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Item 2. Management’s Discussion and Analysis

2024-10-24 compared with 2024-07-25 · 112 added, 108 removed, 212 unchanged (51% of the section changed)

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RESULTS OF OPERATIONS

Three Months Ended June 30, 2024, Compared to Three Months Ended June 30, 2023

Net sales for the three months ended June 30, 2024, were $462.5 million, an increase of $15.2 million, or 3.4%, compared to $447.3 million in the same period last year.

Three Months Ended September 30, 2024, Compared to Three Months Ended September 30, 2023

Net sales for the three months ended September 30, 2024, were $432.7 million, a decrease of $14.0 million, or 3.1%, compared to $446.7 million in the same period last year.

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, 2024 versus June 30, 2023

September 30, 2024 versus September 30, 2023

(Percent Change) Americas International Consolidated

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See the "Non-GAAP Financial Measures" section below.

Net sales for the Americas segment were $314.7 million in the second quarter of 2024, an increase of $6.3 million, or 2.0%, compared to $308.4 million in the second quarter of 2023.

Organic constant currency sales in the Americas segment increased 2.4%.

This growth was driven by increases in detection and industrial PPE, partially offset by a decline in fire service.

Net sales for the International segment were $147.8 million in the second quarter of 2024, an increase of $8.9 million, or 6.4%, compared to $138.9 million for the second quarter of 2023.

Organic constant currency sales in the International segment increased 7.2% during the quarter.

Growth in fire service and detection was partially offset by a decline in industrial PPE.

The operating environment remains dynamic, and we continue to navigate these challenges to continue delivering solutions to our customers.

Our end markets are generally healthy, demand trends lean positive, and we have executed initiatives to bring our backlog down to more normalized levels.

Timing of orders can be a factor but we expect growth rates for the second half of 2024 to be similar to the first half.

Looking forward, we continue to expect to generate mid-single digit sales growth in 2024.

Net sales for the Americas segment were $299.5 million in the third quarter of 2024, a decrease of $14.8 million, or 4.7%, compared to $314.3 million in the third quarter of 2023.

Organic constant currency sales in the Americas segment decreased 3.4% during the period.

This decrease was driven by a decline in fire service, primarily SCBA where delayed timing of large order delivery was a factor, partially offset by an increase in detection, primarily portables.

Net sales for the International segment were $133.2 million in the third quarter of 2024, an increase of $0.8 million, or 0.6%, compared to $132.4 million for the third quarter of 2023.

Organic constant currency sales in the International segment decreased 0.8% during the period.

Growth in fire service and detection was mostly offset by a decline in industrial PPE.

The operating environment remains dynamic.

Looking forward, we expect to finish 2024 with mid-single-digit sales growth in the fourth quarter, resulting in low-single-digit top-line growth for the full year.

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 2024 was $223.0 million, an increase of $9.2 million or 4.3%, compared to $213.8 million for the second quarter of 2023.

The ratio of gross profit to net sales was 48.2% in the second quarter of 2024 compared to 47.8% in the same quarter last year.

Improved productivity, price/cost management and favorable mix of higher margin products are the leading drivers of the increase year over year.

Gross profit for the third quarter of 2024 was $207.5 million, a decrease of $11.3 million or 5.2%, compared to $218.8 million for the third quarter of 2023.

The ratio of gross profit to net sales was 47.9% in the third quarter of 2024 compared to 49.0% in the same quarter last year.

The decrease in gross profit margin is primarily related to lower sales volume.

Effective price/cost management and productivity improvements offset inflationary pressures.

Selling, general and administrative expenses.

Selling, general and administrative ("SG&A") expenses were $105.1 million during the second quarter of 2024, an increase of $8.8 million or 9.1%, compared to $96.3 million for the same period a year ago.

Overall, SG&A expenses were 22.7% of net sales during the second quarter of 2024, compared to 21.5% of net sales during the same period in 2023.

Organic constant currency SG&A increased by approximately $9.3 million or 9.7%.

The increase in SG&A was driven by the higher level of sales, inflation, net cost for product related legal matter and higher professional service expense related to strategic initiatives partially offset by lower variable compensation.

Selling, general and administrative ("SG&A") expenses were $95.1 million during the third quarter of 2024, a decrease of $7.1 million or 6.9%, compared to $102.2 million for the same period a year ago.

Overall, SG&A expenses were 22.0% of net sales during the third quarter of 2024, compared to 22.9% of net sales during the same period in 2023.

Organic constant currency SG&A decreased by approximately $6.9 million or 6.7%.

The decrease in SG&A was driven by lower variable compensation and discretionary expense management, partially offset by inflation and professional service expense related to strategic initiatives.

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, 2024 versus June 30, 2023

September 30, 2024 versus September 30, 2023

(Percent Change) Consolidated

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Research and development expense .

Research and development expense was $17.1 million during the second quarter of 2024, an increase of $1.1 million, compared to $16.0 million during the second quarter of 2023.

Research and development expense was 3.7% of net sales in the second quarter of 2024 and 3.6% in the second quarter of 2023.

During the second quarter of 2024 and 2023, we capitalized $3.4 million and $3.1 million of software development costs, respectively.

Depreciation expense for capitalized software development costs of $2.8 million and $2.5 million during the second quarter of 2024 and 2023, respectively, was recorded in costs of products sold on the unaudited Condensed Consolidated Statements of Operations.

Research and development expense was $16.7 million during the third quarter of 2024, a decrease of $1.0 million, compared to $17.7 million during the third quarter of 2023.

Research and development expense was 3.9% of net sales in the third quarter of 2024 and 4.0% in the third quarter of 2023.

During the third quarter of 2024 and 2023, we capitalized $3.2 million and $3.3 million of software development costs, respectively.

Depreciation expense for capitalized software development costs of $2.7 million for both the third quarter of 2024 and 2023, 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 $20.5 million and $19.1 million during the second quarter of June 30, 2024, and 2023, respectively.

Total spend on both software development and research and development activities was $19.9 million and $21.0 million during the third quarter of September 30, 2024, and 2023, respectively.

Restructuring charges .

Restructuring charges of $1.5 million during the second quarter of 2024 were primarily related to initiatives to optimize our manufacturing footprint and improve productivity.

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 of $1.2 million during the third quarter of 2024 were primarily related to initiatives to optimize our manufacturing footprint and improve productivity.

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

Currency exchange .

Currency exchange gains were $0.6 million in the second quarter of 2024 compared to losses of $3.1 million in the second quarter of 2023.

During the second quarter of 2024, we recognized non-cash net cumulative translation gains of $1.2 million associated with certain foreign subsidiaries.

The remaining currency exchange activity for both periods related primarily to foreign currency exposure on unsettled inter-company balances and recognized exchange loss for our Argentina affiliate operating in a hyper-inflationary environment.

Currency exchange losses were $3.0 million in the third quarter of 2024 compared to $1.5 million in the third quarter of 2023.

The currency exchange activity for both periods related primarily to foreign currency exposure on unsettled inter-company balances and recognized exchange loss for our Argentina affiliate operating in a hyper-inflationary environment.

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

GAAP operating income.

Consolidated operating income for the second quarter of 2024 was $99.9 million compared to $95.0 million in the same period last year.

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

Consolidated operating income for the third quarter of 2024 was $91.5 million compared to $94.1 million in the same period last year.

The decrease in operating income was primarily driven by lower sales and gross profit partially offset by productivity improvements and lower SG&A as discussed further above.

Adjusted operating income.

Americas adjusted operating income for the second quarter of 2024 was $98.5 million, an increase of $3.7 million or 3.9% compared to $94.8 million in the prior year second quarter.

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

International adjusted operating income for the second quarter of 2024 was $24.3 million, an increase of $2.6 million, or 11.7%, compared to $21.7 million in the prior year second quarter.

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

Corporate segment adjusted operating loss for the second quarter of 2024 was $14.6 million, an increase of $1.8 million in comparison to an adjusted operating loss of $12.8 million in the second quarter of 2023, driven by inflation and increased professional service fees associated with various strategic initiatives partially offset by lower variable compensation.

Americas adjusted operating income for the third quarter of 2024 was $91.8 million, a decrease of $2.1 million or 2.2% compared to $93.9 million in the prior year third quarter.

The decrease in adjusted operating income is attributable to lower sales volumes partially offset by a decline in SG&A expenses.

Effective price/cost management and productivity improvements offset inflationary pressures.

International adjusted operating income for the third quarter of 2024 was $18.2 million, a decrease of $4.4 million, or 19.5%, compared to $22.6 million in the prior year third quarter.

The decrease in adjusted operating income is attributable to lower sales volumes partially offset by productivity improvements and pricing.

Corporate segment adjusted operating loss for the third quarter of 2024 was $12.1 million, a decrease of $3.1 million, compared to an adjusted operating loss of $15.2 million in the third quarter of 2023, driven by lower variable compensation partially offset by inflation and increased professional service fees associated with various strategic initiatives.

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, 2024

Adjusted operating income (loss) Three Months Ended September 30, 2024

(In thousands) Americas International Corporate Consolidated

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Restructuring charges (Note 3) 1,184

Currency exchange gains, net (603)

Net cost for product related legal matter 5,000

Currency exchange losses, net 2,985

Amortization of acquisition-related intangible assets 2,269

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Adjusted EBITDA margin % 33.8 % 16.6 %

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 %

(a) Transaction costs include advisory, legal, accounting, valuation, and other professional or consulting fees incurred during our evaluation of acquisitions and divestitures.

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

Adjusted operating income (loss), adjusted operating margin %, adjusted EBITDA and adjusted EBITDA margin % are non-GAAP financial measures.

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Total other expense, net.

Total other expense, net, for the second quarter of 2024 was $5.5 million, compared to $7.5 million for the same period in 2023, driven primarily by decreased interest expense related to reduced debt balances related to prior year borrowings associated with the MSA LLC divestiture as well as increased pension income driven by a higher expected rate of return partially offset by pension settlement expense recognized in the current year.

Total other expense, net, for the third quarter of 2024 was $3.3 million, compared to $6.5 million for the same period in 2023, driven primarily by decreased interest expense related to reduced debt balances related to prior year borrowings associated with the MSA LLC divestiture as well as increased pension income driven by a higher expected rate of return.

Income taxes.

The reported effective tax rate for the second quarter of 2024 was 23.5% compared to 23.3% for the second quarter of 2023.

This increase from the prior year is related to a one-time benefit recorded in the second quarter of 2023 related to prior year foreign tax returns, partially offset by a decrease in nondeductible compensation.

The reported effective tax rate for the third quarter of 2024 was 24.4% compared to 25.6% for the third quarter of 2023.

The decrease from the prior year was primarily driven by discrete benefits booked in the third quarter of 2024 related to the filing of prior period tax returns and a decrease 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 $72.2 million for the second quarter of 2024, or $1.83 per diluted share compared to $67.1 million, or $1.70 per diluted share, for the same period last year.

Six Months Ended June 30, 2024, Compared to Six Months Ended June 30, 2023

Net sales for the six months ended June 30, 2024, were $875.8 million, an increase of $30.2 million, or 3.6%, compared to $845.6 million in the same period last year, driven by volume growth and price realization.

Net income was $66.6 million for the third quarter of 2024, or $1.69 per diluted share compared to $65.3 million, or $1.65 per diluted share, for the same period last year.

Nine Months Ended September 30, 2024, Compared to Nine Months Ended September 30, 2023

Net sales for the nine months ended September 30, 2024, were $1.31 billion, an increase of $16.1 million, or 1.2%, compared to $1.29 billion in the same period last year.

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 398.7 389.4 9.3 2.4%

Net Sales Six Months Ended

June 30, 2024 versus June 30, 2023

Net Sales Nine Months Ended

September 30, 2024 versus September 30, 2023

(Percent Change) Americas International Consolidated

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See the "Non-GAAP Financial Measures" section below.

Net sales for the Americas segment were $610.2 million in the six months ended June 30, 2024, an increase of $21.6 million, or 3.7%, compared to $588.6 million in the same period last year.

Organic constant currency sales in the Americas segment increased 3.6% compared to the prior year period.

This growth was driven by increases in most products, particularly across fire service and FGFD partially offset by a decrease in portable instruments.

Net sales for the International segment were $265.5 million in the six months ended June 30, 2024, an increase of $8.6 million, or 3.3%, compared to $256.9 million in the same period last year.

Net sales for the Americas segment were $909.7 million in the nine months ended September 30, 2024, an increase of $6.8 million, or 0.8%, compared to $902.9 million in the same period last year.

Organic constant currency sales in the Americas segment increased 1.1% during the period.

This growth was driven by an increase in detection.

Net sales for the International segment were $398.7 million in the nine months ended September 30, 2024, an increase of $9.3 million, or 2.4%, compared to $389.4 million in the same period last year.

Organic constant currency sales in the International segment increased 1.9% during the period.

This growth was driven by strength across fire service and FGFD, partially offset by decreases in portable instruments and industrial PPE.

This growth was driven by strength across fire service and detection, partially offset by a decline in industrial PPE.

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, 2024, was $418.6 million, an increase of $23.4 million or 5.9%, compared to $395.2 million during the same period last year.

The ratio of gross profit to net sales was 47.8% during the six months ended June 30, 2024 compared to 46.7% during the same period last year.

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

Gross profit for the nine months ended September 30, 2024, was $626.0 million, an increase of $12.0 million or 2.0%, compared to $614.0 million during the same period last year.

The ratio of gross profit to net sales was 47.8% during the nine months ended September 30, 2024 compared to 47.5% during the same period last year.

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

Selling, general and administrative expenses.

SG&A expenses were $199.2 million during the six months ended June 30, 2024, an increase of $11.8 million or 6.3%, compared to $187.4 million during the same period last year.

Overall, SG&A expenses were 22.7% of net sales during the six months ended June 30, 2024, compared to 22.2% of net sales during the same period in 2023.

SG&A expenses were $294.3 million during the nine months ended September 30, 2024, an increase of $4.7 million or 1.6%, compared to $289.6 million during the same period last year.

Overall, SG&A expenses were 22.5% of net sales during the nine months ended September 30, 2024, compared to 22.4% of net sales during the same period in 2023.

Organic constant currency SG&A increased $5.1 million or 1.8%.

The increase in SG&A was driven by the higher level of sales, inflation, net cost for product related legal matter and higher professional service expense partially offset by lower variable compensation.

The increase in SG&A was driven by higher commercial costs associated with volume growth, inflation, net cost for product related legal matter and higher professional service expense partially offset by lower variable compensation and discretionary cost management.

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, 2024 versus June 30, 2023

Selling, general, and administrative expenses Nine Months Ended

September 30, 2024 versus September 30, 2023

(Percent Change) Consolidated

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Research and development expense .

Research and development expense was $33.0 million during the six months ended June 30, 2024, an increase of $1.8 million, compared to $31.2 million during the same period last year.

Research and development expense was 3.8% of net sales in the first six months ended June 30, 2024 and 3.7% in the same period of 2023.

During the six months ended June 30, 2024 and 2023, we capitalized $6.8 million and $6.1 million of software development costs, respectively.

Depreciation expense for capitalized software development costs of $5.5 million and $4.8 million during the six months ended June 30, 2024 and 2023, respectively, was recorded in costs of products sold on the unaudited Condensed Consolidated Statements of Operations.

Research and development expense was $49.7 million during the nine months ended September 30, 2024, an increase of $0.8 million, compared to $48.9 million during the same period last year.

Research and development expense was 3.8% of net sales in both the nine months ended September 30, 2024 and 2023.

During the nine months ended September 30, 2024 and 2023, we capitalized $10.0 million and $9.4 million of software development costs, respectively.

Depreciation expense for capitalized software development costs of $8.2 million and $7.5 million during the nine months ended September 30, 2024 and 2023, 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 $39.8 million and $37.3 million during the six months ended June 30, 2024, and 2023, respectively.

Total spend on both software development and research and development activities was $59.7 million and $58.3 million during the nine months ended September 30, 2024, and 2023, respectively.

Restructuring charges .

Restructuring charges of $4.6 million during the six months ended June 30, 2024 were primarily related to ongoing initiatives to optimize our manufacturing footprint and improve productivity as well as management restructuring.

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

Restructuring charges of $5.7 million during the nine months ended September 30, 2024 were primarily related to ongoing initiatives to optimize our manufacturing footprint and improve productivity as well as management restructuring.

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

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

Currency exchange .

Currency exchange losses were $1.7 million during the six months ended June 30, 2024, compared to $7.3 million in the same period of 2023.

Currency exchange losses were $4.7 million during the nine months ended September 30, 2024, compared to $8.8 million in the same period of 2023.

During 2024, we recognized non-cash net cumulative translation gains of $1.2 million associated with certain foreign subsidiaries.

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

The remaining currency exchange activity for both periods related primarily due to foreign currency exposure on unsettled inter-company balances and recognized exchange loss for our Argentina affiliate operating in a hyper-inflationary environment.

Product liability expense.

Product liability expense for the six months ended June 30, 2024, and 2023, was minimal due to our divestiture of MSA LLC in January 2023, as discussed further in Note 17—Commitments and Contingencies to the unaudited condensed consolidated financial statements in Part I Item 1 of this Form 10-Q.

Product liability expense for the nine months ended September 30, 2024, and 2023, was minimal due to our divestiture of MSA LLC in January 2023, as discussed further in Note 17—Commitments and Contingencies to the unaudited condensed consolidated financial statements in Part I Item 1 of this Form 10-Q.

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, 2024, was $180.1 million compared to $34.9 million in the same period last year.

The increase in operating results was driven by the higher sales and gross profit as well as the absence of loss on divestiture of MSA LLC that was recognized in 2023, partially offset by increased SG&A expense.

Consolidated operating income for the nine months ended September 30, 2024, was $271.5 million compared to $129.1 million in the same period last year.

The increase in operating results was driven by the higher sales and gross profit margin as well as the absence of loss on divestiture of MSA LLC that was recognized in 2023, partially offset by increased SG&A expense.

Adjusted operating income.

Americas adjusted operating income for the six months ended June 30, 2024 was $184.7 million, an increase of $18.2 million, or 10.9%, compared to $166.5 million in the prior year.

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

International adjusted operating income for the six months ended June 30, 2024, was $37.8 million, an increase of $0.3 million, or 0.7%, compared to $37.5 million in the prior year.

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

Corporate segment adjusted operating loss for the six months ended June 30, 2024, was $26.3 million, an increase of $3.4 million compared to an adjusted operating loss of $22.9 million in the same period of 2023 driven by inflation and increased professional service fees associated with various strategic initiatives partially offset by lower variable compensation.

Americas adjusted operating income for the nine months ended September 30, 2024 was $276.5 million, an increase of $16.1 million, or 6.2%, compared to $260.4 million in the prior year.

The increase in adjusted operating income is primarily attributable to higher sales and gross profit margin due to effective price/cost management partially offset by higher SG&A expense to support business growth.

International adjusted operating income for the nine months ended September 30, 2024, was $55.9 million, a decrease of $4.2 million, or 6.9%, compared to $60.1 million in the prior year.

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

Corporate segment adjusted operating loss for the nine months ended September 30, 2024, was $38.4 million, an increase of $0.3 million compared to an adjusted operating loss of $38.1 million in the same period of 2023 driven by inflation and increased professional service fees associated with various strategic initiatives partially offset by lower variable compensation.

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, 2024

Adjusted operating income (loss) Nine Months Ended September 30, 2024

(In thousands) Americas International Corporate Consolidated

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Adjusted EBITDA margin % 33.6 % 16.9 %

(a) Transaction costs include advisory, legal, accounting, valuation, and other professional or consulting fees incurred during acquisitions and divestitures.

(a) Transaction costs include advisory, legal, accounting, valuation, and other professional or consulting fees incurred during our evaluation of acquisitions and divestitures.

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

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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Amortization of acquisition-related intangible assets 6,936

Transaction costs (a)

Adjusted operating income (loss) 260,428 60,099 (38,066) 282,461

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Adjusted EBITDA margin % 31.9 % 18.1 %

(a) Transaction costs include advisory, legal, accounting, valuation, and other professional or consulting fees incurred during our evaluation of acquisitions and divestitures.

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

Adjusted operating income (loss), adjusted operating margin %, adjusted EBITDA and adjusted EBITDA margin % are non-GAAP financial measures.

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Total other expense, net.

Total other expense, net, for the six months ended June 30, 2024 was $10.0 million, compared to total other income, net, of $15.2 million for the same period in 2023 due to decreased interest expense related to reduced debt balances related to prior year borrowings associated with the MSA LLC divestiture as well as increased pension income driven by a higher expected rate of return partially offset by pension settlement expense recognized in the current year.

Total other expense, net, for the nine months ended September 30, 2024 was $13.3 million, compared to $21.7 million for the same period in 2023.

The decrease in total other expense, net is primarily due to decreased interest expense related to reduced debt balances related to prior year borrowings associated with the MSA LLC divestiture as well as increased pension income driven by a higher expected rate of return partially offset by pension settlement expense recognized in the current year.

Income taxes.

The reported effective tax rate for the six months ended June 30, 2024 was 23.3% compared to 520.8% for the same period in 2023.

The reported effective tax rate for the nine months ended September 30, 2024 was 23.7% compared to 116.6% for the same period in 2023.

This significant variance 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 in the prior year.

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Net income (loss) attributable to MSA Safety Incorporated .

Net income was $130.4 million for the six months ended June 30, 2024, or $3.30 per diluted share compared to net loss of $83.1 million, or $(2.12) per diluted share, for the same period last year.

Net income was $197.0 million for the nine months ended September 30, 2024, or $4.98 per diluted share compared to net loss of $17.8 million, or $(0.46) per diluted share, for the same period last year.

Non-GAAP Financial Measures

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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, 2024, approximately 52% of our long-term debt is at fixed interest rates with repayment schedules through 2036.

At September 30, 2024, approximately 55% 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, 2024, approximately 84% of our borrowings are denominated in U.S.

At September 30, 2024, approximately 90% of our borrowings are denominated in U.S.

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

At June 30, 2024, the Company had cash and cash equivalents totaling $146.8 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 $0.4 million during the six months ended June 30, 2024 compared to cash decreasing $15.6 million during the same period in 2023.

We believe MSA's healthy balance sheet and access to significant capital at June 30, 2024, positions us well to navigate through challenging business conditions, supply chain constraints or other unexpected events.

At September 30, 2024, the Company had cash and cash equivalents totaling $154.4 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 $6.6 million during the nine months ended September 30, 2024 compared to increasing $2.0 million during the same period in 2023.

We believe MSA's healthy balance sheet and access to significant capital at September 30, 2024, positions us well to navigate through challenging business conditions, supply chain constraints and other unexpected events.

Operating activities.

Operating activities provided cash of $104.2 million during the six months ended June 30, 2024, compared to using cash of $190.8 million during the same period in 2023.

Operating activities provided cash of $188.5 million during the nine months ended September 30, 2024, compared to using cash of $66.1 million during the same period in 2023.

The improved cash flow from operating activities as compared to the same period in 2023 was primarily related to the prior year contribution of $341.2 million in the divestiture of MSA LLC.

Refer to Note 17—Commitments and Contingencies to the unaudited condensed consolidated financial statements in Part I Item 1 of this Form 10-Q for further information.

Cash flow provided by operating activities decreased slightly excluding the cash flow impact of the MSA LLC divestiture.

Improved operating results were offset by higher cash usage for working capital needs, primarily inventory partially offset by improved accounts payable cash flow as well as higher cash usage for variable compensation payouts and tax prepayments both driven by prior year performance.

Excluding the cash flow impact of the MSA LLC divestiture for 2023, cash flow provided by operating activities decreased by $91.9 million, as improved operating results were completely offset by higher cash usage for working capital needs as well as increased cash usage for variable compensation payouts and tax prepayments both driven by prior year performance.

The working capital cash usage increase related primarily to inventory purchases to support customer demand which were partially offset by improved accounts payable and accounts receivable management.

Investing activities.

Investing activities used cash of $25.5 million during the six months ended June 30, 2024, compared to using $15.6 million during the same period in 2023.

The increase in cash used in investing activities as compared to the same period in 2023 was related to increased capital expenditures to support our manufacturing footprint optimization activities.

Investing activities used cash of $39.7 million during the nine months ended September 30, 2024, compared to using $28.3 million during the same period in 2023.

The increase in cash used in investing activities as compared to the same period in 2023 was related to increased capital expenditures to support our manufacturing footprint optimization activities and IT systems implementation.

We remain committed to 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 $67.7 million during the six months ended June 30, 2024, compared to providing cash of $196.6 million during the same period in 2023.

During the six months ended June 30, 2024, we had net payments on long-term debt of $13.3 million as compared to net proceeds from long-term debt of $236.9 million during the same period in 2023 to fund the MSA LLC divestiture.

Since the MSA LLC divestiture in January 2023, we have paid down $302.3 million of our outstanding borrowings.

We paid cash dividends of $38.6 million during the six months ended June 30, 2024, compared to $36.5 million in the same period in 2023.

We used cash of $16.8 million during the six months ended June 30, 2024, to repurchase shares, including $10.0 million related to our share repurchase program and the remainder related to our employee stock compensation transactions compared to $3.9 million in the same period in 2023, all of which related to our employee stock compensation transactions.

Financing activities used cash of $136.2 million during the nine months ended September 30, 2024, compared to providing cash of $110.5 million during the same period in 2023.

During the nine months ended September 30, 2024, we had net payments on long-term debt of $51.0 million as compared to net proceeds from long-term debt of $168.6 million during the same period in 2023 to fund the MSA LLC divestiture.

We paid cash dividends of $58.7 million during the nine months ended September 30, 2024, compared to $55.0 million in the same period in 2023.

We used cash of $27.4 million during the nine months ended September 30, 2024, to repurchase shares, including $20.0 million related to our share repurchase program and the remainder related to our employee stock compensation transactions compared to $3.9 million in the same period in 2023, all of which related to our employee stock compensation transactions.

CUMULATIVE TRANSLATION ADJUSTMENTS

The position of the U.S.

dollar relative to international currencies, primarily the euro, at June 30, 2024, resulted in a translation loss of $19.5 million being recorded to the cumulative translation adjustments shareholders' equity account during the six months ended June 30, 2024, compared to a $16.2 million translation gain being recorded to the cumulative translation adjustments shareholders' equity account during the same period in 2023.

dollar relative to international currencies, primarily the euro, at September 30, 2024, resulted in a translation gain of $1.8 million being recorded to the cumulative translation adjustments shareholders' equity account during the nine months ended September 30, 2024, compared to a $2.5 million translation loss being recorded to the cumulative translation adjustments shareholders' equity account during the same period in 2023.

COMMITMENTS AND CONTINGENCIES

We made contributions of $2.6 million to our pension plans during the six months ended June 30, 2024.

We made contributions of $3.9 million to our pension plans during the nine months ended September 30, 2024.

We expect to make total contributions of approximately $5.3 million to our pension plans in 2024 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, 2024, totaling $10.2 million, of which $1.1 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, 2024, totaling $10 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, 2024, the Company has $2.0 million of restricted cash in support of these arrangements.

At September 30, 2024, the Company has $0.6 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