MSA SAFETY INCORPORATED 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 endedDecember 31, 2022 compared to the year endedDecember 31, 2021 . For a discussion on the year endedDecember 31, 2021 compared to the year endedDecember 31, 2020 , 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 endedDecember 31, 2021 filed with theSecurities and Exchange Commission onFebruary 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. TheAmericas segment is comprised of our operations inNorth America andLatin America geographies. The International segment is comprised of our operations of all geographies outside of theAmericas . 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. OnJanuary 5, 2023 , the Company divestedMine Safety Appliances LLC ("MSA LLC ") a wholly owned subsidiary that holds legacy product liability claims relating to coal dust, asbestos, silica, and other exposures, to a joint venture between R&Q Insurance Holdings Ltd. andObra Capital, Inc. In connection with the closing, MSA contributed$341 million in cash and cash equivalents, while R&Q and Obra contributed an additional$35 million . As a result of the transaction, MSA will derecognize all legacy cumulative trauma product liability reserves, related insurance assets, and associated deferred tax assets of the divested subsidiary from its balance sheet in the first quarter of 2023. R&Q and Obra have assumed management of the divested subsidiary, including the management of its claims. Refer to Note 20-Contingencies of the consolidated financial statements in Part II Item 8 of this Form 10-K for further information. OnJuly 1, 2021 , the Company acquiredBacharach, Inc. and its affiliated companies ("Bacharach") in a transaction valued at$329.4 million , net of cash acquired. Headquartered nearPittsburgh inNew 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
OnJanuary 25, 2021 , the Company acquired 100% of the common stock ofB 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 theUnited Kingdom ("U.K."), is a leading innovator and provider of protective apparel to the fire, rescue services, and utility sectors. The acquisition strengthens MSA's position as a global 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 theU.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 nowBristol , 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. 24
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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. 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 2022, 68% and 32% of our net sales were made by ourAmericas and International segments, respectively.Americas . Our largest manufacturing and research and development facilities are located inthe United States . We serve our markets across theAmericas with manufacturing facilities in theU.S. ,Mexico andBrazil . Operations in the other countries within theAmericas segment focus primarily on sales and distribution in their respective home country markets. International. Our International segment includes companies inEurope , theMiddle East andAfrica ("EMEA") and theAsia Pacific region. In our largest International subsidiaries (inGermany ,France ,U.K. ,Ireland andChina ), we develop, manufacture and sell a wide variety of products. InChina , the products manufactured are sold primarily inChina 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 inGermany ,France , theU.S. ,U.K. ,Ireland andChina 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 endedDecember 31, 2022 , 2021 and 2020 corporate general and administrative costs were$40.3 million ,$37.6 million , and$28.5 million , respectively. These increases primarily reflect an increase in centrally managed functions. 25
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Year Ended
Net Sales Dollar Percent
Increase Increase
(In millions) 2022 2021 (Decrease) (Decrease)
Consolidated $1,527.9 $1,400.2 $127.7 9.1%
Americas 1,043.2 908.1 135.1 14.9%
International 484.7 492.1 (7.4) (1.5)%
Net Sales . Net sales for the year ended December 31, 2022 , were $1.53 billion ,
an increase of $127.7 million , from $1.40 billion for the year ended
December 31, 2021 , driven by strategic price increases, volume growth, and
acquisitions, partially offset by foreign currency translation. We saw strong
growth across most of our core products and across both reporting segments.
Constant currency sales increased by 12.2% for the year ended December 31, 2022 .
Please refer to the Net Sales table below for a reconciliation of the year over
year sales change.
Net Sales Year Ended December 31, 2022 versus December 31, 2021
(Percent Change) Americas International Consolidated
GAAP reported sales change 14.9% (1.5)% 9.1%
Currency translation effects 0.2% 8.5% 3.1%
Constant currency sales change 15.1% 7.0% 12.2%
Less: Acquisitions (2.8)% (1.6)% (2.3)%
Organic constant currency change 12.3% 5.4% 9.9%
Note: Constant currency sales change and Organic constant currency sales change
are non-GAAP financial measure provided by the Company to give a better
understanding of the Company's underlying business performance. Constant
currency sales change is calculated by deducting the percentage impact from
currency translation effects from the overall percentage change in net sales.
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 $1,043.2 million for the year ended
December 31, 2022 , an increase of $135.1 million , or 14.9%, compared to $908.1
million for the year ended December 31, 2021 . During 2022, constant currency
sales in the Americas segment increased 15.1% or on an organic constant currency
basis increased 12.3%, excluding acquisitions. Growth was driven by favorable
unit growth, new products, pricing and this volume growth was across most
product categories. The inclusion of Bacharach drove the acquisition related
sales.
Net sales for the International segment were $484.7 million for the year ended
December 31, 2022 , a decrease of $7.4 million , or 1.5%, compared to $492.1
million for the year ended December 31, 2021 . Constant currency sales in the
International segment increased 7.0% compared to the prior year period with
organic constant currency growth of 5.4%. Growth was driven by favorable unit
growth, new products, pricing and this volume growth was across most product
categories; however, the unfavorable impact of foreign currency translation
offset this growth on a reported basis. The inclusion of Bacharach drove
acquisition related sales.
Looking ahead, we continue to operate in a very dynamic environment. There are a
number of other evolving factors that will continue to influence our revenue and
earnings outlook. These factors include, among other things, supply chain
constraints, raw material or semiconductor availability, the risk of additional
COVID lockdowns, industrial employment rates, interest rate changes, military
conflict, currency exchange volatility, the pace of economic recovery, as well
as geopolitical risk, particularly as it relates to energy uncertainty which
could affect operations and suppliers based in Germany and broader Europe . These
or other conditions could impact our future results and growth expectations well
into 2023.
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.
Gross profit. Gross profit for the year ended December 31, 2022 was $673.8
million , an increase of $58.5 million , or 9.5%, compared to $615.3 million for
the year ended December 31, 2021 . The ratio of gross profit to net sales was
44.1% in 2022 compared to 43.9% in 2021. Pricing and productivity efforts were
partially offset by inflation, inventory and product warranty charges.
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Selling, general and administrative expenses. Selling, general and
administrative ("SG&A") expenses were $338.9 million for the year ended
December 31, 2022 , an increase of $6.0 million , or 1.8%, compared to $332.9
million for the year ended December 31, 2021 . Overall, selling, general and
administrative expenses were 22.2% of net sales in 2022 compared to 23.8% of net
sales in 2021. Organic constant currency SG&A increased $13 million or 4.0%,
demonstrating leverage on revenue growth. This increase was driven by wage
inflation and strategic investments to support revenue growth. Areas of savings
included lower acquisition related costs and savings from our restructuring
programs in our International segment. Please refer to the Selling, general and
administrative expenses table for a reconciliation of the year-over-year expense
change.
Year Ended
December 31, 2022 versus December
Selling, general, and administrative expenses 31, 2021
(Percent Change) Consolidated
GAAP reported change 1.8%
Currency translation effects 2.9%
Constant currency change 4.7%
Less: Acquisitions and strategic transaction costs (0.7)%
Organic constant currency change
4.0%
Note: Constant currency SG&A change and Organic constant currency SG&A change are non-GAAP financial measure provided by the Company to give a better understanding of the Company's underlying business performance. Constant currency SG&A change is calculated by deducting the percentage impact from currency translation effects from the overall percentage change in SG&A. Organic 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$57.0 million for the year endedDecember 31, 2022 , a decrease of$0.8 million , or 1.4%, compared to$57.8 million for the year endedDecember 31, 2021 . Research and development expense was 3.7% of net sales in 2022, compared to 4.1% of net sales in 2021. We capitalized approximately$8.7 million and$8.1 million of software development costs during the years endedDecember 31, 2022 and 2021, respectively. Depreciation expense for capitalized software development cost of$7.9 million and$4.9 million during the years endedDecember 31, 2022 and 2021, was recorded in costs of products sold on the Consolidated Statements of Income. Refer to Note 1-Significant Accounting Policies of the consolidated financial statements in Part II Item 8 of this Form 10-K for further details regarding our software development costs. MSA remains committed to dedicating significant resources to research and development activities, including the development of technology-based safety solutions. As we continue to invest a significant portion of our new product development into technology-based safety solutions, we anticipate that the historical relationship of research and development expense to net sales will continue to evolve; however, we do not anticipate reductions in the relative level of total spend on research and development activities on an annual basis. Total spend on both software development and research and development activities was$65.7 million and$65.9 million during the years endedDecember 31, 2022 and 2021. Restructuring charges. During the year endedDecember 31, 2022 , the Company recorded restructuring charges of$8.0 million primarily related to our ongoing international initiatives to drive profitable growth and right size operations. This compared to restructuring charges of$16.4 million during the year endedDecember 31, 2021 , primarily related to our ongoing initiatives to drive profitable growth and acquisition integration activities. We remain focused on executing programs to optimize our cost structure. Currency exchange. Currency exchange losses were$10.3 million during the year endedDecember 31, 2022 , compared to$0.2 million during the year endedDecember 31, 2021 . The currency exchange losses for the current period related primarily due to foreign currency exposure on unsettled inter-company balances and the recognition of non-cash cumulative translation losses as result of our plan to close a foreign subsidiary. Currency exchange in 2021 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. 27
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Product liability expense. Product liability expense during the year endedDecember 31, 2022 was$20.6 million compared to$185.3 million for the year endedDecember 31, 2021 . Product liability expense for both periods primarily relates to increases inMSA LLC's reserve for cumulative trauma product liability claims and defense costs incurred for these claims. Adjustments to the reserve for the year endedDecember 31, 2022 totaled$8.4 million net of insurance receivable of$1.6 million . The reserve includes estimated amounts for claims expected to be resolved through the year 2075. OnJanuary 5, 2023 , the Company divestedMSA LLC , a wholly owned subsidiary that holds legacy product liability claims relating to coal dust, asbestos, silica, and other exposures. As a result of the transaction, we will derecognize in the first quarter of 2023 all legacy cumulative trauma product liability reserves, related insurance assets, and associated deferred tax assets of the divested subsidiary from our balance sheet and recognize a loss of approximately$200 million . 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
Adjusted operating income.Americas adjusted operating income for the year endedDecember 31, 2022 was$267.4 million , an increase of$64.9 million or 32%, compared to$202.5 million for the year endedDecember 31, 2021 . The increase in adjusted operating income is primarily attributable to higher sales volumes driven by the full year impact of the Bacharach acquisition and organic business activity, partially offset by higher SG&A expenses to support business growth. International adjusted operating income for the year endedDecember 31, 2022 was$60.9 million , a decrease of$12.4 million , or 17%, compared to adjusted operating income of$73.3 million for the year endedDecember 31, 2021 . The decrease in adjusted operating income is primarily attributable to lower revenue and gross margins as a result of unfavorable currency translation and transactional impact, inflationary pressures, partially offset by lower SG&A expenses. Corporate segment adjusted operating loss for the year endedDecember 31, 2022 was$37.9 million , an increase of$2.7 million , or 8%, compared to an adjusted operating loss of$35.2 million for the year endedDecember 31, 2021 due primarily to increased costs to support higher business activity. The following tables represent a reconciliation from GAAP operating income to adjusted operating income (loss) and adjusted EBITDA. Adjusted operating margin % is calculated as adjusted operating income (loss) divided by net sales and adjusted EBITDA margin % is calculated as adjusted EBITDA divided by net sales. Adjusted operating income Year Ended December 31, 2022 (In thousands) Americas International Corporate Consolidated Net sales$ 1,043,238 $ 484,715 $ -$ 1,527,953 GAAP operating income 239,137 Restructuring charges (Note 3) 7,965 Currency exchange losses, net 10,255 Product liability expense (Note 20) 20,590 Acquisition related costs (Note 14)(a) 12,440 Adjusted operating income (loss) 267,392 60,923 (37,928) 290,387 Adjusted operating margin % 25.6 % 12.6 % Depreciation and amortization(a) 34,334 12,256 520 47,110 Adjusted EBITDA 301,726 73,179 (37,408) 337,497 Adjusted EBITDA % 28.9 % 15.1 % 28
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Table of Contents Adjusted operating income Year Ended December 31, 2021 (In thousands) Americas International Corporate Consolidated Net sales$ 908,068 $ 492,114 $ -$ 1,400,182 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 income (loss) 202,496 73,279 (35,198) 240,577 Adjusted operating margin % 22.3 % 14.9 % Depreciation and amortization(a) 31,236 13,718 463 45,417 Adjusted EBITDA 233,732 86,997 (34,735) 285,994 Adjusted EBITDA % 25.7 % 17.7 % (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 SG&A expense in the unaudited Condensed 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. Note: Adjusted operating income (loss) and adjusted EBITDA are non-GAAP financial measures. Adjusted operating income (loss) is reconciled above to the nearest GAAP financial measure, Operating income (loss), and excludes restructuring, currency exchange, product liability expense, and acquisition related costs. Adjusted EBITDA is reconciled above to the nearest GAAP financial measure, Operating income (loss) and excludes depreciation and amortization expense. Adjusted operating margin % and Adjusted EBITDA % are operating ratios derived from non-GAAP financial measures. Total other expense (income), net. Total other expense, net, for the year endedDecember 31, 2022 , was$0.6 million , a decrease of$1.4 million compared to other income, net, of$0.8 million for the year endedDecember 31, 2021 , driven primarily by higher interest expense, related to rising interest rate environment, and a write-down of an equity investment, partially offset by higher pension income, resulting from higher expected rate of return on plan assets. We expect total interest expense for 2023 to be between$48 million and$50 million , this increase is primarily related to the additional long-term debt to divestMSA LLC as ofJanuary 5, 2023 . We expect non-cash pension income to decline by$8 million compared to 2022. Income taxes. The reported effective tax rate for the year endedDecember 31, 2022 was 24.7%, which includes a benefit of 0.8% for share-based payments, expense of 0.1% related to higher profits in foreign jurisdictions, and an expense of 1.2% due to nondeductible compensation. This compared to a reported effective tax rate for the year endedDecember 31, 2021 of 7.7%, which included 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. 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
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Non-GAAP Financial Information
To supplement our Consolidated Financial Statements presented in accordance with
generally accepted accounting principles ("GAAP"), we use, and this report
includes, certain non-GAAP financial measures. These financial measures include
organic constant currency changes, financial measures excluding the impact of
acquisitions and related acquisition related costs (including acquisition
related amortization), adjusted operating income, adjusted operating margin
percentage, adjusted EBITDA and adjusted EBITDA margin percentage. We believe
that the use of these non-GAAP financial measures provide investors with
additional useful information and provide a more complete understanding of our
operating performance and trends, and facilitate comparisons with the
performance of our peers. Management also uses these measures internally to
assess and better understand our underlying business performance and trends
related to core business activities. The non-GAAP financial measures and key
performance indicators we use, and computational methods with respect thereto,
may differ from the non-GAAP financial measures and key performance indicators,
and computational methods, that our peers use to assess their performance and
trends.
The presentation of these non-GAAP financial measures does not comply with U.S.
GAAP. These non-GAAP financial measures should be viewed as supplemental in
nature, and not as a substitute for, or superior to, our reported results
prepared in accordance with GAAP. When non-GAAP financial measures are
disclosed, the Securities and Exchange Commission's Regulation G requires: (i)
the presentation of the most directly comparable financial measure calculated
and presented in accordance with GAAP and (ii) a reconciliation of the
differences between the non-GAAP financial measure presented and the most
directly comparable financial measure calculated and presented in accordance
with GAAP. For an explanation of these measures, together with a reconciliation
to the most directly comparable GAAP financial measure, please refer to the
reconciliations referenced above in Management's Discussion & Analysis.
We may also provide financial information on a constant currency basis, which is
a non-GAAP financial measure. These references to a constant currency basis do
not include operational impacts that could result from fluctuations in foreign
currency rates, which are outside of management's control. To provide
information on a constant currency basis, the applicable financial results are
adjusted by translating current and prior period results in local currency to a
fixed foreign exchange rate. This approach is used for countries where the
functional currency is the local country currency. This information is provided
so that certain financial results can be viewed without the impact of
fluctuations in foreign currency rates, thereby facilitating period-to-period
comparisons of business performance. Constant currency information is not
recognized under U.S. GAAP and it is not intended as an alternative to U.S. GAAP
measures.
LIQUIDITY AND CAPITAL RESOURCES
Our main source of liquidity is operating cash flows, supplemented by borrowings. Our principal liquidity requirements are for working capital, capital expenditures, principal and interest payments on debt, declared dividend payments and acquisitions. AtDecember 31, 2022 , 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. AtDecember 31, 2022 , approximately 82% of our borrowings are denominated in US dollars, which limits our exposure to currency exchange rate fluctuations. AtDecember 31, 2022 , the Company had cash and cash equivalents, including restricted cash, totaling$164.4 million , and access to sufficient capital, providing ample liquidity and flexibility to continue to maintain our balanced capital allocation strategy. AtDecember 31, 2022 ,$589.9 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 endedDecember 31, 2022 , positions us well to navigate through challenging business conditions. Operating activities. Operating activities provided cash of$157.5 million in 2022, compared to providing cash of$199.1 million in 2021. The reduced operating cash flow as compared to the same period in 2021 was primarily related to increased working capital requirements, notably increased inventory balances at year-end 2022 to support the higher backlog and accounts receivable related to stronger fourth quarter 2022 revenue. Payments for subsidiaryMSA LLC's product liability claims exceeded collections from insurance companies by$27.2 million in the year endedDecember 31, 2022 , compared to$24.1 million in 2021. OnJanuary 5, 2023 , the Company divestedMSA LLC and as a result, will derecognize all legacy cumulative trauma product liability reserves, related insurance assets, and associated deferred tax assets of the divested subsidiary from our balance sheet and will recognize a loss of approximately$200 million in the first quarter of 2023 and expect related cash outflows to be recognized within operating activities in the consolidated statements of cash flows. R&Q and Obra have assumed management of the divested subsidiary, including the management of its claims. The divestiture enhances operating cash flow predictability by eliminating costs associated with defending and settling the transferred claims. 30
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Please refer to Note 20-Contingencies of the consolidated financial statements in Part II Item 8 of this Form 10-K for additional information.
Investing activities. Investing activities used cash of$4.5 million for the year endedDecember 31, 2022 , compared to using$415.5 million in 2021. The decrease in cash used in investing activities as compared to the same period in 2021 was primarily related to the absence of acquisitions. 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 used cash of$113.4 million for the year endedDecember 31, 2022 , compared to providing cash of$203.9 million in 2021. During 2022, we had net payments on long-term debt of$13.0 million as compared to net proceeds on long-term debt of$293.2 million during the same period in 2021 to fund the acquisitions of Bacharach andBristol and buy-out our minority partner in ourChina business. We paid cash dividends of$71.5 million during 2022, compared to$68.6 million , exclusive of a$5.6 million dividend to our former noncontrolling interest partner inChina as part of the buy-out, during 2021. We also used cash of$34.4 million during 2022 to repurchase shares, compared to using$6.2 million during the same period in 2021. In 2022,$30.4 million of our repurchase activity was related to purchases under our 2015 stock repurchase program. InJanuary 2023 , we entered into a new$250 million term loan and$65 million was drawn down from our revolving credit facility to fund the divestiture ofMSA LLC , a wholly owned subsidiary that, at the time of divestiture held legacy product liability claims relating to coal dust, asbestos, silica, and other exposures. Subsequent to this transaction, we have more than$500 million of availability remaining on our revolving credit facility.
CUMULATIVE TRANSLATION ADJUSTMENTS
The year-end position of theU.S. dollar relative to international currencies atDecember 31, 2022 , resulted in a translation loss of$19.5 million being recorded to cumulative translation adjustments shareholders' equity account for the year endedDecember 31, 2022 , compared to a translation loss of$25.4 million being recorded to the cumulative translation adjustments account during 2021. COMMITMENTS AND CONTINGENCIES We are obligated to make future payments under various contracts, including debt and lease agreements. Our significant cash obligations as ofDecember 31, 2022 , are as follows: (In millions) Total 2023 2024 2025 2026 2027 Thereafter Long-term debt$ 575.2 $ 7.4 $ 7.4 $ 7.4 $ 316.0 $ 7.4 $ 229.6 Operating leases 52.2 10.0 7.5 5.2 4.1 3.4 22.0 Inventory costing method change tax 8.0 2.7 2.7 2.6 - - - Transition tax 2.0 0.7 1.3 - - - - Totals$ 637.4 $ 20.8 $ 18.9 $ 15.2 $ 320.1 $ 10.8 $ 251.6
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. It also does not include
We expect to meet our future debt service obligations through cash provided by operations. Approximately$308.6 million of debt payable in 2026, included in the table above, relates to our unsecured senior revolving credit facility that has a weighted average interest rate of 5.13% as ofDecember 31, 2022 . 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$7.5 million in 2023,$7.3 million in 2024,$7.0 million in 2025,$6.8 million in 2026 and$6.6 million in 2027. We expect total interest expense for 2023 to be between$48 million and$50 million . 31
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The Company had outstanding bank guarantees and standby letters of credit with banks as ofDecember 31, 2022 totaling$9.3 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. AtDecember 31, 2022 , the Company has$1.5 million of restricted cash in support of these arrangements. We expect to make net contributions of$8.2 million to our pension plans in 2023 which are primarily associated with our International segment. We have not been required to make contributions to ourU.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 withU.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 endedDecember 31, 2022 . During 2021, the Company made acquisitions that raised business combinations to a critical accounting policy and estimate. There were no business combinations during 2022. Business combinations. In accordance with the accounting guidance for business combinations, the Company uses the acquisition method of accounting to allocate costs of acquired businesses to the assets acquired and liabilities assumed based on their estimated fair values at the dates of acquisition. The excess costs of acquired businesses over the fair values of the assets acquired and liabilities assumed will be recognized as goodwill. The valuations of the acquired assets and liabilities will impact the determination of future operating results. In addition to using management estimates and negotiated amounts, the Company uses a variety of information sources to determine the estimated fair values of acquired assets and liabilities including: third-party appraisals for the estimated value and lives of identifiable intangible assets and property, plant and equipment; third-party actuaries for the estimated obligations of defined benefit pension plans and similar benefit obligations; and legal counsel or other experts to assess the obligations associated with legal, environmental and other contingent liabilities. The business and technical judgment of management was used in determining which intangible assets have indefinite lives and in determining the useful lives of finite-lived intangible assets in accordance with the accounting guidance for goodwill and other intangible assets. Cumulative trauma product liability. The Company and its subsidiaries face an inherent business risk of exposure to product liability claims arising from the alleged failure of our products to prevent the types of personal injury or death against which they are designed to protect. Product liability claims are categorized as either single incident or cumulative trauma. Single incident product liability claims involve incidents of short duration that are typically known when they occur and involve observable injuries, which provide a more objective basis for quantifying damages. The Company estimates its subsidiaries' liability for single incident product liability claims based on expected settlement costs for asserted single incident product liability claims and an estimate of costs for single incident product liability claims incurred but not reported ("IBNR"). Single incident product liability exposures are evaluated on an annual basis, or more frequently if changing circumstances warrant. Adjustments are made to the reserve as appropriate. 32
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Cumulative trauma product liability claims involve exposures to harmful substances that occurred over many years and may have developed over long periods of time into diseases. In the case ofMSA LLC , the subsidiary'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 reviewMSA 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 toMSA LLC . We accordingly considerMSA LLC's claims experience over multiple periods and/or whether there are changes inMSA 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 and divestiture of
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 ourU.S. and foreign plans were based on the spot rate method atDecember 31, 2022 .
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
Impact of Changes in Actuarial Assumptions
Change in Discount Change in Expected
Rate Return Change in Market Value of Assets
(In thousands) 1% (1)% 1% (1)% 5% (5)%
(Decrease) increase in net benefit cost$ (7,875) $ 9,942 $ (5,682) $ 5,682 $ (1,482)$ 1,333 (Decrease) increase in projected benefit obligation (61,274) 77,324 - - -
-
Increase (decrease) in funded status 61,274 (77,324) - - 25,853 (25,853)
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Goodwill and Indefinite-lived Intangible Assets. OnOctober 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 2022, we performed a quantitative test atOctober 1, 2022 . 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. AtOctober 1, 2022 , based on our quantitative test, the fair values of each of our reporting units exceeded their respective carrying value by at least 42%. The intangible asset with an indefinite life is also subject to impairment testing onOctober 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. AtOctober 1, 2022 , based on our quantitative test, the fair value of the trade name asset exceeded its carrying value by approximately 37%.
RECENTLY ADOPTED AND RECENTLY ISSUED ACCOUNTING STANDARDS
None
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