What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-02-14 compared with 2024-02-16 · 135 added, 145 removed, 194 unchanged (59% of the section changed)

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Please refer to Note 9—Segment Information of the consolidated financial statements in Part II Item 8 of this Form 10-K for further information.

On January 5, 2023, the Company divested Mine Safety Appliances LLC ("MSA LLC") a wholly owned subsidiary that held legacy product liability claims relating to coal dust, asbestos, silica, and other exposures, to a joint venture between R&Q Insurance Holdings Ltd.

On January 5, 2023, the Company divested Mine Safety Appliances Company, LLC ("MSA LLC") a wholly owned subsidiary that held legacy product liability claims relating to coal dust, asbestos, silica, and other exposures, to a joint venture between R&Q Insurance Holdings Ltd.

and Obra Capital, Inc.

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As a result of the transaction, MSA derecognized all legacy cumulative trauma product liability reserves, related insurance assets, and associated deferred tax assets of the divested subsidiary from its balance sheet in the first quarter of 2023.

R&Q and Obra have assumed management of the divested subsidiary, including the management of its claims.

Following completion of the transaction, R&Q and Obra assumed management of the divested subsidiary, including the management of its claims.

Refer to Note 20—Contingencies of the consolidated financial statements in Part II Item 8 of this Form 10-K for further information.

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Driven by its singular mission of safety, the Company has been at the forefront of safety innovation since 1914, protecting workers and facility infrastructure around the world across a broad range of diverse end markets while creating sustainable value for shareholders .

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

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

To best serve these customer preferences, we have organized our business into four geographical operating segments that are aggregated into three reportable segments:

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Operations in other International segment countries focus primarily on sales and distribution in their respective home country markets.

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

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

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

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During the years ended December 31, 2024, and 2023, corporate general and administrative costs were $56.3 million and $52.7 million, respectively.

These increases reflect an increase in centrally managed functions and is primarily the result of higher variable compensation expense related to sales growth and improved performance results from prior year.

The increase is related to higher costs for centrally managed functions, including legal and other professional services associated with various strategic initiatives, partially offset by lower variable compensation expense.

We leverage the MSA Business System ("MBS") to develop and introduce innovative safety solutions, secure new business opportunities, and operate with greater efficiency.

The MBS is our approach to working at our best - at our most efficient and most empowered.

It is a combination of behaviors, processes and tools that provide a framework to run the business and continuously improve.

Our commitment to MBS has enabled us to drive customer satisfaction and profitable growth while generating significant improvements in operating results.

Year Ended December 31, 2024, Compared to Year Ended December 31, 2023

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International 561.5 552.1 9.4 1.7%

Net sales for the year ended December 31, 2023, were $1.8 billion, an increase of $0.3 billion, from $1.5 billion for the year ended December 31, 2022, driven by volume growth and pricing actions.

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

Constant currency sales increased by 16.1% for the year ended December 31, 2023.

Net sales for the year ended December 31, 2024, were $1.81 billion, an increase of $20.4 million from $1.79 billion for the year ended December 31, 2023.

Please refer to the Net Sales table below for a reconciliation of the year over year sales change.

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Currency translation effects 0.7% (0.2)% 0.4%

Constant currency sales change 17.5% 13.2% 16.1%

Constant currency sales change is a non-GAAP financial measure provided by the Company to give a better understanding of the Company's underlying business performance.

Constant currency sales change is calculated by deducting the percentage impact from currency translation effects from the overall percentage change in net sales.

Net sales for the Americas segment were $1.2 billion for the year ended December 31, 2023, an increase of $0.2 billion, or 18.4%, compared to $1.0 billion for the year ended December 31, 2022.

During 2023, constant currency sales in the Americas segment increased 17.5% compared to the prior year driven by volume growth and pricing actions.

This growth was driven by increases in all products, particularly firefighter protective apparel and detection associated with healthy demand and improved output as well as backlog conversion as a result of continued progress with the supply chain and by applying the MSA Business System mindset.

Organic sales change 1.6% 1.5% 1.5%

Organic sales change is a non-GAAP financial measure.

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

Net sales for the Americas segment were $1.25 billion for the year ended December 31, 2024, an increase of $11.0 million, or 0.9%, compared to $1.24 billion for the year ended December 31, 2023.

Organic sales in the Americas segment increased 1.6% compared to the prior year.

This growth was driven by strength across detection, fire service and industrial PPE.

Net sales for the International segment were $561.5 million for the year ended December 31, 2024, an increase of $9.4 million, or 1.7%, compared to $552.1 million for the year ended December 31, 2023.

Constant currency sales in the International segment increased 13.2% compared to the prior year period.

This growth was driven by strength across most core products, particularly detection and breathing apparatus.

We expect to generate mid-single digit sales growth in 2024 with incremental margin and cash flow conversion aligned with our long-term targets.

We expect to have greater visibility in the first half of the year and we will continue to be agile in the event the operating environment differs meaningfully from our expectations.

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

These factors include, among other things, supply chain constraints, raw material availability, industrial employment rates, interest rate changes, military conflict, currency exchange volatility, the pace of economic recovery, and geopolitical risk.

These or other conditions could impact our future results and growth expectations into 2024.

Refer to Note 8—Segment Information to the consolidated financial statements in Part II Item 8 of this Form 10-K, for information regarding sales by product group.

Organic sales in the International segment increased 1.5% compared to the prior year period.

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

The operating environment continues to be dynamic with an uncertain macroeconomic and geopolitical climate.

We remain cautiously optimistic in our outlook, which balances the opportunities and risks we see ahead of us given the resilient nature of our business.

We expect to generate low-single digit organic sales growth in 2025 and expect the year to follow normal seasonal patterns.

Refer to Note 9—Segment Information to the consolidated financial statements in Part II Item 8 of this Form 10-K, for information regarding sales by product category.

Gross profit.

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The ratio of gross profit to net sales was 47.6% in 2024 compared to 47.7% in 2023.

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

Price realization and productivity efforts mostly offset inflationary pressures.

Selling, general and administrative expenses.

Selling, general and administrative ("SG&A") expenses were $396.6 million for the year ended December 31, 2023, an increase of $57.7 million, or 17.0%, compared to $338.9 million for the year ended December 31, 2022.

Overall, selling, general and administrative expenses were 22.2% of net sales in both periods.

Constant currency SG&A increased $55 million or 16.4%, to support our revenue growth.

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

Selling, general and administrative ("SG&A") expenses were $394.7 million for the year ended December 31, 2024, a decrease of $1.9 million, or 0.5%, compared to $396.6 million for the year ended December 31, 2023.

Selling, general and administrative expenses were 21.8% of net sales in 2024 compared to 22.2% of net sales in 2023.

Organic SG&A was consistent from 2023 to 2024.

Lower variable compensation and discretionary cost management offset inflation, net cost for product-related legal matter and higher professional service expenses.

Please refer to the Selling, general and administrative expenses table for a reconciliation of the year over year expense change.

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Currency translation effects 0.5%

Constant currency change 16.4%

Constant currency SG&A change is a non-GAAP financial measure provided by the Company to give a better understanding of the Company's underlying business performance.

Constant currency SG&A change is calculated by deducting the percentage impact from currency translation effects from the overall percentage change in SG&A.

Organic change —%

Organic SG&A change is a non-GAAP financial measure.

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

Research and development expense.

Research and development expense was $68.0 million for the year ended December 31, 2023, an increase of $11.0 million, or 19.3%, compared to $57.0 million for the year ended December 31, 2022.

Research and development expense was $66.5 million for the year ended December 31, 2024, a decrease of $1.5 million, or 2.2%, compared to $68.0 million for the year ended December 31, 2023.

Research and development expense was 3.7% of net sales in 2024, compared to 3.8% of net sales in 2023.

We capitalized approximately $12.1 million and $8.7 million of software development costs during the years ended December 31, 2023 and 2022, respectively.

We capitalized $13.0 million and $12.1 million of software development costs during the years ended December 31, 2024, and 2023, respectively.

Amortization expense for capitalized software development cost of $11.3 million and $10.4 million during the years ended December 31, 2024, and 2023, was recorded in costs of products sold on the Consolidated Statements of Income.

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Restructuring charges.

During the year ended December 31, 2023, the Company recorded restructuring charges of $9.9 million primarily related to our ongoing manufacturing footprint optimization activities and other initiatives to adjust our cost structure and improve productivity.

This compared to restructuring charges of $8.0 million during the year ended December 31, 2022, primarily related to our ongoing international initiatives to drive profitable growth and right size operations.

During the year ended December 31, 2024, the Company recorded restructuring charges of $6.4 million primarily related to our ongoing initiatives to optimize our manufacturing footprint and improve productivity as well as management restructuring.

This compared to restructuring charges of $9.9 million during the year ended December 31, 2023, primarily related to manufacturing footprint optimization activities and other initiatives to adjust our cost structure and improve productivity.

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

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Currency exchange losses were $3.6 million during the year ended December 31, 2024, compared to $17.1 million during the year ended December 31, 2023.

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.

During 2022, we also recognized non-cash cumulative translation losses as a result of our plan to close a foreign subsidiary.

In 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.

Refer to Note 18—Derivative Financial Instruments of the consolidated financial statements in Part II Item 8 of this Form 10-K for information regarding our currency exchange rate risk management strategy.

Product liability expense.

Product liability expense during the year ended December 31, 2023 was minimal due to our divestiture of MSA LLC.

This compared to $20.6 million for the year ended December 31, 2022, which related primarily to defense costs incurred for cumulative trauma product liability claims as well as an increase in MSA LLC's reserve for cumulative trauma product liability claims resulting from the annual valuation.

Product liability expense during the years ended December 31, 2024, and 2023, was minimal due to our divestiture of MSA LLC in January 2023, as discussed further in Note 20—Contingencies of the consolidated financial statements in Part II Item 8 of this Form 10-K.

Loss on divestiture of MSA LLC .

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Consolidated operating income for the year ended December 31, 2024, was $389.2 million compared to $231.3 million for the year ended December 31, 2023.

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

The increase in operating results was primarily driven by the absence of loss on divestiture of MSA LLC as recognized in 2023 in addition to higher sales.

Adjusted operating income.

Americas adjusted operating income for the year ended December 31, 2024, was $380.1 million, an increase of $20.5 million, or 6%, compared to $359.6 million for the year ended December 31, 2023.

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

International adjusted operating income for the year ended December 31, 2023 was $89.7 million, an increase of $28.8 million, or 47%, compared to adjusted operating income of $60.9 million for the year ended December 31, 2022.

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

Corporate segment adjusted operating loss for the year ended December 31, 2023 was $51.6 million, an increase of $13.7 million, or 36%, compared to an adjusted operating loss of $37.9 million for the year ended December 31, 2022 due primarily to higher performance based compensation expense related to sales growth and improved results from prior year.

The following tables represent a reconciliation from GAAP operating income to adjusted operating income (loss) and adjusted EBITDA.

The increase in adjusted operating income is primarily attributable to higher sales and effective price/cost management as well as controlled SG&A expense.

International adjusted operating income for the year ended December 31, 2024, was $84.6 million, a decrease of $5.1 million, or 6%, compared to adjusted operating income of $89.7 million for the year ended December 31, 2023.

The decrease in adjusted operating income is primarily attributable to inflationary pressures, partially offset by pricing and discretionary cost management.

Corporate segment adjusted operating loss for the year ended December 31, 2024, was $50.4 million, a decrease of $1.2 million, or 2%, compared to an adjusted operating loss of $51.6 million for the year ended December 31, 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 summary of adjusted operating income (loss), adjusted operating margin %, adjusted EBITDA and adjusted EBITDA % by reportable segment.

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 Year Ended December 31, 2023

(In thousands) Americas International Corporate Consolidated

Year ended December 31, 2024

Net sales $ 1,246,641 $ 561,499 $ — $ 1,808,140

GAAP operating income 389,177

Restructuring charges (Note 3) 9,892

Currency exchange losses, net 17,079

Loss on divestiture of MSA LLC (Note 20) 129,211

Product liability expense (Note 20) 3

Amortization of acquisition-related intangible assets 9,246

Transaction costs (a)

Adjusted operating income (loss) 380,086 84,571 (50,385) 414,272

Adjusted operating margin % 30.5 % 15.1 %

Depreciation and amortization 36,979 13,705 843 51,527

Adjusted EBITDA 419,183 99,753 (49,505) 469,431

Adjusted EBITDA % 33.6 % 17.8 %

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

acquisitions and divestitures.

These costs are included in selling, general and administrative expense in the Consolidated Statements of Income.

Adjusted operating income Year Ended December 31, 2022

(In thousands) Americas International Corporate Consolidated

Year ended December 31, 2023

Net sales $ 1,235,594 $ 552,053 $ — $ 1,787,647

GAAP operating income 231,320

Restructuring charges (Note 3) 7,965

Currency exchange losses, net 10,255

Product liability expense (Note 20) 20,590

Amortization of acquisition-related intangible assets 9,207

Transaction costs (a)

Adjusted operating income (loss) 359,617 89,699 (51,600) 397,716

Adjusted operating margin % 29.1 % 16.2 %

Depreciation and amortization 34,334 12,256 520 47,110

Adjusted EBITDA 396,596 103,404 (50,757) 449,243

Adjusted EBITDA % 32.1 % 18.7 %

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

acquisitions and divestitures.

These costs are included in selling, general and administrative expense in the Consolidated Statements of Income.

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

Adjusted operating income (loss) is reconciled above to the nearest GAAP financial measure, Operating income (loss), and excludes restructuring, currency exchange, product liability expense, loss on divestiture of MSA LLC, transaction costs and acquisition-related amortization.

Adjusted EBITDA is reconciled above to the nearest GAAP financial measure, Operating income (loss) and excludes depreciation and amortization expense.

Adjusted operating margin % and Adjusted EBITDA % are operating ratios derived from non-GAAP financial measures.

Total other expense (income), net.

Total other expense, net, for the year ended December 31, 2023, was $24.6 million, an increase of $24.0 million compared to $0.6 million for the year ended December 31, 2022, due primarily to increased interest expense related to higher interest rates and increased debt balances associated with the MSA LLC divestiture as well as decreased pension income driven by a lower expected rate of return.

We expect total interest expense for 2024 to be approximately $40 million, this decrease is primarily related to significant long-term debt payments made during 2023.

We expect non-cash pension income to increase by $2 million compared to 2023.

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

Refer to Note 9—Segment Information to the consolidated financial statements in Part II Item 8 of this Form 10-K for reconciliation of total adjusted operating income from reportable segments to income before income taxes and table below for reconciliation of adjusted EBITDA to net income.

See also the "Non-GAAP Financial Information" section below.

A reconciliation of total adjusted EBITDA and total adjusted operating income from reportable segments to net income is presented in the following table:

Year ended December 31,

(In thousands) 2024 2023

Adjusted EBITDA $ 469,431 $ 449,243

Depreciation and amortization 55,159 51,527

Adjusted operating income $ 414,272 $ 397,716

Currency exchange losses, net 3,638 17,079

Amortization of acquisition-related intangible assets 9,174 9,246

Restructuring charges (Note 4) 6,397 9,892

Net cost for product-related legal matter 5,000 —

Transaction costs (a)

Loss on divestiture of MSA LLC (Note 20) — 129,211

Product liability expense (Note 20) — 3

GAAP operating income $ 389,177 $ 231,320

Interest expense 36,889 46,733

Other income, net (Note 16) (22,718) (22,101)

Income before income taxes 375,006 206,688

Provision for income taxes (Note 11) 90,039 148,105

Net income $ 284,967 $ 58,583

(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 Consolidated Statements of Operations.

Total other expense, net.

Total other expense, net, for the year ended December 31, 2024, was $14.2 million, a decrease of $10.4 million compared to $24.6 million for the year ended December 31, 2023, due primarily to decreased interest expense on reduced debt balances 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.

We expect total interest expense for 2025 to be in the range of $24 million to $27 million.

This decrease is primarily related to significant long-term debt payments made during 2024.

We expect non-cash pension income to increase by $4 million to $5 million compared to 2024.

Income taxes.

The reported effective tax rate for the year ended December 31, 2024, was 24.0% compared to 71.6% for the year ended December 31, 2023.

