TriMas Corporation 2020 Form 10-K Summary
Business context and reporting period
TriMas Corporation is a diversified manufacturer serving consumer products, aerospace and defense, and industrial markets through its Packaging, Aerospace and Specialty Products segments. The filing covers the fiscal year ended December 31, 2020, with comparisons to 2019 and 2018. The company employed approximately 3,200 people in 11 countries, and approximately 75% of 2020 revenue was generated in North America.
TriMas completed three acquisitions in 2020: RSA Engineered Products in Aerospace, and Rapak and Affaba & Ferrari in Packaging. The former Lamons business, sold in December 2019, is reported as discontinued operations for prior periods.
Financial performance and key metrics
| Metric | 2020 | 2019 | Change |
|---|---|---|---|
| Net sales | $770.0 million | $723.5 million | Up 6.4% |
| Gross profit | $182.1 million | $193.9 million | Down $11.8 million |
| Gross margin | 23.6% | 26.8% | Down 320 basis points |
| Operating profit (loss) | $(88.3) million | $91.2 million | Down $179.5 million |
| Operating margin | (11.5%) | 12.6% | Down 24.1 percentage points |
| Loss from continuing operations | $(79.8) million | $61.9 million income | Down $141.7 million |
| Net loss per diluted share | $(1.83) | $2.16 net income | Unfavorable change |
| Operating cash flow from continuing operations | $127.4 million | $95.7 million | Up $31.7 million |
| Capital expenditures | $40.5 million | $29.7 million | Up $10.8 million |
2020 net sales benefited from strong Packaging demand and acquisitions, which more than offset lower Aerospace and Specialty Products sales. Consumer Products revenue increased to $402.1 million from $307.6 million, while Aerospace & Defense revenue declined to $167.7 million from $194.1 million and Industrial revenue declined to $200.2 million from $221.8 million.
- Packaging: Sales of $488.3 million, up 24.5%; operating profit of $94.0 million, up from $80.8 million. Operating margin declined to 19.2% from 20.6% because of mix, acquisition-related costs, realignment charges and lower Rapak demand.
- Aerospace: Sales of $167.7 million, down 13.6%; operating loss of $133.4 million versus $29.0 million of operating profit in 2019. Results included $134.6 million of non-cash goodwill and indefinite-lived intangible impairment charges.
- Specialty Products: Sales of $113.9 million, down 16.9%; operating profit of $4.4 million versus $16.0 million. Lower construction, HVAC and oil-and-gas demand affected results.
Liquidity, debt and capital allocation
- Cash and cash equivalents were $74.0 million at December 31, 2020, including $11.2 million of restricted cash.
- Net cash provided by operating activities was $127.4 million. Investing cash use was $232.1 million, including $193.5 million for acquisitions and $40.5 million of capital expenditures.
- Long-term debt, net of issuance costs, was $346.3 million, consisting primarily of $300.0 million of 4.875% senior notes due October 2025 and $50.5 million outstanding under the revolving credit facility.
- The company had $249.5 million of potentially available revolving credit capacity at year-end. The facility matures September 20, 2022 and bears interest at LIBOR plus 1.50%, subject to leverage-based pricing.
- Actual total net leverage was 1.83x versus a 4.00x covenant limit; senior secured net leverage was 0.08x versus 3.50x; and interest coverage was 13.26x versus a 3.00x minimum. The company reported compliance with its debt covenants.
- TriMas repurchased approximately $39.4 million of common stock in 2020 and had approximately $161.7 million remaining under its $250 million authorization. No dividends were paid.
Material changes versus the prior comparable period
- COVID-19 materially shifted demand toward Packaging products used in hygiene, personal care and cleaning applications, while sharply reducing aerospace and industrial demand.
- Gross and operating margins deteriorated due to lower aerospace volumes, production inefficiencies, reduced fixed-cost absorption, unfavorable mix and approximately $19.9 million of realignment expenses.
- The company recorded $126.8 million of Aerospace goodwill impairment and $7.8 million of Aerospace indefinite-lived intangible impairment. Remaining Aerospace goodwill was $62.9 million, and management identified sensitivity to discount-rate and terminal-growth assumptions.
- TriMas changed its accounting estimate for asbestos-related defense costs and recorded a $23.4 million non-cash pre-tax charge. Total asbestos-related liabilities were $28.7 million at year-end.
- 2020 acquisitions required approximately $193.5 million of cash, compared with $67.1 million for acquisitions in 2019. Affaba & Ferrari contributed only $0.7 million of 2020 sales but had approximately $141 million of assets at year-end.
- The company’s cash balance declined by approximately $98.5 million during 2020, primarily because acquisition spending and capital expenditures exceeded operating and financing cash generation.
Guidance, outlook, risks and unusual items
Management did not provide a specific quantitative revenue or earnings forecast. It expects continued uncertainty from COVID-19, with Aerospace likely to remain the most severely disrupted market and Packaging demand for hygiene-related dispensing and closure products subject to normalization risk. Management expects to pursue additional cost actions if necessary and believes the company can benefit from eventual aerospace and industrial recovery.
- Further cash and non-cash charges could arise from realignment actions, customer credit losses, excess inventory, idle equipment or additional asset impairments.
- Aerospace impairment conclusions depend on assumptions regarding air travel, aircraft production, customer demand, margins and recovery timing. A 1% change in the discount rate would have affected the 2020 goodwill impairment by approximately $20 million.
- The company retained asbestos liabilities from Lamons. There were 4,655 claimants pending at December 31, 2020, and primary insurance had been exhausted in November 2018. Management stated that it does not currently expect the matters to have a material adverse effect on financial position or cash flows.
- Key ongoing risks include COVID-19, cyclical aerospace and industrial markets, raw material and energy costs, supply-chain disruptions, tariffs, foreign currency movements, customer concentration, cybersecurity, litigation, environmental obligations and leverage.
- The company disclosed effective internal control over financial reporting, but excluded newly acquired Affaba & Ferrari from management’s assessment. Deloitte & Touche issued unqualified opinions on the financial statements and internal controls.
Important facts for investors to verify
- Whether Packaging’s elevated hygiene-related demand persists and whether Rapak returns to profitability.
- The pace of recovery in commercial aerospace, aircraft production and related customer orders, including the risk of additional impairment.
- Cash generation after acquisitions, capital expenditures, share repurchases and required debt service.
- Refinancing or repayment plans for the $300 million senior notes due in 2025 and the revolving facility maturity in 2022.
- The development, settlement costs and insurance coverage associated with the retained asbestos claims.
- The accounting and operating impact of the Affaba & Ferrari acquisition, including the company’s future inclusion of that business in internal-control assessments.
- Exposure to raw-material inflation, tariffs, foreign exchange, supply constraints and customer demand volatility.