# Trimas Corp: Form 10-Q for the period ended Sep 30, 2024

- Company: [Trimas Corp](/companies/trs.md) (CIK 842633)
- Form: 10-Q
- Filed: 2024-11-04
- Accepted by EDGAR: Nov 4, 2024, 13:32 ET
- Period: 2024-09-30
- Accession: 0000842633-24-000078
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/842633/000084263324000078/trs-20240930.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/842633/000084263324000078/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2024-07-01 to 2024-09-30 | $229.4m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2024-01-01 to 2024-09-30 | $697.0m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2024-07-01 to 2024-09-30 | $177.7m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 9 months, 2024-01-01 to 2024-09-30 | $538.5m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2024-07-01 to 2024-09-30 | $51.7m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2024-01-01 to 2024-09-30 | $158.4m | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months, 2024-07-01 to 2024-09-30 | $44.5m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2024-01-01 to 2024-09-30 | $120.9m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2024-07-01 to 2024-09-30 | $8.3m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2024-01-01 to 2024-09-30 | $38.6m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2024-07-01 to 2024-09-30 | $4.9m | us-gaap:InterestExpenseNonoperating |
| Interest expense | 9 months, 2024-01-01 to 2024-09-30 | $15.0m | us-gaap:InterestExpenseNonoperating |
| Income tax | 3 months, 2024-07-01 to 2024-09-30 | $860.0k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2024-01-01 to 2024-09-30 | $4.6m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2024-07-01 to 2024-09-30 | $2.5m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2024-01-01 to 2024-09-30 | $18.6m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-07-01 to 2024-09-30 | $0.06 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2024-01-01 to 2024-09-30 | $0.45 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-07-01 to 2024-09-30 | $0.06 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2024-01-01 to 2024-09-30 | $0.46 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-07-01 to 2024-09-30 | 40,946,571 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2024-01-01 to 2024-09-30 | 41,089,208 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2024-01-01 to 2024-09-30 | $36.7m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2024-01-01 to 2024-09-30 | $36.0m | us-gaap:PaymentsToAcquireProductiveAssets |
| Dividends paid | 9 months, 2024-01-01 to 2024-09-30 | $5.0m | us-gaap:PaymentsOfDividends |
| Share repurchases | 9 months, 2024-01-01 to 2024-09-30 | $19.3m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2024-09-30 | $26.9m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2024-09-30 | $435.3m | us-gaap:AssetsCurrent |
| Total assets | at 2024-09-30 | $1.37bn | us-gaap:Assets |
| Current liabilities | at 2024-09-30 | $154.0m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2024-09-30 | $685.1m | us-gaap:Liabilities |
| Current portion of debt | at 2024-09-30 | $80.0k | us-gaap:DebtCurrent |
| Shareholders' equity | at 2024-09-30 | $682.8m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 71,431 characters.

*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, 2023.*

### 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) and a lack of material and in certain regions skilled labor availability. 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, and engines and compressors for oil & gas extraction, have experienced volatility in demand related to a number of channel and economic factors 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 remain, such as in our Specialty Products segment, we are beginning to see more steady and consistent demand in our Packaging and Aerospace end markets.

Overall, our third quarter 2024 net sales decreased $6.0 million, or 2.5%, compared to third quarter 2023. We experienced organic growth of 12.3% and 4.8% within our Packaging and Aerospace segments, respectively, compared to third quarter 2023. These increases were partially offset by lower sales of 44.8% in our Specialty Products segment as compared to the prior year quarter as we work through a cyclical demand trough.

The most significant drivers affecting our financial results in third quarter 2024 compared with third quarter 2023, other than as directly impacted by sales changes, were 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, a charge associated with environmental remediation liabilities for a waste disposal service provider to one of our former operations, and an increase in our effective tax rate.

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 $2.3 million increased costs through the end of third quarter 2024, with the Company and the UAW reaching a new labor agreement in mid-October 2024.

In third quarter 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 third quarter 2024, we recorded a pre-tax charge of $1.8 million for environmental remediation for a waste site in which we had been named a potential responsible party. The waste site related to a waste disposal service provider to one of our former operations.

The effective income tax rate for third quarter 2024 was 25.4% as compared to 16.3% for third quarter 2023. The effective tax rate for third quarter 2024 was higher than in the prior year primarily due to the recognition of approximately $2.4 million of tax benefit related to foreign tax loss carryforwards in the prior year period.

On a year-to-date basis, the following acquisitions were additional drivers of change in our year-over-year results of operations.

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 consideration of $5.5 million paid in July 2023 and remaining contingent consideration ranging from zero to $4.5 million. The Company expects to resolve the remaining contingent consideration matter in fourth quarter 2024. 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 the nine months ended September 30, 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 the nine months ended September 30, 2024 resulting from its January 2024 sales.

#### 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.

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 and 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 or natural gas often is a precursor to rising input polymeric raw material costs, for which we may experience a contractual commercial recovery lag. Separately, our Arrow Engine business in our Specialty Products segment is sensitive to the demand for natural gas and crude oil predominantly in the United States. 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 third quarter 2024, we purchased 99,130 shares of our outstanding common stock for an aggregate purchase price of $2.4 million. As of September 30, 2024, we had $67.6 million remaining under the repurchase authorization.

In addition, in third quarter 2024, we declared dividends of $0.04 per share of common stock and 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.

### Segment Information and Supplemental Analysis

The following table summarizes financial information for our reportable segments for the three months ended September 30, 2024 and 2023 (dollars in thousands):

| Net Sales | Three months ended September 30, 2024 | As a Percentage of Net Sales | 2023 | As a Percentage of Net Sales |
| --- | ---: | ---: | ---: | ---: |
| Packaging | $130,240 | 56.8% | $116,500 | 49.5% |
| Aerospace | 70,830 | 30.9% | 67,580 | 28.7% |
| Specialty Products | 28,290 | 12.3% | 51,260 | 21.8% |
| Total | $229,360 | 100.0% | $235,340 | 100.0% |
| **Gross Profit** |  |  |  |  |
| Packaging | $31,000 | 23.8% | $28,330 | 24.3% |
| Aerospace | 16,480 | 23.3% | 14,980 | 22.2% |
| Specialty Products | 4,220 | 14.9% | 12,620 | 24.6% |
| Total | $51,700 | 22.5% | $55,930 | 23.8% |
| **Selling, General and Administrative Expenses** |  |  |  |  |
| Packaging | $14,190 | 10.9% | $11,980 | 10.3% |
| Aerospace | 10,180 | 14.4% | 7,850 | 11.6% |
| Specialty Products | 1,840 | 6.5% | 2,110 | 4.1% |
| Corporate | 18,250 | N/A | 10,350 | N/A |
| **Total** | $44,460 | 19.4% | $32,290 | 13.7% |
| **Operating Profit (Loss)** |  |  |  |  |
| Packaging | $17,930 | 13.8% | $16,470 | 14.1% |
| Aerospace | 6,310 | 8.9% | 7,130 | 10.6% |
| Specialty Products | 2,290 | 8.1% | 10,510 | 20.5% |
| Corporate | (18,250) | N/A | (10,350) | N/A |
| Total | $8,280 | 3.6% | $23,760 | 10.1% |
| **Depreciation** |  |  |  |  |
| Packaging | $7,000 | 5.4% | $6,530 | 5.6% |
| Aerospace | 1,890 | 2.7% | 1,820 | 2.7% |
| Specialty Products | 1,000 | 3.5% | 900 | 1.8% |
| Corporate | 50 | N/A | 40 | N/A |
| Total | $9,940 | 4.3% | $9,290 | 3.9% |
| **Amortization** |  |  |  |  |
| Packaging | $1,640 | 1.3% | $1,630 | 1.4% |
| Aerospace | 2,570 | 3.6% | 2,870 | 4.2% |
| Specialty Products | — | —% | 110 | 0.2% |
| Corporate | — | N/A | — | N/A |
| Total | $4,210 | 1.8% | $4,610 | 2.0% |

The following table summarizes detail on the year-over-year sales growth percentages for our reportable segments for the three months ended September 30, 2024 as compared to the three months ended September 30, 2023:

|  | Third Quarter 2024 vs. Third Quarter 2023 Organic | Acquisitions | Foreign Exchange | Total |
| --- | ---: | ---: | ---: | ---: |
| Consolidated TriMas Corporation | (2.3)% | —% | (0.2)% | (2.5)% |
| Packaging | 12.3% | —% | (0.5)% | 11.8% |
| Aerospace | 4.8% | —% | —% | 4.8% |
| Specialty Products | (44.8)% | —% | —% | (44.8)% |

28

The following table summarizes financial information for our reportable segments for the nine months ended September 30, 2024 and 2023 (dollars in thousands):

| Net Sales | Nine months ended September 30, 2024 | As a Percentage of Net Sales | 2023 | As a Percentage of Net Sales |
| --- | ---: | ---: | ---: | ---: |
| Packaging | $389,190 | 55.8% | $350,040 | 51.2% |
| Aerospace | 215,890 | 31.0% | 177,370 | 25.9% |
| Specialty Products | 91,880 | 13.2% | 156,580 | 22.9% |
| Total | $696,960 | 100.0% | $683,990 | 100.0% |
| **Gross Profit** |  |  |  |  |
| Packaging | $95,370 | 24.5% | $84,690 | 24.2% |
| Aerospace | 51,340 | 23.8% | 34,480 | 19.4% |
| Specialty Products | 11,710 | 12.7% | 38,980 | 24.9% |
| Total | $158,420 | 22.7% | $158,150 | 23.1% |
| **Selling, General and Administrative Expenses** |  |  |  |  |
| Packaging | $43,430 | 11.2% | $36,640 | 10.5% |
| Aerospace | 27,480 | 12.7% | 23,290 | 13.1% |
| Specialty Products | 6,140 | 6.7% | 6,600 | 4.2% |
| Corporate | 43,840 | N/A | 37,880 | N/A |
| Total | $120,890 | 17.3% | $104,410 | 15.3% |
| **Operating Profit (Loss)** |  |  |  |  |
| Packaging | $53,060 | 13.6% | $48,140 | 13.8% |
| Aerospace | 23,870 | 11.1% | 11,190 | 6.3% |
| Specialty Products | 5,480 | 6.0% | 32,360 | 20.7% |
| Corporate | (43,840) | N/A | (37,880) | N/A |
| Total | $38,570 | 5.5% | $53,810 | 7.9% |
| **Depreciation** |  |  |  |  |
| Packaging | $20,820 | 5.3% | $21,190 | 6.1% |
| Aerospace | 5,900 | 2.7% | 5,770 | 3.3% |
| Specialty Products | 3,080 | 3.4% | 2,770 | 1.8% |
| Corporate | 140 | N/A | 100 | N/A |
| Total | $29,940 | 4.3% | $29,830 | 4.4% |
| **Amortization** |  |  |  |  |
| Packaging | $4,930 | 1.3% | $4,810 | 1.4% |
| Aerospace | 7,710 | 3.6% | 8,660 | 4.9% |
| Specialty Products | — | —% | 340 | 0.2% |
| Corporate | — | N/A | — | N/A |
| Total | $12,640 | 1.8% | $13,810 | 2.0% |

