MSA Safety Inc 10-Q

Item 1. Financial Statements MSA SAFETY INCORPORATED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS Unaudited Three Months Ended September 30, Nine Months Ended September 30, (In thousands, except per share values) 2024 2023 2024 2023 Net sales $ 432,679 $ 446,728 $ 1,308,443 $ 1,292,290 Cost of products sold 225,223 227,967 682,427 678,335 Gross profit 207,456 218,761 626,016 613,955 Selling, general and administrative 95,103 102,175 294,329 289,602 Research and development 16,707 17,682 49,695 48,906 Restructuring charges (Note 3) 1,184 3,285 5,744 8,382 Currency exchange losses, net 2,985 1,496 4,715 8,781 Loss on divestiture of MSA LLC (Note 17) — — — 129,211 Product liability expense (Note 17) — — — 3 Operating income 91,477 94,123 271,533 129,070 Interest expense 9,153 12,498 29,556 37,149 Other income, net ( 5,833 ) ( 6,037 ) ( 16,215 ) ( 15,487 ) Total other expense, net 3,320 6,461 13,341 21,662 Income before income taxes 88,157 87,662 258,192 107,408 Provision for income taxes (Note 10) 21,509 22,406 61,171 125,235 Net income (loss) $ 66,648 $ 65,256 $ 197,021 $ ( 17,827 ) Earnings (loss) per share attributable to common shareholders (Note 9): Basic $ 1.69 $ 1.66 $ 5.00 $ ( 0.46 ) Diluted $ 1.69 $ 1.65 $ 4.98 $ ( 0.46 ) Dividends per common share $ 0.51 $ 0.47 $ 1.49 $ 1.40 The accompanying notes are an integral part of the unaudited condensed consolidated financial statements. -3- Table of Contents MSA SAFETY INCORPORATED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) Unaudited Three Months Ended September 30, Nine Months Ended September 30, (In thousands) 2024 2023 2024 2023 Net income (loss) $ 66,648 $ 65,256 $ 197,021 $ ( 17,827 ) Other comprehensive gain (loss), net of tax: Foreign currency translation adjustments (Note 6) 21,329 ( 18,771 ) 1,834 ( 2,538 ) Pension and post-retirement plan adjustments, net of tax (Note 6) 14 188 2,410 742 Unrealized gain on available-for-sale securities (Note 6) — — — 2 Reclassification of currency translation from accumulated other comprehensive loss into net income (Note 6) — 101 ( 1,200 ) 101 Total other comprehensive gain (loss), net of tax 21,343 ( 18,482 ) 3,044 ( 1,693 ) Comprehensive income (loss) $ 87,991 $ 46,774 $ 200,065 $ ( 19,520 ) The accompanying notes are an integral part of the unaudited condensed consolidated financial statements. -4- Table of Contents MSA SAFETY INCORPORATED CONDENSED CONSOLIDATED BALANCE SHEETS Unaudited (In thousands) September 30, 2024 December 31, 2023 Assets Cash and cash equivalents $ 154,371 $ 146,442 Trade receivables, less allowance for credit loss of $ 7,937 and $ 7,065 277,346 294,678 Inventories (Note 4) 351,805 292,604 Prepaid expenses and other current assets 59,147 52,546 Total current assets 842,669 786,270 Property, plant and equipment, net (Note 5) 216,646 211,877 Operating lease right-of-use assets, net 59,393 53,298 Prepaid pension cost (Note 14) 183,915 172,161 Deferred tax assets (Note 10) 34,513 33,065 Goodwill (Note 13) 632,837 627,534 Intangible assets, net (Note 13) 254,364 266,134 Other noncurrent assets 17,590 19,811 Total assets $ 2,241,927 $ 2,170,150 Liabilities Notes payable and current portion of long-term debt (Note 12) $ 26,915 $ 26,522 Accounts payable 128,031 111,872 Employees’ compensation 56,831 73,386 Other current liabilities 102,701 121,038 Total current liabilities 314,478 332,818 Long-term debt, net (Note 12) 527,807 575,170 Pensions and other employee benefits (Note 14) 144,105 143,967 Noncurrent operating lease liabilities 49,337 44,495 Deferred tax liabilities (Note 10) 103,175 102,419 Other noncurrent liabilities 7,680 4,479 Total liabilities $ 1,146,582 $ 1,203,348 Equity Preferred stock, 4.5 % cumulative, $ 50 par value (Note 7) $ 3,569 $ 3,569 Common stock, no par value (Note 7) 324,609 312,324 Treasury shares, at cost (Note 7) ( 388,421 ) ( 363,284 ) Accumulated other comprehensive loss (Note 6) ( 126,205 ) ( 129,249 ) Retained earnings 1,281,793 1,143,442 Total shareholders’ equity 1,095,345 966,802 Total liabilities and shareholders’ equity $ 2,241,927 $ 2,170,150 The accompanying notes are an integral part of the unaudited condensed consolidated financial statements. -5- Table of Contents MSA SAFETY INCORPORATED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Unaudited Nine Months Ended September 30, (In thousands) 2024 2023 Operating Activities Net income (loss) $ 197,021 $ ( 17,827 ) Depreciation and amortization 47,563 44,965 Tax-effected loss on divestiture of MSA LLC (Note 17) — 199,578 Stock-based compensation (Note 11) 13,446 21,506 Pension income (Note 14) ( 5,316 ) ( 6,060 ) Deferred income tax benefit (Note 10) ( 1,928 ) ( 531 ) Loss (gain) on asset dispositions, net 959 ( 671 ) Pension contributions (Note 14) ( 3,948 ) ( 4,274 ) Currency exchange losses, net 4,715 8,781 Product liability expense (Note 17) — 3 Product liability payments (Note 17) — ( 5,250 ) Contribution on divestiture of MSA LLC (Note 17) — ( 341,186 ) Changes in: Trade receivables 7,965 ( 7,449 ) Inventories (Note 4) ( 59,531 ) 15,386 Accounts payable 17,309 ( 4,225 ) Other current assets and liabilities ( 34,186 ) 26,518 Other noncurrent assets and liabilities 4,451 4,679 Cash Flow From (Used in) Operating Activities 188,520 ( 66,057 ) Investing Activities Capital expenditures ( 39,814 ) ( 30,979 ) Property disposals and other investing 90 2,690 Cash Flow Used in Investing Activities ( 39,724 ) ( 28,289 ) Financing Activities Proceeds from long-term debt (Note 12) 868,644 1,507,000 Payments on long-term debt (Note 12) ( 919,647 ) ( 1,338,352 ) Debt issuance costs ( 200 ) ( 1,138 ) Cash dividends paid ( 58,670 ) ( 54,999 ) Company stock purchases (Note 7) ( 27,427 ) ( 3,941 ) Exercise of stock options (Note 7) 494 1,440 Employee stock purchase plan (Note 7) 634 497 Cash Flow (Used in) From Financing Activities ( 136,172 ) 110,507 Effect of exchange rate changes on cash, cash equivalents and restricted cash ( 6,062 ) ( 14,152 ) Change in cash, cash equivalents and restricted cash 6,562 2,009 Beginning cash, cash equivalents and restricted cash 148,408 164,428 Ending cash, cash equivalents and restricted cash $ 154,970 $ 166,437 Supplemental cash flow information: Cash and cash equivalents $ 154,371 $ 164,499 Restricted cash included in prepaid expenses and other current assets 599 1,938 Total cash, cash equivalents and restricted cash $ 154,970 $ 166,437 The accompanying notes are an integral part of the unaudited condensed consolidated financial statements. -6- Table of Contents MSA SAFETY INCORPORATED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN RETAINED EARNINGS AND ACCUMULATED OTHER COMPREHENSIVE LOSS Unaudited (In thousands, except