What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-07-29 compared with 2021-04-29 · 239 added, 85 removed, 176 unchanged (65% of the section changed)

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Our actual results could differ materially from the results contemplated by these forward-looking statements due to a number of factors, including those discussed in the sections of our annual report entitled “Forward-Looking Statements” and “Risk Factors,” and those discussed in our Form 10-Q quarterly reports filed after such annual report (such as in Part II, Item 1A, “Risk Factors.”)

Subsequent Events

On July 1, 2021, we acquired Bacharach, Inc.

and its affiliated companies (Bacharach) in an all cash transaction valued at $337 million, net of cash acquired.

Headquartered near Pittsburgh in New Kensington, PA, Bacharach is a leader in gas detection technologies used in the heating, ventilation, air conditioning, and refrigeration (HVAC-R) markets.

MSA is planning for Bacharach to add $30-$35 million of net sales and adjusted earnings accretion of $0.10 - $0.15 per share in the second half of 2021.

During July 2021, we purchased the remaining 10% noncontrolling interest in MSA (China) Safety Equipment Co., Ltd.

from our China partner for $19 million, inclusive of a $6 million dividend.

China has been a key market in our International segment and is an important part of our strategic plan going forward.

We have seen good growth in China and continue to make additional investments in this region.

BUSINESS OVERVIEW

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A phased approach to reconnect employees while adjusting the characteristics of their physical working environments, providing training and executing enhanced safety and cleaning protocols, will promote workspace safety in a manner consistent with the mission and values of MSA.

The process and timing to reconnect our workforce will continue to evolve due to the changing nature of COVID-19.

The Company intends to bring the majority of the U.S.

workforce back during the third quarter 2021.

The Company expects to modify plans as necessary to respond to such changes.

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Core products, as mentioned above, include breathing apparatus, fixed gas and flame detection systems, portable gas detection instruments, industrial head protection products, firefighter helmets and protective apparel, and fall protection devices.

Core products comprised approximately 88% and 85% of sales for the three months ended March 31, 2021 and 2020.

Core products comprised approximately 89% and 85% of sales for the six months ended June 30, 2021 and 2020.

MSA also maintains a portfolio of non-core products.

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These products have historically been used in many industrial and first responder applications.

APR products represented 6% and 8% of our consolidated sales for the three months ended March 31, 2021 and 2020, with over 74% and 70% of this business being in our Americas segment for the three months ended March 31, 2021 and 2020.

APR products represented 6% and 9% of our consolidated sales for the six months ended June 30, 2021 and 2020, with over 74% and 75% of this business being in our Americas segment.

During 2020, Emergency Use Authorizations ("EUA") were issued by the FDA to expand the types of respiratory protection available to the medical community in response to COVID-19.

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RESULTS OF OPERATIONS

Three Months Ended March 31, 2021, Compared to Three Months Ended March 31, 2020

Net sales for the three months ended March 31, 2021, were $308.4 million, a decrease of $32.7 million, or 9.6%, driven by lower sales across most of the core product groups compared to $341.1 million for the three months ended March 31, 2020.

Three Months Ended June 30, 2021, Compared to Three Months Ended June 30, 2020

Net sales for the three months ended June 30, 2021, were $341.3 million, an increase of $26.9 million, or 8.6%, driven by increased sales across most of the core product groups compared to $314.4 million for the three months ended June 30, 2020.

Please refer to the Net Sales table for a reconciliation of the quarter over quarter sales change.

Net Sales Three Months Ended March 31, Dollar

Decrease Percent

Net Sales Three Months Ended June 30, Dollar

Increase Percent

(In millions) 2021 2020

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International 123.6 110.2 13.4 12.1%

Net Sales Three Months Ended March 31, 2021 versus March 31, 2020

Net Sales Three Months Ended June 30, 2021

(Percent Change) Americas International Consolidated

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Constant currency sales change 5.8% 2.9% 4.8%

Constant currency sales change is a non-GAAP financial measure provided by the Company to give a better understanding of the Company's underlying business performance.

Constant currency sales change is calculated by deducting the percentage impact from currency translation effects from the overall percentage change in net sales.

Net sales for the Americas segment were $208.3 million in the first quarter of 2021, a decrease of $22.9 million, or 9.9%, compared to $231.2 million in the first quarter of 2020.

During the quarter, constant currency sales in the Americas segment decreased 9.3% compared to the prior year period.

After a weak January and February, order pace and invoicing strengthened in March.

The quarterly revenue decline was driven by economic challenges as well as a difficult comparison from a year ago, which reflected a pre-pandemic environment for MSA.

Areas that were particularly impacted include industrial PPE and FGFD.

Additionally, demand levels in the APR business moderated and returned to pre-pandemic levels.

Americas segment business conditions and order activity improved in March and into April and that provides a sense of optimism to start the second quarter.

Net sales for the International segment were $100.1 million in the first quarter of 2021, a decrease of $9.8 million, or 8.9%, compared to $109.9 million for the first quarter of 2020.

Constant currency sales in the International segment decreased 15.6% during the quarter on weaker revenues across the segment, with more significant declines in the EMEA operating segment due to COVID-19 lockdowns in Europe and lower project business in the Middle East FGFD market.

This weakness was partially offset by improving conditions in China and the acquisition of Bristol.

Our order book improved in March and into April across a number of areas in our business.

Our backlog is healthy to start the second quarter.

Acquisitions —% (6.6)% (2.4)%

Organic constant currency change 5.8% (3.7)% 2.4%

Organic constant currency sales change is a non-GAAP financial measure provided by the Company to give a better understanding of the Company's underlying business performance.

Organic constant currency sales change is calculated by deducting the percentage impact from acquisitions and currency translation effects from the overall percentage change in net sales.

Net sales for the Americas segment were $217.7 million in the second quarter of 2021, an increase of $13.5 million, or 6.6%, compared to $204.2 million in the second quarter of 2020.

During the quarter, constant currency sales in the Americas segment increased 5.8% compared to the prior year period.

All core products improved versus the prior year with notable improvements in our industrial business that responded quickly to the improving business environment, partially offset by lower demand for APR products as the business returned to pre-pandemic levels.

Americas segment business conditions and order activity continued to improve throughout the quarter and that provides a sense of optimism to start the second half of 2021.

Our ability to deliver orders will be dependent upon the extent in which supply chain challenges persist in the second half of 2021.

Net sales for the International segment were $123.6 million in the second quarter of 2021, an increase of $13.4 million, or 12.1%, compared to $110.2 million for the second quarter of 2020.

Constant currency sales in the International segment increased 2.9% during the quarter due to sales of Bristol turnout gear, which was partially offset by weaker volumes in EMEA operating segment driven by slower economic recovery due to the pandemic in Europe and lower project business in the Middle East Fixed Gas & Flame Detection ("FGFD") market.

However, we are seeing increased incoming orders for gas detection products.

Our ability to deliver orders will be dependent upon the extent in which supply chain challenges persist in the second half of 2021.

Our backlog increased significantly during the past quarter as a result of an uptick in order pace and ongoing supply chain constraints in certain product lines.

Our incoming orders during the quarter were strong across our product portfolio and above 2019 levels.

The recently announced acquisition of Bacharach is expected to add $30-$35 million of net sales during the second half of 2021.

Looking ahead, we continue to operate in a very dynamic environment.

There are a number of evolving factors that will continue to influence our revenue outlook.

These factors include, among other things, the effectiveness of the vaccine rollout, risk of additional COVID lockdowns, industrial employment rates, the pace of economic recovery and the supply chain challenges as economies open up.

While the outcome is hard to predict, our recent order pace provides a sense of optimism to start the second quarter.

There are a number of other evolving factors that will continue to influence our revenue outlook.

These factors include, among other things, the effectiveness/pace of the vaccine rollout globally, risk of additional COVID lockdowns, industrial employment rates, supply chain constraints, raw material availability and the pace of economic recovery.

These conditions could impact our future results and growth expectations.

Refer to Note 7—Segment Information to the unaudited condensed consolidated financial statements in Part I Item 1 of this Form 10-Q, for information regarding sales by product group.

Gross profit .

Gross profit for the first quarter of 2021 was $134.7 million, a decrease of $22.7 million or 14.4%, compared to $157.4 million for the first quarter of 2020.

The ratio of gross profit to net sales was 43.7% in the first quarter of 2021 compared to 46.1% in the same quarter last year.

The lower gross profit ratio during the current quarter is primarily attributable to a couple of primary drivers.

Lower throughput in our factories drove inefficiencies and inventory charges.

Inventory charges were primarily due to lower levels of demand for respiratory protection.

The remaining items that impacted gross profit were a less favorable product mix and higher input costs.

We have made adjustments to certain pricing actions and continue to evaluate additional pricing opportunities as we navigate the supply chain inflationary pressures.

The Bristol acquisition also negatively impacted mix because gross margins for turnout gear are lower than the corporate average.

We expect to improve Bristol margins as we execute our integration plans.

Gross profit for the second quarter of 2021 was $152.9 million, an increase of $11.3 million or 8.0%, compared to $141.6 million for the second quarter of 2020.

The ratio of gross profit to net sales was 44.8% in the second quarter of 2021 compared to 45.0% in the same quarter last year.

Strategic pricing and stronger throughput in our factories offset higher material costs.

Despite a number of headwinds in margin associated with input costs, a less favorable product mix, and inventory charges associated with lower demand for APR products, gross margins were roughly in line with prior year levels.

We have implemented an off-cycle price increase to respond to the inflation we are seeing in the U.S.

across electronic components, resins and other inputs.

While there could be a number of scenarios on how long these challenges may persist, we could see these impact our business for the foreseeable future with more meaningful impact in the second half of 2021.

We will continue to evaluate additional pricing opportunities as we continue to navigate inflationary pressures.

Selling, general and administrative expenses .

Selling, general and administrative ("SG&A") expenses were $75.5 million during the first quarter of 2021, a decrease of $4.7 million or 5.9%, compared to $80.2 million in the first quarter of 2020.

SG&A costs declined despite $1.8 million of additional SG&A expenses related to the Bristol acquisition.

Overall, selling, general and administrative expenses were 24.5% of net sales during the first quarter of 2021, compared to 23.5% of net sales during the same period in 2020.

We delivered $7.0 million to $8.0 million of savings from restructuring programs and discretionary cost savings associated with reduced travel, controlled hiring, professional services and other costs.

Approximately half of these savings are temporary and will return to some extent slowly as the business improves and travel resumes, while half are structural in nature.

We expect the year over year SG&A comparison to become more difficult as the second quarter of 2020 reflected the initial cost reduction activities that occurred at the onset of the pandemic.

Selling, general and administrative ("SG&A") expenses were $83.4 million during the second quarter of 2021, an increase of $14.4 million or 20.8%, $12.1 million on a constant currency basis, compared to $69.0 million in the second quarter of 2020.

Overall, selling, general and administrative expenses were 24.4% of net sales during the second quarter of 2021, compared to 22.0% of net sales during the same period in 2020.

We expect SG&A to approximate 23.5% of net sales in the second half of 2021.

Improved business conditions drove $3 million of additional variable compensation during the quarter.

Acquisition costs related to the acquisitions of Bacharach and Bristol totaling $8 million also increased SG&A costs during the quarter.

These costs include $4.3 million of incremental stock compensation expense driven by the acquisition of Bacharach and its expected revenue and profitability contributions in the coming years, $2 million of transaction costs related to the acquisition of Bacharach, and $1.8 million of Bristol base SG&A which was not in the comparable period.

Costs savings from restructuring programs offset discretionary cost increases during the quarter.

Please refer to the Selling, general and administrative expenses table for a reconciliation of the quarter over quarter expense change.

Selling, general, and administrative expenses Three Months Ended

June 30, 2021 versus June 30, 2020

(Percent Change) Consolidated

GAAP reported change 20.8%

Currency translation effects (3.3)%

Constant currency change 17.5%

Acquisitions and related strategic transaction costs (5.3)%

Organic constant currency change 12.2%

Research and development expense .

Research and development expense was $13.2 million during the first quarter of 2021, a decrease of $0.9 million, compared to $14.1 million during the first quarter of 2020.

Research and development expense was 4.3% of net sales in the first quarter of 2021 compared to 4.1% in the same period of 2020.

We continue to develop new products for global safety markets, including the recently launched connected firefighter ecosystem powered by LUNAR.

During the first quarter of 2021, we capitalized $2.0 million of software development costs.

Research and development expense was $14.0 million during the second quarter of 2021, an increase of $0.2 million, compared to $13.8 million during the second quarter of 2020.

Research and development expense was 4.1% of net sales in the second quarter of 2021 compared to 4.4% in the same period of 2020.

We continue to develop new products for global safety markets.

During the second quarter of 2021, we capitalized $2.1 million of software development costs.

Restructuring charges .

Restructuring charges during the first quarter of 2021, were $1.3 million primarily related to our ongoing initiatives to drive profitable growth and right size our operations.

Restructuring charges during the second quarter of 2021, were $7.1 million primarily related to our ongoing initiatives to drive profitable growth and right size our operations.

Together with cost reduction programs executed throughout 2020, we expect these programs to collectively deliver $15 million of savings throughout the income statement in 2021, and annual savings of $25 million thereafter.

This compared to restructuring charges of $2.0 million during the first quarter of 2020, primarily related to footprint rationalization and other restructuring programs associated with our ongoing initiatives to drive profitable growth in our International segment.

We remain focused on executing programs that will optimize our cost structure.

This compared to restructuring charges of $8.9 million during the second quarter of 2020, primarily related to footprint rationalization and the Company's FGFD manufacturing footprint optimization and the acceleration of cost reduction programs associated with our ongoing initiatives to drive profitable growth in our International segment.

We continue to evaluate additional programs to execute in the second half of 2021 in response to changing business conditions.

Currency exchange .

Currency exchange gains were $2.1 million in the first quarter of 2021 compared to losses of $0.3 million in the first quarter of 2020.

Currency exchange losses were $1.6 million in the second quarter of 2021 compared to losses of $0.8 million in the second quarter of 2020.

Currency exchange in both periods were related to foreign currency exposure on unsettled inter-company balances.

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Product liability expense.

Product liability expense for the three months ended March 31, 2021 was $2.8 million compared to $2.0 million in the same period last year.

Product liability expense for both periods related primarily to defense costs incurred for cumulative trauma product liability claims.

Product liability expense for the three months ended June 30, 2021 was $11.8 million compared to $0.9 million in the same period last year.

Product liability expense increased during the quarter to reflect an increase in the number of asserted claims pending against MSA LLC and a corresponding adjustment to the reserve, as discussed further in Note 17.

The expense in the second quarter of 2020 related primarily to defense costs incurred for cumulative trauma product liability claims.

