MSA US Equity☆

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with the historical financial statements and other financial information included elsewhere in this annual report on Form 10-K. This discussion may contain forward-looking statements that involve risks and uncertainties. The forward-looking statements are not historical facts, but rather are based on current expectations, estimates, assumptions and projections about our industry, business and future financial results. Our actual results could differ materially from the results contemplated by these forward-looking statements due to a number of factors, including those discussed in the sections of this annual report entitled “Forward-Looking Statements” and “Risk Factors.”

MSA Safety Incorporated ("MSA") is organized into four geographical operating segments that are aggregated into three reportable geographic segments: Americas, International and Corporate. The Americas segment is comprised of our operations in North America and Latin America geographies. The International segment is comprised of our operations of 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. Please refer to Note 7—Segment Information of the consolidated financial statements in Part II Item 8 of this Form 10-K for further information.

On May 20, 2019, the Company acquired 100% of the common stock of Sierra Monitor Corporation ("SMC") in an all-cash transaction valued at $33.2 million, net of cash acquired. Based in Milpitas, California, in the heart of Silicon Valley, SMC is a leading provider of fixed gas and flame detection instruments and Industrial Internet of Things solutions that connect and help protect high-value infrastructure assets. The acquisition enables MSA to accelerate its strategy to enhance worker safety and accountability through the use of cloud technology and wireless connectivity. This acquisition enhances a key focus of the Company's Safety io subsidiary, launched in 2018 primarily to leverage the capabilities of its portable gas detection portfolio as it relates to cloud connectivity. The transaction was funded through borrowings on our unsecured senior revolving credit facility. Please refer to Note 13—Acquisitions of the consolidated financial statements in Part II Item 8 of this Form 10-K for further information.

Subsequent Event

On January 25, 2021, we acquired 100% of the common stock of B T Q Limited, including Bristol Uniforms and Bell Apparel ("Bristol") in an all-cash transaction valued at $62.4 million, net of cash acquired. There is no contingent consideration. Bristol, which is headquartered in the United Kingdom (U.K.), is a leading innovator and provider of protective apparel to the fire, rescue services, and utility sectors. The acquisition strengthens MSA's position as a global leader in fire service PPE products while providing an avenue to expand its business in the U.K. and key International markets.

Year Ended December 31, 2019 Compared to Year Ended December 31, 2018

Discussion of our results, liquidity and capital resources, and cumulative translation adjustments for the year ended December 31, 2019 compared to the year ended December 31, 2018 can be found under Part II Item 7 of our Form 10-K for the year ended December 31, 2019 as filed with the SEC.

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BUSINESS OVERVIEW

We are a global leader in the development, manufacture and supply of safety products that protect people and facility infrastructures. Recognized for their market leading innovation, many MSA products integrate a combination of electronics, mechanical systems and advanced materials to protect users against hazardous or life-threatening situations. The Company's comprehensive product line, which is governed by rigorous safety standards across highly regulated industries, is used by workers around the world in a broad range of markets, including fire service, the oil, gas and petrochemical industry, construction, industrial manufacturing applications, utilities, mining and the military. MSA's core products include breathing apparatus where self-contained breathing apparatus ("SCBA") is the principal product, fixed gas and flame detection systems, portable gas detection instruments, industrial head protection products, firefighter helmets and protective apparel, and fall protection devices. We are committed to providing our customers with service unmatched in the safety industry and, in the process, enhancing our ability to provide a growing line of safety solutions for customers in key global markets.

MSA provides safety equipment to a broad range of customers who must continue to work in times of global pandemic as is now the case with COVID-19. Our customers include first responders tasked with keeping citizens safe, and industrial and utility workers tasked with maintaining critical infrastructure. For this reason, in order to successfully fulfill our mission as The Safety Company, MSA is an essential business and has continued operating its manufacturing facilities, to the extent practicable, while protecting the health and safety of our workforce, and complying with all applicable laws. In January 2020, the Company established a special advisory committee to evaluate ongoing concerns, risks and challenges with respect to COVID-19 across its operations and corporate headquarters. The Company's pandemic response plan includes four key priorities: protecting the health and safety of MSA associates, enabling business continuity, expanding manufacturing capacity of MSA’s existing air-purifying respirator portfolio, and managing its operating expenses and capital structure.

The Company has developed a thoughtful, phased approach to begin reconnecting segments of our workforce that had converted to remote working conditions due to COVID-19. This process includes returning elements of our salesforce to in-person customer interactions on a limited basis, with additional employees scheduled to begin returning to the office, once deemed appropriate under the circumstances for each business location. A phased approach to reconnect employees while adjusting the characteristics of their physical working environments, providing training and executing enhanced safety and cleaning protocols, will promote workplace safety in a manner consistent with the mission and values of MSA. The process and timing to reconnect our workforce will continue to evolve due to the changing nature of COVID-19. The Company expects to modify plans as necessary to respond to such changes.

We tailor our product 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 geographic segments: Americas, International and Corporate. In 2020, 65% and 35% of our net sales were made by our Americas and International segments, respectively.

Americas. Our largest manufacturing and research and development facilities are located in the United States. We serve our markets across the Americas with manufacturing facilities in the U.S., Mexico and Brazil. Operations in the other countries within the Americas segment focus primarily on sales and distribution in their respective home country markets.

International. Our International segment includes companies in Europe, Middle East & Africa ("EMEA") and the Asia Pacific region. In our largest International affiliates (in China, France, Germany, Ireland and the U.K), we develop, manufacture and sell a wide variety of products. In China, the products manufactured are sold primarily in China as well as regional markets. 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 and China or are purchased from third party vendors.

Corporate. 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. Corporate general and administrative costs comprise the majority of the expense in the Corporate segment. During the years ended December 31, 2020, 2019 and 2018 corporate general and administrative costs were $28.5 million, $37.3 million, and $31.2 million, respectively.

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Year Ended December 31, 2020 Compared to Year Ended December 31, 2019

Net Sales 2020 2019 DollarIncrease(Decrease) PercentIncrease(Decrease)

(In millions)

Net Sales. Net sales for the year ended December 31, 2020, were $1.35 billion, a decrease of $53.8 million, from $1.40 billion for the year ended December 31, 2019. Constant currency sales decreased by 3% for the year ended December 31, 2020. Please refer to the Net Sales table below for a reconciliation of the year over year sales change.

Net Sales Year Ended December 31, 2020 versus December 31, 2019

(Percent Change) Americas International Consolidated

GAAP reported sales change (4.5)% (2.7)% (3.8)%

Currency translation effects 1.8% (0.9)% 0.8%

Constant currency sales change (2.7)% (3.6)% (3.0)%

Note: 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 removing the percentage impact from currency translation effects from the overall percentage change in net sales.

Net sales for the Americas segment were $874.3 million for the year ended December 31, 2020, a decrease of $40.8 million, or 5%, compared to $915.1 million for the year ended December 31, 2019. During 2020, constant currency sales in the Americas segment decreased 3% compared to the prior year period, driven by weakness in oil and gas and commercial construction markets due to the ongoing impact of the COVID-19 pandemic, which was partially offset by increases in Breathing Apparatus in fire service markets and APR in a broad range of end markets related primarily to pandemic response.

Net sales for the International segment were $473.9 million for the year ended December 31, 2020, a decrease of $13.0 million, or 3%, compared to $486.9 million for the year ended December 31, 2019. Constant currency sales in the International segment decreased 4% during 2020, compared to the prior year period, driven by weakness in oil and gas and commercial construction markets due to the ongoing impact of the COVID-19 pandemic, which was partially offset by increases in industrial head protection and Breathing Apparatus in fire service markets.

Refer to Note 7—Segment Information to the consolidated financial statements in Part II Item 8 of this Form 10-K, for information regarding sales by product group.

There are a number of evolving factors that will have an impact on our revenue in 2021. These factors include, among other things, the effectiveness of the vaccine rollout, risk of additional COVID lockdowns, the pace of economic recovery as well as the potential for government stimulus. While the outcome is difficult to predict, the steps we are taking to improve our business model position us to return to growth and emerge a much stronger company, as conditions improve. We are approaching the first half of 2021 cautiously, and are positioned for a stronger second half of 2021 as compared to the first half. Our investments in organic and inorganic growth programs are driving an improved market position and that will be beneficial as we see business conditions improve.

Gross profit. Gross profit for the year ended December 31, 2020 was $590.4 million, a decrease of $46.2 million, or 7.3%, compared to $636.6 million for the year ended December 31, 2019. The ratio of gross profit to net sales was 43.8% in 2020 compared to 45.4% in 2019. The lower gross profit ratio during 2020 is primarily attributable to costs related to lower throughput in our factories and higher inventory related charges. During 2020, we invested in inventory to enable delivery on a meaningful pandemic-response order, which did not materialize. As a result, we incurred $13 million of inventory-related charges and one-time costs associated with the manufacturing process in the Americas Segment. We do not expect the inventory-related charges to repeat in 2021.

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Selling, general and administrative expenses. Selling, general and administrative expenses were $290.3 million for the year ended December 31, 2020, a decrease of $40.2 million, or 12.2%, compared to $330.5 million for the year ended December 31, 2019. Selling, general and administrative expenses were 21.5% of net sales in 2020 compared to 23.6% of net sales in 2019. The decrease was the result of returns from previously executed restructuring programs and discretionary cost controls implemented earlier in the year, in response to the COVID-19 pandemic and slowdown in certain end markets. Discretionary cost controls provided approximately $15 million of cost savings in 2020. Additionally, a decrease in variable compensation expense provided approximately $15 million of cost savings. While we expect variable compensation expense to reset and increase in 2021 as compared to 2020, we intend on closely managing discretionary spend to ensure our investments are aligned with economic and business conditions. The following table presents a reconciliation of the year-over-year expense change for selling, general, and administrative expenses.

(Percent Change) Consolidated

GAAP reported change (12.2)%

Currency translation effects 0.7%

Constant currency change (11.5)%

Note: Constant currency 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 change in selling, general, and administrative expenses is calculated by deducting the percentage impact of currency translation effects from the overall percentage change in selling, general, and administrative expense. Management believes excluding currency translation effects provide investors with a greater level of clarity into spending levels on a year-over-year basis.

Research and development expense. Research and development ("R&D") expense was $58.3 million for the year ended December 31, 2020, an increase of $0.5 million, or 0.7%, compared to $57.8 million for the year ended December 31, 2019. Research and development expense was 4.3% of net sales in 2020, compared to 4.1% of net sales in 2019. During 2020, we launched the Altair io 360 Gas Detector, an area monitor that operates with the simplicity of a smart-home device; a Personal Fall Limiter with a smart hook connector that using RFID technology alerts wearers when they are not secured to an anchorage point; and an innovative reusable Elastomeric Half-Mask Respirator designed for healthcare environments. MSA plans to launch its connected firefighter ecosystem powered by LUNAR in the first half of 2021. We capitalized approximately $8.2 million and $5.0 million of software development costs during the years ended December 31, 2020 and 2019, respectively.

Restructuring charges. During the year ended December 31, 2020, the Company recorded restructuring charges of $27.4 million, primarily due to severance costs related to a plan which addresses weakened global economic conditions and is designed to improve our business model during the downturn. Included as part of restructuring charges in 2020, we recognized a non-cash settlement charge of $1.5 million for the termination of our pension plan in the Netherlands. We expect the restructuring programs to collectively deliver $15 million of savings throughout the income statement in 2021, and annual savings of $20 million thereafter. This compared to charges of $13.8 million during the year ended December 31, 2019, primarily related to footprint rationalization and other restructuring programs associated with our ongoing initiatives to drive profitable growth in our International segment. Included as part of restructuring charges in 2019, we recognized a non-cash settlement charge of $2.5 million for the termination of our pension plan in the United Kingdom.

Currency exchange. Currency exchange losses were $8.6 million during the year ended December 31, 2020, compared to $19.8 million during the year ended December 31, 2019. The decrease in currency exchange losses was primarily due to the recognition of non-cash cumulative translation losses of approximately $15.3 million as a result of the approval of our plan to close our South Africa affiliates during the first quarter of 2019. This charge is related to the historical translation of the elements of the financial statements for the business from the functional currency to the U.S. Dollar. The translation impact has been historically recorded as currency translation adjustment, a separate component of accumulated other comprehensive loss within the shareholders' equity section of the Consolidated Balance Sheets. The remaining currency exchange losses in both periods were related to foreign currency exposure on unsettled inter-company balances. Refer to Note 17—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 and other operating expense. Product liability and other operating expense during the year ended December 31, 2020 was $39.0 million compared to $28.4 million for the year ended December 31, 2019. The expense in both periods primarily relates to an increase in MSA LLC's reserve for cumulative trauma product liability claims resulting from the Company’s revision of estimates of potential liability for cumulative trauma product liability claims as part of its annual review process, and to a far lesser extent, defense costs incurred for uninsured asserted cumulative trauma product liability claims. The increase in MSA LLC's reserve for cumulative trauma product liability claims is largely attributable to an increase in the number of claims alleging injuries from exposure to coal mine dust. Please refer to Note 19—Contingencies of the

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consolidated financial statements in Part II Item 8 of this Form 10-K for additional information.

GAAP operating income. Consolidated operating income for the year ended December 31, 2020 was $166.9 million compared to $186.2 million for the year ended December 31, 2019. The decrease in operating results was driven by lower sales volumes and higher product liability expense partially offset by lower currency exchange losses and improved SG&A leverage. On a consolidated basis, SG&A expenses declined by 12% while sales declined 4%.

Adjusted operating income. Americas adjusted operating income for the year ended December 31, 2020 was $200.5 million, a decrease of $26.1 million, or 12%, compared to $226.6 million for the year ended December 31, 2019. The decrease was related to the lower level of sales, higher costs related to lower throughput in our factories, and higher inventory-related charges, partially offset by improved SG&A leverage.

International adjusted operating income for the year ended December 31, 2020 was $70.9 million, an increase of $11.0 million, or 18%, compared to adjusted operating income of $59.9 million for the year ended December 31, 2019. The increase in adjusted operating income is primarily attributable to improved gross profit associated with strategic pricing improvements and benefits we continue to realize from restructuring programs executed over the past 12 to 18 months, which more than offset the 3% decrease in sales. The most significant improvement in adjusted operating income was attributable to our EMEA operating segment.

Corporate segment adjusted operating loss for the year ended December 31, 2020 was $28.1 million, an improvement of $7.5 million, or 21%, compared to an adjusted operating loss of $35.6 million for the year ended December 31, 2019, due primarily to lower variable compensation expense as well as lower professional service and other expenses related to cost control initiatives.

The following tables represent a reconciliation from GAAP operating income to adjusted operating income (loss) and adjusted EBITDA. Adjusted operating margin % is calculated as adjusted operating income (loss) divided by net sales and adjusted EBITDA margin % is calculated as adjusted EBITDA divided by net sales.

(In thousands) Americas International Corporate Consolidated

Restructuring charges (Note 2) 27,381

Currency exchange losses, net (Note 5) 8,578

Product liability expense (Note 19) 39,036

Strategic transaction costs (Note 13) 717

COVID-19 related costs 757

Adjusted operating margin % 22.9 % 15.0 %

Adjusted EBITDA % 26.0 % 17.6 %

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(In thousands) Americas International Corporate Consolidated

Restructuring charges (Note 2) 13,846

Currency exchange losses, net (Note 5) 19,814

Product liability expense (Note 19) 26,619

Strategic transaction costs (Note 13) 4,400

Adjusted operating margin % 24.8 % 12.3 %

Adjusted EBITDA % 27.5 % 15.0 %

Note: Adjusted operating income (loss) and adjusted EBITDA are a non-GAAP financial measures used by the chief operating decision maker to evaluate segment performance and allocate resources. Adjusted operating income (loss) is reconciled above to the nearest GAAP financial measure, Operating income (loss), and excludes restructuring, currency exchange, product liability expense and strategic transaction costs. Adjusted EBITDA is reconciled above to the nearest GAAP financial measure, Operating income (loss) and excludes depreciation and amortization expense.

Total other expense, net. Other expense for the year ended December 31, 2020 was $3.7 million, an increase of $1.3 million, or 50.2%, compared to $2.5 million for the year ended December 31, 2019, primarily due to lower pension income driven by lower discount rates and lower expected rate of return partially offset by lower interest expense. Improved return on plan assets is expected to drive a $4 million to $5 million favorable comparison in nonoperating pension income in 2021, compared to 2020.

Income taxes. The reported effective tax rate for the year ended December 31, 2020 was 25.7%, which included a benefit of 3.9% for share-based payments, an expense of 3.4% due to nondeductible compensation, and expense of 1.5% related to a foreign audit. This compared to a reported effective tax rate for the year ended December 31, 2019 of 25.1%, which included a benefit of 2.6% for share-based payments, an expense of 1.8% due to non-deductible foreign currency exchange losses on entity closures, an expense of 1.9% due to nondeductible compensation and expense related to an increase in profitability in higher tax jurisdictions.

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 $120.1 million for the year ended December 31, 2020, or $3.05 per diluted share, compared to $136.4 million, or $3.48 per diluted share, for the year ended December 31, 2019, as a result of the factors described above.

Non-GAAP Financial Information

We may provide information regarding financial measures such as financial measures excluding the impact of acquisitions and related strategic transaction costs, COVID-19 related costs, consisting of a one-time bonus for essential manufacturing employees, adjusted operating income, adjusted operating margin percentage, adjusted EBITDA and adjusted EBITDA margin percentage, which are not recognized terms under U.S. GAAP and do not purport to be alternatives to net sales, selling, general and administrative expense, operating income or net income as a measure of operating performance. We believe that the use of these non-GAAP financial measures provide investors with additional useful information and provide a more complete understanding of the underlying results. Because not all companies use identical calculations, these presentations may not be comparable to similarly titled measures from other companies. For more information about these non-GAAP measures and a reconciliation to the nearest U.S. GAAP measure, please refer to the reconciliations referenced above in Management's Discussion & Analysis section and in Note 7—Segment Information of the consolidated financial statements in Part II Item 8 of this Form 10-K.

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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 as applicable, acquisitions. At December 31, 2020, approximately 31% of our long-term debt is at fixed interest rates with repayment schedules through 2031. The remainder of our long-term debt is at variable rates on an unsecured revolving credit facility that is due in 2023. At December 31, 2020, approximately 74% of our borrowings are denominated in US dollars, which limits our exposure to currency exchange rate fluctuations. In January 2021, we borrowed on our U.K. credit facility in connection with the Bristol acquisition.

At December 31, 2020, we had cash, cash equivalents and restricted cash totaling $161.0 million, which included $150.1 million of cash, cash equivalents and restricted cash held by our foreign subsidiaries. Cash, cash equivalents and restricted cash increased $8.5 million during the year ended December 31, 2020 compared to an increase of $11.9 million during 2019. We continue to employ a balanced capital allocation strategy that prioritizes growth investments, funding our dividend and servicing debt obligations.

Our unsecured senior revolving credit facility provides for borrowings up to $600.0 million through 2023 and is subject to certain commitment fees. This credit facility has sub-limits for the issuance of letters of credit, swingline borrowings and foreign currency denominated borrowings; and may be used for general corporate purposes, including working capital, permitted acquisitions, capital expenditures and repayment of existing indebtedness. Loans under the revolving facility will bear interest at a variable rate based on LIBOR or the federal funds rate at the Company's option. Our weighted average interest rate was 1.15% in 2020. At December 31, 2020, $385.5 million of the $600.0 million senior revolving credit facility was unused, including letters of credit. Refer to Note 11—Short and Long-Term Debt to the consolidated financial statements in Part II Item 8 of this Form 10-K.

Operating activities. Operating activities provided cash of $206.6 million in 2020, compared to providing cash of $165.0 million in 2019. The improved operating cash flows during the period was primarily attributable to improved working capital performance primarily related to accounts receivable and inventory as well as lower net payments related to MSA LLC's cumulative trauma product liability. Our subsidiary MSA LLC made product liability payments of $12.9 million, net of collections on insurance receivables, in the year ended December 31, 2020, compared to payments of $33.5 million, net of collections on insurance receivables, in the same period of 2019. MSA LLC funds its operating expenses and legal liabilities from its own operating cash flow and other investments, as well as insurance reimbursements, and not from borrowings under the Company’s credit facility, to which it is not a party. We have established cash flow streams that have allowed us to fund these liabilities without a material impact on our capital allocation priorities but the timing of such cash flows can and does vary from quarter to quarter. Please refer to Note 19—Contingencies of the consolidated financial statements in Part II Item 8 of this Form 10-K for additional information.

Investing activities. Investing activities used cash of $72.8 million for the year ended December 31, 2020, compared to using $64.2 million in 2019. Capital expenditures and purchase of short-term investments, net of proceeds from maturities drove cash outflows from investing activities during the year ended December 31, 2020. The acquisition of Sierra Monitor Corporation capital expenditures drove cash outflows from investing in the same period in 2019. During 2020 we spent $48.9 million on capital expenditures including approximately $8.2 million associated with software development, which was a $3.2 million increase compared to 2019. We expect to invest 2.5% to 3.5% of sales in capital expenditures in 2021.

Financing activities. Financing activities used cash of $126.5 million for the year ended December 31, 2020, compared to using cash of $84.6 million in 2019. During 2020, we had net payments on long-term debt of $44.0 million compared to net payments of $16.5 million in the same period in 2019.

We made dividend payments of $66.6 million during 2020, compared to $63.5 million during 2019. Dividends paid on our common stock during 2020 were $1.71 per share. Dividends paid on our common stock in 2019 were $1.64 per share.

In January 2021, we used $62.4 million of cash to fund the acquisition of Bristol.

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Restricted cash balances were $0.4 million at December 31, 2020 compared to $0.3 million at December 31, 2019, and were primarily used to support letter of credit balances.

The MSA Board of Directors has authorized the Company to repurchase up to $100.0 million in shares of MSA common stock. We used $29.1 million during 2020 to repurchase shares, including $20.1 million related to purchases under our 2015 stock repurchase program, compared to $12.6 million during 2019 to repurchase shares, including $3.3 million related to purchases under our 2015 stock repurchase program.

CUMULATIVE TRANSLATION ADJUSTMENTS

The year-end position of the U.S. dollar relative to international currencies resulted in a translation gain of $22.3 million being recorded to cumulative translation adjustments for the year ended December 31, 2020 compared to a loss of $1.7 million in 2019. The translation gain during 2020 was primarily related to the weakening of the U.S. dollar relative to the euro. The translation loss during 2019 was primarily related to the strengthening of the U.S. dollar relative to the euro.

During the year ended December 31, 2020, we recognized approximately $8.6 million of currency exchange losses, net, in our Consolidated Statements of Income. During the year ended December 31, 2019, we recognized approximately $19.8 million of currency exchange losses, net, in our Consolidated Statement of Income of which $15.3 million relates to non-cash currency exchange losses due primarily to an approved plan to close our South Africa affiliates. This charge is related to the historical translation of the elements of the financial statements for the business from the functional currency to the U.S. Dollar. The translation impact has been historically recorded as currency translation adjustment, a separate component of accumulated other comprehensive loss within the shareholders' equity section of the Consolidated Balance Sheet.

COMMITMENTS AND CONTINGENCIES

We are obligated to make future payments under various contracts, including debt and lease agreements. Our significant cash obligations as of December 31, 2020, are as follows:

The significant obligations table does not include obligations to taxing authorities due to uncertainty surrounding the ultimate settlement of amounts and timing of these obligations.

We expect to meet our 2021 and 2022 debt service obligations through cash provided by operations. Approximately $213.2 million of debt payable in 2023 relates to our unsecured senior revolving credit facility. 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 2023, we expect to refinance the remaining balance through new borrowing facilities. Interest expense on fixed rate debt over the next five years is expected to be approximately $3.2 million in 2021, $2.6 million in 2022, $2.3 million in 2023, $2.1 million in 2024, and $1.8 million in 2025. We expect total interest expense for 2021 to be between $8 million and $9 million.

The Company had outstanding bank guarantees and standby letters of credit with banks as of December 31, 2020 totaling $9.0 million, of which $1.3 million relate to the senior revolving credit facility. These letters of credit serve to cover customer requirements in connection with certain sales orders and insurance companies. The Company is also required to provide cash collateral in connection with certain arrangements. At December 31, 2020, the Company has $0.4 million of restricted cash in support of these arrangements.

We expect to make net contributions of $7.7 million to our pension plans in 2021 which are primarily associated with our International segment. We have not been required to make contributions to our U.S. based qualified defined benefit pension plan in many years.

We have purchase commitments for materials, supplies, services and property, plant and equipment as part of our ordinary conduct of business.

Please refer to Note 19 to the consolidated financial statements in Part II Item 8 of this Form 10-K for further discussion on the Company's product liabilities.

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CRITICAL ACCOUNTING POLICIES AND ESTIMATES

We prepare our consolidated financial statements in accordance with U.S. generally accepted accounting principles (U.S. GAAP). The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and the related disclosures. We evaluate these estimates and judgments on an on-going basis based on historical experience and various assumptions that we believe to be reasonable under the circumstances. However, different amounts could be reported if we had used different assumptions and in light of different facts and circumstances. Actual amounts could differ from the estimates and judgments reflected in our consolidated financial statements. A summary of the Company's significant accounting policies is included in Note 1—Significant Accounting Policies to the consolidated financial statements in Part II, Item 8 of this Form 10-K.

We believe that the following are the more critical judgments and estimates used in the preparation of our consolidated financial statements.

Cumulative trauma product liability. We 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 an objective basis for quantifying damages. The Company estimates its 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 involve 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. MSA LLC's combined cumulative trauma product liability reserve is based upon estimates of its liability for asserted cumulative trauma product liability claims not yet resolved and for IBNR cumulative trauma product liability claims. In addition, in connection with finalizing and reporting the Company's results of operations, management works annually (unless significant changes in trends or new developments warrant an earlier review) with an outside valuation consultant and outside legal counsel to review MSA LLC's potential exposure to all cumulative trauma product liability claims, including asserted cumulative trauma product liability claims not yet resolved and IBNR cumulative trauma product liability claims. The process for estimating asserted cumulative trauma product liability claims not yet resolved takes into account available facts for those claims including the number and composition of such claims, outcomes of matters resolved during current and prior periods, and variances associated with different groups of claims, plaintiffs' counsel, and venues, as well as any other relevant information. The process for estimating IBNR claims involves a number of key judgments and assumptions, including as to the number and types of claims that may be asserted, the period in which claims may be asserted and resolved, the percentage of claims that may be dismissed without payment, the average cost to resolve claims on which a payment is made, the manner in which MSA LLC will defend claims, and the medical and legal environments that will be applicable to the assertion, evaluation, and resolution of claims in the future. Each of these factors may increase or decrease significantly within an individual period depending on, among other things, the timing of claims filings or settlements, or litigation outcomes during a particular period that are especially favorable or unfavorable to MSA LLC. We accordingly consider MSA LLC’s claims experience over multiple periods and/or whether there are changes in MSA LLC’s claims experience and trends that are likely to continue for a significant time into the future in determining whether to make an adjustment to the reserve, rather than evaluating such factors solely in the short term.

Income taxes. We recognize deferred tax assets and liabilities using enacted tax rates to record the tax effect of temporary differences between the book and tax basis of recorded assets and liabilities. We record valuation allowances to reduce deferred tax assets to the amounts that we estimate are probable to be realized. When assessing the need for valuation allowances, we consider projected future taxable income and prudent and feasible tax planning strategies. Should a change in circumstances lead to a change in our judgments about the realizability of deferred tax assets in future years, we adjust the related valuation allowances in the period that the change in circumstances occurs.

We record an estimated income tax liability based on our best judgment of the amounts likely to be paid in the various tax jurisdictions in which we operate. We record tax benefits related to uncertain tax positions taken or expected to be taken on a tax return when such benefits meet a more likely than not threshold. We recognize interest related to unrecognized tax benefits in interest expense and penalties in operating expenses. The tax liabilities ultimately paid are dependent on a number of factors, including the resolution of tax audits, and may differ from the amounts recorded. Tax liabilities are adjusted through income when it becomes probable that the actual liability differs from the amount recorded.

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Pensions and other post-retirement benefits. We sponsor certain pension and other post-retirement benefit plans. Accounting for the net periodic benefit costs and credits for these plans requires us to estimate the cost of benefits to be provided well into the future and to attribute these costs over the expected work life of the employees participating in these plans. These estimates require our judgment about discount rates used to determine these obligations, expected returns on plan assets, rates of future compensation increases, rates of increase in future health care costs, participant withdrawal and mortality rates and participant retirement ages. Differences between our estimates and actual results may significantly affect the cost of our obligations under these plans and could cause net periodic benefit costs and credits to change materially from year-to-year. Discount rates and plan asset valuations are point-in-time measures. The discount rate assumptions used in determining projected benefit obligations for our U.S. and foreign plans were based on the spot rate method at December 31, 2020.

Expected returns on plan assets are based on capital market expectations by asset class.

The following table summarizes the impact of changes in significant actuarial assumptions on our December 31, 2020 actuarial valuations.

Impact of Changes in Actuarial Assumptions

Change in DiscountRate Change in ExpectedReturn Change in Market Value of Assets

(In thousands) 1% (1)% 1% (1)% 5% (5)%

(Decrease) increase in projected benefit obligation (88,742) 115,339 — — — —

Goodwill and Indefinite-lived Intangible Assets. On October 1st of each year, or more frequently if indicators of impairment exist or if a decision is made to sell a business, we evaluate goodwill for impairment. Such indicators may include a decline in expected cash flows, a significant adverse change in the business climate, unanticipated competition, slower growth rates, or negative developments in equity and credit markets, among others.

All goodwill is assigned to and evaluated for impairment at the reporting unit level, which is defined as an operating segment or one level below an operating segment. The evaluation of impairment involves using either a qualitative or quantitative approach as outlined in Accounting Standards Codification (ASC) Topic 350. In 2020, we performed a two-step quantitative test at October 1, 2020. Quantitative testing involves comparing the estimated fair value of each reporting unit to its carrying value. We estimate reporting unit fair value using a weighted average of fair values determined by discounted cash flow (DCF) and market approach methodologies, as we believe both are important indicators of fair value. A number of assumptions and estimates are involved in the application of the DCF model, including sales volumes and prices, costs to produce, tax rates, capital spending, discount rates, and working capital changes. Cash flow forecasts are generally based on approved business unit operating plans for the early years and historical relationships in later years. The market approach methodology measures value through an analysis of peer companies. The analysis entails measuring the multiples of EBITDA at which peer companies are trading.

In the event the carrying value is in excess of the estimated fair value of a reporting unit per the weighted average of the DCF and market approach models, an impairment loss equal to such excess would be recognized, which could materially and adversely affect reported consolidated results of operations and shareholders’ equity. At October 1, 2020, based on our quantitative test, the fair values of each of our reporting units exceeded their carrying value by at least 109%.

The intangible asset with an indefinite life is also subject to impairment testing on October 1st of each year, or more frequently if indicators of impairment exist. The impairment test compares the fair value of the intangible asset with its carrying amount. We perform a quantitative assessment of the indefinite lived trade name intangible asset as outlined in ASC 350 by comparing the estimated fair value of the trade name intangible asset to its carrying value. We estimate the fair value using the relief from royalty income approach. A number of significant assumptions and estimates are involved in the application of the relief from royalty model, including sales volumes and prices, royalty rates and tax rates. 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, 2020, based on our quantitative test, the fair value of the trade name asset exceeded its carrying value by approximately 22%.

RECENTLY ADOPTED AND RECENTLY ISSUED ACCOUNTING STANDARDS

See Note 1—Significant Accounting Policies of the consolidated financial statements in Part II Item 8 of this Form 10-K.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market risk represents the risk of adverse changes in the value of a financial instrument caused by changes in currency exchange rates, interest rates and equity prices. We are exposed to market risks related to currency exchange rates and interest rates.

Currency exchange rates. We are subject to the effects of fluctuations in currency exchange rates on various transactions and on the translation of the reported financial position and operating results of our non-U.S. companies from local currencies to U.S. dollars. A hypothetical 10% strengthening or weakening of the U.S. dollar would increase or decrease our reported sales and net income for the year ended December 31, 2020 by approximately $57.3 million and $5.0 million, or 4.3% and 4.1%, respectively.

When appropriate, we may attempt to limit our transactional exposure to changes in currency exchange rates through forward contracts or other actions intended to reduce existing exposures by creating offsetting currency exposures. At December 31, 2020, we had open foreign currency forward contracts with a U.S. dollar notional value of $96.0 million. A hypothetical 10% increase in December 31, 2020 forward exchange rates would result in a $9.6 million increase in the fair value of these contracts.

Interest rates. We are exposed to changes in interest rates primarily as a result of borrowing and investing activities used to maintain liquidity and fund business operations. Because of the relatively short maturities of temporary investments and the variable rate nature of our revolving credit facility, these financial instruments are reported at carrying values which approximate fair values.

At December 31, 2020, we had $95.1 million of fixed rate debt which matures at various dates through 2031. The incremental increase in the fair value of fixed rate long-term debt resulting from a hypothetical 10% decrease in interest rates would be approximately $8 million. However, our sensitivity to interest rate declines and the corresponding increase in the fair value of our debt portfolio would unfavorably affect earnings and cash flows only to the extent that we elected to repurchase or retire all or a portion of our fixed rate debt portfolio at prices above carrying values.

At December 31, 2020, we had $213.2 million of variable rate borrowings under our revolving credit facility. A 100 basis point increase or decrease in interest rates could have an impact on future earnings under our current capital structure.

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Item 8. Financial Statements and Supplementary Data

Management’s Reports to Shareholders

Management’s Report on Responsibility for Financial Reporting

Management of MSA Safety Incorporated (the Company) is responsible for the preparation of the consolidated financial statements included in this annual report. The consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America and include amounts that are based on the best estimates and judgments of management. The other financial information contained in this annual report is consistent with the consolidated financial statements.

Management’s Report on Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

The Company’s internal control over financial reporting includes policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of management and the directors of the Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on our financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2020. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013). Based on our assessment and those criteria, management has concluded that the Company maintained effective internal control over financial reporting as of December 31, 2020.

The Company's independent registered public accounting firm that audited the consolidated financial statements included in this annual report issued an attestation report on the Company's internal control over financial reporting.

/s/ NISHAN J. VARTANIAN

Nishan J. VartanianChairman, President and Chief Executive Officer

/s/ KENNETH D. KRAUSE

Kenneth D. KrauseSr. Vice President, Chief Financial Officer and Treasurer

February 19, 2021

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Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of MSA Safety Incorporated

Opinion on Internal Control over Financial Reporting

We have audited MSA Safety Incorporated’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, MSA Safety Incorporated (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2020 and 2019, the related consolidated statements of income, comprehensive income, cash flows, and changes in retained earnings, accumulated other comprehensive loss and noncontrolling interests for each of the three years in the period ended December 31, 2020, and the related notes and financial statement schedule listed in the Index at Item 15(a) 2. and our report dated February 19, 2021 expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Ernst & Young LLP

Pittsburgh, Pennsylvania

February 19, 2021

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Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of MSA Safety Incorporated

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of MSA Safety Incorporated (the Company) as of December 31, 2020 and 2019, the related consolidated statements of income, comprehensive income, cash flows, and changes in retained earnings, accumulated other comprehensive loss and noncontrolling interests for each of the three years in the period ended December 31, 2020, and the related notes and financial statement schedule listed in the Index at Item 15(a) 2. (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 19, 2021 expressed an unqualified opinion thereon.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

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Valuation of cumulative trauma product liability claims

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 2014.

Pittsburgh, Pennsylvania

February 19, 2021

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MSA SAFETY INCORPORATED

CONSOLIDATED STATEMENTS OF INCOME

Year ended December 31,

Loss on extinguishment of debt (Note 11) — — 1,494

Net income attributable to noncontrolling interests $ (1,061) $ (1,209) $ (965)

Dividends per common share $ 1.71 $ 1.64 $ 1.49

The accompanying notes are an integral part of the consolidated financial statements.

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MSA SAFETY INCORPORATED

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Year ended December 31,

Other comprehensive (loss) income, net of tax:

Total other comprehensive income (loss), net of tax 31,765 8,623 (47,470)

The accompanying notes are an integral part of the consolidated financial statements.

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MSA SAFETY INCORPORATED

CONSOLIDATED BALANCE SHEETS

December 31,

(In thousands, except share amounts) 2020 2019

Assets

Notes receivable, insurance companies (Note 19) 3,796 3,676

Prepaid expenses and other current assets 38,541 34,419

Notes receivable, insurance companies, noncurrent (Note 19) 48,540 52,336

Insurance receivable (Note 19) and other noncurrent assets 89,062 59,614

Liabilities

Notes payable and current portion of long-term debt (Note 11) $ 20,000 $ 20,000

Accrued restructuring (Note 2) and other current liabilities 116,128 93,898

Noncurrent operating lease liabilities (Note 16) 44,639 42,632

Product liability (Note 19) and other noncurrent liabilities 201,268 162,101

Commitments and contingencies (Note 19)

Shareholders' Equity

Preferred stock, 4.5% cumulative, $50 par value (Note 6) 3,569 3,569

Total MSA Safety Incorporated shareholders’ equity 801,898 725,800

The accompanying notes are an integral part of the consolidated financial statements.

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MSA SAFETY INCORPORATED

CONSOLIDATED STATEMENTS OF CASH FLOWS

Year ended December 31,

Operating Activities

Deferred income tax (benefit) provision (Note 9) (3,322) 1,272 (4,065)

Loss on extinguishment of debt (Note 11) — — 1,494

Changes in:

Prepaid expenses and other current assets (8,861) (822) 10,866

Other noncurrent assets and liabilities (1,097) (9,797) (5,778)

Investing Activities

Acquisition, net of cash acquired (Note 13) — (33,196) —

Property disposals and other investing 454 218 4,587

Financing Activities

(Payments on) proceeds from short-term debt, net (Note 11) — (65) 51

Debt issuance costs — — (1,216)

Other, net — — (1,494)

Increase in cash, cash equivalents and restricted cash 8,491 11,939 2,715

Supplemental cash flow information:

The accompanying notes are an integral part of the consolidated financial statements.

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MSA SAFETY INCORPORATED

CONSOLIDATED STATEMENTS OF CHANGES IN RETAINED EARNINGS,

ACCUMULATED OTHER COMPREHENSIVE LOSS AND NONCONTROLLING INTERESTS

Foreign currency translation adjustments — (30,103) —

Unrecognized net losses on available-for-sale securities (Note 18) — (572) —

(Income) loss attributable to noncontrolling interests (965) 305 660

Acquisition of noncontrolling interests — —

Common dividends (57,206) — —

Preferred dividends ($0.5625 per share) (42) — —

Foreign currency translation adjustments — (1,657) —

Pension and post-retirement plan adjustments, net of tax of $(3,072) — (5,559) —

Unrecognized net gains on available-for-sale securities (Note 18) — 578 —

(Income) loss attributable to noncontrolling interests (1,209) 73 1,136

Common dividends (63,481) — —

Preferred dividends ($0.5625 per share) (42) — —

Foreign currency translation adjustments — 22,260 —

Pension and post-retirement plan adjustments, net of tax of $2,245 — 9,296 —

Unrecognized net losses on available-for-sale securities (Note 18) — (7) —

Income attributable to noncontrolling interests (1,061) (159) 1,220

Common dividends (66,537) — —

Preferred dividends ($0.5625 per share) (41) — —

The accompanying notes are an integral part of the consolidated financial statements.

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MSA SAFETY INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1—Significant Accounting Policies

Basis of Presentation—The consolidated financial statements of MSA Safety Incorporated ("MSA" or "the Company") are prepared in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP) and require management to make certain judgments, estimates, and assumptions. These may affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements. They also may affect the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates upon subsequent resolution of identified matters.

Principles of Consolidation—The consolidated financial statements include the accounts of the Company and all subsidiaries. Intercompany accounts and transactions are eliminated.

Noncontrolling Interests—Noncontrolling interests reflect noncontrolling shareholders’ investments in certain consolidated subsidiaries and their proportionate share of the income and accumulated other comprehensive income (loss) of those subsidiaries.

Currency Translation—The functional currency of all significant non-U.S. subsidiaries is the local country currency. Assets and liabilities of these operations are translated at year-end exchange rates. Income statement accounts are translated using the average exchange rates for the reporting period. Translation adjustments for these companies are reported as a component of shareholders’ equity and are not included in income. Foreign currency transaction gains and losses are included in net income for the reporting period.

Cash Equivalents—Cash equivalents include temporary deposits with financial institutions and highly liquid investments with original maturities of 90 days or less. Other highly liquid investments consist of money market funds and balances were $0.6 million and $17.9 million at December 31, 2020 and 2019, respectively. These funds are valued at net asset value (“NAV”). The money market funds are required to price and transact at a NAV per share that fluctuates based upon the pricing of the underlying portfolio of securities and this requirement may impact the value of those fund shares.

Restricted Cash—Restricted cash, which is designated for use other than current operations, is included in prepaid expenses and other current assets in the Consolidated Balance Sheets. Restricted cash balances were $0.4 million and $0.3 million at December 31, 2020 and 2019, respectively. These balances were used to support letter of credit balances.

Inventories—Inventories are stated at the lower of cost or net realizable value. The majority of U.S. inventories are valued on the last-in, first-out (LIFO) cost method which is used since this method provides better matching of costs and revenues. Other inventories are valued at standard costs which approximate actual costs. It is the Company's general policy to write-down any inventory identified as obsolete. Additionally, it will write-down any inventory balance in excess of the last twenty-four months of consumption.

Investment securities—The Company’s investment securities, primarily fixed income, are classified as available-for-sale. The securities are recorded at fair market value and reported in “Investments, short-term” in the accompanying Consolidated Balance Sheets with changes in fair market value recorded in other comprehensive income, net of tax. The purchases and sales of these investments are classified as investing activities in the Consolidated Statements of Cash Flows.

Property and Depreciation—Property is recorded at cost. Depreciation is computed primarily using the straight-line method over the estimated useful lives of the assets, generally as follows: buildings 20 to 40 years and machinery and equipment 3 to 10 years. Expenditures for significant renewals and improvements are capitalized. Ordinary repairs and maintenance are expensed as incurred. Gains or losses on property dispositions are included in other income, net and the cost and related depreciation are removed from the accounts. Depreciation expense for the years ended December 31, 2020, 2019 and 2018 was $27.7 million, $26.5 million and $26.9 million, respectively. Properties, plants, and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets or asset groups may not be recoverable.

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Software Development Costs—Software development costs consist primarily of costs incurred in software development and related personnel compensation to create, enhance and deploy the Company’s broad range of wireless technology and cloud-based computing safety services. Software development costs, other than software development costs qualifying for capitalization, are expensed as incurred. Costs of computer software developed or obtained for internal use that are incurred in the preliminary project and post implementation stages are expensed as incurred. Certain costs incurred during the application and development stage, which primarily include compensation and related expenses, are capitalized. Additionally, costs of upgrades and enhancements are capitalized when it is probable that the upgrades and enhancements will result in added functionality. Capitalized costs are amortized through Cost of products sold using the straight-line method over the estimated useful life, which is normally three years, beginning in the period in which the software is ready for its intended use or when the upgrade or enhancement is deployed. During 2020, 2019, and 2018 there was approximately $8.2 million, $5.0 million and $1.6 million, respectively, of software development costs capitalized.

Goodwill and Other Intangible Assets—Intangible assets with a finite useful life are amortized on a straight-line basis over their useful lives. Indefinite lived intangible assets are assessed for possible impairment annually on October 1st or whenever circumstances change such that the recorded value of the asset may not be recoverable. We performed a quantitative assessment of the indefinite lived trade name intangible asset as outlined in Accounting Standards Codification ("ASC") 350 by comparing the estimated fair value of the trade name intangible asset to its carrying value. We estimate the fair value using the relief from royalty income approach. A number of assumptions and estimates are involved in the application of the relief from royalty model, including sales volumes and prices, royalty rates and tax rates. 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. Based on these assessments, no impairments were identified during the years ended December 31, 2020, 2019 or 2018.

Goodwill is not amortized, but is subject to impairment assessments. On October 1st of each year, or more frequently if indicators of impairment exist or if a decision is made to sell a business, we evaluate goodwill for impairment. Judgment is involved in determining if an indicator of impairment has occurred. Such indicators may include a decline in expected cash flows, a significant adverse change in the business climate, unanticipated competition, slower growth rates, or negative developments in equity and credit markets, among others.

All goodwill is assigned to and evaluated for impairment at the reporting unit level, which is defined as an operating segment or one level below an operating segment. The evaluation of impairment involves using either a qualitative or quantitative approach as outlined in ASC Topic 350. In 2020, we performed a two-step quantitative test at October 1, 2020. Step 1 of the quantitative testing involves comparing the estimated fair value of each reporting unit to its carrying value. We estimate reporting unit fair value using a weighted average of fair values determined by discounted cash flow (DCF) and market approach methodologies, as we believe both are important indicators of fair value. A number of assumptions and estimates are involved in the application of the DCF model, including sales volumes and prices, costs to produce, tax rates, capital spending, discount rates, and working capital changes. Cash flow forecasts are generally based on approved reporting unit operating plans for the early years and historical relationships in later years. The market approach methodology measures value through an analysis of peer companies. The analysis entails measuring the multiples of EBITDA at which peer companies are trading.

There has been no impairment of our goodwill during the years ended December 31, 2020, 2019 or 2018.

Revenue Recognition—We account for revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers, which we adopted on January 1, 2018, using the modified retrospective method. Revenue from the sale of products is recognized when there is persuasive evidence of an arrangement and control passes to the customer, which generally occurs either when product is shipped to the customer or, in the case of most U.S. distributor customers, when product is delivered to the distributor's delivery site. We establish our shipping terms according to local practice and market characteristics. We do not ship product unless we have an order or other documentation authorizing shipment to our customers. Our payment terms vary by the type and location of our customer and the products offered. The term between invoicing and when payment is due is not significant.

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Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods or providing services. Amounts billed and due from our customers are classified as receivables on the Consolidated Balance Sheets. We make appropriate provisions for credit losses which have historically been insignificant in relation to our net sales. Certain contracts with customers, primarily distributor customers, have an element of variable consideration that is estimated when revenue is recognized under the contract to the extent that it is material to the individual contract. Variable consideration includes volume incentive rebates, performance guarantees, price concessions and returns. Rebates are based on achieving a certain level of purchases and other performance criteria that are documented in established distributor programs. These rebates are estimated based on projected sales to the customer and accrued as a reduction of net sales as they are earned by the customer. The rebate accrual is reviewed monthly and adjustments are made as the estimate of projected sales changes. Product returns, including an adjustment for restocking fees if it is material, are estimated based on historical return experience and revenue is adjusted. Sales, value add and other taxes collected with revenue-producing activities and remitted to governmental authorities are excluded from revenue.

Depending on the terms of the arrangement, we may defer revenue for which we have a future obligation, including training and extended warranty and technical services, until such time that the obligation has been satisfied. We use an observable price, or a cost plus margin approach when one is not available, to determine the stand-alone selling price for separate performance obligations. We have elected to recognize the cost for shipping and handling as an expense when control of the product has passed to the customer. These costs are included within the Cost of products sold line on the Consolidated Statements of Income. Amounts billed to customers for shipping and handling are included in net sales.

Product Warranties—Estimated expenses related to product warranties and additional service actions are charged to Cost of products sold in the period in which the related revenue is recognized or when significant product quality issues are identified.

Research and Development—Research and development costs are expensed as incurred.

Income Taxes—Deferred income taxes are recognized for temporary differences between financial and tax reporting. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. If it is more likely than not that some portion or all of a deferred tax asset will not be realized, a valuation allowance is recognized. We record tax benefits related to uncertain tax positions taken or expected to be taken on a tax return when such benefits meet a more likely than not threshold. We recognize interest related to unrecognized tax benefits in interest expense and penalties in operating expenses. Deferred taxes are booked for available cash in excess of working capital for non-U.S. subsidiaries as these earnings are not considered to be permanently reinvested.

Stock-Based Compensation—We recognize expense for employee and non-employee director stock-based compensation based on the grant date fair value of the awards. Except for retirement-eligible participants, for whom there is no requisite service period, this expense is recognized ratably over the requisite service periods following the date of grant. For retirement-eligible participants, this expense is recognized over an accelerated period of at least one year.

Derivative Instruments—We may use derivative instruments to minimize the effects of changes in currency exchange rates. We do not enter into derivative transactions for speculative purposes and do not hold derivative instruments for trading purposes. Changes in the fair value of derivative instruments designated as fair value hedges are recorded in the balance sheet as adjustments to the underlying hedged asset or liability. Changes in the fair value of derivative instruments that do not qualify for hedge accounting treatment are recognized in the Consolidated Statements of Income and Consolidated Statements of Cash Flows as Currency exchange losses, net in the current period.

Commitments and Contingencies—For asserted claims and assessments, liabilities are recorded when a loss is deemed to be probable and the amount of the loss is reasonably estimable. Management assesses the probability of an unfavorable outcome with respect to asserted claims or assessments based on many factors such as the nature of the matter, available defenses and case strategy, progress of the matter, views and opinions of legal counsel and other advisors, applicability and success of appeals processes, and the outcome of similar historical matters, among others. Once an unfavorable outcome is assessed to be probable, management evaluates estimates of the potential loss, and the most reasonable loss estimate is recorded (or, if the estimate of the loss is a range, and no amount within the range is considered to be a better estimate than any other amount, the minimum amount in the range is recorded). If a loss is deemed to be reasonably possible but less than probable and/or such loss cannot be reasonably estimated, then the matter is disclosed and no liability is recorded.

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With respect to unasserted claims or assessments, management first determines whether it is probable that a claim or assessment may be asserted and then, if so, the degree of probability of an unfavorable outcome. If an unfavorable outcome is probable, management assesses whether the amount of potential loss can be reasonably estimated and, if so, accrues the most reasonable estimate of the loss (or, if the estimate of the loss is a range, and not amount within the range is considered to be a better estimate than any other amount, the minimum amount in the range is recorded). If an unfavorable outcome is reasonably possible but less than probable, or the amount of loss cannot be reasonably estimated, then the matter is disclosed and no liability is recorded. Legal matters are reviewed on a continuous basis to determine if there has been a change in management’s judgment regarding the likelihood and/or estimate of a potential loss. Please refer to Note 19 for further details on product liability related matters.

Concentration of credit and business risks - We are exposed to credit risk in the event of nonpayment by customers, principally in the oil, gas and petrochemical, fire service, construction, utilities, and mining industries. Changes in these industries or other developments may significantly affect our financial performance and management's estimates. We mitigate our exposure to credit risk by performing ongoing credit evaluations and, when deemed necessary, requiring letters of credit, credit insurance, prepayments, guarantees or other collateral. No individual customer represented more than 10% of our sales or receivables.

Recently Adopted and Recently Issued Accounting Standards— In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses. This ASU introduces an approach based on expected losses to estimate credit losses on certain types of financial instruments, including loans, held-to-maturity debt securities, loan commitments, financial guarantees and net investments in leases, as well as reinsurance and trade receivables. This ASU was adopted on January 1, 2020, which did not have an impact on the consolidated financial statements.

In January 2018, the FASB issued ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income ("AOCI"), which gives entities the option to reclassify to retained earnings the tax effects resulting from the new tax reform legislation commonly known as the Tax Cuts and Jobs Act of 2017 (the "Act") related to items in AOCI that the FASB refers to as having been stranded in AOCI. The new guidance may be applied retrospectively to each period in which the effect of the Act is recognized in the period of adoption. ASU2018-02 requires new disclosures regarding the Company’s accounting policy for releasing the tax effects in accumulated other comprehensive loss and allows the Company to reclassify the effect of remeasuring deferred tax liabilities and assets related to items within accumulated other comprehensive loss using the then newly enacted 21% federal corporate income tax rate. The Company adopted ASU 2018-02 on January 1, 2019, and this adoption resulted in a reclassification that increased retained earnings by $3.8 million, with an offsetting increase to accumulated other comprehensive loss for the same amount.

In August 2018, the FASB issued ASU 2018-13, Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement, which improves fair value disclosure requirements by removing disclosures that are not cost beneficial, clarifying disclosures’ specific requirements and adding relevant disclosure requirements. This ASU was effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, and was adopted in 2020. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. The Company's adoption of ASU 2018-13 did not have an impact on the consolidated financial statements, but did change our disclosures.

In August 2018, the FASB issued ASU 2018-14, Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans, which improves defined benefit disclosure requirements by removing disclosures that are not cost beneficial, clarifying disclosures’ specific requirements and adding relevant disclosure requirements. This ASU is effective for fiscal years ending after December 15, 2020, and early adoption is permitted. The amendments in this ASU are required to be applied on a retrospective basis to all periods presented. The Company adopted ASU 2018-14 on December 31, 2020, which did not have an impact on the consolidated financial statements, but did change our disclosures.

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Note 2—Restructuring Charges

During the years ended December 31, 2020, 2019 and 2018, we recorded restructuring charges of $27.4 million, $13.8 million and $13.2 million, respectively. These charges were primarily related to our ongoing initiatives to drive profitable growth and right size our operations.

Americas segment restructuring charges of $4.7 million during the year ended December 31, 2020, were primarily related to costs associated with our global Fixed Gas & Flame Detection manufacturing footprint optimization as well as programs to adjust our operations in response to current business conditions. International segment restructuring charges of $21.9 million during the year ended December 31, 2020, were primarily related to severance costs for staff reductions and footprint optimization associated with our ongoing initiatives to drive profitable growth. Corporate segment restructuring charges of $0.8 million during the year ended December 31, 2020, were primarily related to programs to adjust our operations in response to current business conditions.

A total of 121 positions were eliminated in 2020. There were 42 positions eliminated in the Americas segment, 76 in the International segment and 3 in the Corporate segment.

Americas segment restructuring charges of $0.5 million during the year ended December 31, 2019, were related to severance costs for staff reductions in our Latin America Region. International segment restructuring charges of $12.7 million during the year ended December 31, 2019, were primarily related to severance costs for staff reductions associated with our ongoing initiatives to drive profitable growth and a non-cash settlement charge for the termination of our pension plan in the United Kingdom. Corporate segment restructuring charges of $0.6 million during the year ended December 31, 2019, related primarily to the legal and operational realignment of our U.S. and Canadian operations.

A total of 99 positions were eliminated in 2019. There were 12 positions eliminated in the Americas segment and 87 in the International segment.

Americas segment restructuring charges of $2.3 million during the year ended December 31, 2018, were related to severance costs for staff reductions in our Northern North America and Latin America Regions. International segment restructuring charges of $5.6 million during the year ended December 31, 2018, were primarily related to severance costs for staff reductions associated with our ongoing initiatives to drive profitable growth in Europe. Corporate segment restructuring charges of $5.3 million during the year ended December 31, 2018, related primarily to the legal and operational realignment of our U.S. and Canadian operations.

A total of 45 positions were eliminated in 2018. There were 8 positions were eliminated in the Americas segment, 34 in the International segment and 3 in the Corporate segment.

Activity and reserve balances for restructuring charges by segment were as follows:

(in millions) Americas International Corporate Total

Reserve balances at January 1, 2018 $ 0.5 $ 3.6 $ — $ 4.1

Currency translation and other adjustments (0.3) (0.3) — (0.6)

Currency translation and other adjustments (0.1) (0.6) — (0.7)

Cash payments / utilization (0.6) (10.2) (0.6) (11.4)

Currency translation and other adjustments (0.1) 0.1 — —

Cash payments / utilization (2.1) (8.6) (0.4) (11.1)

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Note 3—Inventories

The following table sets forth the components of inventory:

December 31,

Inventories stated on the LIFO basis represent 48% and 43% of total inventories at December 31, 2020 and 2019, respectively. We did not have any LIFO liquidations during the years ended December 31, 2020 and 2019.

Note 4—Property, Plant, and Equipment

The following table sets forth the components of property, plant and equipment:

December 31,

The Company has unamortized computer software costs of $12.6 million and $6.2 million as of December 31, 2020 and 2019, respectively, included in property, plant and equipment, net.

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Note 5—Reclassifications Out of Accumulated Other Comprehensive Loss

MSA Safety Incorporated Noncontrolling Interests

Pension and other post-retirement benefits(a)

Amounts reclassified from accumulated other comprehensive loss into net income:

Amortization of prior service credit (Note 14) (216) (180) (424) — — —

Total other comprehensive income (loss) $ 9,296 $ (9,331) $ (17,569) $ — $ — $ —

Available-for-sale securities

Balance at beginning of period $ 6 $ (572) $ — $ — $ — $ —

Balance at end of period $ (1) $ 6 $ (572) $ — $ — $ —

Foreign currency translation

(a)Reclassifications out of accumulated other comprehensive loss and into net income 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)Reclassifications out of accumulated other comprehensive loss and into net income relate primarily to the approval of our

plan to close our South Africa affiliates and are included in Currency exchange losses, net, within the Consolidated Statements of Income.

(c)Included in Currency exchange losses, net, on the Consolidated Statements of Income.

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Note 6—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 are 71,340 shares issued at both December 31, 2020 and 2019 and 52,998 and 52,878 shares held in treasury at December 31, 2020 and 2019, respectively. The Treasury shares at cost line of the Consolidated Balance Sheet includes $1.8 million related to preferred stock. There were 120 shares of preferred stock purchased and subsequently held in treasury during the year ended December 31, 2020, and no treasury purchases of preferred stock during the year ended December 31, 2019. 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 December 31, 2020 or 2019.

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 both December 31, 2020 and December 31, 2019. There were 39,067,902 and 38,841,194 shares outstanding at December 31, 2020 and 2019, respectively.

Treasury Shares - The Company's stock repurchase program authorizes up to $100.0 million to repurchase MSA common stock in the open market and in private transactions. The share repurchase program has no expiration date. The maximum number of shares that may be purchased is calculated based on the dollars remaining under the program and the respective month-end closing share price. There were 175,000 shares repurchased during 2020 and 33,465 shares repurchased during 2019. No shares were repurchased during 2018. We do not have any other share repurchase programs. There were 23,013,489 and 23,240,197 Treasury Shares at December 31, 2020 and 2019, 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 471,681 and 436,549 Treasury Shares issued for these purposes during the years ended December 31, 2020 and 2019, respectively.

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Common stock activity is summarized as follows:

Shares Dollars

(Dollars in thousands) Issued Treasury CommonStock TreasuryCost

Restricted stock expense — — 6,504 —

Restricted stock forfeitures — — (283)

Stock option expense — 272 —

Stock option forfeitures — — (55) —

Performance stock expense — — 6,186 —

Performance stock forfeitures — (385) —

Treasury shares purchased for stock compensation programs — (53,915) — (4,824)

Restricted stock expense — — 7,397 —

Restricted stock forfeitures — — (483) —

Stock option expense — — 492 —

Stock option forfeitures — — (5) —

Performance stock expense — — 6,574 —

Performance stock forfeitures — — (215) —

Stock consideration in acquisition — — 921 —

Treasury shares purchased for stock compensation programs — (87,811) — (9,301)

Restricted stock expense — — 7,065 —

Restricted stock forfeitures — — (807) —

Stock option expense — — 153 —

Stock option forfeitures — — (40) —

Performance stock expense — — 1,305 —

Performance stock forfeitures — — (755) —

Treasury shares purchased for stock compensation programs — (69,973) — (9,025)

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Note 7—Segment Information

On January 1, 2020, we restructured our business from six geographical operating segments into four geographical operating segments that are based on management responsibilities: Northern North America, Latin America, Europe, Middle East & Africa ("EMEA"), and Asia Pacific ("APAC") to better serve customer needs. 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 operating segment change did not impact reportable segments as all changes were within the International reportable segment.

The Americas segment is comprised of our operations in North America and Latin America 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), adjusted operating margin, adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) and adjusted EBITDA margin are the measures used by the chief operating decision maker to evaluate segment performance and allocate resources. Adjusted operating income (loss) is defined as operating income excluding restructuring charges, currency exchange gains (losses), product liability expense, strategic transaction costs and COVID-19 related costs, consisting of a one-time bonus for essential manufacturing employees and adjusted operating margin is defined as adjusted operating income (loss) divided by segment sales to external customers. Adjusted EBITDA is defined as adjusted operating income (loss) plus depreciation and amortization and adjusted EBITDA margin is defined as adjusted EBITDA divided by segment sales to external customers. Adjusted operating income (loss), adjusted operating margin, adjusted EBITDA and adjusted EBITDA margin are not recognized terms under U.S. GAAP, and therefore, do not purport to be alternatives to operating income or operating margin as a measure of operating performance. Further, the Company's measure of adjusted operating income (loss), adjusted operating margin, adjusted EBITDA and adjusted EBITDA margin may not be comparable to similarly titled measures of other companies. Adjusted operating income (loss) and adjusted EBITDA on a consolidated basis is presented in the following table to reconcile the segment operating performance measure to operating income as presented on the Consolidated Statements of Income.

The accounting principles applied at the operating segment level in determining operating income (loss) are generally the same as those applied at the consolidated financial statement level. Sales and transfers between operating segments are accounted for at market-based transaction prices and are eliminated in consolidation.

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Reportable segment information is presented in the following table:

Restructuring charges (Note 2) 27,381

Currency exchange losses, net (Note 5) 8,578

Product liability expense (Note 19) 39,036

Strategic transaction costs (Note 13) 717

COVID-19 related costs 757

Adjusted operating margin % 22.9 % 15.0 %

Adjusted EBITDA % 26.0 % 17.6 %

Noncash items:

Restructuring charges (Note 2) 13,846

Currency exchange losses, net (Note 5) 19,814

Product liability expense (Note 19) 26,619

Strategic transaction costs (Note 13) 4,400

Adjusted operating margin % 24.8 % 12.3 %

Adjusted EBITDA % 27.5 % 15.0 %

Noncash items:

Restructuring charges (Note 2) 13,247

Currency exchange losses, net (Note 5) 2,330

Product liability expense (Note 19) 45,327

Strategic transaction costs (Note 13) 421

Adjusted operating margin % 24.2 % 11.9 %

Adjusted EBITDA % 27.0 % 14.5 %

Noncash items:

(1)Reconciling items consist primarily of intercompany eliminations and items not directly attributable to operating segments.

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Geographic information on Net sales to external customers, based on country of origin:

Geographic information on tangible long-lived assets, net based on country of origin:

Total Net sales by product group was as follows:

2020 Consolidated Americas International

(In thousands) Dollars Percent Dollars Percent Dollars Percent

2019 Consolidated Americas International

(In thousands) Dollars Percent Dollars Percent Dollars Percent

2018 Consolidated Americas International

(In thousands) Dollars Percent Dollars Percent Dollars Percent

(a) Other products include sales of Air Purifying Respirators ("APR").

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Note 8—Earnings per Share

Basic earnings 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 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 payment awards that contain nonforfeitable rights to dividends.

Amounts attributable to MSA Safety Incorporated common shareholders:

Preferred stock dividends (41) (42) (42)

Stock options and other stock compensation 401 536 599

Earnings per share:

Note 9—Income Taxes

Components of income before income taxes

Provision for income taxes

Current

Deferred

The Company elected to treat Global Intangible Low Taxed Income, which was effective in 2018 for the Company, as a period cost.

The Tax Cuts and Jobs Act of 2017 ("the Act"), which was signed into law on December 22, 2017, has resulted in significant changes to the U.S. corporate income tax system including reducing the U.S. corporate rate to 21% starting in 2018. The Act also creates a territorial tax system with a one-time mandatory tax on previously deferred foreign earnings of U.S. subsidiaries.

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On December 22, 2017, SAB 118 was issued to address the application of US GAAP in situations when a registrant does not have the necessary information available, prepared or analyzed in reasonable detail to complete the accounting for certain income tax effects of the Act. In accordance with SAB 118, the Company calculated its best estimate of the impact of the Act and recorded income tax expense of $19.8 million during the fourth quarter of 2017, the period in which the legislation was enacted. Of this amount, $18.0 million related to the one-time transition tax and the remaining $1.8 million was related to the revaluation of U.S. deferred tax assets and liabilities. The Company previously considered the earnings in non-U.S. subsidiaries to be indefinitely reinvested and, accordingly, recorded no deferred income taxes. As as result of the Act, among other things, the Company determined it will repatriate earnings for all non-U.S. subsidiaries with cash in excess of working capital needs. The Company has estimated the associated tax to be $1.9 million, offset partially by $0.7 million of foreign tax credits. As of December 31, 2018, the Company had completed its accounting for all of the enactment-date income tax effects of the Act. Accordingly, we reduced our estimate for the one-time transition tax by $2.0 million and increased our estimate for the revaluation of U.S. deferred tax assets and liabilities by $2.5 million and a $2.0 million increase associated with prepaid taxes for updated regulations related to the Act.

During 2018, the Company recorded $1.8 million of foreign income tax reserves related to the legal and operational realignment of our U.S., Canadian and European operations. During 2020, an additional reserve of $1.1 million was recorded related to the operating realignment of our European operations.

Reconciliation of the U.S. federal income tax rates to our effective tax rate:

U.S. federal income tax rate 21.0 % 21.0 % 21.0 %

Nondeductible compensation 3.4 % 1.9 % 1.0 %

Taxes on non-U.S. income 2.6 % (0.5) % 0.4 %

State income taxes—U.S. 2.0 % 2.9 % 1.3 %

Valuation allowances 0.8 % 0.4 % 0.5 %

Foreign exchange on entity closures — % 1.8 % — %

U.S. tax reform — % — % 1.6 %

Manufacturing deduction credit — % — % (1.0) %

Employee share-based payments (3.9) % (2.6) % (1.6) %

Research and development credit (1.2) % (0.6) % (0.9) %

Effective income tax rate 25.7 % 25.1 % 22.9 %

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Components of deferred tax assets and liabilities:

December 31,

Deferred tax assets

Net operating losses and tax credit carryforwards 6,310 6,026

Accrued expenses and other reserves 5,195 4,384

Deferred tax liabilities

At December 31, 2020, we had net operating loss carryforwards of approximately $31.0 million, all of which are in non-U.S. tax jurisdictions. All net operating loss carryforwards without a valuation allowance may be carried forward for a period of at least six years.

A reconciliation of the change in the tax liability for unrecognized tax benefits for the years ended December 31, 2020 and 2019 is as follows:

Adjustments for tax positions related to the current year 425 —

Adjustments for tax positions related to prior years 2,950 (7,740)

The total amount of unrecognized tax benefits, if recognized, would reduce our future effective tax rate. We have recognized tax benefits associated with these liabilities in the amount of$2.7 million and $2.2 million at December 31, 2020 and 2019, respectively.

We recognize interest related to unrecognized tax benefits in interest expense and penalties in operating expenses. Our liability for accrued interest and penalties related to uncertain tax positions was $1.0 million and $0.5 million at December 31, 2020 and 2019, respectively.

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.

We file a U.S. federal income tax return along with various state and foreign income tax returns. Examinations of our U.S. federal returns have been completed through 2013, with the 2014, 2015 and 2016 tax years closed by statute. Various state and foreign income tax returns may be subject to tax audits for periods after 2014.

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Note 10—Stock Plans

The 2016 Management Equity Incentive Plan provides for various forms of stock-based compensation for eligible key employees through May 2026. Management stock-based compensation includes stock options, restricted stock, restricted stock units and performance stock units. Additionally, 2019 amounts granted include outstanding Sierra Monitor Corporation awards converted into MSA awards after the acquisition. See Note 13—Acquisitions for more information. The 2017 Non-Employee Directors’ Equity Incentive Plan provides for grants of stock options and restricted stock to non-employee directors through May 2027. Stock options are granted at market prices and expire after ten years. Stock options are exercisable beginning three years after the grant date. Restricted stock and restricted stock units are granted without payment to the Company and generally vest three years after the grant date. Restricted stock and restricted stock units are valued at the market value of the stock on the grant date. Performance stock units with a market condition are valued at an estimated fair value using a Monte Carlo simulation model. The final number of shares to be issued for performance stock units may range from zero to 200% of the target award based on achieving the specified performance targets over the performance period and further range based upon the achieved market metric over the performance period. In general, unvested stock options, restricted stock and performance stock units are forfeited if the participant’s employment with the Company terminates for any reason other than retirement, death or disability. We issue Treasury shares for stock option exercises and grants of restricted stock and performance stock. Please refer to Note 6 for further information regarding stock compensation share issuance. As of December 31, 2020, there were 802,439 and 94,020 shares, respectively, reserved for future grants under the management and non-employee directors’ equity incentive plans.

Stock-based compensation expense was as follows:

Total stock-compensation expense before income taxes 6,920 13,760 12,239

We did not capitalize any stock-based compensation expense, and all expense is recorded in selling, general and administrative expense in 2020, 2019, and 2018.

The Company utilized the Black-Scholes valuation model for estimating the fair value of stock option expense with the following weighted average assumptions. There were no stock options granted in 2020 or 2018.

Fair value per option $ 59.07

Risk-free interest rate 2.3 %

Expected dividend yield 1.7 %

Expected volatility 31 %

Expected life (years) 6.4

The risk-free interest rate is based on the U.S. Treasury 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 historical volatility using daily stock prices. Expected life is based on historical stock option exercise data.

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A summary of option activity follows:

Shares WeightedAverageExercise Price Exercisable atYear-end

For various exercise price ranges, characteristics of outstanding and exercisable stock options at December 31, 2020 were as follows:

Stock Options Outstanding

Range of Exercise Prices Shares Weighted-Average

Exercise Price Remaining Life

Stock Options Exercisable

Range of Exercise Prices Shares Weighted-Average

Exercise Price Remaining Life

Cash received from the exercise of stock options was $12.4 million, $7.5 million and $8.6 million for the years ended December 31, 2020, 2019 and 2018, respectively. The tax benefit we realized from these exercises was $6.4 million, $4.8 million and $2.5 million for the years ended December 31, 2020, 2019 and 2018, respectively.

Stock options become exercisable when they are vested. The aggregate intrinsic value of stock options exercisable at December 31, 2020 was $29.0 million. The aggregate intrinsic value of all stock options outstanding at December 31, 2020 was $29.3 million.

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A summary of restricted stock unit activity follows:

Shares Weighted AverageGrant DateFair Value

A summary of performance stock unit activity follows:

Shares Weighted AverageGrant DateFair Value

The 2020 performance adjustments relate to to awards that exceeded the performance targets when vested during 2020, including the final number of shares issued, which were 135.7% of the target award based on actual results during the three year performance period.

During the years ended December 31, 2020, 2019 and 2018, the total intrinsic value of stock options exercised (the difference between the market price on the date of exercise and the option price paid to exercise the option) was $24.6 million, $14.6 million and $12.2 million, respectively. The fair values of restricted stock vested during the years ended December 31, 2020, 2019 and 2018 were $5.7 million, $5.5 million and $5.4 million, respectively. The fair value of performance stock units vested during the years ended December 31, 2020, 2019 and 2018 was $9.6 million, $6.2 million and $1.7 million, respectively.

On December 31, 2020, there was $8.3 million of unrecognized stock-based compensation expense. The weighted average period over which this expense is expected to be recognized was approximately 1.7 years.

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Note 11—Long-Term Debt

Long-Term Debt

December 31,

On September 7, 2018, the Company entered into a Third Amended and Restated Credit Agreement associated with our senior revolving credit facility which extended the term of the revolving credit facility through September 2023 and increased the capacity to $600.0 million. Under this 2018 Amended and Restated Credit Agreement, the Company may elect either a Base rate of interest (“BASE”) or an interest rate based on the London Interbank Offered Rate (“LIBOR”). The BASE is a daily fluctuating per annum rate equal to the highest of (i) 0.0%, (ii) the Prime Rate, (ii) the Federal Funds Open Rate plus one half of one percent (0.5%), (iii) the Overnight Bank Funding Rate, plus one half of one percent (0.5%), or (iv) the Daily LIBOR Rate plus one percent (1.00%). The Company pays a credit spread of 0 to 175 basis points based on the Company’s net EBITDA leverage ratio and the elected rate (BASE or LIBOR). The facility contemplates the discontinuance of LIBOR and includes an option to replace LIBOR with a comparable rate, or if a comparable rate cannot be found, the base rate would be utilized. The Company has a weighted average revolver interest rate of 1.15% as of December 31, 2020. At December 31, 2020, $385.5 million of the existing $600.0 million senior revolving credit facility was unused, including letters of credit.

On January 22, 2016, the Company entered into a Second Amended and Restated Multi-Currency Note Purchase and Private Shelf Agreement (the "Notes"), pursuant to which MSA issued notes in an aggregate original principal amount of £54.9 million (approximately $75.1 million at December 31, 2020). The Notes are repayable in annual installments of £6.1 million (approximately $8.3 million at December 31, 2020), commencing January 22, 2023, with a final payment of any remaining amount outstanding on January 22, 2031. The interest rate on these Notes is fixed at 3.4%. On September 7, 2018, the Company entered into a first amendment of such amended and restated agreement associated with these Notes. Under the Second Amended and Restated Multi-Currency Note Purchase and Private Shelf Agreement, as amended ("Amended Note Purchase Agreement"), the Company may request from time to time during a three-year period ending September 7, 2021, the issuance of up to $150 million of additional senior notes.

On January 4, 2019, the Company entered into an amended and restated agreement associated with the New York Life master note facility dated June 2, 2014. Under this Amended and Restated Master Note Facility ("Amended Note Facility"), the Company may request from time to time during a three-year period ending January 4, 2022, the issuance of up to $150 million of additional senior promissory notes. As of the Form 10-K filing date, there are no promissory notes outstanding.

Both the Amended Note Purchase Agreement and Amended Note Facility require MSA 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 net leverage ratio not to exceed 3.50 to 1.00, except during an acquisition period 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 Amended Note Purchase Agreement and Amended Note Facility both contain negative covenants limiting the ability of MSA 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 MSA's or its subsidiaries' business. However, the covenants contained in the Amended Note Facility do not apply until promissory notes are issued.

The revolving credit facilities require the Company to comply with specified financial covenants. In addition, the revolving credit facilities contain negative covenants limiting the ability of the Company and its subsidiaries to enter into specified transactions. The Company was in compliance with all covenants at December 31, 2020.

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Approximate maturities on our long-term debt over the next five years are $20.0 million in 2021, none in 2022, $221.6 million in 2023, $8.3 million in 2024, $8.3 million in 2025 and $50.1 million thereafter.

The Company had outstanding bank guarantees and standby letters of credit with banks as of December 31, 2020, totaling $9.0 million, of which $1.3 million relate to the senior 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 December 31, 2020, the Company has $0.4 million of restricted cash in support of these arrangements.

Note 12—Goodwill and Intangible Assets

Changes in goodwill during the years ended December 31, 2020 and 2019, were as follows:

At December 31, 2020, goodwill of $293.2 million and $150.1 million related to the Americas and International reporting segments, respectively.

Changes in intangible assets, net of accumulated amortization, during the years ended December 31, 2020 and 2019, were as follows:

Additions and measurement period adjustments (Note 13) 121 11,100

At December 31, 2020, the above intangible assets balance includes a trade name related to the Globe acquisition with an indefinite life totaling $60.0 million.

Intangible asset amortization expense over the next five years is expected to be approximately $12 million in 2021, $10 million in 2022 and $9 million in 2023, 2024 and 2025.

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Note 13—Acquisitions

Acquisition of Sierra Monitor Corporation

On May 20, 2019, we acquired 100% of the common stock in Sierra Monitor Corporation ("SMC") in an all-cash transaction valued at $33.2 million, net of cash acquired. Additionally, we converted outstanding stock options and restricted stock units into MSA stock options and restricted stock units which resulted in additional goodwill of approximately $0.9 million based on the fair value of the awards identified as transaction consideration.

Based in Milpitas, California, in the heart of Silicon Valley, SMC is a leading provider of fixed gas and flame detection instruments and Industrial Internet of Things solutions that connect and help protect high-value infrastructure assets. The acquisition enables MSA to accelerate its strategy to enhance worker safety and accountability through the use of cloud technology and wireless connectivity. This acquisition enhances a key focus of the Company's recently established Safety io subsidiary, launched in 2018 primarily to leverage the capabilities of its portable gas detection portfolio as it relates to cloud connectivity. The transaction was funded through borrowings on our unsecured senior revolving credit facility.

SMC operating results are included in our consolidated financial statements from the acquisition date as part of the Americas reportable segment. The acquisition qualifies as a business combination and was accounted for using the acquisition method of accounting.

We finalized the purchase price allocation as of December 31, 2019. The following table summarizes the fair values of the SMC assets acquired and liabilities assumed at the date of acquisition:

Current assets (including cash of $2.1 million) $ 10.5

Property, plant and equipment and other noncurrent assets 1.3

Customer relationships 9.6

Acquired technology 1.4

Total assets acquired 42.7

Total liabilities assumed 6.5

Net assets acquired $ 36.2

Assets acquired and liabilities assumed in connection with the acquisition have been recorded at their fair values. Fair values were determined by management, based, in part on an independent valuation performed by a third-party valuation specialist. The valuation methods used to determine the fair value of intangible assets included the relief from royalty method for technology related intangible assets; the excess earnings approach for customer relationships using customer inputs and contributory charges; and the cost method for assembled workforce which is included in goodwill. A number of significant assumptions and estimates were involved in the application of these valuation methods, including sales volumes and prices, royalty rates, costs to produce, tax rates, capital spending, discount rates, and working capital changes. Cash flow forecasts were generally based on SMC pre-acquisition forecasts coupled with estimated MSA sales synergies. Identifiable intangible assets with finite lives are subject to amortization over their estimated useful lives. The customer relationships acquired in the SMC transaction will be amortized over a period of 10 years and the technology will be amortized over 5 years. Estimated future amortization expense related to the identifiable intangible assets is approximately $1.0 million in each of the next five years. The step up to fair value of acquired inventory as part of the purchase price allocation totaled $1.6 million which was fully recognized as amortization expense during the year ended December 31, 2019.

Goodwill is calculated as the excess of the purchase price over the fair value of net assets acquired and represents the future economic benefits arising from other assets acquired that could not be individually identified and separately recognized. Among the factors that contributed to a purchase price in excess of the fair value of the net tangible and intangible assets acquired were the acquisition of an assembled workforce, the expected synergies and other benefits that we believe will result from combining the operations of SMC with our operations. Goodwill of $19.9 million related to the SMC acquisition has been recorded in the Americas reportable segment and is non-deductible for tax purposes.

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Our results for the year ended December 31, 2020, include SMC sales and net income of $21.2 million and $2.8 million, respectively. Excluding purchase accounting amortization for intangible assets of $1.2 million, adjusted earnings for SMC for the year ended December 31, 2020 was $3.8 million.Our operating results for the year ended December 31, 2019 include SMC sales and net loss of $13.5 million and $3.3 million, respectively. Excluding purchase accounting amortization for intangible assets and inventory step up of $2.6 million, transaction costs of $2.2 million, and stock compensation cost related to converted options and excess performance on PSUs related to the acquisition of $1.5 million, adjusted earnings for SMC for the year ended December 31, 2019 was $1.5 million.

The following unaudited pro forma information presents our combined results as if the SMC acquisition had occurred at the beginning of 2018. The unaudited pro forma financial information was prepared to give effect to events that are (1) directly attributable to the acquisition; (2) factually supportable; and (3) expected to have a continuing impact on the combined company’s results. There were no material transactions between MSA and SMC during the periods presented that are required to be eliminated. Intercompany transactions between SMC companies during the periods presented have been eliminated in the unaudited pro forma combined financial information. The unaudited pro forma financial information does not reflect any cost savings, operating synergies or revenue enhancements that the combined companies may achieve as a result of the acquisitions or the costs to integrate the operations or the costs necessary to achieve cost savings, operating synergies or revenue enhancements.

Pro forma financial information (Unaudited)

(In millions, except per share amounts) 2019 2018

Basic earnings per share 3.40 3.24

Diluted earnings per share 3.35 3.19

The unaudited pro forma combined financial information is presented for information purposes only and is not intended to represent or be indicative of the combined results of operations or financial position that we would have reported had the acquisitions been completed as of the date and for the periods presented, and should not be taken as representative of our consolidated results of operations or financial condition following the acquisitions. In addition, the unaudited pro forma combined financial information is not intended to project the future financial position or results of operations of the combined company.

The unaudited pro forma financial information was prepared using the acquisition method of accounting for both acquisitions under existing U.S. GAAP. MSA has been treated as the acquirer.

Our results include strategic transaction costs of $0.7 million, $4.4 million, and $0.4 million for the years ended December 31, 2020, 2019, and 2018. These costs are reported in Selling, general and administrative expenses.

Note 14—Pensions and Other Post-retirement Benefits

We maintain various defined benefit and defined contribution plans covering the majority of our employees. Our principal U.S. plan is funded in compliance with the Employee Retirement Income Security Act (ERISA). It is our general policy to fund current costs for the international plans, except in Germany and Mexico, where it is common practice and permissible under tax laws to maintain an unfunded liability.

We provide health care benefits and limited life insurance for certain retired employees who are covered by our principal U.S. defined benefit pension plan until they become Medicare-eligible.

Information pertaining to defined benefit pension plans and other post-retirement benefits plans is provided in the following tables:

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Pension Benefits Other Benefits

Change in Benefit Obligations

Plan amendments (430) — — —

Curtailments (1,559) — — —

Change in Plan Assets

Fair value of plan assets at January 1 $ 515,858 $ 443,112 $ — $ —

Administrative expenses paid (172) (297) — —

Funded Status

Unrecognized transition losses 4 4 — —

Amounts Recognized in the Balance Sheets

Amounts Recognized in Accumulated Other Comprehensive Loss

Unrecognized net initial obligation 4 4 — —

(a)Actuarial losses for both periods relate primarily to the decrease in discount rates used in measuring plan obligations as of December 31, 2020 and 2019, respectively.

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Pension Benefits Other Benefits

Components of Net Periodic Benefit Cost

Amortization of transition amounts — 2 1 — — —

Settlement/curtailment loss 1,135 (b) 2,497 (c) 179 — — —

(a)Components of net periodic benefit 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 Consolidated Statements of Income.

(b) Relates primarily to the conversion of our Netherlands pension plan into a defined contribution plan and is included in "Restructuring charges" on the Consolidated Statements of Income.