TRIMAS CORP (TRS) FY 2024 MD&A
This page reproduces the company's own Item 7 MD&A text from the linked SEC filing. It is filer text, not grepcent analysis, scoring, or investment advice.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
The statements in the discussion and analysis regarding industry outlook, our expectations regarding the performance of our business and the other non-historical statements in the discussion and analysis are forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described in Item 1A "Risk Factors." Our actual results may differ materially from those contained in or implied by any forward-looking statements. You should read the following discussion together with Item 8, "Financial Statements and Supplementary Data."
Introduction
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 markets we serve; innovative product technologies and features; a high-degree of customer approved processes and qualifications; established distribution networks; modest 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
Demand for the products our businesses produce and results of operations depend upon general economic conditions. We serve customers in industries that are highly competitive and that may be significantly impacted by changes in economic or geopolitical conditions.
Our results of operations have been materially impacted over the past few years by macro-economic factors, first by the onset and proliferation of the coronavirus pandemic ("pandemic"), then further from increased energy costs and supply chain disruptions from the Russia-Ukraine conflict, and more recently by cost inflation (raw materials, wage rates and freight) a lack of material and in certain regions skilled labor availability, as well as recent periods of destocking from prior periods of over-ordering by customers. These factors 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 help fight the spread of germs have experienced extreme volatility in demand, with demand spiking to record highs after the onset of the pandemic, demand abating as expected from those high levels beginning mid-2022 and continuing through most of 2023, as a result of some of our larger customers' choices to rebalance on-hand inventory levels and caution in purchasing behaviors given the current inflationary macro-economic environment. Sales of certain of our aerospace-related products were significantly depressed from historical levels following the onset of the pandemic, but demand has significantly increased in recent quarters as air travel has picked-up and new aircraft build rates improve. Certain of our products for industrial applications, for example steel cylinders for packaged gas applications, have experienced volatility in demand related to customers securing high order rates in prior periods, only to enter a period of destocking in more recent periods. Altogether, this significant level of volatility in demand levels, input and transportation costs, and material and labor availability, have pressured our ability to operate efficiently in recent periods. While some areas of demand volatility and softness remain, such as in our Specialty Products segment, and more specifically our Norris Cylinder business, we have experienced more steady and consistent demand in our Packaging and Aerospace segments.
Overall, 2024 net sales increased $31.5 million, or 3.5%, compared to 2023. We experienced growth from acquisitions, as well as organic growth of 16.6% and 10.3% within our Aerospace and Packaging segments, respectively, compared to 2023. These increases were partially offset by lower sales of 37.2% in our Specialty Products segment as compared to the prior year as we work through a cyclical demand trough and destocking.
The most significant drivers affecting our financial results in 2024 compared with 2023, other than as directly impacted by sales changes, were the impact of our recent acquisitions, accelerated depreciation charges related to shortening the useful lives of certain machinery and equipment in our Specialty Products segment, increased costs and decreased sales resulting from a prolonged labor union strike at one of our manufacturing facilities within our Aerospace segment, a charge to update our asbestos liability based on our recent actuarial valuation, improved material availability within our Aerospace segment, charges associated with environmental remediation liabilities, increased input costs, including expedited freight within our Packaging segment, lower realignment charges, and a decrease in our effective tax rate.
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In April 2023, we acquired Weldmac Manufacturing Company ("Weldmac"), a designer and manufacturer of complex metal fabricated components and assemblies for the aerospace, defense and space launch end markets for a purchase price of $34.0 million, with additional contingent consideration of $5.5 million paid in July 2023 and $2.25 million paid in October 2024 based on achievement of earnings targets. Weldmac, which is reported in our Aerospace segment, is located in El Cajon, California. Weldmac contributed $12.9 million of acquisition-related net sales growth during 2024.
In February 2023, we acquired Aarts Packaging B.V. ("Aarts"), a luxury packaging solutions provider for beauty and lifestyle brands, as well as for customers in the food and life sciences end markets, for a purchase price of $37.8 million, net of cash acquired. Aarts, which is reported in our Packaging segment, is located in Waalwijk, the Netherlands, and contributed $2.8 million of acquisition-related sales growth during 2024 resulting from its January 2024 sales.
In 2024, following a strategic demand and profitability study of our cylinders products within our Specialty Products segment, we ceased use of our second hot forge which primarily produced lower profitability products, resulting in pre-tax non-cash charges related to accelerated depreciation expense of $8.2 million due to the shortening of the assets expected useful lives.
In August 2024, our labor agreement with the United Automobile, Aerospace and Agricultural Implement Workers of America (UAW) at our TriMas Aerospace facility in Commerce, California, expired. On August 4, 2024, the UAW initiated a strike, causing a work stoppage that resulted in lost production volumes, reduced sales, manufacturing inefficiencies and $3.4 million of strike-related costs in 2024, with the Company and the UAW reaching a new labor agreement in mid-October 2024.
In 2024, we commissioned our actuary to update our asbestos study, and upon completion we recorded a pre-tax charge of $5.5 million, which is included in selling, general and administrative expenses.
In 2024, we recorded a pre-tax charges of $3.6 million for environmental remediation for waste sites in which we had been named a potential responsible party.
During 2024, we experienced abrupt increases in orders for certain products within our Packaging segment, requiring us to incur incremental input costs, including expedited freight, in order to timely fulfill certain customer's orders.
Over the past few years, we have been executing certain realignment actions in response to current and expected future end market demand and rising input costs. During 2024, we incurred pre-tax realignment charges of $0.9 million within our Packaging segment, related to the closure of our facility in Irwindale, California. In 2023, we recorded pre-tax realignment charges of $10.3 million, primarily related to our actions to close and consolidate two production facilities in China into one new, larger facility in Haining, China, and to close and consolidate our Rohnert Park, California, manufacturing facility operations into other existing U.S. production locations. These charges consisted of $2.1 million employee-related costs, $0.8 million for the write down of inventory to fair value, $5.2 million related to other facility move and consolidation costs, and $2.2 million were related to charges to accelerate the depreciation of certain fixed assets.
Our effective tax rate for 2024 and 2023 was 19.3%, and 20.2%, respectively. The decrease in effective tax rate 2024 as compared to 2023 is primarily as a result of a change in the mix of domestic and foreign pre-tax results.
Additional Key Risks that May Affect Our Reported Results
We have executed meaningful realignment actions over the past few years to address variable and structural costs where demand has fallen. We will continue to assess and take further actions if required. However, as a result of the current period of macroeconomic inflation and uncertainty and the potential impact of such factors to our future results of operations, as well as if there is an impact to TriMas' overall performance and market capitalization, we may record additional cash and non-cash charges related to further realignment actions, asset impairments, including impairments to our goodwill, intangible assets, fixed assets, inventory or customer receivable account balances.
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.
Critical factors affecting our ability to succeed include: our ability to generate 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 adjacent distribution channels and new customers, or expand our geographic coverage; 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, including tariffs and duties.
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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. 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 polypropylene, polyethylene, steel, aluminum, superalloys (such as titanium, A286 stainless steel and Inconel) and other oil and metal-based purchased components, the costs for each of which are subject to volatility. There has also 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, the conflict in Eastern Europe, creating certain input material shortages, and labor shortages at certain of our raw material suppliers. We will continue to take actions to mitigate such increases, including implementing commercial pricing adjustments, holding extra inventories, resourcing to alternate suppliers and insourcing of previously sourced products. 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 to address fluctuations in input costs, or can modify prices based on market conditions to recover higher costs, our price increases generally lag the underlying input cost increase, and we cannot be assured of full cost recovery in the open market. If input costs increase at rapid rates, our ability to recover cost increases on a timely basis is made more difficult by the lag nature of these contracts.
Oil-based commodity costs are a significant driver of raw materials and purchased components used within our Packaging segment. As such, an increase in crude oil often is a precursor to rising polymeric raw material costs, for which we may experience a contractual commercial recover lag. Separately, 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.
Each year, as a core tenet of the TriMas Business Model, our businesses target cost savings from Kaizen (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 2024, we purchased 771,067 shares of our outstanding common stock for an aggregate purchase price of $19.3 million. As of December 31, 2024, we had $67.6 million remaining under the repurchase authorization.
In addition, in 2024, we declared quarterly dividends of $0.04 per share of common stock, aggregating to dividends declared and paid on common shares during 2024 of $6.6 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.
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Segment Information and Supplemental Analysis
The following table summarizes financial information for our three reportable segments (dollars in thousands):
| Year ended December 31, | |||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2024 | As a Percentage of Net Sales | 2023 | As a Percentage of Net Sales | 2022 | As a Percentage of Net Sales | ||||||||||||||||
| Net Sales | |||||||||||||||||||||
| Packaging | $ | 512,320 | 55.4 | % | $ | 463,600 | 51.9 | % | $ | 522,180 | 59.1 | % | |||||||||
| Aerospace | 294,210 | 31.8 | % | 241,400 | 27.0 | % | 188,090 | 21.3 | % | ||||||||||||
| Specialty Products | 118,480 | 12.8 | % | 188,550 | 21.1 | % | 173,560 | 19.6 | % | ||||||||||||
| Total | $ | 925,010 | 100.0 | % | $ | 893,550 | 100.0 | % | $ | 883,830 | 100.0 | % | |||||||||
| Gross Profit | |||||||||||||||||||||
| Packaging | $ | 123,650 | 24.1 | % | $ | 109,050 | 23.5 | % | $ | 137,030 | 26.2 | % | |||||||||
| Aerospace | 69,920 | 23.8 | % | 48,010 | 19.9 | % | 32,240 | 17.1 | % | ||||||||||||
| Specialty Products | 5,890 | 5.0 | % | 44,260 | 23.5 | % | 39,030 | 22.5 | % | ||||||||||||
| Total | $ | 199,460 | 21.6 | % | $ | 201,320 | 22.5 | % | $ | 208,300 | 23.6 | % | |||||||||
| Selling, General and Administrative | |||||||||||||||||||||
| Packaging | $ | 56,420 | 11.0 | % | $ | 48,760 | 10.5 | % | $ | 55,670 | 10.7 | % | |||||||||
| Aerospace | 36,150 | 12.3 | % | 31,370 | 13.0 | % | 28,990 | 15.4 | % | ||||||||||||
| Specialty Products | 7,790 | 6.6 | % | 7,830 | 4.2 | % | 8,680 | 5.0 | % | ||||||||||||
| Corporate expenses | 52,680 | N/A | 46,620 | N/A | 37,850 | N/A | |||||||||||||||
| Total | $ | 153,040 | 16.5 | % | $ | 134,580 | 15.1 | % | $ | 131,190 | 14.8 | % | |||||||||
| Operating Profit (Loss) | |||||||||||||||||||||
| Packaging | $ | 68,110 | 13.3 | % | $ | 60,140 | 13.0 | % | $ | 81,000 | 15.5 | % | |||||||||
| Aerospace | 33,750 | 11.5 | % | 15,520 | 6.4 | % | 8,060 | 4.3 | % | ||||||||||||
| Specialty Products | (1,990) | (1.7) | % | 36,400 | 19.3 | % | 30,250 | 17.4 | % | ||||||||||||
| Corporate | (52,680) | N/A | (46,620) | N/A | (20,250) | N/A | |||||||||||||||
| Total | $ | 47,190 | 5.1 | % | $ | 65,440 | 7.3 | % | $ | 99,060 | 11.2 | % | |||||||||
| Capital Expenditures | |||||||||||||||||||||
| Packaging | $ | 30,860 | 6.0 | % | $ | 29,060 | 6.3 | % | $ | 33,170 | 6.4 | % | |||||||||
| Aerospace | 9,960 | 3.4 | % | 14,620 | 6.1 | % | 6,900 | 3.7 | % | ||||||||||||
| Specialty Products | 7,100 | 6.0 | % | 10,410 | 5.5 | % | 5,860 | 3.4 | % | ||||||||||||
| Corporate | 3,040 | N/A | 100 | N/A | 30 | N/A | |||||||||||||||
| Total | $ | 50,960 | 5.5 | % | $ | 54,190 | 6.1 | % | $ | 45,960 | 5.2 | % | |||||||||
| Depreciation | |||||||||||||||||||||
| Packaging | $ | 27,730 | 5.4 | % | $ | 27,740 | 6.0 | % | $ | 22,720 | 4.4 | % | |||||||||
| Aerospace | 7,900 | 2.7 | % | 7,820 | 3.2 | % | 7,590 | 4.0 | % | ||||||||||||
| Specialty Products | 12,270 | 10.4 | % | 3,720 | 2.0 | % | 3,680 | 2.1 | % | ||||||||||||
| Corporate | 220 | N/A | 130 | N/A | 130 | N/A | |||||||||||||||
| Total | $ | 48,120 | 5.2 | % | $ | 39,410 | 4.4 | % | $ | 34,120 | 3.9 | % | |||||||||
| Amortization | |||||||||||||||||||||
| Packaging | $ | 6,520 | 1.3 | % | $ | 6,430 | 1.4 | % | $ | 6,620 | 1.3 | % | |||||||||
| Aerospace | 10,280 | 3.5 | % | 11,340 | 4.7 | % | 12,030 | 6.4 | % | ||||||||||||
| Specialty Products | — | — | % | 410 | 0.2 | % | 450 | 0.3 | % | ||||||||||||
| Corporate | — | N/A | — | N/A | — | N/A | |||||||||||||||
| Total | $ | 16,800 | 1.8 | % | $ | 18,180 | 2.0 | % | $ | 19,100 | 2.2 | % |
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The following table summarizes detail on the year-over-year sales growth percentages for our reportable segments for the year ended December 31, 2024 as compared to the year ended December 31, 2023:
| Year to Date 2024 vs. Year to Date 2023 | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Organic | Acquisitions | Foreign Exchange | Total | |||||||||
| Consolidated TriMas Corporation | 2.0 | % | 1.8 | % | (0.3) | % | 3.5 | % | ||||
| Packaging | 10.3 | % | 0.6 | % | (0.4) | % | 10.5 | % | ||||
| Aerospace | 16.6 | % | 5.3 | % | — | % | 21.9 | % | ||||
| Specialty Products | (37.2) | % | — | % | — | % | (37.2) | % |
The following "Results of Operations Year Ended December 31, 2024 Compared with Year Ended December 31, 2023" section presents an analysis of our consolidated operating results displayed in the Consolidated Statement of Income. A discussion regarding our financial condition and results of operations for the year ended December 31, 2023 compared to the year ended December 31, 2022 can be found under Item 7 in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, filed with the Securities and Exchange Commission on February 29, 2024.
Results of Operations
Year Ended December 31, 2024 Compared with Year Ended December 31, 2023
The principal factors impacting us during the year ended December 31, 2024, compared with the year ended December 31, 2023 were:
•Increases in demand for products within our Packaging and Aerospace segments;
•Significant demand decrease in our Specialty Products segment;
•The impact of recent acquisitions, primarily Aarts in February 2023 and Weldmac in April 2023;
•Expedited freight costs within our Packaging segment related to the abrupt increase in demand for certain products;
•Accelerated depreciation charges related to shortening the useful lives of certain machinery and equipment in our Specialty Products segment;
•Increased costs, decreased sales levels and manufacturing inefficiencies resulting from a prolonged labor union strike at one of our manufacturing facilities in our Aerospace segment that ended in mid-October 2024;
•Expenses associated with our asbestos exposure to update the liability to recent actuarial studies;
•Improved material availability and resulting production efficiencies in our Aerospace segment;
•Environmental remediation expenses related to waste sites in which we had been named a potential responsible party;
•The impact of realignment expenses taken in 2023 in response to changes in end market demand; and
•A decrease in our effective tax rate in 2024 compared with 2023.
Overall, net sales increased $31.5 million, or 3.5%, to $925.0 million in 2024, as compared to $893.6 million in 2023. Acquisition-related sales growth was $15.7 million, comprised of $2.8 million from our February 2023 acquisition of Aarts and $12.9 million from our April 2023 acquisition of Weldmac. Organic sales, excluding the impact of currency exchange and acquisitions, increased $17.9 million, or 2.0%, driven by organic sales increases of 10.3% and 16.6% within our Packaging and Aerospace segments, respectively, due to end market demand improvements and growth initiatives. These increases were partially offset by a 37.2% sales decrease in our Specialty Products segment due to lower market demand. The increase in net sales was also offset by $2.0 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.
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Gross profit margin (gross profit as a percentage of sales) approximated 21.6% and 22.5% in 2024 and 2023, respectively. Gross profit margin decreased due to reduced sales, significantly less favorable absorption of fixed costs, and $8.2 million of accelerated depreciation charges for certain machinery and equipment within our Specialty Products segment as well as increased input costs, the impact of a $2.6 million commercial settlement in 2023 that did not repeat in 2024, and higher production costs, which started to abate in fourth quarter 2024, related to demand reversion above peak capacity for certain product lines in our Packaging segment. Also contributing to the decrease in gross profit were increased costs and manufacturing inefficiencies resulting from labor union strikes within our Aerospace segment. The decrease in gross profit was partially offset by higher sales levels and related improved fixed cost absorption and the impact of a charge related to purchase accounting in 2023 that did not repeat within our Packaging and Aerospace segments. Additionally, gross margin was favorably impacted by reduced material availability constraints, a more favorable product sales mix, and commercial recoveries within our Aerospace segment, and the lower year-over-year impact of realignment costs within our Packaging segment.
Operating profit margin (operating profit as a percentage of sales) approximated 5.1% and 7.3% in 2024 and 2023, respectively. Operating profit decreased $18.3 million, to $47.2 million in 2024, as compared to $65.4 million in 2023, primarily due to decreased sales, significantly less favorable absorption of fixed costs and accelerated depreciation charges for certain machinery and equipment within our Specialty Products segment, a $5.5 million pre-tax charge related to updating our asbestos studies, and $3.6 million of pre-tax charges related to our environmental remediation obligations. Additionally, operating profit decreased due to increased input costs and higher production costs, which started to abate in fourth quarter 2024, related to high demand for certain dispensing products within our Packaging segment, as well as increased costs and manufacturing inefficiencies resulting from the labor union strike within our Aerospace segment. These decreases were partially offset by higher sales levels and related improved fixed cost absorption and the impact of a charge related to purchase accounting in 2023 that did not repeat within our Packaging and Aerospace segments. Operating profit was favorably impacted by lower realignment costs and the impact of $1.0 million higher net gains on sales of non-core properties within the Packaging segment, as well as reduced material availability constraints, a more favorable product sales mix, and commercial recoveries within the Aerospace segment.
Interest expense increased $3.6 million, to $19.6 million in 2024, as compared to $15.9 million in 2023, due to a higher effective interest rate and an increase in our weighted average borrowings as a result of increased borrowings from our revolving credit facility.
Other income increased $1.3 million to $2.4 million in 2024, from $1.1 million in 2023, primary due to the $2.2 million reversal of the Weldmac contingent consideration liability in 2024 and by a non-cash settlement charge for our Canadian defined benefit obligations during 2023, partially offset by increased foreign translation losses.
The effective income tax rate for 2024 was 19.3%, compared to 20.2% for 2023. We recorded income tax expense of $5.8 million in 2024, as compared to $10.2 million in 2023. During 2024, we reported domestic and foreign pre-tax income of $3.3 million and $26.7 million, respectively, as compared to domestic and foreign pre-tax income of $20.7 million and $29.9 million, respectively, in 2023. The rate for 2024 is lower primarily as a result of a change in the mix of domestic and foreign pre-tax results.
Net income decreased $16.1 million to $24.3 million in 2024, compared to $40.4 million in 2023. This decrease was primarily a result of a decrease in operating profit of $18.3 million and a $3.6 million increase in interest expense, partially offset by a decrease in income tax expense of $4.4 million and a $1.3 million increase in other income.
See below for a discussion of operating results by segment.
