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.”

This section generally discusses the results of our operations for the year ended December 31, 2021 compared to the year ended December 31, 2020. For a discussion on the year ended December 31, 2020 compared to the year ended December 31, 2019, please refer to Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended December 31, 2020 filed with the Securities and Exchange Commission on February 19, 2021.

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

On July 1, 2021, the Company acquired Bacharach, Inc. and its affiliated companies ("Bacharach") in a transaction valued at $329.4 million, net of cash acquired. Headquartered near Pittsburgh in New Kensington, Pa., Bacharach is a leader in gas detection technologies used in the heating, ventilation, air conditioning and refrigeration ("HVAC-R") markets. Bacharach’s advanced instrumentation technologies help protect lives and the environment, while also increasing operational efficiency for its diversified customer base. Bacharach's portfolio of gas detection and analysis products are used to detect, measure and analyze leaks of various gases that are commonly found in both commercial and industrial settings. Bacharach has strong expertise in the refrigerant leak detection market with customers in the HVAC-R, food retail, automotive, commercial and industrial refrigeration, and military markets. Refer to Note 14—Acquisitions of the consolidated financial statements in Part II Item 8 of this Form 10-K for further information.

During July 2021, the Company purchased the remaining 10% noncontrolling interest in MSA (China) Safety Equipment Co., Ltd. from our former China partner for $19.0 million, inclusive of a $5.6 million distribution.

On January 25, 2021, the Company 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 $63.0 million, net of cash acquired. Bristol, which is headquartered in the United Kingdom, 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 market leader in fire service personal protective equipment ("PPE") products, which include breathing apparatus, firefighter helmets, thermal imaging cameras, and firefighter protective apparel, while providing an avenue to expand its business in the United Kingdom ("U.K") and key European markets. The fire service equipment brands of MSA, which include Gallet Firefighter Helmets, the M1 and G1 Self-Contained Breathing Apparatus range, Cairns Helmets, Globe Manufacturing, and now Bristol, represent more than 460 combined years of innovation in the fire service industry, with a common mission: protecting the health and safety of firefighters. Bristol is also a leading manufacturer of flame-retardant, waterproof, and other protective work wear for the utility industry. Marketed under the Bell Apparel brand, this line complements MSA's existing and broad range of offerings for the global utilities market. Refer to Note 14—Acquisitions of the consolidated financial statements in Part II Item 8 of this Form 10-K for further information.

During the fourth quarter of 2021, the Company changed its method of accounting for certain inventory in the United States from the LIFO method to the FIFO method. The FIFO method of accounting for inventory is preferable because it conforms the Company's entire inventory to a single method of accounting and improves comparability with the Company's peers. The effects of the change in accounting method from LIFO to FIFO have been retrospectively applied to all periods presented in all sections of this Annual Report, including Management's Discussion and Analysis. Refer to Note 4—Inventory of the consolidated financial statements in Part II Item 8 of this Form 10-K for further information related to the change in accounting principle.

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BUSINESS OVERVIEW

MSA is a global leader in the development, manufacture and supply of safety products that protect people and facility infrastructures. 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, oil, gas and petrochemical industry, construction, industrial manufacturing applications, utilities, mining and the military. MSA's core products include breathing apparatus, 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 the case with COVID-19. Our customers include first responders, who are tasked with keeping citizens safe, and include 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 during these times, to the extent practicable, while protecting the health and safety of our workforce, and complying with all applicable laws, all pursuant to an established pandemic response plan.

The Company has developed a thoughtful, phased approach to reconnecting segments of our workforce that had converted to remote working conditions due to COVID-19. Through this process in 2021, we returned elements of our salesforce to in-person customer interactions on a limited basis and instituted a modified hybrid return-to-office protocol for the majority of our U.S. workforce in the third quarter, with our International segment employees planning to return to the office once deemed appropriate under the circumstances for each business location. We continue to deploy a phased approach to reconnect employees while adjusting the characteristics of their physical working environments, providing training and executing enhanced safety and cleaning protocols, which promotes workspace safety in a manner consistent with the mission and values of MSA. The Company’sreturn-to-work plans continue to evolve as needed, such as was the case due to the Omicron variant.

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 2021, 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, the Middle East and Africa ("EMEA") and the Asia Pacific region. In our largest International subsidiaries (in Germany, France, United Kingdom, Ireland and China), we develop, manufacture and sell a wide variety of products. In China, the products manufactured are sold primarily in China as well as in 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, 2021, 2020 and 2019 corporate general and administrative costs were $37.6 million, $28.5 million, and $37.3 million, respectively.

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Year Ended December 31, 2021 Compared to Year Ended December 31, 2020

Net Sales 2021 2020 DollarIncrease(Decrease) PercentIncrease(Decrease)

(In millions)

Net Sales. Net sales for the year ended December 31, 2021, were $1.40 billion, an increase of $52.0 million, from $1.35 billion for the year ended December 31, 2020. Constant currency sales increased by 3% for the year ended December 31, 2021. Please refer to the Net Sales table below for a reconciliation of the year over year sales change.

Net Sales Year Ended December 31, 2021 versus December 31, 2020

(Percent Change) Americas International Consolidated

GAAP reported sales change 3.9% 3.8% 3.9%

Currency translation effects —% (4.0)% (1.4)%

Constant currency sales change 3.9% (0.2)% 2.5%

Less: Acquisitions (3.2)% (7.7)% (4.8)%

Organic constant currency change 0.7% (7.9)% (2.3)%

Note: Organic 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. Organic constant currency sales change is calculated by deducting the percentage impact from acquisitions and currency translation effects from the overall percentage change in net sales.

Net sales for the Americas segment were $908.1 million for the year ended December 31, 2021, an increase of $33.8 million, or 4%, compared to $874.3 million for the year ended December 31, 2020. During 2021, constant currency sales in the Americas segment increased 4% compared to the prior year period, driven by $28 million of Bacharach sales and a general improvement in business conditions driving a higher level of sales of head protection, portable gas detection and fall protection; partially offset by APR sales moderating to pre-pandemic levels.

Net sales for the International segment were $492.1 million for the year ended December 31, 2021, an increase of $18.2 million, or 4%, compared to $473.9 million for the year ended December 31, 2020. Constant currency sales in the International segment was consistent with 2020, due to weaker organic sales volumes across the segment, with more significant weakness in emerging markets due to an uneven economic recovery due to COVID-19 and lower project business in the Middle East FGFD market. This weakness was partially offset by $39 million of acquisition related sales, primarily related to Bristol.

Order activity was healthy as we finished the fourth quarter, and continued to show year-over-year improvements to start 2022. Our backlog remains at an elevated level, as a result of an uptick in order pace and ongoing supply chain constraints in certain product groups.

Looking ahead, we continue to operate in a dynamic environment. There are a number of other evolving factors that will continue to influence our revenue outlook. These factors include, among other things, supply chain constraints, including electronic components impacting our fixed and portable gas detection product groups, which have intensified to start 2022; availability of labor, especially at Globe; the effectiveness/pace of the vaccine rollout globally; risk of additional COVID outbreaks and/or lockdowns; industrial employment rates; and the pace of economic recovery. These conditions could impact our future results and growth expectations well into 2022.

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

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Gross profit. Gross profit for the year ended December 31, 2021 was $615.3 million, an increase of $19.8 million, or 3.3%, compared to $595.5 million for the year ended December 31, 2020. The ratio of gross profit to net sales was 43.9% in 2021 compared to 44.2% in 2020. Strategic pricing, stronger throughput in our factories and lower inventory charges associated with APR products offset the impacts of $3.8 million of inventory step-up amortization and $5.0 million of intangible asset amortization related to our 2021 acquisitions, and higher material costs. We have continued to take pricing actions across our business and will continue to take additional actions to respond to the inflation we are seeing, especially in the U.S. across electronic components, resins and other inputs. While there could be a number of scenarios on the length of time that these challenges may persist, we could see these impact our business for the foreseeable future with more meaningful impact well into 2022.

Selling, general and administrative expenses. Selling, general and administrative ("SG&A") expenses were $332.9 million for the year ended December 31, 2021, an increase of $42.6 million, or 14.7%, compared to $290.3 million for the year ended December 31, 2020. Overall, selling, general and administrative expenses were 23.8% of net sales in 2021 compared to 21.5% of net sales in 2020. Improved business conditions drove $17.7 million of additional variable compensation and $2.6 million of higher discretionary expense during the period as the business exited the peak pandemic state. SG&A includes $22.3 million of expenses associated with Bacharach and Bristol operations, which includes $7.1 million of non-recurring deal costs related to these acquisitions.

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

(Percent Change) Consolidated

GAAP reported change 14.7%

Currency translation effects (1.0)%

Constant currency change 13.7%

Less: Acquisitions and related strategic transaction costs (7.3)%

Organic constant currency change 6.4%

Note: Organic constant currency SG&A change is a non-GAAP financial measure provided by the Company to give a better understanding of the Company's underlying business performance. Organic constant currency SG&A change is calculated by deducting the percentage impact from acquisitions and related strategic transaction costs and currency translation effects from the overall percentage change in SG&A.

Research and development expense. Research and development expense was $57.8 million for the year ended December 31, 2021, a decrease of $0.5 million, or 0.8%, compared to $58.3 million for the year ended December 31, 2020. Research and development expense was 4.1% of net sales in 2021, compared to 4.3% of net sales in 2020. We continue to develop new products for global safety markets, including the recently announced launch of the Altair io4. We capitalized approximately $8.1 million and $8.2 million of software development costs during the years ended December 31, 2021 and 2020, respectively.

Restructuring charges. During the year ended December 31, 2021, the Company recorded restructuring charges of $16.4 million primarily related to our ongoing initiatives to drive profitable growth and acquisition integration activities. Together with cost reduction programs executed throughout 2020 and 2021, these programs collectively delivered approximately $15 million of savings throughout the income statement in 2021, and expect to generate annual savings of $25-$30 million thereafter. This compared to restructuring charges of $27.4 million during the year ended December 31, 2020, primarily related to footprint rationalization projects including the Company's FGFD manufacturing footprint optimization and the acceleration of cost reduction programs associated with our ongoing initiatives to drive profitable growth in our International segment. We remain focused on executing programs to optimize our cost structure and to drive improvements in productivity.

Currency exchange. Currency exchange losses were $0.2 million during the year ended December 31, 2021, compared to $8.6 million during the year ended December 31, 2020. Currency exchange in both periods were related to foreign currency exposure on unsettled inter-company balances.

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

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Product liability expense. Product liability expense during the year ended December 31, 2021 was $185.3 million compared to $39.0 million for the year ended December 31, 2020. The expense in both periods primarily relates to increases in MSA LLC's reserve for cumulative trauma product liability claims, and to a far lesser extent, incurred defense costs. Adjustments to the reserve for the year ended December 31, 2021 totaled $219.0 million net of insurance receivable of $42.9 million. These adjustments were largely a result of incorporating the increased number of newly filed claims during the year into long term trends used in the estimate, particularly, the number of newly filed coal claims, which were well in excess of historical experience. The reserve includes estimated amounts for claims expected to be resolved through the year 2074. Please refer to Note 20—Contingencies of the 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, 2021 was $22.8 million compared to $171.9 million for the year ended December 31, 2020. The decrease in operating results was driven by the factors described in the preceding sections.

Adjusted operating income. Americas adjusted operating income for the year ended December 31, 2021 was $202.5 million, a decrease of $2.8 million or 1%, compared to $205.3 million for the year ended December 31, 2020. The decrease was related to variable compensation resets and higher SG&A due to the Bacharach acquisition, as well as higher input costs, which was mostly offset by higher revenue.

International adjusted operating income for the year ended December 31, 2021 was $73.3 million, an increase of $2.2 million, or 3%, compared to adjusted operating income of $71.1 million for the year ended December 31, 2020. The increase in adjusted operating income is primarily attributable to higher revenue.

Corporate segment adjusted operating loss for the year ended December 31, 2021 was $35.2 million, an increase of $7.1 million, or 25%, compared to an adjusted operating loss of $28.1 million for the year ended December 31, 2020, due primarily to higher variable compensation expenses related to improved business conditions and the impact of the Bacharach acquisition.

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

Adjusted operating income Year Ended December 31, 2021

(In thousands) Americas International Corporate Consolidated

GAAP operating income 22,780

Restructuring charges (Note 3) 16,433

Currency exchange losses, net 216

Product liability expense (Note 20) 185,264

Acquisition related costs (Note 14)(a) 15,884

Adjusted operating margin % 22.3 % 14.9 %

Adjusted EBITDA % 25.7 % 17.7 %

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Adjusted operating income Year Ended December 31, 2020

(In thousands) Americas International Corporate Consolidated

Restructuring charges (Note 3) 27,381

Currency exchange losses, net 8,578

Product liability expense (Note 20) 39,036

Acquisition related costs (Note 14)(a) 717

COVID-19 related costs 757

Adjusted operating margin % 23.5 % 15.0 %

Adjusted EBITDA % 26.5 % 17.7 %

* The year ended December 31, 2020 amounts were adjusted to reflect the change in inventory accounting method, as described in Notes 1 and 4 to the consolidated financial statements.

(a) Acquisition related costs include advisory, legal, accounting, valuation, and other professional or consulting fees incurred during due diligence and integration. These costs are included in selling, general and administrative expense in the Consolidated Statements of Income. Acquisition-related costs during 2021 also include $8.8 million of amortization which is included in Cost of products sold in the Consolidated Statements of Income.

Note: Adjusted operating income (loss) and adjusted EBITDA are 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 acquisition related costs. Adjusted EBITDA is reconciled above to the nearest GAAP financial measure, Operating income (loss) and excludes depreciation and amortization expense.

Total other (income) expense, net. Total other income, net, for the year ended December 31, 2021, was $0.8 million, an increase of $4.5 million compared to other expense, net, of $3.7 million for the year ended December 31, 2020, due primarily to higher pension income driven by a one-time pension settlement and a higher expected rate of return on plan assets.

Income taxes. The reported effective tax rate for the year ended December 31, 2021 was 7.7%, which includes a benefit of 18.3% for share-based payments, a benefit of 10.9% related to higher profits in foreign jurisdictions and settlement of a foreign audit, and an expense of 15.3% due to nondeductible compensation. This compared to a reported effective tax rate for the year ended December 31, 2020 of 25.6%, 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.

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 $21.3 million for the year ended December 31, 2021, or $0.54 per diluted share, compared to $124.1 million, or $3.15 per diluted share, for the year ended December 31, 2020, as positive momentum in the business was offset by the product liability reserve adjustment.

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Non-GAAP Financial Information

We may provide information regarding financial measures such as organic constant currency changes, financial measures excluding the impact of acquisitions and related acquisition related costs (including acquisition related amortization and 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 8—Segment Information of the consolidated financial statements in Part II Item 8 of this Form 10-K.

We may also provide financial information on a constant currency basis, which is a non-GAAP financial measure. These references to a constant currency basis do not include operational impacts that could result from fluctuations in foreign currency rates, which are outside of management's control. To provide information on a constant currency basis, the applicable financial results are adjusted by translating current and prior period results in local currency to a fixed foreign exchange rate. This approach is used for countries where the functional currency is the local country currency. This information is provided so that certain financial results can be viewed without the impact of fluctuations in foreign currency rates, thereby facilitating period-to-period comparisons of business performance. Constant currency information is not recognized under U.S. GAAP and it is not intended as an alternative to U.S. GAAP measures.

LIQUIDITY AND CAPITAL RESOURCES

Our main source of liquidity is operating cash flows, supplemented by borrowings. Our principal liquidity requirements are for working capital, capital expenditures, principal and interest payments on debt, declared dividend payments and acquisitions. At December 31, 2021, approximately 46% of our long-term debt is at fixed interest rates with repayment schedules through 2036. The remainder of our long-term debt is at variable rates on an unsecured revolving credit facility that is due in 2026. At December 31, 2021, approximately 81% of our borrowings are denominated in US dollars, which limits our exposure to currency exchange rate fluctuations.

At December 31, 2021, the Company had cash and cash equivalents totaling $141.4 million, and access to sufficient capital, providing ample liquidity and flexibility to continue to maintain our balanced capital allocation strategy. At December 31, 2021, $572.4 million of the existing $900.0 million senior revolving credit facility was unused, including letters of credit issued under the facility. The facility also provides an accordion feature that allows the Company to access an additional $400.0 million of capacity pending approval by MSA’s board of directors and from the bank group. The Company believes our healthy balance sheet and access to significant capital at the year ended December 31, 2021, positions us well to navigate through challenging business conditions.

Operating activities. Operating activities provided cash of $199.1 million in 2021, compared to providing cash of $206.6 million in 2020. The reduced operating cash flow as compared to the same period in 2020 was primarily related to increased working capital and payments for subsidiary MSA LLC's product liability claims exceeding collections from insurance companies by $24.1 million in the year ended December 31, 2021, compared to $12.9 million in 2020. MSA LLC presently funds its operating expenses and legal liabilities from its own operating cash flow and other investments, as well as limited amounts of insurance reimbursements and intercompany notes. The subsidiary is not party to the Company's credit facility. Now that MSA LLC is largely self-insured for its historical cumulative trauma product liability claims, associated insurance reimbursements received in any given period are limited, and generally do not fully offset cash outlay in that same period. In recent years, MSA LLC’s contingent liabilities have been funded without a material impact on the Company’s consolidated capital allocation priorities. Please refer to Note 20—Contingencies of the consolidated financial statements in Part II Item 8 of this Form 10-K for additional information.

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Investing activities. Investing activities used cash of $415.5 million for the year ended December 31, 2021, compared to using $72.8 million in 2020. The acquisitions of Bacharach and Bristol and capital expenditures, partially offset by maturities of short-term investments, net of purchases, drove cash outflows from investing activities during the year ended December 31, 2021, while capital expenditures and the purchase of short-term investments, net of proceeds from maturities, drove cash outflows from investing activities during the same period in 2020. During 2021 we incurred capital expenditures of $43.8 million, including approximately $8.1 million associated with software development and other growth programs, compared to capital expenditures of $48.9 million, including $8.2 million associated with software development and other growth programs, in the same period in 2020. The reduced capital expenditures in 2021 was a result of MSA's ramping up APR production in our Jacksonville, NC facility in 2020. We remain active in evaluating additional acquisition opportunities that will allow us to continue to grow in key end markets and geographies.

Financing activities. Financing activities provided cash of $203.9 million for the year ended December 31, 2021, compared to using cash of $126.5 million in 2020. During 2021, we had net proceeds on long-term debt of $293.2 million to fund the acquisitions of Bacharach and Bristol and buy-out our minority partner in our China business, as compared to net payments on long-term debt of $44.0 million during the same period in 2020. We paid cash dividends, exclusive of a $5.6 million dividend to our former noncontrolling interest partner in China as part of the buy-out, of $68.6 million during 2021, compared to $66.6 million during 2020. We also used cash of $6.2 million during 2021 to repurchase shares, compared to using $29.1 million during the same period in 2020. In 2020, $20.1 million of our repurchase activity was 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 at December 31, 2021, resulted in a translation loss of $25.4 million being recorded to cumulative translation adjustments shareholders' equity account for the year ended December 31, 2021, compared to a $22.3 million translation gain being recorded to the cumulative translation adjustments account during 2020.

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, 2021, are as follows:

Inventory costing method change tax 10.7 2.7 2.7 2.7 2.6 — —

Transition tax 2.0 — 0.7 1.3 — — —

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 future debt service obligations through cash provided by operations. Approximately $334.4 million of debt payable in 2026 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 2026, 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 $7.9 million in 2022, $7.8 million in 2023, $7.6 million in 2024, $7.1 million in 2025, and $7.0 million in 2026. We expect total interest expense for 2022 to be between $13 million and $15 million.

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The Company had outstanding bank guarantees and standby letters of credit with banks as of December 31, 2021 totaling $10.9 million, of which $1.5 million relate to the senior revolving credit facility. These letters of credit serve to cover customer requirements in connection with certain sales orders and insurance companies. The Company is also required to provide cash collateral in connection with certain arrangements. At December 31, 2021, the Company has $0.5 million of restricted cash in support of these arrangements.

We expect to make net contributions of $7.7 million to our pension plans in 2022 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 20—Contingencies to the consolidated financial statements in Part II Item 8 of this Form 10-K for further discussion on the Company's product liabilities.

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.

The more critical judgments and estimates used in the preparation of our consolidated financial statements are discussed in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in this Form 10-K for the year ended December 31, 2021. During 2021, the Company made acquisitions that raised business combinations to a critical accounting policy and estimate.

Business combinations. In accordance with the accounting guidance for business combinations, the Company uses the acquisition method of accounting to allocate costs of acquired businesses to the assets acquired and liabilities assumed based on their estimated fair values at the dates of acquisition. The excess costs of acquired businesses over the fair values of the assets acquired and liabilities assumed will be recognized as goodwill. The valuations of the acquired assets and liabilities will impact the determination of future operating results. In addition to using management estimates and negotiated amounts, the Company uses a variety of information sources to determine the estimated fair values of acquired assets and liabilities including: third-party appraisals for the estimated value and lives of identifiable intangible assets and property, plant and equipment; third-party actuaries for the estimated obligations of defined benefit pension plans and similar benefit obligations; and legal counsel or other experts to assess the obligations associated with legal, environmental and other contingent liabilities.

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

Cumulative trauma product liability. The Company and its subsidiaries face an inherent business risk of exposure to product liability claims arising from the alleged failure of our products to prevent the types of personal injury or death against which they are designed to protect. Product liability claims are categorized as either single incident or cumulative trauma.

Single incident product liability claims involve incidents of short duration that are typically known when they occur and involve observable injuries, which provide an objective basis for quantifying damages. The Company estimates its subsidiaries' liability for single incident product liability claims based on expected settlement costs for asserted single incident product liability claims and an estimate of costs for single incident product liability claims incurred but not reported ("IBNR"). Single incident product liability exposures are evaluated on an annual basis, or more frequently if changing circumstances warrant. Adjustments are made to the reserve as appropriate.

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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 and 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. 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.

Please refer to Note 20—Contingencies to the consolidated financial statements in Part II Item 8 of this Form 10-K for further discussion on the Company's product liabilities.

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.

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, 2021.

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, 2021 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 (86,513) 109,624 — — — —

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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 2021, we performed a quantitative test at October 1, 2021. 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, 2021, based on our quantitative test, the fair values of each of our reporting units exceeded their carrying value by at least 56%.

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, 2021, based on our quantitative test, the fair value of the trade name asset exceeded its carrying value by approximately 29%.

RECENTLY ADOPTED AND RECENTLY ISSUED ACCOUNTING STANDARDS

None

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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, 2021 by approximately $61.4 million and $5.3 million, or 4.4% and 24.9%, 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, 2021, we had open foreign currency forward contracts with a U.S. dollar notional value of $99.0 million. A hypothetical 10% increase in December 31, 2021 forward exchange rates would result in a $9.9 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, 2021, we had $274.3 million of fixed rate debt which matures at various dates through 2036. 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 $10.5 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, 2021, we had $326.1 million of variable rate borrowings under our revolving credit facility. A 100 basis point increase or decrease in interest rates could have a $3.8 million 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, 2021. 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, 2021.

The Company acquired B T Q Limited ("Bristol") and Bacharach, Inc. ("Bacharach") on January 25, 2021, and July 1, 2021, respectively, which collectively represented approximately 19% and 48% of the Company's total assets and net assets as of December 31, 2021 and 5% and (29%) of total sales and net income for the year ended December 31, 2021. As the Bristol and Bacharach acquisitions were completed during the first and third quarters of 2021, respectively, the scope of the Company's 2021 assessment of the effectiveness of its internal control over financial reporting does not include the Bristol and Bacharach acquisitions. This exclusion is pursuant to the SEC's general guidance that an assessment of a recently acquired business' internal control over financial reporting may be omitted from the scope of the Company's assessment of its internal control over financial reporting for twelve months following the date of acquisition.

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 18, 2022

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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, 2021, 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, 2021, based on the COSO criteria.

As indicated in the accompanying Management's Report on Internal Control Over Financial Reporting, management's assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of B T Q Limited ("Bristol") and Bacharach, Inc. ("Bacharach"), which are included in the 2021 consolidated financial statements of the Company and collectively constituted 19% and 48% of total and net assets, respectively, as of December 31, 2021 and 5% and (29)% of revenues and net income, respectively, for the year then ended. Our audit of internal control over financial reporting of the Company also did not include an evaluation of the internal control over financial reporting of Bristol and Bacharach.

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, 2021 and 2020, 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, 2021, and the related notes and financial statement schedule listed in the Index at Item 15(a) 2 and our report dated February 18, 2022 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.

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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 18, 2022

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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, 2021 and 2020, 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, 2021, 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, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, 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, 2021, 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 18, 2022 expressed an unqualified opinion thereon.

Change in Accounting Principle

As discussed in Notes 1 and 4 to the consolidated financial statements, in 2021 the Company elected to change its method of accounting for certain inventories in the United States from the last-in, first-out (“LIFO”) method to the first-in, first-out (“FIFO”) method for all years presented.

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 Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters 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 matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

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Valuation of cumulative trauma product liability claims

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/s/ Ernst & Young LLP

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

Pittsburgh, Pennsylvania

February 18, 2022

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MSA SAFETY INCORPORATED

CONSOLIDATED STATEMENTS OF INCOME

Year ended December 31,

Net income attributable to noncontrolling interests $ (448) $ (1,061) $ (1,209)

Dividends per common share $ 1.75 $ 1.71 $ 1.64

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 income, net of tax:

Unrealized (losses) gains on available-for-sale securities (Note 6) (4) (7) 578

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) 2021 2020

Assets

Notes receivable, insurance companies (Note 20) 3,914 3,796

Prepaid expenses and other current assets 42,982 38,541

Operating lease right-of-use assets, net (Note 17) 50,178 53,451

Notes receivable, insurance companies, noncurrent (Note 20) 44,626 48,540

Insurance receivable (Note 20) and other noncurrent assets 158,649 89,062

Liabilities

Notes payable and current portion of long-term debt (Note 12) $ — $ 20,000

Accrued restructuring (Note 3) and other current liabilities 113,451 116,128

Noncurrent operating lease liabilities (Note 17) 40,706 44,639

Product liability (Note 20) and other noncurrent liabilities 369,735 201,268

Commitments and contingencies (Note 20)

Shareholders' Equity

Preferred stock, 4.5% cumulative, $50 par value (Note 7) 3,569 3,569

Total MSA Safety Incorporated shareholders’ equity 834,388 839,201

Noncontrolling interests (Note 14) — 7,993

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

Changes in:

Investing Activities

Property disposals and other investing (5,286) 454 218

Financing Activities

Payments on short-term debt, net (Note 12) — — (65)

Debt issuance costs (2,106) — —

Distribution to noncontrolling interests (5,632) — —

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

Inventory accounting method change 31,769 — —

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 19) — 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 19) — (7) —

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

Common dividends (66,537) — —

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

Foreign currency translation adjustments — (25,354) —

Pension and post-retirement plan adjustments, net of tax of ($18,564) — 58,256 —

Unrecognized net losses on available-for-sale securities (Note 19) — (4) —

(Income) loss attributable to noncontrolling interests (448) 92 356

Acquisition of noncontrolling interests in consolidated subsidiaries — — (8,349)

Distributions to noncontrolling interests (Note 14) (5,632) — —

Common dividends (68,545) — —

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

General Information and 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 reporting period. Actual results could differ from those estimates upon subsequent resolution of identified matters.

During the fourth quarter of 2021, the Company changed its method of accounting for certain inventory in the United States from the last-in, first-out ("LIFO") method to the first-in, first-out ("FIFO") method. All prior periods presented have been retrospectively adjusted to apply the new method of accounting. See Note 4—Inventories for more information on the change in inventory accounting method.

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

Reclassifications—Certain reclassifications of prior years' data have been made to conform to the current year presentation. These reclassifications relate to additional captions disclosed within the operating activities section of the Consolidated Statements of Cash Flows, but do not change the overall cash flow from operating activities for the prior years as previously reported.

Noncontrolling Interests—Noncontrolling interests reflect noncontrolling shareholders’ investments in certain consolidated subsidiaries and their proportionate share of the income and accumulated other comprehensive loss of those subsidiaries. During July 2021, the Company purchased the remaining noncontrolling interests in MSA (China) Safety Equipment Co., Ltd. See Note 14—Acquisitions for further detail.

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 subsidiaries are reported as a component of shareholders’ equity and are not included in net 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. Highly liquid investments consist of money market funds which were $8.7 million and $0.6 million at December 31, 2021 and 2020, respectively. These funds are valued at net asset value (“NAV”). These funds are required to price and transact at a NAV per share that fluctuates based upon the pricing of the underlying portfolio of securities. This requirement may impact the value of these 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 $0.5 million and $0.4 million at December 31, 2021 and 2020, respectively. These balances were used to support letter of credit balances.

Inventories—Inventories are stated at the lower of cost or net realizable value, which approximates current replacement cost. Cost is determined using the FIFO method. It is the Company's general policy to write-down any inventory balance in excess of the last 24 months of consumption and any inventory identified as obsolete.

Investment securities—The Company’s investment securities, primarily consisting of fixed income securities, are classified as available-for-sale. The securities are recorded at fair market value and included 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.

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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) expense, net and the cost and related accumulated depreciation are removed from the accounts. Depreciation expense for the years ended December 31, 2021, 2020 and 2019 was $33.0 million, $27.7 million and $26.5 million, respectively. Properties, plant, 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.

Software Development Costs—Software development costs consist of costs incurred 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 2021, 2020 and 2019 there was approximately $8.1 million, $8.2 million and $5.0 million, respectively, of software development costs capitalized.

Lessee Arrangements—At the inception of our contracts, we determine if the contract is or contains a lease. A contract is or contains a lease if it conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Right-of-use assets and operating lease liabilities are recognized based on the present value of lease payments over the lease term at commencement. We use our incremental borrowing rate ("IBR") at the recognition date in determining the present value of future payments for leases that do not have a readily determinable implicit rate. Our IBR reflects a fully secured rate based on our credit rating, taking into consideration the repayment timing of the lease and any impacts due to the economic environment in which the lease operates.

Our lease payments are largely fixed. Variable lease payments that depend on an index or a rate are included in the lease payments and are measured using the prevailing index or rate at the measurement date, with differences between the calculated lease payment and the actual lease payment being expensed in the period of the change. Other variable lease payments, including utilities, consumption and common area maintenance as well as repairs, maintenance and mileage overages on vehicles, are expensed during the period incurred. A majority of our real estate leases include options to extend the lease and options to early terminate the lease. Leases with an early termination option generally involve a termination payment. If we are reasonably certain to exercise an option to extend a lease, the extension period is included as part of the right-of-use asset and the lease liability. Some of our leases contain residual value guarantees. These are guarantees made to the lessor that the value of an underlying asset returned to the lessor at the end of a lease will be at least a specified amount. Our leases do not contain restrictions or covenants that restrict us from incurring other financial obligations. For our leases, we have elected to not apply the recognition requirements to leases of less than twelve months. These leases are expensed on a straight-line basis and are not included within the Company's operating lease asset or liability.

Lease right-of-use assets and liabilities are recognized based on the present value of the fixed future lease payments over the lease term. Operating leases are included in Operating lease right-of-use assets, net, Accrued restructuring and other current liabilities, and Noncurrent operating lease liabilities in our Consolidated Balance Sheets. Finance leases are included in Property, plant and equipment, net, Accrued restructuring and other current liabilities, and Product liability and other noncurrent liabilities in our Consolidated Balance Sheets. Lease expense for all operating leases is classified in Cost of products sold or Selling, general and administrative expense in the Consolidated Statements of Income. For finance leases, the amortization of the right-of-use asset is included in depreciation and amortization, and the interest is included in interest expense.

Lessor Arrangements—The Company derives a portion of its revenue from various leasing arrangements where the Company is the lessor, primarily fire service contracts entered into by Bristol which was acquired in January 2021 (Note 14). Such arrangements provide for monthly payments covering equipment provided, maintenance and interest. These arrangements meet the criteria to be accounted for as sales-type leases under Accounting Standards Codification ("ASC") 842 and contain both lease and non-lease components. For a component to be separate, the customer would be able to benefit from the right of use of the component separately or with other resources readily available to the customer and the right of the use is not highly dependent or highly interrelated with the other rights to use the other underlying assets or components.

Revenue from equipment provided is considered a lease component and recognized with point in time revenue recognition upon lease commencement. Upon the recognition of such revenue, an asset is established for the investment in

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sales-type leases. Maintenance revenue, which is considered a non-lease component, and interest are recognized monthly over the lease term. Lease revenues and interest earned by the Company, included in the Consolidated Statements of Income, were not material to any of the years ended December 31, 2021, 2020 and 2019.

Net investment in sales-type leases of $6.1 million and $27.2 million were included in Prepaid expenses and other current assets and Insurance receivable and other noncurrent assets, respectively, in the Consolidated Balance Sheets as of December 31, 2021. The portion in Insurance receivable and other noncurrent assets at December 31, 2021 is expected to be collected over the next eight years.

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 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, 2021, 2020 or 2019.

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 2021, we performed a two-step quantitative test at October 1, 2021. 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 earnings before interest, taxes, depreciation and amortization ("EBITDA") at which peer companies are trading.

There has been no impairment of our goodwill during the years ended December 31, 2021, 2020 or 2019.

Revenue Recognition—We account for revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers. 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. 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, extended warranty, maintenance 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

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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.

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 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 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 20 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.

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Note 2—Cash and Cash Equivalents

Several of the Company's affiliates participate in a notional cash pooling arrangement to manage global liquidity requirements. As part of a master netting arrangement, the participants combine their cash balances in pooling accounts at the same financial institution with the ability to offset bank overdrafts of one participant against positive cash account balances held by another participant. Under the terms of the master netting arrangement, the financial institution has the right, ability and intent to offset a positive balance in one account against an overdrawn amount in another account. Amounts in each of the accounts are unencumbered and unrestricted with respect to use. As such, the net cash balance related to this pooling arrangement is included in Cash and cash equivalents in the Consolidated Balance Sheets.

The Company's net cash pool position consisted of the following:

(In thousands) December 31, 2021

Gross cash pool position $ 63,970

Less: cash pool borrowings (58,008)

Net cash pool position 5,962

Note 3—Restructuring Charges

During the years ended December 31, 2021, 2020 and 2019, we recorded restructuring charges of $16.4 million, $27.4 million and $13.8 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 $4.6 million during the year ended December 31, 2021, were primarily related to integration related activities and 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 $11.2 million during the year ended December 31, 2021, were primarily related to our initiatives to drive profitable growth and right size our operations. Corporate segment restructuring charges of $0.6 million during the year ended December 31, 2021, were primarily related to programs to adjust our operations in response to current business conditions.

A total of 143 positions were eliminated in 2021. There were 66 positions eliminated in the Americas segment, 71 in the International segment and 6 in the Corporate segment.

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 and 76 in the International segment 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 were eliminated in the Americas segment and 87 in the International segment.

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

(in millions) Americas International Corporate Total

Reserve balances at January 1, 2019 $ 0.5 $ 4.0 $ — $ 4.5

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)

Currency translation and other adjustments (0.1) (0.2) — (0.3)

Cash payments / utilization (4.0) (12.9) (0.7) (17.6)

Restructuring reserves at December 31, 2021 and 2020 are included in Accrued restructuring and other current liabilities in our Consolidated Balance Sheets.

Note 4—Inventories

During the fourth quarter of 2021, the Company changed its method of accounting for certain inventory in the United States from the LIFO method to the FIFO method. The FIFO method of accounting for inventory is preferable because it conforms the Company's entire inventory to a single method of accounting and improves comparability with the Company's peers.

The following table sets forth the components of inventory:

December 31,

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As a result of the retrospective application of the change in accounting method, the following financial statement line items within the accompanying consolidated financial statements were adjusted, as follows:

Consolidated Statements of Income

Earnings per share

Consolidated Statements of Comprehensive Income

Consolidated Balance Sheets

Consolidated Statements of Cash Flows

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As a result of the retrospective application of the change in accounting principle, the following financial statement line items within the unaudited interim 2021 and 2020 quarterly condensed consolidated financial statements were adjusted, as follows:

(unaudited) Three months ended

Consolidated Statements of Income

Earnings per share

(unaudited) Three months ended

Consolidated Statements of Income

Earnings per share

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Note 5—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 $15.7 million and $12.6 million as of December 31, 2021 and 2020, respectively, included in property, plant and equipment, net.

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Note 6—Reclassifications Out of Accumulated Other Comprehensive Loss

MSA Safety Incorporated Noncontrolling Interests

Pension and other post-retirement benefits(a)

Unrecognized net actuarial gains (losses) 54,384 (6,322) (19,479) — — —

Amounts reclassified from accumulated other comprehensive loss into net income:

Amortization of prior service credit (Note 15) (95) (216) (180) — — —

Total other comprehensive income (loss) $ 58,256 $ 9,296 $ (9,331) $ — $ — $ —

Available-for-sale securities

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

Balance at end of period $ (5) $ (1) $ 6 $ — $ — $ —

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 15—Pensions and Other Post-retirement Benefits).

(b)Included in Currency exchange losses, net, within the Consolidated Statements of Income.

(c)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.

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Note 7—Capital Stock

Preferred Stock - The Company has authorized 100,000 shares of $50 par value 4.5% cumulative preferred nonvoting stock which is callable at $52.50. There are 71,340 shares issued at both December 31, 2021 and 2020 and 52,998 shares held in treasury at both December 31, 2021 and 2020. The Treasury shares at cost line of the Consolidated Balance Sheet includes $1.8 million related to preferred stock. There were no shares of preferred stock purchased and subsequently held in treasury during the year ended December 31, 2021, and 120 shares of preferred stock purchased and subsequently held in treasury during the year ended December 31, 2020. 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, 2021 or 2020.

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, 2021 and December 31, 2020. There were 39,276,518 and 39,067,902 shares outstanding at December 31, 2021 and 2020, 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. Under the program, there were no shares repurchased during 2021, 175,000 shares repurchased during 2020 and 33,465 shares were repurchased during 2019. We do not have any other share repurchase programs. There were 22,804,873 and 23,013,489 Treasury shares at December 31, 2021 and 2020, 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 246,376 and 471,681 Treasury shares issued for these purposes during the years ended December 31, 2021 and 2020, respectively.

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Common stock activity is summarized as follows:

Shares Dollars

(Dollars in thousands) Issued Treasury CommonStock TreasuryCost

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 — (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 — (69,973) — (9,025)

Restricted stock expense — — 6,562 —

Restricted stock forfeitures — — (765) —

Stock option expense — — 90 —

Stock option forfeitures — — (9) —

Performance stock expense — — 13,227 —

Treasury shares purchased — (37,710) — (6,171)

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Note 8—Segment Information

The Company has four geographical operating segments that are based on management responsibilities: Northern North America, Latin America, Europe, Middle East & Africa ("EMEA"), and Asia Pacific ("APAC"). The operating segments have been aggregated (based on economic similarities, the nature of their products, end-user markets and methods of distribution) into three reportable segments: Americas, International, and Corporate.

The Americas segment is comprised of our operations in 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 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, acquisition related 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 3) 16,433

Currency exchange losses, net 216

Product liability expense (Note 20) 185,264

Acquisition related costs(a) (Note 14) 15,884

Adjusted operating margin % 22.3 % 14.9 %

Adjusted EBITDA margin % 25.7 % 17.7 %

Noncash items:

Restructuring charges (Note 3) 27,381

Currency exchange losses, net (Note 6) 8,578

Product liability expense (Note 20) 39,036

Acquisition related costs(a) (Note 14) 717

COVID-19 related costs 757

Adjusted operating margin % 23.5 % 15.0 %

Adjusted EBITDA margin % 26.5 % 17.7 %

Noncash items:

Restructuring charges (Note 3) 13,846

Currency exchange losses, net (Note 6) 19,814

Product liability expense (Note 20) 26,619

Acquisition related costs(a) (Note 14) 4,400

Adjusted operating margin % 25.0 % 12.3 %

Adjusted EBITDA margin % 27.7 % 15.0 %

Noncash items:

Pension (income) expense $ (6,111) $ 7,044 $ — $ — $ 933

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(a)Acquisition related costs include advisory, legal, accounting, valuation, and other professional or consulting fees incurred during due diligence and integration. These costs are included in Selling, general and administrative expense in the Consolidated Statements of Income. Acquisition-related costs also include the acquisition related amortization, which is included in Cost of products sold in the Consolidated Statements of Income.

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

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:

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Total Net sales by product group was as follows:

2021 Consolidated Americas International

(In thousands) Dollars Percent Dollars Percent Dollars Percent

2020 Consolidated Americas International

(In thousands) Dollars Percent Dollars Percent Dollars Percent

2019 Consolidated Americas International

(In thousands) Dollars Percent Dollars Percent Dollars Percent

(a) Fixed Gas & Flame Detection include sales from the Bacharach acquisition from July 1, 2021 onward (Americas and International).

(b) Firefighter Helmets & Protective Apparel include sales from the Bristol acquisition from January 25, 2021 onward (International).

(c) Other products include sales of Air Purifying Respirators.

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Note 9—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) (41) (42)

Stock options and other stock-based awards 276 401 536

Antidilutive stock options — — —

Earnings per share:

Note 10—Income Taxes

Components of income before income taxes

Provision for income taxes

Current

Deferred

*Year ended December 31, 2020 and 2019 amounts have been adjusted to reflect the change in inventory accounting method, as described in Notes 1 and 4 to the consolidated financial statements.

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On June 10, 2021 the United Kingdom ("U.K.") Parliament announced royal assent for Bill No. 12, on the Finance Act of 2021. This bill will increase the statutory rate from 19% to 25% in April 2023. The Company recorded this impact on its deferred tax balances in the second quarter of 2021.

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 15.3 % 3.4 % 1.9 %

Valuation allowances 7.0 % 0.8 % 0.4 %

Employee share-based payments (18.3) % (3.9) % (2.6) %

Taxes on non-U.S. income (10.9) % 2.6 % (0.5) %

State income taxes-U.S. (7.0) % 2.0 % 2.9 %

Research and development credit (5.3) % (1.2) % (0.6) %

Foreign exchange on entity closures (0.4) % — % 1.8 %

Effective income tax rate 7.7 % 25.6 % 25.1 %

Components of deferred tax assets and liabilities:

December 31,

Deferred tax assets

Employee benefits — 10,539

Net operating losses and tax credit carryforwards 9,404 6,310

Accrued expenses and other reserves 4,627 5,195

Deferred tax liabilities

Employee benefits (8,985) —

*December 31, 2020 amounts have been adjusted to reflect the change in inventory accounting method, as described in Notes 1 and 4 to the consolidated financial statements.

At December 31, 2021, we had net operating loss carryforwards of approximately $39.8 million. All net operating loss carryforwards without a valuation allowance may be carried forward for a period of at least six years.

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A reconciliation of the change in the tax liability for unrecognized tax benefits for the years ended December 31, 2021 and 2020 is as follows:

Adjustments for tax positions related to the current year 182 425

Adjustments for tax positions related to prior years 733 2,950

Settlements (3,211) —

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$2.5 million and $2.7 million at December 31, 2021 and 2020, 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 $0.8 million and $1.0 million at December 31, 2021 and 2020, 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 2018. Various state and foreign income tax returns may be subject to tax audits for periods after 2015.

Note 11—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 14—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 7—Capital Stock for further information regarding stock compensation share issuance. As of December 31, 2021, there were 714,999 and 87,051 shares, respectively, reserved for future grants under the management and non-employee directors’ equity incentive plans.

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Stock-based compensation expense was as follows:

Total stock-compensation expense before income taxes 18,908 6,920 13,760

We did not capitalize any stock-based compensation expense, and all expense is recorded in selling, general and administrative expense in 2021, 2020, and 2019.

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 2021 or 2020.

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.

A summary of option activity follows:

Shares WeightedAverageExercise Price Exercisable atYear-end

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For various exercise price ranges, characteristics of outstanding and exercisable stock options at December 31, 2021 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 $5.8 million, $12.4 million and $7.5 million for the years ended December 31, 2021, 2020 and 2019, respectively. The tax benefit we realized from these exercises was $4.3 million, $6.4 million and $4.8 million for the years ended December 31, 2021, 2020 and 2019, respectively.

Stock options become exercisable when they are vested. The aggregate intrinsic value of stock options exercisable at December 31, 2021 was $17.0 million. The aggregate intrinsic value of all stock options outstanding at December 31, 2021 was $17.1 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 2021 performance adjustments above relate primarily to 2018 performance unit awards that exceeded the performance targets when vested during 2021, including the final number of shares issued, which were 105.4% of the target award based on actual results during the three year performance period.

During the years ended December 31, 2021, 2020 and 2019, 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 $13.0 million, $24.6 million and $14.6 million, respectively. The fair values of restricted stock vested during the years ended December 31, 2021, 2020 and 2019 were $6.2 million, $5.7 million and $5.5 million, respectively. The fair value of performance stock units vested during the years ended December 31, 2021, 2020 and 2019 was $5.5 million, $9.6 million and $6.2 million, respectively.

On December 31, 2021, there was $12.6 million of unrecognized stock-based compensation expense. The weighted average period over which this expense is expected to be recognized was approximately 1.6 years.

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Note 12—Long-Term Debt

Long-Term Debt

December 31,

On May 24, 2021, the Company entered into a Fourth Amended and Restated Credit Agreement (the “Revolving Credit Facility" or "Facility”) that extended its term through May 24, 2026 and increased the capacity to $900.0 million. Under the amended 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) 0.00%, (ii) the Prime Rate, (iii) the Federal Funds Open Rate plus one half of one percent (0.5%), (iv) the Overnight Bank Funding Rate, plus one half of one percent (0.5%), or (v) 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 elected rate (BASE or LIBOR). The Company has a weighted average revolver interest rate of 1.22% as of December 31, 2021. At December 31, 2021, $572.4 million of the existing $900.0 million senior revolving credit facility was unused, including letters of credit issued under the facility. The facility also provides an accordion feature that allows the Company to access an additional $400.0 million of capacity pending approval by MSA’s board of directors and from the bank group.

On July 1, 2021, the Company entered into a Third Amended and Restated Multi-Currency Note Purchase and Private Shelf Agreement (the “Prudential Note Agreement”) with PGIM, Inc. (“Prudential”). The Prudential Note Agreement provided for (i) the issuance of $100.0 million of 2.69% Series C Senior Notes due July 1, 2036 and (ii) the establishment of an uncommitted note issuance facility whereby the Company may request, subject to Prudential’s acceptance in its sole discretion, the issuance of up to $335.0 million aggregate principal amount of senior unsecured notes. As of December 31, 2021, the Company had issued £54.9 million (approximately $74.3 million at December 31, 2021) of 3.4% Series B Senior Notes due January 22, 2031. The Company also had issued $100.0 million of 4.00% Series A Senior Notes, of which the final $20.0 million was repaid on October 13, 2021.

On July 1, 2021, the Company entered into a Second Amended and Restated Master Note Facility (the “NYL Note Facility”) with NYL Investors. The NYL Note Facility provided for (i) the issuance of $100.0 million of 2.69% Series A Senior Notes due July 1, 2036 and (ii) the establishment of an uncommitted note issuance facility whereby the Company may request, subject to NYL Investors’ acceptance in its sole discretion, the issuance of up to $200.0 million aggregate principal amount of senior unsecured notes.

The Revolving Credit Facility, Prudential Note Agreement and NYL Note Facility require the Company to comply with specified financial covenants, including a requirement to maintain a minimum fixed charges coverage ratio of not less than 1.50 to 1.00 and a consolidated leverage ratio not to exceed 3.50 to 1.00; except during an acquisition period, defined as four consecutive fiscal quarters beginning with the quarter of acquisition, in which case the consolidated net leverage ratio shall not exceed 4.00 to 1.00; in each case calculated on the basis of the trailing four fiscal quarters. In addition, the agreements contain negative covenants limiting the ability of the Company and its subsidiaries to incur additional indebtedness or issue guarantees, create or incur liens, make loans and investments, make acquisitions, transfer or sell assets, enter into transactions with affiliated parties, make changes in its organizational documents that are materially adverse to lenders or modify the nature of the Company's or its subsidiaries' business. All credit facilities exclude the subsidiary, Mine Safety Appliances Company, LLC.

On July 1, 2021, the Company acquired Bacharach for $329.4 million, net of cash acquired. The acquisition was partially financed by $200.0 million of 2.69% Senior Notes from the Prudential Note Agreement and NYL Note Facility. The remaining purchase price was financed under the Revolving Credit Facility.

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During August 2021, the Company amended its Revolving Credit Facility to transition from Sterling LIBOR reference rates to Sterling Overnight Interbank Average Rate ("SONIA") reference rates. The Company will apply the optional expedients in ASC 848, Reference Rate Reform, to this modification and potential future modifications driven by reference rate reform, accounting for the modifications as a continuation of the existing contracts. Therefore, these modifications will not require remeasurement at the modification date or a reassessment of previous accounting determinations. As such, the Company does not anticipate the change in reference rates will have an impact on the Company’s consolidated financial statements. Management continues to evaluate the Company’s other outstanding U.S. LIBOR based contracts to determine whether reference rate modifications are necessary.

As of December 31, 2021, MSA was in full compliance with the restrictive covenants under its various credit agreements.

Approximate maturities on our long-term debt over the next five years are none in 2022, $8.3 million in 2023, $8.3 million in 2024, $8.3 million in 2025, $334.4 million in 2026 and $241.1 million thereafter.

The Company had outstanding bank guarantees and standby letters of credit with banks as of December 31, 2021, totaling $10.9 million, of which $1.5 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, 2021, the Company has $0.5 million of restricted cash in support of these arrangements.

Note 13—Goodwill and Intangible Assets

Changes in goodwill during the years ended December 31, 2021 and 2020, were as follows: