, 2022 and 2021, respectively. Operating profit increased approximately $4.3 million to approximately $29.9 million in the three months ended June 30, 2022, from approximately $25.6 million for the three months ended June 30, 2021, primarily due to higher sales levels, improved recovery of resin costs and approximately $2.7 million of lower realignment costs. These increases were partially offset by a less favorable product sales mix and higher energy and steel costs, as well as unfavorable
currency exchange.
Interest expense decreased approximately $0.6 million, to approximately $3.5 million for the three months ended June 30, 2022, compared to approximately $4.1 million for the three months ended June 30, 2021, due to a lower effective interest rate and a decrease in our weighted average borrowings.
In the three months ended June 30, 2021, we incurred approximately $10.3 million of debt financing and related expenses associated with the redemption of our 2025 Senior Notes.
Other income decreased approximately $0.4 million to approximately $0.3 million for the three months ended June 30, 2022, as compared to approximately $0.7
million for the three months ended June 30, 2021, primarily due to lower foreign currency transactions gains.
The effective income tax rate for the three months ended June 30, 2022 and 2021 was 25.5% and (0.3)%, respectively. We recorded income tax expense of approximately $6.8 million for the three months ended June 30, 2022 as compared to nominal income tax benefit for the three months ended June 30, 2021. The rate for the three months ended June 30, 2022 is higher than in the prior year period, primarily as a result of recognizing approximately $3.0 million of deferred tax benefits in Italy during the three months ended June 30,
2021, the majority of which related to a reduction in deferred tax liabilities in connection with certain tax incentives.
Net income increased approximately $8.0 million, to $19.9 million for the three months ended June 30, 2022, as compared to $11.8 million for the three months ended June 30, 2021. The increase was primarily the result of a decrease in debt financing and related expenses of $10.3 million, an increase in operating profit of approximately $4.3 million, and a decrease in interest expense of $0.6 million, partially offset by an increase in income tax expense of approximately $6.8 million and a decrease in other income of approximately $0.4 million.
See below for a discussion of operating results by segment.
Packaging. Net sales increased approximately $8.7 million, or 6.2%, to $148.4 million in the three months ended June 30, 2022, as compared to $139.6 million in the three months ended June 30, 2021. Our recent Intertech and Omega acquisitions collectively contributed approximately $14.4 million of sales during the three months ended June 30, 2022. Sales of products used in food and beverage markets increased by approximately $9.2 million, primarily due to strong demand for closures, dispensers and flexible packaging as the hospitality sector continues to rebound from prior COVID-19 pandemic-related shutdowns. Sales of products used in industrial markets increased by approximately $2.6 million, primarily as a result of higher demand
for closure products, primarily in North America. Sales of dispensing products used in beauty and personal care, as well as home care, applications that help fight the spread of germs decreased by approximately $9.5 million, as COVID-19-related demand levels have further abated in second quarter 2022 from peak levels in 2020 and 2021. Net sales decreased by approximately $4.8 million due to currency exchange, as our reported results in U.S. dollars were unfavorably impacted as a result of the strengthening U.S. dollar relative to foreign currencies, as compared to second quarter 2021.
Gross profit increased approximately $1.3 million to $41.8 million, or 28.2% of sales, in the three months ended June 30, 2022, as compared to $40.5 million, or 29.0% of sales, in the three months ended June 30, 2021. During second quarter 2021,
we were impacted by approximately $4 million of higher resin costs than we were able to recover via commercial actions, while in second quarter 2022, we were generally able to recover current resin costs. Gross profit declined in second quarter 2022 due to approximately $1.3 million of unfavorable currency exchange, as our reported results in U.S. dollars were impacted as a result of the strengthening U.S. dollar relative to foreign currencies, approximately $1.2 million of higher energy costs, primarily in our European manufacturing facilities, and approximately $0.9 million of higher realignment and purchase accounting expenses. In addition, gross profit margin declined as a result of a less favorable sales mix.
Selling, general and administrative expenses increased approximately $1.3 million to $14.0 million, or 9.4% of sales, in the three months ended June 30, 2022, as compared
to $12.6 million, or 9.1% of sales, in the three months ended June 30, 2021, primarily due to higher ongoing selling, general and administrative costs associated with our acquisitions, partially offset by lower intangible asset amortization expense due to certain assets becoming fully amortized.
Operating profit decreased approximately $0.1 million to $27.8 million, or 18.7% of sales, in the three months ended June 30, 2022, as compared to $27.9 million, or 19.9% of sales, in the three months ended June 30, 2021, as the impact of higher sales levels and improved recovery of material costs was offset by higher energy costs, higher selling, general and administrative expenses, higher realignment costs and the impact of unfavorable currency exchange.
Aerospace. Net
sales for the three months ended June 30, 2022 increased approximately $2.8 million, or 6.4%, to $47.4 million, as compared to $44.6 million in the three months ended June 30, 2021. Acquisition-related sales growth from our December 2021 acquisition of TFI was approximately $1.4 million. Sales of our fasteners products increased by approximately $1.2 million, as increases in demand for fasteners used in new aircraft builds plus market share gains more than offset the expected loss of sales of customers' stocking orders for highly-engineered fasteners that were predominantly fulfilled throughout 2021. Sales of our engineered components products increased by approximately $0.2 million.
Gross profit increased approximately $0.3 million to $9.6 million, or 20.3% of sales, in the three months ended June
30, 2022, from $9.3 million, or 20.9% of sales, in the three months ended June 30, 2021. Although gross profit increased due to higher sales levels, gross profit margin decreased due to a less favorable product sales mix in second quarter 2022 with lower sales of the customers' stocking orders for highly-engineered fasteners.
Selling, general and administrative expenses decreased approximately $0.3 million to $6.9 million, or 14.5% of sales, in the three months ended June 30, 2022, as compared to $7.2 million, or 16.1% of sales, in the three months ended June 30, 2021, primarily due to lower employee-related costs and third party expenses.
Operating profit increased approximately $0.6 million to approximately $2.8 million, or 5.8%
of sales, in the three months ended June 30, 2022, as compared to approximately $2.1 million, or 4.8% of sales, in the three months ended June 30, 2021, primarily due to higher sales levels and lower selling, general and administrative expenses, which were partially offset by a less favorable product sales mix.
Specialty Products. Net sales for the three months ended June 30, 2022 increased approximately $7.1 million, or 20.5%, to $41.9 million, as compared to $34.8 million in the three months ended June 30, 2021. Sales of our cylinder products increased approximately $5.3 million due
to higher demand for steel cylinders in North America, as industrial activity continues to increase from depressed levels as a result of the COVID-19 pandemic. Sales of engines, compressors and related parts used in stationary power generation and assistance applications for natural gas and crude oil extraction increased by approximately $1.8 million, primarily as a result of higher oil-field activity in North America.
Gross profit increased approximately $1.1 million to $9.3 million, or 22.1% of sales, in the three months ended June 30, 2022, as compared to $8.2 million, or 23.6% of sales, in the three months
ended June 30, 2021. Gross profit increased in the second quarter of 2022 due to higher sales levels, while margins decreased due to higher steel costs as well as a less favorable product sales mix.
Selling, general and administrative expenses increased approximately $0.3 million to $2.5 million, or 6.0% of sales, in the three months ended June 30, 2022, as compared to $2.2 million, or 6.4% of sales, in the three months ended June 30, 2021, primarily due to higher employment and spending levels in support of the increase in sales levels.
Operating profit increased approximately $0.8 million to $6.8 million, or 16.1% of sales, in the three months ended June 30, 2022, as compared to $6.0
million, or 17.3% of sales, in the three months ended June 30, 2021, primarily due to increased sales levels which were partially offset by higher steel costs as well as a less favorable product sales mix.
Corporate. Corporate expenses consist of the following (dollars in millions):
Corporate expenses decreased approximately $3.0 million to approximately $7.5 million for the three months ended June 30, 2022, from approximately $10.4 million for the three months ended June 30, 2021, primarily as a result of realignment
charges recorded in the second quarter of 2021 relating to streamlining and reorganizing the corporate office finance group.
Overall, net sales increased approximately $36.3 million, or 8.5%, to $462.0 million for the six months ended June 30, 2022, as compared with $425.7 million in the six months ended June 30, 2021, primarily
as a result of our Intertech, Omega and TFI acquisitions, which collectively added approximately $24.8 million of sales. Organic sales, excluding the impact of currency exchange and acquisitions, increased approximately $18.7 million, as increases in our Specialty Products segment as well as for food and beverage and industrial products in our Packaging segment were partially offset by declines in dispensing products that help fight the spread of germs in our Packaging segment, as demand for these products abated from peak levels in 2020 and the first half of 2021. In addition, net sales decreased by approximately $7.2 million due to currency exchange, as our reported results in U.S. dollars were unfavorably impacted as a result of a strengthening U.S. dollar relative to foreign currencies.
Gross profit margin (gross profit as a percentage of sales) approximated
24.8% and 25.7% for the six months ended June 30, 2022 and 2021, respectively. Gross profit margin decreased primarily due to a less favorable sales mix as a result of lower sales of Aerospace segment customers' stocking orders for highly-engineered fasteners during the three months ended June 31, 2022. In addition, improved recovery of resin costs in our Packaging segment was offset by higher energy costs, primarily in our European Packaging segment facilities, higher steel costs in our Specialty Products segment, and unfavorable currency exchange.
Operating profit margin (operating profit as a percentage of sales) approximated 11.2% and 11.0% for the six months ended June 30, 2022 and 2021,
respectively. Operating profit increased approximately $5.1 million, to $51.8 million, for the six months ended June 30, 2022, compared to $46.7 million for the six months ended June 30, 2021, primarily due to higher sales levels, improved recovery of resin costs and as a result of approximately $4.4 million of lower realignment costs. These increases were partially offset by a less favorable product sales mix and higher energy costs.
Interest expense decreased approximately $0.8 million, to $6.9 million, for the six months ended June 30, 2022, as compared to $7.7 million for the six months ended June 30, 2021, due to a lower effective interest rate and a decrease in our weighted average borrowings.
In the six months ended June 30, 2021, we incurred approximately $10.5 million of debt financing and related expenses, of which approximately $10.3 million related to expenses associated with the redemption of our 2025 Senior Notes and approximately $0.2 million related to the write-off of previously capitalized deferred financing fees associated with our Credit Agreement.
Other expense decreased approximately $0.3 million, to a nominal amount for the six months ended June 30, 2022, from $0.3 million for the six months ended June 30, 2021, primarily due to a decrease in losses on transactions denominated in foreign currencies.
The effective income tax rate for the six
months ended June 30, 2022 and 2021 was 24.2% and 11.8%, respectively. We recorded tax expense of approximately $10.9 million for the six months ended June 30, 2022 as compared to approximately $3.3 million for the six months ended June 30, 2021. The rate for the six months ended June 30, 2022 is is higher than in the prior year as the effective tax rate for the six months ended June 30, 2021 was impacted by the recognition of approximately $3.0 million of deferred tax benefits in Italy, the majority of which related to a reduction in deferred tax liabilities in connection with certain tax incentives.
Net income increased by approximately
$9.1 million, to $34.0 million for the six months ended June 30, 2022, compared to $24.9 million for the six months ended June 30, 2021. The increase was primarily the result of a decrease in debt financing and related expenses of $10.5 million, an increase in operating profit of approximately $5.1 million and a decrease in interest expense of $0.8 million, a decrease in other expense of approximately $0.3 million, partially offset by an increase in income tax expense of approximately $7.5 million.
See below for a discussion of operating results by segment.
Packaging. Net sales increased approximately $15.1 million, or 5.6%, to $286.8 million
in the six months ended June 30, 2022, as compared to $271.7 million in the six months ended June 30, 2021. Our recent Intertech and Omega acquisitions collectively contributed approximately $22.0 million of sales during the six months ended June 30, 2022. Sales of products used in food and beverage markets increased by approximately $20.2 million, primarily due to strong demand for closures, dispensers and flexible packaging as the hospitality sector continues to rebound from prior COVID-19 pandemic-related shutdowns. Sales of products used in industrial markets increased by approximately $6.9 million, primarily as a result of higher demand for closure products, primarily in North America. Sales of dispensing products used in beauty and personal care, as well as home care, applications that help fight the spread of
germs decreased largely as anticipated by approximately $24.0 million, as COVID-19-related demand levels have abated for these products from the peak levels in mid-2020 through the first half of 2021. Net sales decreased by approximately $7.1 million due to currency exchange, as our reported results in U.S. dollars were unfavorably impacted as a result of the strengthening U.S. dollar relative to foreign currencies, as compared to first half 2021.
Packaging's gross profit increased approximately $3.8 million to $78.1 million, or 27.2% of sales, in the six months ended June 30, 2022, as compared to $74.4 million, or 27.4% of sales, in the six months ended June 30, 2021. During the first half of 2021, we were impacted by approximately $6 million of higher resin costs than we were able to recover via commercial actions, while
we have generally been able to recover such costs during the first half of 2022, as market prices have generally stabilized. The increase in gross profit from higher sales levels and improved material cost recovery was partially offset by approximately $3 million higher energy costs, primarily in our European manufacturing facilities, as well as a result of approximately $1.9 million of currency exchange, as our reported results in U.S. dollars were unfavorably impacted as a result of the strengthening U.S. dollar relative to foreign currencies. In addition, gross profit margin declined as a result of a less favorable sales mix.
Packaging's selling, general and administrative expenses increased approximately $3.8 million to $29.0 million, or 10.1% of sales, in the six months ended June 30, 2022, as compared to $25.2 million, or 9.3% of sales, in the six months ended June
30, 2021, primarily due to higher ongoing selling, general and administrative costs associated with our acquisitions as well as higher employee-related expenses as a result of our first quarter 2022 realignment actions, partially offset by lower intangible asset amortization expense due to certain assets becoming fully amortized.