The following table summarizes detail on the year-over-year sales growth percentages for our reportable segments for the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023:

|  | Year to Date Third Quarter 2024 vs. Year to Date Third Quarter 2023 Organic | Acquisitions | Foreign Exchange | Total |
| --- | ---: | ---: | ---: | ---: |
| Consolidated TriMas Corporation | (0.3)% | 2.3% | (0.1)% | 1.9% |
| Packaging | 10.5% | 0.8% | (0.1)% | 11.2% |
| Aerospace | 14.4% | 7.3% | —% | 21.7% |
| Specialty Products | (41.3)% | —% | —% | (41.3)% |

29

#### Results of Operations

The principal factors impacting us during the three months ended September 30, 2024, compared with the three months ended September 30, 2023, were:

- Increases in demand for products within our Packaging and Aerospace segments;
- Significant demand decrease 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;
- 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 a waste disposal service provider to one of our former operations; and
- An increase in our effective tax rate in third quarter 2024 compared with third quarter 2023.

### Three Months Ended September 30, 2024 Compared with Three Months Ended September 30, 2023

Overall, net sales decreased $6.0 million, or 2.5%, to $229.4 million for the three months ended September 30, 2024, as compared with $235.3 million in the three months ended September 30, 2023. Organic sales, excluding the impact of currency exchange, decreased $5.4 million, or 2.3%, as organic sales increases of 12.3% and 4.8% within our Packaging and Aerospace segments, respectively, were more than offset by a 44.8% sales decrease in our Specialty Products segment. In addition, net sales decreased by $0.6 million due to currency exchange, as our reported results in U.S. dollars were unfavorably impacted as a result of the strengthening of the U.S. dollar relative to foreign currencies.

Gross profit margin (gross profit as a percentage of sales) approximated 22.5% and 23.8% for the three months ended September 30, 2024 and 2023, respectively. Gross profit margin decreased primarily due to lower sales compared to third quarter of 2023 and related less favorable leveraging of fixed costs within our Specialty Products segment, and increased input costs, production inefficiencies and higher costs related to high demand for certain product lines in 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, the favorable impact of prior year cost reduction efforts and $1.9 million of lower realignment costs within our Packaging segment. In addition, gross profit increased due to improved fixed costs absorption, reduced material availability constraints, a more favorable product sales mix, favorable commercial recoveries and a non-cash charge related to Weldmac purchase accounting of $1.2 million in third quarter of 2023 that did not repeat within our Aerospace segment.

Operating profit margin (operating profit as a percentage of sales) approximated 3.6% and 10.1% for the three months ended September 30, 2024 and 2023, respectively. Operating profit decreased $15.5 million to $8.3 million in the three months ended September 30, 2024, from $23.8 million for the three months ended September 30, 2023, primarily due to lower sales levels and less favorable leveraging of fixed costs within our Specialty Products segment, $5.5 million of pre-tax charges related to updating our asbestos studies in third quarter 2024 and $1.8 million of pre-tax charges related to our environment remediation obligations. Additionally, operating profit decreased due to increased input costs, production inefficiencies and higher costs related to high demand for certain product lines in our Packaging segment, as well as increased costs and manufacturing inefficiencies resulting from the labor union strike within our Aerospace segment. The decreases were partially offset by higher sales levels, 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, favorable commercial recoveries and a non-cash charge related to Weldmac purchase accounting in third quarter of 2023 that did not repeat within the Aerospace segment.

Interest expense increased $0.9 million, to $4.9 million for the three months ended September 30, 2024, compared to $4.0 million for the three months ended September 30, 2023, due to an increase in our weighted average borrowings and a higher effective interest rate as a result of increased borrowings from our revolving credit facility.

Other income (expense) decreased $0.1 million to a nominal amount of expense for the three months ended September 30, 2024, as compared to $0.1 million of expense for the three months ended September 30, 2023, primarily due to a decrease in losses on transactions denominated in foreign currencies.

The effective income tax rate for the three months ended September 30, 2024 and 2023 was 25.4% and 16.3%, respectively. We recorded income tax expense of $0.9 million and $3.2 million for the three months ended September 30, 2024 and 2023, respectively. The effective tax rate for the three months ended September 30, 2024 was higher than in the prior year primarily due to the recognition of approximately $2.4 million of tax benefit related to foreign tax loss carryforwards in the prior year period.

Net income decreased $14.0 million, to $2.5 million for the three months ended September 30, 2024, as compared to $16.5 million for the three months ended September 30, 2023. The decrease was primarily the result of a decrease in operating profit of $15.5 million and an increase in interest expense of $0.9 million, partially offset by a decrease in income tax expense of $2.3 million and a decrease in other expense of $0.1 million.

See below for a discussion of operating results by segment.

***Packaging.*** Net sales increased $13.7 million, or 11.8% (of which 12.3% was organic and (0.5)% was foreign currency exchange), to $130.2 million in the three months ended September 30, 2024, as compared to $116.5 million in the three months ended September 30, 2023. Sales of dispensing products used primarily for beauty, personal care and home care applications increased by $9.2 million. Sales of products used for industrial applications increased by $4.8 million. Sales of products used in food and beverage applications increased by $0.9 million. Net sales decreased by $0.6 million due to currency exchange, as our reported results in U.S. dollars were unfavorably impacted as a result of the strengthening of the U.S. dollar relative to foreign currencies, as compared to third quarter 2023.

Gross profit increased $2.7 million to $31.0 million, or 23.8% of sales, in the three months ended September 30, 2024, as compared to $28.3 million, or 24.3% of sales, in the three months ended September 30, 2023, primarily due to higher sales levels, the favorable impact of prior year cost reduction efforts, and the impact of $1.9 million lower realignment costs. Gross profit margin decreased due to increased input costs, production inefficiencies and increased costs related to high demand for certain product lines.

Selling, general and administrative expenses increased $2.2 million to $14.2 million, or 10.9% of sales, in the three months ended September 30, 2024, as compared to $12.0 million, or 10.3% of sales, in the three months ended September 30, 2023, primarily due to $1.2 million higher information technology costs allocated from Corporate and higher employee-related costs.

Operating profit increased $1.5 million to $17.9 million, or 13.8% of sales, in the three months ended September 30, 2024, as compared to $16.5 million, or 14.1% of sales, in the three months ended September 30, 2023, primarily due to higher sales volume and lower realignment costs and the impact of $1.0 million higher net gains on sale of non-core properties. Operating profit as a percentage of net sales decreased due to increased input costs, production inefficiencies, and higher selling, general and administrative expenses.

***Aerospace.*** Net sales for the three months ended September 30, 2024 increased $3.3 million, or 4.8%, to $70.8 million, as compared to $67.6 million in the three months ended September 30, 2023. Sales of our engineered components products increased by $3.1 million due to improved throughput. Sales of our fasteners products increased by $0.2 million as increases in aircraft build rates, improved production yield and commercial recoveries were mostly offset by a decrease in sales due to the labor union strike related to negotiations for a new three-year collective bargaining agreement at our Aerospace facility in Commerce, California.

Gross profit increased $1.5 million to $16.5 million, or 23.3% of sales, in the three months ended September 30, 2024, from $15.0 million, or 22.2% of sales, in the three months ended September 30, 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 $1.2 million purchase accounting non-cash charge related to the step-up of Weldmac's inventory to fair value in third quarter of 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 $2.3 million to $10.2 million, or 14.4% of sales, in the three months ended September 30, 2024, as compared to $7.9 million, or 11.6% of sales, in the three months ended September 30, 2023, primarily due to $1.3 million of increased costs related to the labor union strike, higher employee-related costs and higher information technology costs.

Operating profit decreased $0.8 million to $6.3 million, or 8.9% of sales, in the three months ended September 30, 2024, as compared to $7.1 million, or 10.6% of sales, in the three months ended September 30, 2023, as manufacturing inefficiencies and increased costs related to the strike and higher selling, general and administrative expenses more than offset higher sales levels, reduced material availability constraints, a more favorable product sales mix, favorable commercial recoveries and the impact of the purchase accounting adjustment related to Weldmac's inventory step-up to fair value in third quarter of 2023 that did not repeat.

***Specialty Products.*** Net sales for the three months ended September 30, 2024 decreased $23.0 million, or 44.8%, to $28.3 million, as compared to $51.3 million in the three months ended September 30, 2023. Sales of our forged steel cylinders decreased $16.6 million, or 41.8%, due predominantly to lower demand for heating, ventilation, and air conditioning ("HVAC") applications as compared to the prior year quarter where a high rate of orders were placed by customers concerned with global supply of cylinders for HVAC applications. 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 $6.4 million, or 55.1%, primarily as a result of lower compression package sales from a customer that has reduced their ordering rate significantly as compared to prior year quarter.

Gross profit decreased $8.4 million to $4.2 million, or 14.9% of sales, in the three months ended September 30, 2024, as compared to $12.6 million, or 24.6% of sales, in the three months ended September 30, 2023, primarily due to lower sales levels, which resulted in significantly less favorable absorption of fixed costs.

Selling, general and administrative expenses decreased $0.3 million to $1.8 million, or 6.5% of sales, in the three months ended September 30, 2024, as compared to $2.1 million, or 4.1% of sales, in the three months ended September 30, 2023, as $0.5 million of information technology costs allocated from Corporate was more than offset by reduced spending levels in third quarter of 2024, consistent with current lower demand levels.

Operating profit decreased $8.2 million to $2.3 million, or 8.1% of sales, in the three months ended September 30, 2024, as compared to $10.5 million, or 20.5% of sales, in the three months ended September 30, 2023, primarily due to lower sales levels, which resulted in significantly less favorable absorption of fixed costs.

***Corporate.*** Corporate expenses consist of the following (dollars in millions):

|  | Three months ended September 30, 2024 | 2023 |
| --- | ---: | ---: |
| Corporate operating expenses | $8.6 | $7.2 |
| Non-cash stock compensation | 1.6 | 3.1 |
| Legacy expenses | 8.1 | 0.1 |
| Corporate expenses | $18.3 | $10.4 |

Corporate expenses increased $7.9 million to $18.3 million for the three months ended September 30, 2024, from $10.4 million for the three months ended September 30, 2023, primarily due to a $5.5 million pre-tax charge related to updating our asbestos studies in the third quarter of 2024, $2.2 million of higher professional fees primarily for business diligence and strategic consulting, and a $1.8 million pre-tax charge for environmental remediation obligations related to a waste disposal service provider to one of our former operations. Information technology costs increased during the period by $0.1 million, as $2.3 million of technology costs allocated to our segments, which were not allocated in 2023, were offset by higher costs associated with the upgrade of certain key information technology applications. These increases were partially offset by a $1.5 million decrease in non-cash stock compensation due to timing and estimated attainment of existing awards.

### Nine Months Ended September 30, 2024 Compared with Nine Months Ended September 30, 2023

Overall, net sales increased $13.0 million, or 1.9%, to $697.0 million for the nine months ended September 30, 2024, as compared with $684.0 million in the nine months ended September 30, 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, decreased $2.4 million, or 0.3%, as organic sales increases of 10.5% and 14.4% within our Packaging and Aerospace segments, respectively, driven by end market demand improvements were more than offset by a 41.3% sales decrease in our Specialty Products segment due to lower market demand. In addition, net sales decreased by $0.3 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 22.7% for the nine months ended September 30, 2024 and 23.1% for the nine months ended September 30, 2023. Gross profit margin decreased primarily due to reduced sales and significantly less favorable absorption of fixed costs 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 the first nine months of 2024, and higher production costs 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 the labor union strike 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 non-cash charge related to purchase accounting in the first nine months of 2023 that did not repeat within our Packaging and Aerospace segments. Additionally, gross margin increased due to reduced material availability constraints, a more favorable product sales mix, and favorable 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 5.5% and 7.9% for the nine months ended September 30, 2024 and 2023, respectively. Operating profit decreased $15.2 million, to $38.6 million, for the nine months ended September 30, 2024, compared to $53.8 million for the nine months ended September 30, 2023, primarily due to decreased sales and significantly less favorable absorption of fixed costs within our Specialty Products segment, a $5.5 million pre-tax charge related to updating our asbestos studies in third quarter 2024, and $2.5 million of pre-tax charges related to our environmental remediation obligations. Additionally, operating profit decreased due to increased input costs and higher production costs related to high demand for certain product lines in our Packaging segment, as well as increased costs and manufacturing inefficiencies resulting from the labor union strike within our Aerospace segment. The decreases were partially offset by higher sales levels and related improved fixed cost absorption and the impact of a non-cash charge related to purchase accounting in the first nine months of 2023 that did not repeat within our Packaging and Aerospace segments. Operating profit further increased due to 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 favorable commercial recoveries within the Aerospace segment.

Interest expense increased $3.4 million, to $15.0 million, for the nine months ended September 30, 2024, as compared to $11.6 million for the nine months ended September 30, 2023, due to an increase in our weighted average borrowings and a higher effective interest rate as a result of increased borrowings from our revolving credit facility.

Other income (expense) increased $0.3 million to $0.3 million of expense for the nine months ended September 30, 2024, as compared to a nominal amount of expense for the nine months ended September 30, 2023, primarily due to an increase in net losses on transactions denominated in foreign currencies, partially offset by a non-cash settlement charge for our Canadian defined benefit obligations during the nine months ended September 30, 2023.

The effective income tax rate for the nine months ended September 30, 2024 and 2023 was 20.0% and 23.1%, respectively. We recorded tax expense of $4.6 million for the nine months ended September 30, 2024, as compared to $9.7 million for the nine months ended September 30, 2023, including tax benefits related to foreign tax loss carryforwards of $1.7 million and $2.4 million for the nine months ended September 30, 2024 and 2023, respectively. The effective tax rate for the nine months ended September 30, 2024 is lower than in the prior year primarily due to a decrease in losses in jurisdictions where no tax benefit could be recorded and the recognition of tax benefits related to foreign tax loss carryforwards. While the recorded tax benefit related to foreign tax loss carryforwards decreased compared to the prior year period, the impact on the effective tax rate increased due to a reduction in pre-tax income.

Net income decreased by $13.8 million, to $18.6 million for the nine months ended September 30, 2024, compared to $32.4 million for the nine months ended September 30, 2023. The decrease was primarily the result of a decrease in operating profit of $15.2 million, increase in interest expense of $3.4 million, and increase in other expense of $0.3 million, partially offset by $5.1 million decrease in income tax expense.

See below for a discussion of operating results by segment.

***Packaging.*** Net sales increased $39.2 million, or 11.2% (of which 10.5% was organic, 0.8% related to acquisitions, and (0.1)% was foreign currency exchange), to $389.2 million in the nine months ended September 30, 2024, as compared to $350.0 million in the nine months ended September 30, 2023. Acquisition-related sales growth was $2.8 million resulting 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 by $26.6 million. Sales of products used for industrial applications increased by $11.0 million. Sales for life sciences, pharmaceutical and nutraceutical applications increased by $2.4 million. These increases were partially offset by the decrease in sales of products used in food and beverage applications of $2.6 million, primarily due to reduced demand for certain dairy applications in North America and beverage closure applications in Europe as certain customers prepare for cutting over to a new product design. Net sales decreased by $0.3 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.

Gross profit increased $10.7 million to $95.4 million, or 24.5% of sales, in the nine months ended September 30, 2024, as compared to $84.7 million, or 24.2% of sales, in the nine months ended September 30, 2023, primarily due to higher sales levels and resulting improved fixed cost absorption, the favorable impact of prior year cost reduction efforts, and the impact of $5.2 million lower realignment costs and a $0.8 million purchase accounting non-cash charge related to the step-up of inventory to fair value in the first nine months of 2023 that did not repeat in the first nine months of 2024. The increase in gross profit was partially offset by a successful $2.6 million commercial settlement in 2023 that did not repeat, increased input costs, including expedited freight and labor, required to timely fulfill an abrupt increase in a customer's orders in 2024, and higher costs related to high demand for certain product lines.

Selling, general and administrative expenses increased $6.8 million to $43.4 million, or 11.2% of sales, in the nine months ended September 30, 2024, as compared to $36.6 million, or 10.5% of sales, in the nine months ended September 30, 2023, primarily due to $3.4 million higher information technology costs allocated from Corporate, higher employee-related costs and higher professional fees.

Operating profit increased $4.9 million to $53.1 million, or 13.6% of sales, in the nine months ended September 30, 2024, as compared to $48.1 million, or 13.8% of sales, in the nine months ended September 30, 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 sale of non-core properties. These increases were partially offset by higher selling, general and administrative expenses, the impact of a successful commercial settlement in first nine months of 2023 that did not repeat, and increased input costs, including expedited freight to timely fulfill an abrupt increase in a customer's orders.

***Aerospace.*** Net sales for the nine months ended September 30, 2024 increased $38.5 million, or 21.7% (of which 14.4% was organic and 7.3% related to acquisitions), to $215.9 million, as compared to $177.4 million in the nine months ended September 30, 2023. Acquisition-related sales growth from our April 2023 acquisition of Weldmac was $12.9 million. Sales of our fasteners products increased by $16.0 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 related to negotiations for the renewal of the collective bargaining agreement at our Aerospace facility in Commerce, California. Sales of our engineered components products increased by $9.6 million due to improved throughput.

Gross profit increased $16.9 million to $51.3 million, or 23.8% of sales, in the nine months ended September 30, 2024, from $34.5 million, or 19.4% of sales, in the nine months ended September 30, 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 $2.0 million purchase accounting non-cash 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 $4.2 million to $27.5 million, or 12.7% of sales, in the nine months ended September 30, 2024, as compared to $23.3 million, or 13.1% of sales, in the nine months ended September 30, 2023, primarily due to higher employee-related costs, higher information technology costs, $1.3 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 increased $12.7 million to $23.9 million, or 11.1% of sales, in the nine months ended September 30, 2024, as compared to $11.2 million, or 6.3% of sales, in the nine months ended September 30, 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, and a purchase accounting adjustment related to Weldmac's inventory step-up to fair value in 2023 that did not repeat, partially offset by higher selling, general and administrative expenses and increased costs and manufacturing inefficiencies related to the strike.

***Specialty Products.*** Net sales for the nine months ended September 30, 2024 decreased $64.7 million, or 41.3%, to $91.9 million, as compared to $156.6 million in the nine months ended September 30, 2023. Sales of forged steel cylinders decreased $43.6 million, or 36.4%, due predominantly to lower demand for HVAC applications as compared to the prior year where a high rate of orders were placed by customers concerned with global supply of steel cylinders for HVAC applications. 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 $21.1 million, or 57.4%, 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 decreased $27.3 million to $11.7 million, or 12.7% of sales, in the nine months ended September 30, 2024, as compared to $39.0 million, or 24.9% of sales, in the nine months ended September 30, 2023, primarily due to lower sales levels, which resulted in significantly less favorable absorption of fixed costs.

Selling, general and administrative expenses decreased $0.5 million to $6.1 million, or 6.7% of sales, in the nine months ended September 30, 2024, as compared to $6.6 million, or 4.2% of sales, in the nine months ended September 30, 2023, as $1.3 million of higher information technology costs allocated from Corporate was more than offset by cost reduction actions in the first nine months of 2024, in response to lower market demand levels.

Operating profit decreased $26.9 million to $5.5 million, or 6.0% of sales, in the nine months ended September 30, 2024, as compared to $32.4 million, or 20.7% of sales, in the nine months ended September 30, 2023, primarily due to lower sales levels, which resulted in significantly less favorable absorption of fixed costs.

***Corporate.*** Corporate expenses, net consist of the following (dollars in millions):

|  | Nine months ended September 30, 2024 | 2023 |
| --- | ---: | ---: |
| Corporate operating expenses | $27.3 | $28.5 |
| Non-cash stock compensation | 8.1 | 9.3 |
| Legacy expenses | 8.4 | 0.1 |
| Corporate expenses | $43.8 | $37.9 |

Corporate expenses increased $6.0 million to $43.8 million for the nine months ended September 30, 2024, from $37.9 million for the nine months ended September 30, 2023, primarily due to a $5.5 million pre-tax charge related to updating our asbestos studies in the third quarter of 2024 and $2.5 million of pre-tax charges related to our environment remediation obligations. The increases were partially offset by a $1.3 million decrease in non-cash stock compensation due to timing and estimated attainment of existing awards, a $0.9 million decrease in professional fees as we incurred less costs for business strategy and other consulting services, and a $0.2 million decrease in technology costs, as $6.7 million of technology costs allocated to our segments was mostly offset by $6.5 million higher costs in preparation for upgrades in certain of our information technology application.

### Liquidity and Capital Resources

#### Cash Flows

Cash flows provided by operating activities were $36.7 million for the nine months ended September 30, 2024, as compared to cash provided of $57.6 million for the nine months ended September 30, 2023. Significant changes in cash flows provided by operating activities and the reasons for such changes were as follows:

- For the nine months ended September 30, 2024, we generated $87.3 million in cash flows, based on net income of $18.6 million and after considering the effects of non-cash items related to depreciation, amortization, and gain on dispositions of assets, changes in deferred income taxes, stock-based compensation, provision for losses on accounts receivable, changes in asbestos and environmental liability estimates, and other operating activities. For the nine months ended September 30, 2023, we generated $89.4 million in cash flows based on net income of $32.4 million and after considering the effects of similar non-cash items, except for changes in provision for losses on accounts receivable.
- Increases in accounts receivable resulted in a use of cash of $15.9 million and $22.6 million for the nine months ended September 30, 2024 and 2023, respectively. The decreased use of cash for each of the nine 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 one day through the nine months ended September 30, 2024, and increased by five days through the nine months ended September 30, 2023.
- We increased our investment in inventory by $23.1 million for the nine months ended September 30, 2024, while we decreased our investment in inventory by $1.8 million for the nine months ended September 30, 2023. Our days sales in inventory increased by four days through the nine months ended September 30, 2024, as we continued to manage inventory levels, considering our supply needs, and balanced with sales growth within our Packaging and Aerospace segments. Our days sales in inventory decreased by two days through the nine months ended September 30, 2023, primarily as a result of moderating inventory levels with sales level.
- Increases in prepaid expenses and other assets resulted in a use of cash of $4.6 million and $0.7 million for the nine months ended September 30, 2024, and 2023, respectively. These changes were primarily a result of the timing of payments made for income taxes and certain operating expenses.
- Decreases in accounts payable and accrued liabilities resulted in a use of cash of $7.0 million and $10.4 million for the nine months ended September 30, 2024 and 2023, respectively. Days accounts payable on hand decreased by nine days through the nine months ended September 30, 2024 and decreased by eight days for the nine months ended September 30, 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.

Net cash used for investing activities for the nine months ended September 30, 2024 and 2023 was $31.9 million and $111.8 million, respectively. During the first nine months of 2024, we invested $36.0 million in capital expenditures, as we continued our investment in growth, capacity and productivity-related capital projects. We also received net proceeds of $4.1 million from disposition of property and equipment. During the first nine months of 2023, we invested $34.9 million in capital expenditures, paid $77.3 million, net of cash acquired, to acquire Aarts and Weldmac, and received net proceeds of $0.5 million from disposition of property and equipment.

Net cash used for financing activities was $12.8 million and $23.2 million for the nine months ended September 30, 2024 and 2023, respectively. During the nine months ended September 30, 2024, we received net proceeds of $13.4 million from borrowings on our revolving credit facilities, purchased $19.3 million of our outstanding common stock, used a net cash amount of $1.6 million related to our stock compensation arrangements, paid dividends of $5.0 million, and paid $0.3 million related to other financing activities. Our reported net proceeds from borrowings on our revolving credit facilities considers the impact of foreign currency translation. During the nine months ended September 30, 2023, we received net proceeds of $1.1 million from borrowings on our revolving credit facilities, purchased $13.4 million of outstanding common stock, used a net cash amount of $2.7 million related to our stock compensation arrangements, paid dividends of $5.0 million, and paid $3.2 million related to liabilities assumed in our acquisition of Aarts.

#### Our Debt and Other Commitments

In March 2021, we issued $400.0 million aggregate principal amount of 4.125% senior notes due April 15, 2029 ("Senior Notes") at par value in a private placement under Rule 144A of the Securities Act of 1933, as amended ("Securities Act"). The 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 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.

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% |

For the nine months ended September 30, 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 12% of the total guarantor and non-guarantor assets and liabilities, respectively, as of September 30, 2024, treating the guarantor and non-guarantor subsidiaries each as a consolidated group.

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. The Credit Agreement is subject to benchmark interest rates determined based on the currency denomination of borrowings, with British pound sterling borrowings subject to the Sterling Overnight Index Average and Euro borrowings to the Euro InterBank Offered Rate (“EURIBOR”), both plus a spread of 1.75%, and U.S. dollar borrowings subject to the Secured Overnight Financing Rate ("SOFR") 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. Our revolving credit facility allows for the issuance of letters of credit, not to exceed $40.0 million in aggregate.

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 September 30, 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 2.76 to 1.00 at September 30, 2024. Our permitted interest expense coverage ratio under the Credit Agreement is 3.00 to 1.00 as of September 30, 2024. Our actual interest expense coverage ratio was 8.18 to 1.00 at September 30, 2024. At September 30, 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 twelve months ended September 30, 2024 (dollars in thousands). We present Consolidated Bank EBITDA to show our performance under our financial covenants.

|  | Twelve Months Ended September 30, 2024 |
| --- | ---: |
| Net income | $26,550 |
| Bank stipulated adjustments: |  |
| Interest expense | 19,310 |
| Income tax expense | 5,130 |
| Depreciation and amortization | 56,530 |
| Non-cash compensation expense(1) | 8,400 |
| Other non-cash expenses or losses | 170 |
| Non-recurring expenses or costs(2) | 21,960 |
| Extraordinary, non-recurring or unusual gains or losses | 8,530 |
| Effects of purchase accounting adjustments | 400 |
| Business and asset dispositions | (770) |
| Currency gains and losses | 1,250 |
| Consolidated Bank EBITDA, as defined | $147,460 |

|  | September 30, 2024 |  |
| --- | ---: | --- |
| Total Indebtedness, as defined(3) | $406,510 |  |
| Consolidated Bank EBITDA, as defined | 147,460 |  |
| Total net leverage ratio | 2.76 | x |
| Covenant requirement | 4.00 | x |

|  | Twelve Months Ended September 30, 2024 |
| --- | ---: |
| Interest expense | $19,310 |
| Bank stipulated adjustments: |  |
| Interest income | (340) |
| Non-cash amounts attributable to amortization of financing costs | (950) |
| Total Consolidated Cash Interest Expense, as defined | $18,020 |

|  | September 30, 2024 |  |
| --- | ---: | --- |
| Consolidated Bank EBITDA, as defined | $147,460 |  |
| Total Consolidated Cash Interest Expense, as defined | 18,020 |  |
| Actual interest expense coverage ratio | 8.18 | 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, strike related costs, severance, relocation, restructuring and curtailment expenses.

(3) Includes $4.5 million of acquisition-related contingent consideration, $3.5 million of derivative liabilities, and $1.9 million of finance leases as of September 30, 2024.

At September 30, 2024, we had $13.5 million outstanding under our revolving credit facility and had $280.2 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 September 30, 2024 and December 31, 2023, we had $183.3 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 foreign subsidiaries to pay down amounts outstanding under our revolving credit facility, as applicable.

Our weighted average borrowings during the first nine months of 2024 approximated $437.5 million, compared to $420.5 million during the first nine months of 2023, primarily due to borrowings made on our revolving credit facility.

In May 2021, we, through one of our non-U.S. subsidiaries, entered into a revolving loan facility with a borrowing capacity of $4.0 million. The facility is guaranteed by TriMas Corporation. At September 30, 2024, we had $0.1 million outstanding on this loan facility.

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 the majority of our cash on hand as of September 30, 2024 is located outside of the U.S., given available funding under our revolving credit facility of $183.3 million at September 30, 2024 (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 September 30, 2024, the 1-Month SOFR approximated 5.0% and the Prime rate approximated 8.0%. Based on our variable rate-based borrowings outstanding at September 30, 2024, a 1% increase in the per annum interest rate would increase our interest expense by $0.1 million annually.

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 annual rent expense related thereto approximated $14.9 million in 2023. We expect leasing will continue to be an available financing option to fund future capital expenditure requirements.

As part of our first quarter 2023 acquisition of Aarts, we assumed a $2.9 million liability to a bank related to the advance funding of certain accounts receivable invoices. We terminated this arrangement, and repaid the outstanding balance, in March 2023.

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. In the nine months ended September 30, 2024, we purchased 771,067 shares of our outstanding common stock for an aggregate purchase price of $19.3 million. Since the initial authorization through September 30, 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 and the payment of dividends, depending on market conditions, 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 September 30, 2024, we were party to foreign exchange forward and swap contracts to hedge changes in foreign currency exchange rates with notional amounts of $141.9 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 10, "*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. 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 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 19, 2024, Moody's affirmed a Ba3 rating to our Senior Notes. See Note 9, *"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 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.

### Outlook

In 2023, we proactively managed through demand weakness in certain of our packaging businesses and an imbalance of high demand against a lack of material and skilled labor availability in our aerospace businesses. While we believe supply-related production challenges are largely behind us in the Aerospace segment, we have further opportunity to improve our production throughput, and hence conversion, within our Packaging segment through the remainder of 2024 and into 2025. Within our Specialty Products segment, we currently are working through a significant demand trough as compared to the prior year period where we enjoyed exceptional sales rates and commercial strength. Within Specialty Products, we believe sales rates are firming up, and therefore, we anticipate sequential improvement in operating profit as we move forward based on structural costs saving actions we have 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. 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 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 September 30, 2024, 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, 2023.

## Market risk

As filed, 649 characters.

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 9, "*Long-term Debt*," and Note 10, "*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.

## Controls and procedures

As filed, 1,718 characters.

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 September 30, 2024, 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 September 30, 2024, 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

There have been no changes in the Company's internal control over financial reporting during the quarter ended September 30, 2024 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

## Risk factors

As filed, 388 characters.

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 2023 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 2023 Annual Report on Form 10-K.

Filed Nov 4, 2024.
Source: SEC EDGAR, the filing index for accession 0000842633-24-000078. Last ingested by Listed: Nov 10, 2026, 17:32 ET. No prices; not investment advice.