What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-10-27 compared with 2022-07-28 · 122 added, 125 removed, 235 unchanged (51% of the section changed)

36 unchanged sentences

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

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

MSA also maintains a portfolio of non-core products.

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These products are complementary to the core offerings and often reflect more episodic or contract-driven growth patterns.

Key non-core products include air-purifying respirators ("APR"), eye and face protection, ballistic helmets and gas masks.

Key non-core products include air-purifying respirators, eye and face protection, ballistic helmets and gas masks.

MSA maintains a diversified portfolio of safety products that protect workers and facility infrastructure across a broad array of end markets.

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RESULTS OF OPERATIONS

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.

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

Net sales for the three months ended September 30, 2022, were $381.7 million, an increase of $41.5 million, or 12.2%, compared to $340.2 million in the same period last year, driven by the pricing actions to keep pace with inflation, and volume growth.

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 June 30, Dollar

Net Sales Three Months Ended September 30, Dollar

Increase (Decrease) Percent

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Net Sales Three Months Ended

June 30, 2022 versus June 30, 2021

September 30, 2022 versus September 30, 2021

(Percent Change) Americas International Consolidated

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Constant currency sales change 21.1% 6.1% 16.2%

Acquisitions (a)

(5.8)% (2.9)% (4.7)%

Organic constant currency change 10.4% 2.4% 7.6%

(a) Includes Bacharach, Inc.

and its affiliated companies ("Bacharach") , which was acquired on July 1, 2021.

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 $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 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.

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 $276.1 million in the third quarter of 2022, an increase of $47.0 million, or 20.5%, compared to $229.1 million in the third quarter of 2021.

Constant currency sales in the Americas segment increased 21.1%.

This increase was driven by breathing apparatus and firefighter protective apparel associated with strong demand and throughput improvements, partially offset by weakness in portable gas detection due to ongoing supply chain constraints, which we expect to improve over the coming quarters.

Net sales for the International segment were $105.6 million in the third quarter of 2022, a decrease of $5.5 million, or 5.0%, compared to $111.1 million for the third 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 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.

Constant currency sales in the International segment increased 6.1% during the quarter.

This growth was driven by strength across a number of core products, partially offset by supply chain constraints impacting both breathing apparatus and gas detection businesses.

As we entered our fourth quarter, we continued to see strong order growth in the quarter and into October.

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.

We expect fourth quarter revenue to increase in the low to mid single digit range compared to the fourth quarter of 2021.

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

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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.

These conditions could impact our future results and growth expectations well into 2023.

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 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.

Gross profit for the third quarter of 2022 was $169.4 million, an increase of $20.0 million or 13.4%, compared to $149.4 million for the third quarter of 2021.

The ratio of gross profit to net sales was 44.4% in the third quarter of 2022 compared to 43.9% in the same quarter last year.

Price increases and the absence of the 2021 $1.7 million inventory step-up amortization related to the Bacharach acquisition helped to offset inflationary pressures as well as approximately $4.5 million of period specific charges related to inventory and product warranty.

We have implemented additional price increases in both segments in October 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 $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.

Selling, general and administrative ("SG&A") expenses were $82.8 million during the third quarter of 2022, a decrease of $4.7 million or 5.4%, compared to $87.5 million for the same period a year ago.

Overall, SG&A expenses were 21.7% of net sales during the third quarter of 2022, compared to 25.7% of net sales during the same period in 2021.

Constant currency SG&A decreased by approximately $2 million or 2.0%, demonstrating strong leverage on the revenue growth.

This decrease was driven by the absence of the 2021 acquisition related costs, which was partially offset by increased costs to support higher business activity.

We also had approximately $2 million of favorable non-recurring adjustments in the third quarter of 2022.

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, 2022 versus June 30, 2021

September 30, 2022 versus September 30, 2021

(Percent Change) Consolidated

2 unchanged sentences

Constant currency change (2.0)%

Acquisitions and related strategic transaction costs (0.9)%

Organic constant currency change 5.0%

Research and development expense .

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.

Research and development expense was $14.4 million during the third quarter of 2022, a decrease of $0.5 million, compared to $14.9 million during the third quarter of 2021.

Research and development expense was 3.8% of net sales in the third quarter of 2022 compared to 4.4% in the same period of 2021.

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

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

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

Restructuring charges .

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.

Restructuring charges during the third quarter of 2022 were $0.9 million primarily related to various optimization activities.

This compared to restructuring charges of $3.9 million during the third quarter of 2021, primarily related to integration activities.

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

Currency exchange .

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.

Currency exchange losses were $3.0 million in the third quarter of 2022 compared to losses of $0.1 million in the third quarter of 2021.

The currency exchange losses for the current period related primarily due to the recognition of non-cash cumulative translation losses as result of our plan to close a foreign subsidiary.

Currency exchange losses in third quarter of 2021 related to foreign currency exposure on unsettled inter-company balances.

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 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 three months ended September 30, 2022 was $4.0 million compared to $10.7 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.

The expense during the third quarter 2021 related to an increase in the number of asserted coal claims pending against MSA LLC and a corresponding adjustment to the reserve, as discussed further in Note 18—Contingencies to the unaudited condensed consolidated financial statements in Part I Item 1 of this Form 10-Q.

GAAP operating income.

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.

Consolidated operating income for the third quarter of 2022 was $64.3 million compared to $32.4 million in the same period last year.

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

Adjusted operating income.

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.

Americas adjusted operating income for the third quarter of 2022 was $75.1 million, an increase of $27.5 million or 57.7% compared to $47.6 million from the prior year quarter.

The increase in adjusted operating income is primarily attributable to higher sales volumes.

International adjusted operating income for the third quarter of 2022 was $8.4 million, a decrease of $4.4 million, or 33.9%, compared to $12.8 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, inflationary pressures, and supply chain constraints primarily associated with gas detection, partially offset by lower SG&A expenses.

Corporate segment adjusted operating loss for the third quarter of 2022 was $8.4 million, an increase of $2.4 million compared to an adjusted operating loss of $6.0 million in the third quarter of 2021, due to higher compensation 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) Three Months Ended June 30, 2022

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

(In thousands) Americas International Corporate Consolidated

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Restructuring charges (Note 3) 899

Currency exchange gains, net (1,463)

Currency exchange losses, net 2,979

Product liability expense (Note 18) 4,035

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Adjusted EBITDA margin % 30.4 % 10.4 %

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

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

(In thousands) Americas International Corporate Consolidated

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Adjusted operating margin % 20.8 % 11.5 %

Depreciation and amortization 11,584

Depreciation and amortization (a)

Adjusted EBITDA 55,774 16,323 (5,880) 66,217

3 unchanged sentences

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) and adjusted EBITDA are non-GAAP financial measures.

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.

Total other expense, net.

Total other expense, net, for the third quarter of 2022 was $3.6 million, compared to other expense, net, $1.5 million for the same period in 2021 driven primarily by higher interest expense related to a higher interest rate environment and a write-down of an equity investment, partially offset by higher pension income driven by a higher expected rate of return.

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.

The reported effective tax rate for the third quarter of 2022 was 26.0% compared to 31.5% for the third quarter of 2021.

This decrease from the prior year is attributable to expense recorded in the third quarter of 2021 related to U.S.

tax on foreign dividends, nondeductible transaction costs, and a decrease in nondeductible executive compensation, partially offset by nondeductible foreign exchange on entity closures and a decrease in foreign tax credit.

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 $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.

Net income was $44.9 million for the third quarter of 2022, or $1.14 per diluted share compared to net income of $21.2 million, or $0.54 per diluted share, for the same period last year.

Nine Months Ended September 30, 2022, Compared to Nine Months Ended September 30, 2021

Net sales for the nine months ended September 30, 2022, were $1,084.7 million, an increase of $94.8 million, or 9.6%, compared to $989.9 million in the same period last year, driven by acquisitions and the combination of price realization and volume growth.

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

Net Sales Nine Months Ended September 30, Dollar

Increase Percent

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International 330.6 334.8 (4.2) (1.3)%

Net Sales Six Months Ended

June 30, 2022 versus June 30, 2021

Net Sales Nine Months Ended

September 30, 2022 versus September 30, 2021

(Percent Change) Americas International Consolidated

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Constant currency sales change 15.5% 7.0% 12.7%

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

Acquisitions (a)

(3.8)% (2.4)% (3.4)%

Organic constant currency change 11.7% 4.6% 9.3%

(a) Includes Bacharach, Inc.

and its affiliated companies ("Bacharach"), which was acquired on July 1, 2021.

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.

Net sales for the Americas segment were $754.1 million in the nine months ended September 30, 2022, an increase of $99.0 million, or 15.1%, compared to $655.1 million in the same period last year.

Constant currency sales in the Americas segment increased 15.5% compared to the prior year period with organic constant currency growth of 11.7%.

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.

Organic growth was driven by growth across most core products.

Net sales for the International segment were $330.6 million in the nine months ended September 30, 2022, a decrease of $4.2 million, or 1.3%, compared to $334.8 million in the same period last year.

Constant currency sales in the International segment increased 7.0% during the period with organic constant currency growth of 4.6%.

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.

Organic growth was driven across a number of core products, partially offset by weakness in fall protection and ongoing supply chain constraints with the gas detection business.

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.

Gross profit for the nine months ended September 30, 2022, was $476.6 million, an increase of $39.4 million or 9.0%, compared to $437.2 million during the same period last year.

The ratio of gross profit to net sales was 43.9% during the nine months ended September 30, 2022 compared to 44.2% during the same period last year.

Intangible asset amortization related to acquisitions reduced gross profit by $4.6 million or 45 basis points in 2022 while the absence of inventory step-up amortization related to the Bacharach acquisition increased gross profit by $1.7 million or 15 basis points.

Pricing kept pace with inflationary pressures as well as offset inventory charges and product warranty charges.

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.

SG&A expenses were $247.4 million during the nine months ended September 30, 2022, an increase of $1.1 million or 0.4%, compared to $246.3 million during the same period last year.

Overall, SG&A expenses were 22.8% of net sales during the nine months ended September 30, 2022, compared to 24.9% of net sales during the same period in 2021.

Organic constant currency SG&A increased $6 million or 2.5%, 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.

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 and savings from our restructuring programs 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

Selling, general, and administrative expenses Nine Months Ended

September 30, 2022 versus September 30, 2021

(Percent Change) Consolidated

5 unchanged sentences

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.

Research and development expense was $43.0 million during the nine months ended September 30, 2022, an increase of $0.9 million, compared to $42.1 million during the same period last year.

Research and development expense was 4.0% of net sales in the first nine months ended September 30, 2022 and 4.3% in the same period of 2021.

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

During the nine months ended September 30, 2022, we capitalized $6.5 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.

Restructuring charges during the nine months ended September 30, 2022, were $3.1 million primarily related to our ongoing initiatives to drive profitable growth and right size operations.

This compared to restructuring charges of $12.2 million during the same period in 2021, primarily related to our ongoing initiatives to drive profitable growth and right size our operations and integration activities.

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.

Currency exchange losses were $4.8 million during the nine months ended September 30, 2022, compared to gains of $0.4 million in the same period of 2021.

The currency exchange losses for the current period related primarily due to the recognition of non-cash cumulative translation losses as result of our plan to close a foreign subsidiary and foreign currency exposure on unsettled inter-company balances.

Currency exchange gains in 2021 related to foreign currency exposure on unsettled inter-company balances.

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 nine months ended September 30, 2022 was $9.7 million compared to $25.2 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.

1 unchanged sentence

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.

Consolidated operating income for the nine months ended September 30, 2022, was $168.5 million compared to $111.6 million in the same period last year.

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.

Americas adjusted operating income for the nine months ended September 30, 2022 was $184.7 million, an increase of $42.5 million, or 29.9%, compared to $142.2 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.

International adjusted operating income for the nine months ended September 30, 2022, was $34.7 million, a decrease of $7.3 million, or 17.4%, compared to $42.0 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.

Corporate segment adjusted operating loss for the nine months ended September 30, 2022, was $24.8 million, an increase of $1.3 million compared to an adjusted operating loss of $23.5 million in the same period of 2021 due to higher 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

Adjusted operating income (loss) Nine Months Ended September 30, 2022

(In thousands) Americas International Corporate Consolidated

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Adjusted EBITDA margin % 27.9 % 13.2 %

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

Adjusted operating income (loss) Nine Months Ended September 30, 2021

(In thousands) Americas International Corporate Consolidated

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Adjusted operating margin % 21.7 % 12.5 %

Depreciation and amortization 22,088

Depreciation and amortization (a)

Adjusted EBITDA 165,243 52,283 (23,185) 194,341

2 unchanged sentences

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.

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.

1 unchanged sentence

Total other income, net.

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.

Total other income, net, for the nine months ended September 30, 2022 was $1.0 million, compared to $0.9 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 and a write-down of an equity investment.

Income taxes.

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.

The reported effective tax rate for the nine months ended September 30, 2022 was 24.4% compared to 26.0% for the same period in 2021.

This decrease from the prior year is attributable to the impact of statutory rate increases recorded in the second quarter of 2021, decreases in nondeductible executive compensation, U.S.

tax on foreign dividends, tax benefits on certain share-based payments, and nondeductible transaction costs, partially offset by nondeductible foreign exchange on entity closures.

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 $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.

Net income was $128.1 million for the nine months ended September 30, 2022, or $3.25 per diluted share compared to income of $82.8 million, or $2.10 per diluted share, for the same period last year.

Non-GAAP Financial Information

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For more information about these non-GAAP measures and a reconciliation to the nearest U.S.

GAAP measure, please refer to the reconciliations referenced above in Management's Discussion & Analysis section and in Note 8—Segment Information to the unaudited condensed consolidated financial statements in Part I Item 1 of this Form 10-Q.

GAAP measure, please refer to the reconciliations referenced above in Management's Discussion & Analysis.

We may also provide financial information on a constant currency basis, which is a non-GAAP financial measure.

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

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

At September 30, 2022, approximately 84% of our borrowings are denominated in U.S.

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

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.

At September 30, 2022, the Company had cash and cash equivalents totaling $159.6 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 $19.8 million during the nine months ended September 30, 2022, compared to decreasing $43.2 million during the same period in 2021.

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

Operating activities.

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.

Operating activities provided cash of $103.9 million during the nine months ended September 30, 2022, compared to providing $130.1 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 $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.

Collections from insurance companies exceeded payments for subsidiary MSA LLC's product liability claims by $0.4 million in the nine months ended September 30, 2022, compared to product liability claim payments of $17.1 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 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.

Investing activities used cash of $4.4 million during the nine months ended September 30, 2022, compared to using $402.6 million during the same period in 2021.

The decrease in cash used in investing activities as compared to the same period in 2021 was primarily related to the absence of acquisitions.

We 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 $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.

Financing activities used cash of $56.2 million during the nine months ended September 30, 2022, compared to providing cash of $233.4 million during the same period in 2021.

During the nine months ended September 30, 2022, we had net proceeds from long-term debt of $27.0 million as compared to net proceeds from long-term debt of $308.9 million to fund the acquisition of Bristol and Bacharach during the same period in 2021.

We paid cash dividends of $53.4 million during the nine months ended September 30, 2022, compared to $51.3 million in the same period in 2021.

We also used cash of $34.4 million during the nine months ended September 30, 2022 to repurchase shares, of which $30.4 million related to our share repurchase program, compared to using $6.1 million during the same period in 2021.

CUMULATIVE TRANSLATION ADJUSTMENTS

The position of the U.S.

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.

dollar relative to international currencies at September 30, 2022, resulted in a translation loss of $58.1 million being recorded to the cumulative translation adjustments shareholders' equity account during the nine months ended September 30, 2022, compared to a $18.0 million translation loss being recorded to the cumulative translation adjustments shareholders' equity account during the same period in 2021.

COMMITMENTS AND CONTINGENCIES

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

We made contributions of $5.7 million to our pension plans during the nine months ended September 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 June 30, 2022, totaling $9.8 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 September 30, 2022, totaling $9.2 million, of which $1.5 million relate 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 June 30, 2022, the Company has $1.5 million of restricted cash in support of these arrangements.

At September 30, 2022, the Company has $1.7 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