TRIMAS CORP 10-K

Item 8. Financial Statements and Supplementary Data REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the shareholders and the Board of Directors of TriMas Corporation Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of TriMas Corporation and subsidiaries (the "Company") as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive income, cash flows, and shareholders’ equity, for each of the three years in the period ended December 31, 2020, and the related notes and the schedule listed in the Index at Item 15 (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 25, 2021, expressed an unqualified opinion on the Company's internal control over financial reporting. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Asbestos— Refer to Notes 3 and 17 to the financial statements Critical Audit Matter Description During the second quarter of 2020, the Company elected to change its method of accounting for asbestos-related defense costs from accruing for probable and reasonably estimable defense costs associated with known claims expected to settle to accrue for all future defense costs for both known and unknown claims. The Company believes this change is preferable, and this accounting change has been reflected as a change in accounting estimate effected by a change in accounting principle. Following the change in accounting estimate, the Company’s liability for asbestos-related claims will be based on a study from the Company’s third-party actuary, the Company's review of the study, as well as the Company’s own review of asbestos claims and claim resolution activity. The study from the Company’s actuary, based on data as of December 31, 2019, provided for a range of possible future liability from $31.5 million to $43.3 million. During the second quarter 2020, the Company recorded a $23.4 million charge to increase the liability estimate to the $31.5 million noted as the low end of the range. As of December 31, 2020, the Company’s total asbestos-related liability is $28.7 million and is included in accrued liabilities and other long-term liabilities, respectively, in the accompanying consolidated balance sheet. 51 Table of Contents We identified the initial gross asbestos liability recorded as a result of the change in accounting estimate as a critical audit matter because estimating projected indemnity and defense costs of pending and future asbestos-related claims involves significant estimation by management due to variables that are difficult to predict and the range of possible outcomes. This required a high degree of auditor judgment and an increased extent of effort, including the need to involve our actuarial specialists, when performing audit procedures to evaluate whether the asbestos related reserves were appropriately recorded as of December 31, 2020. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to the asbestos-related reserves included the following, among others: • We tested the effectiveness of controls over the valuation of the liability, including controls over the inputs to the model (claims data sets, indemnity settlement payments and legal payments), and over the accounting and disclosures related to the change in accounting policy resulting in a change in estimate. This included inquires with management and inspection of documentation related to the change in accounting policy for asbestos and whether it is preferable and properly accounted for prospectively as a change in accounting estimate. • With the assistance of our actuarial specialists that have experience in the area of asbestos-related reserves, we assessed the reasonableness of the valuation methodology, significant assumptions, and the range of probable outcomes estimated by management. Additionally, the specialists developed a range of independent estimates and compared those to management’s estimate. • We assessed the qualifications, experience, and objectivity of management’s third-party actuary. • We tested the underlying data that served as the basis for the actuarial analysis, including claims data sets, indemnity settlement payments, and legal payments, to test the inputs to the actuarial estimate for completeness and accuracy. Goodwill - Aerospace Reporting Units - Refer to Notes 3 and 9 to the financial statements. Critical Audit Matter Description The Company assesses goodwill for impairment on an annual basis as of October 1, and more frequently if there are changes in the business climate or as a result of a triggering event taking place. The Company’s evaluation of goodwill for impairment involved the comparison of the fair value of each reporting unit to its carrying value. If the Company concludes that conducting a quantitative assessment is required, it determines the fair value of its reporting units utilizing a discounted cash flow (income approach) and a market comparable method (market approach). The determination of the fair value using the income approach requires management to make significant estimates and assumptions, which include forward-looking projections and discount rates. The determination of the fair value using the market approach requires management to make significant estimates and assumptions, which include multiples of potentially comparable companies that are applied to management’s financial projections. During the third quarter of 2020, as a result of a decline in its aerospace-related business' financial results, a significant reduction in its financial projections for the remainder of 2020 compared with prior projections, and uncertainty around the duration and magnitude of the impact of the COVID-19 pandemic on future financial results given their dependence on future levels of air travel and new aircraft builds, the Company determined there was a triggering event requiring an interim goodwill impairment assessment for its Aerospace Fasteners and Aerospace Engineered Products reporting units. The Company determined that the carrying values of the Aerospace Fasteners and Aerospace Engineered Products reporting units exceeded their fair values, resulting in goodwill impairment charges of $70.8 million and $56.0 million, respectively. The total Company goodwill balance was $304.0 million as of December 31, 2020, of which the Aerospace Fasteners reporting unit has $62.9 million, while the Aerospace Engineered Products reporting unit had no remaining goodwill. Given the nature of the Aerospace Fasteners and Aerospace Engineered Products operations, sensitivity of the reporting unit’s business to changes in the economy, the reporting unit’s historical performance as compared to financial projections, and the difference between its fair value and the carrying value, auditing management’s judgments regarding financial projections, as well as selection of the discount rate and selection of multiples applied to management’s financial projections for the Aerospace Fasteners and Aerospace Engineered Products reporting units, required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists. 52 Table of Contents How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to the financial projections, the selection of the discount rate, and the selection of multiples applied to management’s historical financial results and financial projections (“market multiples”) for the Aerospace Fasteners and Aerospace Engineered Products reporting units included the following, among others: • We tested the effectiveness of controls over management’s goodwill impairment evaluation including the determination of fair value, such as controls related to management’s financial projections and the selection of the discount rate and market multiples used. • We evaluated management’s ability to accurately project by comparing actual financial results to management’s historical financial projections. • We evaluated the reasonableness of management’s financial projections by comparing the financial projections to historical financial results and projected information included in industry reports for the various industries the reporting units operate within. • With the assistance of our fair value specialists, we evaluated the discount rate, including testing the underlying source information and the mathematical accuracy of the calculations, and developing a range of independent estimates and comparing those to the discount rate selected by management. • With the assistance of our fair value specialists, we evaluated the market multiples by evaluating the selected potentially comparable publicly traded companies and the adjustments made for differences in growth prospects and risk profiles between the reporting units and the potentially comparable publicly traded companies. We tested the underlying source information and mathematical accuracy of the calculations. /s/ Deloitte & Touche LLP Detroit, Michigan February 25, 2021 We have served as the Company's auditor since 2013. 53 Table of Contents TriMas Corporation Consolidated Balance Sheet (Dollars in thousands) December 31, 2020 2019 Assets Current assets: Cash and cash equivalents $ 73,950 $ 172,470 Receivables, net 113,410 108,860 Inventories 149,380 132,660 Prepaid expenses and other current assets 15,090 20,050 Total current assets 351,830 434,040 Property and equipment, net 253,060 214,330 Operating lease right-of-use assets 37,820 27,850 Goodwill 303,970 334,640 Other intangibles, net 206,200 161,390 Deferred income taxes 19,580 500 Other assets 21,420 19,950 Total assets $ 1,193,880 $ 1,192,700 Liabilities and Shareholders' Equity Current liabilities: Accounts payable $ 69,910 $ 72,670 Accrued liabilities 60,540 42,020 Operating lease liabilities, current portion 6,740 5,100 Total current liabilities 137,190 119,790 Long-term debt, net 346,290 294,690 Operating lease liabilities 31,610 23,100 Deferred income taxes 24,850 16,830 Other long-term liabilities 69,690 40,810 Total liabilities 609,630 495,220 Preferred stock $0.01 par: Authorized 100,000,000 shares; Issued and outstanding: None — — Common stock, $0.01 par: Authorized 400,000,000 shares; Issued and outstanding: 43,178,165 shares at December 31, 2020 and 44,562,679 shares at December 31, 2019 430 450 Paid-in capital 749,050 782,880 Accumulated deficit ( 159,610 ) ( 79,850 ) Accumulated other comprehensive loss ( 5,620 ) ( 6,000 ) Total shareholders' equity 584,250 697,480 Total liabilities and shareholders' equity $ 1,193,880 $ 1,192,700 The accompanying notes are an integral part of these financial statements. 54 Table of Contents TriMas Corporation Consolidated Statement of Operations (Dollars in thousands, except per share amounts) Year ended December 31, 2020 2019 2018 Net sales $ 769,970 $ 723,530 $ 705,030 Cost of sales ( 587,890 ) ( 529,630 ) ( 504,920 ) Gross profit 182,080 193,900 200,110 Selling, general and administrative expenses ( 134,480 ) ( 102,530 ) ( 91,210 ) Net loss on dispositions of assets ( 1,290 ) ( 150 ) ( 90 ) Impairment of goodwill and indefinite-lived intangible assets ( 134,600 ) — — Operating profit (loss) ( 88,290 ) 91,220 108,810 Other expense, net: Interest expense ( 14,660 ) ( 13,950 ) ( 13,910 ) Other income (expense), net 240 990 ( 2,540 ) Other expense, net ( 14,420 ) ( 12,960 ) ( 16,450 ) Income (loss) before income taxes ( 102,710 ) 78,260 92,360 Income tax benefit (expense) 22,950 ( 16,320 ) ( 18,650 ) Income (loss) from continuing operations ( 79,760 ) 61,940 73,710 Income from discontinued operations, net of income taxes — 36,680 9,590 Net income (loss) $ ( 79,760 ) $ 98,620 $ 83,300 Basic earnings (loss) per share: Continuing operations $ ( 1.83 ) $ 1.37 $ 1.61 Discontinued operations — 0.81 0.21 Net income (loss) per share $ ( 1.83 ) $ 2.18 $ 1.82 Weighted average common shares - basic 43,581,232 45,303,659 45,824,555 Diluted earnings (loss) per share: Continuing operations $ ( 1.83 ) $ 1.36 $ 1.60 Discontinued operations — 0.80 0.20 Net income (loss) per share $ ( 1.83 ) $ 2.16 $ 1.80 Weighted average common shares - diluted 43,581,232 45,595,154 46,170,464 The accompanying notes are an integral part of these financial statements. 55 Table of Contents TriMas Corporation Consolidated Statement of Comprehensive Income (Dollars in thousands) Year ended December 31, 2020 2019 2018 Net income (loss) $ ( 79,760 ) $ 98,620 $ 83,300 Other comprehensive income (loss): Defined benefit plans (Note 18) 1,310 ( 1,470 ) 3,250 Foreign currency translation 6,880 10,290 ( 6,880 ) Derivative instruments (Note 14) ( 7,810 ) 3,300 4,110 Total other comprehensive income 380 12,120 480 Total comprehensive income (loss) $ ( 79,380 ) $ 110,740 $ 83,780 The accompanying notes are an integral part of these financial statements. 56 Table of Contents TriMas Corporation Consolidated Statement of Cash Flows (Dollars in thousands) Year ended December 31, 2020 2019 2018 Cash Flows from Operating Activities: Net income (loss) $ ( 79,760 ) $ 98,620 $ 83,300 Income from discontinued operations — 36,680 9,590 Income (loss) from continuing operations ( 79,760 ) 61,940 73,710 Adjustments to reconcile income from continuing operations to net cash provided by operating activities, net of acquisition impact: Impairment of goodwill and indefinite-lived intangible assets 134,600 — — Loss on dispositions of assets 1,290 150 90 Depreciation 29,020 24,870 22,230 Amortization of intangible assets 20,750 18,630 18,260 Amortization of debt issue costs 1,150 1,130 1,290 Deferred income taxes ( 33,710 ) 2,100 5,810 Non-cash compensation expense 8,170 6,450 7,170 Non-cash change in legacy liability estimate 23,400 — — (Increase) decrease in receivables 9,580 3,280 ( 9,570 ) (Increase) decrease in inventories 3,980 740 ( 14,680 ) (Increase) decrease in prepaid expenses and other assets 4,400 ( 6,930 ) 8,790 Increase (decrease) in accounts payable and accrued liabilities 4,490 ( 12,780 ) ( 2,330 ) Other operating activities 50 ( 3,870 ) 10 Net cash provided by operating activities of continuing operations 127,410 95,710 110,780 Net cash provided by (used for) operating activities of discontinued operations — ( 20,110 ) 18,540 Net cash provided by operating activities 127,410 75,600 129,320 Cash Flows from Investing Activities: Capital expenditures ( 40,480 ) ( 29,670 ) ( 23,420 ) Acquisition of businesses, net of cash acquired ( 193,540 ) ( 67,090 ) — Net proceeds from dispositions of businesses, property and equipment 1,950 128,080 60 Net cash provided by (used for) investing activities of continuing operations ( 232,070 ) 31,320 ( 23,360 ) Net cash used for investing activities of discontinued operations — ( 2,240 ) ( 1,440 ) Net cash provided by (used for) investing activities ( 232,070 ) 29,080 ( 24,800 ) Cash Flows from Financing Activities: Proceeds from borrowings on revolving credit facilities 367,280 189,060 59,060 Repayments of borrowings on revolving credit facilities ( 319,120 ) ( 189,340 ) ( 68,490 ) Payments to purchase common stock ( 39,420 ) ( 36,740 ) ( 12,140 ) Shares surrendered upon exercise and vesting of equity awards to cover taxes ( 2,600 ) ( 3,340 ) ( 2,380 ) Other financing activities — — — Net cash provided by (used for) financing activities of continuing operations 6,140 ( 40,360 ) ( 23,950 ) Net cash provided by financing activities of discontinued operations — — — Net cash provided by (used for) financing activities 6,140 ( 40,360 ) ( 23,950 ) Cash and Cash Equivalents: Increase (decrease) for the year ( 98,520 ) 64,320 80,570 At beginning of year 172,470 108,150 27,580 At end of year $ 73,950 $ 172,470 $ 108,150 Supplemental disclosure of cash flow information: Cash paid for interest $ 13,210 $ 12,430 $ 13,800 Cash paid for income taxes $ 9,060 $ 44,020 $ 7,380 The accompanying notes are an integral part of these financial statements. 