This significant variance from the prior year is primarily due to the divestiture of MSA LLC and the non-deductible loss recorded on the derecognition of the product liability reserves and related assets partially offset by a $5.3 million tax adjustment for Switzerland tax reform.

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

Refer to Note 20— Contingencies to consolidated financial statements in Part II Item 8 of this Form 10-K for further information on the MSA LLC divestiture.

The Organization for Economic Co-operation and Development (OECD) has a framework to implement a global minimum corporate tax of 15% for companies with global revenues above €750.0 million (referred to as Pillar 2), with effective dates beginning in January 2024.

While it is uncertain whether the U.S.

will enact legislation to adopt Pillar 2, we meet the overall revenue threshold and therefore fall within the scope of Pillar 2.

At this time, we do not expect Pillar 2 to have a material impact on our effective tax rate or our consolidated results of operation, financial position, and cash flows.

We continue to monitor the potential financial impacts and compliance requirements of Pillar 2.

We meet the overall revenue threshold and fall within the scope of Pillar 2 and as such, have complied with the requirements of the legislation for the year ended December 31, 2024.

The application of Pillar 2 resulted in additional tax expense of $1.1 million.

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 consolidated financial statements.

Net income attributable to MSA Safety Incorporated .

Net income was $285.0 million for the year ended December 31, 2024, or $7.21 per diluted share, compared to $58.6 million, or $1.48 per diluted share, for the year ended December 31, 2023.

Non-GAAP Financial Information

To supplement our Consolidated Financial Statements presented in accordance with generally accepted accounting principles (“GAAP”), we use, and this report includes, certain non-GAAP financial measures.

These financial measures include constant currency changes, financial measures excluding the impact of acquisitions and related acquisition related costs (including acquisition related amortization), adjusted operating income, adjusted operating margin percentage, adjusted EBITDA and adjusted EBITDA margin percentage.

We believe that the use of these non-GAAP financial measures provide investors with additional useful information and provide a more complete understanding of our operating performance and trends, and facilitate comparisons with the performance of our peers.

Management also uses these measures internally to assess and better understand our underlying business performance and trends related to core business activities.

This report includes certain non-GAAP financial measures and operating ratios derived from non-GAAP financial measures.

These financial measures and ratios include organic (referred to in our historical filings as constant currency) revenue growth, organic SG&A change, adjusted operating income (loss), adjusted operating margin %, adjusted EBITDA and adjusted EBITDA margin %.

Organic sales and SG&A change are non-GAAP financial measures provided by the Company to give a better understanding of the Company's underlying business performance.

Organic sales and SG&A change are calculated by deducting the percentage impact from currency translation effects from the overall percentage change in net sales and SG&A.

The Company believes that organic revenue growth and SG&A change are useful metrics for investors, as foreign currency translation can have a material impact on revenue and SG&A trends.

Organic revenue growth and SG&A change highlight ongoing business performance excluding the impact of fluctuating foreign currencies, which is outside of the Company's control.

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

Total reportable segment adjusted operating income is reconciled above to the nearest GAAP financial measure, operating income, and excludes restructuring, currency exchange, product liability expense, loss on divestiture of MSA LLC, net cost for product related legal matter, transaction costs and acquisition-related amortization.

Total reportable segment adjusted EBITDA is reconciled above to the nearest GAAP financial measure, net income and, in addition to the items summarized above that are excluded from adjusted operating income (loss), excludes depreciation and amortization expense;

interest expense;

other income, net;

and provision for income taxes.

Adjusted operating margin % is defined as adjusted operating income (loss) divided by net sales to external customers and adjusted EBITDA margin % is defined as adjusted EBITDA divided by net sales to external customers.

These metrics are consistent with how management evaluates segment results and makes strategic decisions about the business.

Additionally, these non-GAAP financial measures provide information useful to investors in understanding our operating performance and trends, and to facilitate comparisons with the performance of our peers.

Management uses these measures internally to assess and better understand our underlying business performance and trends related to core business activities as well as to allocate resources.

The non-GAAP financial measures and key performance indicators we use, and computational methods with respect thereto, may differ from the non-GAAP financial measures and key performance indicators, and computational methods, that our peers use to assess their performance and trends.

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These non-GAAP financial measures should be viewed as supplemental in nature, and not as a substitute for, or superior to, our reported results prepared in accordance with GAAP.

When non-GAAP financial measures are disclosed, the Securities and Exchange Commission's Regulation G requires:

(i) the presentation of the most directly comparable financial measure calculated and presented in accordance with GAAP and (ii) a reconciliation of the differences between the non-GAAP financial measure presented and the most directly comparable financial measure calculated and presented in accordance with GAAP.

For an explanation of these measures, together with a reconciliation to the most directly comparable GAAP financial measure, please refer to the reconciliations referenced above in Management's Discussion & Analysis.

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

These references to a constant currency basis do not include operational impacts that could result from fluctuations in foreign currency rates, which are outside of management's control.

To provide information on a constant currency basis, the applicable financial results are adjusted by translating current and prior period results in local currency to a fixed foreign exchange rate.

This approach is used for countries where the functional currency is the local country currency.

This information is provided so that certain financial results can be viewed without the impact of fluctuations in foreign currency rates, thereby facilitating period-to-period comparisons of business performance.

Constant currency information is not recognized under U.S.

GAAP and it is not intended as an alternative to U.S.

GAAP measures.

LIQUIDITY AND CAPITAL RESOURCES

Our main source of liquidity is operating cash flows, supplemented by borrowings.

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

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

At December 31, 2024, approximately 60% of our long-term debt is at fixed interest rates with repayment schedules through 2036.

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

The remainder of our long-term debt is at variable rates on a term loan due in 2026.

At December 31, 2024, approximately 89% of our borrowings are denominated in US dollars, which limits our exposure to currency exchange rate fluctuations.

At December 31, 2023, the Company had cash and cash equivalents, including restricted cash, totaling $148.4 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 decreased $16.0 million during the year ended December 31, 2023.

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

This compared to cash increasing $23.0 million during the same period in 2022.

At December 31, 2023, $838.1 million of the existing $900.0 million senior revolving credit facility was unused, including letters of credit issued under the facility.

At December 31, 2024, the Company had cash and cash equivalents totaling $164.6 million and access to sufficient capital, providing ample liquidity and flexibility to continue to maintain our balanced capital allocation strategy that prioritizes growth investments, funding our dividends and servicing debt obligations.

Cash, cash equivalents and restricted cash increased $16.7 million during the year ended December 31, 2024.

This compared to cash decreasing $16.0 million during the same period in 2023.

At December 31, 2024, we had no borrowings outstanding under our $900.0 million senior revolving credit 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.

We believe MSA's healthy balance sheet and access to significant capital at the year ended December 31, 2023, positions us well to navigate through challenging business conditions and supply chain constraints or other unexpected events.

We believe MSA's healthy balance sheet and access to significant capital at the year ended December 31, 2024, positions us well to navigate through a dynamic operating environment and other unexpected events.

We maintain a balanced capital deployment strategy that focuses on investing for organic growth, returning cash to shareholders in the form of dividends and share buybacks, and pursuing inorganic growth opportunities.

Operating activities.

Operating activities provided cash of $296.4 million in 2024, compared to providing cash of $92.9 million in 2023.

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

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 20—Contingencies to the consolidated financial statements in Part II Item 8 of this Form 10-K for further information.

This decrease was mostly offset by working capital improvement, notably for inventories, which was the result of a more normal supply chain environment and focus for the business and improved operating results.

Sustainable progress across all elements of net working capital are being delivered through the principles of the MSA Business System.

Excluding the cash flow impact of the MSA LLC divestiture for 2023, cash flow provided by operating activities decreased by $142.9 million related to higher cash usage for tax payments and variable compensation payouts, both driven by prior year performance.

Additionally, working capital cash usage increased 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 $53.8 million for the year ended December 31, 2024, compared to using $40.0 million in 2023.

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

Our investments in available-for-sale marketable securities, primarily fixed income, were transferred to Sag Main Holdings, LLC, as part of our MSA LLC divestiture as described in Note 20—Contingencies to the consolidated financial statements in Part II Item 8 of this Form 10-K.

We remain committed to evaluating additional acquisition opportunities that will allow us to continue to grow in key end markets and geographies.

The increase in cash used in investing activities as compared to the same period in 2023 was primarily related to increased capital expenditures to support our manufacturing footprint optimization activities, IT systems implementation, capitalized software development associated with new products, and other strategic initiatives.

We remain committed to evaluating acquisition opportunities that will allow us to continue to grow in key end markets and geographies.

Financing activities.

Financing activities used cash of $208.7 million for the year ended December 31, 2024, compared to using cash of $52.3 million in 2023.

During 2023, we had net proceeds on long-term debt of $23.9 million to fund the MSA LLC divestiture as compared to net payments on long-term debt of $13.0 million during the same period in 2022.

Since the MSA LLC divestiture in January 2023, we have paid down $289.0 million of our outstanding borrowings.

During 2024, we had net payments on long-term debt of $94.3 million compared to net proceeds from long-term debt of $23.9 million during the same period in 2023 to fund the MSA LLC divestiture.

We paid cash dividends of $78.8 million during 2024, compared to $73.5 million during 2023.

We used cash of $4.0 million during 2023 to repurchase shares related to our employee stock compensation transactions.

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

We used cash of $37.3 million during 2024 to repurchase shares, including $29.9 million related to our share repurchase program, and the remainder related to our employee stock compensation transactions compared to $4.0 million during 2023, all of which related to employee stock compensation transactions.

CUMULATIVE TRANSLATION ADJUSTMENTS

The year-end position of the U.S.

dollar relative to international currencies at December 31, 2023, resulted in a translation gain of $21.7 million being recorded to cumulative translation adjustments shareholders' equity account for the year ended December 31, 2023, compared to a translation loss of $19.5 million being recorded to the cumulative translation adjustments account during 2022.

The position of the U.S.

dollar relative to international currencies, primarily the euro, at December 31, 2024, resulted in a translation loss of $42.5 million being recorded to cumulative translation adjustments shareholders' equity account for the year ended December 31, 2024, compared to a translation gain of $21.7 million being recorded to the cumulative translation adjustments account during 2023.

COMMITMENTS AND CONTINGENCIES

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Inventory costing method change tax 2.6 2.6 — — — — —

Transition tax 1.3 1.3 — — — — —

Totals $ 579.9 $ 42.3 $ 206.3 $ 41.1 $ 39.1 $ 12.7 $ 238.4

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We expect to meet our future debt service obligations through cash provided by operations.

Approximately $60.8 million of debt payable in 2026, included in the table above, relates to our unsecured senior revolving credit facility that has a weighted average interest rate of 6.22% as of December 31, 2023.

We expect to generate sufficient operating cash flow to make payments against this amount each year.

To the extent that a balance remains when the facility matures in 2026, we expect to refinance the remaining balance through new borrowing facilities.

Interest payments on fixed rate debt over the next five years are excluded from the table above and are expected to be approximately $9.6 million in 2025, $9.4 million in 2026, $9.1 million in 2027, $7.5 million in 2028 and $6.0 million in 2029.

We expect total interest expense for 2024 to be approximately $40 million.

We expect total interest expense for 2025 to be in the range of $24 million to $27 million.

The Company had outstanding bank guarantees and standby letters of credit with banks as of December 31, 2024 totaling $9.5 million, of which $1.5 million relate to the senior revolving credit facility.

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At December 31, 2024, the Company has $0.5 million of restricted cash in support of these arrangements.

We expect to make net contributions of $5.0 million to our pension plans in 2024 which are primarily associated with our International segment.

We expect to make net contributions between $6 million and $8 million to our pension plans in 2025, which are primarily associated with our International segment.

We have not been required to make contributions to our U.S.

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The more critical judgments and estimates used in the preparation of our consolidated financial statements are discussed below.

During 2021, the Company made acquisitions that raised business combinations to a critical accounting policy and estimate.

There were no business combinations during 2023 or 2022.

Business combinations.

In accordance with the accounting guidance for business combinations, the Company uses the acquisition method of accounting to allocate costs of acquired businesses to the assets acquired and liabilities assumed based on their estimated fair values at the dates of acquisition.

The excess costs of acquired businesses over the fair values of the assets acquired and liabilities assumed will be recognized as goodwill.

The valuations of the acquired assets and liabilities will impact the determination of future operating results.