per share values) Retained Earnings Accumulated Other Comprehensive (Loss) Balances June 30, 2023 $ 1,038,750 $ ( 141,928 ) Net income 65,256 — Foreign currency translation adjustments — ( 18,771 ) Pension and post-retirement plan adjustments, net of tax expense of $ 27 — 188 Reclassification from accumulated other comprehensive loss into net income (Note 6) — 101 Common dividends ($ 0.47 per share) ( 18,475 ) — Preferred dividends ($ 0.5625 per share) ( 10 ) — Balances September 30, 2023 $ 1,085,521 $ ( 160,410 ) Balances June 30, 2024 $ 1,235,226 $ ( 147,548 ) Net income 66,648 — Foreign currency translation adjustments — 21,329 Pension and post-retirement plan adjustments, net of tax benefit of $ 374 — 14 Common dividends ($ 0.51 per share) ( 20,071 ) — Preferred dividends ($ 0.5625 per share) ( 10 ) — Balances September 30, 2024 $ 1,281,793 $ ( 126,205 ) Balances December 31, 2022 $ 1,158,347 $ ( 158,717 ) Net loss ( 17,827 ) — Foreign currency translation adjustments — ( 2,538 ) Pension and post-retirement plan adjustments, net of tax expense of $ 259 — 742 Unrecognized net gains on available-for-sale securities (Note 16) — 2 Reclassification from accumulated other comprehensive loss into net income (Note 6) — 101 Common dividends ($ 1.40 per share) ( 54,969 ) — Preferred dividends ($ 1.6875 per share) ( 30 ) — Balances September 30, 2023 $ 1,085,521 $ ( 160,410 ) Balances December 31, 2023 $ 1,143,442 $ ( 129,249 ) Net income 197,021 — Foreign currency translation adjustments — 1,834 Pension and post-retirement plan adjustments, net of tax benefit of $ 628 — 2,410 Reclassification from accumulated other comprehensive loss into net income (Note 6) — ( 1,200 ) Common dividends ($ 1.49 per share) ( 58,640 ) — Preferred dividends ($ 1.6875 per share) ( 30 ) — Balances September 30, 2024 $ 1,281,793 $ ( 126,205 ) The accompanying notes are an integral part of the unaudited condensed consolidated financial statements. -7- Table of Contents MSA SAFETY INCORPORATED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Unaudited Note 1— Basis of Presentation The condensed consolidated financial statements of MSA Safety Incorporated and its subsidiaries ("MSA" or "the Company") are unaudited. These unaudited condensed consolidated financial statements include all adjustments, consisting of normal recurring adjustments, considered necessary by management to fairly state the Company's results. Intercompany accounts and transactions have been eliminated. The results reported in these unaudited condensed consolidated financial statements are not necessarily indicative of the results that may be expected for the entire year. The December 31, 2023, Balance Sheet data was derived from the audited Consolidated Balance Sheets, but does not include all disclosures required by accounting principles generally accepted in the United States of America ("U.S. GAAP"). This Form 10-Q report should be read in conjunction with MSA's Form 10-K for the year ended December 31, 2023, which includes all disclosures required by U.S. GAAP. In November 2023, the FASB issued ASU No. 2023-07 (“ASU 2023-07”), Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. ASU 2023-07 requires annual and interim disclosures that are expected to improve reportable segment disclosures, primarily through enhanced disclosures about significant expenses in determining segment profit or loss. The provisions of ASU 2023-07 are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. We will apply the new disclosure requirements of ASU 2023-07 in our 2024 Form 10-K and, with the exception of expanding disclosures about significant segment expenses, do not expect that the adoption of ASU 2023-07 will have a material effect on our consolidated financial statements taken as a whole. Note 2— Cash and Cash Equivalents Several of the Company's subsidiaries participate in a notional cash pooling arrangement to manage global liquidity requirements. As part of a master netting arrangement, the participants combine their cash balances in pooling accounts at the same financial institution with the ability to offset bank overdrafts of one participant against positive cash account balances held by another participant. Under the terms of the master netting arrangement, the financial institution has the right, ability and intent to offset a positive balance in one account against an overdrawn amount in another account. Amounts in each of the accounts are unencumbered and unrestricted with respect to use. As such, the net cash balance related to this pooling arrangement is included in Cash and cash equivalents in the unaudited Condensed Consolidated Balance Sheets. The Company's net cash pool position consisted of the following: (In thousands) September 30, 2024 Gross cash pool position $ 69,117 Less: cash pool borrowings ( 65,712 ) Net cash pool position $ 3,405 Note 3— Restructuring Charges During the three and nine months ended September 30, 2024, we recorded restructuring charges of $ 1.2 million and $ 5.7 million, respectively. Americas segment restructuring charges of $ 1.3 million during the nine months ended September 30, 2024, were related to manufacturing footprint optimization activities. International segment restructuring charges of $ 3.2 million during the nine months ended September 30, 2024, were related to ongoing initiatives to optimize our manufacturing footprint and improve productivity as well as management restructuring. Corporate segment restructuring charges of $ 1.2 million during the nine months ended September 30, 2024, were related to management restructuring. During the three and nine months ended September 30, 2023, we recorded restructuring charges of $ 3.3 million and $ 8.4 million, respectively. Americas segment restructuring charges of $ 2.7 million during the nine months ended September 30, 2023, were related to manufacturing footprint optimization activities. International segment restructuring charges of $ 3.6 million during the nine months ended September 30, 2023, were related to ongoing initiatives to drive profitable growth and improve productivity. Corporate segment restructuring charges of $ 2.1 million during the nine months ended September 30, 2023, were related to footprint optimization activities and management restructuring. -8- Table of Contents Restructuring reserves are included in Other current liabilities in the accompanying unaudited Condensed Consolidated Balance Sheets. Activity and reserve balances for restructuring by segment were as follows: (In millions) Americas International Corporate Total Reserve balances at December 31, 2022 $ 1.7 $ 12.8 $ 0.5 $ 15.0 Restructuring charges 3.1 4.7 2.1 9.9 Currency translation ( 0.1 ) 0.1 — — Cash payments / utilization ( 3.9 ) ( 8.6 ) ( 2.6 ) ( 15.1 ) Reserve balances at December 31, 2023 $ 0.8 $ 9.0 $ — $ 9.8 Restructuring charges 1.3 3.2 1.2 5.7 Cash payments ( 1.9 ) ( 8.0 ) ( 1.2 ) ( 11.1 ) Reserve balances at September 30, 2024 $ 0.2 $ 4.2 $ — $ 4.4 Note 4— Inventories The following table sets forth the components of inventory: (In thousands) September 30, 2024 December 31, 2023 Finished products $ 118,294 $ 88,687 Work in process 17,369 15,378 Raw materials and supplies 216,142 188,539 Total inventories $ 351,805 $ 292,604 Note 5— Property, Plant and Equipment The following table sets forth the components of property, plant and equipment, net: (In thousands) September 30, 2024 December 31, 2023 Land $ 4,379 $ 4,332 Buildings 144,364 141,027 Machinery and equipment 511,075 498,148 Construction in progress 27,482 24,404 Total 687,300 667,911 Less: accumulated depreciation ( 470,654 ) ( 456,034 ) Property, plant and equipment, net $ 216,646 $ 211,877 -9- Table of Contents Note 6— Reclassifications Out of Accumulated Other Comprehensive Loss Changes in accumulated other comprehensive loss were as follows: Three Months Ended September 30, Nine Months Ended September 30, (In thousands) 2024 2023 2024 2023 Pension and other post-retirement benefits (a) Balance at beginning of period $ ( 40,256 ) $ ( 49,781 ) $ ( 42,652 ) $ ( 50,335 ) Amounts reclassified from accumulated other comprehensive loss into net income (loss): Amortization of prior service credit (Note 14) ( 9 ) ( 24 ) ( 27 ) ( 72 ) Recognized net actuarial losses (Note 14) 397 185 3,065 555 Tax (benefit) expense ( 374 ) 27 ( 628 ) 259 Total amount reclassified from accumulated other comprehensive loss, net of tax, into net income (loss) 14 188 2,410 742 Balance at end of period $ ( 40,242 ) $ ( 49,593 ) $ ( 40,242 ) $ ( 49,593 ) Available-for-sale securities Balance at beginning of period $ — $ — $ — $ ( 2 ) Unrealized net gains on available-for-sale securities (Note 16) — — — 2 Balance at end of period $ — $ — $ — $ — Foreign currency translation Balance at beginning of period $ ( 107,292 ) $ ( 92,147 ) $ ( 86,597 ) $ ( 108,380 ) Reclassification from accumulated other comprehensive loss into net income (loss) (b) — 101 ( 1,200 ) 101 Foreign currency translation adjustments 21,329 ( 18,771 ) 1,834 ( 2,538 ) Balance at end of period $ ( 85,963 ) $ ( 110,817 ) $ ( 85,963 ) $ ( 110,817 ) (a) Amounts reclassified from accumulated other comprehensive loss into net income (loss) are included in the computation of net periodic pension and other post-retirement benefit costs (refer to Note 14—Pensions and Other Post-retirement Benefits). (b) Reclassification from accumulated other comprehensive loss into net income (loss) relates primarily to the recognition of non-cash net cumulative translation gains associated with certain foreign subsidiaries. The reclassifications are included in Currency exchange losses, net, within the unaudited Condensed Consolidated Statements of Income. -10- Table of Contents Note 7— Capital Stock Preferred Stock - The Company has authorized 100,000 shares of $ 50 par value 4.5 % cumulative preferred nonvoting stock which is callable at $ 52.50 . There were 71,340 shares issued and 52,998 shares held in treasury at both September 30, 2024 and December 31, 2023. The Treasury shares at cost line in the unaudited Condensed Consolidated Balance Sheets includes $ 1.8 million related to preferred stock. There were no shares of preferred stock purchased and subsequently held in treasury during the nine months ended September 30, 2024 or 2023. The Company has also authorized 1,000,000 shares of $ 10 par value second cumulative preferred voting stock. No shares have been issued as of September 30, 2024, or December 31, 2023. Common Stock - The Company has authorized 180,000,000 shares of no par value common stock. There were 62,081,391 shares issued as of September 30, 2024 and December 31, 2023. No new shares were issued during the nine months ended September 30, 2024 or 2023. There were 39,309,938 and 39,317,212 shares outstanding at September 30, 2024 and December 31, 2023, respectively. Treasury Shares - The Company has a stock repurchase program that authorizes up to $ 200.0 million to repurchase MSA common stock in the open market and in private transactions. The stock repurchase program has no expiration date. The maximum number of shares that may be repurchased is calculated based on the dollars remaining under the program and the respective month-end closing share price. During the nine months ended September 30, 2024, and 2023, the Company repurchased 108,917 and no shares, respectively, under this and the prior stock repurchase program. There were 22,771,453 and 22,764,179 treasury shares at September 30, 2024 and December 31, 2023, respectively. The Company issues treasury shares for all stock-based benefit plans. Shares are issued from treasury at the average treasury share cost on the date of the transaction. There were 141,618 and 125,967 Treasury shares issued for these purposes during the nine months ended September 30, 2024, and 2023, respectively. Common stock activity is summarized as follows: Three Months Ended September 30, 2024 Three Months Ended September 30, 2023 (In thousands) Common Stock Treasury Cost (a) Common Stock Treasury Cost (a) Balance at beginning of period $ 320,556 $ ( 376,556 ) $ 294,364 $ ( 362,025 ) Stock compensation expense 4,217 — 8,477 — Restricted and performance stock awards ( 275 ) 275 ( 15 ) 15 Stock options exercised 111 57 591 307 Treasury shares purchased for stock compensation programs — ( 571 ) — ( 70 ) Share repurchase program — ( 10,027 ) — — Balance at end of period $ 324,609 $ ( 386,822 ) $ 303,417 $ ( 361,773 ) (a) Excludes treasury cost related to preferred stock. Nine Months Ended September 30, 2024 Nine Months Ended September 30, 2023 (In thousands) Common Stock Treasury Cost (a) Common Stock Treasury Cost (a) Balance at beginning of period $ 312,324 $ ( 361,684 ) $ 281,980 $ ( 359,838 ) Stock compensation expense 13,446 — 21,506 — Restricted and performance stock awards ( 2,058 ) 2,058 ( 1,449 ) 1,449 Stock options exercised 323 171 948 492 Treasury shares purchased for stock compensation programs — ( 7,400 ) — ( 3,941 ) Employee stock purchase program 574 60 432 65 Share repurchase program — ( 20,027 ) — — Balance at end of period $ 324,609 $ ( 386,822 ) $ 303,417 $ ( 361,773 ) (a) Excludes treasury cost related to preferred stock. -11- Table of Contents Note 8— Segment Information The Company is organized into four geographical operating segments that are based on management responsibilities: Northern North