Packaging. Net sales increased $48.7 million, or 10.5% (of which 10.3% was organic, 0.6% related to acquisitions, and (0.4)% was foreign currency exchange), to $512.3 million in 2024, as compared to $463.6 million in 2023. Acquisition-related sales growth was $2.8 million from the January 2024 sales of our February 2023 acquisition of Aarts. Sales of dispensing products used primarily for beauty, personal care and home care applications increased organically by $38.2 million. Sales of products used for industrial applications increased by $13.0 million. These increases were partially offset by the decrease in sales of products used in food and beverage applications of $3.1 million, primarily due to reduced demand for certain flexible packaging applications in North America and beverage closure applications in Europe as certain customers prepare for cutting over to a new product design. The increase in net sales was also offset by $2.0 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 2023.
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Packaging's gross profit increased $14.6 million to $123.7 million, or 24.1% of sales, in 2024, as compared to $109.1 million, or 23.5% of sales, in 2023, primarily due to higher sales levels and resulting improved fixed cost absorption, the favorable impact of prior year cost reduction efforts, the impact of $8.9 million lower realignment costs and a $0.8 million purchase accounting charge related to the step-up of inventory to fair value in 2023 that did not repeat in 2024. The increase in gross profit was partially offset by a $2.6 million commercial settlement in 2023 that did not repeat, and increased input costs, including expedited freight and labor required to timely fulfill an abrupt increase in customer orders in the first half of 2024, as well as higher production costs through third quarter 2024 associated with capacity restraints and high demand for certain product lines.
Packaging's selling, general and administrative expenses increased $7.7 million to $56.4 million, or 11.0% of sales, in 2024, as compared to $48.8 million, or 10.5% of sales, in 2023, primarily due to $4.7 million higher information technology costs allocated from Corporate, higher employee-related costs and higher professional fees.
Packaging's operating profit increased $8.0 million to $68.1 million, or 13.3% of sales, in 2024, as compared to $60.1 million, or 13.0% of sales, in 2023, primarily due to higher sales levels, improved fixed cost absorption, and the favorable impact of prior realignment actions, and the impact of $1.0 million higher net gains on sales of non-core properties. These increases were partially offset by higher selling, general and administrative expenses, the impact of a commercial settlement in 2023 that did not repeat, and increased input costs, including expedited freight to timely fulfill an abrupt increase in customer orders.
Aerospace. Net sales increased $52.8 million, or 21.9% (of which 16.6% was organic and 5.3% related to acquisitions), to $294.2 million in 2024, as compared to $241.4 million in 2023. Acquisition-related sales growth from our April 2023 acquisition of Weldmac was $12.9 million. Sales of our fasteners products increased by $22.3 million due to increases in aircraft build rates, improved production yield and commercial recoveries, partially offset by a decrease in sales due to the labor union strike at our Aerospace facility in Commerce, California. Sales of our engineered components products increased by $17.6 million due to improved throughput, commercial recoveries and new business wins.
Gross profit within Aerospace increased $21.9 million to $69.9 million, or 23.8% of sales, in 2024, from $48.0 million, or 19.9% of sales, in 2023. Gross profit increased primarily due to higher sales levels and resulting improved fixed cost absorption, reduced material availability constraints, a more favorable product sales mix, favorable commercial recoveries, and a $2.4 million purchase accounting charge related to the step-up of inventory to fair value in 2023 that did not repeat. These increases were partially offset by increased costs and manufacturing inefficiencies resulting from the labor union strike.
Selling, general and administrative expenses increased $4.8 million to $36.2 million, or 12.3% of sales, in 2024, as compared to $31.4 million, or 13.0% of sales, in 2023, primarily due to higher employee-related costs, higher information technology costs,$1.8 million of increased costs related to the labor union strike, and higher ongoing selling, general and administrative costs associated with our acquisition of Weldmac. These increases were partially offset by lower legal costs and lower intangible asset amortization expense due to certain assets becoming fully amortized.
Operating profit within Aerospace increased $18.2 million to $33.8 million, or 11.5% of sales, in 2024, as compared to $15.5 million, or 6.4% of sales, in 2023, primarily due to the impact of higher sales levels, improved fixed cost absorption, reduced material availability production constraints, a more favorable product sales mix, commercial recoveries, a purchase accounting adjustment related to Weldmac's inventory step-up to fair value in 2023 that did not repeat, and a $1.1 million indefinite-lived intangible asset impairment charge in 2023 that did not repeat. These increases were partially offset by higher selling, general and administrative expenses and increased costs and manufacturing inefficiencies related to the strike.
Specialty Products. Net sales decreased $70.1 million, or 37.2%, to $118.5 million in 2024, as compared to $188.6 million in 2023. Sales of forged steel cylinders decreased $45.2 million, or 31.3%, due to lower demand resulting primarily from certain large distributor customers closely managing overstocked positions given high order rates in previous years which were in reaction to disruptions in the global supply chain. Sales of natural gas fired engines, compressors and related parts used in remote power generation and assistance applications for natural gas and crude oil extraction decreased by $24.9 million, or 56.4%, primarily as a result of lower compression package sales from a customer that has reduced their ordering rate significantly as compared to the prior year.
Gross profit within Specialty Products decreased $38.4 million to $5.9 million, or 5.0% of sales, in 2024, as compared to $44.3 million, or 23.5% of sales, in 2023. Gross profit decreased due to lower sales levels, which resulted in significantly lower fixed cost absorption, and from $8.2 million of accelerated depreciation charges for certain machinery and equipment.
Selling, general and administrative expenses within Specialty Products was $7.8 million, or 6.6% of sales, in 2024, as compared to $7.8 million, or 4.2% of net sales, in 2023, as $1.8 million of higher information technology costs allocated from Corporate was offset by cost reduction actions in 2024, in response to lower market demand levels.
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Operating profit (loss) within Specialty Products decreased $38.4 million to an operating loss of $2.0 million, or 1.7% of sales, in 2024, as compared to an operating profit of $36.4 million, or 19.3% of sales, in 2023, primarily due to lower sales levels, which resulted in significantly less favorable absorption of fixed costs, and accelerated depreciation charges for certain machinery and equipment.
Corporate Expenses. Corporate expenses included in operating profit consist of the following (dollars in millions):
| Year ended December 31, | |||||||
|---|---|---|---|---|---|---|---|
| 2024 | 2023 | ||||||
| Corporate operating expenses | $ | 36.0 | $ | 36.7 | |||
| Non-cash stock compensation | 7.0 | 9.7 | |||||
| Legacy expenses | 9.7 | 0.2 | |||||
| Corporate expenses | $ | 52.7 | $ | 46.6 |
Corporate expenses increased $6.1 million to $52.7 million in 2024, from $46.6 million in 2023, primarily due to a $5.5 million pre-tax charge related to updating our asbestos studies in 2024, $3.6 million of pre-tax charges related to our environment remediation obligations and $1.3 million of higher professional costs associated with business acquisition, diligence and transaction related activity. These increases were partially offset by a $2.7 million decrease in non-cash stock compensation due to expected attainment of existing awards and a $1.3 million decrease in technology costs, as $5.3 million of higher costs associated with upgrades of certain of our information technology applications were more than offset by $6.6 million of technology costs allocated to our segments that was not allocated in 2023.
Liquidity and Capital Resources
Cash Flows
Cash flows provided by operating activities in 2024 were $63.8 million, as compared to $88.2 million in 2023. Significant changes in cash flows provided by operating activities and the reasons for such changes are as follows:
•In 2024, the Company generated $107.3 million in cash flows, based on the reported net income of $24.3 million and after considering the effects of non-cash items related to impairment of indefinite-lived intangible assets, depreciation, amortization of intangible assets and debt issuance costs, (gain) loss on dispositions of assets, changes in deferred income taxes, stock-based compensation, provision for losses on accounts receivable, change in asbestos and environmental liability estimates and other operating activities. In 2023, the Company generated $110.5 million in cash flows based on the reported net income of $40.4 million and after considering the effects of similar non-cash items.
•Increases in accounts receivable resulted in a use of cash of $20.5 million and $5.5 million in 2024 and 2023, respectively. The increased use of cash for 2024 and 2023 is due primarily to the timing of sales and related collection of cash during the periods. Days sales outstanding of receivables increased by two days in 2024 and six days in 2023.
•We increased our investment in inventory by $21.2 million and $7.1 million in 2024 and 2023, respectively. Our days sales in inventory decreased by four days in 2024, primarily as a result of moderating inventory levels with higher sales levels within our Packaging and Aerospace segments. Our days sales in inventory increased by eleven days in 2023, primarily as a result of investing in certain inventories in our Aerospace segment as a result of increased customer demand.
•Increases in prepaid expenses and other assets resulted in a use of cash of $2.3 million in 2024, while decreases in prepaid expenses and other assets resulted in a source of cash of $4.8 million in 2023. The changes in 2024 and 2023 are primarily as a result of the timing of payments made for income taxes and certain operating expenses.
•Increases in accounts payable and accrued liabilities resulted in a source of cash of $0.6 million in 2024, as compared to a use of cash of $14.5 million in 2023. Our days accounts payable on hand decreased by six day through 2024 and increased by one day through 2023. 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.
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Net cash used for investing activities was $47.0 million and $134.4 million in 2024 and 2023, respectively. During 2024, we invested $51.0 million in capital expenditures as we continued our investment in growth, capacity and productivity-related capital projects. We also received proceeds of $4.0 million from the disposition of property and equipment. During 2023, we paid $77.3 million, net of cash acquired, to acquire Aarts and Weldmac, invested $54.2 million in capital expenditures, made a payment of $3.4 million related to the expiration of one of our cross-currency swap agreements, and received proceeds of $0.5 million from the disposition of property and equipment.
Net cash used for financing activities was $28.6 million and $30.9 million in 2024 and 2023, respectively. During 2024, we received net proceeds of $1.4 million from borrowings on our revolving credit facilities, purchased $19.3 million of outstanding common stock, used a net cash amount of $1.8 million related to our stock compensation arrangements, paid dividends of $6.6 million, and paid $2.3 million related to other financing activities, which includes $2.25 million of cash paid as final contingent consideration for the Weldmac acquisition. Our reported net proceeds from borrowings on our revolving credit facilities considers the impact of foreign currency translation. During 2023, we received net proceeds of $0.6 million from borrowings on our revolving credit facilities, purchased $18.8 million of outstanding common stock, used a net cash amount of $2.7 million related to our stock compensation arrangements, paid dividends of $6.7 million, and paid $3.3 million related to liabilities assumed in our acquisition of Aarts.
Our Debt and Other Commitments
The $400.0 million aggregate principal amount of our senior notes due 2029 ("Senior Notes") accrues 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 named subsidiaries of the Company. The Senior Notes are pari passu in right of payment with all existing and future senior indebtedness and subordinated to all existing and future secured indebtedness to the extent of the value of the assets securing such indebtedness. In 2024, our consolidated subsidiaries that do not guarantee the Senior Notes represented 30% 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 37% and 15% of the total guarantor and non-guarantor assets and liabilities, respectively, as of December 31, 2024, treating the guarantor and non-guarantor subsidiaries each as a consolidated group.
We may redeem all or part of the Senior Notes at the redemption prices (expressed as percentages of principal amount) set forth below, plus accrued and unpaid interest, if any, to the redemption date, if redeemed during the twelve-month period beginning on April 15 of the years indicated below:
| Year | Percentage | ||
|---|---|---|---|
| 2024 | 102.063 | % | |
| 2025 | 101.031 | % | |
| 2026 and thereafter | 100.000 | % |
We are party to a credit agreement ("Credit Agreement"), consisting of a $300.0 million senior secured revolving credit facility, which permits borrowings denominated in specific foreign currencies, subject to a $125.0 million sub limit, maturing on March 29, 2026.
In April 2023, we amended the Credit Agreement to replace LIBOR. As of December 31, 2024, monthly borrowings under the Credit Agreement are subject to benchmark interest rates that are based on the currency denomination of borrowings, with British pound sterling borrowings subject to the Sterling Overnight Index Average and Euro borrowings subject to the Euro InterBank Offered Rate, both plus a spread of 1.75%, and U.S. dollar borrowings subject to the Secured Overnight Financing Rate plus a spread of 1.85%. 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 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.
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Amounts drawn under our revolving credit facility fluctuate daily based upon our working capital and other ordinary course needs. Availability under our revolving credit facility depends upon, among other things, compliance with our Credit Agreement's financial covenants. Our Credit Agreement contains various negative and affirmative covenants and other requirements affecting us and our subsidiaries, including the ability to, subject to certain exceptions and limitations, incur debt, liens, mergers, investments, loans, advances, guarantee obligations, acquisitions, assets dispositions, sale-leaseback transactions, hedging agreements, dividends and other restricted payments, transactions with affiliates, restrictive agreements and amendments to charters, bylaws, and other material documents. The terms of our Credit Agreement require us and our subsidiaries to meet certain restrictive financial covenants and ratios computed quarterly, including a maximum total net leverage ratio (total consolidated indebtedness plus outstanding amounts under any accounts receivable securitization facility, less the aggregate amount of certain unrestricted cash and unrestricted permitted investments, as defined, over consolidated EBITDA, as defined) and a minimum interest expense coverage ratio (consolidated EBITDA, as defined, over the sum of consolidated cash interest expense, as defined, and preferred dividends, as defined). Our permitted total net leverage ratio under the Credit Agreement is 4.00 to 1.00 as of December 31, 2024. If we were to complete an acquisition which qualifies for a Covenant Holiday Period, as defined in our Credit Agreement, then our permitted total net leverage ratio cannot exceed 4.50 to 1.00 during that period. Our actual total net leverage ratio was 2.57 to 1.00 at December 31, 2024. Our permitted interest expense coverage ratio under the Credit Agreement is 3.00 to 1.00, and our actual interest expense coverage ratio was 8.24 to 1.00 as of December 31, 2024. At December 31, 2024, 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 year ended December 31, 2024. We present Consolidated Bank EBITDA to show our performance under our financial covenants. Dollars are in thousands in the below tables.
| Year ended December 31, 2024 | |||
|---|---|---|---|
| Net income | $ | 24,250 | |
| Bank stipulated adjustments: | |||
| Interest expense, net (as defined) | 19,560 | ||
| Income tax expense | 5,790 | ||
| Depreciation and amortization | 64,920 | ||
| Impairment charges(1) | 230 | ||
| Non-cash compensation expense(2) | 6,960 | ||
| Other non-cash expenses or losses | 190 | ||
| Non-recurring expenses or costs(3) | 20,910 | ||
| Extraordinary, non-recurring or unusual gains or losses | 8,530 | ||
| Business and asset dispositions | (1,000) | ||
| Currency gains and losses | 1,340 | ||
| Consolidated Bank EBITDA, as defined | $ | 151,680 |
| December 31, 2024 | ||||
|---|---|---|---|---|
| Total Indebtedness, as defined(4) | $ | 390,050 | ||
| Consolidated Bank EBITDA, as defined | 151,680 | |||
| Actual total net leverage ratio | 2.57 | x | ||
| Covenant requirement | 4.00 | x |
| Year ended December 31, 2024 | |||
|---|---|---|---|
| Interest expense, as defined | $ | 19,560 | |
| Bank stipulated adjustments: | |||
| Interest income | (200) | ||
| Non-cash amounts attributable to amortization of financing costs | (960) | ||
| Total Consolidated Cash Interest Expense, as defined | $ | 18,400 |
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| December 31, 2024 | ||||
|---|---|---|---|---|
| Consolidated Bank EBITDA, as defined | $ | 151,680 | ||
| Total Consolidated Cash Interest Expense, as defined | 18,400 | |||
| Actual interest expense coverage ratio | 8.24 | x | ||
| Covenant requirement | 3.00 | x |
________________________________________
(1) Non-cash charges related to indefinite-lived intangible asset impairment.
(2) Non-cash compensation expenses resulting from the grant of equity awards.
(3) Non-recurring costs and expenses relating to diligence and transaction costs, strike related costs, severance, relocation and realignment.
(4) Includes $1.6 million of finance leases as of December 31, 2024.
The Credit Agreement allows issuance of letters of credit, not to exceed $40.0 million in aggregate, against revolving credit facility commitments. At December 31, 2024, we had $1.5 million outstanding under our revolving credit facility and had $292.2 million potentially available after giving effect to $6.3 million of letters of credit issued and outstanding. At December 31, 2023, we had no amounts outstanding under our revolving credit facility and had $294.0 million potentially available after giving effect to $6.0 million of letters of credit issued and outstanding. Our letters of credit are used for a variety of purposes, including support of certain operating lease agreements, vendor payment terms and other subsidiary operating activities, and to meet various states' requirements to self-insure workers' compensation claims, including incurred but not reported claims. After consideration of leverage restrictions contained in the Credit Agreement, as of December 31, 2024 and 2023, we had $216.7 million and $256.9 million, respectively, of borrowing capacity available for general corporate purposes.
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 certain foreign subsidiaries to pay down amounts outstanding under our revolving credit facility, as applicable.
Our weighted average borrowings were $433.9 million during 2024, compared to $417.4 million during 2023, primarily due to the aggregate principal balance on our senior notes as well as higher borrowings on revolving credit facilities during 2024.
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 December 31, 2024, and 2023.
Cash management related to our revolving credit facility is centralized. We monitor our cash position and available liquidity on a daily basis and forecast our cash needs on a weekly basis within the current quarter and on a monthly basis outside the current quarter over the remainder of the year. Our business and related cash forecasts are updated monthly.
The majority of our cash on hand as of December 31, 2024, is located in jurisdictions outside the United States. We have available funding under our revolving credit facility of $216.7 million at December 31, 2024, (after consideration of the aforementioned leverage restrictions). Based on forecasted cash sources and requirements inherent in our business plans, we believe that our liquidity and capital resources, including anticipated cash flows from operations, will be sufficient to meet our debt service, capital expenditure and other short-term and long-term obligation needs for the next 12 months and 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.
In addition to our long-term debt, we have other cash commitments related to leases. The majority of our lease transactions are accounted for as operating leases, and we incurred rent expense related thereto of $13.9 million in 2024. We expect leasing will continue to be an available financing option to fund future capital expenditure requirements.
In March 2020, we announced our Board of Directors had authorized us to increase the purchase of our common stock up to $250 million in the aggregate, an increase of $100 million from the previous authorization. During 2024, 2023 and 2022, we purchased 771,067, 680,594 and 1,264,088 shares of our outstanding common stock for $19.3 million, $18.8 million and $36.9 million, respectively. Since the initial authorization through December 31, 2024, we have purchased 6,566,564 shares of our outstanding common stock for an aggregate purchase price of $182.4 million. We will continue to evaluate opportunities to return capital to shareholders through the purchase of our common stock, depending on market conditions and other factors.
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Under various agreements, we are obligated to make future cash payments in fixed amounts. These include payments under our long-term debt agreements, rent payments required under operating and finance lease agreements, certain benefit obligations and interest obligations on our long-term debt. The following table summarizes our material contractual cash obligations as of December 31, 2024 (dollars in thousands).
| Payments Due by Periods | |||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Total | Less than One Year | 1 - 3 Years | 3 - 5 Years | More than 5 Years | |||||||||||||||
| Contractual and other cash obligations: | |||||||||||||||||||
| Long-term debt | $ | 401,500 | $ | — | $ | 1,500 | $ | 400,000 | $ | — | |||||||||
| Operating lease obligations | 49,490 | 9,070 | 17,330 | 11,210 | 11,880 | ||||||||||||||
| Finance lease obligations | 1,800 | 520 | 1,280 | — | — | ||||||||||||||
| Benefit obligations | 16,880 | 1,380 | 2,890 | 3,220 | 9,390 | ||||||||||||||
| Interest obligations (a) | 74,250 | 16,500 | 33,000 | 24,750 | — | ||||||||||||||
| Total contractual and other cash obligations | $ | 543,920 | $ | 27,470 | $ | 56,000 | $ | 439,180 | $ | 21,270 |
__________________________
(a) Our Senior Notes bear interest at 4.125%. The future interest obligations calculation excludes the impact of our cross-currency swap agreements. See Note 12, "Derivative Instruments," included in Item 8, "Financial Statements and Supplementary Data," within this Form 10-K for additional information.
The liability related to unrecognized tax benefits has been excluded from the contractual obligations table because a reasonable estimate of the timing and amount of cash flows from future tax settlements cannot be determined. For additional information, refer to Note 21, "Income Taxes," included in Item 8, "Financial Statements and Supplementary Data," within this Form 10-K.
Market Risk
We conduct business in various locations throughout the world and are subject to market risk due to changes in the value of foreign currencies. The functional currencies of our foreign subsidiaries are primarily the local currency in the country of domicile. We manage these operating activities at the local level and revenues and costs are generally denominated in local currencies; however, results of operations and assets and liabilities reported in U.S. dollars will fluctuate with changes in exchange rates between such local currencies and the U.S. dollar.
We 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 December 31, 2024, we were party to foreign exchange forward and swap contracts to hedge changes in foreign currency exchange rates with notional amounts of $105.9 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 12, "Derivative Instruments," included in Item 8, "Financial Statements and Supplementary Data," within this Form 10-K for additional information.
We are also subject to interest risk as it relates to our long-term debt. We have historically used interest rate swap agreements to fix the variable portion of our debt to manage this risk.
Common Stock
TriMas is listed in the NASDAQ Global Select MarketSM. Our stock trades under the symbol "TRS."
Credit Rating
We and certain of our outstanding debt obligations are rated by Standard & Poor's and Moody's. On March 19, 2024, Moody's affirmed a Ba3 rating to our Senior Notes, as presented in Note 11, "Long-term Debt" included in Item 8, "Financial Statements and Supplementary Data" within this Form 10-K. Moody's also affirmed a Ba2 Corporate Family Rating and maintained its outlook as stable. On January 7, 2025, Moody's affirmed a Ba3 rating to our Senior Notes and a Ba2 Corporate Family Rating, and changed its outlook from stable to negative. On June 28, 2024, Standard & Poor's affirmed a BB- rating to our Senior Notes. Standard & Poor's 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.
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Outlook
Through 2024, we proactively managed through a significant destocking period and resulting demand trough as compared to the prior year period within our cylinder business. We also managed through a labor union strike at one of our Aerospace production facilities, and we navigated increased input costs as a result of abruptly increased orders for certain dispensing applications within our Packaging segment. We recently completed the divestiture of our Arrow Engine business, exiting our direct presence in the oil and gas market sector. As we look to 2025, we anticipate continued strength and operating leverage from our Aerospace business. We expect modest organic sales growth within our Packaging segment, while having the opportunity to improve our production throughput and reduce certain input costs. Within the cylinder business in Specialty Products, we believe we will see marginal improvement in demand as inventory positions are further depleted, and therefore, we anticipate sequential improvement in operating profit as we move forward given these anticipated incremental sales and structural costs saving actions we have already implemented. We will continue to monitor trends in demand changes and adjust costs and investments accordingly.
We have seen a number of global market uncertainties stemming from the macro-economic environment in the past few years, including significant challenges in inflationary pressures, supply chain disruptions and labor availability, as well as significant volatility in our customers' sentiment and order patterns. While we expect a continued modest demand recovery in certain of our consumer products and industrial markets and continued strength in our aerospace & defense market, we remain cautious of the impact of global market uncertainty, particularly the potential impact of tariffs on our customer demand and our input costs. However, no matter the outcome of these factors, we expect to continue to mitigate, as much as practical, the impact of these challenges, executing on streamlining actions and taking other steps as necessary, to maintain our strong balance sheet and generate cash in support of our capital allocation strategy.
We believe our capital structure remains strong and that we have sufficient headroom under our financial covenants, and ample cash and available liquidity under our revolving credit facility, to meet our debt service, capital expenditure and other short-term and long-term obligations for the next 12 months and for the foreseeable future, as well as fund dividends, share repurchases and bolt-on acquisitions consistent with our capital allocation strategy.
We are taking continued actions toward streamlining and optimizing our business portfolio. We have been actively exploring a range of potential options, particularly over the past year, to accelerate the focus of our business portfolio. As we focus our portfolio of businesses, we expect to continue to leverage the tenets of our TriMas Business Model to manage our 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 Item 8, "Financial Statements and Supplementary Data," within this Form 10-K.
Critical Accounting Policies
The following discussion of accounting policies is intended to supplement the accounting policies presented in Note 3, "Summary of Significant Accounting Policies" included in Item 8, "Financial Statements and Supplementary Data," within this Form 10-K. Certain of our accounting policies require the application of significant judgment by management in selecting the appropriate assumptions for calculating financial estimates. By their nature, these judgments are subject to an inherent degree of uncertainty. These judgments are based on our historical experience, our evaluation of business and macroeconomic trends, and information from other outside sources, as appropriate.
Receivables. Receivables are presented net of allowances for doubtful accounts of $3.2 million and $4.2 million at December 31, 2024 and 2023, respectively. We monitor our exposure for credit losses and maintain adequate allowances for doubtful accounts. We determine these allowances based on our historical write-off experience and/or specific customer circumstances and provide such allowances when amounts are reasonably estimable and it is probable a loss has been incurred. Although we have been growing business with certain of our larger customers, and there has been some industry consolidation where certain of our customers are merging, we do not believe that significant credit risk exists or that we have a significant concentration of accounts receivable with a single customer or group of customers due to our diverse customer base. See Item 1A, "Risk Factors," for additional information regarding risks associated with a concentrated customer base.
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Impairment of Long-Lived Assets and Definite-Lived Intangible Assets. We review, on at least a quarterly basis, the financial performance of each business unit for indicators of impairment. In reviewing for impairment indicators, we also consider events or changes in circumstances such as business prospects, customer retention, market trends, potential product obsolescence, competitive activities and other economic factors. An impairment loss is recognized when the carrying value of an asset group exceeds the future net undiscounted cash flows expected to be generated by that asset group. The impairment loss recognized is the amount by which the carrying value of the asset group exceeds its fair value.
Goodwill and Indefinite-Lived Intangibles. We assess goodwill and indefinite-lived intangible assets for impairment at the reporting unit level on an annual basis as of October 1, by reviewing relevant qualitative and quantitative factors. More frequent evaluations may be required if we experience changes in our business climate or as a result of other triggering events that take place. An impairment loss is recognized when the carrying value of the asset exceeds its fair value.
We determine our reporting units at the individual operating segment level, or one level below, when there is discrete financial information available that is regularly reviewed by segment management for evaluating operating results. For purposes of our 2024 goodwill impairment test, we had six reporting units, four of which had goodwill, within our three reportable segments.
We first perform a qualitative assessment for our annual goodwill impairment test and for our indefinite-lived intangible asset impairment test, which involves significant use of management's judgment and assumptions to determine whether it is more likely than not that the fair value of a reporting unit or indefinite-lived intangible asset is less than its carrying amount. In conducting the qualitative assessment, we consider macroeconomic conditions, industry and market considerations, overall financial performance, entity and reporting unit specific events, capital markets pricing, recent fair value estimates and carrying amounts, as well as legal, regulatory, and contractual factors. These factors are all considered in reaching a conclusion about whether it is more likely than not that the fair values of the intangible assets are less than the carrying values. If we conclude that further testing is required, we would perform a quantitative valuation to estimate the fair value of our intangible assets.
For purposes of the 2024 annual impairment tests, we performed qualitative assessments for all reporting units except the Life Sciences reporting unit within our Packaging segment, for which we elected to perform quantitative assessments. Based on results of the qualitative assessments, we determined there were no indications that the fair value of a reporting unit or indefinite-lived intangible asset was less than its carrying value; therefore, we determined that quantitative goodwill impairment tests were not required for all reporting units included in the qualitative assessment.
In conducting the quantitative analysis for the Life Sciences reporting unit, we determined the estimated fair value utilizing both income and market-based approaches. The income approach relies on the present value of estimated future cash flows of the business, discounted using a rate appropriately reflecting the risks inherent in the cash flows. The market approach relies on market data of other public companies that we deem comparable in operations to our reporting units. Based on results of the 2024 quantitative assessment, we determined there were no indications that the fair value of the Life Sciences reporting unit was less than its carrying value.
The techniques used in our quantitative impairment test incorporated a number of assumptions that we believe to be reasonable and to reflect the current market conditions. Assumptions in estimating future cash flows and earnings were based on Level 3 inputs under the fair value hierarchy and were primarily related to customer demand and revenue growth, and associated profitability and cash flows. To provide a level of sensitivity analysis, a 1% increase in the weighted average cost of capital would have resulted in a goodwill impairment charge of approximately $7 million, while a 0.5% decrease in the terminal growth rate would have resulted in a goodwill impairment charge of approximately $2 million.
Changes in future results, assumptions, and estimates from those used in the quantitative impairment test may lead to an outcome where impairment charges would be required in future periods. Specifically, actual results may vary from management's forecasts and such variations may be material and unfavorable, thereby triggering the need for future impairment tests where the conclusions may differ in reflection of prevailing market conditions. Further, continued adverse or worsening market conditions could result in the recognition of additional impairment if we determine that the fair value of our Life Sciences reporting unit has fallen below its carrying value. Certain circumstances that could reasonably be expected to negatively affect the underlying key assumptions and impact the estimated fair value of our Life Sciences reporting unit may include such items as: (i) a decrease in expected future cash flows, (ii) inability to achieve the sales targeted as part of our strategic growth initiatives, and (iii) inability to efficiently leverage the projected sales growth at expected margin rates.
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Additionally, we performed a quantitative assessment for the indefinite-lived intangible assets within the packaging-related Life Sciences reporting unit after electing the option to bypass the qualitative assessment. The relief-from-royalty method involves the estimation of appropriate market royalty rates for our indefinite-lived intangible assets and the application of these royalty rates to forecasted net sales attributable to the intangible assets. The resulting cash flows are then discounted to present value, using a rate appropriately reflecting the risks inherent in the cash flows, which is compared to the carrying value of the assets. Upon completion of the quantitative impairment test, we determined that one of the Life Sciences trade names had a carrying value that exceeded its fair value, and therefore recorded an impairment charge of $0.2 million.
Future declines in sales and/or operating profit, declines in our stock price, or other changes in our business or the markets for our products could result in further impairments of our goodwill and indefinite-lived intangible assets.
Pension Benefits. We engage independent actuaries to compute the amounts of liabilities and expenses under defined benefit pension plans, subject to the assumptions that we determine are appropriate based on historical trends, current market rates and future projections as of the measurement date. Annually, we review the actual experience compared to the most significant assumptions used and makes adjustments to the assumptions, if warranted. Discount rates are based upon an expected benefit payments duration analysis and the equivalent average yield rate for high-quality fixed-income investments. Pension benefits are funded through deposits with trustees and the expected long-term rate of return on plan assets is based upon actual historical returns modified for known changes in the market and any expected change in investment policy. Certain accounting guidance, including the guidance applicable to pensions, does not require immediate recognition of the effects of a deviation between actual and assumed experience or the revision of an estimate. This approach allows the favorable and unfavorable effects that fall within an acceptable range to be netted.
Income Taxes. We compute income taxes using the asset and liability method, whereby deferred income taxes using current enacted tax rates are provided for the temporary differences between the financial reporting basis and the tax basis of assets and liabilities and for operating loss and tax credit carryforwards. We determine valuation allowances based on an assessment of positive and negative evidence on a jurisdiction-by-jurisdiction basis and record a valuation allowance to reduce deferred tax assets to the amount more likely than not to be realized. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. We record interest and penalties related to unrecognized tax benefits in income tax expense.
Asbestos-related Matters. We accrue loss reserves for asbestos-related matters based upon an estimate of the ultimate liability for claims incurred, whether reported or not, including an estimate of future settlement costs and costs to defend. We utilize known facts and historical trends for Company-specific and general market asbestos-related activity, as well as an actuarial valuation in determining estimated required reserves which we believe are probable and reasonably estimable. Asbestos-related accruals are assessed at each balance sheet date to determine if the liability remains reasonably stated. Accruals for asbestos-related matters are included in the consolidated balance sheet in "Accrued liabilities" and "Other long-term liabilities."
Other Loss Reserves. We have other loss exposures related to insurance, litigation and environmental claims. Establishing loss reserves for these matters requires the use of estimates and judgment in regard to risk exposure and ultimate liability. We are generally party to high deductible insurance programs for losses and liabilities related principally to workers' compensation, health and welfare claims and comprehensive general, product and vehicle liability. Generally, we are responsible for up to $0.8 million per occurrence under our retention program for workers' compensation, up to $1.5 million per occurrence under our retention programs for comprehensive general, product and vehicle liability, and have a $0.4 million per occurrence stop-loss limit with respect to our self-insured group medical plan. We accrue loss reserves up to our retention amounts based upon our estimates of the ultimate liability for claims incurred, including an estimate of related litigation defense costs, and an estimate of claims incurred but not reported using actuarial assumptions about future events. We accrue for such items when such amounts are reasonably estimable and probable. We utilize known facts and historical trends, as well as actuarial valuations in determining estimated required reserves. Changes in assumptions for factors such as medical costs and actual experience could cause these estimates to change significantly.
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