Barnes (B) - 2022 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION This section provides Barnes Group Inc.'s comprehensive financial data, including statements, notes, management's analysis, and market risk disclosures Item 1. Financial Statements Barnes Group Inc.'s unaudited Q1 2022 consolidated financial statements detail income, comprehensive income, balance sheets, and cash flows, with notes on accounting policies, debt, and segment performance Consolidated Statements of Income Consolidated statements of income for Q1 2022 and 2021 detail net sales, operating income, net income, and earnings per share Consolidated Statements of Income (in thousands) | Metric | March 31, 2022 ($ thousands) | March 31, 2021 ($ thousands) | | :----------------- | :--------------------------- | :--------------------------- | | Net sales | 312,383 | 301,629 | | Cost of sales | 207,190 | 194,696 | | Operating income | 31,113 | 32,380 | | Net income | 20,484 | 19,382 | | Basic EPS | 0.40 | 0.38 | | Diluted EPS | 0.40 | 0.38 | - Net sales increased by $10.754 million (3.57%) from $301,629 thousand in Q1 2021 to $312,383 thousand in Q1 2022. Net income increased by $1,102 thousand (5.69%) from $19,382 thousand in Q1 2021 to $20,484 thousand in Q1 2022. Both basic and diluted EPS increased by $0.02 (5.26%) from $0.38 to $0.40[9] Consolidated Statements of Comprehensive Income (Loss) This section presents the consolidated statements of comprehensive income (loss) for Barnes Group Inc., detailing net income and other comprehensive income components Consolidated Statements of Comprehensive Income (Loss) (in thousands) | Metric | March 31, 2022 ($ thousands) | March 31, 2021 ($ thousands) | | :-------------------------------------------- | :--------------------------- | :--------------------------- | | Net income | 20,484 | 19,382 | | Other comprehensive loss, net of tax | (2,590) | (44,902) | | Total comprehensive income (loss) | 17,894 | (25,520) | - Total comprehensive income significantly improved from a loss of $25,520 thousand in Q1 2021 to an income of $17,894 thousand in Q1 2022, primarily due to a substantial reduction in foreign currency translation adjustments[12] Consolidated Balance Sheets This section provides the consolidated balance sheets for Barnes Group Inc., detailing assets, liabilities, and stockholders' equity at period-end Consolidated Balance Sheets (in thousands) | Metric | March 31, 2022 ($ thousands) | December 31, 2021 ($ thousands) | | :------------------------------------ | :--------------------------- | :------------------------------ | | Total assets | 2,555,355 | 2,576,820 | | Total current assets | 686,512 | 680,209 | | Cash and cash equivalents | 75,255 | 102,860 | | Inventories | 255,117 | 239,655 | | Total liabilities and stockholders' equity | 2,555,355 | 2,576,820 | | Total current liabilities | 282,348 | 310,394 | | Long-term debt | 594,976 | 599,932 | | Total stockholders' equity | 1,441,030 | 1,428,766 | - Total assets decreased slightly from $2,576,820 thousand at December 31, 2021, to $2,555,355 thousand at March 31, 2022. Cash and cash equivalents decreased by $27,605 thousand, while inventories increased by $15,462 thousand. Total stockholders' equity increased by $12,264 thousand[15] Consolidated Statements of Cash Flows This section presents the consolidated statements of cash flows, detailing cash generated from or used in operating, investing, and financing activities Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity | Three Months Ended March 31, 2022 ($ thousands) | Three Months Ended March 31, 2021 ($ thousands) | | :---------------------------------- | :---------------------------------------------- | :---------------------------------------------- | | Net cash (used) provided by operating activities | (9,313) | 35,612 | | Net cash used by investing activities | (8,439) | (4,014) | | Net cash used by financing activities | (12,374) | (24,442) | | (Decrease) increase in cash, cash equivalents and restricted cash | (29,989) | 4,825 | - Operating activities shifted from providing $35,612 thousand in Q1 2021 to using $9,313 thousand in Q1 2022, primarily due to higher outflows for accrued liabilities and increased working capital usage. Investing activities used more cash, increasing from $4,014 thousand in Q1 2021 to $8,439 thousand in Q1 2022. Financing activities used less cash, decreasing from $24,442 thousand in Q1 2021 to $12,374 thousand in Q1 2022[18] Notes to Consolidated Financial Statements This section provides detailed notes to the consolidated financial statements, offering context on accounting policies, debt, derivatives, and segment performance 1. Basis of Presentation This note outlines the basis for preparing the unaudited interim consolidated financial statements in accordance with GAAP and Form 10-Q - The unaudited consolidated financial statements are prepared in accordance with GAAP for interim financial information and Form 10-Q instructions, not including all notes required for complete annual statements. Management believes all necessary adjustments for a fair statement have been included, but Q1 2022 results are not indicative of the full year. The COVID-19 pandemic continues to negatively impact operations and end markets[21][22] 2. Recent Accounting Standards This note discusses recent accounting standard adoptions and their anticipated impact, including guidance on income taxes, LIBOR reform, and business combinations - The Company adopted amended guidance related to income taxes on January 1, 2021, which did not materially impact financial statements. The FASB issued guidance on LIBOR rate reform, and the Company's credit agreement and interest rate swaps are tied to LIBOR, with amendments made in October 2021 and April 2022 to address the transition to SOFR. No material impact is anticipated from this change. New guidance on business combinations (effective after December 15, 2022) is being evaluated[24][25][26] 3. Revenue This note details the Company's revenue recognition policies, disaggregated revenue by products, services, and geography, and remaining performance obligations - Barnes Group Inc. is a global provider of highly engineered products and solutions, recognizing revenue when control is transferred to the customer, typically at shipment or delivery (80% of total revenue). The remaining 20% is recognized over time for customized products or services on customer-owned assets, using a cost-to-cost measure of progress[27][28][30][31][33] Revenue Disaggregated by Products and Services, and Geographic Regions (in thousands) | Product and Services (in thousands) | March 31, 2022 | March 31, 2021 | | :---------------------------------- | :------------- | :------------- | | Engineered Components Products | $46,964 | $48,286 | | Molding Solutions Products | $103,036 | $108,547 | | Force & Motion Control Products | $46,083 | $45,657 | | Automation Products | $15,589 | $17,497 | | Aerospace Original Equipment Manufacturing Products | $65,629 | $55,528 | | Aerospace Aftermarket Product and Services | $35,082 | $26,114 | | Total Company | $312,383 | $301,629 | | Geographic Regions (in thousands) | March 31, 2022 | March 31, 2021 | | :---------------------------------- | :------------- | :------------- | | Americas | $158,502 | $141,904 | | Europe | $102,190 | $102,825 | | Asia | $49,137 | $54,407 | | Rest of World | $2,554 | $2,493 | | Total Company | $312,383 | $301,629 | - Net contract assets increased by $11,102 thousand (136%) from $8,148 thousand at December 31, 2021, to $19,250 thousand at March 31, 2022, driven by a $7,266 thousand decrease in contract liabilities (due to revenue recognition) and a $3,836 thousand increase in unbilled receivables (contract assets)[36][37] - Remaining performance obligations as of March 31, 2022, totaled $179,534 thousand, with approximately 70% expected to be recognized within the next 12 months and the remainder within 24 months[39] 4. Stockholders' Equity This note details changes in stockholders' equity, including common stock, additional paid-in capital, treasury stock, retained earnings, and accumulated other comprehensive income Consolidated Changes in Equity (Three Months Ended March 31, 2022) (in thousands) | Metric | December 31, 2021 ($ thousands) | March 31, 2022 ($ thousands) | | :------------------------------------ | :------------------------------ | :--------------------------- | | Total Stockholders' Equity | 1,428,766 | 1,441,030 | | Common Stock (Amount) | 643 | 644 | | Additional Paid-In Capital | 516,562 | 519,227 | | Treasury Stock (Amount) | (523,642) | (523,691) | | Retained Earnings | 1,587,041 | 1,599,278 | | Accumulated Other Non-Owner Changes to Equity | (151,838) | (154,428) | - Total stockholders' equity increased by $12,264 thousand from December 31, 2021, to March 31, 2022, primarily driven by comprehensive income of $17,894 thousand, partially offset by dividends declared of $8,111 thousand[41] 5. Net Income Per Common Share This note explains the calculation of basic and diluted net income per common share, including the impact of stock-based incentive plans - Diluted net income per common share calculations for Q1 2022 and Q1 2021 included increases of 146,205 and 154,022 shares, respectively, for potential dilutive effects of stock-based incentive plans. The Company excluded 718,844 and 522,117 stock awards from diluted shares outstanding in Q1 2022 and Q1 2021, respectively, as they were anti-dilutive[43] - In February 2022, the Company granted 115,600 stock options, 144,524 restricted stock unit awards, and 121,860 performance share awards (PSAs) as part of its annual long-term incentive equity grants. PSAs are based on TSR, ROIC, and EBITDA growth metrics over a three-year performance period[44] 6. Inventories This note provides a breakdown of inventory components, including finished goods, work-in-process, and raw materials and supplies Components of Inventories (in thousands) | Inventory Component (in thousands) | March 31, 2022 | December 31, 2021 | | :--------------------------------- | :------------- | :---------------- | | Finished goods | $91,070 | $88,954 | | Work-in-process | $68,690 | $65,468 | | Raw material and supplies | $95,357 | $85,233 | | Total | $255,117 | $239,655 | - Total inventories increased by $15,462 thousand (6.45%) from $239,655 thousand at December 31, 2021, to $255,117 thousand at March 31, 2022, with increases across all components, particularly raw materials and supplies[45] 7. Goodwill and Other Intangible Assets This note details changes in goodwill by segment and provides a breakdown of other intangible assets, including their gross amounts and accumulated amortization Change in Goodwill by Segment (in thousands) | Segment (in thousands) | December 31, 2021 | Foreign Currency Translation | March 31, 2022 | | :----------------------------- | :---------------- | :--------------------------- | :------------- | | Industrial | $924,584 | $(9,963) | $914,621 | | Aerospace | $30,786 | — | $30,786 | | Total Company | $955,370 | $(9,963) | $945,407 | - Goodwill decreased by $9,963 thousand from $955,370 thousand at December 31, 2021, to $945,407 thousand at March 31, 2022, primarily due to foreign currency translation adjustments impacting the Industrial segment[47] Other Intangible Assets (in thousands) | Intangible Asset (in thousands) | March 31, 2022 Gross Amount | March 31, 2022 Accumulated Amortization | December 31, 2021 Gross Amount | December 31, 2021 Accumulated Amortization | | :------------------------------ | :-------------------------- | :-------------------------------------- | :----------------------------- | :----------------------------------------- | | Revenue Sharing Programs (RSPs) | $299,500 | $(154,413) | $299,500 | $(151,961) | | Component Repair Programs (CRPs) | $111,839 | $(36,927) | $111,839 | $(35,632) | | Customer relationships | $337,189 | $(142,630) | $337,189 | $(137,856) | | Patents and technology | $123,433 | $(87,831) | $123,433 | $(86,002) | | Trademarks/trade names | $10,949 | $(10,634) | $10,949 | $(10,587) | | Other | $7,777 | $(2,253) | $7,450 | $(2,072) | | Unamortized trade names | $55,670 | — | $55,670 | — | | Foreign currency translation | $(24,834) | — | $(21,674) | — | | Total Other Intangible Assets | $921,523 | $(434,688) | $924,356 | $(424,110) | - Estimated amortization of intangible assets for future periods is projected at $34,000 thousand for the remainder of 2022, $46,000 thousand for 2023, $44,000 thousand for 2024, $43,000 thousand for 2025, $43,000 thousand for 2026, and $42,000 thousand for 2027[49] 8. Debt This note provides details on the Company's long-term debt, including the Amended Credit Agreement, senior notes, and compliance with debt covenants Long-term Debt and Notes and Overdrafts Payable (in thousands) | Debt Type (in thousands) | March 31, 2022 Carrying Amount | March 31, 2022 Fair Value | December 31, 2021 Carrying Amount | December 31, 2021 Fair Value | | :--------------------------------- | :----------------------------- | :------------------------ | :-------------------------------- | :--------------------------- | | Amended Credit Agreement | $490,743 | $500,666 | $495,262 | $516,380 | | 3.97% Senior Notes | $100,000 | $102,785 | $100,000 | $105,541 | | Borrowings under lines of credit and overdrafts | $978 | $978 | $224 | $224 | | Finance leases | $5,935 | $5,941 | $6,505 | $6,827 | | Other | — | — | $1,676 | $1,676 | | Total | $597,656 | $610,370 | $603,667 | $630,648 | | Less current maturities | $(2,680) | | $(3,735) | | | Long-term debt | $594,976 | | $599,932 | | - The Company's Amended Credit Agreement, maturing in February 2026, provides $1,000,000 thousand in availability with an accordion feature for an additional $250,000 thousand. It was amended in April 2022 to replace LIBOR with SOFR for U.S. dollar loans and adjust interest rate spreads and facility fees, with no material impact anticipated[54][55][62] - At March 31, 2022, the Company was in compliance with all debt covenants, with a Senior Debt Ratio of 2.42 times against a maximum of 3.25 times. The average interest rate on borrowings was 1.38% at March 31, 2022[57][58] 9. Derivatives This note describes the Company's use of derivative financial instruments to hedge interest rate and foreign currency exposures - The Company uses derivative financial instruments to hedge exposure to interest rate and foreign currency fluctuations, not for speculative purposes. An interest rate swap (2021 Swap) converts $100,000 thousand of LIBOR-based borrowings to a fixed rate of 1.17% plus borrowing spread, expiring January 2026. This swap will be amended to replace LIBOR with SOFR, with no material impact anticipated[61][62][64] - Foreign currency derivative instruments hedge recognized assets/liabilities and anticipated transactions in various currencies, with all contracts due within two years. Losses of $1,251 thousand in Q1 2022 and $3,302 thousand in Q1 2021 from non-designated foreign exchange contracts were substantially offset by gains on underlying hedged items[63][65] 10. Fair Value Measurements This note presents assets and liabilities measured at fair value on a recurring basis, categorized by valuation input levels Assets and Liabilities Reported at Fair Value (Recurring Basis) (in thousands) | Description (in thousands) | March 31, 2022 Total Fair Value | Level 1 | Level 2 | Level 3 | | :------------------------- | :------------------------------ | :------ | :------ | :------ | | Asset derivatives | $7,848 | — | $7,848 | — | | Liability derivatives | $(80) | — | $(80) | — | | Bank acceptances | $12,347 | — | $12,347 | — | | Rabbi trust assets | $2,855 | $2,855 | — | — | | Total | $22,970 | $2,855 | $20,115 | — | | Description (in thousands) | December 31, 2021 Total Fair Value | Level 1 | Level 2 | Level 3 | | :------------------------- | :--------------------------------- | :------ | :------ | :------ | | Asset derivatives | $375 | — | $375 | — | | Liability derivatives | $(107) | — | $(107) | — | | Bank acceptances | $13,240 | — | $13,240 | — | | Rabbi trust assets | $3,001 | $3,001 | — | — | | Total | $16,509 | $3,001 | $13,508 | — | - The total fair value of assets and liabilities measured on a recurring basis increased from $16,509 thousand at December 31, 2021, to $22,970 thousand at March 31, 2022, primarily driven by an increase in asset derivatives[69] 11. Pension and Other Postretirement Benefits This note details the components of net periodic benefit costs for pension and other postretirement benefit plans Pension and Other Postretirement Benefits Expenses (in thousands) | Metric (in thousands) | March 31, 2022 | March 31, 2021 | | :-------------------------------- | :------------- | :------------- | | Pensions | | | | Service cost | $1,555 | $1,741 | | Interest cost | $3,434 | $3,172 | | Expected return on plan assets | $(7,281) | $(6,972) | | Amortization of prior service cost | $108 | $85 | | Amortization of actuarial losses | $3,139 | $3,926 | | Special termination benefits | $136 | — | | Net periodic benefit cost | $1,091 | $1,952 | | Other Postretirement Benefits | | | | Service cost | $24 | $25 | | Interest cost | $206 | $206 | | Amortization of prior service cost | — | $7 | | Amortization of actuarial losses | $9 | $70 | | Net periodic benefit cost | $239 | $308 | - Net periodic pension benefit cost decreased from $1,952 thousand in Q1 2021 to $1,091 thousand in Q1 2022, primarily due to lower amortization of actuarial losses and higher expected return on plan assets. Net periodic other postretirement benefit cost also decreased from $308 thousand to $239 thousand[71][72] 12. Income Taxes This note explains the Company's effective tax rate and the factors influencing its changes, including projected earnings and tax holidays - The Company's effective tax rate decreased to 21.0% in Q1 2022 from 28.1% in Q1 2021, driven by increased projected earnings in low tax jurisdictions and higher income in jurisdictions with tax holidays (e.g., China, Malaysia)[74][75] - New tax holidays include a China tax rate reduction from 25% to 15% for three years starting January 1, 2021, and a ten-year income tax holiday for Aerospace operations in Malaysia starting November 2020[75] 13. Changes in Accumulated Other Comprehensive Income (Loss) by Component This note details changes in accumulated other comprehensive income (loss) by component, including cash flow hedges, postretirement benefits, and foreign currency items Changes in Accumulated Other Comprehensive Income (Loss), Net of Tax (in thousands) | Component (in thousands) | December 31, 2021 | Net current-period other comprehensive (loss) income | March 31, 2022 | | :----------------------- | :---------------- | :--------------------------------------------------- | :------------- | | Gains and Losses on Cash Flow Hedges | $160 | $3,518 | $3,678 | | Other Postretirement Benefit Items | $(112,307) | $2,504 | $(109,803) | | Foreign Currency Items | $(39,691) | $(8,612) | $(48,303) | | Total | $(151,838) | $(2,590) | $(154,428) | - Accumulated other comprehensive loss increased from $(151,838) thousand at December 31, 2021, to $(154,428) thousand at March 31, 2022, primarily due to an $(8,612) thousand foreign currency translation adjustment, partially offset by gains on cash flow hedges and postretirement benefit items[77] Reclassifications Out of Accumulated Other Comprehensive Income (Loss) (in thousands) | Component (in thousands) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :----------------------- | :-------------------------------- | :-------------------------------- | | (Losses)/gains on cash flow hedges (net of tax) | $(103) | $(236) | | Pension and other postretirement benefit items (net of tax) | $(2,492) | $(3,134) | | Total reclassifications in the period | $(2,595) | $(3,370) | 14. Information on Business Segments This note provides financial information for the Industrial and Aerospace business segments, including net sales and operating profit - Barnes Group Inc. operates through two global business segments: Industrial and Aerospace. The Industrial segment provides highly-engineered precision components and systems for diverse end markets, including mobility, automation, and medical devices. The Aerospace segment manufactures complex components and assemblies for turbine engines and airframes, offering both OEM and Aftermarket MRO services[81][82][83] Net Sales and Operating Profit by Segment (in thousands) | Segment (in thousands) | March 31, 2022 Net Sales | March 31, 2021 Net Sales | March 31, 2022 Operating Profit | March 31, 2021 Operating Profit | | :--------------------- | :----------------------- | :----------------------- | :------------------------------ | :------------------------------ | | Industrial | $211,672 | $219,992 | $14,734 | $21,295 | | Aerospace | $100,711 | $81,642 | $16,379 | $11,085 | | Total | $312,383 | $301,629 | $31,113 | $32,380 | - Industrial segment sales decreased by $8,320 thousand (3.78%) year-over-year, while Aerospace segment sales increased by $19,069 thousand (23.36%). Industrial operating profit decreased by $6,561 thousand (30.81%), whereas Aerospace operating profit increased by $5,294 thousand (47.76%)[85][86] 15. Commitments and Contingencies This note outlines the Company's product warranties, litigation, and other loss contingencies, and management's assessment of their financial impact - The Company provides product warranties and accrues estimated exposure based on historical experience. Liabilities for product and extended warranties were not material as of March 31, 2022, and December 31, 2021. A breach of contract and warranty claim asserted by a customer in July 2021 is in discussion, with the Company intending to vigorously defend its position and believing the resolution will not materially adversely affect its financial position or liquidity[88][89] - The Company is subject to various litigation in the ordinary course of business. Loss contingency liabilities are recorded when probable and estimable. The Company expects that the outcome of such proceedings will not have a material adverse effect on financial condition or results of operations[90] 16. Business Reorganizations This note details restructuring and workforce reduction actions, including associated pre-tax charges and remaining liabilities - Restructuring and workforce reduction actions initiated in June 2020 in response to COVID-19 resulted in a $19,116 thousand pre-tax charge in 2020, primarily for severance. A liability of $1,105 thousand remained as of March 31, 2022, with no significant additional costs expected[91][93] - Additional restructuring actions in 2021 and Q1 2022, involving manufacturing capability transfers, resulted in pre-tax charges of $2,869 thousand in 2021 and $616 thousand in Q1 2022. The Company expects to incur approximately $1,200 thousand in additional charges through the remainder of 2022[93] Report of Independent Registered Public Accounting Firm PricewaterhouseCoopers LLP's limited review of Q1 2022 interim financial information found no material GAAP modifications and confirmed the fair statement of the December 31, 2021 balance sheet - PricewaterhouseCoopers LLP conducted a limited review of the interim financial information and found no material modifications needed for conformity with US GAAP. They also confirmed the fair statement of the December 31, 2021 balance sheet information[96][97][98] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 2022 financial performance, highlighting net sales growth driven by Aerospace, declining Industrial sales, reduced operating margins due to inflation, and details on liquidity, debt, and forward-looking risks OVERVIEW This overview summarizes Q1 2022 financial performance, noting sales growth, margin decline, and ongoing macroeconomic challenges - Net sales in Q1 2022 increased by 3.6% to $312.4 million, with organic sales up 5.5%. Aerospace sales grew 23.4% due to improving end markets, while Industrial sales decreased 1.1% due to global supply chain constraints and semiconductor shortages. Operating margins declined from 10.7% to 10.0% due to increased raw material, utility, labor, and freight costs, partially offset by Aerospace Aftermarket volume[102] - Macroeconomic trends, including COVID-19 impacts, labor and supply chain constraints, and inflationary pressures, continued to challenge businesses. The Company is focused on cost management, productivity initiatives, and pricing actions to mitigate these impacts[103] RESULTS OF OPERATIONS This section analyzes the Company's net sales, expenses, operating income, interest expense, other income/expense, income taxes, and income per share Net Sales This section analyzes net sales performance by segment, highlighting organic growth and foreign currency impacts Net Sales by Segment (in millions) | Segment | 2022 | 2021 | Change | % Change | | :--------- | :---- | :---- | :----- | :------- | | Industrial | $211.7 | $220.0 | $(8.3) | (3.8)% | | Aerospace | $100.7 | $81.6 | $19.1 | 23.4% | | Total | $312.4 | $301.6 | $10.8 | 3.6% | - Total net sales increased by $10.8 million (3.6%) year-over-year. Organic sales increased by $16.7 million (5.5%), driven by a $19.1 million increase in Aerospace sales, partially offset by a $2.4 million decrease in Industrial sales. The strengthening U.S. dollar negatively impacted Industrial net sales by approximately $5.9 million[104] Expenses and Operating Income This section analyzes cost of sales, gross profit, selling and administrative expenses, and operating income, including margin changes Expenses and Operating Income (in millions) | Metric | 2022 | 2021 | Change | % Change | | :-------------------------------- | :------- | :------- | :----- | :------- | | Cost of sales | $207.2 | $194.7 | $12.5 | 6.4% | | % sales | 66.3% | 64.5% | | | | Gross profit | $105.2 | $106.9 | $(1.7) | (1.6)% | | % sales | 33.7% | 35.5% | | | | Selling and administrative expenses | $74.1 | $74.6 | $(0.5) | (0.6)% | | % sales | 23.7% | 24.7% | | | | Operating income | $31.1 | $32.4 | $(1.3) | (3.9)% | | % sales | 10.0% | 10.7% | | | - Gross profit margin decreased from 35.5% in Q1 2021 to 33.7% in Q1 2022, primarily due to increased global supply chain constraints and inflationary pressures (freight, labor, utilities, raw materials) in the Industrial segment. Aerospace gross profit and margin increased due to higher volumes. Operating income decreased by 3.9% to $31.1 million, with operating margin declining from 10.7% to 10.0%[106] Interest expense This section analyzes changes in interest expense, primarily driven by fluctuations in average borrowings - Interest expense decreased by $0.4 million in Q1 2022 compared to Q1 2021, primarily due to decreased average borrowings during the period[107] Other expense (income), net This section reports the net amount of other expenses and income, noting a slight increase year-over-year - Other expense (income), net was $1.6 million in Q1 2022, a slight increase from $1.5 million in Q1 2021[108] Income Taxes This section analyzes the effective tax rate and its drivers, including projected earnings in low tax jurisdictions and tax holidays - The effective tax rate for Q1 2022 was 21.0%, down from 28.1% in Q1 2021 and 21.9% for full-year 2021. This decrease was driven by higher projected earnings in low tax jurisdictions and income from tax holidays in China and Malaysia, partially offset by the absence of 2021 benefits related to tax basis goodwill and intangibles realignment[109][110] Income and Income per Share This section details net income and earnings per share, noting increases and consistent weighted average common shares outstanding Income and Income per Share (in millions, except per share) | Metric | 2022 | 2021 | Change | % Change | | :------------------------------------ | :----- | :----- | :----- | :------- | | Net income | $20.5 | $19.4 | $1.1 | 5.7% | | Basic EPS | $0.40 | $0.38 | $0.02 | 5.3% | | Diluted EPS | $0.40 | $0.38 | $0.02 | 5.3% | | Basic weighted average common shares outstanding (millions) | 51.0 | 50.9 | 0.1 | 0.2% | | Diluted weighted average common shares outstanding (millions) | 51.2 | 51.1 | 0.1 | 0.2% | - Basic and diluted net income per common share increased by $0.02 (5.3%) in Q1 2022 compared to Q1 2021, driven by the increase in net income. Weighted average common shares outstanding remained consistent[111] Financial Performance by Business Segment This section analyzes the financial performance of the Industrial and Aerospace business segments, including sales, operating profit, and market outlook Industrial This section details the Industrial segment's sales and operating profit performance, highlighting impacts from supply chain constraints and inflationary pressures Industrial Segment Performance (in millions) | Metric | 2022 | 2021 | Change | % Change | | :--------------- | :----- | :----- | :----- | :------- | | Sales | $211.7 | $220.0 | $(8.3) | (3.8)% | | Operating profit | $14.7 | $21.3 | $(6.6) | (30.8)% | | Operating margin | 7.0% | 9.7% | | | - Industrial sales decreased by 3.8% to $211.7 million, with organic sales down 1.1% due to lower volume, particularly in transportation and personal care markets, and impacts from global supply chain constraints and semiconductor shortages. Foreign currency fluctuations negatively impacted sales by $5.9 million[112] - Operating profit decreased by 30.8% to $14.7 million, and operating margin fell from 9.7% to 7.0%. This was primarily due to $8.0 million in increased freight, utilities, labor, and raw material costs, partially offset by $5.0 million from pricing and procurement actions. Lower productivity and restructuring charges also contributed to the decline[113] - Outlook for Industrial includes continued focus on organic sales growth through new products and market expansion, despite ongoing challenges from COVID-19, China lockdowns, and supply chain constraints. Management expects semiconductor chip supply to improve later in 2022 and is proactively managing costs and pursuing productivity initiatives[114][116] Aerospace This section details the Aerospace segment's sales and operating profit performance, driven by OEM and Aftermarket recovery, and discusses backlog and outlook Aerospace Segment Performance (in millions) | Metric | 2022 | 2021 | Change | % Change | | :--------------- | :----- | :----- | :----- | :------- | | Sales | $100.7 | $81.6 | $19.1 | 23.4% | | Operating profit | $16.4 | $11.1 | $5.3 | 47.8% | | Operating margin | 16.3% | 13.6% | | | - Aerospace sales increased by 23.4% to $100.7 million, with OEM sales up 18.2% due to growing narrow body airframe production and Aftermarket sales up 34.3% due to improved airline traffic and aircraft utilization. Sales were not significantly impacted by foreign currency changes[117][118] - Operating profit increased by 47.8% to $16.4 million, and operating margin rose from 13.6% to 16.3%, driven by higher volumes in both OEM and Aftermarket businesses. This was partially offset by unfavorable productivity due to COVID-19 related absenteeism and supply chain challenges, and restructuring charges[118] - Aerospace OEM backlog was $716.3 million at March 31, 2022, up 5.3% from December 31, 2021, with approximately 45% expected to be recognized in the next 12 months. The segment anticipates recovery in demand for manufactured components as narrow body airframe production ramps up, but a full recovery to pre-pandemic levels is expected to take several years[119] - Aftermarket business shows strong recovery signs, but international travel restrictions and geopolitical considerations continue to impact wide body aircraft utilization. Management remains focused on cost management, productivity, strategic investments, and new product introductions to mitigate pressure on operating profit[120][121][122] LIQUIDITY AND CAPITAL RESOURCES This section discusses the Company's liquidity, capital resources, debt structure, cash flow activities, and compliance with debt covenants Debt This section details the Company's debt structure, including the Amended Credit Agreement, its terms, and compliance with covenants - The Company's Amended Credit Agreement provides $1,000.0 million in availability, with an accordion feature for an additional $250.0 million, maturing in February 2026. It was amended in April 2022 to replace LIBOR with SOFR for U.S. dollar loans and adjust interest rate spreads and facility fees, with no material impact anticipated[126][127][128][129] - At March 31, 2022, the Company was in compliance with all debt covenants, with a Senior Debt Ratio of 2.42 times against a maximum of 3.25 times. Unused and available borrowings under the Amended Credit Facility were $509.3 million, but borrowing capacity was limited to $329.7 million of Total Debt and $206.1 million of Senior Debt by covenants[129][131][139] - The Company's total borrowings at March 31, 2022, were 34% fixed rate debt and 66% variable rate debt. An interest rate swap converts $100.0 million of variable rate debt to a fixed rate[133][137] Cash Flow This section analyzes cash flows from operating, investing, and financing activities, highlighting significant year-over-year changes Cash Flow Activities (in millions) | Activity | 2022 | 2021 | Change | | :---------------------------------------------- | :----- | :----- | :----- | | Operating activities | $(9.3) | $35.6 | $(44.9) | | Investing activities | $(8.4) | $(4.0) | $(4.4) | | Financing activities | $(12.4) | $(24.4) | $12.1 | | Exchange rate effect | $0.1 | $(2.3) | $2.5 | | (Decrease) increase in cash, cash equivalents and restricted cash | $(30.0) | $4.8 | $(34.8) | - Operating activities used $9.3 million in Q1 2022, a significant decrease from providing $35.6 million in Q1 2021, primarily due to higher outflows for accrued liabilities and a $22.0 million use of cash for working capital. Investing activities used $8.4 million, up from $4.0 million, while financing activities used $12.4 million, down from $24.4 million[135][136] - At March 31, 2022, the Company held $75.3 million in cash and cash equivalents, mostly by foreign subsidiaries, with no material regulatory or contractual restrictions, expected to fund international investments[134] Debt Covenants This section presents key debt covenant ratios, including Senior Debt, Total Debt, and Interest Coverage, demonstrating compliance Consolidated EBITDA and Debt Covenant Ratios (in millions) | Metric | Four Fiscal Quarters Ended March 31, 2022 | | :-------------------------------------------- | :---------------------------------------- | | Net income | $101.0 | | Consolidated EBITDA, as defined | $247.3 | | Consolidated Senior Debt, as defined | $597.7 | | Ratio of Consolidated Senior Debt to Consolidated EBITDA | 2.42 | | Maximum Senior Debt Ratio | 3.25 | | Consolidated Total Debt, as defined | $597.7 | | Ratio of Consolidated Total Debt to Consolidated EBITDA | 2.42 | | Maximum Total Debt Ratio | 3.75 | | Consolidated Cash Interest Expense, as defined | $15.8 | | Ratio of Consolidated EBITDA to Consolidated Cash Interest Expense | 15.62 | | Minimum Interest Coverage Ratio | 4.25 | - The Company's Consolidated EBITDA for the four fiscal quarters ended March 31, 2022, was $247.3 million. The Senior Debt Ratio was 2.42 (max 3.25), Total Debt Ratio was 2.42 (max 3.75), and EBITDA to Cash Interest Expense Ratio was 15.62 (min 4.25), indicating compliance with all covenants[139] OTHER MATTERS This section provides additional financial information, specifically a reconciliation and discussion of EBITDA as a non-GAAP measure EBITDA This section presents EBITDA, a non-GAAP measure, and its reconciliation to net income, noting its use by financial analysts - EBITDA for the first three months of 2022 was $51.8 million, a decrease from $52.9 million in the first three months of 2021. EBITDA is a non-GAAP measure used by financial analysts, not intended as an alternative to GAAP cash flows or net income[142] Reconciliation of EBITDA to Net Income (in millions) | Metric | March 31, 2022 | March 31, 2021 | | :-------------------------------- | :------------- | :------------- | | Net income | $20.5 | $19.4 | | Add back: | | | | Interest expense | $3.6 | $3.9 | | Income taxes | $5.4 | $7.6 | | Depreciation and amortization | $22.3 | $22.0 | | EBITDA | $51.8 | $52.9 | FORWARD-LOOKING STATEMENTS This section outlines forward-looking statements regarding future performance, emphasizing inherent risks and uncertainties, and disclaims any obligation to update them - This section contains forward-looking statements regarding future operating and financial performance, subject to various risks and uncertainties. Key risks include economic and geopolitical conditions (inflation, shortages), the COVID-19 pandemic's impact, market demand changes, technological shifts, global operations risks, intense competition, and regulatory changes. The Company assumes no obligation to update these statements[145][146] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section refers to the Annual Report on Form 10-K for market risk discussions and confirms no material changes in Q1 2022 - No material changes to the Company's market risk exposure occurred during the three months ended March 31, 2022, as referenced in the Annual Report on Form 10-K for December 31, 2021[147] Item 4. Controls and Procedures Management evaluated the effectiveness of disclosure controls and procedures as of March 31, 2022, concluding they were effective with no material changes in internal control over financial reporting - The Company's disclosure controls and procedures were deemed effective as of March 31, 2022, providing reasonable assurance that required information is recorded, processed, summarized, and reported timely. No material changes in internal control over financial reporting occurred during Q1 2022[148][149] PART II. OTHER INFORMATION This section covers other essential information, including legal proceedings, equity security sales, exhibits, and official signatures Item 1. Legal Proceedings The Company is involved in various legal proceedings, but expects their outcomes will not materially adversely affect its financial position, cash flows, or operations - The Company is involved in various legal proceedings, but expects their outcome will not materially adversely affect its financial condition, cash flows, or results of operations[151] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details Q1 2022 equity security purchases, primarily for employee tax withholdings, and outlines the status of the Company's publicly announced share repurchase program Issuer Purchases of Equity Securities (Q1 2022) | Period | Total Number of Shares Purchased | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans | Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs | | :----------------- | :------------------------------- | :--------------------------- | :----------------------------------------------------------------- | :----------------------------------------------------------------------------- | | January 1-31, 2022 | 786 | $46.70 | — | 3,604,000 | | February 1-28, 2022 | 104 | $45.25 | — | 3,604,000 | | March 1-31, 2022 | 171 | $42.15 | — | 3,604,000 | | Total | 1,061 | $45.83 | — | | - All equity security acquisitions in Q1 2022 were due to employee equity compensation plans for tax withholding, not the publicly announced repurchase program. As of March 31, 2019, 1.5 million shares remained under the program, which was increased by 3.5 million shares on April 25, 2019, for a total of 5.0 million authorized shares[153][154] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including financial agreements, certifications, and XBRL documents - Key exhibits include Amendment No. 1 to the Sixth Amended and Restated Senior Unsecured Revolving Credit Agreement, a Covenant Agreement and Release of Claims, an Offer Letter to Ian Reason, and certifications under the Sarbanes-Oxley Act[156] SIGNATURES The report was officially signed on May 2, 2022, by the Interim Chief Executive Officer and Chief Financial Officer, and the Vice President, Controller - The report was signed by Julie K. Streich (Interim CEO and CFO) and Marian Acker (VP, Controller) on May 2, 2022[158] EXHIBIT INDEX This index provides a detailed list of all exhibits accompanying the Q1 2022 Form 10-Q, specifying their descriptions and filing status - The Exhibit Index provides a comprehensive list of all exhibits, including financial agreements, certifications, and XBRL documents, indicating their filing status (incorporated by reference or filed with the report)[160]