GAAP operating income.

Consolidated operating income for the first quarter of 2021 was $44.0 million compared to $58.8 million in the same period last year.

The decrease in operating results was driven by lower sales volumes and lower gross profit for the reasons noted above partially offset by lower SG&A expenses.

Consolidated operating income for the second quarter of 2021 was $35.1 million compared to $48.3 million in the same period last year.

The decrease in operating results was driven by higher product liability expense and SG&A expenses, and acquisition related costs as described above, partially offset by sales volume.

Adjusted operating income.

Americas adjusted operating income for the first quarter of 2021 was $45.2 million, a decrease of $14.6 million, or 25%, compared to $59.8 million in the prior year quarter.

The decrease was related to the lower level of sales and lower gross profit for reasons noted above, partially offset by lower SG&A expenses.

International adjusted operating income for the first quarter of 2021 was $8.8 million, a decrease of $3.9 million, or 31%, compared to $12.7 million in the prior year quarter.

The decrease in adjusted operating income is primarily attributable to lower sales volumes.

Corporate segment adjusted operating loss for the first quarter of 2021 was $6.5 million, an improvement of $2.1 million compared to an adjusted operating loss of $8.6 million in the first quarter of 2020 due to lower professional services fees and discretionary cost control initiatives.

Americas adjusted operating income for the second quarter of 2021 was $49.2 million, and comparable to $49.0 million from the prior year quarter.

International adjusted operating income for the second quarter of 2021 was $20.4 million, an increase of $3.0 million, or 17%, compared to $17.4 million in the prior year quarter.

The increase in adjusted operating income is primarily attributable to higher sales volumes and gross profit expansion, partially offset by higher SG&A, which was driven by the Bristol acquisition.

Corporate segment adjusted operating loss for the second quarter of 2021 was $11.0 million, an increase of $3.5 million compared to an adjusted operating loss of $7.5 million in the second quarter of 2020 due to variable compensation resets, including $4.3 million of incremental stock compensation expense related to the July 1, 2021 acquisition of Bacharach.

The following tables represent a reconciliation from GAAP operating income to adjusted operating income (loss) and adjusted EBITDA.

Adjusted operating margin % is calculated as adjusted operating income (loss) divided by net sales and adjusted EBITDA margin % is calculated as adjusted EBITDA divided by net sales.

Adjusted operating income Three Months Ended March 31, 2021

Adjusted operating income Three Months Ended June 30, 2021

(In thousands) Americas International Corporate Consolidated

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Restructuring charges (Note 3) 7,078

Currency exchange losses, net (Note 5) 1,640

Product liability expense (Note 17) 11,751

Acquisition related costs (Note 18) (a)

Adjusted operating income (loss) 49,238 20,440 (10,991) 58,687

Adjusted operating margin % 22.6 % 16.5 %

Depreciation and amortization 11,584

Adjusted EBITDA 57,137 24,020 (10,886) 70,271

Adjusted EBITDA % 26.2 % 19.4 %

Adjusted operating income Three Months Ended June 30, 2020

(In thousands) Americas International Corporate Consolidated

Net sales $ 204,231 $ 110,207 $ — $ 314,438

GAAP operating income 48,294

Restructuring charges (Note 3) 8,865

Currency exchange losses, net (Note 5) 793

Product liability expense (Note 17) 851

Acquisition related costs (Note 18) 64

Adjusted operating income (loss) 49,003 17,402 (7,538) 58,867

Adjusted operating margin % 24.0 % 15.8 %

Depreciation and amortization 9,786

Adjusted EBITDA 55,620 20,474 (7,441) 68,653

Adjusted EBITDA % 27.2 % 18.6 %

(a) Acquisition related costs include advisory, legal, accounting, valuation, and other professional or consulting fees incurred during due diligence and integration.

These costs are included in Selling, general and administrative expense in the unaudited Condensed Consolidated Statements of Income.

Acquisition-related costs also include the acquisition related amortization, which is included in Cost of products sold in the Condensed Consolidated Statements of Income.

Adjusted operating income (loss) and adjusted EBITDA are a non-GAAP financial measures used by the chief operating decision maker to evaluate segment performance and allocate resources.

Adjusted operating income (loss) is reconciled above to the nearest GAAP financial measure, Operating income (loss), and excludes restructuring, currency exchange, product liability expense, and acquisition related costs.

Adjusted EBITDA is reconciled above to the nearest GAAP financial measure, Operating income (loss) and excludes depreciation and amortization expense.

Total other (income) expense, net.

Total other income, net, for the second quarter of 2021 was $0.1 million, compared to other expense, net, of $0.5 million for the same period in 2020 driven primarily by lower interest expense and higher pension income driven by a higher expected rate of return.

Income taxes.

The reported effective tax rate for the second quarter of 2021 was 27.8% compared to 23.9% for the second quarter of 2020.

This increase from the prior year is attributable to statutory rate increases in the U.K., which required a quarter specific reevaluation of our deferred taxes in the U.K., which will not recur in future periods;

and nondeductible executive compensation.

We are subject to regular review and audit by both foreign and domestic tax authorities.

While we believe our tax positions will be sustained, the final outcome of tax audits and related litigation may differ materially from the tax amounts recorded in our consolidated financial statements.

Net income attributable to MSA Safety Incorporated .

Net income was $25.1 million for the second quarter of 2021, or $0.64 per diluted share compared to income of $36.1 million, or $0.92 per diluted share, for the same period last year.

Six Months Ended June 30, 2021, Compared to Six Months Ended June 30, 2020

Net sales for the six months ended June 30, 2021, were $649.7 million, a decrease of $5.9 million, or 0.9%, driven by decreased first quarter sales across most of the core product groups compared to $655.6 million for the six months ended June 30, 2021.

Please refer to the Net Sales table for a reconciliation of the period over period sales change.

Net Sales Six Months Ended June 30, Dollar

Decrease Percent

(In millions) 2021 2020

Consolidated $649.7 $655.6 $(5.9) (0.9)%

Americas 426.0 435.5 (9.5) (2.2)%

International 223.7 220.1 3.6 1.6%

Net Sales Six Months Ended June 30, 2021

(Percent Change) Americas International Consolidated

GAAP reported sales change (2.2)% 1.6% (0.9)%

Currency translation effects —% (7.9)% (2.7)%

Constant currency sales change (2.2)% (6.3)% (3.6)%

Acquisitions —% (5.0)% (1.7)%

Organic constant currency change (2.2)% (11.3)% (5.3)%

Organic constant currency sales change is a non-GAAP financial measure provided by the Company to give a better understanding of the Company's underlying business performance.

Organic constant currency sales change is calculated by deducting the percentage impact from acquisitions and currency translation effects from the overall percentage change in net sales.

Net sales for the Americas segment were $426.0 million in the six months ended June 30, 2021, a decrease of $9.5 million, or 2.2%, compared to $435.5 million in the same period last year.

During the six months ended June 30, 2021, constant currency sales in the Americas segment decreased 2.2% compared to the prior year period, driven by APR sales moderating to pre-pandemic levels, which was partially offset by a general improvement in business conditions during the second quarter of 2021.

Our ability to deliver orders will be dependent upon the extent in which supply chain challenges persist in the second half of 2021.

Net sales for the International segment were $223.7 million in the six months ended June 30, 2021, an increase of $3.6 million, or 1.6%, compared to $220.1 million for the same period last year.

Constant currency sales in the International segment decreased 6.3% during the period on weaker revenues across the segment, with more significant declines in the EMEA operating segment due to COVID-19 lockdowns in Europe and lower project business in the Middle East FGFD market.

This weakness was partially offset by sales of Bristol turnout gear.

Our ability to deliver orders will be dependent upon the extent in which supply chain challenges persist in the second half of 2021.

Refer to Note 7—Segment Information to the unaudited condensed consolidated financial statements in Part I Item 1 of this Form 10-Q, for information regarding sales by product group.

Gross profit .

Gross profit for the six months ended June 30, 2021, was $287.7 million, a decrease of $11.3 million or 3.8%, compared to $299.0 million during the same period last year.

The ratio of gross profit to net sales was 44.3% during the six months ended June 30, 2021 compared to 45.6% during the same period last year.

Strategic pricing and stronger throughput in our factories helped to offset higher material costs, despite a number of headwinds in margin associated with input costs, a less favorable product mix, and inventory charges associated with lower demand for APR products.

We have implemented an off-cycle price increase to respond to the inflation we are seeing in the U.S.

across electronic components, resins and other inputs.

We will continue to evaluate additional pricing opportunities as we continue to navigate inflationary pressures.

Selling, general and administrative expenses .

Selling, general and administrative ("SG&A") expenses were $158.9 million during the six months ended June 30, 2021, an increase of $9.6 million or 6.4%, compared to $149.3 million during the same period last year.

Overall, selling, general and administrative expenses were 24.5% of net sales during the six months ended June 30, 2021, compared to 22.8% of net sales during the same period in 2020.

We expect SG&A to approximate 23.5% of second half 2021 net sales.

Improved business conditions drove $3 million of additional variable compensation during the period.

Acquisition costs related to the acquisitions of Bacharach and Bristol totaling $11 million also increased SG&A costs during the period.

These costs include $4.3 million of incremental stock compensation expense driven by the acquisition of Bacharach and its expected revenue and profitability contributions in the coming years, $3 million of transaction costs related to the acquisition of Bacharach and Bristol, and $3.7 million of Bristol base SG&A which was not in the comparable period.

Costs savings from restructuring programs offset discretionary cost increases during the year and we expect to bring costs back into the business at a slower pace than the revenue improvements.

Please refer to the Selling, general and administrative expenses table for a reconciliation of the period over period expense change.

Selling, general, and administrative expenses Six Months Ended

June 30, 2021 versus June 30, 2020

(Percent Change) Consolidated

GAAP reported change 6.4%

Currency translation effects (2.4)%

Constant currency change 4.0%

Acquisitions and related strategic transaction costs (3.7)%

Organic constant currency change 0.3%

Research and development expense .

Research and development expense was $27.2 million during the six months ended June 30, 2021, a decrease of $0.7 million, compared to $27.9 million during the same period last year.

Research and development expense was 4.2% of net sales in the six months ended June 30, 2021, compared to 4.3% in the same period of 2020.

We continue to develop new products for global safety markets.

During the six months ended June 30, 2021, we capitalized $4.1 million of software development costs.

Restructuring charges .

Restructuring charges during the six months ended June 30, 2021, were $8.4 million primarily related to our ongoing initiatives to drive profitable growth and right size our operations.

This compared to restructuring charges of $10.9 million during the same period in 2020, primarily related to footprint rationalization projects including the Company's FGFD manufacturing footprint optimization and the acceleration of cost reduction programs associated with our ongoing initiatives to drive profitable growth in our International segment.

We continue to evaluate additional programs to execute in the second half of 2021 in response to changing business conditions.

Currency exchange .

Currency exchange gains were $0.5 million during the six months ended June 30, 2021, compared to losses of $1.1 million in the same period of 2020.

Currency exchange in both periods were related to foreign currency exposure on unsettled inter-company balances.

Refer to Note 15—Derivative Financial Instruments to the unaudited condensed consolidated financial statements in Part I Item 1 of this Form 10-Q, for information regarding our currency exchange rate risk management strategy.

Product liability expense.

Product liability expense for the six months ended June 30, 2021 was $14.5 million compared to $2.8 million in the same period last year.

Product liability expense increased during the period to reflect an increase in the number of asserted claims pending against MSA LLC and a corresponding adjustment to the reserve, as discussed further in Note 17.

Product liability expense for 2020 related primarily to defense costs incurred for cumulative trauma product liability claims.

GAAP operating income.

Consolidated operating income for the six months ended June 30, 2021, was $79.1 million compared to $107.1 million in the same period last year.

The decrease in operating results was driven by lower sales volumes, lower gross profit and higher product liability expense and SG&A expenses for the reasons noted above.

Costs savings from restructuring programs offset discretionary cost increases during the quarter.

Adjusted operating income.

Americas adjusted operating income for the six months ended June 30, 2021 was $94.4 million, a decrease of $14.4 million, or 13.3%, compared to $108.8 million in the prior year.

The decrease was related to the lower level of sales, variable compensation resets and lower gross profit, for reasons noted above.

International adjusted operating income for the six months ended June 30, 2021, was $29.2 million, a decrease of $0.9 million, or 2.9%, compared to $30.1 million in the prior year.

The decrease in adjusted operating income is primarily attributable to SG&A expenses due to the Bristol acquisition and increased post-pandemic activities.

Costs savings from restructuring programs offset discretionary cost increases during the first half of 2021.

Corporate segment adjusted operating loss for the six months ended June 30, 2021, was $17.5 million, an increase of $1.3 million compared to an adjusted operating loss of $16.2 million in the same period of 2020 as higher variable compensation expenses, including Bacharach acquisition-related costs, were mostly offset by lower discretionary costs.

The following tables represent a reconciliation from GAAP operating income to adjusted operating income (loss) and adjusted EBITDA.

Adjusted operating margin % is calculated as adjusted operating income (loss) divided by net sales and adjusted EBITDA margin % is calculated as adjusted EBITDA divided by net sales.

Adjusted operating income Six Months Ended June 30, 2021

(In thousands) Americas International Corporate Consolidated

Net sales $ 426,046 $ 223,671 $ — $ 649,717

GAAP operating income 79,088

Restructuring charges (Note 3) 8,385

Currency exchange gains, net (Note 5) (459)

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Adjusted EBITDA % 25.7 % 16.2 %

Adjusted operating income Three Months Ended March 31, 2020

Adjusted operating income Six Months Ended June 30, 2020

(In thousands) Americas International Corporate Consolidated

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Adjusted EBITDA % 28.0 % 16.5 %

(a) Acquisition related costs include advisory, legal, accounting, valuation, and other professional or consulting fees incurred.

(a) Acquisition related costs include advisory, legal, accounting, valuation, and other professional or consulting fees incurred during due diligence and integration.

These costs are included in Selling, general and administrative expense in the unaudited condensed consolidated statement of income.

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Total other (income) expense, net.

Total other income, net, for the first quarter of 2021 was $2.3 million, compared to other expense, net, of $1.9 million for the same period in 2020 driven primarily by lower interest expense and higher pension income driven by a one-time pension settlement and a higher expected rate of return.

Total other income, net, for the six months ended June 30, 2021 was $2.4 million, compared to other expense, net, of $2.3 million for the same period in 2020 driven primarily by lower interest expense and higher pension income driven by a one-time pension settlement and a higher expected rate of return.

Income taxes.

The reported effective tax rate for the first quarter of 2021 was 21.0% compared to 23.0% for the first quarter of 2020.

This decrease from the prior year is attributable to higher profits in foreign jurisdictions with favorable statutory tax rates.

The reported effective tax rate for the six months ended June 30, 2021, was 24.0% compared to 23.4% for the same period in 2020.

This increase from the prior year is attributable to statutory rate increases in foreign jurisdictions and nondeductible executive compensation, partially offset by tax benefits related to certain share-based payments.

We are subject to regular review and audit by both foreign and domestic tax authorities.

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Net income attributable to MSA Safety Incorporated .

Net income was $36.4 million for the first quarter of 2021, or $0.92 per diluted share compared to income of $43.7 million, or $1.11 per diluted share, for the same period last year.

Net income was $61.5 million for the six months ended June 30, 2021, or $1.56 per diluted share compared to income of $79.7 million, or $2.03 per diluted share, for the same period last year.

Non-GAAP Financial Information

We may provide information regarding financial measures such as constant currency changes, financial measures excluding the impact of acquisitions and related acquisition related costs, including acquisition related amortization and COVID-19 related costs, consisting of a one-time bonus for essential manufacturing employees and adjusted operating income, adjusted operating margin percentage, adjusted EBITDA and adjusted EBITDA margin percentage, which are not recognized terms under U.S.

We may provide information regarding financial measures such as organic constant currency changes, financial measures excluding the impact of acquisitions and related acquisition related costs, including acquisition related amortization and COVID-19 related costs, consisting of a one-time bonus for essential manufacturing employees and adjusted operating income, adjusted operating margin percentage, adjusted EBITDA and adjusted EBITDA margin percentage, which are not recognized terms under U.S.

GAAP and do not purport to be alternatives to net sales, selling, general and administrative expense, operating income or net income as a measure of operating performance.

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Our principal liquidity requirements are for working capital, capital expenditures, principal and interest payments on debt, dividend payments and acquisitions.

At March 31, 2021, approximately 26% of our long-term debt is at fixed interest rates with repayment schedules through 2031.

At June 30, 2021, approximately 28% of our long-term debt is at fixed interest rates with repayment schedules through 2031.

The remainder of our long-term debt is at variable rates on an unsecured revolving credit facility that is due in 2023.

At March 31, 2021, approximately 56% of our borrowings are denominated in U.S.

At June 30, 2021, approximately 62% of our borrowings are denominated in U.S.

dollars, which limits our exposure to currency exchange rate fluctuations.

At March 31, 2021, the Company had cash, cash equivalents and restricted cash totaling $185.1 million, including $160.1 million held by our foreign subsidiaries, and access to sufficient capital, providing ample liquidity and flexibility to continue to maintain our balanced capital allocation strategy.

We believe MSA's healthy balance sheet and access to significant capital at March 31, 2021, positions us well to navigate through challenging business conditions.

Cash, cash equivalents and restricted cash increased $24.0 million during the three months ended March 31, 2021, compared to decreasing $29.6 million during the same period in 2020.

At June 30, 2021, the Company had cash, cash equivalents and restricted cash totaling $174.4 million, including $156.0 million held by our foreign subsidiaries, and access to sufficient capital, providing ample liquidity and flexibility to continue to maintain our balanced capital allocation strategy.

We believe MSA's healthy balance sheet and access to significant capital at June 30, 2021, positions us well to navigate through challenging business conditions.

Cash, cash equivalents and restricted cash increased $13.4 million during the six months ended June 30, 2021, compared to decreasing $16.0 million during the same period in 2020.

We continue to employ a balanced capital allocation strategy that prioritizes growth investments, funding our dividend and servicing debt obligations.

Operating activities.

Operating activities provided cash of $45.6 million during the three months ended March 31, 2021, compared to providing $13.6 million during the same period in 2020.

The improved operating cash flow as compared to the same period in 2020 was primarily related to working capital improvements.

Payments for subsidiary MSA LLC's product liability claims exceeded collections from insurance companies by $5.7 million in the three months ended March 31, 2021, compared to collections from insurance companies of $0.7 million, net of product liability claim payments, in the same period of 2020.

Operating activities provided cash of $83.9 million during the six months ended June 30, 2021, compared to providing $83.0 million during the same period in 2020.

The improved operating cash flow as compared to the same period in 2020 was primarily related to working capital improvements in receivables.

Payments for subsidiary MSA LLC's product liability claims exceeded collections from insurance companies by $16.5 million in the six months ended June 30, 2021, compared to collections from insurance companies of $1.1 million, net of product liability claim payments, in the same period of 2020.

MSA LLC funds its operating expenses and legal liabilities from its own operating cash flow and other investments, as well as limited amounts of insurance reimbursements, and not from borrowings under the Company’s credit facility, to which it is not a party.

Now that MSA LLC is largely self-insured for its historical cumulative trauma product liability claims, associated insurance reimbursements received in any given period are limited, and generally do not offset cash outlay in that same period in full.

In recent years, MSA LLC’s contingent liabilities have been funded without a material impact on the Company’s consolidated capital allocation priorities.

Investing activities.

Investing activities used cash of $52.5 million during the three months ended March 31, 2021, compared to using $26.1 million during the same period in 2020.

The acquisition of Bristol and capital expenditures, partially offset by maturities of short-term investments, net of purchases, drove cash outflows from investing activities during the three months ended March 31, 2021, while capital expenditures and the purchase of short-term investments, net of proceeds from maturities drove cash outflows from investing activities during the same period in 2020.

During the first quarter of 2021, we incurred capital expenditures of $9.6 million, including $2.0 million associated with software development and other growth programs, compared to capital expenditures of $6.6 million, including $1.8 million associated with software development and other growth programs, in the same period in 2020.

Investing activities used cash of $58.2 million during the six months ended June 30, 2021, compared to using $29.2 million during the same period in 2020.

The acquisition of Bristol and capital expenditures, partially offset by maturities of short-term investments, net of purchases, drove cash outflows from investing activities during the six months ended June 30, 2021, while capital expenditures and the purchase of short-term investments, net of proceeds from maturities, drove cash outflows from investing activities during the same period in 2020.

During the six months ended June 30, 2021, we incurred capital expenditures of $20.3 million, including $4.1 million associated with software development and other growth programs, compared to capital expenditures of $19.8 million, including $4 million associated with software development and other growth programs, in the same period in 2020.

We also remain active in evaluating additional acquisition opportunities that will allow us to continue to grow in key end markets and geographies.

Financing activities.

Financing activities provided cash of $31.6 million during the three months ended March 31, 2021, compared to using $13.3 million during the same period in 2020.

During the three months ended March 31, 2021, we had net proceeds on long-term debt of $52.0 million to fund the acquisition of Bristol as compared to net proceeds of $28.0 million during the same period in 2020.

We paid cash dividends of $16.8 million during the three months ended March 31, 2021, compared to $16.3 million in the same period in 2020.

We also used cash of $5.3 million during the three months ended March 31, 2021 to repurchase shares, compared to using $27.7 million during the same period in 2020.

Financing activities used cash of $11.5 million during the six months ended June 30, 2021, compared to using $66.2 million during the same period in 2020.

During the six months ended June 30, 2021, we had net proceeds on long-term debt of $27.0 million to fund the acquisition of Bristol as compared to net payments on long-term debt of $9.0 million during the same period in 2020.

We paid cash dividends of $34.1 million during the six months ended June 30, 2021, compared to $33.1 million in the same period in 2020.

We also used cash of $5.5 million during the six months ended June 30, 2021 to repurchase shares, compared to using $28.3 million during the same period in 2020.

In 2020, $20.1 million of our repurchase activity was related to purchases under our 2015 stock repurchase program.

On July 1, 2021, the Company acquired Bacharach, Inc.

for $337.0 million.

The acquisition was partially financed by $200.0 million of 2.69% Senior Notes from the Prudential Note Agreement and NYL Note Facility.

The remaining purchase price was financed under the Revolving Credit Facility.

During July we completed a buy-out of our minority partner in our China business for about $19 million, inclusive of a $6 million dividend.

We funded the investment with local cash balances;

and as part of this deal, we expect to repatriate between $10-15 million of cash back to the U.S.

in the third quarter 2021.

The transaction provides enhanced capital allocation flexibility and helps us optimize foreign cash balances.

CUMULATIVE TRANSLATION ADJUSTMENTS

The position of the U.S.

dollar relative to international currencies at March 31, 2021, resulted in a translation loss of $10.3 million being recorded to the cumulative translation adjustments shareholders' equity account during the three months ended March 31, 2021, compared to $22.8 million being recorded to the cumulative translation adjustments account during the same period in 2020.

dollar relative to international currencies at June 30, 2021, resulted in a translation loss of $4.1 million being recorded to the cumulative translation adjustments shareholders' equity account during the six months ended June 30, 2021, compared to an $18.2 million translation loss being recorded to the cumulative translation adjustments account during the same period in 2020.

COMMITMENTS AND CONTINGENCIES

We made contributions of $1.9 million to our pension plans during the three months ended March 31, 2021.

We made contributions of $3.8 million to our pension plans during the six months ended June 30, 2021.

We expect to make total contributions of approximately $7.7 million to our pension plans in 2021 primarily associated with statutorily required plans in the International segment.

The Company had outstanding bank guarantees and standby letters of credit with banks as of March 31, 2021, totaling $11.4 million, of which $1.3 million related to the senior revolving credit facility.

The Company had outstanding bank guarantees and standby letters of credit with banks as of June 30, 2021, totaling $11.3 million, of which $1.7 million related to the senior revolving credit facility.

These letters of credit serve to cover customer requirements in connection with certain sales orders and insurance companies.

The Company is also required to provide cash collateral in connection with certain arrangements.

At March 31, 2021, the Company has $0.3 million of restricted cash in support of these arrangements.

At June 30, 2021, the Company has $0.3 million of restricted cash in support of these arrangements.

We have purchase commitments for materials, supplies, services, and property, plant and equipment as part of our ordinary conduct of business.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis