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Item 2. Management’s Discussion and Analysis

2022-07-28 compared with 2022-04-29 · 200 added, 87 removed, 160 unchanged (64% of the section changed)

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We are committed to providing our customers with service unmatched in the safety industry and, in the process, enhancing our ability to provide a growing line of safety solutions for customers in key global markets.

Our customers include first responders, who are tasked with keeping citizens safe, and include industrial and utility workers tasked with maintaining critical infrastructure.

For this reason, in order to successfully fulfill our mission as The Safety Company, MSA is an essential business and has continued operating its manufacturing facilities during these times, to the extent practicable, while protecting the health and safety of our workforce, and complying with all applicable laws, all pursuant to an established pandemic response plan.

The Company’s return-to-work plans continue to evolve as needed, such as when the Omicron variant emerged.

We tailor our product offerings and distribution strategy to satisfy distinct customer preferences that vary across geographic regions.

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International.

Our International segment includes companies in Europe, the Middle East and Africa ("EMEA") and the Asia Pacific region.

Our International segment includes companies in Europe, the Middle East and Africa and the Asia Pacific region.

In our largest International subsidiaries (in Germany, France, U.K., Ireland and China), we develop, manufacture and sell a wide variety of products.

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Although some of these companies may perform limited production, most of their sales are of products manufactured in our plants in Germany, France, the U.S., U.K., Ireland and China or are purchased from third-party vendors.

The Corporate segment primarily consists of general and administrative expenses incurred in our corporate headquarters, costs associated with corporate development initiatives, legal expense, interest expense, foreign exchange gains or losses and other centrally-managed costs.

Corporate general and administrative costs comprise the majority of the expense in the Corporate segment.

Within the International segment, during the first quarter, due to military conflict in Ukraine, we suspended product shipments into Russia and Belarus.

Within the International segment, during the first quarter of 2022, due to military conflict in Ukraine, we suspended product shipments into Russia and Belarus.

The suspension is indefinite.

Customers in Russia, Belarus and Ukraine generated approximately $6 million of sales during the year ended December 31, 2021.

Corporate general and administrative costs comprise the majority of the expense in the Corporate segment.

During the fourth quarter of 2021, the Company changed its method of accounting for certain inventory in the U.S.

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The effects of the change in accounting method from LIFO to FIFO have been retrospectively applied to all periods presented in all sections of this Quarterly Report, including Management's Discussion and Analysis.

Refer to Note 4—Inventory of the

consolidated financial statements in Part II Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2021, for further information related to the change in accounting principle.

Refer to Note 4—Inventory of the consolidated financial statements in Part II Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2021, for further information related to the change in accounting principle.

PRINCIPAL PRODUCTS

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Core products, as mentioned above, include breathing apparatus in which SCBA is the principal product, 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 91% and 88% of sales for the three months ended March 31, 2022 and 2021, respectively.

Core products comprised approximately 90% and 89% of sales for the six months ended June 30, 2022 and 2021, respectively.

MSA also maintains a portfolio of non-core products.

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RESULTS OF OPERATIONS

Three Months Ended March 31, 2022, Compared to Three Months Ended March 31, 2021

Net sales for the three months ended March 31, 2022, were $330.7 million, an increase of $22.3 million, or 7.2%, driven by acquisitions and growth in organic activity compared to $308.4 million for the three months ended March 31, 2021.

We saw healthy growth across our core products and across both reporting segments.

Three Months Ended June 30, 2022, Compared to Three Months Ended June 30, 2021

Net sales for the three months ended June 30, 2022, were $372.3 million, an increase of $31.0 million, or 9.1%, compared to $341.3 million in the same period last year, driven by acquisitions and the combination of volume growth and price realization.

We saw healthy growth across most core products.

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

Increase Percent

Net Sales Three Months Ended June 30, Dollar

Increase (Decrease) Percent

Increase (Decrease)

(In millions) 2022 2021

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Net Sales Three Months Ended

March 31, 2022 versus March 31, 2021

June 30, 2022 versus June 30, 2021

(Percent Change) Americas International Consolidated

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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 $225.7 million in the first quarter of 2022, an increase of $17.4 million, or 8.4%, compared to $208.3 million in the first quarter of 2021.

Net sales for the Americas segment were $252.4 million in the second quarter of 2022, an increase of $34.7 million, or 15.9%, compared to $217.7 million in the second quarter of 2021.

Constant currency sales in the Americas segment increased 16.2% compared to the prior year period with organic constant currency growth of 10.4%.

The inclusion of Bacharach drove the acquisition related sales.

Organic growth was was driven by growth across core products, partially offset by lower demand for APR products.

Supply chain and labor constraints weighed most heavily on revenue growth in gas detection and firefighter helmets and protective apparel.

Net sales for the International segment were $105.0 million in the first quarter of 2022, an increase of $4.9 million, or 4.9%, compared to $100.1 million for the first quarter of 2021.

Organic growth was driven by growth across most core products, partially offset by weakness in fall protection and firefighter helmets and protective apparel.

Net sales for the International segment were $119.9 million in the second quarter of 2022, a decrease of $3.7 million, or 3.0%, compared to $123.6 million for the second quarter of 2021.

The euro and British pound drove negative currency translation effects.

Constant currency sales in the International segment increased 5.3% during the quarter with organic constant currency growth of 2.4%.

The inclusion of Bacharach drove the acquisition related sales.

Organic growth was driven by large project business in FGFD, partially offset by weakness in portable gas detection and fall protection.

Supply chain and labor constraints weighed most heavily on revenue growth in gas detection and SCBA.

Order activity continued to show year-over-year improvements and increased 22% compared to the first quarter of 2021.

Organic growth in orders was 16% while acquisitions drove 6% growth.

We continued to see strong order growth in April.

Our backlog increased to record levels as a result of an uptick in order pace and ongoing supply chain constraints, most notably in electronic components and labor at select locations.

The inclusion of Bacharach drove acquisition related sales.

Organic growth was driven by strength across a number of core products, partially offset by weakness in fall protection and firefighter helmets and protective apparel.

We continued to see strong order growth in the quarter and into July.

Our backlog increased to record levels across substantially all core products as a result of an uptick in order pace and ongoing supply chain and labor constraints.

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

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

These factors include, among other things, supply chain constraints, raw material availability, the risk of additional COVID lockdowns, industrial employment rates, military conflict and geopolitical risk and the pace of economic recovery.

While we expect sequential improvement in revenue and earnings in the second quarter of 2022, these conditions could impact our future results and growth expectations.

These factors include, among other things, supply chain constraints, raw material or semiconductor availability, the risk of additional COVID lockdowns, industrial employment rates, military conflict, currency exchange volatility, the pace of economic recovery, as well as geopolitical risk, particularly as it relates to energy uncertainty which could affect operations and suppliers based in Germany and broader Europe.

While we expect sequential improvement in revenue and earnings in the second half of 2022, which could drive high single-digit to double-digit sequential revenue growth, these or other conditions could impact our future results and growth expectations.

Refer to Note 8—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 2022 was $142.8 million, an increase of $8.0 million or 5.9%, compared to $134.8 million for the first quarter of 2021.

The ratio of gross profit to net sales was 43.2% in the first quarter of 2022 compared to 43.7% in the same quarter last year.

Intangible asset amortization related to acquisitions reduced gross profit by $2.3 million or 70 basis points in 2022.

Strategic pricing and lower inventory charges associated with APR products helped to mitigate the higher material costs and a less favorable product mix.

We have implemented price increases in response to the inflation we are seeing in electronic components, resins and other inputs.

While there could be a number of scenarios on the length of time that these challenges may persist, we could see these impact our business for the foreseeable future with more meaningful impact over the coming quarters.

Gross profit for the second quarter of 2022 was $164.4 million, an increase of $11.4 million or 7.5%, compared to $153.0 million for the second quarter of 2021.

The ratio of gross profit to net sales was 44.2% in the second quarter of 2022 compared to 44.8% in the same quarter last year.

Intangible asset amortization related to acquisitions reduced gross profit by $2.3 million or 60 basis points in 2022, while inflationary pressures and product warranty charges also negatively impacted gross profit.

We have implemented multiple price increases in response to the inflation we are seeing in electronic components and nearly all 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 $78.6 million during the first quarter of 2022, an increase of $3.1 million or 4.1% from a year ago.

Overall, selling, general and administrative expenses were 23.8% of net sales during the first quarter of 2022, compared to 24.5% of net sales during the same period in 2021.

Organic constant currency SG&A increased $1 million or 1.4% demonstrating strong leverage on revenue growth.

Selling, general and administrative ("SG&A") expenses were $86.1 million during the second quarter of 2022, an increase of $2.7 million or 3.2%, compared to $83.4 million for the same period a year ago.

Overall, SG&A expenses were 23.1% of net sales during the second quarter of 2022, compared to 24.4% of net sales during the same period in 2021.

Organic constant currency SG&A increased $4 million or 5.0%, demonstrating strong leverage on the revenue growth.

This increase was driven by annual merit increases and increased costs to support higher business activity, which was partially offset by the absence of the 2021 acquisition related costs.

2021 acquisition related costs included higher stock compensation costs and transaction costs.

Current period results also benefited from lower costs resulting from prior restructuring initiatives in our International segment.

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

March 31, 2022 versus March 31, 2021

June 30, 2022 versus June 30, 2021

(Percent Change) Consolidated

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Research and development expense .

Research and development expense was $13.3 million during the first quarter of 2022, an increase of $0.1 million, compared to $13.2 million during the first quarter of 2021.

Research and development expense was 4.0% of net sales in the first quarter of 2022 compared to 4.3% in the same period of 2021.

Research and development expense was $15.3 million during the second quarter of 2022, an increase of $1.3 million, compared to $14.0 million during the second quarter of 2021.

Research and development expense was 4.1% of net sales in both periods.

We continue to develop new products for global safety markets, including the Altair io 4 and V-Gard C1.

During the first quarter of 2022, we capitalized $2.2 million of software development costs.

During the second quarter of 2022, we capitalized $2.1 million of software development costs.

Restructuring charges .

Restructuring charges during the first quarter of 2022, were $2.2 million primarily related to activities to improve the efficiency of our business model.

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

We remain focused on executing programs to optimize our cost structure.

Restructuring charges during the second quarter of 2022 were not significant.

This compared to restructuring charges of $7.1 million during the second quarter of 2021, primarily related to our ongoing initiatives to drive profitable growth and rightsize our operations.

While we saw a reduction in charges in the quarter, we remain focused on identifying and executing programs to optimize our cost structure.

Currency exchange .

Currency exchange losses were $3.3 million in the first quarter of 2022 compared to gains of $2.1 million in the first quarter of 2021.

Currency exchange in both periods were related to foreign currency exposure on unsettled inter-company balances, relating to the euro and British pound.

Currency exchange gains were $1.5 million in the second quarter of 2022 compared to losses of $1.6 million in the second quarter of 2021.

Currency exchange in both periods related to foreign currency exposure on unsettled inter-company balances, primarily associated with the euro and British pound.

Refer to Note 16—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 both the three months ended March 31, 2022 and 2021 was $2.8 million.

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

Product liability expense for three months ended June 30, 2022 was $2.9 million compared to $11.8 million in the same period last year.

Product liability expense for the current period related primarily to defense costs incurred for cumulative trauma product liability claims.

The expense during the second quarter 2021 related to an increase in the number of asserted claims pending against MSA LLC and a corresponding adjustment to the reserve.

GAAP operating income.

Consolidated operating income for the first quarter of 2022 was $42.7 million compared to $44.1 million in the same period last year.

The decrease in operating income was primarily driven by higher currency exchange losses relating to the euro and British pound, partially offset by an increase in sales associated with acquisitions and organic business activity.

Consolidated operating income for the second quarter of 2022 was $61.5 million compared to $35.1 million in the same period last year.

The increase in operating income was primarily driven by an increase in sales associated with acquisitions, volume growth, price realization, lower product liability expense and restructuring expense, partially offset by higher SG&A expenses to support higher business activity.

Adjusted operating income.

Americas adjusted operating income for the first quarter of 2022 was $52.4 million, an increase of $7.2 million or 16% compared to $45.2 million from the prior year quarter.

The increase in adjusted operating income is primarily attributable to higher sales volumes driven by both acquisitions and organic business activity, partially offset by higher SG&A.

International adjusted operating income for the first quarter of 2022 was $9.0 million, an increase of $0.2 million, or 3%, compared to $8.8 million in the prior year quarter.

The increase in adjusted operating income is primarily attributable to higher revenue driven by both acquisitions and organic business activity as well as various initiatives to deliver cost savings, partially offset by less favorable product mix.

Corporate segment adjusted operating loss for the first quarter of 2022 was $7.6 million, an increase of $1.1 million compared to an adjusted operating loss of $6.5 million in the first quarter of 2021 due to higher SG&A expense.

Americas adjusted operating income for the second quarter of 2022 was $57.1 million, an increase of $7.8 million or 15.9% compared to $49.3 million from the prior year quarter.

The increase in adjusted operating income is primarily attributable to higher sales volumes driven by both acquisitions and organic business activity, partially offset by higher SG&A to support business growth.

International adjusted operating income for the second quarter of 2022 was $17.2 million, a decrease of $3.2 million, or 15.8%, compared to $20.4 million in the prior year quarter.

The decrease in adjusted operating income is primarily attributable to lower revenue and gross margins, as a result of unfavorable currency translation and inflationary pressures, partially offset by lower SG&A expenses.

Corporate segment adjusted operating loss for the second quarter of 2022 was $8.7 million, a decrease of $2.3 million compared to an adjusted operating loss of $11.0 million in the second quarter of 2021, due to lower acquisition related costs 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, 2022

Adjusted operating income (loss) Three Months Ended June 30, 2022

(In thousands) Americas International Corporate Consolidated

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Restructuring charges (Note 3) 57

Currency exchange losses, net (Note 6) 3,271

Currency exchange gains, net (1,463)

Product liability expense (Note 18) 2,926

Acquisition related costs (Note 14) (a)

Acquisition related costs (a)

Adjusted operating income (loss) 57,141 17,207 (8,735) 65,613

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Adjusted EBITDA 65,461 20,370 (8,614) 77,217

Adjusted EBITDA margin % 25.9 % 17.0 %

Adjusted operating income (loss) Three Months Ended June 30, 2021

(In thousands) Americas International Corporate Consolidated

Net sales $ 217,707 $ 123,582 $ — $ 341,289

GAAP operating income 35,135

Restructuring charges (Note 3) 7,078

Currency exchange losses, net 1,640

Product liability expense (Note 18) 11,751

Acquisition related costs (a)

Adjusted operating income (loss) 49,319 20,444 (10,991) 58,772

Adjusted operating margin % 22.7 % 16.5 %

Depreciation and amortization 11,584

Adjusted EBITDA 57,218 24,024 (10,886) 70,356

Adjusted operating income Three Months Ended March 31, 2021

Adjusted EBITDA margin % 26.3 % 19.4 %

(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 SG&A 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 unaudited Condensed Consolidated Statements of Income.

Adjusted operating income (loss) and adjusted EBITDA are 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, net.

Total other income, net, for the second quarter of 2022 was $1.8 million, compared to $0.1 million for the same period in 2021 driven primarily by higher pension income from a higher expected rate of return, partially offset by higher interest expense related to a higher interest rate environment.

Income taxes.

The reported effective tax rate for the second quarter of 2022 was 24.7% compared to 27.8% for the second quarter of 2021.

This decrease from the prior year is attributable to expense related to the United Kingdom statutory rate change recognized in the second quarter of 2021 and losses in jurisdictions where we cannot take tax benefits, partially offset by a decrease in benefits related to certain share based payments 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 unaudited condensed consolidated financial statements.

Net income attributable to MSA Safety Incorporated .

Net income was $47.7 million for the second quarter of 2022, or $1.21 per diluted share compared to net income of $25.2 million, or $0.64 per diluted share, for the same period last year.

Six Months Ended June 30, 2022, Compared to Six Months Ended June 30, 2021

Net sales for the six months ended June 30, 2022, were $703.0 million, an increase of $53.3 million, or 8.2%, compared to $649.7 million in the same period last year, driven by acquisitions and the combination of volume growth and price realization.

We saw healthy growth across most of our core products and across both reporting segments.

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

Increase Percent

(In millions) 2022 2021

Consolidated $703.0 $649.7 $53.3 8.2%

Americas 478.0 426.0 52.0 12.2%

International 225.0 223.7 1.3 0.6%

Net Sales Six Months Ended

June 30, 2022 versus June 30, 2021

(Percent Change) Americas International Consolidated

GAAP reported sales change 12.2% 0.6% 8.2%

Currency translation effects 0.3% 6.8% 2.6%

Constant currency sales change 12.5% 7.4% 10.8%

Acquisitions (5.8)% (3.6)% (5.1)%

Organic constant currency change 6.7% 3.8% 5.7%

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 $478.0 million in the six months ended June 30, 2022, an increase of $52.0 million, or 12.2%, compared to $426.0 million in the same period last year.

Constant currency sales in the Americas segment increased 12.5% compared to the prior year period with organic constant currency growth of 6.7%.

The inclusion of Bacharach drove the acquisition related sales.

Organic growth was driven by growth across most core products, partially offset by weakness in fall protection and firefighter helmets and protective apparel.

Net sales for the International segment were $225.0 million in the six months ended June 30, 2022, an increase of $1.3 million, or 0.6%, compared to $223.7 million in the same period last year.

Constant currency sales in the International segment increased 7.4% during the period with organic constant currency growth of 3.8%.

The inclusion of Bacharach drove acquisition related sales.

Organic growth was driven by across a number of core products, partially offset by weakness in fall protection.

Refer to Note 8—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, 2022, was $307.2 million, an increase of $19.4 million or 6.7%, compared to $287.8 million during the same period last year.

The ratio of gross profit to net sales was 43.7% during the six months ended June 30, 2022 compared to 44.3% during the same period last year.

Intangible asset amortization related to acquisitions reduced gross profit by $4.6 million or 65 basis points in 2022, while inflationary pressures and product warranty charges also negatively impacted gross profit.

Selling, general and administrative expenses.

SG&A expenses were $164.6 million during the six months ended June 30, 2022, an increase of $5.7 million or 3.6%, compared to $158.9 million during the same period last year.

Overall, SG&A expenses were 23.4% of net sales during the six months ended June 30, 2022, compared to 24.5% of net sales during the same period in 2021.

Organic constant currency SG&A increased $5 million or 3.0%, demonstrating strong leverage on revenue growth.

This increase was driven by annual merit increases and increased costs to support higher business activity, which was partially offset by the absence of the 2021 acquisition related costs.

2021 acquisition related costs included higher stock compensation costs and transaction costs.

We also benefited from restructuring savings in our International segment.

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, 2022 versus June 30, 2021

(Percent Change) Consolidated

GAAP reported change 3.6%

Currency translation effects 2.2%

Constant currency change 5.8%

Acquisitions and related strategic transaction costs (2.8)%

Organic constant currency change 3.0%

Research and development expense .

Research and development expense was $28.6 million during the six months ended June 30, 2022, an increase of $1.4 million, compared to $27.2 million during the same period last year.

Research and development expense was 4.1% of net sales in the first six months ended June 30, 2022 and 4.2% in the same period of 2021.

During the six months ended June 30, 2022, we capitalized $4.3 million of software development costs.

Restructuring charges .

Restructuring charges during the six months ended June 30, 2022, were $2.2 million, primarily related to our ongoing initiatives to drive profitable growth and rightsize our operations.

This compared to restructuring charges of $8.4 million during the same period in 2021, primarily related to our ongoing initiatives to drive profitable growth and right size our operations.

We remain focused on executing programs to optimize our cost structure.

Currency exchange .

Currency exchange losses were $1.8 million during the six months ended June 30, 2022, compared to gains of $0.5 million in the same period of 2021.

Currency exchange in both periods related to foreign currency exposure on unsettled inter-company balances, primarily associated with the euro and British pound.

Product liability expense.

Product liability expense for the six months ended June 30, 2022 was $5.7 million compared to $14.5 million in the same period last year.

Product liability expense for the current period related primarily to defense costs incurred for cumulative trauma product liability claims.

The expense during 2021 related to an increase in the number of asserted claims pending against MSA LLC and a corresponding adjustment to the reserve.

GAAP operating income.

Consolidated operating income for the six months ended June 30, 2022, was $104.2 million compared to $79.2 million in the same period last year.

The increase in operating income was primarily driven by an increase in sales associated with acquisitions and organic business activity, lower product liability expense, and lower restructuring expense, partially offset by higher SG&A expenses to support higher business activity.

Adjusted operating income.

Americas adjusted operating income for the six months ended June 30, 2022 was $109.6 million, an increase of $15.1 million, or 15.9%, compared to $94.5 million in the prior year.

International adjusted operating income for the six months ended June 30, 2022, was $26.2 million, a decrease of $3.0 million, or 10.3%, compared to $29.2 million in the prior year.

The decrease in adjusted operating income is primarily attributable to lower revenue and gross margins as a result of unfavorable currency translation and inflationary pressures, partially offset by lower SG&A expenses.

Corporate segment adjusted operating loss for the six months ended June 30, 2022, was $16.3 million, a decrease of $1.2 million compared to an adjusted operating loss of $17.5 million in the same period of 2021 due to lower SG&A expense.

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 (loss) Six Months Ended June 30, 2022

(In thousands) Americas International Corporate Consolidated

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Restructuring charges (Note 3) 2,247

Currency exchange gains, net (Note 6) (2,099)

Currency exchange losses, net 1,809

Product liability expense (Note 18) 5,698

Acquisition related costs (Note 14) (a)

Acquisition related costs (a)

Adjusted operating income (loss) 109,577 26,196 (16,316) 119,457

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Adjusted EBITDA $ 126,256 $ 32,698 $ (16,077) $ 142,877

Adjusted EBITDA margin % 26.4 % 14.5 %

Adjusted operating income (loss) Six Months Ended June 30, 2021

(In thousands) Americas International Corporate Consolidated

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

GAAP operating income 79,217

Restructuring charges (Note 3) 8,385

Currency exchange gains, net (459)

Product liability expense (Note 18) 14,547

Acquisition related costs (a)

Adjusted operating income (loss) 94,512 29,201 (17,482) 106,231

Adjusted operating margin % 22.2 % 13.1 %

Depreciation and amortization 22,088

Adjusted EBITDA 109,444 36,154 (17,279) 128,319

Adjusted EBITDA margin % 25.7 % 16.2 %

(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 unaudited Condensed Consolidated Statements of Income.

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

These costs are included in SG&A 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.

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Total other income, net.

Total other income, net, for the first quarter of 2022 was $2.7 million, compared to $2.3 million for the same period in 2021 driven primarily by higher pension income driven by a higher expected rate of return, partially offset by higher interest expense related to the Bacharach acquisition.

Total other income, net, for the six months ended June 30, 2022 was $4.6 million, compared to $2.4 million for the same period in 2021 driven primarily by higher pension income driven by a higher expected rate of return, partially offset by higher interest expense related to a higher interest rate environment.

Income taxes.

The reported effective tax rate for the first quarter of 2022 was 21.7% compared to 21.0% for the first quarter of 2021.

This increase from the prior year is attributable to a decrease in benefits related to certain share based payments.

The reported effective tax rate for the six months ended June 30, 2022, was 23.5% compared to 24.0% for the same period in 2021.

This decrease from the prior year is attributable to expense related to the United Kingdom statutory rate change recognized in the second quarter of 2021 and decrease in nondeductible executive compensation, partially offset by a decrease in 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 $35.5 million for the first quarter of 2022, or $0.90 per diluted share compared to net income of $36.5 million, or $0.92 per diluted share, for the same period last year.

Net income was $83.2 million for the six months ended June 30, 2022, or $2.11 per diluted share compared to income of $61.6 million, or $1.56 per diluted share, for the same period last year.

Non-GAAP Financial Information

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

At March 31, 2022, approximately 45% of our long-term debt is at fixed interest rates with repayment schedules through 2036.

At June 30, 2022, approximately 43% of our long-term debt is at fixed interest rates with repayment schedules through 2036.

The remainder of our long-term debt is at variable rates on an unsecured revolving credit facility that is due in 2026.

At March 31, 2022, approximately 81% of our borrowings are denominated in U.S.

At June 30, 2022, approximately 83% of our borrowings are denominated in U.S.

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

At March 31, 2022, the Company had cash and cash equivalents totaling $147.3 million and access to sufficient capital, providing ample liquidity and flexibility to continue to maintain our balanced capital allocation strategy that prioritizes growth investments, funding our dividends and servicing debt obligations.

Cash, cash equivalents and restricted cash increased $6.3 million during the three months ended March 31, 2022, compared to increasing $24.0 million during the same period in 2021.

We believe MSA's healthy balance sheet and access to significant capital at March 31, 2022, positions us well to navigate through challenging business conditions.

At June 30, 2022, the Company had cash and cash equivalents totaling $134.0 million and access to sufficient capital, providing ample liquidity and flexibility to continue to maintain our balanced capital allocation strategy that prioritizes growth investments, funding our dividends and servicing debt obligations.

Cash, cash equivalents and restricted cash decreased $5.9 million during the six months ended June 30, 2022, compared to increasing $13.4 million during the same period in 2021.

We believe MSA's healthy balance sheet and access to significant capital at June 30, 2022, positions us well to navigate through challenging business conditions and supply chain constraints.

Operating activities.

Operating activities provided cash of $24.5 million during the three months ended March 31, 2022, compared to providing $45.6 million during the same period in 2021.

Operating activities provided cash of $40.0 million during the six months ended June 30, 2022, compared to providing $83.9 million during the same period in 2021.

The decreased operating cash flow as compared to the same period in 2021 was primarily related to working capital requirements, notably increased inventory related to increased backlog.

Collections from insurance companies exceeded payments for subsidiary MSA LLC's product liability claims by $2.1 million in the three months ended March 31, 2022, compared to product liability claim payments of $5.7 million, net of collections from insurance companies, in the same period of 2021.

Collections from insurance companies exceeded payments for subsidiary MSA LLC's product liability claims by $0.3 million in the six months ended June 30, 2022, compared to product liability claim payments of $16.5 million, net of collections from insurance companies, in the same period of 2021.

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 intercompany notes.

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Investing activities.

Investing activities provided cash of $1.1 million during the three months ended March 31, 2022, compared to using $52.5 million during the same period in 2021.

Maturities of short-term investments, net of purchases, partially offset by capital expenditures, drove cash inflows from investing activities during the three months ended March 31, 2022, while 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 same period in 2021.

During the three months ended March 31, 2022, we incurred capital expenditures of $8.0 million, including $2.2 million associated with software development, compared to capital expenditures of $9.6 million, including $2.0 million associated with software development and other growth programs, in the same period in 2021.

Investing activities used cash of $5.6 million during the six months ended June 30, 2022, compared to using $58.2 million during the same period in 2021.

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, 2022, while 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 same period in 2021.

During the six months ended June 30, 2022, we invested in capital expenditures of $19.8 million, including $4.3 million associated with software development, compared to capital expenditures of $20.3 million, including $4.1 million associated with software development, in the same period in 2021.

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 used cash of $15.9 million during the three months ended March 31, 2022, compared to providing cash of $31.6 million during the same period in 2021.

During the three months ended March 31, 2022, we had net proceeds from long-term debt of $5.0 million as compared to net proceeds from long-term debt of $52.0 million to fund the acquisition of Bristol during the same period in 2021.

We paid cash dividends of $17.3 million during the three months ended March 31, 2022, compared to $16.8 million in the same period in 2021.

We also used cash of $3.7 million during the three months ended March 31, 2022 to repurchase shares, compared to using $5.3 million during the same period in 2021.

Financing activities used cash of $29.8 million during the six months ended June 30, 2022, compared to using cash of $11.5 million during the same period in 2021.

During the six months ended June 30, 2022, we had net proceeds from long-term debt of $37.0 million as compared to net proceeds from long-term debt of $27.0 million to fund the acquisition of Bristol during the same period in 2021.

We paid cash dividends of $35.4 million during the six months ended June 30, 2022, compared to $34.1 million in the same period in 2021.

We also used cash of $32.2 million during the six months ended June 30, 2022 to repurchase shares, of which $28.2 million related to our share repurchase program, compared to using $5.5 million during the same period in 2021.

CUMULATIVE TRANSLATION ADJUSTMENTS

The position of the U.S.

dollar relative to international currencies at March 31, 2022, resulted in a translation gain of $5.9 million being recorded to the cumulative translation adjustments shareholders' equity account during the three months ended March 31, 2022, compared to a $10.3 million translation loss being recorded to the cumulative translation adjustments account during the same period in 2021.

dollar relative to international currencies at June 30, 2022, resulted in a translation loss of $25.7 million being recorded to the cumulative translation adjustments shareholders' equity account during the six months ended June 30, 2022, compared to a $4.1 million translation loss being recorded to the cumulative translation adjustments account during the same period in 2021.

COMMITMENTS AND CONTINGENCIES

We made contributions of $1.9 million to our pension plans during the three months ended March 31, 2022.

We made contributions of $3.8 million to our pension plans during the six months ended June 30, 2022.

We expect to make total contributions of approximately $7.7 million to our pension plans in 2022 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, 2022, totaling $8.9 million, of which $1.5 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, 2022, totaling $9.8 million, of which $1.5 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, 2022, the Company has $0.5 million of restricted cash in support of these arrangements.

At June 30, 2022, the Company has $1.5 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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What changed 10-Q

Item 2. Management’s Discussion and Analysis