57 Table of Contents TriMas Corporation Consolidated Statement of Shareholders' Equity Years Ended December 31, 2020, 2019 and 2018 (Dollars in thousands) Common Stock Paid-In Capital Accumulated Deficit Accumulated Other Comprehensive Income (Loss) Total Balances at December 31, 2017 $ 460 $ 823,850 $ ( 262,960 ) $ ( 17,330 ) $ 544,020 Net income — — 83,300 — 83,300 Other comprehensive income — — — 480 480 Purchase of common stock — ( 12,140 ) — — ( 12,140 ) Shares surrendered upon exercise and vesting of equity awards to cover taxes — ( 2,380 ) — — ( 2,380 ) Non-cash compensation expense — 7,170 — — 7,170 Balances at December 31, 2018 $ 460 $ 816,500 $ ( 179,660 ) $ ( 16,850 ) $ 620,450 Net income — — 98,620 — 98,620 Other comprehensive income — — — 12,120 12,120 Purchase of common stock ( 10 ) ( 36,730 ) — — ( 36,740 ) Shares surrendered upon exercise and vesting of equity awards to cover taxes — ( 3,340 ) — — ( 3,340 ) Non-cash compensation expense — 6,450 — — 6,450 Impact of accounting standards adoption — — 1,190 ( 1,270 ) ( 80 ) Balances at December 31, 2019 $ 450 $ 782,880 $ ( 79,850 ) $ ( 6,000 ) $ 697,480 Net loss — — ( 79,760 ) — ( 79,760 ) Other comprehensive income — — — 380 380 Purchase of common stock ( 30 ) ( 39,390 ) — — ( 39,420 ) Shares surrendered upon exercise and vesting of equity awards to cover taxes — ( 2,600 ) — — ( 2,600 ) Non-cash compensation expense 10 8,160 — — 8,170 Balances at December 31, 2020 $ 430 $ 749,050 $ ( 159,610 ) $ ( 5,620 ) $ 584,250 The accompanying notes are an integral part of these financial statements. 58 Table of Contents TRIMAS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Basis of Presentation TriMas Corporation ("TriMas" or the "Company"), and its consolidated subsidiaries, designs, engineers and manufactures innovative products under leading brand names for customers primarily in the consumer products, aerospace & defense, and industrial markets. In the second quarter of 2020, the Company elected to change its method of accounting for asbestos-related defense costs from accruing for probable and reasonably estimable defense costs associated with known claims expected to settle to accrue for all future defense costs for both known and unknown claims, which the Company now believes are reasonably estimable. The Company believes this change is preferable, as asbestos-related defense costs represent expenditures related to legacy activities that do not contribute to current or future revenue generating activities, and recording an estimate of the full liability for asbestos-related costs, where estimable with reasonable precision, provides a more complete assessment of the liability associated with resolving asbestos-related claims. This accounting change has been reflected as a change in accounting estimate effected by a change in accounting principle. See Note 17, "Commitments and Contingencies," for further information on this change. In the first quarter of 2020, TriMas began reporting its machined components operations, located in Stanton, California and Tolleson, Arizona, as part of its Aerospace segment. The operations were previously reported in the Specialty Products segment. The move of these operations into TriMas Aerospace facilitates achieving anticipated synergies from the February 2020 RSA Engineered Products ("RSA") acquisition, allowing the Company to better leverage the machining competencies and resources across its aerospace businesses. See Note 22, " Segment Information ," for further information on each of the Company's reportable segments. In the fourth quarter of 2019, the Company completed the sale of its Lamons division (“Lamons”), a transaction entered into with an investment fund sponsored by First Reserve. Lamons was sold for approximately $ 136.8 million in cash, of which approximately $ 135.0 million was received in 2019 and the remaining $ 1.8 million was received in the first quarter of 2020. The financial results of Lamons were previously reported within the Company's Specialty Products segment, and are presented as discontinued operations for all periods presented in the financial statements attached hereto. See Note 5, "Discontinued Operations," for further information on the sale of Lamons and its historical financial results. The preparation of financial statements also requires management of the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities. Actual results may differ from such estimates and assumptions due to risks and uncertainties, including uncertainty in the current economic environment due to the ongoing outbreak of a new strain of the coronavirus (“COVID-19”). While the full impact of COVID-19 on the Company's operations is unknown and cannot be reasonably estimated at this time, the Company has made appropriate accounting estimates based on the facts and circumstances available as of the reporting date. To the extent there are differences between these estimates and actual results, the Company's consolidated financial statements may be materially affected. Certain prior year amounts have been reclassified to conform with current year presentation. 2. New Accounting Pronouncements Recently Issued Accounting Pronouncements In December 2019, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes" ("ASU 2019-12"), which removes specific exceptions to the general principles in Topic 740, simplifies the accounting for income taxes and provides clarification of certain aspects of current guidance. ASU 2019-12 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2020, with early adoption permitted. The Company is in the process of assessing the impact of adoption on its consolidated financial statements. 59 Table of Contents TRIMAS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Recently Adopted Accounting Pronouncements In August 2018, the FASB issued ASU 2018-14, "Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20)" ("ASU 2018-14"), which modifies the disclosure requirements for employers who sponsor defined benefit pension or other postretirement plans. The Company adopted ASU 2018-14 in the fourth quarter of 2020. The standard relates to financial statement disclosure only and did not have an impact on the Company’s consolidated balance sheet, statement of operations or cash flows. See Note 18, "Employee Benefit Plans," for disclosure of the Company's defined benefit plans. In January 2017, the FASB issued ASU 2017-04, "Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment" ("ASU 2017-04"), which simplifies the test for goodwill impairment by eliminating the requirement to perform a hypothetical purchase price allocation to measure the amount of goodwill impairment. Instead, under ASU 2017-04, the goodwill impairment is the amount by which a reporting unit's carrying value exceeds its fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to the reporting unit. The Company adopted ASU 2017-04 in the first quarter of 2020. See Note 3, "Summary of Significant Accounting Policies," for further information on the Company's policies regarding assessing potential goodwill impairments. 3. Summary of Significant Accounting Policies Principles of Consolidation. The accompanying consolidated financial statements include the accounts and transactions of TriMas and its subsidiaries. Intercompany transactions have been eliminated. Use of Estimates. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management of the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements. Such estimates and assumptions also affect the reported amounts of revenues and expenses during the reporting periods. Significant items subject to such estimates and assumptions include the carrying amount of property and equipment, goodwill and other intangibles, valuation allowances for receivables, inventories and deferred income tax assets, valuation of derivatives, estimated future unrecoverable lease costs, reserves for asbestos and ordinary course litigation, assets and obligations related to employee benefits and estimated unrecognized tax benefits. Actual results may differ from such estimates and assumptions. Cash and Cash Equivalents. The Company considers cash on hand and on deposit and investments in all highly liquid debt instruments with initial maturities of three months or less to be cash and cash equivalents. Cash and cash equivalents also includes restricted cash held on deposit with a financial institution as cash collateral for the Company's outstanding letters of credit. See Note 8, " Cash and Cash Equivalents ," for further details regarding the Company's cash and cash equivalents. Receivables. Receivables are presented net of allowances for doubtful accounts of approximately $ 2.1 million at each of December 31, 2020 and 2019. The Company monitors its exposure for credit losses and maintains allowances for doubtful accounts based upon the Company's best estimate of probable losses inherent in the accounts receivable balances. The Company does not believe that significant credit risk exists due to its diverse customer base. Inventories. Inventories are stated at the lower of cost or net realizable value, with cost determined using the first-in, first-out method. Direct materials, direct labor and allocations of variable and fixed manufacturing-related overhead are included in inventory cost. Property and Equipment. Property and equipment additions, including significant improvements, are recorded at cost. Upon retirement or disposal of property and equipment, the cost and accumulated depreciation are removed from the accounts, and any gain or loss is included in the accompanying statement of operations. Repair and maintenance costs are charged to expense as incurred. Depreciation and Amortization. Depreciation is computed principally using the straight-line method over the estimated useful lives of the assets. Annual depreciation rates are as follows: building and land/building improvements three to 40 years, and machinery and equipment, three to 15 years. Capitalized debt issuance costs are amortized over the underlying terms of the related debt securities. Customer relationship intangibles are amortized over periods ranging from five to 25 years, while technology and other intangibles are amortized over periods ranging from one to 30 years. 60 Table of Contents TRIMAS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Impairment of Long-Lived Assets and Definite-Lived Intangible Assets. The Company reviews, on at least a quarterly basis, the financial performance of its businesses for indicators of impairment. In reviewing for impairment indicators, the Company also considers 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. The Company assesses goodwill for impairment on an annual basis (October 1 test date) by reviewing relevant qualitative and quantitative factors. More frequent evaluations may be required if the Company experiences changes in its business climate or as a result of other triggering events that take place. An impairment loss is recognized when the carrying value of a reporting unit's goodwill exceeds its fair value. The Company determines its 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 to evaluate operating results. For purposes of the Company's 2020 goodwill impairment test, the Company had six reporting units, three of which had goodwill, within its three reportable segments. The Company begins its goodwill reviews by conducting a qualitative assessment, considering relevant events and circumstances that affect the fair value or carrying amount of a reporting unit. Such events and circumstances can include macroeconomic conditions, industry and market considerations, overall financial performance, entity and reporting unit specific events, and capital markets pricing. The Company considers the extent to which any identified adverse events and circumstances affect the comparison of a reporting unit's fair value with its carrying amount. The Company places more weight on the events and circumstances that most affect a reporting unit's fair value or the carrying amount of its net assets. The Company considers positive and mitigating events and circumstances that may affect its determination of whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. The Company also considers recent valuations of its reporting units, including the difference between the most recent fair value estimate and the carrying amount. Each of these factors is considered by management in reaching its conclusion about whether a quantitative goodwill impairment test is necessary to estimate the fair value of its reporting units. If the Company concludes that conducting a quantitative assessment is required, it performs a quantitative goodwill impairment test. When conducting a quantitative goodwill impairment test, the Company determines the fair value of the reporting unit being evaluated utilizing a combination of three valuation techniques: discounted cash flow (income approach), market comparable method (market approach) and market capitalization (direct market data method). The income approach is based on management's operating plan and internal five-year forecast and utilizes forward-looking assumptions and projections, on a discounted basis, but considers factors unique to each reporting unit and related long-range plans that may not be comparable to other companies and that are not yet public. The market approach considers potentially comparable companies and transactions within the industries where the Company's reporting units participate, and applies their trading multiples to the financial projections of the Company's reporting units. This approach utilizes data from actual marketplace transactions, but reliance on its results is limited by difficulty in identifying companies that are specifically comparable to the Company's reporting units, considering the diversity of the Company's businesses, the relative sizes and levels of complexity. The Company also uses the direct market data method by comparing its book value and the estimates of fair value of the reporting units to the Company's market capitalization. Management uses this comparison as additional evidence of the fair value of the Company, as its market capitalization may be suppressed by other factors such as the control premium associated with a controlling shareholder, the Company's degree of leverage and the float of the Company's common stock. Management evaluates and weights the results based on a combination of the income and market approaches, and, in situations where the income approach results differ significantly from the market and direct data approaches, management re-evaluates and adjusts, if necessary, its assumptions. Based on the quantitative test, if it is determined that the carrying value of the reporting unit is higher than its fair value, goodwill is impaired and is written down to the fair value amount; however, the loss recognized will not exceed the total amount of goodwill allocated to the reporting unit. See Note 9, " Goodwill and Other Intangible Assets ," for further details regarding the Company's goodwill impairment testing. Indefinite-Lived Intangibles. The Company assesses indefinite-lived intangible assets (primarily trademark/trade names) for impairment on an annual basis (October 1 test date) by reviewing relevant qualitative and quantitative factors. More frequent evaluations may be required if the Company experiences changes in its 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. 