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Item 2. Management’s Discussion and Analysis

2023-10-25 compared with 2023-08-01 · 95 added, 95 removed, 235 unchanged (45% of the section changed)

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BUSINESS OVERVIEW

MSA is a global leader in the development, manufacture and supply of safety products that protect people and facility infrastructures.

MSA is a global leader in the development, manufacture and supply of safety products and solutions that protect people and facility infrastructures.

Recognized for their market leading innovation, many MSA products integrate a combination of electronics, mechanical systems and advanced materials to protect users against hazardous or life-threatening situations.

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MSA's corporate strategy includes a focus on driving sales of core products, where we have leading market positions and a distinct competitive advantage.

Core products, as mentioned above, include breathing apparatus where self-contained breathing apparatus 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% of sales for both the three months ended June 30, 2023 and 2022.

Core products, as mentioned above, include breathing apparatus where self-contained breathing apparatus is the principal product, FGFD systems, portable gas detection instruments, industrial head protection products, firefighter helmets and protective apparel, and fall protection devices.

Core products comprised approximately 92% and 89% of sales, respectively, for the three months ended September 30, 2023 and 2022.

MSA also maintains a portfolio of non-core products.

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

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.

While the company sells its products through distribution, which can limit end-user visibility, the Company provides estimated ranges of end market exposure to facilitate understanding of its growth drivers.

The Company estimates that approximately 35%-40% of its overall revenue is derived from the fire service market and approximately 25%-30% of its revenue is derived from the energy market.

The remaining revenue is split among construction, utilities, general industrial applications, military and mining.

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

MSA's diversified portfolio of safety products protects workers and facility infrastructure across a broad array of end markets including fire service, the oil, gas and petrochemical industry, construction, industrial manufacturing applications, heating, ventilation, air conditioning and refrigeration, utilities, mining and the military.

A detailed listing of our significant product offerings in the aforementioned product groups above is included in MSA's Annual Report on Form 10-K for the year ended December 31, 2022.

RESULTS OF OPERATIONS

Three Months Ended June 30, 2023, Compared to Three Months Ended June 30, 2022

Net sales for the three months ended June 30, 2023, were $447.3 million, an increase of $75.0 million, or 20.1%, compared to $372.3 million in the same period last year, driven by volume growth and pricing actions.

Three Months Ended September 30, 2023, Compared to Three Months Ended September 30, 2022

Net sales for the three months ended September 30, 2023, were $446.7 million, an increase of $65.0 million, or 17.0%, compared to $381.7 million in the same period last year, driven by volume growth and pricing actions.

We saw healthy growth across product categories and both reporting segments.

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 Percent

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Net Sales Three Months Ended

June 30, 2023 versus June 30, 2022

September 30, 2023 versus September 30, 2022

(Percent Change) Americas International Consolidated

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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 $308.4 million in the second quarter of 2023, an increase of $56.0 million, or 22.2%, compared to $252.4 million in the second quarter of 2022.

Net sales for the Americas segment were $314.3 million in the third quarter of 2023, an increase of $38.2 million, or 13.8%, compared to $276.1 million in the third quarter of 2022.

Constant currency sales in the Americas segment increased 12.3%.

This growth was driven by increases in all products, particularly FGFD, firefighter protective apparel, fall protection and portable gas detection associated with healthy demand and backlog conversion as a result of supply chain improvements.

Net sales for the International segment were $138.9 million in the second quarter of 2023, an increase of $19.0 million, or 15.8%, compared to $119.9 million for the second quarter of 2022.

This growth was driven by increases in all products, particularly firefighter protective apparel, FGFD, fall protection, portable instruments and breathing apparatus associated with healthy demand and backlog conversion as a result of supply chain improvements.

Net sales for the International segment were $132.4 million in the third quarter of 2023, an increase of $26.8 million, or 25.4%, compared to $105.6 million for the third quarter of 2022.

Constant currency sales in the International segment increased 20.7% during the quarter.

This growth was driven by increases in all products, particularly FGFD and breathing apparatus associated with improved output.

This growth was driven by increases in most products, particularly FGFD and breathing apparatus, associated with backlog conversion as a result of supply chain improvements.

Looking ahead, we continue to operate in a 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, industrial employment rates, interest rate changes, military conflict, currency exchange volatility, the pace of economic recovery, as well as geopolitical risk.

These or other conditions could impact our future results and growth expectations throughout the second half of 2023.

These or other conditions could impact our future results and growth expectations through the balance of 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 2023 was $213.8 million, an increase of $49.4 million or 30.0%, compared to $164.4 million for the second quarter of 2022.

The ratio of gross profit to net sales was 47.8% in the second quarter of 2023 compared to 44.2% in the same quarter last year.

Gross profit for the third quarter of 2023 was $218.8 million, an increase of $49.4 million or 29.1%, compared to $169.4 million for the third quarter of 2022.

The ratio of gross profit to net sales was 49.0% in the third quarter of 2023 compared to 44.4% in the same quarter last year.

Volume leverage, price/cost management, and productivity efforts contributed to the gross profit improvement.

Selling, general and administrative expenses.

Selling, general and administrative ("SG&A") expenses were $96.3 million during the second quarter of 2023, an increase of $10.2 million or 11.9%, compared to $86.1 million for the same period a year ago.

Overall, SG&A expenses were 21.5% of net sales during the second quarter of 2023, compared to 23.1% of net sales during the same period in 2022.

Constant currency SG&A increased by approximately $9.9 million or 11.6%, demonstrating strong leverage on revenue growth.

The increase in SG&A was driven by the higher level of sales, increased variable compensation and inflation.

Selling, general and administrative ("SG&A") expenses were $102.2 million during the third quarter of 2023, an increase of $19.4 million or 23.5%, compared to $82.8 million for the same period a year ago.

Overall, SG&A expenses were 22.9% of net sales during the third quarter of 2023, compared to 21.7% of net sales during the same period in 2022.

Constant currency SG&A increased by approximately $17.7 million or 21.2%.

The increase in SG&A was driven by the higher level of sales, increased variable compensation, targeted investments and inflation.

Please refer to the SG&A expenses table for a reconciliation of the quarter over quarter expense change.

Selling, general, and administrative expenses Three Months Ended

June 30, 2023 versus June 30, 2022

September 30, 2023 versus September 30, 2022

(Percent Change) Consolidated

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Research and development expense .

Research and development expense was $16.0 million during the second quarter of 2023, an increase of $0.7 million, compared to $15.3 million during the second quarter of 2022.

Research and development expense was 3.6% of net sales in the second quarter of 2023 compared to 4.1% in the same period of 2022.

During the second quarter of 2023 and 2022, we capitalized $3.1 million and $2.1 million of software development costs, respectively.

Depreciation expense for capitalized software development cost of $2.5 million and $1.8 million during the second quarter of 2023 and 2022, respectively, was recorded in costs of products sold on the unaudited Condensed Consolidated Statements of Operations.

Research and development expense was $17.7 million during the third quarter of 2023, an increase of $3.3 million, compared to $14.4 million during the third quarter of 2022.

Research and development expense was 4.0% of net sales in the third quarter of 2023 compared to 3.8% in the same period of 2022.

During the third quarter of 2023 and 2022, we capitalized $3.3 million and $2.2 million of software development costs, respectively.

Depreciation expense for capitalized software development cost of $2.7 million and $2.1 million during the third quarter of 2023 and 2022, respectively, was recorded in costs of products sold on the unaudited Condensed Consolidated Statements of Operations.

MSA remains committed to dedicating significant resources to research and development activities, including the development of technology-based safety solutions.

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however, we do not anticipate reductions in the relative level of total spend on research and development activities on an annual basis.

Total spend on both software development and research and development activities was $19.1 million and $17.4 million during the second quarter of June 30, 2023, and 2022, respectively.

Total spend on both software development and research and development activities was $21.0 million and $16.6 million during the third quarter of September 30, 2023, and 2022, respectively.

Restructuring charges .

Restructuring charges of $3.4 million during the second quarter of 2023 were primarily related to our initiatives to adjust our cost structure and improve productivity.

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

Restructuring charges of $3.3 million during the third quarter of 2023 were primarily related to manufacturing footprint optimization activities and ongoing initiatives to drive profitable growth.

Restructuring charges of $0.9 million during the third quarter of 2022 were related to various optimization activities including the implementation of our European Shared Service Center in Warsaw, Poland and other optimization activities.

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

Currency exchange .

Currency exchange losses were $3.1 million in the second quarter of 2023 compared to gains of $1.5 million in the second quarter of 2022.

Currency exchange losses were $1.5 million in the third quarter of 2023 compared to $3.0 million in the third quarter of 2022.

Currency exchange activity for both periods related primarily to foreign currency exposure on unsettled inter-company balances.

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Product liability expense.

There was no product liability expense for the second quarter of 2023 due to our divestiture of MSA LLC, as discussed further in Note 17—Contingencies to the unaudited condensed consolidated financial statements in Part I Item 1 of this Form 10-Q.

This compared to $2.9 million in the second quarter of 2022 which related primarily to defense costs incurred for cumulative trauma product liability claims.

There was no product liability expense for the third quarter of 2023 due to our divestiture of MSA LLC, as discussed further in Note 17—Contingencies to the unaudited condensed consolidated financial statements in Part I Item 1 of this Form 10-Q.

This compared to $4.0 million in the third quarter of 2022 which related primarily to defense costs incurred for cumulative trauma product liability claims.

GAAP operating income.

Consolidated operating income for the second quarter of 2023 was $95.0 million compared to $61.5 million in the same period last year.

Consolidated operating income for the third quarter of 2023 was $94.1 million compared to $64.3 million in the same period last year.

The increase in operating income was primarily driven by higher sales and gross margin partially offset by increased SG&A.

Adjusted operating income.

Americas adjusted operating income for the second quarter of 2023 was $94.8 million, an increase of $37.7 million or 65.9% compared to $57.1 million in the prior year second quarter.

Americas adjusted operating income for the third quarter of 2023 was $93.9 million, an increase of $18.8 million or 25.1% compared to $75.1 million in the prior year third quarter.

The increase in adjusted operating income is attributable to higher sales and gross margin.

International adjusted operating income for the second quarter of 2023 was $21.7 million, an increase of $4.5 million, or 26.4%, compared to $17.2 million in the prior year second quarter.

International adjusted operating income for the third quarter of 2023 was $22.6 million, an increase of $14.1 million, or 167.2%, compared to $8.4 million in the prior year third quarter.

The increase in adjusted operating income is primarily attributable to higher sales and gross margin.

Corporate segment adjusted operating loss for the second quarter of 2023 was $12.8 million, an increase of $4.1 million in comparison to an adjusted operating loss of $8.7 million in the second quarter of 2022, driven by higher performance based compensation expense related to sales growth and improved results from prior year.

Corporate segment adjusted operating loss for the third quarter of 2023 was $15.2 million, an increase of $6.8 million in comparison to an adjusted operating loss of $8.4 million in the third quarter of 2022, driven by higher performance based compensation expense related to sales growth and improved results from prior year.

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, 2023

Adjusted operating income (loss) Three Months Ended September 30, 2023

(In thousands) Americas International Corporate Consolidated

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Amortization of acquisition-related intangible assets 2,315

Transaction costs (a)

Adjusted operating income (loss) 93,918 22,577 (15,198) 101,297

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Adjusted EBITDA margin % 32.8 % 19.8 %

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 17) 4,035

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Total other expense (income), net.

Total other expense, net, for the second quarter of 2023 was $7.5 million, compared to total other income, net, of $1.8 million for the same period in 2022 driven primarily by higher interest expense related to higher interest rates, increased debt balances and decreased pension income driven by a lower expected rate of return.

Total other expense, net, for the third quarter of 2023 was $6.5 million, compared to $3.6 million for the same period in 2022 driven primarily by higher interest expense related to higher interest rates, increased debt balances and decreased pension income driven by a lower expected rate of return.

Income taxes.

The reported effective tax rate for the second quarter of 2023 was 23.3% compared to 24.7% for the second quarter of 2022.

This decrease from the prior year is primarily due to higher profits in lower tax jurisdictions, a one time benefit recorded in second quarter 2023 related to prior year foreign tax returns, partially offset by an increase in nondeductible compensation.

The reported effective tax rate for the third quarter of 2023 was 25.6% compared to 26.0% for the third quarter of 2022.

This decrease from the prior year is primarily due to a one time expense recorded in the third quarter of 2022 related to state income tax audits and an increase in the research and development credit, partially offset by higher profits in higher tax jurisdictions and an increase in nondeductible 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 was $67.1 million for the second quarter of 2023, or $1.70 per diluted share compared to net income of $47.7 million, or $1.21 per diluted share, for the same period last year.

Six Months Ended June 30, 2023, Compared to Six Months Ended June 30, 2022

Net sales for the six months ended June 30, 2023, were $845.6 million, an increase of $142.6 million, or 20.3%, compared to $703.0 million in the same period last year, driven by volume growth and price realization.

Net income was $65.3 million for the third quarter of 2023, or $1.65 per diluted share compared to net income of $44.9 million, or $1.14 per diluted share, for the same period last year.

Nine Months Ended September 30, 2023, Compared to Nine Months Ended September 30, 2022

Net sales for the nine months ended September 30, 2023, were $1.3 billion, an increase of $207.6 million, or 19.1%, compared to $1.1 billion in the same period last year, driven by volume growth and price realization.

We saw healthy growth across most of our core products and 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 389.4 330.6 58.8 17.8%

Net Sales Six Months Ended

June 30, 2023 versus June 30, 2022

Net Sales Nine Months Ended

September 30, 2023 versus September 30, 2022

(Percent Change) Americas International Consolidated

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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 $588.6 million in the six months ended June 30, 2023, an increase of $110.6 million, or 23.1%, compared to $478.0 million in the same period last year.

Net sales for the Americas segment were $902.9 million in the nine months ended September 30, 2023, an increase of $148.8 million, or 19.7%, compared to $754.1 million in the same period last year.

Constant currency sales in the Americas segment increased 18.8% compared to the prior year period.

This growth was driven by increases in all products associated with healthy demand and improved output as well as backlog conversion as a result of continued progress with the supply chain.

Net sales for the International segment were $256.9 million in the six months ended June 30, 2023, an increase of $31.9 million, or 14.2%, compared to $225.0 million in the same period last year.

This growth was driven by increases in all products, particularly firefighter protective apparel, portable instruments and FGFD associated with healthy demand and improved output as well as backlog conversion as a result of continued progress with the supply chain.

Net sales for the International segment were $389.4 million in the nine months ended September 30, 2023, an increase of $58.8 million, or 17.8%, compared to $330.6 million in the same period last year.

Constant currency sales in the International segment increased 18.3% during the period.

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Gross profit .

Gross profit for the six months ended June 30, 2023, was $395.2 million, an increase of $88.0 million or 28.7%, compared to $307.2 million during the same period last year.

The ratio of gross profit to net sales was 46.7% during the six months ended June 30, 2023 compared to 43.7% during the same period last year.

Gross profit for the nine months ended September 30, 2023, was $614.0 million, an increase of $137.4 million or 28.8%, compared to $476.6 million during the same period last year.

The ratio of gross profit to net sales was 47.5% during the nine months ended September 30, 2023 compared to 43.9% during the same period last year.

Volume leverage, price/cost management, favorable product mix and productivity efforts contributed to the gross profit improvement.

Selling, general and administrative expenses.

SG&A expenses were $187.4 million during the six months ended June 30, 2023, an increase of $22.8 million or 13.9%, compared to $164.6 million during the same period last year.

Overall, SG&A expenses were 22.2% of net sales during the six months ended June 30, 2023, compared to 23.4% of net sales during the same period in 2022.

SG&A expenses were $289.6 million during the nine months ended September 30, 2023, an increase of $42.2 million or 17.1%, compared to $247.4 million during the same period last year.

Overall, SG&A expenses were 22.4% of net sales during the nine months ended September 30, 2023, compared to 22.8% of net sales during the same period in 2022.

Constant currency SG&A increased $41.3 million or 16.8%, demonstrating strong leverage on revenue growth.

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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, 2023 versus June 30, 2022

Selling, general, and administrative expenses Nine Months Ended

September 30, 2023 versus September 30, 2022

(Percent Change) Consolidated

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Research and development expense .

Research and development expense was $31.2 million during the six months ended June 30, 2023, an increase of $2.6 million, compared to $28.6 million during the same period last year.

Research and development expense was 3.7% of net sales in the first six months ended June 30, 2023 and 4.1% in the same period of 2022.

During the six months ended June 30, 2023 and 2022, we capitalized $6.1 million and $4.3 million of software development costs, respectively.

Depreciation expense for capitalized software development cost of $4.8 million and $3.5 million during the six months ended June 30, 2023 and 2022, respectively, was recorded in costs of products sold on the unaudited Condensed Consolidated Statements of Operations.

Research and development expense was $48.9 million during the nine months ended September 30, 2023, an increase of $5.9 million, compared to $43.0 million during the same period last year.

Research and development expense was 3.8% of net sales in the first nine months ended September 30, 2023 and 4.0% in the same period of 2022.

During the nine months ended September 30, 2023 and 2022, we capitalized $9.4 million and $6.5 million of software development costs, respectively.

Depreciation expense for capitalized software development cost of $7.5 million and $5.7 million during the nine months ended September 30, 2023 and 2022, respectively, was recorded in costs of products sold on the unaudited Condensed Consolidated Statements of Operations.

MSA remains committed to dedicating significant resources to research and development activities, including the development of technology-based safety solutions.

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however, we do not anticipate reductions in the relative level of total spend on research and development activities on an annual basis.

Total spend on both software development and research and development activities was $37.3 million and $32.9 million during the six months ended June 30, 2023, and 2022, respectively.

Total spend on both software development and research and development activities was $58.3 million and $49.5 million during the nine months ended September 30, 2023, and 2022, respectively.

Restructuring charges .

Restructuring charges of $5.1 million during the six months ended June 30, 2023 related to our ongoing initiatives to adjust our cost structure and improve productivity.

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

Restructuring charges of $8.4 million during the nine months ended September 30, 2023 related to our ongoing initiatives to adjust our cost structure and improve productivity.

Restructuring charges of $3.1 million during nine months ended September 30, 2022 related to our ongoing initiatives to drive profitable growth and rightsize our operations.

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

Currency exchange .

Currency exchange losses were $7.3 million during the six months ended June 30, 2023, compared to $1.8 million in the same period of 2022.

Currency exchange losses were $8.8 million during the nine months ended September 30, 2023, compared to $4.8 million in the same period of 2022.

Currency exchange activity for both periods related primarily due to foreign currency exposure on unsettled inter-company balances.

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Product liability expense.

Product liability expense for the six months ended June 30, 2023 was minimal due to our divestiture of MSA LLC.

Product liability expense for the nine months ended September 30, 2023 was minimal due to our divestiture of MSA LLC.

This compared to $9.7 million in the same period of 2022 which related primarily to defense costs incurred for cumulative trauma product liability claims.

Loss on divestiture of MSA LLC.

The $129.2 million pre-tax loss on divestiture of MSA LLC for the six months ended June 30, 2023 relates to the derecognition of all legacy cumulative trauma product liability reserves and related insurance assets of the divested subsidiary during the first quarter of 2023.

The $129.2 million pre-tax loss on divestiture of MSA LLC for the nine months ended September 30, 2023 relates to the derecognition of all legacy cumulative trauma product liability reserves and related insurance assets of the divested subsidiary during the first quarter of 2023.

The loss also includes a $341.2 million contribution of cash and cash equivalents, as well as transaction related costs of $5.6 million.

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GAAP operating income.

Consolidated operating income for the six months ended June 30, 2023, was $34.9 million compared to $104.2 million in the same period last year.

Consolidated operating income for the nine months ended September 30, 2023, was $129.1 million compared to $168.5 million in the same period last year.

The decrease in operating results was primarily driven by the loss on divestiture of MSA LLC, partially offset by higher sales and gross margin.

Adjusted operating income.

Americas adjusted operating income for the six months ended June 30, 2023 was $166.5 million, an increase of $56.9 million, or 52.0%, compared to $109.6 million in the prior year.

Americas adjusted operating income for the nine months ended September 30, 2023 was $260.4 million, an increase of $75.7 million, or 41.0%, compared to $184.7 million in the prior year.

The increase in adjusted operating income is primarily attributable to higher sales and gross margin, partially offset by higher SG&A expenses to support business growth.

International adjusted operating income for the six months ended June 30, 2023, was $37.5 million, an increase of $11.3 million, or 43.2%, compared to $26.2 million in the prior year.

International adjusted operating income for the nine months ended September 30, 2023, was $60.1 million, an increase of $25.4 million, or 73.3%, compared to $34.7 million in the prior year.

The increase in adjusted operating income is primarily attributable to higher sales and gross margin.

Corporate segment adjusted operating loss for the six months ended June 30, 2023, was $22.9 million, an increase of $6.6 million compared to an adjusted operating loss of $16.3 million in the same period of 2022 driven by higher performance based compensation expense related to sales growth and improved results from prior year.

Corporate segment adjusted operating loss for the nine months ended September 30, 2023, was $38.1 million, an increase of $13.3 million compared to an adjusted operating loss of $24.8 million in the same period of 2022 driven by higher performance based compensation expense related to sales growth and improved results from prior year.

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, 2023

Adjusted operating income (loss) Nine Months Ended September 30, 2023

(In thousands) Americas International Corporate Consolidated

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Adjusted EBITDA margin % 31.9 % 18.1 %

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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Total other (expense) income, net.

Total other expense, net, for the six months ended June 30, 2023 was $15.2 million, compared to total other income, net, of $4.6 million for the same period in 2022 driven primarily by higher interest expense related to higher interest rates, increased debt balances and decreased pension income driven by a lower expected rate of return.

Total other expense, net, for the nine months ended September 30, 2023 was $21.7 million, compared to total other income, net, of $1.0 million for the same period in 2022 driven primarily by higher interest expense related to higher interest rates, increased debt balances and decreased pension income driven by a lower expected rate of return.

Income taxes.

The reported effective tax rate for the six months ended June 30, 2023 was 520.8% compared to 23.5% for the same period in 2022.

The reported effective tax rate for the nine months ended September 30, 2023 was 116.6% compared to 24.4% for the same period in 2022.

This significant variance from the prior year is primarily due to the divestiture of MSA LLC and the non-deductible loss recorded on the derecognition of the product liability reserves and related assets.

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Net (loss) income attributable to MSA Safety Incorporated .

Net loss was $83.1 million for the six months ended June 30, 2023, or $(2.12) per diluted share compared to net income of $83.2 million, or $2.11 per diluted share, for the same period last year.

Net loss was $17.8 million for the nine months ended September 30, 2023, or $(0.46) per diluted share compared to net income of $128.1 million, or $3.25 per diluted share, for the same period last year.

LIQUIDITY AND CAPITAL RESOURCES

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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, 2023, approximately 38% of our long-term debt is at fixed interest rates with repayment schedules through 2036.

At September 30, 2023, approximately 42% 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 and a term loan, both due in 2026.

At June 30, 2023, approximately 88% of our borrowings are denominated in U.S.

At September 30, 2023, approximately 87% of our borrowings are denominated in U.S.

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

At June 30, 2023, the Company had cash and cash equivalents totaling $146.9 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 $15.6 million during the six months ended June 30, 2023, primarily as a result of the MSA LLC divestiture as discussed below, compared to decreasing $5.9 million during the same period in 2022.

We believe MSA's healthy balance sheet and access to significant capital at June 30, 2023, positions us well to navigate through challenging business conditions and supply chain constraints or other unexpected events.

At September 30, 2023, the Company had cash and cash equivalents totaling $164.5 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 $2.0 million during the nine months ended September 30, 2023.

The cash flow activity reflects strong operating results and working capital performance being mostly offset by the MSA LLC divestiture as discussed below.

This compared to cash increasing $19.8 million during the same period in 2022.

We believe MSA's healthy balance sheet and access to significant capital at September 30, 2023, positions us well to navigate through challenging business conditions and supply chain constraints or other unexpected events.

Operating activities.

Operating activities used cash of $190.8 million during the six months ended June 30, 2023, compared to providing $40.0 million during the same period in 2022.

Operating activities used cash of $66.1 million during the nine months ended September 30, 2023, compared to providing $103.9 million during the same period in 2022.

The decreased operating cash flow as compared to the same period in 2022 was primarily related to the contribution of $341.2 million in the divestiture of MSA LLC.

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Investing activities.

Investing activities used cash of $15.6 million during the six months ended June 30, 2023, compared to using $5.6 million during the same period in 2022.

Investing activities used cash of $28.3 million during the nine months ended September 30, 2023, compared to using $4.4 million during the same period in 2022.

The increase in cash used in investing activities as compared to the same period in 2022 was primarily related to the absence of short-term investment activity.

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Financing activities.

Financing activities provided cash of $196.6 million during the six months ended June 30, 2023, compared to using cash of $29.8 million during the same period in 2022.

During the six months ended June 30, 2023, we had net proceeds from long-term debt of $236.9 million to fund the MSA LLC divestiture as compared to net proceeds from long-term debt of $37.0 million during the same period in 2022.

Financing activities provided cash of $110.5 million during the nine months ended September 30, 2023, compared to using cash of $56.2 million during the same period in 2022.

During the nine months ended September 30, 2023, we had net proceeds from long-term debt of $168.6 million to fund the MSA LLC divestiture as compared to net proceeds from long-term debt of $27.0 million during the same period in 2022.

Since the MSA LLC divestiture in January 2023, we have paid down $146 million of our outstanding borrowings.

We paid cash dividends of $36.5 million during the six months ended June 30, 2023, compared to $35.4 million in the same period in 2022.

We used cash of $3.9 million during the six months ended June 30, 2023 to repurchase shares related to our employee stock compensation transactions.

We used cash of $32.2 million during the six months ended June 30, 2022, including $28.2 million related to our share repurchase program with the remainder related to employee stock compensation transactions.

We paid cash dividends of $55.0 million during the nine months ended September 30, 2023, compared to $53.4 million in the same period in 2022.

We used cash of $3.9 million during the nine months ended September 30, 2023 to repurchase shares related to our employee stock compensation transactions.

We used cash of $34.4 million during the nine months ended September 30, 2022, including $30.4 million related to our share repurchase program with the remainder related to employee stock compensation transactions.

CUMULATIVE TRANSLATION ADJUSTMENTS

The position of the U.S.

dollar relative to international currencies, primarily the euro and British pound, at June 30, 2023, resulted in a translation gain of $16.2 million being recorded to the cumulative translation adjustments shareholders' equity account during the six months ended June 30, 2023, compared to a $25.7 million translation loss being recorded to the cumulative translation adjustments shareholders' equity account during the same period in 2022.

dollar relative to international currencies, primarily the euro, British pound and Mexican peso, at September 30, 2023, resulted in a translation loss of $2.5 million being recorded to the cumulative translation adjustments shareholders' equity account during the nine months ended September 30, 2023, compared to a $58.1 million translation loss being recorded to the cumulative translation adjustments shareholders' equity account during the same period in 2022.

COMMITMENTS AND CONTINGENCIES

We made contributions of $4.1 million to our pension plans during the six months ended June 30, 2023.

We made contributions of $4.3 million to our pension plans during the nine months ended September 30, 2023.

We expect to make total contributions of approximately $5.7 million to our pension plans in 2023 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, 2023, totaling $9.8 million, of which $1.5 million relate to the senior revolving credit facility.

The Company had outstanding bank guarantees and standby letters of credit with banks as of September 30, 2023, 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, 2023, the Company has $2.0 million of restricted cash in support of these arrangements.

At September 30, 2023, the Company has $1.9 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