America; Latin America; Europe, Middle East & Africa; and Asia Pacific. The operating segments have been aggregated (based on economic similarities, the nature of their products, end-user markets and methods of distribution) into three reportable segments: Americas, International, and Corporate. The Americas segment is comprised of our operations in Northern North American and Latin American geographies. The International segment is comprised of our operations in all geographies outside of the Americas. Certain global expenses are allocated to each segment in a manner consistent with where the benefits from the expenses are derived. The Company's sales are allocated to each segment based primarily on the country destination of the end-customer. Adjusted operating income (loss) is the measure used by the chief operating decision maker to evaluate segment performance and allocate resources. Adjusted operating income (loss) is defined as operating income (loss) excluding restructuring charges, currency exchange (gains) losses, product liability expense, loss on divestiture of Mine Safety Appliances Company, LLC ("MSA LLC"), net cost for product related legal matter, transaction costs and acquisition-related amortization. The accounting principles applied at the operating segment level in determining the segment measure of profit or loss are the same as those applied at the unaudited condensed consolidated financial statement level. Sales and transfers between operating segments are accounted for at market-based transaction prices and are eliminated in consolidation. Reportable segment information is presented in the following table: (In thousands) Americas International Corporate Consolidated Totals Three Months Ended September 30, 2024 Net sales to external customers $ 299,497 $ 133,182 $ — $ 432,679 Adjusted operating income (loss) 91,822 18,174 ( 12,081 ) 97,915 Three Months Ended September 30, 2023 Net sales to external customers $ 314,273 $ 132,455 $ — $ 446,728 Adjusted operating income (loss) 93,918 22,577 ( 15,198 ) 101,297 (In thousands) Americas International Corporate Consolidated Totals Nine Months Ended September 30, 2024 Net sales to external customers $ 909,745 $ 398,698 $ — $ 1,308,443 Adjusted operating income (loss) 276,523 55,944 ( 38,353 ) 294,114 Nine Months Ended September 30, 2023 Net sales to external customers $ 902,918 $ 389,372 $ — $ 1,292,290 Adjusted operating income (loss) 260,428 60,099 ( 38,066 ) 282,461 -12- Table of Contents A reconciliation of total Adjusted operating income from reportable segments to Income before income taxes is presented in the following table: Three Months Ended September 30, Nine Months Ended September 30, (In thousands) 2024 2023 2024 2023 Adjusted operating income $ 97,915 $ 101,297 $ 294,114 $ 282,461 Less: Restructuring charges (Note 3) 1,184 3,285 5,744 8,382 Currency exchange losses, net 2,985 1,496 4,715 8,781 Interest expense 9,153 12,498 29,556 37,149 Other income, net ( 5,833 ) ( 6,037 ) ( 16,215 ) ( 15,487 ) Amortization of acquisition-related intangible assets 2,269 2,315 6,888 6,936 Transaction costs (a) — 78 234 78 Net cost for product related legal matter — — 5,000 — Loss on divestiture of MSA LLC (Note 17) — — — 129,211 Product liability expense (Note 17) — — — 3 Income before income taxes 88,157 87,662 258,192 107,408 (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. -13- Table of Contents Total sales by product group was as follows: Three Months Ended September 30, 2024 Consolidated Americas International (In thousands, except percentages) Dollars Percent Dollars Percent Dollars Percent Fire Service (a) $ 160,515 37 % $ 111,992 37 % $ 48,523 36 % Detection (b) 163,150 38 % 110,459 37 % 52,691 40 % Industrial PPE and Other (c) 109,014 25 % 77,046 26 % 31,968 24 % Total $ 432,679 100 % $ 299,497 100 % $ 133,182 100 % Three Months Ended September 30, 2023 Consolidated Americas International (In thousands, except percentages) Dollars Percent Dollars Percent Dollars Percent Fire Service (a) $ 175,732 39 % $ 131,516 42 % $ 44,216 33 % Detection (b) 155,694 35 % 105,007 33 % 50,687 38 % Industrial PPE and Other (c) 115,302 26 % 77,750 25 % 37,552 29 % Total $ 446,728 100 % $ 314,273 100 % $ 132,455 100 % Nine Months Ended September 30, 2024 Consolidated Americas International (In thousands, except percentages) Dollars Percent Dollars Percent Dollars Percent Fire Service (a) $ 496,478 38 % $ 352,730 39 % $ 143,748 36 % Detection (b) 473,214 36 % 318,159 35 % 155,055 39 % Industrial PPE and Other (c) 338,751 26 % 238,856 26 % 99,895 25 % Total $ 1,308,443 100 % $ 909,745 100 % $ 398,698 100 % Nine Months Ended September 30, 2023 Consolidated Americas International (In thousands, except percentages) Dollars Percent Dollars Percent Dollars Percent Fire Service (a) $ 481,610 37 % $ 354,729 39 % $ 126,881 33 % Detection (b) 460,537 36 % 308,692 34 % 151,845 39 % Industrial PPE and Other (c) 350,143 27 % 239,497 27 % 110,646 28 % Total $ 1,292,290 100 % $ 902,918 100 % $ 389,372 100 % (a) Fire Service includes Breathing Apparatus and Firefighter Helmets and Protective Apparel. (b) Detection includes Fixed Gas and Flame Detection and Portable Gas detection. (c) Industrial PPE and Other includes Industrial Head Protection, Fall Protection and Non-Core. -14- Table of Contents Note 9— Earnings (Loss) per Share Basic earnings (loss) per share is computed by dividing net income, after the deduction of preferred stock dividends and undistributed earnings allocated to participating securities, by the weighted average number of common shares outstanding during the period. Diluted earnings (loss) per share assumes the issuance of common stock for all potentially dilutive share equivalents outstanding not classified as participating securities. Participating securities are defined as unvested stock-based compensation awards that contain nonforfeitable rights to dividends. Three Months Ended September 30, Nine Months Ended September 30, (In thousands, except per share values) 2024 2023 2024 2023 Net income (loss) $ 66,648 $ 65,256 $ 197,021 $ ( 17,827 ) Preferred stock dividends ( 10 ) ( 10 ) ( 30 ) ( 30 ) Net income (loss) attributable to common equity 66,638 65,246 196,991 ( 17,857 ) Dividends and undistributed earnings allocated to participating securities ( 6 ) ( 8 ) ( 19 ) ( 16 ) Net income (loss) attributable to common shareholders 66,632 65,238 196,972 ( 17,873 ) Basic weighted-average shares outstanding 39,362 39,303 39,370 39,267 Stock-based compensation awards (a) 133 147 160 — Diluted weighted-average shares outstanding 39,495 39,450 39,530 39,267 Antidilutive shares — — — 154 Earnings (loss) per share: Basic $ 1.69 $ 1.66 $ 5.00 $ ( 0.46 ) Diluted $ 1.69 $ 1.65 $ 4.98 $ ( 0.46 ) (a) During periods in which the Company incurs a net loss, stock-based compensation awards are excluded from the computation of diluted earnings per share because their effect would be anti-dilutive. As such, during periods in which the Company incurs a net loss, diluted weighted-average shares outstanding are equivalent to basic weighted-average shares outstanding. Note 10— Income Taxes The Company's effective tax rate for the three months ended September 30, 2024, was 24.4 %, which differs from the United States of America ("U.S.") federal statutory rate of 21% primarily due to state income taxes. The Company's effective tax rate for the three months ended September 30, 2023, was 25.6 %, which differs from the U.S. federal statutory rate of 21% primarily due to higher earnings in higher tax jurisdictions and nondeductible compensation. The Company's effective tax rate for the nine months ended September 30, 2024, was 23.7 %, which differs from the United States of America ("U.S.") federal statutory rate of 21% primarily due to state income taxes and nondeductible compensation. The Company's effective tax rate for the nine months ended September 30, 2023, was 116.6 %, which differs from the U.S. federal statutory rate of 21% 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. 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 on this transaction. At September 30, 2024, the Company had a gross liability for unrecognized tax benefits of $ 7.2 million. The Company has recognized tax benefits associated with these liabilities of $ 0.6 million at September 30, 2024. The gross liability includes amounts associated with foreign tax exposure in prior periods. The Company recognizes interest and penalties related to unrecognized tax benefits in interest expense and operating expenses, respectively. The Company's liability for accrued interest related to uncertain tax positions was $ 0.2 million at September 30, 2024. 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. -15- Table of Contents Note 11— Stock Plans The 2023 Management Equity Incentive Plan provides for various forms of stock-based compensation for eligible employees through May 2033 including stock options, restricted stock awards, restricted stock units and performance stock units. The 2024 Non-Employee Directors’ Equity Incentive Plan provides for grants of stock options, restricted stock awards and restricted stock units to non-employee directors through May 2034. Stock compensation expense, included in Selling, general and administrative expense in the unaudited Condensed Consolidated Statements of Operations, is as follows: Three Months Ended September 30, Nine Months Ended September 30, (In thousands) 2024 2023 2024 2023 Stock compensation expense $ 4,217 $ 8,477 $ 13,446 $ 21,506 Income tax benefit 1,033 2,077 3,294 5,269 Stock compensation expense, net of tax $ 3,184 $ 6,400 $ 10,152 $ 16,237 We have not capitalized any stock-based compensation expense. A summary of stock option activity for the nine months ended September 30, 2024, is as follows: Shares Weighted Average Exercise Price Outstanding at January 1, 2024 26,536 $ 45.95 Exercised ( 10,531 ) 46.95 Forfeited ( 852 ) 48.65 Outstanding and exercisable at September 30, 2024 15,153 $ 45.10 Restricted stock awards and restricted stock units are valued at the market value of the stock on the grant date. A summary of restricted stock activity for the nine months ended September 30, 2024, is as follows: Shares Weighted Average Grant Date Fair Value Unvested at January 1, 2024 173,851 $ 142.73 Granted 82,905 178.59 Vested ( 48,596 ) 164.57 Forfeited ( 25,482 ) 164.47 Unvested at September 30, 2024 182,678 $ 150.16 Performance stock units that have a market condition modifier are valued at an estimated fair value using a Monte Carlo model. The final number of shares to be issued for performance stock units granted in the first quarter of 2024 may range from 0 % to 200 % of the target award based on achieving the specified performance targets over the performance period plus an additional modifier based on total shareholder return ("TSR") over the performance period. The following weighted average assumptions were used in estimating the fair value of the performance stock units granted in the first quarter of 2024. Fair value per unit $ 181.31 Risk-free interest rate 4.34 % Expected dividend yield 1.19 % Expected volatility 25.9 % MSA stock beta 0.728 The risk-free interest rate is based on the U.S. Treasury Constant Maturity rates as of the grant date converted into an implied spot rate yield curve. Expected dividend yield is based on the most recent annualized dividend divided by the one year average closing share price. Expected volatility is based on the three year historical volatility preceding the grant date using daily stock prices. Expected life is based on historical stock option exercise data. -16- Table of Contents A summary of performance stock unit activity for the nine months ended September 30, 2024, is as follows: Shares Weighted Average Grant Date Fair Value Unvested at January 1, 2024 189,221 $ 146.17 Granted 40,787 177.34 Performance adjustments (a) 20,488 194.10 Vested ( 77,544 ) 174.13 Forfeited ( 10,619 ) 149.13 Unvested at September 30, 2024 162,333 $ 146.50 (a) Performance adjustments relate primarily to the final number of shares issued for the 2021 performance unit awards which vested in the first quarter of 2024 at 174 % of the target award based on both cumulative performance against EBITDA margin and revenue growth targets and MSA's TSR during the three -year performance period. Note 12— Long-Term Debt (In thousands) September 30, 2024 December 31, 2023 2016 Senior Notes payable through 2031, 3.40 %, net of debt issuance costs $ 57,067 $ 62,081 2021 Senior Notes payable through 2036, 2.69 %, net of debt issuance costs 99,749 99,733 2021 Senior Notes payable through 2036, 2.69 %, net of debt issuance costs 99,749 99,733 2023 Term Loan credit agreement maturing in 2026, net of debt issuance costs 212,055 230,604 2023 Senior Notes payable through 2028, 5.25 %, net of debt issuance costs 49,949 49,939 Senior revolving credit facility maturing in 2026, net of debt issuance costs 36,153 59,602 Total 554,722 601,692 Amounts due within one year 26,915 26,522 Long-term debt, net of debt issuance costs $ 527,807 $ 575,170 On May 24, 2021, the Company entered into a Fourth Amended and Restated Credit Agreement (the “Revolving Credit Facility" or "Facility”) that extended its term through May 24, 2026 and increased the capacity to $ 900.0 million. The agreement was amended in August 2021 and June 2023 to transition from Sterling LIBOR reference rates and U.S. LIBOR reference rates. Under the amended agreement, the Company may elect either a Base rate of interest (“BASE”) or an interest rate based on Secured Overnight Financing Rate (“SOFR”). The BASE is a daily fluctuating per annum rate equal to the highest of (i) 0.00 %, (ii) the Overnight Bank Funding Rate, plus 0.5 %, (iii) the Prime Rate (iv) the Daily Simple SOFR rate, plus 1.00 %. The Company pays a credit spread of 0 to 175 basis points based on the Company’s net EBITDA leverage ratio and elected rate (BASE or SOFR). The Company has a weighted average revolver interest rate of 5.80 % as of September 30, 2024. At September 30, 2024, $ 861.5 million of the existing $ 900.0 million Revolving Credit Facility was unused, including letters of credit issued under the Facility. The Facility also provides an accordion feature that allows the Company to access an additional $ 400.0 million of capacity pending approval by MSA’s board of directors and from the bank group. On July 1, 2024, the Company entered into Amendment No. 3 to the Third Amended and Restated Multi-Currency Note Purchase and Private Shelf Agreement (the “Prudential Note Agreement”) with PGIM, Inc. (“Prudential”). The Prudential Note Agreement provided for (i) the issuance of $ 100.0 million of 2.69 % Series C Senior Notes due July 1, 2036 and (ii) the establishment of an uncommitted note issuance facility whereby the Company may request, subject to Prudential’s acceptance in its sole discretion, the issuance of up to $ 335.0 million aggregate principal amount of senior unsecured notes. As of September 30, 2024, the Company has outstanding £ 42.7 million (approximately $ 57.2 million at September 30, 2024) of 3.4 % Series B Senior Notes due January 22, 2031. Remaining maturities of this note are £ 6.1 million (approximately $ 8.2 million at September 30, 2024) due annually through January 2031. On July 1, 2024, the Company entered into Amendment No. 3 to the Second Amended and Restated Master Note Facility (the “NYL Note Facility”) with NYL Investors. The NYL Note Facility provided for (i) the issuance of $ 100.0 million of 2.69 % Series A Senior Notes due July 1, 2036, and (ii) the establishment of an uncommitted note issuance facility whereby the Company may request, subject to NYL Investors’ acceptance in its sole discretion, the issuance of up to $ 200.0 million aggregate principal amount of senior unsecured notes. -17- Table of Contents On June 29, 2023, the Company issued $ 50 million of 5.25 % Series B Senior Notes due July 1, 2028, pursuant to the NYL Note Facility (the "Notes"). The Notes bear interest at 5.25 % per annum, payable semi-annually, and mature on July 1, 2028. The Notes provide for a principal payment of $ 25 million on July 1, 2027, with the remaining $ 25 million due on July 1, 2028. The Notes may be redeemed at the Company’s option prior to their maturity at a make-whole redemption price calculated as provided in the NYL Note Facility. The proceeds of the Notes were used on June 29, 2023, to pay down an equivalent amount of borrowings under the Company’s Revolving Credit Facility with PNC Bank, National Association, as Administrative Agent. On January 5, 2023, the Company entered into a new $ 250 million term loan facility to fund the divestiture of MSA LLC, a wholly owned subsidiary. Under the agreement, the Company may elect either BASE or an interest rate based on SOFR. The Company pays a credit spread of 0 to 200 basis points based on the Company's net EBITDA leverage ratio and elected rate. The Company had a Term Loan interest rate of 6.35 % as of September 30, 2024. The Revolving Credit Facility, Prudential Note Agreement and NYL Note Facility require the Company to comply with specified financial covenants, including a requirement to maintain a minimum fixed charges coverage ratio of not less than 1.50 to 1.00 and a consolidated leverage ratio not to exceed 3.50 to 1.00; except during an acquisition period, defined as four consecutive fiscal quarters beginning with the quarter of acquisition, in which case the consolidated net leverage ratio shall not exceed 4.00 to 1.00; in each case calculated on the basis of the trailing four fiscal quarters. In addition, the agreements contain negative covenants limiting the ability of the Company and its subsidiaries to incur additional indebtedness or issue guarantees, create or incur liens, make loans and investments, make acquisitions, transfer or sell assets, enter into transactions with affiliated parties, make changes in its organizational documents that are materially adverse to lenders or modify the nature of the Company's or its subsidiaries' business. All credit facilities exclude MSA LLC prior to the divestiture of this subsidiary on January 5, 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 for further information on this transaction. As of September 30, 2024, the Company was in full compliance with the restrictive covenants under its various credit agreements. The Company had outstanding bank guarantees and standby letters of credit with banks as of September 30, 2024, totaling $ 10.0 million, of which $ 1.5 million relate to the Revolving Credit Facility. The 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 September 30, 2024, the Company has $ 0.6 million of restricted cash in support of these arrangements. Note 13— Goodwill and Intangible Assets, Net Changes in goodwill during the nine months ended September 30, 2024, were as follows: (In thousands) Goodwill Balance at January 1, 2024 $ 627,534 Currency translation 5,303 Balance at September 30, 2024 $ 632,837 At September 30, 2024, goodwill of $ 447.6 million and $ 185.2 million related to the Americas and International reportable segments, respectively. Changes in intangible assets, net, during the nine months ended September 30, 2024, were as follows: (In thousands) Intangible Assets Net balance at January 1, 2024 $ 266,134 Amortization expense ( 13,392 ) Currency translation 1,622 Net balance at September 30, 2024 $ 254,364 At September 30, 2024, intangible assets, net, includes a trade name related to Globe Manufacturing Company, LLC ("Globe") with an indefinite life totaling $ 60.0 million . -18- Table of Contents Note 14— Pensions and Other Post-retirement Benefits Components of Net periodic benefit (income) cost consisted of the following: Pension Benefits Other Benefits (In thousands) 2024 2023 2024 2023 Three Months Ended September 30, Service cost $ 2,315 $ 1,884 $ 44 $ 53 Interest cost 5,970 5,918 248 273 Expected return on plan assets ( 10,812 ) ( 9,906 ) — — Amortization of prior service cost (credit) 37 37 ( 46 ) ( 61 ) Recognized net actuarial losses 282 47 115 138 Net periodic benefit (income) cost (a) $ ( 2,208 ) $ ( 2,020 ) $ 361 $ 403 Nine Months Ended September 30, Service cost $ 6,945 $ 5,652 $ 132 $ 159 Interest cost 17,910 17,754 744 819 Expected return on plan assets ( 32,436 ) ( 29,718 ) — — Amortization of prior service cost (credit) 111 111 ( 138 ) ( 183 ) Recognized net actuarial losses 846 141 345 414 Settlements 1,308 — — — Net periodic benefit (income) cost (a) $ ( 5,316 ) $ ( 6,060 ) $ 1,083 $ 1,209 (a) Components of Net periodic benefit (income) cost other than service cost are included in the line item Other income, net, and service costs are included in the line items Cost of products sold and Selling, general and administrative in the unaudited Condensed Consolidated Statements of Operations. We made contributions of $ 3.9 million and $ 4.3 million to our pension plans during the nine months ended September 30, 2024, and 2023, respectively. We expect to make net contributions of $ 5.3 million to our pension plans in 2024, which are primarily associated with statutorily required plans in the International reporting segment. Note 15— Derivative Financial Instruments As part of our currency exchange rate risk management strategy, we enter into certain derivative foreign currency forward contracts that do not meet the U.S. GAAP criteria for hedge accounting but have the impact of partially offsetting certain of our foreign currency exposures. We account for these forward contracts at fair value and report the related gains or losses in currency exchange losses, net, in the unaudited Condensed Consolidated Statements of Operations. The notional amount of open forward contracts was $ 184.8 million and $ 110.9 million at September 30, 2024, and December 31, 2023, respectively. The following table presents the unaudited Condensed Consolidated Balance Sheets location and fair value of assets and liabilities associated with derivative financial instruments: (In thousands) September 30, 2024 December 31, 2023 Derivatives not designated as hedging instruments: Foreign exchange contracts: prepaid expenses and other current assets $ — $ 2,210 Foreign exchange contracts: other current liabilities 1,038 242 -19- Table of Contents The following table presents the unaudited Condensed Consolidated Statements of Operations and unaudited Condensed Consolidated Statements of Cash Flows location and the loss impact of derivative financial instruments: Nine Months Ended September 30, (In thousands) 2024 2023 Derivatives not designated as hedging instruments: Foreign exchange contracts: currency exchange losses, net $ 1,683 $ 2,986 Note 16— Fair Value Measurements Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are: • Level 1—Observable inputs that reflect unadjusted quoted prices for identical assets or liabilities in active markets. • Level 2—Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. • Level 3—Unobservable inputs for the asset or liability. The valuation methodologies we used to measure financial assets and liabilities are also used to value the derivative financial instruments described in Note 15—Derivative Financial Instruments. We estimate the fair value of the derivative financial instruments, consisting of foreign currency forward contracts, based upon valuation models with inputs that generally can be verified by observable market conditions and do not involve significant management judgment. Accordingly, the fair values of the derivative financial instruments are classified within Level 2 of the fair value hierarchy. With the exception of our fixed rate long-term debt, we believe that the reported carrying amounts of our financial assets and liabilities approximate their fair values. The reported carrying amount of our fixed rate long-term debt was $ 307.2 million and $ 312.2 million at September 30, 2024, and December 31, 2023, respectively. The fair value of this debt was $ 278.1 million and $ 278.7 million at September 30, 2024, and December 31, 2023, respectively. The fair value of this debt was determined using Level 2 inputs by evaluating similarly rated companies with publicly traded bonds where available or current borrowing rates available for financings with similar terms and maturities. Note 17— Commitments and Contingencies Product liability The Company and its subsidiaries face an inherent business risk of exposure to legal claims arising from the alleged failure of our products to prevent the types of personal injury or death against which they are designed to protect. Product liability claims are categorized as either single incident or cumulative trauma. Single incident product liability claims. Single incident product liability claims involve incidents of short duration that are typically known when they occur and involve observable injuries, which provide an objective basis for quantifying damages. Management has established reserves for the single incident product liability claims of the Company's various subsidiaries, including asserted single incident product liability claims and incurred but not reported ("IBNR") single incident claims. To determine the reserves, Management makes reasonable estimates of losses for single incident claims based on the number and characteristics of asserted claims, historical experience, sales volumes, expected settlement costs, and other relevant information. The reserve for single incident product liability claims was $ 0.8 million at September 30, 2024 and $ 1.3 million at December 31, 2023. Single incident product liability benefit was $ 0.2 million and $ 0.1 million for the nine months ended September 30, 2024, and 2023, respectively. Single incident product liability exposures are evaluated on an annual basis, or more frequently if changing circumstances warrant. Adjustments are made to the reserve as appropriate. The reserve has not been discounted to present value and does not include future amounts which will be spent to defend the claims. During the first nine months of 2024, the Company recorded $ 5.0 million of net cost for product related legal matter. The expense is reflected within the selling, general and administration line of the unaudited Condensed Consolidated Statement of Operations. -20- Table of Contents Cumulative trauma product liability claims. Cumulative trauma product liability claims involve alleged exposures to harmful substances (e.g., silica, asbestos and coal dust) that occurred years ago and may have developed over long periods of time into diseases such as silicosis, asbestosis, mesothelioma, or coal worker’s pneumoconiosis. Prior to the divestiture described below, one of the Company's former subsidiaries, MSA LLC, was named as a defendant in various lawsuits related to such claims. These lawsuits mainly involve respiratory protection products allegedly manufactured and sold by MSA LLC or its predecessors. On January 5, 2023, the Company entered into a membership interest purchase agreement (the “Purchase Agreement”) with Sag Main Holdings, LLC (the “Buyer”). The Buyer was a joint venture between R&Q Insurance Holdings Ltd. (“R&Q”) and Obra Capital, Inc. (“Obra”). Under the Purchase Agreement, on January 5, 2023, the Company transferred to the Buyer all of the issued and outstanding limited liability company interests of MSA LLC (the “Sale”). In connection with the closing, the Company contributed $ 341.2 million in cash and cash equivalents, while R&Q and Obra contributed an additional $ 35.0 million. MSA LLC was the obligor for the claims to which the Company's legacy cumulative trauma product liability reserves relate and policyholder of the related insurance assets. The rights and obligations related to these items remained with MSA LLC upon the sale to the Buyer. In addition, pursuant to the Purchase Agreement, the Buyer and MSA LLC have agreed to indemnify the Company and its affiliates for legacy cumulative trauma product liabilities and other product liabilities, and a subsidiary of the Company has agreed to indemnify MSA LLC for all other historical liabilities of MSA LLC. This indemnification is not subject to any cap or time limitation. In connection with the sale, the Company and its Board of Directors received a solvency opinion from an independent advisory firm that MSA LLC was solvent and adequately capitalized after giving effect to the transaction. Following the completion of the transaction, the Company no longer has any obligation with respect to pending and future cumulative trauma product liability claims relating to these matters. As such, all legacy cumulative trauma product liability reserves, related insurance assets, and associated deferred tax assets of the divested subsidiary were derecognized from our balance sheet and the Company incurred a tax-effected loss on the divestiture of MSA LLC of $ 199.6 million, including transaction related costs of $ 5.6 million. The Buyer has assumed management of the divested subsidiary, including the management of its claims and associated assets. Other Litigation Globe, a subsidiary of the Company, is defending claims in which plaintiffs assert that certain products allegedly containing per- and polyfluoroalkyl substances (“PFAS”) have caused harm, including injury or health issues. PFAS are a large class of substances that are widely used in everyday products. Specifically, Globe builds firefighter turnout gear from technical fabrics sourced from a small pool of specialty textile manufacturers. These protective fabrics have been tested and certified to meet current National Fire Protection Association safety standards, and some of them as supplied to Globe contain or historically have contained PFAS to achieve performance characteristics such as water, oil, or chemical resistance. Globe believes it has valid defenses to these claims. These matters are at a very early stage with numerous factual and legal issues to be resolved. Defense costs relating to these lawsuits are recognized in the unaudited Condensed Consolidated Statements of Operations as incurred. Globe is also pursuing insurance coverage and indemnification related to the lawsuits. As of October 15, 2024, Globe was named as a defendant in 535 lawsuits comprised of 7,850 claims, predominantly styled as individual personal injury claims and including two putative class actions. Certain of these lawsuits include MSA Safety Inc. or other Globe affiliates as defendants. MSA LLC is also a defendant in a number of PFAS lawsuits predominantly relating to Aqueous Film-Forming Foam. The Buyer assumed responsibility for these and any similar future claims specific to MSA LLC, including such claims that have been or may be brought against MSA Safety Inc. or its subsidiaries, under the terms of the divestiture on January 5, 2023. Further information about the transaction can be found in the Company’s Current Report on Form 8-K filed on January 6, 2023. -21- Table of Contents Product Warranty The Company provides warranties on certain product sales. Product warranty reserves are established in the same period that revenue from the sale of the related products is recognized, or in the period that a specific issue arises as to the functionality of the Company's product. The determination of such reserves requires the Company to make estimates of product return rates and expected costs to repair or to replace the products under warranty. The amounts of the reserves are based on established terms and the Company's best estimate of the amounts necessary to settle future and existing claims on products sold as of the balance sheet date. If actual return rates and/or repair and replacement costs differ significantly from estimates, adjustments to recognize additional cost of sales may be required in future periods. The following table reconciles changes in the Company's accrued warranty reserve: (In thousands) Nine Months Ended September 30, 2024 Year Ended December 31, 2023 Beginning warranty reserve $ 14,288 $ 15,230 Warranty payments ( 8,518 ) ( 9,794 ) Warranty claims 7,370 8,899 Provision for product warranties and other adjustments 515 ( 47 ) Ending warranty reserve $ 13,655 $ 14,288 Warranty expense was $ 7.9 million and $ 6.7 million for the nine months ended September 30, 2024, and 2023, respectively, and is included in Costs of products sold on the unaudited Condensed Consolidated Statements of Operations. Outstanding Performance Obligations The Company derives a portion of its revenue from various leasing arrangements where the Company is the lessor, primarily fire service contracts entered into by Bristol. Such arrangements provide for monthly payments covering equipment provided, maintenance and interest. These arrangements meet the criteria to be accounted for as sales-type leases under Accounting Standards Codification ("ASC") 842 and contain both lease and non-lease components. Revenue from equipment provided is considered a lease component and recognized with point in time revenue recognition upon lease commencement. Maintenance revenue, which is considered a non-lease component, and interest is recognized monthly over the lease term. As of September 30, 2024, the Company had remaining maintenance performance obligations of approximately $ 28.7 million which are expected to be recognized to revenue in approximately three years . -22- Table of Contents