In addition to using management estimates and negotiated amounts, the Company uses a variety of information sources to determine the estimated fair values of acquired assets and liabilities including:

third-party appraisals for the estimated value and lives of identifiable intangible assets and property, plant and equipment;

third-party actuaries for the estimated obligations of defined benefit pension plans and similar benefit obligations;

and legal counsel or other experts to assess the obligations associated with legal, environmental and other contingent liabilities.

The business and technical judgment of management was used in determining which intangible assets have indefinite lives and in determining the useful lives of finite-lived intangible assets in accordance with the accounting guidance for goodwill and other intangible assets.

Cumulative trauma product liability.

The Company and its subsidiaries face an inherent business risk of exposure to product liability 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 involve incidents of short duration that are typically known when they occur and involve observable injuries, which provide a more objective basis for quantifying damages.

The Company estimates its subsidiaries' liability for single incident product liability claims based on expected settlement costs for asserted single incident product liability claims and an estimate of costs for single incident product liability claims incurred but not reported ("IBNR").

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.

Cumulative trauma product liability claims relate to the Company's now-divested subsidiary, MSA LLC and involve exposures to harmful substances that occurred over many years and may have developed over long periods of time into diseases.

Refer to Note 20—Contingencies to the consolidated financial statements in Part II Item 8 of this Form 10-K for further discussion on the Company's product liability claims and divestiture of MSA LLC on January 5, 2023.

Prior to the divestiture, MSA LLC's cumulative trauma product liability reserve was based upon an estimate of MSA LLC’s then current and potential future liability for cumulative trauma product liability claims, in accordance with applicable accounting principles.

See further discussion on the process and assumptions used to derive this estimate in Note 20— Contingencies of the consolidated financial statements in Part II Item 8 of MSA's Form 10-K for the year ended December 31, 2022.

Income taxes.

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Forecasts are based on sales generated by the underlying trade name assets and are generally based on approved business unit operating plans for the early years and historical relationships in later years.

At October 1, 2023, based on our quantitative test, the fair value of the trade name asset exceeded its carrying value by approximately 39%.

RECENTLY ADOPTED AND RECENTLY ISSUED ACCOUNTING STANDARDS

At October 1, 2024, based on our quantitative test, the fair value of the trade name asset exceeded its carrying value by 57%.

RECENTLY ISSUED ACCOUNTING STANDARDS AND DISCLOSURE RULES

In December 2023, the FASB issued ASU No.

2023-09 (“ASU 2023-09”), Improvements to Income Tax Disclosures .

ASU 2023-09 requires disaggregated information about a reporting entity's effective tax rate reconciliation as well as information on income taxes paid.

This standard also includes certain other amendments to improve the effectiveness of income tax disclosures.

ASU 2023-09 is effective for public business entities, for annual periods beginning after December 15, 2024.

With the exception of expanding disclosures, we do not expect the adoption of ASU 2023-09 to have a material effect on our consolidated financial statements taken as a whole.

In March 2024, the U.S.

Securities and Exchange Commission (the "SEC") adopted the final rule under SEC Release No.

33-11275, The Enhancement and Standardization of Climate-Related Disclosures for Investors .

This rule would require registrants to disclose certain climate-related information in registration statements and annual reports.

In April 2024, the SEC voluntarily stayed the final rule as a result of pending legal challenges.

The disclosure requirements would apply to the Company's fiscal year ended December 31, 2025, pending resolution of the stay.

The Company is currently evaluating the final rule to determine its impact on the Company's disclosures.

In November 2024, the FASB issued ASU No.

2024-03 (“ASU 2024-03”), Disaggregation of Income Statement Expenses (“DISE”) .

ASU 2024-03 requires disaggregated disclosure of income statement expenses for public business entities.

ASU 2024-03 does not change the expense captions an entity presents on the face of the income statement;

rather, it requires disaggregation of certain expense captions into specified categories in disclosures within the footnotes to the financial statements.

As revised by ASU No.

2025-01, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures, the provisions of ASU 2024-03 are effective for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027, with early adoption permitted.

With the exception of expanding disclosures to include more granular income statement expense categories, we do not expect the adoption of ASU 2024-03 to have a material effect on our consolidated financial statements taken as a whole.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis