MSA Safety Inc 10-Q

Item 3. Quantitative and Qualitative Disclosures About Market Risk Market risk represents the risk of adverse changes in the value of a financial instrument caused by changes in currency exchange rates, interest rates and equity prices. We are exposed to market risks related to currency exchange rates and interest rates. Currency exchange rate sensitivity. We are subject to the effects of fluctuations in currency exchange rates on various transactions and on the translation of the reported financial position and operating results of our non-U.S. companies from local currencies to U.S. dollars. A hypothetical 10% strengthening or weakening of the U.S. dollar would decrease or increase our reported sales and net income by approximately $16.4 million or 4.1% and $1.7 million or 1.1%, respectively, for the three months ended March 31, 2023. When appropriate, we may attempt to limit our transactional exposure to changes in currency exchange rates through forward contracts or other actions intended to reduce existing exposures by creating offsetting currency exposures. At March 31, 2023, we had open foreign currency forward contracts with a U.S. dollar notional value of $104.1 million. A hypothetical 10% strengthening or weakening of the U.S. dollar would result in a $10.4 million increase or decrease in the fair value of these contracts at March 31, 2023. Interest rates. We are exposed to changes in interest rates primarily as a result of borrowing and investing activities used to maintain liquidity and fund business operations. At March 31, 2023, we had $260.3 million of fixed rate debt which matures at various dates through 2036. The incremental increase in the fair value of fixed rate long-term debt resulting from a hypothetical 10% decrease in interest rates would be approximately $8.0 million. However, our sensitivity to interest rate declines and the corresponding increase in the fair value of our debt portfolio would unfavorably affect earnings and cash flows only to the extent that we elected to repurchase or retire all or a portion of our fixed rate debt portfolio at prices above carrying values. At March 31, 2023, we had $612.4 million of variable rate borrowings under our revolving credit facility. A 100 basis point increase or decrease in interest rates would have a $6.1 million impact on future annual earnings under our current capital structure.