MSA Safety rporated(US:MSA)2024-04-30 20:58markdown PART I. FINANCIAL INFORMATION [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) Presents unaudited condensed consolidated financial statements, including operations, comprehensive income, balance sheets, cash flows, and detailed notes [Condensed Consolidated Statements of Operations (unaudited)](index=3&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20(unaudited)) Q1 2024 net income improved significantly from prior year's net loss, driven by divestiture absence and operating income growth | Metric (in thousands) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :-------------------- | :-------------------------------- | :-------------------------------- | | Net sales | $413,302 | $398,262 | | Gross profit | $195,531 | $181,398 | | Operating income (loss) | $80,112 | $(60,061) | | Income (loss) before income taxes | $75,607 | $(67,737) | | Net income (loss) | $58,139 | $(150,173) | | Basic EPS | $1.48 | $(3.83) | | Diluted EPS | $1.47 | $(3.83) | | Dividends per common share | $0.47 | $0.46 | - **Net sales** increased by **$15.0 million**, or **3.8%**, to **$413.3 million** in Q1 2024 compared to Q1 2023[7](index=7&type=chunk)[95](index=95&type=chunk) - **Operating income** significantly improved from a loss of **$(60.1) million** in Q1 2023 to an income of **$80.1 million** in Q1 2024, largely due to the absence of the **$129.2 million** loss on divestiture of MSA LLC in the prior year[7](index=7&type=chunk)[112](index=112&type=chunk) [Condensed Consolidated Statements of Comprehensive Income (Loss) (unaudited)](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income%20(Loss)%20(unaudited)) Q1 2024 comprehensive income of **$47.8 million** improved significantly from prior year's loss, driven by net income despite currency translation | Metric (in thousands) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :-------------------- | :-------------------------------- | :-------------------------------- | | Net income (loss) | $58,139 | $(150,173) | | Foreign currency translation adjustments | $(10,673) | $11,194 | | Total other comprehensive (loss) gain, net of tax | $(10,299) | $11,635 | | Comprehensive income (loss) | $47,840 | $(138,538) | - Foreign currency translation adjustments shifted from a gain of **$11.2 million** in Q1 2023 to a loss of **$10.7 million** in Q1 2024[11](index=11&type=chunk) [Condensed Consolidated Balance Sheets (unaudited)](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets%20(unaudited)) As of March 31, 2024, MSA Safety maintained a stable financial position with slight asset increase, liability decrease, and growing shareholders' equity | Metric (in thousands) | March 31, 2024 | December 31, 2023 | | :-------------------- | :------------- | :---------------- | | Total current assets | $792,945 | $786,270 | | Total assets | $2,174,330 | $2,170,150 | | Total current liabilities | $316,526 | $332,818 | | Total liabilities | $1,179,576 | $1,203,348 | | Total shareholders' equity | $994,754 | $966,802 | - **Total assets** increased by **$4.2 million**, from **$2,170.2 million** at December 31, 2023, to **$2,174.3 million** at March 31, 2024[14](index=14&type=chunk) - **Total liabilities** decreased by **$23.8 million**, from **$1,203.3 million** at December 31, 2023, to **$1,179.6 million** at March 31, 2024[14](index=14&type=chunk) [Condensed Consolidated Statements of Cash Flows (unaudited)](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows%20(unaudited)) Q1 2024 operating cash flow significantly improved due to the absence of prior year's MSA LLC divestiture cash contribution; investing and financing used cash | Metric (in thousands) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :-------------------- | :-------------------------------- | :-------------------------------- | | Cash Flow From (Used in) Operating Activities | $50,886 | $(285,909) |\ | Cash Flow Used in Investing Activities | $(11,219) | $(8,367) |\ | Cash Flow (Used in) From Financing Activities | $(29,085) | $272,771 |\ | Increase (decrease) in cash, cash equivalents and restricted cash | $1,906 | $(23,792) |\ | Ending cash, cash equivalents and restricted cash | $150,314 | $140,636 | - Operating activities provided **$50.9 million** in cash in Q1 2024, a significant improvement from using **$285.9 million** in Q1 2023, mainly due to the prior year's **$341.2 million** contribution for the MSA LLC divestiture[16](index=16&type=chunk)[125](index=125&type=chunk) - Financing activities used **$29.1 million** in Q1 2024, compared to providing **$272.8 million** in Q1 2023, reflecting net payments on long-term debt (**$5.0 million**) versus net proceeds from debt (**$295.4 million**) in the prior year[16](index=16&type=chunk)[127](index=127&type=chunk) [Condensed Consolidated Statements of Changes in Retained Earnings and Accumulated Other Comprehensive Loss (unaudited)](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Retained%20Earnings%20and%20Accumulated%20Other%20Comprehensive%20Loss%20(unaudited)) Q1 2024 retained earnings increased due to net income, while accumulated other comprehensive loss grew from foreign currency translation adjustments | Metric (in thousands) | Balances December 31, 2023 | Net Income (Loss) | Dividends | Foreign Currency Translation Adjustments | Balances March 31, 2024 | | :-------------------- | :------------------------- | :---------------- | :-------- | :--------------------------------------- | :---------------------- | | Retained Earnings | $1,143,442 | $58,139 | $(18,490) | — | $1,183,091 | | Accumulated Other Comprehensive Loss | $(129,249) | — | — | $(10,673) | $(139,548) | - **Retained earnings** increased by **$39.6 million** from December 31, 2023, to March 31, 2024, primarily due to net income of **$58.1 million**, partially offset by common and preferred dividends of **$18.5 million**[19](index=19&type=chunk) - **Accumulated other comprehensive loss** increased by **$10.3 million**, mainly due to foreign currency translation adjustments of **$(10.7) million**[19](index=19&type=chunk) [Notes to Condensed Consolidated Financial Statements (unaudited)](index=8&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements%20(unaudited)) These notes provide essential details and disclosures supporting the condensed consolidated financial statements, covering accounting policies, specific balance sheet and income statement items, segment information, and significant commitments and contingencies, including the impact of the MSA LLC divestiture and ongoing litigation [Note 1—Basis of Presentation](index=8&type=section&id=Note%201%E2%80%94Basis%20of%20Presentation) Unaudited condensed consolidated financial statements are prepared under U.S. GAAP, include normal adjustments, and eliminate intercompany transactions - The financial statements are unaudited and include all adjustments considered necessary by management for fair presentation[21](index=21&type=chunk) - Intercompany accounts and transactions have been eliminated in the condensed consolidated financial statements[21](index=21&type=chunk) [Note 2—Cash and Cash Equivalents](index=8&type=section&id=Note%202%E2%80%94Cash%20and%20Cash%20Equivalents) The company uses a notional cash pooling arrangement for global liquidity, with a net cash pool position of **$0.8 million** as of March 31, 2024 - Several subsidiaries participate in a notional cash pooling arrangement for global liquidity management[22](index=22&type=chunk) | (In thousands) | March 31, 2024 | | :-------------------- | :------------- | | Gross cash pool position | $95,488 | | Less: cash pool borrowings | $(94,644) | | Net cash pool position | $844 | [Note 3—Restructuring Charges](index=8&type=section&id=Note%203%E2%80%94Restructuring%20Charges) Q1 2024 restructuring charges increased to **$3.0 million**, driven by management restructuring and manufacturing footprint optimization across segments - Restructuring charges for Q1 2024 were **$3.0 million**, up from **$1.7 million** in Q1 2023[24](index=24&type=chunk)[25](index=25&type=chunk) - Q1 2024 charges were related to manufacturing footprint optimization in Americas (**$0.3 million**), management restructuring and productivity initiatives in International (**$1.9 million**), and footprint optimization/management restructuring in Corporate (**$0.8 million**)[24](index=24&type=chunk) | (In millions) | Americas | International | Corporate | Total | | :------------ | :------- | :------------ | :-------- | :---- | | Reserve balances at December 31, 2023 | $0.8 | $9.0 | $— | $9.8 | | Restructuring charges | $0.3 | $1.9 | $0.8 | $3.0 | | Cash payments | $(0.6) | $(2.9) | $(0.3) | $(3.8) | | Reserve balances at March 31, 2024 | $0.5 | $7.8 | $0.5 | $8.8 | [Note 4—Inventories](index=9&type=section&id=Note%204%E2%80%94Inventories) Total inventories increased to **$305.6 million** at March 31, 2024, with growth across finished products, work in process, and raw materials | (In thousands) | March 31, 2024 | December 31, 2023 | | :-------------------- | :------------- | :---------------- | | Finished products | $89,899 | $88,687 | | Work in process | $19,136 | $15,378 | | Raw materials and supplies | $196,521 | $188,539 | | Total inventories | $305,556 | $292,604 | [Note 5—Property, Plant and Equipment](index=9&type=section&id=Note%205%E2%80%94Property,%20Plant%20and%20Equipment) Net property, plant and equipment slightly decreased to **$211.0 million** at March 31, 2024, as depreciation offset construction in progress | (In thousands) | March 31, 2024 | December 31, 2023 | | :-------------------- | :------------- | :---------------- | | Total gross property, plant and equipment | $658,373 | $667,911 | | Less: accumulated depreciation | $(447,418) | $(456,034) | | Property, plant and equipment, net | $210,955 | $211,877 | [Note 6—Reclassifications Out of Accumulated Other Comprehensive Loss](index=10&type=section&id=Note%206%E2%80%94Reclassifications%20Out%20of%20Accumulated%20Other%20Comprehensive%20Loss) Accumulated other comprehensive loss increased to **$(139.5) million** at March 31, 2024, primarily due to foreign currency translation adjustments | (In thousands) | Balance at beginning of period (Dec 31, 2023) | Foreign currency translation adjustments | Balance at end of period (Mar 31, 2024) | | :------------- | :------------------------------------ | :--------------------------------------- | :------------------------------------ | | Foreign currency translation | $(86,597) | $(10,673) | $(97,270) | | Pension and other post-retirement benefits | $(42,652) | $374 (reclassified into net income) | $(42,278) | - Foreign currency translation adjustments resulted in a **$(10.7) million** loss in Q1 2024, compared to an **$11.2 million** gain in Q1 2023[31](index=31&type=chunk) [Note 7—Capital Stock](index=10&type=section&id=Note%207%E2%80%94Capital%20Stock) The company's capital structure includes preferred and common stock, with **95,428** treasury shares issued for stock-based benefit plans in Q1 2024 - As of March 31, 2024, **39,381,219** common shares were outstanding, with no new shares issued during the quarter[33](index=33&type=chunk) - The company's stock repurchase program authorizes up to **$100.0 million**, but no shares were repurchased under this program in Q1 2024[34](index=34&type=chunk) - **95,428** treasury shares were issued for stock-based benefit plans during Q1 2024, compared to **26,774** in Q1 2023[35](index=35&type=chunk) [Note 8—Segment Information](index=11&type=section&id=Note%208%E2%80%94Segment%20Information) MSA Safety operates through Americas, International, and Corporate segments, with Americas showing strong Q1 2024 growth and International a slight decline - The company is organized into three reportable segments: Americas, International, and Corporate, based on geographical operating segments[37](index=37&type=chunk) - Adjusted operating income (loss) and adjusted EBITDA are key measures used to evaluate segment performance[39](index=39&type=chunk) | (In thousands) | Americas (2024) | International (2024) | Americas (2023) | International (2023) | | :------------- | :-------------- | :------------------- | :-------------- | :------------------- | | Net sales to external customers | $295,539 | $117,763 | $280,267 | $117,995 | | Adjusted operating income (loss) | $86,218 | $13,486 | $71,694 | $15,779 | | Adjusted operating margin % | 29.2 % | 11.5 % | 25.6 % | 13.4 % | | Adjusted EBITDA | $95,693 | $17,045 | $80,494 | $19,058 | | Adjusted EBITDA margin % | 32.4 % | 14.5 % | 28.7 % | 16.2 % | | Product Group (in thousands) | Consolidated (2024) | Americas (2024) | International (2024) | Consolidated (2023) | Americas (2023) | International (2023) | | :--------------------------- | :------------------ | :-------------- | :------------------- | :------------------ | :-------------- | :------------------- | | Firefighter Safety | $163,694 (40%) | $122,252 (41%) | $41,442 (35%) | $139,388 (35%) | $102,056 (36%) | $37,332 (32%) | | Detection | $139,216 (34%) | $96,295 (33%) | $42,921 (36%) | $146,601 (37%) | $99,311 (35%) | $47,290 (40%) | | Industrial PPE and Other | $110,392 (26%) | $76,992 (26%) | $33,400 (29%) | $112,273 (28%) | $78,900 (29%) | $33,373 (28%) | | Total | $413,302 (100%) | $295,539 (100%) | $117,763 (100%) | $398,262 (100%) | $280,267 (100%) | $117,995 (100%) | [Note 9—Earnings (Loss) per Share](index=13&type=section&id=Note%209%E2%80%94Earnings%20(Loss)%20per%20Share) Basic and diluted EPS significantly improved to **$1.48** and **$1.47** in Q1 2024, from a loss of **$(3.83)**, reflecting the company's return to profitability | Metric (in thousands, except per share values) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :--------------------------------------------- | :-------------------------------- | :-------------------------------- | | Net income (loss) attributable to common shareholders | $58,122 | $(150,183) | | Basic weighted-average shares outstanding | 39,360 | 39,224 | | Diluted weighted-average shares outstanding | 39,556 | 39,224 | | Basic EPS | $1.48 | $(3.83) | | Diluted EPS | $1.47 | $(3.83) | - Stock-based compensation awards were excluded from diluted EPS computation in Q1 2023 due to the net loss, making their effect anti-dilutive[45](index=45&type=chunk) [Note 10—Income Taxes](index=14&type=section&id=Note%2010%E2%80%94Income%20Taxes) Q1 2024 effective tax rate was **23.1%**, a significant change from **(121.7)%** in Q1 2023, due to prior year's non-deductible divestiture loss - The effective tax rate for Q1 2024 was **23.1%**, primarily influenced by state income taxes and nondeductible compensation[47](index=47&type=chunk) - The Q1 2023 effective tax rate was **(121.7)%**, largely due to the MSA LLC divestiture and related non-deductible loss[47](index=47&type=chunk) - As of March 31, 2024, the company had a gross liability of **$7.2 million** for unrecognized tax benefits[48](index=48&type=chunk) [Note 11—Stock Plans](index=14&type=section&id=Note%2011%E2%80%94Stock%20Plans) Q1 2024 stock compensation expense decreased to **$4.2 million**, with **71,472** restricted stock awards and **40,231** performance stock units granted | (In thousands) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :---------------------- | :-------------------------------- | :-------------------------------- | | Stock compensation expense | $4,187 | $6,270 | | Income tax benefit | $1,026 | $1,536 | | Stock compensation expense, net of tax | $3,161 | $4,734 | | Restricted Stock Activity | Shares (Q1 2024) | Weighted Average Grant Date Fair Value | | :------------------------ | :--------------- | :------------------------------------- | | Unvested at January 1, 2024 | 173,851 | $142.73 | | Granted | 71,472 | $177.30 | | Vested | (21,864) | $169.67 | | Unvested at March 31, 2024 | 221,005 | $151.23 | - Performance stock units granted in Q1 2024 have a fair value of **$181.31** per unit, with the final number of shares ranging from **0%** to **200%** of the target award based on performance targets and TSR[54](index=54&type=chunk)[55](index=55&type=chunk) - 2021 performance unit awards vested in Q1 2024 at **174%** of the target award[56](index=56&type=chunk) [Note 12—Long-Term Debt](index=16&type=section&id=Note%2012%E2%80%94Long-Term%20Debt) Total long-term debt, net, decreased to **$569.7 million** at March 31, 2024; the company maintains a **$900.0 million** Revolving Credit Facility with **$829.5 million** unused capacity | (In thousands) | March 31, 2024 | December 31, 2023 | | :------------- | :------------- | :---------------- | | Total long-term debt, net of debt issuance costs | $596,154 | $601,692 | | Amounts due within one year | $26,462 | $26,522 | | Long-term debt, net of debt issuance costs | $569,692 | $575,170 | - The Revolving Credit Facility has a capacity of **$900.0 million**, with **$829.5 million** unused as of March 31, 2024[58](index=58&type=chunk) - The company was in full compliance with all restrictive covenants under its credit agreements as of March 31, 2024[64](index=64&type=chunk) [Note 13—Goodwill and Intangible Assets, Net](index=17&type=section&id=Note%2013%E2%80%94Goodwill%20and%20Intangible%20Assets,%20Net) Goodwill slightly decreased to **$625.0 million** at March 31, 2024, due to currency translation; intangible assets, net, also decreased to **$260.9 million** | (In thousands) | Goodwill (March 31, 2024) | Intangible Assets (March 31, 2024) | | :------------- | :------------------------ | :--------------------------------- | | Balance at January 1, 2024 | $627,534 | $266,134 | | Currency translation | $(2,485) | $(773) | | Amortization expense | — | $(4,436) | | Balance at March 31, 2024 | $625,049 | $260,925 | - **Goodwill** of **$447.6 million** is related to the Americas segment and **$177.4 million** to the International segment[66](index=66&type=chunk) - Intangible assets, net, include a trade name related to Globe Manufacturing Company, LLC with an indefinite life totaling **$60.0 million**[67](index=67&type=chunk) [Note 14—Pensions and Other Post-retirement Benefits](index=18&type=section&id=Note%2014%E2%80%94Pensions%20and%20Other%20Post-retirement%20Benefits) Q1 2024 net periodic pension income increased to **$2.2 million**, driven by higher expected return on plan assets, with **$5.3 million** expected contributions for 2024 | (In thousands) | Pension Benefits (2024) | Pension Benefits (2023) | Other Benefits (2024) | Other Benefits (2023) | | :------------- | :---------------------- | :---------------------- | :-------------------- | :-------------------- | | Service cost | $2,315 | $1,884 | $44 | $53 | | Interest cost | $5,970 | $5,918 | $248 | $273 | | Expected return on plan assets | $(10,812) | $(9,906) | — | — | | Net periodic benefit (income) cost | $(2,208) | $(2,020) | $361 | $403 | - The company expects to make net contributions of **$5.3 million** to its pension plans in 2024, mainly for statutorily required plans in the International segment[69](index=69&type=chunk) [Note 15—Derivative Financial Instruments](index=18&type=section&id=Note%2015%E2%80%94Derivative%20Financial%20Instruments) The company uses foreign currency forward contracts with a **$115.0 million** notional amount to manage risk, resulting in a **$1.8 million** loss in Q1 2024 - The notional amount of open foreign currency forward contracts was **$115.0 million** at March 31, 2024[70](index=70&type=chunk) | (In thousands) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :------------- | :-------------------------------- | :-------------------------------- | | Foreign exchange contracts: currency exchange losses, net | $1,758 | $(502) | [Note 16—Fair Value Measurements](index=19&type=section&id=Note%2016%E2%80%94Fair%20Value%20Measurements) Derivative financial instruments are Level 2; fixed rate long-term debt fair value was **$265.2 million** at March 31, 2024, below its **$304.0 million** carrying amount - Derivative financial instruments, consisting of foreign currency forward contracts, are classified within Level 2 of the fair value hierarchy[72](index=72&type=chunk) - The fair value of fixed rate long-term debt was **$265.2 million** at March 31, 2024, compared to a carrying amount of **$304.0 million**[73](index=73&type=chunk) [Note 17—Commitments and Contingencies](index=19&type=section&id=Note%2017%E2%80%94Commitments%20and%20Contingencies) Details product liability claims, including single incident and cumulative trauma, MSA LLC divestiture impact, ongoing PFAS litigation, and product warranty reserves - The reserve for single incident product liability claims was **$1.4 million** at March 31, 2024, with an expense of **$0.1 million** for Q1 2024[75](index=75&type=chunk) - The divestiture of MSA LLC on January 5, 2023, transferred all legacy cumulative trauma product liability claims and related obligations to the buyer, resulting in a tax-effected loss of **$199.6 million** in Q1 2023[77](index=77&type=chunk)[79](index=79&type=chunk) - Globe, a subsidiary, is defending **600** lawsuits comprising approximately **12,189** claims related to PFAS in firefighter turnout gear, with MSA Safety Inc or other Globe affiliates also named as defendants in some cases[81](index=81&type=chunk)[82](index=82&type=chunk) | (In thousands) | Three Months Ended March 31, 2024 | | :------------- | :-------------------------------- | | Beginning warranty reserve | $14,288 | | Warranty payments | $(2,374) | | Warranty claims | $2,141 | | Ending warranty reserve | $13,985 | [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=22&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management's perspective on Q1 2024 financial performance, covering business overview, operating results, liquidity, capital resources, and critical accounting policies [BUSINESS OVERVIEW](index=22&type=section&id=BUSINESS%20OVERVIEW) MSA Safety is a global leader in advanced safety products and solutions, serving diverse markets with firefighter safety gear, detection instruments, and industrial PPE - MSA Safety is a global leader in advanced safety products, technology, and solutions, with a mission focused on safety since 1914[89](index=89&type=chunk) - Key product lines include firefighter safety gear (SCBA, protective apparel, helmets), detection (fixed gas and flame, portable gas), and industrial PPE (head protection, fall protection)[89](index=89&type=chunk) - The business is organized into three reportable segments: Americas, International, and Corporate, based on geographical operating segments[91](index=91&type=chunk) [RESULTS OF OPERATIONS](index=22&type=section&id=RESULTS%20OF%20OPERATIONS) Q1 2024 saw a strong financial rebound with **3.8%** net sales growth and a shift from operating loss to income, driven by divestiture absence and improved gross margins [Net Sales](index=22&type=section&id=Net%20Sales) Consolidated net sales increased **3.8%** to **$413.3 million** in Q1 2024, with Americas growing **5.4%** and International slightly decreasing **0.2%** | Net Sales (in millions) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | Dollar Increase | Percent Increase | | :---------------------- | :-------------------------------- | :-------------------------------- | :-------------- | :--------------- | | Consolidated | $413.3 | $398.3 | $15.0 | 3.8% | | Americas | $295.5 | $280.3 | $15.2 | 5.4% | | International | $117.8 | $118.0 | $(0.2) | (0.2)% | | (Percent Change) | Americas | International | Consolidated | | :--------------- | :------- | :------------ | :----------- | | GAAP reported sales change | 5.4% | (0.2)% | 3.8% | | Constant currency sales change | 4.8% | (1.1)% | 3.1% | - Growth in the Americas was driven by firefighter safety products, while the International segment's decline was mainly in the APAC region, particularly Industrial PPE[97](index=97&type=chunk)[98](index=98&type=chunk) - The company expects mid-single digit sales growth in 2024 and anticipates backlog to normalize by year-end despite ongoing supply chain challenges[99](index=99&type=chunk) [Gross profit](index=23&type=section&id=Gross%20profit) Gross profit increased **7.8%** to **$195.5 million** in Q1 2024, with margin improving to **47.3%** due to productivity and price/cost management | Metric (in millions) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :------------------- | :-------------------------------- | :-------------------------------- | | Gross profit | $195.5 | $181.4 | | Gross profit to net sales ratio | 47.3% | 45.5% | - The increase in gross profit and margin was primarily due to improved productivity and price/cost management[101](index=101&type=chunk) [Selling, general and administrative expenses](index=23&type=section&id=Selling,%20general%20and%20administrative%20expenses) SG&A expenses increased **3.4%** to **$94.2 million** in Q1 2024, but decreased to **22.8%** of net sales, driven by sales and inflation, offset by lower variable compensation | Metric (in millions) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :------------------- | :-------------------------------- | :-------------------------------- | | SG&A expenses | $94.2 | $91.1 | | SG&A as % of net sales | 22.8% | 22.9% | - Constant currency SG&A increased by approximately **$2.7 million** or **3.0%**[102](index=102&type=chunk) - The increase in SG&A was driven by higher sales and inflation, partially offset by lower variable compensation[102](index=102&type=chunk) [Research and development expense](index=24&type=section&id=Research%20and%20development%20expense) R&D expense increased to **$15.9 million** in Q1 2024, representing **3.9%** of net sales, reflecting continued investment in technology-based safety solutions | Metric (in millions) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :------------------- | :-------------------------------- | :-------------------------------- | | R&D expense | $15.9 | $15.2 | | R&D as % of net sales | 3.9% | 3.8% | - Total spend on both software development and R&D activities was **$19.3 million** in Q1 2024, up from **$18.2 million** in Q1 2023[107](index=107&type=chunk) - The company remains committed to dedicating significant resources to R&D, particularly for technology-based safety solutions[107](index=107&type=chunk) [Restructuring charges](index=24&type=section&id=Restructuring%20charges) Q1 2024 restructuring charges increased to **$3.0 million**, primarily for management restructuring and manufacturing footprint optimization initiatives - Restructuring charges were **$3.0 million** in Q1 2024, up from **$1.7 million** in Q1 2023[108](index=108&type=chunk) - Q1 2024 charges were mainly for management restructuring and cost structure/manufacturing footprint optimization[108](index=108&type=chunk) [Currency exchange](index=24&type=section&id=Currency%20exchange) Currency exchange losses decreased to **$2.3 million** in Q1 2024, primarily due to foreign currency exposure on inter-company balances and the Argentina affiliate | Metric (in millions) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :------------------- | :-------------------------------- | :-------------------------------- | | Currency exchange losses, net | $2.3 | $4.2 | - Losses primarily relate to foreign currency exposure on unsettled inter-company balances and the Argentina affiliate[109](index=109&type=chunk) [Product liability expense](index=24&type=section&id=Product%20liability%20expense) Product liability expense was minimal in Q1 2024 and Q1 2023, attributed to the MSA LLC divestiture transferring related liabilities - Product liability expense was minimal in Q1 2024 and Q1 2023[110](index=110&type=chunk) - This is attributed to the divestiture of MSA LLC in January 2023, which transferred associated liabilities[110](index=110&type=chunk) [Loss on divestiture of MSA LLC](index=24&type=section&id=Loss%20on%20divestiture%20of%20MSA%20LLC) A **$129.2 million** pre-tax loss on MSA LLC divestiture was recorded in Q1 2023, involving derecognition of liabilities, cash contribution, and transaction costs - A **$129.2 million** pre-tax loss on divestiture of MSA LLC was recorded in Q1 2023[111](index=111&type=chunk) - The loss included derecognition of legacy cumulative trauma product liability reserves and related insurance assets, a **$341.2 million** cash contribution, and **$5.6 million** in transaction costs[111](index=111&type=chunk) [GAAP operating income](index=24&type=section&id=GAAP%20operating%20income) Q1 2024 consolidated GAAP operating income was **$80.1 million**, a significant improvement from a **$60.1 million** loss, driven by divestiture absence and Americas' performance | Metric (in millions) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :------------------- | :-------------------------------- | :-------------------------------- | | Consolidated operating income (loss) | $80.1 | $(60.1) | - The increase in operating income was primarily due to the absence of the MSA LLC divestiture loss in the prior year and improved performance in the Americas segment[112](index=112&type=chunk) [Adjusted operating income](index=24&type=section&id=Adjusted%20operating%20income) Americas adjusted operating income increased **20.3%** to **$86.2 million**, while International decreased **14.5%** to **$13.5 million**, and Corporate loss increased to **$11.7 million** | Segment (in millions) | Adjusted Operating Income (2024) | Adjusted Operating Income (2023) | Change (%) | | :-------------------- | :------------------------------- | :------------------------------- | :--------- | | Americas | $86.2 | $71.7 | 20.3% | | International | $13.5 | $15.8 | (14.5)% | | Corporate | $(11.7) | $(10.1) | (15.8)% | - Americas' increase was driven by higher sales and gross profit, partially offset by higher SG&A[113](index=113&type=chunk) - International's decrease was primarily due to lower gross profit from unfavorable geographical mix and higher inflationary pressures[114](index=114&type=chunk) [Total other expense, net](index=25&type=section&id=Total%20other%20expense,%20net) Total other expense, net, decreased to **$4.5 million** in Q1 2024, driven by reduced interest expense from lower debt and increased pension income | Metric (in millions) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :------------------- | :-------------------------------- | :-------------------------------- | | Total other expense, net | $4.5 | $7.7 | - The decrease was primarily due to reduced interest expense from lower debt balances and higher pension income[119](index=119&type=chunk) [Income taxes](index=26&type=section&id=Income%20taxes) Q1 2024 effective tax rate was **23.1%**, a significant change from **(121.7)%** in Q1 2023, due to prior year's non-deductible divestiture loss | Metric | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :----- | :-------------------------------- | :-------------------------------- | | Effective tax rate | 23.1% | (121.7)% | - The variance is mainly attributed to the MSA LLC divestiture and the non-deductible loss recorded in the prior year[121](index=121&type=chunk) [Net income](index=26&type=section&id=Net%20income) Q1 2024 net income was **$58.1 million** (**$1.47** diluted EPS), a substantial improvement from a **$150.2 million** net loss (**$(3.83)** diluted EPS) in Q1 2023 | Metric (in millions, except per share) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :------------------------------------- | :-------------------------------- | :-------------------------------- | | Net income (loss) | $58.1 | $(150.2) | | Diluted EPS | $1.47 | $(3.83) | [LIQUIDITY AND CAPITAL RESOURCES](index=26&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) Liquidity is driven by operating cash flows and borrowings, with **$148.3 million** in cash and equivalents providing flexibility for investments, dividends, and debt - Main sources of liquidity are operating cash flows, supplemented by borrowings[123](index=123&type=chunk) - As of March 31, 2024, the company had **$148.3 million** in cash and cash equivalents[124](index=124&type=chunk) - Approximately **51%** of long-term debt is at fixed interest rates, and **85%** of borrowings are denominated in U.S. dollars, limiting currency exposure[123](index=123&type=chunk) [Operating activities](index=26&type=section&id=Operating%20activities) Q1 2024 operating activities provided **$50.9 million** cash, a significant improvement from using **$285.9 million** in Q1 2023, due to the absence of the MSA LLC divestiture cash contribution | Metric (in millions) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :------------------- | :-------------------------------- | :-------------------------------- | | Cash Flow From (Used in) Operating Activities | $50.9 | $(285.9) | - The improved cash flow was mainly due to the absence of the **$341.2 million** contribution for the MSA LLC divestiture in the prior year[125](index=125&type=chunk) [Investing activities](index=26&type=section&id=Investing%20activities) Q1 2024 investing activities used **$11.2 million** cash, an increase from **$8.4 million** in Q1 2023, primarily due to increased capital expenditures for manufacturing optimization | Metric (in millions) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :------------------- | :-------------------------------- | :-------------------------------- | | Cash Flow Used in Investing Activities | $(11.2) | $(8.4) | - The increase in cash used was related to increased capital expenditures for manufacturing footprint optimization[126](index=126&type=chunk) [Financing activities](index=26&type=section&id=Financing%20activities) Q1 2024 financing activities used **$29.1 million** cash, a shift from providing **$272.8 million** in Q1 2023, reflecting net debt payments versus prior year's proceeds for divestiture | Metric (in millions) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :------------------- | :-------------------------------- | :-------------------------------- | | Cash Flow (Used in) From Financing Activities | $(29.1) | $272.8 | | Net payments on long-term debt | $(5.0) | $295.4 (net proceeds) | | Cash dividends paid | $(18.5) | $(18.0) | | Company stock purchases | $(5.8) | $(3.7) | - Since the MSA LLC divestiture in January 2023, the company has paid down **$294.1 million** of outstanding borrowings[127](index=127&type=chunk) [CUMULATIVE TRANSLATION ADJUSTMENTS](index=27&type=section&id=CUMULATIVE%20TRANSLATION%20ADJUSTMENTS) U.S. dollar strengthening led to a **$10.7 million** translation loss in Q1 2024, reversing an **$11.2 million** gain in Q1 2023 | Metric (in millions) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :------------------- | :-------------------------------- | :-------------------------------- | | Translation gain (loss) | $(10.7) | $11.2 | [COMMITMENTS AND CONTINGENCIES](index=27&type=section&id=COMMITMENTS%20AND%20CONTINGENCIES) Q1 2024 pension contributions were **$1.3 million**, with **$5.3 million** expected for 2024; outstanding bank guarantees totaled **$9.3 million** with **$2.0 million** restricted cash - Pension contributions were **$1.3 million** in Q1 2024, with **$5.3 million** expected for the full year 2024[129](index=129&type=chunk) - Outstanding bank guarantees and standby letters of credit totaled **$9.3 million** as of March 31, 2024[130](index=130&type=chunk) - The company holds **$2.0 million** in restricted cash to support these arrangements[130](index=130&type=chunk) [CRITICAL ACCOUNTING POLICIES AND ESTIMATES](index=27&type=section&id=CRITICAL%20ACCOUNTING%20POLICIES%20AND%20ESTIMATES) Financial statement preparation requires significant estimates and judgments, continuously evaluated based on historical experience and reasonable assumptions - Financial statements are prepared using U.S. GAAP, requiring estimates and judgments that affect reported amounts[132](index=132&type=chunk) - Estimates and judgments are evaluated on an ongoing basis using historical experience and reasonable assumptions[132](index=132&type=chunk) [RECENTLY ADOPTED AND RECENTLY ISSUED ACCOUNTING STANDARDS](index=27&type=section&id=RECENTLY%20ADOPTED%20AND%20RECENTLY%20ISSUED%20ACCOUNTING%20STANDARDS) No recently adopted or issued accounting standards materially affected the company's financial reporting during the period [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=28&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Discusses market risk exposure from currency exchange and interest rates, quantifying potential impacts of hypothetical changes on sales, net income, and financial instrument fair value [Currency exchange rate sensitivity](index=28&type=section&id=Currency%20exchange%20rate%20sensitivity) Exposed to currency fluctuations, a **10%** USD change would impact Q1 2024 sales by **$15.7 million** and net income by **$2.1 million**; open forward contracts totaled **$115.0 million** - A hypothetical **10%** strengthening or weakening of the U.S. dollar would decrease or increase reported sales by approximately **$15.7 million** (**3.8%**) and net income by **$2.1 million** (**3.6%**) for Q1 2024[137](index=137&type=chunk) - As of March 31, 2024, the company had open foreign currency forward contracts with a U.S. dollar notional value of **$115.0 million**[138](index=138&type=chunk) [Interest rates](index=28&type=section&id=Interest%20rates) Exposed to interest rate changes, with **$304.0 million** fixed-rate and **$294.5 million** variable-rate debt; a **100 basis point** change impacts annual earnings by **$3.0 million** - As of March 31, 2024, the company had **$304.0 million** of fixed rate debt and **$294.5 million** of variable rate borrowings[140](index=140&type=chunk)[141](index=141&type=chunk) - A hypothetical **10%** decrease in interest rates would result in an approximate **$9.0 million** increase in the fair value of fixed rate long-term debt[140](index=140&type=chunk) - A **100 basis point** increase or decrease in interest rates would have a **$3.0 million** impact on future annual earnings[141](index=141&type=chunk) [Item 4. Controls and Procedures](index=28&type=section&id=Item%204.%20Controls%20and%20Procedures) Disclosure controls and procedures were effective as of March 31, 2024, with no material changes in internal control over financial reporting during the quarter - The company's disclosure controls and procedures were deemed effective as of March 31, 2024[143](index=143&type=chunk) - No material changes in internal control over financial reporting occurred during the most recent fiscal quarter[143](index=143&type=chunk) PART II. OTHER INFORMATION [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=29&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) No shares repurchased under the stock repurchase program in Q1 2024; **31,421** shares purchased for stock-based compensation at an average price of **$185.92** | Period | Total Number of Shares Purchased | Average Price Paid Per Share | | :----------- | :------------------------------- | :--------------------------- | | January 2024 | 64 | $165.03 | | February 2024 | 358 | $178.68 | | March 2024 | 30,999 | $185.92 | - No shares were repurchased under the **$100.0 million** stock repurchase program during Q1 2024[144](index=144&type=chunk) - The shares purchased during the quarter were related to stock-based compensation transactions[145](index=145&type=chunk) [Item 5. Other Information](index=29&type=section&id=Item%205.%20Other%20Information) No Rule 10b5-1 or non-Rule 10b5-1 trading arrangements were adopted or terminated by directors, officers, or the company in Q1 2024 - No Rule 10b5-1 or non-Rule 10b5-1 trading arrangements were adopted or terminated by directors, officers, or the company in Q1 2024[146](index=146&type=chunk) [Item 6. Exhibits](index=29&type=section&id=Item%206.%20Exhibits) Lists exhibits filed with Form 10-Q, including a termination agreement, CEO and CFO certifications, and XBRL interactive data files - Exhibits include a Termination Agreement, CEO and CFO certifications (Rule 13a-14(a) and 18 U.S.C. §1350), and various XBRL taxonomy documents[147](index=147&type=chunk) [SIGNATURE](index=30&type=section&id=SIGNATURE) The report was signed on April 30, 2024, by Lee B. McChesney (SVP and CFO) and Jonathan D. Buck (Chief Accounting Officer and Controller) - The report was signed on April 30, 2024, by Lee B. McChesney (SVP and CFO) and Jonathan D. Buck (Chief Accounting Officer and Controller)[151](index=151&type=chunk)