61 Table of Contents TRIMAS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) In conducting a qualitative assessment, the Company considers relevant events and circumstances to determine whether it is more likely than not that the fair values of the indefinite-lived intangible assets are less than the carrying values. In addition to the events and circumstances that the Company considers above in its qualitative analysis for potential goodwill impairment, the Company also considers legal, regulatory and contractual factors that could affect the fair value or carrying amount of the Company's indefinite-lived intangible assets. The Company also considers recent valuations of its indefinite-lived intangible assets, including the difference between the most recent fair value estimates and the carrying amounts. These factors are all considered by management in reaching its conclusion about whether it is more likely than not that the fair values of the indefinite-lived intangible assets are less than the carrying values. If management concludes that further testing is required, the Company performs a quantitative valuation to estimate the fair value of its indefinite-lived intangible assets. In conducting the quantitative impairment analysis, the Company determines the fair value of its indefinite-lived intangible assets using the relief-from-royalty method. The relief-from-royalty method involves the estimation of appropriate market royalty rates for the 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 then is compared to the carrying value of the assets. If the carrying value exceeds fair value, an impairment is recorded. See Note 9, " Goodwill and Other Intangible Assets ," for further details regarding the Company's indefinite-lived intangible asset impairment testing. High Deductible Insurance. The Company generally has high deductible insurance programs for losses and liabilities related to workers' compensation, health and welfare claims and comprehensive general, product and vehicle liability. The Company is generally responsible for up to $ 0.8 million per occurrence under its retention program for workers' compensation, between $ 0.3 million and $ 1.5 million per occurrence under its retention programs for comprehensive general, product and vehicle liability, and has a $ 0.4 million per occurrence stop-loss limit with respect to its group medical plan. Total insurance limits under these retention programs vary by year for comprehensive general, product and vehicle liability and extend to the applicable statutory limits for workers' compensation. Reserves for claims losses, including an estimate of related litigation defense costs, are recorded based upon the Company's estimates of the aggregate liability for claims incurred using actuarial assumptions about future events. Changes in assumptions for factors such as medical costs and actual experience could cause these estimates to change. Pension Plans. The Company engages independent actuaries to compute the amounts of liabilities and expenses under defined benefit pension plans, subject to the assumptions that the Company determines are appropriate based on historical trends, current market rates and future projections. Assumptions used in the actuarial calculations could have a significant impact on plan obligations, and a lesser impact on current period expense. Annually, the Company reviews the actual experience compared to the significant assumptions used and makes adjustments to the assumptions, if warranted. Discount rates are based on 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 fund assets is based on actual historical returns and a review of other public company pension asset return data, modified for known changes in the market and any expected change in investment policy. See Note 18, “ Employee Benefit Plans ,” for further information. Asbestos-related Matters. The Company accrues 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. The Company utilizes 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 it believes 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.” See Note 17, “ Commitments and Contingencies ,” for further information. 62 Table of Contents TRIMAS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Revenue Recognition. Revenue is recognized when control of promised goods is transferred to customers, which generally occurs when products are shipped from the Company’s facilities to its customers. The amount of revenue recorded reflects the consideration the Company expects to be entitled to receive in exchange for transferring those goods. Net sales are comprised of gross revenues, based on observed stand-alone selling prices, less estimates of expected returns, trade discounts and customer allowances, which include incentives such as volume and other discounts in connection with various supply programs. Such deductions are estimated and recorded during the period the related revenue is recognized. The Company may adjust these estimates when the expected amount of consideration changes based on sales volumes or other contractual terms. Sales and other consumption taxes the Company collects from customers and remits to government agencies are excluded from revenue. The Company accounts for freight and shipping costs that occur after control of the related goods transfer to the customer as a fulfillment cost within cost of sales. The nature and timing of the Company's revenue transactions are similar, as substantially all revenue is based on point-in-time transactions with customers under industry-standard payment terms. The Company may require shortened payment terms, including cash-in-advance, on an individual customer basis depending on its assessment of the customer's credit worthiness. Cost of Sales. Cost of sales includes material, labor and overhead costs incurred in the manufacture of products sold in the period. Material costs include raw material, purchased components, outside processing and freight costs. Overhead costs consist of variable and fixed manufacturing costs, wages and fringe benefits, and purchasing, receiving and inspection costs. Selling, General and Administrative Expenses. Selling, general and administrative expenses include the following: costs related to the advertising, sale, marketing and distribution of the Company's products, amortization of customer intangible assets, costs of finance, human resources, legal functions, executive management costs and other administrative expenses. Income Taxes. The Company computes 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. The Company determines valuation allowances based on an assessment of positive and negative evidence on a jurisdiction-by-jurisdiction basis and records a valuation allowance to reduce deferred tax assets to the amount more likely than not to be realized. The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. 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. The Company records interest and penalties related to unrecognized tax benefits in income tax expense. See Note 23, " Income Taxes ," for further information. Foreign Currency Translation. The financial statements of subsidiaries located outside of the United States are measured using the currency of the primary economic environment in which they operate as the functional currency. When translating into U.S. dollars, income and expense items are translated at average monthly exchange rates and assets and liabilities are translated at exchange rates in effect at the balance sheet date. Adjustments resulting from translating the functional currency into U.S. dollars are deferred as a component of accumulated other comprehensive income (loss) ("AOCI") in the consolidated statement of shareholders' equity. Net foreign currency transaction gains were approximately $ 0.6 million, $ 0.3 million and $ 1.0 million for the years ended December 31, 2020, 2019 and 2018, respectively, and are included in other expense, net in the accompanying consolidated statement of operations. Derivative Financial Instruments. The Company records derivative financial instruments at fair value on the balance sheet as either assets or liabilities, and changes in their fair values are immediately recognized in earnings if the derivatives do not qualify as effective hedges. If a derivative is designated as a fair value hedge, then changes in the fair value of the derivative are offset against the changes in the fair value of the underlying hedged item. If a derivative is designated as a cash flow hedge, then the effective portion of the changes in the fair value of the derivative is recognized as a component of other comprehensive income until the underlying hedged item is recognized in earnings or the forecasted transaction is no longer probable of occurring. If a derivative is designated as a net investment hedge, then the effective portion of the changes in the fair value of the derivative is recognized in other comprehensive income and will be subsequently reclassified to earnings when the hedged net investment is either sold or substantially liquidated. The Company formally documents hedging relationships for its derivative transactions and the underlying hedged items, as well as its risk management objectives and strategies for undertaking the hedge transactions. See Note 14, " Derivative Instruments ," for further information. 63 Table of Contents TRIMAS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Fair Value of Financial Instruments. In accounting for and disclosing the fair value of financial instruments, the Company uses the following hierarchy: • Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date; • Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly; and • Level 3 inputs are unobservable inputs for the asset or liability. Valuation of the Company's interest rate swaps and cross-currency swaps are based on the income approach, which uses observable inputs such as interest rate yield curves and forward currency exchange rates, as applicable. The carrying value of financial instruments reported in the balance sheet for current assets and current liabilities approximates fair value due to the short maturity of these instruments. Business Combinations. The Company records assets acquired and liabilities assumed from acquisitions at fair value. The fair value of working capital accounts generally approximates book value. The valuation of inventory, property, plant and equipment, and intangible assets requires significant assumptions. Inventory is recorded at fair value based on the estimated selling price less costs to sell, including completion, disposal and holding period costs with a reasonable profit margin. Property and equipment is recorded at fair value using a combination of both the cost and market approaches for both the real and personal property acquired. Under the cost approach, consideration is given to the amount required to construct or purchase a new asset of equal value at current prices, with adjustments in value for physical deterioration, as well as functional and economic obsolescence. Under the market approach, recent transactions for similar types of assets are used as the basis for estimating fair value. For trademark/trade names and technology and other intangible assets, the estimated fair value is based on projected discounted future net cash flows using the relief-from-royalty method. For customer relationship intangible assets, the estimated fair value is based on projected discounted future cash flows using the excess earnings method. The relief-from-royalty and excess earnings method are both income approaches that utilize key assumptions such as forecasts of revenue and expenses over an extended period of time, royalty rate percentages, tax rates, and estimated costs of debt and equity capital to discount the projected cash flows. Stock-based Compensation. The Company recognizes compensation expense related to equity awards based on their fair values as of the grant date. For awards with only a service condition, expense is recognized ratably over the vesting period. Performance based equity awards may have targets tied to performance and/or market-based conditions. Market-based conditions are taken into consideration in determining the grant date fair value, and the related compensation expense is recognized regardless of whether the market condition is satisfied, provided the requisite service has been provided. For performance condition components, the Company periodically updates the probability that the performance conditions will be achieved and adjusts expense accordingly, reflecting the change from prior estimate, if any, in current period non-cash stock compensation expense. The disclosed number of awards granted considers only the targeted number of units until such time that the performance condition has been satisfied. If the performance conditions are not achieved, no award is earned. See Note 19, “ Equity Awards ,” for further information. Other Comprehensive Income (Loss). The Company refers to other comprehensive income (loss) as revenues, expenses, gains and losses that under accounting principles generally accepted in the United States of America are included in comprehensive income (loss) but are excluded from net earnings as these amounts are recorded directly as an adjustment to stockholders' equity. Other comprehensive income (loss) is comprised of foreign currency translation adjustments, amortization of prior service costs and unrecognized gains and losses in actuarial assumptions for pension and postretirement plans and changes in unrealized gains and losses on derivative instruments. 64 Table of Contents TRIMAS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 4. Acquisitions 2020 Acquisitions On December 15, 2020, the Company acquired Affaba & Ferrari Srl ("Affaba & Ferrari"), which specializes in the design, development and manufacture of precision caps and closures for food & beverage and industrial product applications, for an aggregate amount of approximately $ 98.4 million, net of cash acquired, subject to normal course adjustments, which are expected to be completed by mid-2021. The fair value of assets acquired and liabilities assumed included approximately $ 49.1 million of goodwill, $ 35.1 million of intangible assets, $ 9.4 million of net working capital, $ 17.4 million of property and equipment, and $ 12.6 million of net deferred tax liabilities. Affaba & Ferrari, which is reported in the Company's Packaging segment, operates out of a highly automated manufacturing facility and support office located in Borgo San Giovanni, Italy and historically generated approximately $ 34 million in annual revenue. On April 17, 2020, the Company acquired the Rapak® brand, including certain bag-in-box product lines and assets ("Rapak") for an aggregate amount of approximately $ 11.4 million. Rapak, which is reported in the Company's Packaging segment, has manufacturing locations in Indiana, California and Illinois, and historically generated approximately $ 30 million in annual revenue. On February 27, 2020, the Company acquired RSA Engineered Products ("RSA"), a manufacturer of complex, highly-engineered and proprietary ducting, connectors and related products for air management systems used in aerospace and defense applications, for an aggregate amount of approximately $ 83.7 million, net of cash acquired. The fair value of assets acquired and liabilities assumed included approximately $ 43.3 million of goodwill, $ 36.9 million of intangible assets, $ 10.1 million of net working capital, $ 2.1 million of property and equipment, and $ 8.7 million of net deferred tax liabilities. RSA, which is reported in the Company's Aerospace segment, is located in Simi Valley, California and historically generated approximately $ 30 million in annual revenue. 2019 Acquisitions In April 2019, the Company acquired Taplast S.p.A. ("Taplast"), a designer and manufacturer of dispensers, closures and containers for the beauty and personal care, household, and food and beverage packaging end markets, for an aggregate amount of approximately $ 44.7 million, net of cash acquired. With manufacturing locations in both Italy and Slovakia, Taplast serves end markets in Europe and North America and historically generated approximately $ 32 million in annual revenue. Taplast is reported in the Company's Packaging segment. In January 2019, the Company acquired Plastic Srl, a manufacturer of single-bodied and assembled polymeric caps and closures for use in home care products, for an aggregate amount of approximately $ 22.4 million, net of cash acquired. Located in Italy, Plastic Srl serves the home care market throughout Italy and other European countries and historically generated approximately $ 12 million in annual revenue. Plastic Srl is reported in the Company's Packaging segment. 5. Discontinued Operations On December 20, 2019, the Company completed the sale of Lamons to two wholly-owned subsidiaries of an investment fund sponsored by First Reserve, pursuant to an Asset and Stock Purchase Agreement dated as of November 1, 2019 (the “Purchase Agreement”), for a purchase price of $ 136.8 million. The Company recognized net cash proceeds of approximately $ 112.7 million, which represented the purchase price, less estimated tax payments of approximately $ 20.9 million, transaction costs of approximately $ 3.2 million. The Company recorded a pre-tax gain on sale of approximately $ 38.9 million, which includes the recognition of previously deferred non-cash foreign currency translation losses of approximately $ 12.4 million. The Company determined that Lamons met the criteria to be classified as a discontinued operation. As a result, the historical results for Lamons are reported in the accompanying consolidated statement of operations as a discontinued operation. 65 Table of Contents TRIMAS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Results of discontinued operations are summarized as follows (dollars in thousands): Year ended December 31, 2019 2018 Net sales $ 182,590 $ 172,110 Cost of sales ( 138,100 ) ( 128,100 ) Gross profit 44,490 44,010 Selling, general and administrative expenses ( 32,920 ) ( 30,590 ) Net gain (loss) on dispositions of assets 38,900 ( 160 ) Operating profit 50,470 13,260 Other income (expense), net ( 30 ) 360 Other income (expense), net ( 30 ) 360 Income from discontinued operations, before income taxes 50,440 13,620 Income tax expense ( 13,760 ) ( 4,030 ) Income from discontinued operations, net of tax $ 36,680 $ 9,590 6. Realignment Actions During 2020, the Company executed certain realignment actions, primarily in its Aerospace and Specialty Products segments, in response to reductions in current and expected future end-market demand. The Company recorded non-cash charges of approximately $ 13.8 million related to inventory reductions, primarily as a result of a strategic decision in its Arrow Engine division to narrow its product line focus. The Company also recorded non-cash charges of approximately $ 2.3 million related to certain production equipment removed from service given reduced demand levels. In addition, the Company reduced its employment levels given lower customer demand, incurring approximately $ 3.8 million in severance charges, of which approximately $ 3.7 million was paid by December 31, 2020. During 2020, approximately $ 17.1 million of these charges were included in cost of sales and approximately $ 2.8 million were included in selling, general and administrative expenses in the accompanying consolidated statement of operations. 7. Revenue The following table presents the Company’s disaggregated net sales by primary market served (dollars in thousands): Year ended December 31, Customer End Markets 2020 2019 2018 Consumer Products $ 402,080 $ 307,640 $ 276,740 Aerospace & Defense 167,740 194,110 185,920 Industrial 200,150 221,780 242,370 Total net sales $ 769,970 $ 723,530 $ 705,030 The Company’s Packaging segment earns revenues from the consumer products (comprised of the beauty and personal care, home care, food and beverage, pharmaceutical and nutraceutical submarkets) and industrial markets. The Aerospace segment earns revenues from the aerospace & defense market (comprised of commercial, regional and business jet and military submarkets). The Specialty Products segment earns revenues from a variety of submarkets within the industrial market. 66 Table of Contents TRIMAS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 8. Cash and Cash Equivalents Cash and cash equivalents consists of the following components (dollars in thousands): December 31, 2020 December 31, 2019 Cash and cash equivalents - unrestricted $ 62,790 $ 172,470 Cash - restricted 11,160 — Total cash and cash equivalents $ 73,950 $ 172,470 During 2020, the Company placed cash on deposit with a financial institution to be held as cash collateral for the Company's outstanding letters of credit. In prior years, the Company used a portion of its credit agreement as collateral for letters of credit, which decreased availability under its revolving credit facility. See Note 13, "Long-term Debt," for further information on the Company's credit agreement. 9. Goodwill and Other Intangible Assets Goodwill The Company performed a qualitative assessment as part of its 2020, 2019 and 2018 annual impairment tests (October 1 annual test date) for all reporting units, which included a review of the Company’s market capitalization. Based on results of the qualitative assessments for the 2020, 2019 and 2018 annual impairment tests, the Company determined there were no indications that the fair value of a reporting unit was less than its carrying amount; therefore, the Company determined that quantitative goodwill impairment tests were not required. During the third quarter of 2020, as a result of a decline in its aerospace-related business' financial results, a significant reduction in its financial projections for the remainder of 2020 compared with prior projections, and uncertainty around the duration and magnitude of the impact of the COVID-19 pandemic on future financial results given their dependence on future levels of air travel and new aircraft builds, the Company determined there was a triggering event requiring an interim quantitative goodwill impairment assessment of each of its two aerospace-related reporting units: Aerospace Fasteners and Aerospace Engineered Products. In preparing the quantitative analysis, the Company utilized both income and market-based approaches. The income-based approach was conducted using the discounted cash flow method, for which management updated its internal five-year forecast, and reflected its current best estimates of when, and at what level, a recovery of air travel, new aircraft builds, and resulting customer orders would occur and the related impact on each reporting unit's future sales, earnings and cash flows. Assumptions in estimating the future cash flows were based on Level 3 inputs under the fair value hierarchy. The Company also selected appropriate terminal growth rates as well as discount rates, which considered various factors including the level of inherent risk in achieving the forecast based on prior history and current market conditions. The market-based approach considered potentially comparable publicly traded companies and transactions within the aerospace industry and applied their trading multiples to management's forecast estimates. Upon completion of the quantitative goodwill impairment tests, the Company determined that the carrying values of the Aerospace Fasteners and Aerospace Engineered Products reporting units exceeded their fair values, resulting in goodwill impairment charges of approximately $ 70.8 million in its Aerospace Fasteners reporting unit and approximately $ 56.0 million in its Aerospace Engineered Products reporting unit. Following the impairment charges, the Aerospace Fasteners reporting unit has $ 62.9 million of remaining goodwill, while the Aerospace Engineered Products reporting unit has no remaining goodwill. The Company notes that a 1 % change in the discount rate would have impacted the total goodwill impairment charge by approximately $ 20 million, while a 0.5 % change in the terminal growth rate would have impacted the total goodwill impairment charge by approximately $ 5 million. If the future financial results of the aerospace-related businesses significantly differ from the assumptions inherent in this analysis, the Company may be subject to further impairment charges. In the first quarter of 2020, the Company began reporting its machined components operations within the Aerospace segment. These operations were previously reported in the Company's Specialty Products segment. As a result of the reporting structure change, goodwill of approximately $ 12.7 million was reassigned from the Specialty Products segment to the Aerospace segment. 67 Table of Contents TRIMAS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Changes in the carrying amount of goodwill for the years ended December 31, 2020 and 2019 are as follows (dollars in thousands): Specialty Packaging Aerospace Products Total Balance, December 31, 2018 $ 163,660 $ 146,430 $ 6,560 $ 316,650 Goodwill from acquisitions 18,400 — — 18,400 Goodwill reassigned in segment realignment — ( 12,740 ) 12,740 — Foreign currency translation and other ( 410 ) — — ( 410 ) Balance, December 31, 2019 $ 181,650 $ 133,690 $ 19,300 $ 334,640 Goodwill from acquisitions 49,130 43,260 — 92,390 Impairment charge — ( 126,840 ) — ( 126,840 ) Goodwill reassigned in segment realignment — 12,740 ( 12,740 ) — Foreign currency translation and other 3,780 — — 3,780 Balance, December 31, 2020 $ 234,560 $ 62,850 $ 6,560 $ 303,970 Other Intangible Assets For the purposes of the Company's 2020, 2019 and 2018 annual indefinite-lived intangible asset impairment tests (as of October 1), the Company performed a qualitative assessment to determine whether it was more likely than not that the fair values of the indefinite-lived intangible assets were less than the carrying values. Based on the qualitative assessment performed, the Company did not believe that it is more likely than not that the fair values of each of its indefinite-lived intangible assets were less than the carrying values; therefore, a fair value calculation of the indefinite-lived intangible assets was not required for the 2020, 2019 and 2018 annual indefinite-lived intangible asset impairment tests. During the third quarter of 2020, as a result of the significant forecast reduction in the Company's aerospace-related businesses, the Company also performed an interim quantitative assessment for the indefinite-lived intangible assets within the Aerospace segment, using the relief-from-royalty method. Significant management assumptions used under the relief-from-royalty method reflected the Company's current assessment of the risks and uncertainties associated with the aerospace industry. Upon completion of the quantitative impairment test, the Company determined that certain of the Company's aerospace-related trade names had carrying values that exceeded their fair values, and therefore recorded impairment charges of approximately $ 7.8 million. 68 Table of Contents TRIMAS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The gross carrying amounts and accumulated amortization of the Company's other intangibles as of December 31, 2020 and 2019 are summarized below (dollars in thousands): As of December 31, 2020 As of December 31, 2019 Intangible Category by Useful Life Gross Carrying Amount Accumulated Amortization Gross Carrying Amount Accumulated Amortization Finite-lived intangible assets: Customer relationships, 5 - 12 years $ 122,970 $ ( 59,470 ) $ 73,860 $ ( 49,910 ) Customer relationships, 15 - 25 years 122,280 ( 62,450 ) 122,280 ( 56,010 ) Total customer relationships 245,250 ( 121,920 ) 196,140 ( 105,920 ) Technology and other, 1 - 15 years 57,180 ( 32,800 ) 52,430 ( 29,790 ) Technology and other, 17 - 30 years 43,300 ( 39,450 ) 43,300 ( 37,620 ) Total technology and other 100,480 ( 72,250 ) 95,730 ( 67,410 ) Indefinite-lived intangible assets: Trademark/Trade names 54,640 — 42,850 — Total other intangible assets $ 400,370 $ ( 194,170 ) $ 334,720 $ ( 173,330 ) Amortization expense related to intangible assets as included in the accompanying consolidated statement of operations is summarized as follows (dollars in thousands): Year ended December 31, 2020 2019 2018 Technology and other, included in cost of sales $ 4,930 $ 4,780 $ 4,890 Customer relationships, included in selling, general and administrative expenses 15,820 13,850 13,370 Total amortization expense $ 20,750 $ 18,630 $ 18,260 Estimated amortization expense for the next five fiscal years beginning after December 31, 2020 is as follows (dollars in thousands): Year ended December 31, Estimated Amortization Expense 2021 $ 21,790 2022 $ 18,230 2023 $ 16,330 2024 $ 14,830 2025 $ 14,480 69 Table of Contents TRIMAS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 10. Inventories Inventories consist of the following components (dollars in thousands): December 31, 2020 December 31, 2019 Finished goods $ 78,010 $ 68,350 Work in process 29,680 30,560 Raw materials 41,690 33,750 Total inventories $ 149,380 $ 132,660 11. Property and Equipment, Net Property and equipment consists of the following components (dollars in thousands): December 31, 2020 December 31, 2019 Land and land improvements $ 20,040 $ 19,110 Building and building improvements 91,970 84,880 Machinery and equipment 384,010 326,990 496,020 430,980 Less: Accumulated depreciation 242,960 216,650 Property and equipment, net $ 253,060 $ 214,330 Depreciation expense as included in the accompanying consolidated statement of operations is as follows (dollars in thousands): Year ended December 31, 2020 2019 2018 Depreciation expense, included in cost of sales $ 27,920 $ 23,700 $ 20,890 Depreciation expense, included in selling, general and administrative expense 1,100 1,170 1,340 Total depreciation expense $ 29,020 $ 24,870 $ 22,230 12. Accrued Liabilities Accrued liabilities consist of the following components (dollars in thousands): December 31, 2020 December 31, 2019 Accrued payroll $ 23,140 $ 16,390 High deductible insurance 4,980 5,720 Other 32,420 19,910 Total accrued liabilities $ 60,540 $ 42,020 70 Table of Contents TRIMAS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 13. Long-term Debt The Company's long-term debt consists of the following (dollars in thousands): December 31, 2020 December 31, 2019 4.875% Senior Notes due October 2025 $ 300,000 $ 300,000 Credit Agreement 50,450 — Debt issuance costs ( 4,160 ) ( 5,310 ) Long-term debt, net $ 346,290 $ 294,690 Senior Notes The Company has $ 300.0 million aggregate principal amount of 4.875 % senior notes outstanding due October 15, 2025 ("Senior Notes"). The Senior Notes accrue interest at a rate of 4.875 % 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 (each a "Guarantor" and collectively the "Guarantors"). 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. The Company 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, but excluding, the redemption date, if redeemed during the twelve-month period beginning on October 15 of the years indicated below: Year Percentage 2020 102.438 % 2021 101.219 % 2022 and thereafter 100.000 % Credit Agreement The Company is 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 September 20, 2022 and is subject to interest at London Interbank Offered Rate ("LIBOR") plus 1.50 %. The interest rate spread is based upon the leverage ratio, as defined, as of the most recent determination date. The Credit Agreement also provides incremental revolving credit facility commitments in an amount not to exceed the greater of $ 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, 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. The Company's revolving credit facility allows for the issuance of letters of credit, not to exceed $ 40.0 million in aggregate. During 2020, the Company placed cash on deposit with a financial institution to be held as cash collateral for the Company's outstanding letters of credit; therefore, as of December 31, 2020, the Company had no letters of credit issued against its revolving credit facility. See Note 8, " Cash and Cash Equivalents ," for further information on its cash deposits. At December 31, 2020, the Company had $ 50.5 million outstanding under its revolving credit facility and had $ 249.5 million potentially available. At December 31, 2019, the Company had no amounts outstanding under its revolving credit facility and had $ 283.9 million potentially available after giving effect to approximately $ 16.1 million of letters of credit issued and outstanding. The Company's borrowing capacity was not reduced by leverage restrictions contained in the Credit Agreement as of December 31, 2020 and December 31, 2019. The Company previously drew $ 150 million on its revolving credit facility in March 2020 to defend against potential uncertainty or liquidity issues in the financial markets as a result of the COVID-19 pandemic, but repaid this amount during second quarter 2020. 71 Table of Contents TRIMAS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The debt under the Credit Agreement is an obligation of the Company and certain of its domestic subsidiaries and is secured by substantially all of the assets of such parties. Borrowings under the $ 125.0 million (equivalent) foreign currency sub limit of the $ 300.0 million senior secured revolving credit facility are secured by a cross-guarantee amongst, and a pledge of the assets of, the foreign subsidiary borrowers that are a party to the agreement. The Credit Agreement also contains various negative and affirmative covenants and other requirements affecting the Company and its subsidiaries, including the ability 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 the Credit Agreement also require the Company and its restricted subsidiaries to meet certain restrictive financial covenants and ratios computed quarterly, including a maximum total net leverage ratio (total consolidated indebtedness plus outstanding amounts under any accounts receivable securitization facility, less the aggregate amount of certain unrestricted cash and unrestricted permitted investments, as defined, over consolidated EBITDA, as defined), a maximum senior secured net leverage ratio (total consolidated senior secured indebtedness, less the aggregate amount of certain unrestricted cash and unrestricted permitted investments, as defined, over consolidated EBITDA, as defined) and a minimum interest expense coverage ratio (consolidated EBITDA, as defined, over the sum of consolidated cash interest expense, as defined, and preferred dividends, as defined). At December 31, 2020, the Company was in compliance with the financial covenants contained in the Credit Agreement. Long-term Debt Maturities Future maturities of the face value of long-term debt at December 31, 2020 are as follows (dollars in thousands): Year Ending December 31: Future Maturities 2021 $ — 2022 50,450 2023 — 2024 — 2025 300,000 Thereafter — Total $ 350,450 Fair Value of Debt The valuations of the Senior Notes and revolving credit facility were determined based on Level 2 inputs under the fair value hierarchy, as defined. The carrying amounts and fair values were as follows (dollars in thousands): December 31, 2020 December 31, 2019 Carrying Amount Fair Value Carrying Amount Fair Value Senior Notes $ 300,000 $ 305,630 $ 300,000 $ 309,000 Revolving credit facility 50,450 50,450 — — Debt Issuance Costs The Company's unamortized debt issuance costs approximated $ 4.2 million and $ 5.3 million at December 31, 2020 and 2019, respectively, and are included as a direct reduction from the related debt liability in the accompanying consolidated balance sheet. These amounts consisted primarily of legal, accounting and other transaction advisory fees as well as facility fees paid to the lenders. Amortization expense for these items was approximately $ 1.2 million, $ 1.1 million and $ 1.3 million in 2020, 2019 and 2018, respectively, and is included in interest expense in the accompanying consolidated statement of operations. 72 Table of Contents TRIMAS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 14. Derivative Instruments Derivatives Designated as Hedging Instruments The Company uses cross-currency swap contracts to hedge its net investment in Euro-denominated assets against future volatility in the exchange rate between the U.S. dollar and the Euro. By doing so, the Company synthetically converts a portion of its U.S. dollar-based long-term debt into Euro-denominated long-term debt. At inception, the cross-currency swaps were designated as net investment hedges. In November 2020, the Company entered into additional cross-currency swap agreements at notional amounts declining from $ 50.0 million to $ 25.0 million over the contract period ending April 15, 2025. Under the terms of the swap agreements, the Company is to receive net interest payments at a fixed rate of approximately 0.8 % of the notional amount. As of December 31, 2020, the notional amount of these cross-currency swaps was $ 50.0 million. In October 2018, the Company entered into cross-currency swap agreements at notional amounts declining from $ 125.0 million to $ 75.0 million over the contract period ending October 15, 2023. Under the terms of the swap agreements, the Company is to receive net interest payments at a fixed rate of approximately 2.9 % of the notional amount. As of December 31, 2020, the notional amount of these cross-currency swaps was $ 100.0 million. In October 2018, immediately prior to entering into the new cross-currency swap agreements, the Company terminated its existing cross-currency swap agreements, de-designating the swaps as net investment hedges and receiving approximately $ 1.1 million of cash. As of December 31, 2020 and 2019, the fair value carrying amount of the Company's derivatives designated as hedging instruments are recorded as follows (dollars in thousands): Asset / (Liability) Derivatives Derivatives designated as hedging instruments Balance Sheet Caption December 31, 2020 December 31, 2019 Net Investment Hedges Cross-currency swaps Other assets $ — $ 4,460 Cross-currency swaps Other long-term liabilities ( 5,000 ) — The following table summarizes the income recognized in AOCI on derivative contracts designated as hedging instruments as of December 31, 2020 and 2019, and the amounts reclassified from AOCI into earnings for the years ended December 31, 2020, 2019 and 2018 (dollars in thousands): Amount of Income (Loss) Recognized in AOCI on Derivative (Effective Portion, net of tax) Location of Loss Reclassified from AOCI into Earnings (Effective Portion) Amount of Loss Reclassified from AOCI into Earnings As of December 31, Year ended December 31, 2020 2019 2020 2019 2018 Net Investment Hedges Cross-currency swaps $ ( 3,580 ) $ 4,230 Other expense, net $ — $ — $ — Over the next 12 months, the Company does no t expect to reclassify any pre-tax deferred amounts from AOCI into earnings. Derivatives Not Designated as Hedging Instruments As of December 31, 2020, the Company was party to foreign currency exchange forward contracts to economically hedge changes in foreign currency rates with notional amounts of approximately $ 96.3 million. The Company uses foreign exchange contracts to mitigate the risk associated with fluctuations in currency rates impacting cash flows related to certain of its receivables, payables and intercompany transactions denominated in foreign currencies. The foreign exchange contracts primarily mitigate currency exposures between the U.S. dollar and the Euro, British pound, Mexican peso and the Chinese yuan, and have various settlement dates through April 2021. These contracts are not designated as hedging instruments; therefore, gains and losses on these contracts are recognized each period directly into the consolidated statement of operations. 73 Table of Contents TRIMAS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The following table summarizes the effects of derivatives not designated as hedging instruments on the Company's consolidated statement of operations (dollars in thousands): Amount of Loss Recognized in Earnings on Derivatives Year ended December 31, Location of Loss Recognized in Earnings on Derivatives 2020 2019 2018 Derivatives not designated as hedging instruments Foreign exchange contracts Other income (expense), net $ ( 470 ) $ ( 600 ) $ — Fair Value of Derivatives The fair value of the Company's derivative instruments are estimated using an income approach based on valuation techniques to convert future amounts to a single, discounted amount. Estimates of the fair value of the Company's cross-currency swaps use observable inputs such as interest rate yield curves and forward currency exchange rates. Fair value measurements and the fair value hierarchy level for the Company's assets and liabilities measured at fair value on a recurring basis as of December 31, 2020 and 2019 are as follows (dollars in thousands): Description Frequency Asset / (Liability) Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) December 31, 2020 Cross-currency swaps Recurring $ ( 5,000 ) $ — $ ( 5,000 ) $ — Foreign exchange contracts Recurring $ 140 $ — $ 140 $ — December 31, 2019 Cross-currency swaps Recurring $ 4,460 $ — $ 4,460 $ — Foreign exchange contracts Recurring $ ( 770 ) $ — $ ( 770 ) $ — 15. Leases The Company leases certain equipment and facilities under non-cancelable operating leases. Leases with an initial term of 12 months or less are not recorded on the balance sheet; expense related to these leases is recognized on a straight-line basis over the lease term. The components of lease expense are as follows (dollars in thousands): Year ended December 31, 2020 Year ended December 31, 2019 Operating lease cost $ 7,870 6,380 Short-term, variable and other lease costs 1,540 1,140 Total lease cost $ 9,410 $ 7,520 74 Table of Contents TRIMAS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Maturities of lease liabilities are as follows (dollars in thousands): Year ended December 31, Operating Leases (a) 2021 $ 8,070 2022 7,250 2023 6,340 2024 5,120 2025 4,400 Thereafter 12,700 Total lease payments 43,880 Less: Imputed interest ( 5,530 ) Present value of lease liabilities $ 38,350 __________________________ (a) The maturity table excludes cash flows associated with exited lease facilities. Liabilities for exited lease facilities are included in accrued liabilities and other long-term liabilities in the accompanying consolidated balance sheet. The weighted-average remaining term of the Company's operating leases as of December 31, 2020 is approximately 6.8 years. The weighted-average discount rate as of December 31, 2020 is approximately 4.4 %. Cash paid for amounts included in the measurement of operating lease liabilities was approximately $ 7.9 million and $ 6.4 million during 2020 and 2019, respectively, and is included in cash flows provided by operating activities in the consolidated statement of cash flows. Right-of-use assets obtained in exchange for lease liabilities were approximately $ 14.0 million and $ 1.4 million during 2020 and 2019, respectively, primarily due to acquisitions. Rental expense for operating leases as classified under prior authoritative lease guidance for the Company was approximately $ 5.8 million in 2018. 16. Other Long-term Liabilities Other long-term liabilities consist of the following components (dollars in thousands): December 31, 2020 December 31, 2019 Non-current asbestos-related liabilities $ 26,170 $ 6,200 Other long-term liabilities 43,520 34,610 Total other long-term liabilities $ 69,690 $ 40,810 75 Table of Contents TRIMAS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 17. Commitments and Contingencies Environmental The Company is subject to increasingly stringent environmental laws and regulations, including those relating to air emissions, wastewater discharges and chemical and hazardous waste management and disposal. Some of these environmental laws hold owners or operators of land or businesses liable for their own and for previous owners' or operators' releases of hazardous or toxic substances or wastes. Other environmental laws and regulations require the obtainment and compliance with environmental permits. To date, costs of complying with environmental, health and safety requirements have not been material. However, the nature of the Company's operations and the long history of industrial activities at certain of the Company's current or former facilities, as well as those acquired, could potentially result in material environmental liabilities. While the Company must comply with existing and pending climate change legislation, regulation and international treaties or accords, current laws and regulations have not had a material impact on the Company's business, capital expenditures or financial position. Future events, including those relating to climate change or greenhouse gas regulation, could require the Company to incur expenses related to the modification or curtailment of operations, installation of pollution control equipment or investigation and cleanup of contaminated sites. Asbestos As of December 31, 2020, the Company was a party to 337 pending cases involving an aggregate of 4,655 claimants primarily alleging personal injury from exposure to asbestos containing materials formerly used in gaskets (both encapsulated and otherwise) manufactured or distributed by Lamons and certain other related subsidiaries for use primarily in the petrochemical refining and exploration industries. The following chart summarizes the number of claims, number of claims filed, number of claims dismissed, number of claims settled, the average settlement amount per claim and the total defense costs, at the applicable date and for the applicable periods: Claims pending at beginning of period Claims filed during period Claims dismissed during period Claims settled during period Claims pending at end of period Average settlement amount per claim during period Total defense costs during period Fiscal year ended December 31, 2020 4,759 219 287 36 4,655 $ 18,314 $ 2,130,000 Fiscal year ended December 31, 2019 4,820 143 172 32 4,759 $ 16,616 $ 2,250,000 Fiscal year ended December 31, 2018 5,256 171 564 43 4,820 $ 7,191 $ 2,260,000 In addition, the Company acquired various companies to distribute its products that had distributed gaskets of other manufacturers prior to acquisition. The Company believes that many of the pending cases relate to locations at which none of its gaskets were distributed or used. The Company may be subjected to significant additional asbestos-related claims in the future, and will aggressively defend or reasonably resolve, as appropriate. The cost of settling cases in which product identification can be made may increase, and the Company may be subjected to further claims in respect of the former activities of its acquired gasket distributors. The cost of claims varies as claims may be initially made in some jurisdictions without specifying the amount sought or by simply stating the requisite or maximum permissible monetary relief, and may be amended to alter the amount sought. The large majority of claims do not specify the amount sought. Of the 4,655 claims pending at December 31, 2020, 40 set forth specific amounts of damages (other than those stating the statutory minimum or maximum). At December 31, 2020, of the 40 claims that set forth specific amounts, there were no claims seeking specific amounts for punitive damages. Below is a breakdown of the compensatory damages sought for those claims seeking specific amounts: Compensatory Range of damages sought (in millions) $0.0 to $0.6 $0.6 to $5.0 $5.0+ Number of claims — 6 34 76 Table of Contents TRIMAS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Relatively few claims have reached the discovery stage and even fewer claims have gone past the discovery stage. Total settlement costs (exclusive of defense costs) for all such cases, some of which were filed over 25 years ago, have been approximately $ 10.0 million. All relief sought in the asbestos cases is monetary in nature. Based on the settlements made to date and the number of claims dismissed or withdrawn for lack of product identification, the Company believes that the relief sought (when specified) does not bear a reasonable relationship to its potential liability. There has been significant volatility in the historical number of claim filings and costs to defend, with previous claim counts and spend levels much higher than current levels. Management believes this volatility was associated more with tort reform, plaintiff practices and state-specific legal dockets than the Company’s underlying asbestos-related exposures. In the past three years, however, the number of new claim filings, and costs to defend, have become much more consistent, ranging between 143 to 173 new claims per year and total defense costs ranging between $ 2.2 million and $ 2.3 million. The higher degree of consistency in census data and spend levels, as well as lower claim activity levels and an evolving defense strategy, has allowed the Company to more effectively and efficiently manage claims, making process or local counsel arrangement improvements where possible. Given the consistency of activity over a multi-year period, the Company believed a trend may have formed where it could be possible to reasonably estimate its future cash exposure for all asbestos-related activity with an adequate level of precision. As such, the Company commissioned an actuary to help evaluate the nature and predictability of its asbestos-related costs, and provide an actuarial range of estimates of future exposures. Based upon its review of the actuarial study, which was completed in June 2020 using data as of December 31, 2019 and which projected spend levels through a terminal year of 2064, the Company affirmed its belief that it now has the ability to reasonably estimate its future asbestos-related exposures for pending as well as unknown future claims. During the second quarter of 2020, the Company elected to change its method of accounting for asbestos-related defense costs from accruing for probable and reasonably estimable defense costs associated with known claims expected to settle to accrue for all future defense costs for both known and unknown claims, which the Company now believes are reasonably estimable. The Company believes this change is preferable, as asbestos-related defense costs represent expenditures related to legacy activities that do not contribute to current or future revenue generating activities, and recording an estimate of the full liability for asbestos-related costs, where estimable with reasonable precision, provides a more complete assessment of the liability associated with resolving asbestos-related claims. This accounting change has been reflected as a change in accounting estimate effected by a change in accounting principle. In connection with this second quarter 2020 change, the Company recorded a non-cash, pre-tax charge for asbestos-related costs of approximately $ 23.4 million which is included in selling, general and administrative expenses in the accompanying consolidated statement of operations. Following the change in accounting estimate, the Company’s liability for asbestos-related claims will be based on a study from the Company’s third-party actuary, the Company's review of the study, as well as the Company’s own review of asbestos claims and claim resolution activity. The study from the Company’s actuary, based on data as of December 31, 2019, provided for a range of possible future liability from $ 31.5 million to $ 43.3 million. The Company did not believe any amount within the range of potential outcomes represented a better estimate than another given the many factors and assumptions inherent in the projections, and therefore recorded the $ 23.4 million charge to increase the liability estimate to $ 31.5 million, at the low-end of the range. As of December 31, 2020, the Company’s total asbestos-related liability is $ 28.7 million, and is included in accrued liabilities and other long-term liabilities, respectively, in the accompanying consolidated balance sheet. The Company’s primary insurance, which covered approximately 40 % of historical costs related to settlement and defense of asbestos litigation, expired in November 2018, upon which the Company became solely responsible for defense costs and indemnity payments. The Company is party to a coverage-in-place agreement (entered into in 2006) with its first level excess carriers regarding the coverage to be provided to the Company for asbestos-related claims. The coverage-in-place agreement makes asbestos defense costs and indemnity insurance coverage available to the Company that might otherwise be disputed by the carriers and provides a methodology for the administration of such expenses. The Company will continue to be solely responsible for defense costs and indemnity payments prior to the commencement of coverage under this agreement, the duration of which would be subject to the scope of damage awards and settlements paid. Based upon the Company’s review of the actuarial study, the Company does not believe it is probable that it will reach the threshold of qualified future settlements required to commence excess carrier insurance coverage under the coverage-in-place agreement. 77 Table of Contents TRIMAS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) While the Company recorded a significant non-cash charge in the six months ended June 30, 2020 in connection with its change in accounting policy, based upon the Company's experience to date, including the trend in annual defense and settlement costs incurred to date, and other available information (including the availability of excess insurance), the Company does not believe these cases will have a material adverse effect on its financial position or cash flows. Claims and Litigation The Company is subject to other claims and litigation in the ordinary course of business, but does not believe that any such claim or litigation will have a material adverse effect on its financial position and results of operations or cash flows. 18. Employee Benefit Plans Pension and Profit-Sharing Benefits The Company provides a defined contribution profit sharing plan for the benefit of substantially all the Company's domestic salaried and non-union hourly employees. The plan contains both contributory and noncontributory profit sharing arrangements, as defined. Aggregate charges included in the accompanying consolidated statement of operations under this plan for both continuing and discontinued operations were approximately $ 3.4 million, $ 4.6 million and $ 4.2 million in 2020, 2019 and 2018, respectively. Certain of the Company's non-U.S. and union hourly employees participate in defined benefit pension plans. Plan Assets, Expenses and Obligations Net periodic pension benefit expense recorded in the Company's consolidated statement of operations for defined benefit pension plans include the following components (dollars in thousands): Pension Benefit 2020 2019 2018 Service cost $ 1,230 $ 1,050 $ 1,120 Interest cost 930 1,070 1,100 Expected return on plan assets ( 1,450 ) ( 1,400 ) ( 1,520 ) Settlements and curtailments — — 2,620 Amortization of net loss 890 580 860 Net periodic benefit expense $ 1,600 $ 1,300 $ 4,180 The service cost component of net periodic benefit expense is recorded in cost of goods sold and selling, general and administrative expenses, while non-service cost components are recorded in other expense, net in the accompanying consolidated statement of operations. During 2018, the Company recognized one-time settlement and curtailment charges of approximately $ 2.6 million, of which approximately $ 2.5 million was due to the purchase of an annuity contract to transfer certain U.S. retiree defined benefit obligations to an insurance company. The annuity contract was funded by plan assets. Actuarial valuations of the Company's defined benefit pension plans were prepared as of December 31, 2020, 2019 and 2018. Weighted average assumptions used in accounting for the U.S. defined benefit pension plans are as follows: Pension Benefit 2020 2019 2018 Discount rate for obligations 2.79 % 3.41 % 4.50 % Discount rate for benefit costs 3.41 % 4.50 % 4.37 % Rate of increase in compensation levels N/A N/A N/A Expected long-term rate of return on plan assets 6.13 % 7.13 % 7.13 % 78 Table of Contents TRIMAS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The Company utilizes a high-quality (Aa or greater) corporate bond yield curve as the basis for its domestic discount rate for its pension benefit plans. Management believes this yield curve removes the impact of including additional required corporate bond yields (potentially considered in the above-median curve) resulting from the uncertain economic climate that does not necessarily reflect the general trend in high-quality interest rates. Weighted average assumptions used in accounting for the non-U.S. defined benefit pension plans are as follows: Pension Benefit 2020 2019 2018 Discount rate for obligations 1.50 % 2.10 % 3.00 % Discount rate for benefit costs 2.10 % 3.00 % 2.60 % Rate of increase in compensation levels 2.80 % 3.00 % 3.30 % Expected long-term rate of return on plan assets 4.10 % 4.60 % 4.60 % The following provides a reconciliation of the changes in the Company's defined benefit pension plans' projected benefit obligations and fair value of assets for each of the years ended December 31, 2020 and 2019 and the funded status as of December 31, 2020 and 2019 (dollars in thousands): Pension Benefit 2020 2019 Changes in Projected Benefit Obligations Benefit obligations at January 1 $ ( 36,580 ) $ ( 30,300 ) Service cost ( 1,230 ) ( 1,050 ) Interest cost ( 930 ) ( 1,070 ) Participant contributions ( 60 ) ( 60 ) Actuarial loss (a) ( 2,420 ) ( 4,190 ) Benefit payments 1,140 900 Change in foreign currency ( 750 ) ( 810 ) Projected benefit obligations at December 31 $ ( 40,830 ) $ ( 36,580 ) Changes in Plan Assets Fair value of plan assets at January 1 $ 30,260 $ 24,650 Actual return on plan assets 4,780 3,630 Employer contributions 1,140 1,930 Participant contributions 60 60 Benefit payments ( 1,140 ) ( 900 ) Change in foreign currency 960 890 Fair value of plan assets at December 31 $ 36,060 $ 30,260 Funded status at December 31 $ ( 4,770 ) $ ( 6,320 ) __________________________ (a) The actuarial losses for the year ended December 31, 2020 and 2019 were primarily due to a decrease in the discount rate utilized in measuring the projected benefit obligations, partially offset by other assumptions and experience gains. 79 Table of Contents TRIMAS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Pension Benefit 2020 2019 Amounts Recognized in Balance Sheet Other assets $ 4,470 $ 1,690 Current liabilities ( 340 ) ( 330 ) Noncurrent liabilities ( 8,900 ) ( 7,680 ) Net liability recognized at December 31 $ ( 4,770 ) $ ( 6,320 ) Pension Benefit 2020 2019 Amounts Recognized in Accumulated Other Comprehensive Loss Unrecognized prior service cost $ 170 $ 190 Unrecognized net loss 11,470 13,240 Total accumulated other comprehensive loss recognized at December 31 $ 11,640 $ 13,430 Accumulated Benefit Obligations Projected Benefit Obligations 2020 2019 2020 2019 Benefit Obligations at December 31, Total benefit obligations $ ( 38,410 ) $ ( 34,460 ) $ ( 40,830 ) $ ( 36,580 ) Plans with benefit obligations exceeding plan assets Benefit obligations $ ( 16,820 ) $ ( 14,840 ) $ ( 16,940 ) $ ( 14,910 ) Plan assets $ 7,700 $ 6,890 $ 7,700 $ 6,890 The assumptions regarding discount rates and expected return on plan assets can have a significant impact on amounts reported for benefit plans. A 25 basis point change in benefit obligation discount rates or 50 basis point change in expected return on plan assets would have the following effect (dollars in thousands): Pension Benefit December 31, 2020 Benefit Obligation 2020 Expense Discount rate 25 basis point increase $ ( 1,580 ) $ ( 110 ) 25 basis point decrease $ 1,760 $ 110 Expected return on assets 50 basis point increase N/A $ ( 170 ) 50 basis point decrease N/A $ 170 The Company expects to make contributions of approximately $ 3.6 million to fund its pension plans during 2021. 80 Table of Contents TRIMAS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Plan Assets The Company's overall investment goal is to provide for capital growth with a moderate level of volatility by investing assets in targeted allocation ranges. Specific long term investment goals include total investment return, diversity to reduce volatility and risk, and to achieve an asset allocation profile that reflects the general nature and sensitivity of the plans' liabilities. Investment goals are established after a comprehensive review of current and projected financial statement requirements, plan assets and liability structure, market returns and risks as well as special requirements of the plans. The Company reviews investment goals and actual results annually to determine whether stated objectives are still relevant and the continued feasibility of achieving the objectives. The actual weighted average asset allocation of the Company's domestic and foreign pension plans' assets at December 31, 2020 and 2019 and target allocations by class, were as follows: Domestic Pension Foreign Pension Actual Actual Target 2020 2019 Target 2020 2019 Equity securities 60 % 67 % 62 % 33 % 33 % 30 % Fixed income 36 % 32 % 34 % 45 % 44 % 46 % Diversified growth (a) — % — % — % 22 % 22 % 23 % Cash and other 4 % 1 % 4 % — 1 % 1 % Total 100 % 100 % 100 % 100 % 100 % 100 % ________________________________________ (a) Diversified growth funds invest in a broad range of asset classes including equities, investment grade and high yield bonds, commodities, property, private equity, infrastructure and currencies. Actual allocations to each asset vary from target allocations due to periodic investment strategy changes, market value fluctuations and the timing of benefit payments and contributions. The expected long-term rate of return for both the domestic and foreign plans' total assets is based on the expected return of each of the above categories, weighted based on the target allocation for each class. Actual allocation is reviewed regularly and investments are rebalanced to their targeted allocation range when deemed appropriate. In managing the plan assets, the Company reviews and manages risk associated with the funded status risk, interest rate risk, market risk, liquidity risk and operational risk. Investment policies reflect the unique circumstances of the respective plans and include requirements designed to mitigate these risks by including quality and diversification standards. 81 Table of Contents TRIMAS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The following table summarizes the level under the fair value hierarchy (see Note 3, " Summary of Significant Accounting Policies ") that the Company's pension plan assets are measured, on a recurring basis as of December 31, 2020 (dollars in thousands): Total Level 1 Level 2 Level 3 Plan assets subject to leveling Investment funds Equity securities $ 5,160 $ 5,160 $ — $ — Fixed income 2,500 2,500 — — Cash and cash equivalents 310 310 — — Plan assets measured at net asset value (a) Investment funds Equity securities 9,180 Fixed income 12,880 Diversified growth 5,870 Cash and cash equivalents 160 Total $ 36,060 $ 7,970 $ — $ — ________________________________________ (a) Certain investments that are measured at fair value using the net asset value per share as a practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amount presented in the fair value of plan assets. The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid during the following years (dollars in thousands): Pension Benefit 2021 $ 1,160 2022 1,210 2023 1,240 2024 1,310 2025 1,350 Years 2026-2030 7,710 82 Table of Contents TRIMAS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 19. Equity Awards The Company maintains the following long-term equity incentive plans (collectively, the "Plans"): Plan Names Shares Approved for Issuance TriMas Corporation 2017 Equity and Incentive Compensation Plan 2,000,000 TriMas Corporation Director Retainer Share Election Program 100,000 The Company previously maintained the 2011 Omnibus Incentive Compensation Plan, which was replaced by the TriMas Corporation 2017 Equity and Incentive Compensation Plan in 2017, such that, while existing grants remain outstanding until exercised, vested or canceled, no new shares may be issued under the plan. Stock Options The Company did no t grant any stock options during 2020, 2019 and 2018. Information related to stock options as of and for the year ended December 31, 2020 is as follows: Number of Stock Options Weighted Average Option Price Average Remaining Contractual Life (Years) Aggregate Intrinsic Value Outstanding at January 1, 2020 150,000 $ 17.87 Granted — — Exercised — — Cancelled — — Expired — — Outstanding at December 31, 2020 150,000 $ 17.87 5.6 $ 2,070,000 As of December 31, 2020, the 150,000 stock options outstanding were exercisable under the Company's long-term equity incentive plans and there was no unrecognized compensation cost related to stock options. No stock options vested during 2020 and 50,000 stock options vested during each of 2019 and 2018. The Company recognized no stock-based compensation expense related to stock options during 2020 and approximately $ 0.1 million and $ 0.2 million of stock-based compensation expense related to stock options during 2019 and 2018, respectively. The stock-based compensation expense is included in selling, general and administrative expenses in the accompanying consolidated statement of operations. Restricted Stock Units The Company awarded the following restricted stock units ("RSUs") during 2020, 2019, and 2018: • granted 190,650 , 139,575 , and 141,203 RSUs, respectively, to certain employees, which are subject only to a service condition and vest ratably over three years so long as the employee remains with the Company; • granted 30,590 , 25,872 and 25,830 RSUs, respectively, to its non-employee independent directors, which vest one year from date of grant so long as the director and/or Company does not terminate their service prior to the vesting date; and • issued 3,673 , 4,494 and 7,263 RSUs, respectively, related to director fee deferrals as certain of the Company's directors elected to defer all or a portion of their directors fees and to receive the amount in Company common stock at a future date. 83 Table of Contents TRIMAS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The Company awarded the following RSUs during 2020: • granted 31,816 RSUs to certain employees, which are subject only to a service condition and fully vest at the end of three years so long as the employee remains with the Company; and • granted 2,558 RSUs to certain employees, which are subject only to a service condition and vest one year from the date of grant so long as the employee remains with the Company. During 2020, the Company awarded 113,146 performance-based RSUs to certain key employees which vest three years from the grant date as long as the employee remains with the Company. These awards are earned 50 % based upon the Company's achievement of an earnings per share compound annual growth rate ("EPS CAGR") metric over a period beginning January 1, 2020 and ending December 31, 2022. The remaining 50 % of the awards are earned based on the Company's total shareholder return ("TSR") relative to the TSR of the common stock of a pre-defined industry peer-group, measured over the performance period. TSR is calculated as the Company's average closing stock price for the 20 trading days at the end of the performance period plus Company dividends, divided by the Company's average closing stock price for the 20 trading days prior to the start of the performance period. The Company estimates the grant-date fair value subject to a market condition using a Monte Carlo simulation model, using the following weighted average assumptions: risk-free rate of 0.56 % and annualized volatility of 26.2 %. Depending on the performance achieved for these two metrics, the amount of shares earned, if any, can vary for each metric from 0 % of the target award to a maximum of 200 % of the target award. The Company awarded 95,882 and 104,532 of similar performance-based RSUs in 2019 and 2018, respectively. For similar performance-based RSUs awarded in 2017, the Company attained 127.4 % of the target on a weighted average basis, resulting in an increase of 27,567 shares during 2020. In addition, the Company awarded 87,034 performance-based RSUs to certain key divisional employees which vest three years from the grant date as long as the employee remains with the Company. These awards are earned based upon the Company's stock price performance over the period from January 1, 2020 and ending December 31, 2022. The stock price achievement is calculated based on the Company's average closing stock price for each quarter end for the 20 trading days up to and including March 31, June 30, September 30, and December 31, 2022, respectively. The Company estimates the grant-date fair value subject to a market condition using a Monte Carlo simulation model, using the following weighted average assumptions: risk free rate of 0.85 % and annualized volatility of 25.2 %. Depending on the performance achieved for this metric, the amount of shares earned, if any, can vary from 0 % of the target award to a maximum of 160 % of the target award, although it automatically is earned at the target award level if the Company's stock price is equal to or greater than a specified stock price for either five consecutive trading days or 20 total trading days during the performance period. Information related to restricted shares as of and for the year ended December 31, 2020 is as follows: Number of Unvested Restricted Shares Weighted Average Grant Date Fair Value Average Remaining Contractual Life (Years) Aggregate Intrinsic Value Outstanding at January 1, 2020 622,528 $ 30.77 Granted 487,034 21.43 Vested ( 302,924 ) 27.88 Cancelled ( 21,670 ) 27.53 Outstanding at December 31, 2020 784,968 $ 26.46 1.2 $ 24,859,937 As of December 31, 2020, there was approximately $ 8.2 million of unrecognized compensation cost related to unvested restricted shares that is expected to be recorded over a weighted average period of 1.9 years. The Company recognized stock-based compensation expense related to restricted shares of approximately $ 8.2 million, $ 5.7 million and $ 6.9 million in 2020, 2019 and 2018, respectively. The stock-based compensation expense is included in selling, general and administrative expenses in the accompanying statement of operations. 84 Table of Contents TRIMAS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 20. Earnings per Share Net income is divided by the weighted average number of common shares outstanding during the year to calculate basic earnings per share. For the year ended December 31, 2020, no restricted shares or stock options were included in the computation of net income (loss) per share because to do so would be anti-dilutive. The following table summarizes the dilutive effect of RSUs and options to purchase common stock: Year ended December 31, 2020 2019 2018 Weighted average common shares—basic 43,581,232 45,303,659 45,824,555 Dilutive effect of restricted stock units — 224,946 242,204 Dilutive effect of stock options — 66,549 103,705 Weighted average common shares—diluted 43,581,232 45,595,154 46,170,464 In March 2020, the Company announced its Board of Directors had authorized the Company to increase the purchase of its common stock up to $ 250 million in the aggregate. The initial authorization, approved in November 2015, authorized up to $ 50 million of purchases in the aggregate of its common stock. During 2020, 2019 and 2018, the Company purchased 1,582,049 , 1,230,050 and 442,632 shares of its outstanding common stock for approximately $ 39.4 million, $ 36.7 million and $ 12.1 million, respectively. As of December 31, 2020, the Company has approximately $ 161.7 million remaining under the repurchase authorization. 21. Other Comprehensive Income Changes in AOCI by component for the year ended December 31, 2020 are summarized as follows, net of tax (dollars in thousands): Defined Benefit Plans Derivative Instruments Foreign Currency Translation Total Balance, December 31, 2019 $ ( 9,930 ) $ 4,230 $ ( 300 ) $ ( 6,000 ) Net unrealized gains (losses) arising during the period (a) 670 ( 7,810 ) 6,880 ( 260 ) Less: Net realized losses reclassified to net income (b) ( 640 ) — — ( 640 ) Net current-period other comprehensive income (loss) 1,310 ( 7,810 ) 6,880 380 Balance, December 31, 2020 $ ( 8,620 ) $ ( 3,580 ) $ 6,580 $ ( 5,620 ) __________________________ (a) Defined benefit plans, net of income tax of $ 0.4 million. See Note 18, " Employee Benefit Plans ," for additional details. Derivative instruments, net of income tax of $ 2.5 million. See Note 14, " Derivative Instruments ," for further details. (b) Defined benefit plans, net of income tax of $ 0.2 million. See Note 18, " Employee Benefit Plans ," for additional details . 85 Table of Contents TRIMAS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Changes in AOCI by component for the year ended December 31, 2019 are summarized as follows, net of tax (dollars in thousands): Defined Benefit Plans Derivative Instruments Foreign Currency Translation Total Balance, December 31, 2018 $ ( 7,200 ) $ 940 $ ( 10,590 ) $ ( 16,850 ) Net unrealized gains (losses) arising during the period (a) ( 1,870 ) 3,300 ( 2,060 ) ( 630 ) Less: Net realized losses reclassified to net income (b) ( 400 ) — ( 12,350 ) ( 12,750 ) Net current-period other comprehensive income (loss) ( 1,470 ) 3,300 10,290 12,120 Reclassification of stranded tax effects ( 1,260 ) ( 10 ) — ( 1,270 ) Balance, December 31, 2019 $ ( 9,930 ) $ 4,230 $ ( 300 ) $ ( 6,000 ) __________________________ (a) Defined benefit plans, net of income tax of $ 0.5 million. See Note 18, " Employee Benefit Plans ," for additional details. Derivative instruments, net of income tax expense of $ 1.0 million. See Note 14, " Derivative Instruments ," for further details. (b) Defined benefit plans, net of income tax of $ 0.1 million. See Note 18, "Employee Benefit Plans," for additional details. 22. Segment Information TriMas reports its operations in three segments: Packaging, Aerospace and Specialty Products. Each of these segments has discrete financial information that is regularly evaluated by TriMas’ president and chief executive officer (chief operating decision maker) in determining resource, personnel and capital allocation, as well as assessing strategy and performance. The Company utilizes its proprietary TriMas Business Model as its platform which is based upon a standardized set of processes to manage and drive results and strategy across its multi-industry businesses. Within the Company's reportable segments, there are no individual products or product families for which reported net sales accounted for more than 10% of the Company's consolidated net sales. See below for more information regarding the types of products and services provided within each reportable segment: Packaging – The Packaging segment, which consists primarily of the Rieke ® , Taplast, Affaba & Ferrari, Stolz, and Rapak ® brands, develops and manufactures a broad array of dispensing products (such as foaming pumps, lotion and hand soap pumps, sanitizer pumps, beverage dispensers, perfume sprayers, nasal sprayers and trigger sprayers), polymeric and steel caps and closures (such as food lids, flip-top closures, child resistance caps, beverage closures, drum and pail closures, flexible spouts, and agricultural closures), polymeric jar products, and fully integrated dispensers for fill-ready bag-in-box applications, all for a variety of consumer products submarkets including, but not limited to, beauty and personal care, food and beverage, home care, and pharmaceutical and nutraceutical, as well as the industrial market. Aerospace – The Aerospace segment, which includes the Monogram Aerospace Fasteners ™ , Allfast Fastening Systems ® , Mac Fasteners ™ , RSA Engineered Products and Martinic Engineering ™ brands, develops, qualifies and manufactures highly-engineered, precision fasteners, tubular products and assemblies for fluid conveyance, and machined products and assemblies to serve the aerospace and defense market. Specialty Products – The Specialty Products segment, which includes the Norris Cylinder ™ and Arrow ® Engine brands, designs, manufactures and distributes highly-engineered steel cylinders, wellhead engines and compression systems for use within industrial markets. 86 Table of Contents TRIMAS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Segment activity is as follows (dollars in thousands): Year ended December 31, 2020 2019 2018 Net Sales Packaging $ 488,340 $ 392,340 $ 368,200 Aerospace 167,740 194,110 185,920 Specialty Products 113,890 137,080 150,910 Total $ 769,970 $ 723,530 $ 705,030 Operating Profit (Loss) Packaging $ 93,990 $ 80,770 $ 84,590 Aerospace ( 133,440 ) 28,950 27,290 Specialty Products 4,350 16,000 20,990 Corporate ( 53,190 ) ( 34,500 ) ( 24,060 ) Total $ ( 88,290 ) $ 91,220 $ 108,810 Capital Expenditures Packaging $ 30,730 $ 16,400 $ 13,590 Aerospace 5,770 8,110 1,190 Specialty Products 3,890 5,090 3,750 Corporate (a) 90 70 4,890 Total $ 40,480 $ 29,670 $ 23,420 Depreciation and Amortization Packaging $ 27,600 $ 24,650 $ 21,620 Aerospace 18,130 15,090 15,190 Specialty Products 3,910 3,480 3,400 Corporate 130 280 280 Total $ 49,770 $ 43,500 $ 40,490 Total Assets Packaging $ 721,440 $ 546,950 $ 435,140 Aerospace 348,190 393,260 392,140 Specialty Products 65,520 77,250 82,610 Corporate 58,730 175,240 95,260 Subtotal from continuing operations 1,193,880 1,192,700 1,005,150 Discontinued operations — — 95,370 Total $ 1,193,880 $ 1,192,700 $ 1,100,520 ________________________________________ (a) Corporate capital expenditures for the year ended December 31, 2018 are primarily related to purchases of machinery and equipment formerly held under operating leases. These purchased assets were subsequently transferred from Corporate to the segment utilizing the assets. 87 Table of Contents TRIMAS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The following table presents the Company's net sales for each of the years ended December 31 and long-lived assets at each year ended December 31, attributed to each subsidiary's continent of domicile (dollars in thousands). As of December 31, 2020 2019 2018 Net Sales Long-lived Assets Net Sales Long-lived Assets Net Sales Long-lived Assets Non-U.S. Europe $ 116,350 $ 225,120 $ 87,420 $ 110,530 $ 54,920 $ 53,770 Asia Pacific 46,350 41,140 37,920 40,720 38,920 44,230 Other Americas 11,740 19,510 6,290 18,430 6,170 7,500 Total non-U.S. 174,440 285,770 131,630 169,680 100,010 105,500 Total U.S. 595,530 477,460 591,900 540,680 605,020 550,990 Total $ 769,970 $ 763,230 $ 723,530 $ 710,360 $ 705,030 $ 656,490 The Company's export sales from the U.S. approximated $ 70.0 million, $ 74.1 million and $ 69.9 million in 2020, 2019 and 2018, respectively. 23. Income Taxes The Company's income (loss) before income taxes and income tax expense (benefit), each by tax jurisdiction, consists of the following (dollars in thousands): Year ended December 31, 2020 2019 2018 Income (loss) before income taxes: Domestic $ ( 134,630 ) $ 52,190 $ 64,670 Foreign 31,920 26,070 27,690 Total income (loss) before income taxes $ ( 102,710 ) $ 78,260 $ 92,360 Current income tax expense: Federal $ 200 $ 3,530 $ 4,410 State and local 810 1,280 2,060 Foreign 7,750 7,070 6,200 Total current income tax expense 8,760 11,880 12,670 Deferred income tax expense (benefit): Federal ( 16,900 ) 4,890 4,570 State and local ( 4,430 ) 500 1,310 Foreign ( 10,380 ) ( 950 ) 100 Total deferred income tax expense (benefit) ( 31,710 ) 4,440 5,980 Income tax expense (benefit) $ ( 22,950 ) $ 16,320 $ 18,650 88 Table of Contents TRIMAS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The components of deferred taxes are as follows (dollars in thousands): December 31, 2020 December 31, 2019 Deferred tax assets: Accounts receivable $ 260 $ 480 Inventories 5,080 4,390 Accrued liabilities and other long-term liabilities 19,190 12,210 Operating lease liability 8,950 6,790 Tax loss and credit carryforwards 20,760 9,200 Other 340 340 Gross deferred tax asset 54,580 33,410 Valuation allowances ( 10,180 ) ( 8,310 ) Net deferred tax asset 44,400 25,100 Deferred tax liabilities: Property and equipment ( 24,140 ) ( 20,650 ) Right of use asset ( 8,930 ) ( 6,700 ) Goodwill and other intangible assets ( 16,230 ) ( 13,250 ) Investment in foreign affiliates, including withholding tax ( 370 ) ( 830 ) Gross deferred tax liability ( 49,670 ) ( 41,430 ) Net deferred tax liability $ ( 5,270 ) $ ( 16,330 ) The following is a reconciliation of income tax expense (benefit) computed at the U.S. federal statutory rate to income tax expense (benefit) allocated to income (loss) before income taxes (dollars in thousands): Year ended December 31, 2020 2019 2018 U.S. federal statutory rate 21 % 21 % 21 % Tax at U.S. federal statutory rate $ ( 21,570 ) $ 16,440 $ 19,390 State and local taxes, net of federal tax benefit ( 2,850 ) 970 2,730 Differences in statutory foreign tax rates ( 1,500 ) ( 870 ) 490 Change in recognized tax benefits ( 920 ) ( 920 ) ( 560 ) Goodwill and other intangible assets impairment 13,430 — — Nontaxable income — ( 570 ) ( 940 ) Research and manufacturing incentives ( 2,130 ) ( 1,160 ) ( 1,740 ) Net change in valuation allowance ( 6,390 ) 3,580 280 Tax Reform Act — — ( 400 ) Other, net ( 1,020 ) ( 1,150 ) ( 600 ) Income tax expense (benefit) $ ( 22,950 ) $ 16,320 $ 18,650 During 2020, the Company undertook certain tax-planning actions with respect to intercompany debt restructuring within the group. These actions resulted in the recognition of an approximate $ 6.4 million deferred tax benefit related to an interest limitation carryforward. The Company has recorded deferred tax assets on $ 43.4 million of various state operating loss carryforwards and $ 61.6 million of various foreign operating loss carryforwards. The majority of the state tax loss carryforwards expire between 2026 and 2032 and the majority of the foreign losses have indefinite carryforward periods. 89 Table of Contents TRIMAS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The Company has not made a provision for U.S. or additional foreign withholding taxes related to investments in foreign subsidiaries that are indefinitely reinvested since any excess of the amount for financial reporting over the tax basis in these investments is not significant as of December 31, 2020. Tax Reform In December 2017, the Tax Cuts and Jobs Act ("Tax Reform Act") was signed into law, and, among the provisions, reduced the Federal statutory corporate income tax rate from 35 % to 21 % effective January 1, 2018, and implemented a territorial tax system, imposing a one-time tax on the deemed repatriation of undistributed earnings of non-U.S. subsidiaries ("Transition Tax"). The Transition Tax is payable over eight years beginning in 2019. The Company recorded provisional expenses in 2017 related to the Transition Tax and finalized the measurement of the provisional expenses in 2018. In 2018, the Company recognized an approximate $ 1.1 million income tax benefit in connection with finalizing the revaluation of its net deferred tax assets following the filing of the Company's 2017 corporate income tax return, and recognized an approximate $ 0.7 million income tax expense related to finalizing the Transition Tax, resulting in a $ 0.4 million net reduction in 2018 to the $ 12.7 million provisional tax expense recorded in 2017. Unrecognized Tax Benefits The Company had approximately $ 1.6 million and $ 2.3 million of unrecognized tax benefits ("UTBs") as of December 31, 2020 and 2019, respectively. If the UTBs were recognized, the impact to the Company's effective tax rate would be to reduce reported income tax expense for the years ended December 31, 2020 and 2019 by approximately $ 1.4 million and $ 1.9 million, respectively. A reconciliation of the change in the UTBs for the years ended December 31, 2020 and 2019 is as follows (dollars in thousands): Unrecognized Tax Benefits Balance at December 31, 2018 $ 3,020 Tax positions related to current year: Additions 110 Tax positions related to prior years: Additions — Reductions — Settlements — Lapses in the statutes of limitations ( 880 ) Balance at December 31, 2019 $ 2,250 Tax positions related to current year: Additions 150 Tax positions related to prior years: Additions — Reductions — Settlements — Lapses in the statutes of limitations ( 760 ) Balance at December 31, 2020 $ 1,640 In addition to the UTBs summarized above, the Company has recorded approximately $ 0.8 million and $ 1.4 million in potential interest and penalties associated with uncertain tax positions as of December 31, 2020 and 2019, respectively. 90 Table of Contents TRIMAS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The Company is subject to U.S. federal, state and local, and certain non-U.S. income tax examinations for tax years 2013 through 2020. In addition, there are currently several state and foreign income tax examinations in process. The Company does not believe that the results of these examinations will have a significant impact on the Company's tax position or its effective tax rate. Management monitors changes in tax statutes and regulations and the issuance of judicial decisions to determine the potential impact to UTBs and is not aware of, nor does it anticipate, any subsequent events that could have a significant impact on the Company's financial position during the next twelve months. 91 Table of Contents Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Not applicable.