Packaging's operating profit remained relatively flat at $49.1 million, or 17.1% of sales, in the six months ended June 30, 2022, as compared to $49.2 million, or 18.1% of sales, in the six months ended June 30, 2021, as the impact of higher sales levels and improved recovery of material costs was offset by higher energy costs, higher selling, general and administrative expenses and the impact of unfavorable currency exchange.
Aerospace. Net sales for the six months ended June 30, 2022 increased approximately $2.7 million, or 3.1%, to $91.9 million, as compared to $89.2 million in the six months ended June 30, 2021. Acquisition-related sales growth from our December 2021 acquisition of TFI was approximately $2.8 million. Sales of our fasteners products increased by approximately $0.7 million, as increases in demand for fasteners used in new aircraft builds plus market share gains more than offset the expected loss of sales of customers' stocking orders for highly-engineered fasteners that were predominantly fulfilled throughout 2021. Sales of our engineered components products decreased by approximately $0.8 million, primarily due to lower end market demand.
Gross
profit within Aerospace decreased approximately $2.6 million to $17.7 million, or 19.2% of sales, in the six months ended June 30, 2022, from $20.3 million, or 22.7% of sales, in the six months ended June 30, 2021, primarily due to a less favorable product sales mix in the first half of 2022, with lower sales of the customers' stocking orders for highly-engineered fasteners.
Selling, general and administrative expenses decreased approximately $0.6 million to $13.1 million, or 14.2% of sales, in the six months ended June 30, 2022, as compared to $13.7 million, or 15.3% of sales, in the six months ended June 30, 2021, primarily due to lower employee-related costs and third party expenses.
Operating
profit within Aerospace decreased approximately $2.0 million to $4.6 million, or 5.0% of sales, in the six months ended June 30, 2022, as compared to $6.6 million, or 7.4% of sales, in the six months ended June 30, 2021, as the impact of higher sales levels and lower selling, general and administrative expenses were more than offset by a less favorable product sales mix.
Specialty Products. Net sales for the six months ended June 30, 2022 increased approximately $18.4 million, or 28.4%, to $83.2 million, as compared to $64.8 million in the six months ended June 30, 2021. Sales of our
cylinder products increased approximately $12.9 million, due to higher demand for steel cylinders in North America as industrial activity continues to increase from depressed levels as a result of the COVID-19 pandemic. Sales of engines, compressors and related parts used in stationary power generation and assistance applications for natural gas and crude oil extraction increased by approximately $5.5 million, primarily as a result of higher oil-field activity in North America.
Gross profit within Specialty Products increased approximately $3.9 million to $18.6 million, or 22.3% of sales, in the six months ended June 30, 2022, as compared to $14.7 million, or 22.7% of sales, in the six months ended June 30, 2021. Gross profit increased due to higher sales levels, while margins decreased slightly due to higher steel costs.
Selling,
general and administrative expenses within Specialty Products increased approximately $0.4 million to $4.6 million, or 5.5% of sales, in the six months ended June 30, 2022, as compared to $4.2 million, or 6.5% of sales, in the six months ended June 30, 2021, primarily due to higher employment and spending levels in support of the increase in sales levels.
Operating profit within Specialty Products increased approximately $3.5 million to $14.0 million, or 16.8% of sales, in the six months ended June 30, 2022, as compared to $10.5 million, or 16.2% of sales, in the six months ended June 30, 2021, primarily due to increased sales levels.
Corporate. Corporate
expenses, net consist of the following (dollars in millions):
Corporate expenses decreased approximately
$3.7 million to $15.9 million for the six months ended June 30, 2022, from $19.6 million for the six months ended June 30, 2021, primarily as a result of the realignment charges related to the corporate office legal and finance groups in the six months ended June 30, 2021.
Cash
flows provided by operating activities were approximately $27.7 million for the six months ended June 30, 2022, as compared to approximately $42.7 million for the six months ended June 30, 2021. Significant changes in cash flows provided by operating activities and the reasons for such changes were as follows:
•For the six months ended June 30, 2022, the Company generated approximately $73.1 million in cash flows, based on the reported net income of approximately $34.0 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 and other operating
activities. For the six months ended June 30, 2021, the Company generated approximately $72.3 million in cash flows based on the reported net income of approximately $24.9 million and after considering the effects of similar non-cash items and debt financing and related expenses.
•Increases in accounts receivable resulted in a use of cash of approximately $29.4 million and $22.6 million for the six months ended June 30, 2022 and 2021, respectively. The increased use of cash for each of the six month periods is due primarily to the timing of sales and collection of cash related thereto within the periods. Days sales outstanding of receivables
increased approximately four days through the six months ended June 30, 2022 , and remained relatively consistent through the six months ended June 30, 2021.
•We increased our investment in inventory by approximately $7.9 million and $0.9 million for the six months ended June 30, 2022 and 2021, respectively. The increase in the first half of 2022 is primarily a result of proactively investing in certain raw materials and purchased components to protect against supply chain disruptions.
•Decreases in prepaid expenses and other assets resulted
in a source of cash of approximately $0.8 million for the six months ended June 30, 2022. Increases in prepaid expenses and other assets resulted in a use of cash of approximately $7.4 million for the six months ended June 30, 2021. These changes were primarily a result of the timing of payments made for income taxes and certain operating expenses.
•A decrease in accounts payable and accrued liabilities resulted in a use of cash of approximately $8.9 million for the six months ended June 30, 2022, while an increase in accounts payable and accrued liabilities resulted in a source of cash of approximately $1.4 million for the six months ended June 30, 2021. Days
accounts payable on hand decreased by one day through the six months ended June 30, 2022 compared with a decrease of approximately two days in the six months ended June 30, 2021. Our days accounts payable on hand fluctuate primarily as a result of the timing of payments made to suppliers and the mix of vendors and related terms.
Net cash used for investing activities for the six months ended June 30, 2022 and 2021 was approximately $85.7 million and $18.2 million, respectively. During the first six months of 2022, we invested approximately $21.7 million in capital expenditures, as we continued our investment in growth, capacity and productivity-related capital projects, and paid approximately $64.1 million, net of cash acquired,
to acquire Intertech. During the first six months of 2021, we invested approximately $18.3 million in capital expenditures.
Net cash used for financing activities for the six months ended June 30, 2022 was approximately $33.6 million, while net cash provided by financing activities was approximately $19.0 million for the six months ended June 30, 2021. During the six months ended June 30, 2022, we purchased approximately $27.9 million of outstanding common stock, used a net cash amount of approximately $2.3 million related to our stock compensation arrangements and paid dividends of approximately $3.5 million. During the six months ended June 30, 2021, we issued $400.0 million principal amount of the 2029 Senior Notes, made net
repayments of approximately $48.6 million on our revolving credit facilities, and redeemed $300.0 million principal amount of the 2025 Senior Notes. In connection with refinancing our long-term debt, we paid approximately $13.6 million of debt financing fees and redemption premium. We also purchased approximately $14.2 million of outstanding common stock and used a net cash amount of approximately $4.6 million related to our stock compensation arrangements.
In
March 2021, we issued the 2029 Senior Notes in a private placement under Rule 144A of the Securities Act of 1933, as amended. We used the proceeds from the 2029 Senior Notes offering to pay fees and expenses of approximately $5.1 million related to the offering and pay fees and expenses of $1.1 million related to amending our Credit Agreement. In connection with the issuance, we completed the redemption of our 2025 Senior Notes, paying $300.0 million to retire the outstanding principal amount plus $7.3 million as a redemption premium. The remaining cash proceeds from the 2029 Senior Notes were used for general corporate purposes, including repaying all outstanding revolving credit facility borrowings. The $5.1 million of fees and expenses related to the 2029 Senior Notes were capitalized as debt issuance costs, while the $7.3 million redemption premium, as well as approximately $3.0 million of unamortized debt issuance costs associated with the 2025 Senior Notes were
recorded as expense within debt financing and related expenses in the accompanying consolidated statement of operations.
The 2029 Senior Notes accrue interest at a rate of 4.125% per annum, payable semi-annually in arrears on April 15 and October 15. The payment of principal and interest is jointly and severally guaranteed, on a senior unsecured basis, by certain subsidiaries of the Company. The 2029 Senior Notes are pari passu in right of payment with all existing and future senior indebtedness and effectively subordinated to all existing and future secured indebtedness to the extent of the value of the assets securing such indebtedness.
Prior to April
15, 2024, we may redeem up to 40% of the principal amount of the 2029 Senior Notes at a redemption price of 104.125% of the principal amount, plus accrued and unpaid interest, if any, to the redemption date, with the net cash proceeds of one or more equity offerings provided that each such redemption occurs within 90 days of the date of closing of each such equity offering. In addition, prior to April 15, 2024, we may redeem all or part of the 2029 Senior Notes at a redemption price equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if any, to the redemption date, plus a "make whole" premium.
For the six months ended June 30, 2022, our consolidated subsidiaries that do not guarantee the 2029 Senior
Notes represented approximately 25% 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 36% and 13% of the total guarantor and non-guarantor assets and liabilities, respectively, as of June 30, 2022, treating the guarantor and non-guarantor subsidiaries each as a consolidated group.
In March 2021, we amended our Credit Agreement in connection with the issuance of the 2029 Senior Notes to extend the maturity date. We
incurred fees and expenses of approximately $1.1 million related to the amendment, all of which were capitalized as debt issuance costs. We also recorded approximately $0.2 million of non-cash expense related to the write-off of previously capitalized deferred financing fees. The Credit Agreement consists of a $300.0 million senior secured revolving credit facility, which permits borrowings denominated in specific foreign currencies, subject to a $125.0 million sub limit, maturing on March 29, 2026.
In November 2021, we amended the Credit Agreement to replace LIBOR with a benchmark interest rate determined based on the currency denomination of borrowings. Effective January 1, 2022, the amendment replaced the reference rate terms for U.S. dollar LIBOR borrowings to the Secured Overnight Financing Rate ("SOFR"), British
pound sterling LIBOR borrowings to the Sterling Overnight Index Average ("SONIA") and Euro LIBOR borrowings to the Euro Short Term Rate ("ESTR"), all plus a spread of 1.50%. The interest rate spread is based upon the leverage ratio, as defined, as of the most recent determination date.
The Credit Agreement provides for incremental revolving credit commitments in an amount not to exceed the greater of $200.0 million and an amount such that, after giving effect to such incremental commitments and the incurrence of any other indebtedness substantially simultaneously with the making of such commitments, the senior secured net leverage ratio, as defined in the Credit Agreement, is no greater than 3.00 to 1.00. The terms and conditions of any incremental revolving credit facility commitments must be no more favorable than the existing credit facility.
Amounts drawn under our revolving credit facility fluctuate daily based upon our working capital and other ordinary course needs. Availability under our revolving credit facility depends upon, among other things, compliance with our Credit Agreement's financial covenants. Our Credit Agreement contains various negative and affirmative covenants and other requirements affecting us and our subsidiaries, including the ability to, subject to certain exceptions and limitations, incur debt, liens, mergers, investments, loans, advances, guarantee obligations, acquisitions, asset dispositions, sale-leaseback transactions, hedging agreements, dividends and other restricted payments, transactions with affiliates, restrictive agreements and amendments to charters, bylaws,
and other material documents. The terms of our Credit Agreement require us and our subsidiaries to meet certain restrictive financial covenants and ratios computed quarterly, including a maximum total net leverage ratio (total consolidated indebtedness plus outstanding amounts under the accounts receivable securitization facility, less the aggregate amount of certain unrestricted cash and unrestricted permitted investments, as defined, over consolidated EBITDA, as defined) and a minimum interest expense coverage ratio (consolidated EBITDA, as defined, over the sum of consolidated cash interest expense, as defined, and preferred dividends, as defined). Our permitted total net leverage ratio under the Credit Agreement is 4.00 to 1.00 as of June 30, 2022. 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 1.99 to 1.00 at June 30, 2022. Our permitted interest expense coverage ratio under the Credit Agreement is 3.00 to 1.00 as of June 30, 2022. Our actual interest expense coverage ratio was 14.39 to 1.00 at June 30, 2022. At June 30, 2022, we were in compliance with our financial covenants.
The following is a reconciliation of net income, as reported, which is a GAAP measure of our operating results, to Consolidated Bank EBITDA, as defined in our Credit Agreement, for the twelve months ended June 30, 2022
(dollars in thousands). We present Consolidated Bank EBITDA to show our performance under our financial covenants.
Total Consolidated Cash Interest Expense, as defined
12,710
Actual interest expense coverage ratio
14.39
x
Covenant requirement
3.00
x
_____________________________
(1) Non-cash
compensation expenses resulting from the grant of equity awards.
(2) Non-recurring costs and expenses relating to diligence and transaction costs, purchase accounting costs, severance, relocation, restructuring and curtailment expenses.
(3) Includes approximately $3.7 million of acquisition related contingent consideration as of June 30, 2022.
Our revolving credit facility allows for the issuance of letters of credit, not to exceed $40.0 million in aggregate. We placed restricted cash on deposit with a financial institution to be held as cash collateral for our outstanding letters of credit; therefore, as of December 31, 2021, we had no letters of credit issued against our revolving
credit facility. At June 30, 2022, we had no amounts outstanding under our revolving credit facility and had $295.1 million potentially available after giving effect to approximately $4.9 million of letters of credit issued and outstanding. At December 31, 2021, we had no amounts outstanding under our revolving credit facility and had $300.0 million potentially available. Our letters of credit, or corresponding restricted cash deposits, are used for a variety of purposes, including support of certain operating lease agreements, vendor payment terms and other subsidiary operating activities, and to meet various states' requirements to self-insure workers' compensation claims, including incurred but not reported claims. Our borrowing capacity was not reduced by leverage restrictions contained in the Credit Agreement as of June 30,
2022 and December 31, 2021.
We rely upon our cash flow from operations and available liquidity under our revolving credit facility to fund our debt service obligations and other contractual commitments, working capital and capital expenditure requirements. At the end of each quarter, we have historically used cash on hand from our domestic and foreign subsidiaries to pay down amounts outstanding under our revolving credit facility, as applicable.
Our weighted average borrowings during the first six months of 2022 approximated $400.1 million, compared to approximately $403.7 million during the first six months of 2021, primarily due to a higher aggregate principal balance on our senior notes due to the issuance of the 2029 Senior Notes and
the redemption of the 2025 Senior Notes during the first half of 2021.
In May 2021, we, through one of our non-U.S. subsidiaries, entered into a revolving loan facility with a borrowing capacity of $4 million. The facility is guaranteed by TriMas Corporation. There were no borrowings on this loan facility as of June 30, 2022.
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.
While more than
half of our cash on hand as of June 30, 2022 is located outside the U.S., given available funding under our revolving credit facility of $300.0 million at June 30, 2022 (after consideration of the aforementioned leverage restrictions) and based on forecasted cash sources and requirements inherent in our business plans, we believe that our liquidity and capital resources, including anticipated cash flows from operations, will be sufficient to meet our debt service, capital expenditure and other short-term and long-term obligations for the foreseeable future, as well as dividends and share repurchases.
We
are subject to variable interest rates on our revolving credit facility, which is subject to a benchmark interest rate determined based on the currency denomination of borrowings. At June 30, 2022, we had no amounts outstanding on our revolving credit facility and, therefore, no variable rate-based borrowings outstanding.
In addition to our long-term debt, we have other cash commitments related to leases. We account for these lease transactions as operating leases, and annual rent expense for continuing operations related thereto approximated $11.0 million in 2021. 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 prior authorization. In the three and six months ended June 30, 2022, we purchased 645,984 and 927,987 shares of our outstanding common stock for an aggregate purchase price of approximately $18.8 million and $27.9 million, respectively. Since the initial authorization through June 30, 2022, we have purchased 4,778,802 shares of our outstanding common stock for an aggregate purchase price of approximately $135.3 million. We will continue to evaluate opportunities to return capital to shareholders through the purchase of our common stock and the payment of dividends, depending on market conditions, including the potential impact of the COVID-19 pandemic, and other factors.
Market
Risk
We conduct business in various locations throughout the world and are subject to market risk due to changes in the value of foreign currencies. The functional currencies of our foreign subsidiaries are primarily the local currency in the country of domicile. We manage these operating activities at the local level and revenues and costs are generally denominated in local currencies; however, results of operations and assets and liabilities reported in U.S. dollars will fluctuate with changes in exchange rates between such local currencies and the U.S. dollar.
We use derivative financial instruments to manage currency risks associated with our procurement activities denominated in currencies other than the functional currency of our subsidiaries
and the impact of currency rate volatility on our earnings. As of June 30, 2022, we were party to foreign exchange forward and swap contracts to hedge changes in foreign currency exchange rates with notional amounts of approximately $130.4 million. We also use cross-currency swap agreements to mitigate currency risks associated with the net investment in certain of our foreign subsidiaries. See Note 11, "Derivative Instruments," included in Part 1, Item 1, "Notes to Unaudited Consolidated Financial Statements," within this quarterly report on Form 10-Q for additional information.
We are also
subject to interest risk as it relates to our long-term debt. See Note 10, "Long-term Debt," included in Part 1, Item 1, "Notes to Unaudited Consolidated Financial Statements," within this quarterly report on Form 10-Q for additional information.
Common Stock
TriMas is listed in the NASDAQ Global Select Market. Our stock trades under the symbol "TRS."
Credit Rating
We and certain of our outstanding debt obligations are rated by Standard &
Poor's and Moody's. On March 29, 2022, Moody's affirmed a Ba3 rating to our 2029 Senior Notes. See Note 10, "Long-term Debt" included in Part I, Item 1, "Notes to Unaudited Consolidated Financial Statements" within this quarterly report on Form 10-Q. Moody's also affirmed a Ba2 Corporate Family Rating and maintained its outlook as stable. On May 12, 2022, Standard & Poor's affirmed a BB- rating to our 2029 Senior Notes. Standard & Poor also affirmed a BB corporate credit rating and maintained its outlook as stable. If our credit ratings were to decline, our ability to access certain financial markets may become limited, our cost of borrowings may increase, the perception of us in the view of our customers, suppliers and security holders may worsen and as
a result, we may be adversely affected.
Outlook
We believe our second quarter 2022 financial results continue to 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, whether they be related to the COVID-19 pandemic, volatile commodity costs or the supply chain and energy cost impacts from the Russia-Ukraine conflict. We have capitalized on opportunities where market demand was high, while also taking swift actions where market demand was sharply reduced. We have continued to take proactive realignment actions to mitigate external pressures as much as practical, while at the same time growing our businesses through organic new products
as well as via bolt-on acquisitions.
Looking forward, we believe there will be a continued period of uncertainty related to demand levels for our products, whether it be if production rates for new aircraft builds, which require our fasteners and engineered products, will continue to increase as we experienced in the second quarter of 2022, or whether general industrial activity will continue to its upward trajectory through the balance of the year. We expect to continue to mitigate, as much as practical, the impact of low volumes in the most challenged end markets, executing realignment actions as necessary so we are positioned to gain operating leverage
when these end markets recover. We believe we remain well positioned to capitalize on the recovery of the aerospace market, just as we have with the improvement in the industrial markets, as well as capture available market growth opportunities.
Following our recent acquisitions, we continue to believe our capital structure remains strong and that we have sufficient headroom under our financial covenants, and sufficient cash and available liquidity under our revolving credit facility, to meet our debt service, capital expenditure and other short-term and long-term obligations for at least the next 12 months and for the foreseeable future thereafter, as well as dividends and share repurchases.
We expect to continue to leverage the tenets of our TriMas Business Model to manage our multi-industry businesses 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 Part 1, Item 1, "Notes to Unaudited Consolidated Financial Statements," within this quarterly report on Form 10-Q.
Critical Accounting Policies
Certain of our accounting
policies require the application of significant judgment by management in selecting the appropriate assumptions used in calculating financial estimates. By their nature, these judgments are subject to an inherent degree of uncertainty. These judgments are based on our historical experience, our evaluation of business and macroeconomic trends, and information from other outside sources, as appropriate.
During the quarter ended June 30, 2022, there were no material changes to the items that we disclosed as our critical accounting policies in Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," in the Annual Report on Form 10-K for the year ended December 31, 2021.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
In the normal course of business, we are exposed to market risk associated with fluctuations in foreign currency exchange rates. We are also subject to interest risk as it relates to long-term debt. See Part I, Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations," for details about our primary market risks, and the objectives and strategies used to manage these risks. Also see Note 10, "Long-term Debt," and Note 11, "Derivative Instruments," in Part I, Item 1, "Notes to Unaudited Consolidated Financial Statements," included within this quarterly
report on Form 10-Q for additional information.
Item 4. Controls and Procedures
The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), is recorded, processed, summarized, and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to the
Company's management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.
Evaluation of disclosure controls and procedures
As of June 30, 2022, an evaluation was carried out by management, with the participation of the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company's disclosure controls and procedures (as such term is defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act) pursuant to Rule 13a-15 of the Exchange Act. The Company's disclosure controls and procedures are designed only to provide reasonable assurance that
they will meet their objectives. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that as of June 30, 2022, the Company's disclosure controls and procedures are effective to provide reasonable assurance that they would meet their objectives.
Changes in internal control over financial reporting
In response to the COVID-19 pandemic, we have required certain employees, some of whom are involved in the operation of our internal controls over financial reporting, to work from home. Despite this change, there have been no changes in the Company's internal control over financial reporting during the quarter ended June 30,
2022 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. We are continually monitoring and assessing the COVID-19 pandemic on our internal controls to minimize any impact it may have on their design and operating effectiveness.
See Note 14, "Commitments and Contingencies," included in Part I, Item 1, "Notes to Unaudited Consolidated Financial Statements," within this quarterly report on Form 10-Q.
Item 1A. Risk Factors
In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part 1, Item 1A., "Risk Factors," in our 2021 Annual Report on Form 10-K, which could materially affect our business, financial condition or future results. There have been no significant changes in our risk factors as disclosed in our 2021 Annual
Report on Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table provides information about purchases made by the Company, or on behalf of the Company by an affiliated purchaser, of shares of the Company's common stock during the three months ended June 30, 2022.
Period
Total
Number of Shares Purchased
Average Price Paid per Share
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)
Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program (1)
(1) In March 2020, the Company announced its Board of Directors had authorized the Company to increase the purchase of its common stock up to $250 million in the aggregate from its previous authorization of $150 million. The increased authorization includes the value of shares already purchased under the previous authorization. Pursuant to this share repurchase program, during the three months ended June 30, 2022, the Company repurchased 645,984 shares of its common stock at a cost of approximately $18.8 million. The share repurchase program is effective and has no expiration date.
The following materials from TriMas Corporation's Quarterly Report on Form 10-Q for the quarter ended June 30, 2022, formatted in Inline XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheet, (ii) the Consolidated Statement of Income, (iii) the Consolidated Statement of Comprehensive
Income, (iv) the Consolidated Statement of Cash Flows, (v) the Consolidated Statement of Shareholders' Equity, (vi) Notes to Consolidated Financial Statements, and (vii) document and entity information.
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Cover Page Interactive Data File (embedded within the Inline XBRL document)
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
