The following discussion and analysis should be read in conjunction with the
historical financial statements and other financial information included
elsewhere in this annual report on Form 10-K. This discussion may contain
forward-looking statements that involve risks and uncertainties. The
forward-looking statements are not historical facts, but rather are based on
current expectations, estimates, assumptions and projections about our industry,
business and future financial results. Our actual results could differ
materially from the results contemplated by these forward-looking statements due
to a number of factors, including those discussed in the sections of this annual
report entitled "Forward-Looking Statements" and "Risk Factors."
MSA Safety Incorporated ("MSA") is organized into four geographical operating
segments that are aggregated into three reportable geographic segments:
Americas, International and Corporate. The Americas segment is comprised of our
operations in North America and Latin America geographies. The International
segment is comprised of our operations of all geographies outside of the
Americas. Certain global expenses are allocated to each segment in a manner
consistent with where the benefits from the expenses are derived. Please refer
to Note 7-Segment Information of the consolidated financial statements in Part
II Item 8 of this Form 10-K for further information.
On May 20, 2019, the Company acquired 100% of the common stock of Sierra Monitor
Corporation ("SMC") in an all-cash transaction valued at $33.2 million, net of
cash acquired. Based in Milpitas, California, in the heart of Silicon Valley,
SMC is a leading provider of fixed gas and flame detection instruments and
Industrial Internet of Things solutions that connect and help protect high-value
infrastructure assets. The acquisition enables MSA to accelerate its strategy to
enhance worker safety and accountability through the use of cloud technology and
wireless connectivity. This acquisition enhances a key focus of the Company's
Safety io subsidiary, launched in 2018 primarily to leverage the capabilities of
its portable gas detection portfolio as it relates to cloud connectivity. The
transaction was funded through borrowings on our unsecured senior revolving
credit facility. Please refer to Note 13-Acquisitions of the consolidated
financial statements in Part II Item 8 of this Form 10-K for further
information.
Subsequent Event
On January 25, 2021, we acquired 100% of the common stock of B T Q Limited,
including Bristol Uniforms and Bell Apparel ("Bristol") in an all-cash
transaction valued at $62.4 million, net of cash acquired. There is no
contingent consideration. Bristol, which is headquartered in the United Kingdom
(U.K.), is a leading innovator and provider of protective apparel to the fire,
rescue services, and utility sectors. The acquisition strengthens MSA's position
as a global leader in fire service PPE products while providing an avenue to
expand its business in the U.K. and key International markets.
Year Ended December 31, 2019 Compared to Year Ended December 31, 2018
Discussion of our results, liquidity and capital resources, and cumulative
translation adjustments for the year ended December 31, 2019 compared to the
year ended December 31, 2018 can be found under Part II Item 7 of our Form 10-K
for the year ended December 31, 2019 as filed with the SEC.



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BUSINESS OVERVIEW
We are a global leader in the development, manufacture and supply of safety
products that protect people and facility infrastructures.  Recognized for their
market leading innovation, many MSA products integrate a combination of
electronics, mechanical systems and advanced materials to protect users against
hazardous or life-threatening situations.  The Company's comprehensive product
line, which is governed by rigorous safety standards across highly regulated
industries, is used by workers around the world in a broad range of markets,
including fire service, the oil, gas and petrochemical industry, construction,
industrial manufacturing applications, utilities, mining and the military.
MSA's core products include breathing apparatus where self-contained breathing
apparatus ("SCBA") is the principal product, fixed gas and flame detection
systems, portable gas detection instruments, industrial head protection
products, firefighter helmets and protective apparel, and fall protection
devices. We are committed to providing our customers with service unmatched in
the safety industry and, in the process, enhancing our ability to provide a
growing line of safety solutions for customers in key global markets.
MSA provides safety equipment to a broad range of customers who must continue to
work in times of global pandemic as is now the case with COVID-19. Our customers
include first responders tasked with keeping citizens safe, and industrial and
utility workers tasked with maintaining critical infrastructure. For this
reason, in order to successfully fulfill our mission as The Safety Company, MSA
is an essential business and has continued operating its manufacturing
facilities, to the extent practicable, while protecting the health and safety of
our workforce, and complying with all applicable laws. In January 2020, the
Company established a special advisory committee to evaluate ongoing concerns,
risks and challenges with respect to COVID-19 across its operations and
corporate headquarters. The Company's pandemic response plan includes four key
priorities: protecting the health and safety of MSA associates, enabling
business continuity, expanding manufacturing capacity of MSA's existing
air-purifying respirator portfolio, and managing its operating expenses and
capital structure.
The Company has developed a thoughtful, phased approach to begin reconnecting
segments of our workforce that had converted to remote working conditions due to
COVID-19. This process includes returning elements of our salesforce to
in-person customer interactions on a limited basis, with additional employees
scheduled to begin returning to the office, once deemed appropriate under the
circumstances for each business location. A phased approach to reconnect
employees while adjusting the characteristics of their physical working
environments, providing training and executing enhanced safety and cleaning
protocols, will promote workplace safety in a manner consistent with the mission
and values of MSA. The process and timing to reconnect our workforce will
continue to evolve due to the changing nature of COVID-19. The Company expects
to modify plans as necessary to respond to such changes.
We tailor our product offerings and distribution strategy to satisfy distinct
customer preferences that vary across geographic regions. To best serve these
customer preferences, we have organized our business into four geographical
operating segments that are aggregated into three reportable geographic
segments: Americas, International and Corporate. In 2020, 65% and 35% of our net
sales were made by our Americas and International segments, respectively.
Americas. Our largest manufacturing and research and development facilities are
located in the United States. We serve our markets across the Americas with
manufacturing facilities in the U.S., Mexico and Brazil. Operations in the other
countries within the Americas segment focus primarily on sales and distribution
in their respective home country markets.
International. Our International segment includes companies in Europe, Middle
East & Africa ("EMEA") and the Asia Pacific region. In our largest International
affiliates (in China, France, Germany, Ireland and the U.K), we develop,
manufacture and sell a wide variety of products. In China, the products
manufactured are sold primarily in China as well as regional markets. Operations
in other International segment countries focus primarily on sales and
distribution in their respective home country markets. Although some of these
companies may perform limited production, most of their sales are of products
manufactured in our plants in Germany, France, the U.S., U.K., Ireland and China
or are purchased from third party vendors.
Corporate. The Corporate segment primarily consists of general and
administrative expenses incurred in our corporate headquarters, costs associated
with corporate development initiatives, legal expense, interest expense, foreign
exchange gains or losses, and other centrally-managed costs. Corporate general
and administrative costs comprise the majority of the expense in the Corporate
segment. During the years ended December 31, 2020, 2019 and 2018 corporate
general and administrative costs were $28.5 million, $37.3 million, and $31.2
million, respectively.

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

             Net Sales                                       Dollar           Percent
                                                            Increase          Increase
             (In millions)      2020          2019         (Decrease)        (Decrease)
             Consolidated     $1,348.2      $1,402.0        $(53.8)            (3.8)%
             Americas          874.3         915.1           (40.8)            (4.5)%
             International     473.9         486.9           (13.0)            (2.7)%


Net Sales. Net sales for the year ended December 31, 2020, were $1.35 billion, a
decrease of $53.8 million, from $1.40 billion for the year ended December 31,
2019. Constant currency sales decreased by 3% for the year ended December 31,
2020. Please refer to the Net Sales table below for a reconciliation of the year
over year sales change.
Net Sales                                                    Year Ended December 31, 2020 versus December 31, 2019
(Percent Change)                                         Americas                International               Consolidated
GAAP reported sales change                                (4.5)%                     (2.7)%                     (3.8)%
Currency translation effects                               1.8%                      (0.9)%                      0.8%
Constant currency sales change                            (2.7)%                     (3.6)%                     (3.0)%


Note: Constant currency sales change is a non-GAAP financial measure provided by
the Company to give a better understanding of the Company's underlying business
performance. Constant currency sales change is calculated by removing the
percentage impact from currency translation effects from the overall percentage
change in net sales.
Net sales for the Americas segment were $874.3 million for the year ended
December 31, 2020, a decrease of $40.8 million, or 5%, compared to $915.1
million for the year ended December 31, 2019. During 2020, constant currency
sales in the Americas segment decreased 3% compared to the prior year period,
driven by weakness in oil and gas and commercial construction markets due to the
ongoing impact of the COVID-19 pandemic, which was partially offset by increases
in Breathing Apparatus in fire service markets and APR in a broad range of end
markets related primarily to pandemic response.
Net sales for the International segment were $473.9 million for the year ended
December 31, 2020, a decrease of $13.0 million, or 3%, compared to $486.9
million for the year ended December 31, 2019. Constant currency sales in the
International segment decreased 4% during 2020, compared to the prior year
period, driven by weakness in oil and gas and commercial construction markets
due to the ongoing impact of the COVID-19 pandemic, which was partially offset
by increases in industrial head protection and Breathing Apparatus in fire
service markets.
Refer to Note 7-Segment Information to the consolidated financial statements in
Part II Item 8 of this Form 10-K, for information regarding sales by product
group.
There are a number of evolving factors that will have an impact on our revenue
in 2021. These factors include, among other things, the effectiveness of the
vaccine rollout, risk of additional COVID lockdowns, the pace of economic
recovery as well as the potential for government stimulus. While the outcome is
difficult to predict, the steps we are taking to improve our business model
position us to return to growth and emerge a much stronger company, as
conditions improve. We are approaching the first half of 2021 cautiously, and
are positioned for a stronger second half of 2021 as compared to the first half.
Our investments in organic and inorganic growth programs are driving an improved
market position and that will be beneficial as we see business conditions
improve.

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

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Selling, general and administrative expenses. Selling, general and
administrative expenses were $290.3 million for the year ended December 31,
2020, a decrease of $40.2 million, or 12.2%, compared to $330.5 million for the
year ended December 31, 2019. Selling, general and administrative expenses were
21.5% of net sales in 2020 compared to 23.6% of net sales in 2019. The decrease
was the result of returns from previously executed restructuring programs and
discretionary cost controls implemented earlier in the year, in response to the
COVID-19 pandemic and slowdown in certain end markets. Discretionary cost
controls provided approximately $15 million of cost savings in 2020.
Additionally, a decrease in variable compensation expense provided approximately
$15 million of cost savings. While we expect variable compensation expense to
reset and increase in 2021 as compared to 2020, we intend on closely managing
discretionary spend to ensure our investments are aligned with economic and
business conditions. The following table presents a reconciliation of the
year-over-year expense change for selling, general, and administrative expenses.
                                                                            Year Ended
                                                                December 31, 2020 versus December
Selling, general, and administrative expenses                                31, 2019
(Percent Change)                                                           Consolidated
GAAP reported change                                                         (12.2)%
Currency translation effects                                                   0.7%
Constant currency change                                                     (11.5)%


Note: Constant currency change is a non-GAAP financial measure provided by the
Company to give a better understanding of the Company's underlying business
performance. Constant currency change in selling, general, and administrative
expenses is calculated by deducting the percentage impact of currency
translation effects from the overall percentage change in selling, general, and
administrative expense. Management believes excluding currency translation
effects provide investors with a greater level of clarity into spending levels
on a year-over-year basis.
Research and development expense. Research and development ("R&D") expense was
$58.3 million for the year ended December 31, 2020, an increase of $0.5 million,
or 0.7%, compared to $57.8 million for the year ended December 31, 2019.
Research and development expense was 4.3% of net sales in 2020, compared to 4.1%
of net sales in 2019. During 2020, we launched the Altair io 360 Gas Detector,
an area monitor that operates with the simplicity of a smart-home device; a
Personal Fall Limiter with a smart hook connector that using RFID technology
alerts wearers when they are not secured to an anchorage point; and an
innovative reusable Elastomeric Half-Mask Respirator designed for healthcare
environments. MSA plans to launch its connected firefighter ecosystem powered by
LUNAR in the first half of 2021. We capitalized approximately $8.2 million and
$5.0 million of software development costs during the years ended December 31,
2020 and 2019, respectively.
Restructuring charges. During the year ended December 31, 2020, the Company
recorded restructuring charges of $27.4 million, primarily due to severance
costs related to a plan which addresses weakened global economic conditions and
is designed to improve our business model during the downturn. Included as part
of restructuring charges in 2020, we recognized a non-cash settlement charge of
$1.5 million for the termination of our pension plan in the Netherlands. We
expect the restructuring programs to collectively deliver $15 million of savings
throughout the income statement in 2021, and annual savings of $20 million
thereafter. This compared to charges of $13.8 million during the year ended
December 31, 2019, primarily related to footprint rationalization and other
restructuring programs associated with our ongoing initiatives to drive
profitable growth in our International segment. Included as part of
restructuring charges in 2019, we recognized a non-cash settlement charge of
$2.5 million for the termination of our pension plan in the United Kingdom.
Currency exchange. Currency exchange losses were $8.6 million during the year
ended December 31, 2020, compared to $19.8 million during the year ended
December 31, 2019. The decrease in currency exchange losses was primarily due to
the recognition of non-cash cumulative translation losses of approximately $15.3
million as a result of the approval of our plan to close our South Africa
affiliates during the first quarter of 2019. This charge is related to the
historical translation of the elements of the financial statements for the
business from the functional currency to the U.S. Dollar. The translation impact
has been historically recorded as currency translation adjustment, a separate
component of accumulated other comprehensive loss within the shareholders'
equity section of the Consolidated Balance Sheets. The remaining currency
exchange losses in both periods were related to foreign currency exposure on
unsettled inter-company balances. Refer to Note 17-Derivative Financial
Instruments of the consolidated financial statements in Part II Item 8 of this
Form 10-K for information regarding our currency exchange rate risk management
strategy.
Product liability and other operating expense. Product liability and other
operating expense during the year ended December 31, 2020 was $39.0 million
compared to $28.4 million for the year ended December 31, 2019. The expense in
both periods primarily relates to an increase in MSA LLC's reserve for
cumulative trauma product liability claims resulting from the Company's revision
of estimates of potential liability for cumulative trauma product liability
claims as part of its annual review process, and to a far lesser extent, defense
costs incurred for uninsured asserted cumulative trauma product liability
claims. The increase in MSA LLC's reserve for cumulative trauma product
liability claims is largely attributable to an increase in the number of claims
alleging injuries from exposure to coal mine dust. Please refer to Note
19-Contingencies of the
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consolidated financial statements in Part II Item 8 of this Form 10-K for
additional information.
GAAP operating income. Consolidated operating income for the year ended
December 31, 2020 was $166.9 million compared to $186.2 million for the year
ended December 31, 2019. The decrease in operating results was driven by lower
sales volumes and higher product liability expense partially offset by lower
currency exchange losses and improved SG&A leverage. On a consolidated basis,
SG&A expenses declined by 12% while sales declined 4%.
Adjusted operating income. Americas adjusted operating income for the year ended
December 31, 2020 was $200.5 million, a decrease of $26.1 million, or 12%,
compared to $226.6 million for the year ended December 31, 2019. The decrease
was related to the lower level of sales, higher costs related to lower
throughput in our factories, and higher inventory-related charges, partially
offset by improved SG&A leverage.
International adjusted operating income for the year ended December 31, 2020 was
$70.9 million, an increase of $11.0 million, or 18%, compared to adjusted
operating income of $59.9 million for the year ended December 31, 2019. The
increase in adjusted operating income is primarily attributable to improved
gross profit associated with strategic pricing improvements and benefits we
continue to realize from restructuring programs executed over the past 12 to 18
months, which more than offset the 3% decrease in sales. The most significant
improvement in adjusted operating income was attributable to our EMEA operating
segment.
Corporate segment adjusted operating loss for the year ended December 31, 2020
was $28.1 million, an improvement of $7.5 million, or 21%, compared to an
adjusted operating loss of $35.6 million for the year ended December 31, 2019,
due primarily to lower variable compensation expense as well as lower
professional service and other expenses related to cost control initiatives.
The following tables represent a reconciliation from GAAP operating income to
adjusted operating income (loss) and adjusted EBITDA. Adjusted operating margin
% is calculated as adjusted operating income (loss) divided by net sales and
adjusted EBITDA margin % is calculated as adjusted EBITDA divided by net sales.
                                                                   Year Ended December 31, 2020
(In thousands)                                       Americas    International     Corporate     Consolidated
Net sales                                          $ 874,305    $     473,918    $         -    $  1,348,223
GAAP operating income                                                                                166,851
Restructuring charges (Note 2)                                                                        27,381
Currency exchange losses, net (Note 5)                                                                 8,578
Product liability expense (Note 19)                                                                   39,036
Strategic transaction costs (Note 13)                                                                    717
COVID-19 related costs                                                                                   757
Adjusted operating income (loss)                     200,536           70,864        (28,080)        243,320
Adjusted operating margin %                             22.9  %          15.0  %
Depreciation and amortization                         26,762           12,521            391          39,674
Adjusted EBITDA                                      227,298           83,385        (27,689)        282,994
Adjusted EBITDA %                                       26.0  %          17.6  %


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                                                                   Year Ended December 31, 2019
(In thousands)                                       Americas    International     Corporate     Consolidated
Net sales                                          $ 915,118    $     486,863    $         -    $  1,401,981
GAAP operating income                                                                                186,230
Restructuring charges (Note 2)                                                                        13,846
Currency exchange losses, net (Note 5)                                                                19,814
Product liability expense (Note 19)                                                                   26,619
Strategic transaction costs (Note 13)                                                                  4,400
Adjusted operating income (loss)                     226,596           59,910        (35,597)        250,909
Adjusted operating margin %                             24.8  %          12.3  %
Depreciation and amortization                         24,691           12,938            391          38,020
Adjusted EBITDA                                      251,287           72,848        (35,206)        288,929
Adjusted EBITDA %                                       27.5  %          15.0  %


Note: Adjusted operating income (loss) and adjusted EBITDA are a non-GAAP
financial measures used by the chief operating decision maker to evaluate
segment performance and allocate resources. Adjusted operating income (loss) is
reconciled above to the nearest GAAP financial measure, Operating income (loss),
and excludes restructuring, currency exchange, product liability expense and
strategic transaction costs. Adjusted EBITDA is reconciled above to the nearest
GAAP financial measure, Operating income (loss) and excludes depreciation and
amortization expense.
Total other expense, net. Other expense for the year ended December 31, 2020 was
$3.7 million, an increase of $1.3 million, or 50.2%, compared to $2.5 million
for the year ended December 31, 2019, primarily due to lower pension income
driven by lower discount rates and lower expected rate of return partially
offset by lower interest expense. Improved return on plan assets is expected to
drive a $4 million to $5 million favorable comparison in nonoperating pension
income in 2021, compared to 2020.

Income taxes. The reported effective tax rate for the year ended December 31,
2020 was 25.7%, which included a benefit of 3.9% for share-based payments, an
expense of 3.4% due to nondeductible compensation, and expense of 1.5% related
to a foreign audit. This compared to a reported effective tax rate for the year
ended December 31, 2019 of 25.1%, which included a benefit of 2.6% for
share-based payments, an expense of 1.8% due to non-deductible foreign currency
exchange losses on entity closures, an expense of 1.9% due to nondeductible
compensation and expense related to an increase in profitability in higher tax
jurisdictions.
We are subject to regular review and audit by both foreign and domestic tax
authorities. While we believe our tax positions will be sustained, the final
outcome of tax audits and related litigation may differ materially from the tax
amounts recorded in our consolidated financial statements.
Net income attributable to MSA Safety Incorporated. Net income was $120.1
million for the year ended December 31, 2020, or $3.05 per diluted share,
compared to $136.4 million, or $3.48 per diluted share, for the year ended
December 31, 2019, as a result of the factors described above.
Non-GAAP Financial Information
We may provide information regarding financial measures such as financial
measures excluding the impact of acquisitions and related strategic transaction
costs, COVID-19 related costs, consisting of a one-time bonus for essential
manufacturing employees, adjusted operating income, adjusted operating margin
percentage, adjusted EBITDA and adjusted EBITDA margin percentage, which are not
recognized terms under U.S. GAAP and do not purport to be alternatives to net
sales, selling, general and administrative expense, operating income or net
income as a measure of operating performance. We believe that the use of these
non-GAAP financial measures provide investors with additional useful information
and provide a more complete understanding of the underlying results. Because not
all companies use identical calculations, these presentations may not be
comparable to similarly titled measures from other companies. For more
information about these non-GAAP measures and a reconciliation to the nearest
U.S. GAAP measure, please refer to the reconciliations referenced above in
Management's Discussion & Analysis section and in Note 7-Segment Information of
the consolidated financial statements in Part II Item 8 of this Form 10-K.
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  We may also provide financial information on a constant currency basis, which
is a non-GAAP financial measure. These references to a constant currency basis
do not include operational impacts that could result from fluctuations in
foreign currency rates, which are outside of management's control. To provide
information on a constant currency basis, the applicable financial results are
adjusted by translating current and prior period results in local currency to a
fixed foreign exchange rate. This approach is used for countries where the
functional currency is the local country currency. This information is provided
so that certain financial results can be viewed without the impact of
fluctuations in foreign currency rates, thereby facilitating period-to-period
comparisons of business performance. Constant currency information is not
recognized under U.S. GAAP and it is not intended as an alternative to U.S. GAAP
measures.
LIQUIDITY AND CAPITAL RESOURCES
Our main source of liquidity is operating cash flows, supplemented by
borrowings. Our principal liquidity requirements are for working capital,
capital expenditures, principal and interest payments on debt, declared dividend
payments, and as applicable, acquisitions. At December 31, 2020, approximately
31% of our long-term debt is at fixed interest rates with repayment schedules
through 2031. The remainder of our long-term debt is at variable rates on an
unsecured revolving credit facility that is due in 2023. At December 31, 2020,
approximately 74% of our borrowings are denominated in US dollars, which limits
our exposure to currency exchange rate fluctuations. In January 2021, we
borrowed on our U.K. credit facility in connection with the Bristol acquisition.
At December 31, 2020, we had cash, cash equivalents and restricted cash totaling
$161.0 million, which included $150.1 million of cash, cash equivalents and
restricted cash held by our foreign subsidiaries. Cash, cash equivalents and
restricted cash increased $8.5 million during the year ended December 31, 2020
compared to an increase of $11.9 million during 2019. We continue to employ a
balanced capital allocation strategy that prioritizes growth investments,
funding our dividend and servicing debt obligations.
Our unsecured senior revolving credit facility provides for borrowings up to
$600.0 million through 2023 and is subject to certain commitment fees. This
credit facility has sub-limits for the issuance of letters of credit, swingline
borrowings and foreign currency denominated borrowings; and may be used for
general corporate purposes, including working capital, permitted acquisitions,
capital expenditures and repayment of existing indebtedness. Loans under the
revolving facility will bear interest at a variable rate based on LIBOR or the
federal funds rate at the Company's option. Our weighted average interest rate
was 1.15% in 2020. At December 31, 2020, $385.5 million of the $600.0 million
senior revolving credit facility was unused, including letters of credit. Refer
to Note 11-Short and Long-Term Debt to the consolidated financial statements in
Part II Item 8 of this Form 10-K.
Operating activities. Operating activities provided cash of $206.6 million in
2020, compared to providing cash of $165.0 million in 2019. The improved
operating cash flows during the period was primarily attributable to improved
working capital performance primarily related to accounts receivable and
inventory as well as lower net payments related to MSA LLC's cumulative trauma
product liability. Our subsidiary MSA LLC made product liability payments of
$12.9 million, net of collections on insurance receivables, in the year ended
December 31, 2020, compared to payments of $33.5 million, net of collections on
insurance receivables, in the same period of 2019. MSA LLC funds its operating
expenses and legal liabilities from its own operating cash flow and other
investments, as well as insurance reimbursements, and not from borrowings under
the Company's credit facility, to which it is not a party. We have established
cash flow streams that have allowed us to fund these liabilities without a
material impact on our capital allocation priorities but the timing of such cash
flows can and does vary from quarter to quarter. Please refer to Note
19-Contingencies of the consolidated financial statements in Part II Item 8 of
this Form 10-K for additional information.
  Investing activities. Investing activities used cash of $72.8 million for the
year ended December 31, 2020, compared to using $64.2 million in 2019. Capital
expenditures and purchase of short-term investments, net of proceeds from
maturities drove cash outflows from investing activities during the year ended
December 31, 2020. The acquisition of Sierra Monitor Corporation capital
expenditures drove cash outflows from investing in the same period in 2019.
During 2020 we spent $48.9 million on capital expenditures including
approximately $8.2 million associated with software development, which was a
$3.2 million increase compared to 2019. We expect to invest 2.5% to 3.5% of
sales in capital expenditures in 2021.
Financing activities. Financing activities used cash of $126.5 million for the
year ended December 31, 2020, compared to using cash of $84.6 million in 2019.
During 2020, we had net payments on long-term debt of $44.0 million compared to
net payments of $16.5 million in the same period in 2019.
We made dividend payments of $66.6 million during 2020, compared to $63.5
million during 2019. Dividends paid on our common stock during 2020 were $1.71
per share. Dividends paid on our common stock in 2019 were $1.64 per share.
In January 2021, we used $62.4 million of cash to fund the acquisition of
Bristol.
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Restricted cash balances were $0.4 million at December 31, 2020 compared to $0.3
million at December 31, 2019, and were primarily used to support letter of
credit balances.
The MSA Board of Directors has authorized the Company to repurchase up to $100.0
million in shares of MSA common stock. We used $29.1 million during 2020 to
repurchase shares, including $20.1 million related to purchases under our 2015
stock repurchase program, compared to $12.6 million during 2019 to repurchase
shares, including $3.3 million related to purchases under our 2015 stock
repurchase program.
CUMULATIVE TRANSLATION ADJUSTMENTS
The year-end position of the U.S. dollar relative to international currencies
resulted in a translation gain of $22.3 million being recorded to cumulative
translation adjustments for the year ended December 31, 2020 compared to a loss
of $1.7 million in 2019. The translation gain during 2020 was primarily related
to the weakening of the U.S. dollar relative to the euro. The translation loss
during 2019 was primarily related to the strengthening of the U.S. dollar
relative to the euro.
During the year ended December 31, 2020, we recognized approximately $8.6
million of currency exchange losses, net, in our Consolidated Statements of
Income. During the year ended December 31, 2019, we recognized approximately
$19.8 million of currency exchange losses, net, in our Consolidated Statement of
Income of which $15.3 million relates to non-cash currency exchange losses due
primarily to an approved plan to close our South Africa affiliates. This charge
is related to the historical translation of the elements of the financial
statements for the business from the functional currency to the U.S. Dollar. The
translation impact has been historically recorded as currency translation
adjustment, a separate component of accumulated other comprehensive loss within
the shareholders' equity section of the Consolidated Balance Sheet.
COMMITMENTS AND CONTINGENCIES
We are obligated to make future payments under various contracts, including debt
and lease agreements. Our significant cash obligations as of December 31, 2020,
are as follows:
(In millions)           Total        2021       2022        2023         2024        2025       Thereafter
Long-term debt        $ 308.3      $ 20.0      $   -      $ 221.6      $  8.3      $  8.3      $      50.1
Operating leases         66.5        11.4        7.9          6.3         4.5         4.7             31.7
Transition tax            6.6         0.8        1.5          1.9         2.4           -                -
Totals                $ 381.4      $ 32.2      $ 9.4      $ 229.8      $ 15.2      $ 13.0      $      81.8


The significant obligations table does not include obligations to taxing
authorities due to uncertainty surrounding the ultimate settlement of amounts
and timing of these obligations.
We expect to meet our 2021 and 2022 debt service obligations through cash
provided by operations. Approximately $213.2 million of debt payable in 2023
relates to our unsecured senior revolving credit facility. We expect to generate
sufficient operating cash flow to make payments against this amount each year.
To the extent that a balance remains when the facility matures in 2023, we
expect to refinance the remaining balance through new borrowing facilities.
Interest expense on fixed rate debt over the next five years is expected to be
approximately $3.2 million in 2021, $2.6 million in 2022, $2.3 million in 2023,
$2.1 million in 2024, and $1.8 million in 2025. We expect total interest expense
for 2021 to be between $8 million and $9 million.
The Company had outstanding bank guarantees and standby letters of credit with
banks as of December 31, 2020 totaling $9.0 million, of which $1.3 million
relate to the senior revolving credit facility. These letters of credit serve to
cover customer requirements in connection with certain sales orders and
insurance companies. The Company is also required to provide cash collateral in
connection with certain arrangements. At December 31, 2020, the Company has $0.4
million of restricted cash in support of these arrangements.
We expect to make net contributions of $7.7 million to our pension plans in 2021
which are primarily associated with our International segment. We have not been
required to make contributions to our U.S. based qualified defined benefit
pension plan in many years.
We have purchase commitments for materials, supplies, services and property,
plant and equipment as part of our ordinary conduct of business.
Please refer to Note 19 to the consolidated financial statements in Part II Item
8 of this Form 10-K for further discussion on the Company's product liabilities.
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CRITICAL ACCOUNTING POLICIES AND ESTIMATES
We prepare our consolidated financial statements in accordance with U.S.
generally accepted accounting principles (U.S. GAAP). The preparation of these
financial statements requires us to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses and the related
disclosures. We evaluate these estimates and judgments on an on-going basis
based on historical experience and various assumptions that we believe to be
reasonable under the circumstances. However, different amounts could be reported
if we had used different assumptions and in light of different facts and
circumstances. Actual amounts could differ from the estimates and judgments
reflected in our consolidated financial statements. A summary of the Company's
significant accounting policies is included in Note 1-Significant Accounting
Policies to the consolidated financial statements in Part II, Item 8 of this
Form 10-K.
We believe that the following are the more critical judgments and estimates used
in the preparation of our consolidated financial statements.
Cumulative trauma product liability. We face an inherent business risk of
exposure to product liability claims arising from the alleged failure of our
products to prevent the types of personal injury or death against which they are
designed to protect. Product liability claims are categorized as either single
incident or cumulative trauma.
Single incident product liability claims involve incidents of short duration
that are typically known when they occur and involve observable injuries, which
provide an objective basis for quantifying damages. The Company estimates its
liability for single incident product liability claims based on expected
settlement costs for asserted single incident product liability claims and an
estimate of costs for single incident product liability claims incurred but not
reported ("IBNR"). Single incident product liability exposures are evaluated on
an annual basis, or more frequently if changing circumstances warrant.
Adjustments are made to the reserve as appropriate.
Cumulative trauma product liability claims involve exposures to harmful
substances (e.g., silica, asbestos and coal dust) that occurred years ago and
may have developed over long periods of time into diseases such as silicosis,
asbestosis, mesothelioma, or coal worker's pneumoconiosis. MSA LLC's combined
cumulative trauma product liability reserve is based upon estimates of its
liability for asserted cumulative trauma product liability claims not yet
resolved and for IBNR cumulative trauma product liability claims. In addition,
in connection with finalizing and reporting the Company's results of operations,
management works annually (unless significant changes in trends or new
developments warrant an earlier review) with an outside valuation consultant and
outside legal counsel to review MSA LLC's potential exposure to all cumulative
trauma product liability claims, including asserted cumulative trauma product
liability claims not yet resolved and IBNR cumulative trauma product liability
claims. The process for estimating asserted cumulative trauma product liability
claims not yet resolved takes into account available facts for those claims
including the number and composition of such claims, outcomes of matters
resolved during current and prior periods, and variances associated with
different groups of claims, plaintiffs' counsel, and venues, as well as any
other relevant information. The process for estimating IBNR claims involves a
number of key judgments and assumptions, including as to the number and types of
claims that may be asserted, the period in which claims may be asserted and
resolved, the percentage of claims that may be dismissed without payment, the
average cost to resolve claims on which a payment is made, the manner in which
MSA LLC will defend claims, and the medical and legal environments that will be
applicable to the assertion, evaluation, and resolution of claims in the future.
Each of these factors may increase or decrease significantly within an
individual period depending on, among other things, the timing of claims filings
or settlements, or litigation outcomes during a particular period that are
especially favorable or unfavorable to MSA LLC. We accordingly consider MSA
LLC's claims experience over multiple periods and/or whether there are changes
in MSA LLC's claims experience and trends that are likely to continue for a
significant time into the future in determining whether to make an adjustment to
the reserve, rather than evaluating such factors solely in the short term.
Income taxes. We recognize deferred tax assets and liabilities using enacted tax
rates to record the tax effect of temporary differences between the book and tax
basis of recorded assets and liabilities. We record valuation allowances to
reduce deferred tax assets to the amounts that we estimate are probable to be
realized. When assessing the need for valuation allowances, we consider
projected future taxable income and prudent and feasible tax planning
strategies. Should a change in circumstances lead to a change in our judgments
about the realizability of deferred tax assets in future years, we adjust the
related valuation allowances in the period that the change in circumstances
occurs.
We record an estimated income tax liability based on our best judgment of the
amounts likely to be paid in the various tax jurisdictions in which we operate.
We record tax benefits related to uncertain tax positions taken or expected to
be taken on a tax return when such benefits meet a more likely than not
threshold. We recognize interest related to unrecognized tax benefits in
interest expense and penalties in operating expenses. The tax liabilities
ultimately paid are dependent on a number of factors, including the resolution
of tax audits, and may differ from the amounts recorded. Tax liabilities are
adjusted through income when it becomes probable that the actual liability
differs from the amount recorded.
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Pensions and other post-retirement benefits. We sponsor certain pension and
other post-retirement benefit plans. Accounting for the net periodic benefit
costs and credits for these plans requires us to estimate the cost of benefits
to be provided well into the future and to attribute these costs over the
expected work life of the employees participating in these plans. These
estimates require our judgment about discount rates used to determine these
obligations, expected returns on plan assets, rates of future compensation
increases, rates of increase in future health care costs, participant withdrawal
and mortality rates and participant retirement ages. Differences between our
estimates and actual results may significantly affect the cost of our
obligations under these plans and could cause net periodic benefit costs and
credits to change materially from year-to-year. Discount rates and plan asset
valuations are point-in-time measures. The discount rate assumptions used in
determining projected benefit obligations for our U.S. and foreign plans were
based on the spot rate method at December 31, 2020.
Expected returns on plan assets are based on capital market expectations by
asset class.
The following table summarizes the impact of changes in significant actuarial
assumptions on our December 31, 2020 actuarial valuations.
                                                                                 Impact of Changes in Actuarial Assumptions
                                              Change in 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                                   $    (6,941)         $   8,939          $    (4,826)         $ 4,826          $           (982)                    $  1,040
(Decrease) increase in projected
benefit obligation                         (88,742)           115,339                    -                -                         -

-


Increase (decrease) in funded status        88,742           (115,339)                   -                -                    29,341

(29,341)

Goodwill and Indefinite-lived Intangible Assets. On October 1st of each year, or
more frequently if indicators of impairment exist or if a decision is made to
sell a business, we evaluate goodwill for impairment. Such indicators may
include a decline in expected cash flows, a significant adverse change in the
business climate, unanticipated competition, slower growth rates, or negative
developments in equity and credit markets, among others.
All goodwill is assigned to and evaluated for impairment at the reporting unit
level, which is defined as an operating segment or one level below an operating
segment. The evaluation of impairment involves using either a qualitative or
quantitative approach as outlined in Accounting Standards Codification (ASC)
Topic 350. In 2020, we performed a two-step quantitative test at October 1,
2020. Quantitative testing involves comparing the estimated fair value of each
reporting unit to its carrying value. We estimate reporting unit fair value
using a weighted average of fair values determined by discounted cash flow (DCF)
and market approach methodologies, as we believe both are important indicators
of fair value. A number of assumptions and estimates are involved in the
application of the DCF model, including sales volumes and prices, costs to
produce, tax rates, capital spending, discount rates, and working capital
changes. Cash flow forecasts are generally based on approved business unit
operating plans for the early years and historical relationships in later years.
The market approach methodology measures value through an analysis of peer
companies. The analysis entails measuring the multiples of EBITDA at which peer
companies are trading.
In the event the carrying value is in excess of the estimated fair value of a
reporting unit per the weighted average of the DCF and market approach models,
an impairment loss equal to such excess would be recognized, which could
materially and adversely affect reported consolidated results of operations and
shareholders' equity. At October 1, 2020, based on our quantitative test, the
fair values of each of our reporting units exceeded their carrying value by at
least 109%.
The intangible asset with an indefinite life is also subject to impairment
testing on October 1st of each year, or more frequently if indicators of
impairment exist. The impairment test compares the fair value of the intangible
asset with its carrying amount. We perform a quantitative assessment of the
indefinite lived trade name intangible asset as outlined in ASC 350 by comparing
the estimated fair value of the trade name intangible asset to its carrying
value. We estimate the fair value using the relief from royalty income approach.
A number of significant assumptions and estimates are involved in the
application of the relief from royalty model, including sales volumes and
prices, royalty rates and tax rates. Forecasts are based on sales generated by
the underlying trade name assets and are generally based on approved business
unit operating plans for the early years and historical relationships in later
years. At October 1, 2020, based on our quantitative test, the fair value of the
trade name asset exceeded its carrying value by approximately 22%.
RECENTLY ADOPTED AND RECENTLY ISSUED ACCOUNTING STANDARDS
See Note 1-Significant Accounting Policies of the consolidated financial
statements in Part II Item 8 of this Form 10-K.

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