What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2021-02-19 compared with 2020-02-20 · 366 added, 340 removed, 1087 unchanged (39% of the section changed)

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Based on our assessment and those criteria, management has concluded that the Company maintained effective internal control over financial reporting as of December 31, 2020.

The Company acquired Sierra Monitor Corporation ("SMC") on May 20, 2019, which represented approximately 2% and 4% of the Company's total assets and net assets as of December 31, 2019 and 1% and (2%) of total sales and net income for the year ended December 31, 2019 .

As the SMC acquisition was completed during the second quarter of 2019, the scope of the Company's 2019 assessment of the effectiveness of its internal control over financial reporting does not include the SMC acquisition.

This exclusion is pursuant to the SEC's general guidance that an assessment of a recently acquired business' internal control over financial reporting may be omitted from the scope of the Company's assessment of its internal control over financial reporting for twelve months following the date of acquisition.

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

/s/ NISHAN J.

President and Chief Executive Officer

Chairman, President and Chief Executive Officer

/s/ KENNETH D.

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In our opinion, MSA Safety Incorporated (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on the COSO criteria.

As indicated in the accompanying Management’s Report on Internal Control Over Financial Reporting, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of Sierra Monitor Corporation, which is included in the 2019 consolidated financial statements of the Company and constituted 2% and 4% of total and net assets, respectively, as of December 31, 2019 and 1% and (2%) of revenues and net income, respectively, for the year then ended.

Our audit of internal control over financial reporting of the Company also did not include an evaluation of the internal control over financial reporting of Sierra Monitor Corporation.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the related consolidated statements of income, comprehensive income, cash flows, and changes in retained earnings, accumulated other comprehensive loss and noncontrolling interests for each of the three years in the period ended December 31, 2019, and the related notes and financial statement schedule listed in the Index at Item 15(a) 2.

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

and our report dated February 19, 2021 expressed an unqualified opinion thereon.

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Valuation of cumulative trauma product liability claims

Description of the Matter

As more fully described in Note 19 to the consolidated financial statements, MSA LLC is named as a defendant in lawsuits comprised of cumulative trauma product liability claims involving 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.

Description of the Matter As more fully described in Note 19 to the consolidated financial statements, MSA LLC is named as a defendant in lawsuits comprised of cumulative trauma product liability claims involving 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.

The Company believes it is probable that it will incur losses related to asserted and incurred but not reported (IBNR) claims and that the amount of loss can be reasonably estimated.

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Auditing management’s accounting for and disclosure of loss contingencies arising from cumulative trauma product liability claims was especially challenging, as the estimate of probable loss is highly subjective.

In particular, the estimate was sensitive to significant assumptions, such as the estimated value of settlements paid to claimants, the percentage of cumulative trauma product liability claims asserted against MSA LLC that are dismissed without payment, the future number and type of claims asserted against MSA LLC, and the propensity of claimants and their counsel asserting cumulative trauma claims to name MSA LLC as a defendant.

How We Addressed the Matter in Our Audit

We obtained an understanding, evaluated the design and tested the operating effectiveness of relevant internal controls over the Company’s assessment and measurement of its estimate of probable loss for cumulative trauma product liability claims.

In particular, the estimate was sensitive to significant assumptions that included, among others, the number of claims asserted against MSA LLC and the counsel asserting those claims, the percentage of claims resolved through settlement and the values of settlements paid to claimants.

How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of relevant internal controls over the Company’s assessment and measurement of its estimate of probable loss for cumulative trauma product liability claims.

Our audit procedures included testing controls over the Company’s assessment and measurement of the best estimate of the expected losses related to cumulative trauma product liability claims.

To test the Company’s assessment of cumulative trauma product liability claims, we performed audit procedures which included, among others:

reading the minutes of the meetings of the committees of the board of directors, requesting and receiving internal and external legal counsel letters, meeting with internal counsel to discuss the claims, meeting with management’s valuation consultant, testing the completeness and accuracy of data from underlying systems that are used in the Company’s assessment, performing a historical lookback analysis on claims data, performing a search for new or contrary evidence affecting the assessment, and obtaining a representation letter from the Company.

reading the minutes of the meetings of the committees of the board of directors, requesting and receiving internal and external legal counsel letters, meeting with internal and external counsel to discuss the claims, meeting with management’s valuation consultant, testing the completeness and accuracy of data from underlying systems that are used in the Company’s assessment, performing a historical lookback analysis on claims data, performing a search for new or contrary evidence affecting the assessment, and obtaining a representation letter from the Company.

Additional audit procedures to test the Company’s valuation of the expected losses related to cumulative trauma product liability claims included:

evaluating significant assumptions underlying the estimate, such as the estimated value of settlements paid to claimants, the percentage of cumulative trauma product liability claims asserted against MSA LLC that are dismissed without payment, the future number and type of claims asserted against MSA LLC, and the propensity of claimants and their counsel asserting cumulative trauma claims to name MSA LLC as a defendant.

We engaged our actuarial specialists to assist in the analysis of the significant assumptions used by management.

We assessed the historical accuracy of management’s estimates by performing a lookback analysis and performed sensitivity analyses of significant assumptions used in the current year.

evaluating significant assumptions underlying the estimate, including the number of claims asserted against MSA LLC and the counsel asserting those claims, and the percentage of claims resolved through settlement and the values of settlements paid to claimants.

We engaged our actuarial specialists to assist in the analysis of the significant assumptions and methodology used by management.

Our procedures also included evaluating the sufficiency of the Company’s disclosures with respect to cumulative trauma product liability claims described in Note 19 to the consolidated financial statements.

/s/ Ernst & Young LLP

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MSA SAFETY INCORPORATED

CONSOLIDATED STATEMENT OF INCOME

CONSOLIDATED STATEMENTS OF INCOME

Year ended December 31,

(In thousands, except per share amounts) 2020 2019 2018

Net sales $ 1,348,223 $ 1,401,981 $ 1,358,104

Cost of products sold 757,775 765,369 746,241

Gross profit 590,448 636,612 611,863

Selling, general and administrative 290,334 330,502 324,784

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Provision for income taxes (Note 9) 41,941 46,086 37,220

Net income 121,162 137,649 125,115

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

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Earnings per share attributable to MSA Safety Incorporated common shareholders (Note 8):

Basic $ 3.09 $ 3.52 $ 3.23

Diluted $ 3.05 $ 3.48 $ 3.18

Dividends per common share $ 1.71 $ 1.64 $ 1.49

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MSA SAFETY INCORPORATED

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Year ended December 31,

(In thousands) 2020 2019 2018

Net income $ 121,162 $ 137,649 $ 125,115

Other comprehensive (loss) income, net of tax:

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Pension and post-retirement plan actuarial gains (losses), net of tax (Note 5) 9,296 ( 5,559 ) ( 17,569 )

Unrealized gains (losses) on available-for-sale securities (Note 5)

Reclassification from accumulated other comprehensive (loss) into net income (Note 5)

Unrealized (losses) gains on available-for-sale securities (Note 5) ( 7 ) 578 ( 572 )

Reclassifications from accumulated other comprehensive (loss) into net income (Note 5) 216 15,261 774

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

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MSA SAFETY INCORPORATED

CONSOLIDATED BALANCE SHEET

CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts) 2020 2019

Cash and cash equivalents $ 160,672 $ 152,195

Trade receivables, less allowance for doubtful accounts of $4,860 and $5,369

Trade receivables, less allowance for credit loss of $ 5,344 and $ 4,860

252,283 255,082

Inventories (Note 3) 197,819 185,027

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

Total assets $ 1,872,484 $ 1,739,693

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

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Income taxes payable (Note 9) 3,580 6,739

Warranty reserve (Note 19) and other current liabilities

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

Total current liabilities 310,545 277,509

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39,067,902 and 38,841,194 shares outstanding at December 31, 2020 and 2019, respectively)

242,693 229,127

Treasury shares, at cost (Note 6) ( 327,756 ) ( 305,159 )

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MSA SAFETY INCORPORATED

CONSOLIDATED STATEMENT OF CASH FLOWS

CONSOLIDATED STATEMENTS OF CASH FLOWS

Year ended December 31,

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Operating Activities

Net income $ 121,162 $ 137,649 $ 125,115

Depreciation and amortization 39,674 38,020 37,852

Restructuring charges (Note 2)

Stock-based compensation (Note 10) 6,920 13,760 12,239

Pension expense (Note 14) and other charges 10,082 3,382 5,901

Deferred income tax provision (benefit) (Note 9)

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

Losses on asset dispositions, net 236 371 484

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Trade receivables

7,677 ( 8,855 ) ( 10,075 )

Inventories (Note 3)

( 8,601 ) ( 23,246 ) ( 11,122 )

Prepaid expenses and other current assets

( 8,861 ) ( 822 ) 10,866

Accounts payable and accrued liabilities

13,541 5,801 17,985

Other noncurrent assets and liabilities

( 1,097 ) ( 9,797 ) ( 5,778 )

Cash Flow From Operating Activities 206,555 164,962 263,887

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Employee stock purchase plan (Note 6) 747 641 556

Cash Flow (Used In) From Financing Activities

Other, net — — ( 1,494 )

Cash Flow Used In Financing Activities ( 126,529 ) ( 84,624 ) ( 163,269 )

Effect of exchange rate changes on cash, cash equivalents and restricted cash 1,234 ( 4,242 ) ( 13,508 )

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MSA SAFETY INCORPORATED

CONSOLIDATED STATEMENT OF CHANGES IN RETAINED EARNINGS,

CONSOLIDATED STATEMENTS OF CHANGES IN RETAINED EARNINGS,

ACCUMULATED OTHER COMPREHENSIVE LOSS AND NONCONTROLLING INTERESTS

(In thousands)

(In thousands) Retained

Earnings Accumulated

Comprehensive

Noncontrolling Interests

Loss Noncontrolling Interests

Balances January 1, 2018 $ 868,675 $ ( 171,762 ) $ 4,977

Net income 125,115 — —

Foreign currency translation adjustments — ( 30,103 ) —

Pension and post-retirement plan adjustments, net of tax of $( 6,325 )

— ( 17,569 ) —

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

Reclassification of currency translation from accumulated other comprehensive (loss) into net income (Note 5) — 774 —

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

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Preferred dividends ($ 0.5625 per share)

Cumulative effect of the adoption of ASU 2016-16 (Note 1)

Balances December 31, 2018 935,577 ( 218,927 ) 5,637

Net income 137,649 — —

Foreign currency translation adjustments — ( 1,657 ) —

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

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

— ( 5,559 ) —

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

Reclassification of currency translation from accumulated other comprehensive (loss) into net income (Note 5) — 15,261 —

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Preferred dividends ($ 0.5625 per share)

Cumulative effect of the adoption of ASU 2016-16 (Note 1) 3,772 ( 3,772 ) —

Balances December 31, 2019 1,012,266 ( 214,003 ) 6,773

Net income 121,162 — —

Foreign currency translation adjustments — 22,260 —

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

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

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

Reclassification of currency translation from accumulated other comprehensive (loss) into net income (Note 5) — 216 —

(Income) loss attributable to noncontrolling interests

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

Common dividends ( 66,537 ) — —

Preferred dividends ($ 0.5625 per share)

Reclassification due to the adoption of ASU 2018-02 (Note 1)

Balances December 31, 2020 $ 1,065,789 $ ( 182,397 ) $ 7,993

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Note 1— Significant Accounting Policies

Basis of Presentation— The consolidated financial statements of MSA Safety Incorporated ("MSA" or "the Company") are prepared in conformity with accounting principles generally accepted in the United States of America (GAAP) and require management to make certain judgments, estimates, and assumptions.

GAAP) and require management to make certain judgments, estimates, and assumptions.

These may affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements.

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Currency Translation— The functional currency of all significant non-U.S.

subsidiaries is the local currency.

subsidiaries is the local country currency.

Assets and liabilities of these operations are translated at year-end exchange rates.

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The money market funds are required to price and transact at a NAV per share that fluctuates based upon the pricing of the underlying portfolio of securities and this requirement may impact the value of those fund shares.

Restricted Cash— Restricted cash, which is designated for use other than current operations, is included in prepaid expenses and other current assets in the Consolidated Balance Sheet.

Restricted Cash— Restricted cash, which is designated for use other than current operations, is included in prepaid expenses and other current assets in the Consolidated Balance Sheets.

Restricted cash balances were $ 0.4 million and $ 0.3 million at December 31, 2020 and 2019, respectively.

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inventories are valued on the last-in, first-out (LIFO) cost method which is used since this method provides better matching of costs and revenues.

Other inventories are valued at actual costs, at standard costs which approximate actual costs or in very rare occasions, on the average cost method.

Other inventories are valued at standard costs which approximate actual costs.

It is the Company's general policy to write-down any inventory identified as obsolete.

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Investment securities — The Company’s investment securities, primarily fixed income, are classified as available-for-sale.

The securities are recorded at fair market value and reported in “Investments, short-term” in the accompanying Consolidated Balance Sheet with changes in fair market value recorded in other comprehensive income, net of tax.

The purchases and sales of these investments are classified as investing activities in the Consolidated Statement of Cash Flows.

The securities are recorded at fair market value and reported in “Investments, short-term” in the accompanying Consolidated Balance Sheets with changes in fair market value recorded in other comprehensive income, net of tax.

The purchases and sales of these investments are classified as investing activities in the Consolidated Statements of Cash Flows.

Property and Depreciation— Property is recorded at cost.

Depreciation is computed using straight-line and accelerated methods over the estimated useful lives of the assets, generally as follows:

Depreciation is computed primarily using the straight-line method over the estimated useful lives of the assets, generally as follows:

buildings 20 to 40 years and machinery and equipment 3 to 10 years.

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Ordinary repairs and maintenance are expensed as incurred.

Gains or losses on property dispositions are included in other income and the cost and related depreciation are removed from the accounts.

Gains or losses on property dispositions are included in other income, net and the cost and related depreciation are removed from the accounts.

Depreciation expense for the years ended December 31, 2020, 2019 and 2018 was $ 27.7 million, $ 26.5 million and $ 26.9 million, respectively.

Properties, plants, and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable.

Recoverability of assets is determined by comparing the estimated undiscounted net cash flows of the operations related to the assets to their carrying amount.

An impairment loss would be recognized when the carrying amount of the assets exceeds the estimated undiscounted net cash flows.

The amount of the impairment loss to be recorded is calculated as the excess of the carrying value of the assets over their fair value, with fair value determined using the best information available, which generally is a discounted cash flow model.

Properties, plants, and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets or asset groups may not be recoverable.

Software Development Costs— Software development costs consist primarily of costs incurred in software development and related personnel compensation to create, enhance and deploy the Company’s broad range of wireless technology and cloud-based computing safety services.

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Additionally, costs of upgrades and enhancements are capitalized when it is probable that the upgrades and enhancements will result in added functionality.

The estimated useful life of costs capitalized is three years.

Capitalized costs are amortized through Cost of products sold using the straight-line method over the estimated useful life, which is normally three years , beginning in the period in which the software is ready for its intended use or when the upgrade or enhancement is deployed.

During 2019 and 2018, there was approximately $ 5.0 million and $ 1.6 million , respectively, of software development costs capitalized.

During 2017, there was no software development costs capitalized.

During 2020, 2019, and 2018 there was approximately $ 8.2 million, $ 5.0 million and $ 1.6 million, respectively, of software development costs capitalized.

Goodwill and Other Intangible Assets— Intangible assets with a finite useful life are amortized on a straight-line basis over their useful lives.

Indefinite lived intangible assets are assessed for possible impairment annually on October 1st or whenever circumstances change such that the recorded value of the asset may not be recoverable.

We performed a quantitative assessment of the indefinite lived trade name intangible asset as outlined in Accounting Standards Codification ("ASC") 350 by comparing the estimated fair value of the trade name intangible asset to their 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.

A number of assumptions and estimates are involved in the application of the relief from royalty model, including sales volumes and prices, royalty rates and tax rates.

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

Based on this assessment, there was no indication of impairment for 2019 .

Based on these assessments, no impairments were identified during the years ended December 31, 2020, 2019 or 2018.

Goodwill is not amortized, but is subject to impairment assessments.

On October 1st of each year, or more frequently if indicators of impairment exist or if a decision is made to sell a business, we evaluate goodwill for impairment.

A significant amount of judgment is involved in determining if an indicator of impairment has occurred.

Judgment is involved in determining if an indicator of impairment has occurred.

Such indicators may include a decline in expected cash flows, a significant adverse change in the business climate, unanticipated competition, slower growth rates, or negative developments in equity and credit markets, among others.

All goodwill is assigned to and evaluated for impairment at the reporting unit level, which is defined as an operating segment or one level below an operating segment.

For goodwill impairment testing purposes, we consider our operating segments to be our reporting units.

The evaluation of impairment involves using either a qualitative or quantitative approach as outlined in ASC Topic 350.

The qualitative evaluation is an assessment of factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value, including goodwill.

Factors considered as part of the qualitative assessment include entity-specific industry, market and general economic conditions.

In 2019 , we elected to bypass the qualitative evaluation for all of our reporting units, and performed a two-step quantitative test at October 1, 2019 .

In 2020, we performed a two-step quantitative test at October 1, 2020.

Step 1 of the quantitative testing involves comparing the estimated fair value of each reporting unit to its carrying value.

We estimate reporting unit fair value using a weighted average of fair values determined by discounted cash flow (DCF) and market approach methodologies, as we believe both are equally important indicators of fair value.

A number of significant 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.

We estimate reporting unit fair value using a weighted average of fair values determined by discounted cash flow (DCF) and market approach methodologies, as we believe both are important indicators of fair value.

A number of assumptions and estimates are involved in the application of the DCF model, including sales volumes and prices, costs to produce, tax rates, capital spending, discount rates, and working capital changes.

Cash flow forecasts are generally based on approved reporting unit operating plans for the early years and historical relationships in later years.

The betas used in calculating the individual reporting units’ weighted average cost of capital (WACC) rate are estimated for each reporting unit based on peer data.

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.

There has been no impairment of our goodwill as of December 31, 2019 , 2018 or 2017 .

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

Revenue Recognition— We account for revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers , which we adopted on January 1, 2018, using the modified retrospective method.

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Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods or providing services.

Amounts billed and due from our customers are classified as receivables on the Consolidated Balance Sheet.

We make appropriate provisions for uncollectible accounts receivable which have historically been insignificant in relation to our net sales.

Amounts billed and due from our customers are classified as receivables on the Consolidated Balance Sheets.

We make appropriate provisions for credit losses which have historically been insignificant in relation to our net sales.

Certain contracts with customers, primarily distributor customers, have an element of variable consideration that is estimated when revenue is recognized under the contract to the extent that it is material to the individual contract.

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We have elected to recognize the cost for shipping and handling as an expense when control of the product has passed to the customer.

These costs are included within the Cost of Products Sold line on the Consolidated Statement of Income.

These costs are included within the Cost of products sold line on the Consolidated Statements of Income.

Amounts billed to customers for shipping and handling are included in net sales.

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Deferred taxes are booked for available cash in excess of working capital for non-U.S.

subsidiaries as these earnings are no longer considered to be permanently reinvested.

Stock-Based Compensation— We recognize compensation expense for employee and non-employee director stock-based compensation based on the grant date fair value.

subsidiaries as these earnings are not considered to be permanently reinvested.

Stock-Based Compensation— We recognize expense for employee and non-employee director stock-based compensation based on the grant date fair value of the awards.

Except for retirement-eligible participants, for whom there is no requisite service period, this expense is recognized ratably over the requisite service periods following the date of grant.

For retirement-eligible participants, this expense is recognized at the grant date.

For retirement-eligible participants, this expense is recognized over an accelerated period of at least one year.

Derivative Instruments— We may use derivative instruments to minimize the effects of changes in currency exchange rates.

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Changes in the fair value of derivative instruments designated as fair value hedges are recorded in the balance sheet as adjustments to the underlying hedged asset or liability.

Changes in the fair value of derivative instruments that do not qualify for hedge accounting treatment are recognized in the Consolidated Statement of Income as currency exchange losses, net in the current period.

Changes in the fair value of derivative instruments that do not qualify for hedge accounting treatment are recognized in the Consolidated Statements of Income and Consolidated Statements of Cash Flows as Currency exchange losses, net in the current period.

Commitments and Contingencies— For asserted claims and assessments, liabilities are recorded when a loss is deemed to be probable and the amount of the loss is reasonably estimable.

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Concentration of credit and business risks - We are exposed to credit risk in the event of nonpayment by customers, principally in the oil, gas and petrochemical, fire service, construction, utilities, and mining industries.

Changes in these industries may significantly affect our financial performance and management's estimates.

Changes in these industries or other developments may significantly affect our financial performance and management's estimates.

We mitigate our exposure to credit risk by performing ongoing credit evaluations and, when deemed necessary, requiring letters of credit, credit insurance, prepayments, guarantees or other collateral.

No individual customer represented more than 10% of our sales.

Reclassifications - Certain reclassifications of prior years' data have been made to conform to the current year presentation.

These reclassifications relate to (1) additional captions disclosed within the operating section of the Consolidated Statement of Cash Flows but do not change the overall cash flow from operating activities for the prior years as previously reported, and (2) additional captions disclosed for product warranty activity within the table that reconciles the changes in the Company's accrued warranty reserve (Note 19).

Recently Adopted and Recently Issued Accounting Standards— In May 2014, the FASB issued ASU 2014-09, Revenue with Contracts from Customers .

This ASU establishes a single revenue recognition model for all contracts with customers based on recognizing revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services, eliminates industry specific requirements and expands disclosure requirements.

We adopted ASU 2014-09 using the modified retrospective method as of January 1, 2018.

The majority of our revenue transactions consist of a single performance obligation to transfer promised goods or services.

The adoption of this new standard did not impact the Company's Consolidated Statement of Income or Balance Sheet and there was no cumulative effect of initially applying the standard to the opening balance of retained earnings.

See Revenue Recognition section above for further information on our updated revenue recognition policy.

In February 2016, the FASB issued ASU 2016-02, Leases .

This ASU requires lessees to record a right-of-use asset and a liability for virtually all leases.

This ASU was adopted on January 1, 2019, using the modified retrospective transition method at the adoption date.

Comparative periods presented in our consolidated financial statements were reported in accordance with ASC 840, Leases .

In addition, the Company elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed us to carry forward the historical lease classification.

The Company also elected the practical expedient to not separate lease and non-lease components for new leases entered into after January 1, 2019, when calculating the lease liability under this ASU.

Adoption of this ASU resulted in the recording of lease liabilities of approximately $ 54 million with the offset to lease right-of-use assets of $ 54 million .

The standard did not materially impact our Consolidated Statement of Income and had no impact on our Consolidated Statement of Cash Flows.

The new standard also requires increased disclosures to help financial statement users better understand the amount, timing and uncertainty of cash flows arising from leases.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses.

No individual customer represented more than 10% of our sales or receivables.

Recently Adopted and Recently Issued Accounting Standards— In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses.

This ASU introduces an approach based on expected losses to estimate credit losses on certain types of financial instruments, including loans, held-to-maturity debt securities, loan commitments, financial guarantees and net investments in leases, as well as reinsurance and trade receivables.

This ASU will be effective beginning in 2020.

Based on a review of its portfolio of financial instruments, the Company does not believe the adoption of this ASU will have a material impact on the consolidated financial statements, but does expect the adoption to result in additional disclosures.

In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment .

This ASU simplifies the accounting for goodwill impairments under Step 2 by eliminating the requirement to perform procedures to determine the fair value of the assets and liabilities of the reporting unit, including previously unrecognized assets and liabilities, in order to determine the fair value of the goodwill and any impairment charge to be recognized.

Under this ASU, the impairment charge to be recognized should be the amount by which the reporting unit's carrying value exceeds the reporting unit's fair value as calculated under Step 1 provided that the loss recognized should not exceed the total amount of goodwill allocated to the reporting unit.

The Company adopted ASU 2017-04 effective January 1, 2019 and this ASU may have a material effect on our consolidated financial statements in the event that we determine that goodwill for any of our reporting units is impaired.

This ASU was adopted on January 1, 2020, which did not have an impact on the consolidated financial statements.

In January 2018, the FASB issued ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220):

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In August 2018, the FASB issued ASU 2018-13, Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement , which improves fair value disclosure requirements by removing disclosures that are not cost beneficial, clarifying disclosures’ specific requirements and adding relevant disclosure requirements.

This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019.

This ASU was effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, and was adopted in 2020.

The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption.

All other amendments should be applied retrospectively to all periods presented upon their effective date.

Early adoption is permitted and an entity can choose to early adopt any removed or modified disclosures upon issuance of this ASU and delay adoption of the additional disclosures until their effective date.

The Company's adoption of ASU 2018-13 did not have an impact on the consolidated financial statements, but did change our disclosures.

In August 2018, the FASB issued ASU 2018-14, Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans , which improves defined benefit disclosure requirements by removing disclosures that are not cost beneficial, clarifying disclosures’ specific requirements and adding relevant disclosure requirements.

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The amendments in this ASU are required to be applied on a retrospective basis to all periods presented.

The Company is still evaluating the impact that the adoption of ASU 2018-14 will have on the consolidated financial statements but does expect changes to our disclosures.

The Company adopted ASU 2018-14 on December 31, 2020, which did not have an impact on the consolidated financial statements, but did change our disclosures.

Note 2— Restructuring Charges

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These charges were primarily related to our ongoing initiatives to drive profitable growth and right size our operations.

Americas segment restructuring charges of $ 4.7 million during the year ended December 31, 2020, were primarily related to costs associated with our global Fixed Gas & Flame Detection manufacturing footprint optimization as well as programs to adjust our operations in response to current business conditions.

International segment restructuring charges of $ 21.9 million during the year ended December 31, 2020, were primarily related to severance costs for staff reductions and footprint optimization associated with our ongoing initiatives to drive profitable growth.

Corporate segment restructuring charges of $ 0.8 million during the year ended December 31, 2020, were primarily related to programs to adjust our operations in response to current business conditions.

A total of 121 positions were eliminated in 2020.

There were 42 positions eliminated in the Americas segment, 76 in the International segment and 3 in the Corporate segment.

Americas segment restructuring charges of $ 0.5 million during the year ended December 31, 2019, were related to severance costs for staff reductions in our Latin America Region.

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A total of 45 positions were eliminated in 2018.

There were 8 positions eliminated in the Americas segment, 34 in the International segment and 3 in the Corporate segment.

Americas segment restructuring charges of $ 13.0 million during the year ended December 31, 2017 , related primarily to a non-cash special termination benefit expense of $ 11.4 million for a voluntary retirement incentive package ("VRIP") as well as severance from staff reductions in Brazil.

All benefits were paid from our over funded North America pension plan.

International segment restructuring charges of $ 4.9 million during the year ended December 31, 2017 , related to severance costs for staff reductions associated with our ongoing initiatives to drive profitable growth in Europe and right size our operations in Africa.

Favorable adjustments for changes in estimates on employee restructuring reserves of $ 0.3 million were recorded during the year ended December 31, 2017 .

Approximately 155 positions were eliminated in 2017 .

There were 90 positions were eliminated in the Americas segment and approximately 65 in the International segment.

There were 8 positions were eliminated in the Americas segment, 34 in the International segment and 3 in the Corporate segment.

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

(in millions)

International

(in millions) Americas International Corporate Total

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

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

Cash payments / utilization

Cash payments ( 2.0 ) ( 4.9 ) ( 5.3 ) ( 12.2 )

Reserve balances at December 31, 2018 $ 0.5 $ 4.0 $ — $ 4.5

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

Cash payments

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

Reserve balances at December 31, 2019 $ 0.3 $ 5.9 $ — $ 6.2

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(In thousands) 2020 2019

Land $ 4,275 $ 4,194

Buildings 128,887 125,223

Machinery and equipment 422,333 397,287

Construction in progress 38,753 24,759

Total 594,249 551,463

Less accumulated depreciation ( 404,629 ) ( 384,425 )

Property, plant and equipment, net $ 189,620 $ 167,038

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

Note 5— Reclassifications Out of Accumulated Other Comprehensive Loss

MSA Safety Incorporated

Noncontrolling Interests

MSA Safety Incorporated Noncontrolling Interests

(In thousands) 2020 2019 2018 2020 2019 2018

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Balance at beginning of period $ ( 124,848 ) $ ( 115,517 ) $ ( 97,948 ) $ — $ — $ —

Unrecognized net actuarial (losses) gains

Tax benefit (expense)

Total other comprehensive (loss) income before reclassifications, net of tax

Unrecognized net actuarial losses ( 6,322 ) ( 19,479 ) ( 37,977 ) — — —

Tax benefit 1,997 5,847 9,936 — — —

Total other comprehensive loss before reclassifications, net of tax ( 4,325 ) ( 13,632 ) ( 28,041 ) — — —

Amounts reclassified from accumulated other comprehensive loss into net income:

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Recognized net actuarial losses (Note 14) 18,079 11,028 14,507 — — —

Tax benefit ( 4,242 ) ( 2,775 ) ( 3,611 ) — — —

Total amount reclassified from accumulated other comprehensive loss, net of tax, into net income 13,621 8,073 10,472 — — —

Reclassification to retained earnings due to the adoption of ASU 2018-02 (Note 1) — ( 3,772 ) — — — —

Total other comprehensive (loss) income

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

Balance at end of period $ ( 115,552 ) $ ( 124,848 ) $ ( 115,517 ) $ — $ — $ —

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

Unrealized gain (loss) on available-for-sale securities (Note 18)

Unrealized (loss) gain on available-for-sale securities (Note 18) ( 7 ) 578 ( 572 ) — — —

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

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Balance at beginning of period $ ( 89,161 ) $ ( 102,838 ) $ ( 73,814 ) $ 423 $ 496 $ 801

Reclassification from accumulated other comprehensive loss into net income

Reclassification from accumulated other comprehensive loss into net income 216 (c)

Foreign currency translation adjustments 22,101 ( 1,584 ) ( 29,798 ) 159 ( 73 ) ( 305 )

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

plan to close our South Africa affiliates as discussed above and are included in Currency exchange losses, net, within

the Consolidated Statement of Income.

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

Note 6— Capital Stock

Preferred Stock - The Company has authorized 100,000 shares of $ 50 par value 4.5 % cumulative preferred nonvoting stock which is callable at $ 52.50 .

There are 71,340 shares issued and 52,878 shares held in treasury at December 31, 2019 .

There are 71,340 shares issued at both December 31, 2020 and 2019 and 52,998 and 52,878 shares held in treasury at December 31, 2020 and 2019, respectively.

The Treasury shares at cost line of the Consolidated Balance Sheet includes $ 1.8 million related to preferred stock.

There were no treasury purchases of preferred stock during the years ended December 31, 2019 , 2018 or 2017 .

There were 120 shares of preferred stock purchased and subsequently held in treasury during the year ended December 31, 2020, and no treasury purchases of preferred stock during the year ended December 31, 2019.

The Company has also authorized 1,000,000 shares of $ 10 par value second cumulative preferred voting stock.

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There were 23,013,489 and 23,240,197 Treasury Shares at December 31, 2020 and 2019, respectively.

The Company issues Treasury Shares for all share based benefit plans.

The Company issues Treasury Shares for all stock based benefit plans.

Shares are issued from Treasury at the average Treasury Share cost on the date of the transaction.

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Common stock activity is summarized as follows:

(Dollars in thousands)

Shares Dollars

(Dollars in thousands) Issued Treasury Common

Stock Treasury

Balances January 1, 2018 62,081,391 ( 23,858,463 ) $ 194,953 $ ( 296,081 )

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Stock option expense — 272 —

Stock option forfeitures — — ( 55 ) —

Performance stock issued — 41,660 ( 523 ) 523

Performance stock expense — — 6,186 —

Performance stock forfeitures — ( 385 ) —

Employee stock purchase plan — 7,725 478 78

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

Share repurchase program

Acquisition of noncontrolling interest

Balances December 31, 2018 62,081,391 ( 23,554,868 ) $ 211,806 $ ( 296,390 )

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Performance stock forfeitures — — ( 215 ) —

Stock consideration in acquisition — — 921 —

Employee stock purchase plan — 5,895 564 77

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

Share repurchase program — ( 33,465 ) — ( 3,347 )

Balances December 31, 2019 62,081,391 ( 23,240,197 ) $ 229,127 $ ( 303,566 )

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Performance stock forfeitures — — ( 755 ) —

Stock consideration in acquisition (Note 13)

Employee stock purchase plan — 6,494 654 93

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Note 7— Segment Information

We are organized into six geographic operating segments based on management responsibilities.

On January 1, 2020, we restructured our business from six geographical operating segments into four geographical operating segments that are based on management responsibilities:

Northern North America, Latin America, Europe, Middle East & Africa ("EMEA"), and Asia Pacific ("APAC") to better serve customer needs.

The operating segments have been aggregated (based on economic similarities, the nature of their products, end-user markets and methods of distribution) into three reportable segments:

Americas, International, and Corporate.

The operating segment change did not impact reportable segments as all changes were within the International reportable segment.

The Americas segment is comprised of our operations in North America and Latin America geographies.

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Certain global expenses are allocated to each segment in a manner consistent with where the benefits from the expenses are derived.

The Company's sales are allocated to each country based primarily on the destination of the end-customer.

The Company's sales are allocated to each segment based primarily on the country destination of the end-customer.

Adjusted operating income (loss), adjusted operating margin, adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) and adjusted EBITDA margin are the measures used by the chief operating decision maker to evaluate segment performance and allocate resources.

Adjusted operating income (loss) is defined as operating income excluding restructuring charges, currency exchange gains (losses), product liability expense and strategic transaction costs and adjusted operating margin is defined as adjusted operating income (loss) divided by segment sales to external customers.

Adjusted operating income (loss) is defined as operating income excluding restructuring charges, currency exchange gains (losses), product liability expense, strategic transaction costs and COVID-19 related costs, consisting of a one-time bonus for essential manufacturing employees and adjusted operating margin is defined as adjusted operating income (loss) divided by segment sales to external customers.

Adjusted EBITDA is defined as adjusted operating income (loss) plus depreciation and amortization and adjusted EBITDA margin is defined as adjusted EBITDA divided by segment sales to external customers.

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Further, the Company's measure of adjusted operating income (loss), adjusted operating margin, adjusted EBITDA and adjusted EBITDA margin may not be comparable to similarly titled measures of other companies.

Adjusted operating income (loss) and adjusted EBITDA on a consolidated basis is presented in the following table to reconcile the segment operating performance measure to operating income as presented on the Consolidated Statement of Income.

The accounting principles applied at the operating segment level in determining operating income (loss) are generally the same as those applied at the consolidated financial statement level.

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Reportable segment information is presented in the following table:

(In thousands)

International

Sales to external customers

(In thousands) Americas International Corporate Reconciling

Net sales to external customers $ 874,305 $ 473,918 $ — $ — $ 1,348,223

Operating income 166,851

Restructuring charges (Note 2) 27,381

Currency exchange losses, net

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

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Noncash items:

Pension (income) expense

Pension expense 910 8,113 — — 9,023

Total Assets 1,228,739 615,114 29,761 ( 1,130 ) 1,872,484

Capital expenditures 43,181 5,724 — — 48,905

Sales to external customers

Net sales to external customers $ 915,118 $ 486,863 $ — $ — $ 1,401,981

Operating income 186,230

Restructuring charges (Note 2) 13,846

Currency exchange losses, net

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

Product liability expense (Note 19) 26,619

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

Total Assets 1,131,911 584,195 22,367 1,220 1,739,693

Capital expenditures 26,823 9,781 — — 36,604

Sales to external customers

Net sales to external customers $ 854,287 $ 503,817 $ — $ — $ 1,358,104

Operating income 173,479

Restructuring charges (Note 2) 13,247

Currency exchange losses, net

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

Product liability expense (Note 19) 45,327

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Noncash items:

Pension expense

Pension (income) expense ( 1,201 ) 7,102 — — 5,901

Total Assets 1,077,938 522,042 10,842 ( 2,810 ) 1,608,012

Capital expenditures 25,001 8,959 — — 33,960

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

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

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

(In thousands) 2020 2019 2018

United States $ 750,315 $ 785,155 $ 734,033

Other 597,908 616,826 624,071

Total $ 1,348,223 $ 1,401,981 $ 1,358,104

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

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United States $ 134,234 $ 113,528 $ 92,511

Total sales by product group was as follows:

International

(In thousands)

Other 108,837 105,185 65,429

Total $ 243,071 $ 218,713 $ 157,940

Total Net sales by product group was as follows:

2020 Consolidated Americas International

(In thousands) Dollars Percent Dollars Percent Dollars Percent

Breathing Apparatus $ 329,179 24 % $ 220,650 25 % $ 108,529 23 %

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Fall Protection 103,075 8 % 58,060 7 % 45,015 10 %

International

(In thousands)

197,846 15 % 120,398 14 % 77,448 16 %

Total $ 1,348,223 100 % $ 874,305 100 % $ 473,918 100 %

2019 Consolidated Americas International

(In thousands) Dollars Percent Dollars Percent Dollars Percent

Breathing Apparatus $ 317,678 23 % $ 212,463 23 % $ 105,215 22 %

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Fall Protection 125,869 9 % 78,054 9 % 47,815 10 %

International

(In thousands)

172,552 12 % 96,079 11 % 76,473 16 %

Total $ 1,401,981 100 % $ 915,118 100 % $ 486,863 100 %

2018 Consolidated Americas International

(In thousands) Dollars Percent Dollars Percent Dollars Percent

Breathing Apparatus $ 324,672 24 % $ 205,100 24 % $ 119,572 24 %

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Fall Protection 109,472 8 % 61,289 7 % 48,183 10 %

181,745 13 % 91,316 11 % 90,429 18 %

Total $ 1,358,104 100 % $ 854,287 100 % $ 503,817 100 %

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

Note 8— Earnings per Share

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(In thousands, except per share amounts) 2020 2019 2018

Net income $ 120,101 $ 136,440 $ 124,150

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

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Diluted weighted-average shares outstanding 39,286 39,189 38,961

Antidilutive stock options

Earnings per share:

Basic $ 3.09 $ 3.52 $ 3.23

Diluted $ 3.05 $ 3.48 $ 3.18

Note 9— Income Taxes

(In thousands) 2020 2019 2018

Components of income (loss) before income taxes

income (loss)

Components of income before income taxes

income $ 104,682 $ 126,552 $ 85,234

income 58,421 57,183 77,101

Income before income taxes $ 163,103 $ 183,735 $ 162,335

Provision for income taxes

Federal $ 23,587 $ 13,770 $ 13,574

State 4,896 5,436 4,265

16,780 25,608 23,446

Total current provision $ 45,263 $ 44,814 $ 41,285

Federal $ ( 1,493 ) $ 5,744 $ 291

State ( 727 ) 1,346 ( 1,604 )

( 1,102 ) ( 5,818 ) ( 2,752 )

Total deferred provision (benefit) ( 3,322 ) 1,272 ( 4,065 )

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deferred tax assets and liabilities by $ 2.5 million and a $ 2.0 million increase associated with prepaid taxes for updated regulations related to the Act.

During 2017, the Company recognized a benefit of $ 2.5 million associated with the reduction of exit taxes related to our European reorganization.

During 2018, the Company recorded $ 1.8 million of foreign income tax reserves related to the legal and operational realignment of our U.S., Canadian and European operations.

During 2020, an additional reserve of $ 1.1 million was recorded related to the operating realignment of our European operations.

Reconciliation of the U.S.

federal income tax rates to our effective tax rate:

2020 2019 2018

federal income tax rate 21.0 % 21.0 % 21.0 %

State income taxes—U.S.

Nondeductible compensation 3.4 % 1.9 % 1.0 %

Foreign exchange on entity closures

Taxes on non-U.S.

income 2.6 % ( 0.5 ) % 0.4 %

State income taxes—U.S.

2.0 % 2.9 % 1.3 %

Valuation allowances 0.8 % 0.4 % 0.5 %

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income - U.S., Canadian & European reorganization 0.7 % 0.3 % 1.1 %

Foreign exchange on entity closures — % 1.8 % — %

tax reform — % — % 1.6 %

Manufacturing deduction credit — % — % ( 1.0 ) %

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

Taxes on non-U.S.

Other 0.3 % 0.5 % ( 0.5 ) %

Effective income tax rate 25.7 % 25.1 % 22.9 %

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

Share-based compensation

Accrued expenses and other reserves 5,195 4,384

Share-based compensation 3,588 5,396

Other 5,287 3,828

Total deferred tax assets 87,523 78,934

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Property, plant and equipment ( 14,649 ) ( 11,714 )

Other ( 1,897 ) ( 2,475 )

Total deferred tax liabilities ( 55,586 ) ( 50,188 )

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All net operating loss carryforwards without a valuation allowance may be carried forward for a period of at least six years .

The change in valuation allowance for the year of $ 0.8 million is primarily due to our inability to recognize deferred tax assets on certain foreign entities that continue to generate losses partially offset by the release of a valuation allowance on certain losses.

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

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Management stock-based compensation includes stock options, restricted stock, restricted stock units and performance stock units.

Additionally, 2019 amounts granted include outstanding Sierra Monitor Corporation awards converted into MSA awards after the merger and acquisition.

Additionally, 2019 amounts granted include outstanding Sierra Monitor Corporation awards converted into MSA awards after the acquisition.

See Note 13—Acquisitions for more information.

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Restricted stock and restricted stock units are valued at the market value of the stock on the grant date.

Performance stock units with a market condition are valued at an estimated fair value using the Monte Carlo model.

The final number of shares to be issued for performance stock units may range from zero to 200 % of the target award based on achieving the specified performance targets over the performance period.

Performance stock units with a market condition are valued at an estimated fair value using a Monte Carlo simulation model.

The final number of shares to be issued for performance stock units may range from zero to 200 % of the target award based on achieving the specified performance targets over the performance period and further range based upon the achieved market metric over the performance period.

In general, unvested stock options, restricted stock and performance stock units are forfeited if the participant’s employment with the Company terminates for any reason other than retirement, death or disability.

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(In thousands) 2020 2019 2018

Restricted stock

Restricted stock units $ 6,258 $ 6,914 $ 6,221

Stock options 113 487 217

Performance stock

Total compensation expense before income taxes

Performance stock units 549 6,359 5,801

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

Income tax benefit 1,668 3,357 2,974

Total compensation expense, net of income tax benefit

Total stock-compensation expense, net of income tax benefit $ 5,252 $ 10,403 $ 9,265

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

Stock option expense is based on the fair value of stock option grants estimated on the grant dates using the Black-Scholes option pricing model and the following weighted average assumptions for options granted in 2019 .

The Company utilized the Black-Scholes valuation model for estimating the fair value of stock option expense with the following weighted average assumptions.

There were no stock options granted in 2020 or 2018.

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A summary of option activity follows:

Exercise Price

Exercisable at

Shares Weighted

Exercise Price Exercisable at

Outstanding January 1, 2018 955,446 $ 42.75

Exercised ( 215,724 ) 39.25

Forfeited ( 4,721 ) 44.50

Outstanding December 31, 2018 735,001 43.79 638,673

Granted 23,285 43.54

Exercised ( 198,535 ) 38.16

Forfeited ( 95 ) 49.19

Outstanding December 31, 2019 559,656 45.78 552,682

Granted (Note 13)

Exercised ( 274,704 ) 45.31

Forfeited ( 954 ) 42.00

Outstanding December 31, 2020 283,998 $ 46.23 281,593

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Stock Options Outstanding

Range of Exercise Prices

Weighted-Average

Exercise Price

Remaining Life

Range of Exercise Prices Shares Weighted-Average

Exercise Price Remaining Life

$ 33.01 – $ 45.00

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125,162 49.22 2.93

$ 33.01 – $ 57.93

283,998 $ 46.23 3.00

Stock Options Exercisable

Range of Exercise Prices

Weighted-Average

Exercise Price

Remaining Life

Range of Exercise Prices Shares Weighted-Average

Exercise Price Remaining Life

$ 33.01 – $ 45.00

2 unchanged sentences

123,385 49.22 2.87

$ 33.01 – $ 57.93

281,593 $ 46.23 2.97

Cash received from the exercise of stock options was $ 12.4 million, $ 7.5 million and $ 8.6 million for the years ended December 31, 2020, 2019 and 2018, respectively.

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The aggregate intrinsic value of all stock options outstanding at December 31, 2020 was $ 29.3 million.

A summary of restricted stock and unit activity follows:

Weighted Average

A summary of restricted stock unit activity follows:

Shares Weighted Average

Unvested January 1, 2017 227,161 $ 57.50

Granted 75,430 87.36

Vested ( 92,401 ) 58.10

Forfeited ( 4,741 ) 59.61

Unvested at December 31, 2018 205,449 68.97

Granted 70,160 104.53

Vested ( 97,253 ) 56.47

Forfeited ( 5,655 ) 85.48

Unvested at December 31, 2019 172,701 90.38

Granted 51,468 124.61

Vested ( 70,399 ) 81.58

Forfeited ( 7,579 ) 106.54

Unvested at December 31, 2020 146,191 $ 105.83

A summary of performance stock unit activity follows:

Weighted Average

Shares Weighted Average

Unvested at January 1, 2017 242,186 $ 55.06

Granted 62,775 84.79

Vested ( 41,660 ) 40.23

Performance adjustments ( 35,756 ) 45.21

Forfeited ( 8,659 ) 44.53

Unvested at December 31, 2018 218,886 68.43

Granted 83,819 101.03

Vested ( 139,478 ) 44.75

Performance adjustments 76,960 44.24

Forfeited ( 2,152 ) 99.82

Unvested at December 31, 2019 238,035 85.39

Granted 67,479 127.48

Vested ( 132,036 ) 73.00

Performance adjustments 33,499 72.36

Forfeited ( 6,765 ) 111.60

Unvested at December 31, 2020 200,212 $ 104.69

The 2019 performance adjustments above relate to adjustments made relative to awards that exceeded the performance targets when vested during 2019 including the final number of shares issued for the 2016 Management Performance Units, which were 237.6 % of the target award based on Total Shareholder Return during the three year performance period, and vested in the first quarter of 2019 .

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

During the years ended December 31, 2020, 2019 and 2018, the total intrinsic value of stock options exercised (the difference between the market price on the date of exercise and the option price paid to exercise the option) was $ 24.6 million, $ 14.6 million and $ 12.2 million, respectively.

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The weighted average period over which this expense is expected to be recognized was approximately 1.7 years.

Note 11— Short and Long-Term Debt

Short-Term Debt

Short-term borrowings with banks, which excludes the current portion of long-term debt, was insignificant at December 31, 2019 and 2018 , respectively.

The average month-end balance of total short-term borrowings during 2019 was $ 0.2 million .

The maximum month-end balance of $ 0.6 million occurred in October 2019 .

Note 11— Long-Term Debt

Long-Term Debt

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2010 Senior Notes payable through 2021, 4.00 %, net of debt issuance costs

$ 20,000 $ 40,000

2016 Senior Notes payable through 2031, 3.40 %, net of debt issuance costs

74,926 72,708

Senior revolving credit facility maturing in 2023, net of debt issuance costs 212,231 235,686

Amounts due within one year

Total 307,157 348,394

Short-term debt 20,000 20,000

Long-term debt $ 287,157 $ 328,394

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However, the covenants contained in the Amended Note Facility do not apply until promissory notes are issued.

On August 24, 2018, we repaid our 5.41% 2006 Senior Notes.

In connection with the payoff of these notes, MSA recognized a loss on extinguishment of debt of $ 1.5 million which was recorded in loss on extinguishment of debt on our Consolidated Statement of Income.

Approximate maturities on our long-term debt over the next five years are $ 20.0 million in 2020 , $ 20.0 million in 2021 , none in 2022 , $ 245.2 million in 2023 , $ 8.1 million in 2024 and $ 56.6 million thereafter.

The revolving credit facilities require the Company to comply with specified financial covenants.

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The Company was in compliance with all covenants at December 31, 2020.

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

The Company had outstanding bank guarantees and standby letters of credit with banks as of December 31, 2020, totaling $ 9.0 million, of which $ 1.3 million relate to the senior revolving credit facility.

The letters of credit serve to cover customer requirements in connection with certain sales orders and insurance companies.

The full amount of the letters of credit remains unused and available at December 31, 2019 .

The Company is also required to provide cash collateral in connection with certain arrangements.

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Net balance at January 1 $ 171,326 $ 169,515

Additions (Note 13)

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

Amortization expense ( 11,570 ) ( 11,119 )

1 unchanged sentence

Net balance at December 31 $ 161,051 $ 171,326

(In millions)

December 31, 2019

December 31, 2018

(In millions) December 31, 2020 December 31, 2019

Intangible Assets:

Weighted Average Useful Life (years)

Gross Carrying Amount

Accumulated Amortization and Reserves

Net Carrying Amount

Gross Carrying Amount

Accumulated Amortization and Reserves

Net Carrying Amount

Weighted Average Useful Life (years) Gross Carrying Amount Accumulated Amortization and Reserves Net Carrying Amount Gross Carrying Amount Accumulated Amortization and Reserves Net Carrying Amount

Customer relationships 14 $ 59.7 $ ( 20.4 ) $ 39.3 $ 58.3 $ ( 15.3 ) $ 43.0

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License agreements 5 5.4 ( 5.3 ) 0.1 5.3 ( 5.3 ) —

During 2017, we acquired a trade name with an indefinite life totaling $ 60.0 million .

This intangible asset is tested for impairment on October 1st of each year, or more frequently if indicators of impairment exist.

Intangible asset amortization expense over the next five years is expected to be approximately $ 12 million in 2020 and 2021, $ 10 million in 2022 and $ 9 million in 2023 and 2024.

Other 2 3.0 ( 2.8 ) 0.2 3.0 ( 2.8 ) 0.2

Total 14 $ 184.1 $ ( 83.0 ) $ 101.1 $ 181.6 $ ( 70.3 ) $ 111.3

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

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

Note 13— Acquisitions

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The following table summarizes the fair values of the SMC assets acquired and liabilities assumed at the date of acquisition:

(In millions)

(In millions) May 20, 2019

Current assets (including cash of $ 2.1 million)

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Acquired technology 1.4

Goodwill 19.9

Total assets acquired 42.7

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The step up to fair value of acquired inventory as part of the purchase price allocation totaled $ 1.6 million which was fully recognized as amortization expense during the year ended December 31, 2019.

Acquisition of Globe Holding Company, LLC

On July 31, 2017, we acquired 100 % of the common stock in Globe Holding Company, LLC ("Globe") in an all-cash transaction valued at $ 215 million plus a working capital adjustment of $ 1.4 million .

There is no contingent consideration.

Based in Pittsfield, NH, Globe is a leading innovator and provider of firefighter protective clothing and boots.

This acquisition aligns with our corporate strategy in that it strengthens our leading position in the North American fire service market.

The transaction was funded through borrowings on our unsecured senior revolving credit facility.

Globe operating results are included in our consolidated financial statements from the acquisition date as part of the Americas reportable segment.

The acquisition qualifies as a business combination and was accounted for using the acquisition method of accounting.

We finalized the purchase price allocation as of June 30, 2018.

The following table summarizes the fair values of the Globe assets acquired and liabilities assumed at the date of acquisition:

(In millions)

July 31, 2017

Current assets (including cash of $58 thousand)

Property, plant and equipment

Distributor relationships

Acquired technology and other intangible assets

Total assets acquired

Total liabilities assumed

Net assets acquired

Assets acquired and liabilities assumed in connection with the acquisition were recorded at their fair values.

Fair values were determined by management, based, in part on an independent valuation performed by a third party valuation specialist.

The valuation methods used to determine the fair value of intangible assets included the relief from royalty method for trade name and technology related intangible assets;

the excess earnings approach for distributor relationships using distributor inputs and contributory charges;

and the cost method for assembled workforce which is included in goodwill.

A number of significant assumptions and estimates were involved in the application of these valuation methods, including sales volumes and prices, royalty rates, costs to produce, tax rates, capital spending, discount rates, and working capital changes.

Cash flow forecasts were generally based on Globe pre-acquisition forecasts coupled with estimated MSA sales synergies.

Identifiable intangible assets with finite lives are subject to amortization over their estimated useful lives.

The distributor relationships acquired in the Globe transaction will be amortized over a period of 20 years and the remaining identifiable assets will be amortized over 5 years .

The trade name was determined to have an indefinite useful life.

We perform an impairment assessment annually on October 1st on the trade name, or sooner if there is a triggering event.

Additionally, as part of each impairment assessment, we will reassess whether the asset continues to have an indefinite life or whether it should be reassessed with a finite life.

Estimated future amortization expense related to the identifiable intangible assets is approximately $ 4 million in each of the next two years 2020 and 2021, $ 3 million in 2022 and $ 2 million in 2023 and 2024.

Estimated future depreciation expense related to Globe property, plant and equipment is approximately $ 1 million in each of the next five years.

Goodwill is calculated as the excess of the purchase price over the fair value of net assets acquired and represents the future economic benefits arising from other assets acquired that could not be individually identified and separately recognized.

Among the factors that contributed to a purchase price in excess of the fair value of the net tangible and intangible assets acquired were the acquisition of an assembled workforce, the expected synergies and other benefits that we believe will result from combining the operations of Globe and SMC with our operations.

Goodwill of $ 74.5 million related to the Globe acquisition has been recorded in the Americas reportable segment and is expected to be tax deductible.

Goodwill of $ 19.9 million related to the SMC acquisition has been recorded in the Americas reportable segment and is non-deductible for tax purposes.

Our results for the year ended December 31, 2019 include strategic transaction costs of $ 4.4 million , including costs related to the acquisition of SMC.

Our results for the year ended December 31, 2018 include strategic transaction costs of $ 0.4 million .

Our results for the year ended December 31, 2017 , include strategic transaction costs of $ 4.2 million , including costs related to the acquisition of Globe.

These costs are all reported in selling, general and administrative expenses.

The operating results of both acquisitions have been included in our consolidated financial statements from the acquisition date.

Our results for the year ended December 31, 2019 , include SMC sales and net loss of $ 13.5 million and $ 3.3 million , respectively.

Our results for the year ended December 31, 2020, include SMC sales and net income of $ 21.2 million and $ 2.8 million, respectively.

Excluding purchase accounting amortization for intangible assets of $ 1.2 million, adjusted earnings for SMC for the year ended December 31, 2020 was $ 3.8 million.

Our operating results for the year ended December 31, 2019 include SMC sales and net loss of $ 13.5 million and $ 3.3 million, respectively.

Excluding purchase accounting amortization for intangible assets and inventory step up of $ 2.6 million, transaction costs of $ 2.2 million, and stock compensation cost related to converted options and excess performance on PSUs related to the acquisition of $ 1.5 million, adjusted earnings for SMC for the year ended December 31, 2019 was $ 1.5 million.

Our results for the year ended December 31, 2018 include Globe sales of $ 113.9 million and net income of $ 13.3 million .

These results include depreciation expense of $ 1.0 million and amortization expense of $ 4.1 million .

Excluding transaction and integration costs, Globe provided $ 13.6 million of net income for the year ended December 31, 2018 .

Our results for the year ended December 31, 2017 include Globe sales of $ 46.1 million and net income of 3.7 million .

These results include depreciation expense of $ 0.5 million and amortization expense of $ 1.7 million .

Excluding transaction and integration costs, Globe provided $ 4.9 million of net income for the year ended December 31, 2017 .

The following unaudited pro forma information presents our combined results as if both acquisitions had occurred at the beginning of 2017 .

The following unaudited pro forma information presents our combined results as if the SMC acquisition had occurred at the beginning of 2018.

The unaudited pro forma financial information was prepared to give effect to events that are (1) directly attributable to the acquisition;

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and (3) expected to have a continuing impact on the combined company’s results.

There were no material transactions between MSA and Globe or SMC during the periods presented that are required to be eliminated.

Intercompany transactions between Globe companies and SMC companies during the periods presented have been eliminated in the unaudited pro forma combined financial information.

There were no material transactions between MSA and SMC during the periods presented that are required to be eliminated.

Intercompany transactions between SMC companies during the periods presented have been eliminated in the unaudited pro forma combined financial information.

The unaudited pro forma financial information does not reflect any cost savings, operating synergies or revenue enhancements that the combined companies may achieve as a result of the acquisitions or the costs to integrate the operations or the costs necessary to achieve cost savings, operating synergies or revenue enhancements.

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(In millions, except per share amounts) 2019 2018

Net sales $ 1,410 $ 1,380

Net Income 131 124

Basic earnings per share 3.40 3.24

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MSA has been treated as the acquirer.

Our results include strategic transaction costs of $ 0.7 million, $ 4.4 million, and $ 0.4 million for the years ended December 31, 2020, 2019, and 2018.

These costs are reported in Selling, general and administrative expenses.

Note 14— Pensions and Other Post-retirement Benefits

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plan is funded in compliance with the Employee Retirement Income Security Act (ERISA).

It is our general policy to fund current costs for the international plans, except in Germany and Mexico, where it is common practice and permissible under tax laws to accrue book reserves.

It is our general policy to fund current costs for the international plans, except in Germany and Mexico, where it is common practice and permissible under tax laws to maintain an unfunded liability.

We provide health care benefits and limited life insurance for certain retired employees who are covered by our principal U.S.

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

Pension Benefits

Other Benefits

Pension Benefits Other Benefits

(In thousands) 2020 2019 2020 2019

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Benefit obligations at January 1 $ 603,551 $ 525,520 $ 28,151 $ 28,477

Service cost 12,094 10,342 396 354

Interest cost 14,905 18,803 716 996

Participant contributions 396 470 370 380

Actuarial losses (gains)

Plan amendments ( 430 ) — — —

Actuarial losses (a)

54,606 81,132 5,284 1,319

Benefits paid ( 24,496 ) ( 24,452 ) ( 2,692 ) ( 3,375 )

Curtailments ( 1,559 ) — — —

Settlements ( 506 ) ( 7,265 ) — —

Currency translation 12,296 ( 999 ) — —

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Participant contributions 396 470 370 380

Settlements ( 506 ) ( 7,265 ) — —

Benefits paid ( 24,496 ) ( 24,452 ) ( 2,692 ) ( 3,375 )

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Net amount recognized $ 86,714 $ 97,616 $ ( 16,664 ) $ ( 17,123 )

Amounts Recognized in the Balance Sheet

Amounts Recognized in the Balance Sheets

Noncurrent assets $ 97,545 $ 75,066 $ — $ —

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Net actuarial losses $ 169,028 $ 183,733 $ 16,686 $ 12,547

Prior service credit

Prior service cost (credit) 1,717 1,572 ( 1,125 ) ( 1,519 )

Unrecognized net initial obligation 4 4 — —

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Accumulated Benefit Obligations for all Defined Benefit Plans $ 619,167 $ 558,183 $ — $ —

Pension Benefits

Other Benefits

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

Pension Benefits Other Benefits

(In thousands) 2020 2019 2018 2020 2019 2018

Components of Net Periodic Benefit Cost

Service cost $ 12,094 $ 10,342 $ 11,125 $ 396 $ 354 $ 369

Interest cost 14,905 18,803 17,214 716 996 793

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Recognized net actuarial losses 15,799 10,159 13,755 1,145 869 752

Settlement/curtailment loss (credit)

Special termination charge

Settlement/curtailment loss 1,135 (b)

Net periodic benefit cost (a)

(a) Components of net periodic benefit cost other than service cost are included in the line item "Other income, net" in the

income statement.

(b) Represents the charge for special termination benefits related to the VRIP which were paid from our overfunded North

America pension plan and recorded as restructuring charges on the Consolidated Statement of Income.

details in Note 2—Restructuring Charges.

and included in "Restructuring charges" on the Consolidated Statement of Income.

Effective December 31, 2017, the Company changed the method it uses to estimate the service and interest cost components of net periodic benefit cost for pension and other post-retirement benefits for a majority of its U.S.

and foreign plans.

Historically, the service and interest cost components for these plans were estimated using a single weighted-average discount rate derived from the yield curve used to measure the projected benefit obligation at the beginning of the period.

The Company has elected to utilize a spot rate approach, which discounts the individual plan specific expected cash flows underlying the service and interest cost using the applicable spot rates derived from a yield curve used in the determination of the benefit obligation to the relevant projected cash flows.

The Company made this change to improve the correlation between projected benefit cash flows and the corresponding yield curve spot rates and to provide a more precise measurement of service and interest costs.

This change does not affect the measurement of total benefit obligations.

Service and interest cost for the pension and OPEB plans were reduced by an estimated $ 1.8 million in 2018 as a result of this change.

The Company has accounted for this change to the spot rate approach as a change in accounting estimate that is inseparable from a change in accounting principle, pursuant to Accounting Standards Codification (ASC) 250, Accounting Changes and Error Corrections , and accordingly, has accounted for it prospectively.

For plans where the discount rate is not derived from plan specific expected cash flows, the Company will continue to employ the current approaches for measuring both the projected benefit obligations and the service and interest cost components of net periodic benefit cost for pension and other post-retirement benefits.

Amounts included in accumulated other comprehensive loss expected to be recognized in 2020 net periodic benefit costs:

(In thousands)

Pension Benefits

Other Benefits

Loss recognition

Prior service cost (credit) recognition

Transition obligation recognition

$ 10,082 $ 3,382 $ 5,901 $ 1,863 $ 1,814 $ 1,509

(a) Components of net periodic benefit cost other than service cost are included in the line item "Other income, net" and service costs are included in the line items "Cost of products sold" and "Selling, general and administrative" in the Consolidated Statements of Income.

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

and is included in "Restructuring charges" on the Consolidated Statements of Income.

The Company utilizes a spot rate approach, which discounts the individual plan specific expected cash flows underlying the service and interest cost using the applicable spot rates derived from a yield curve used in the determination of the benefit obligation to the relevant projected cash flows.

For plans where the discount rate is not derived from plan specific expected cash flows, the Company uses a single weighted-average discount rate derived from the yield curve used to measure the projected benefit obligation at the beginning of the period for measuring both the projected benefit obligations and the service and interest cost components of net periodic benefit cost for pension and other post-retirement benefits.

Information for pension plans with an accumulated benefit obligation in excess of plan assets:

Pension Benefits Other Benefits

(In thousands) 2020 2019 2020 2019

Aggregate accumulated benefit obligations (ABO) $ 209,351 $ 185,747 $ 32,225 $ 28,151

Aggregate projected benefit obligations (PBO)

Aggregate fair value of plan assets 40,294 35,882 — —

Information for pension plans with a projected benefit obligation in excess of plan assets:

Pension Benefits

Other Benefits

(In thousands) 2020 2019

Aggregate projected benefit obligations (PBO) 223,343 198,633

Aggregate fair value of plan assets 41,764 35,882

Pension Benefits Other Benefits

2020 2019 2020 2019

Assumptions used to determine benefit obligations

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Rate of compensation increase 2.93 % 2.93 % 3.00 % — %

Discount rates for a majority of our U.S.

Discount rates for all U.S.

and foreign plans were determined using the aforementioned spot rate methodology for 2020 and 2019.

All remaining plans' discount rates were determined using various corporate bond indexes as indicators of interest rate levels and movements and by matching our projected benefit obligation payment stream to current yields on high quality bonds.

The expected return on assets for the 2019 net periodic pension cost was determined by multiplying the expected returns of each asset class (based on historical returns) by the expected percentage of the total portfolio invested in that asset class.

Aside from sovereign bonds used in Mexico, the remaining plans' discount rates were determined using various corporate bonds and by matching our projected benefit obligation payment stream to current yields on high quality bonds.

The expected return on assets for the 2020 net periodic pension cost was determined by multiplying the expected returns of each asset class (based on capital market expectations) by the expected percentage of the total portfolio invested in that asset class.

A total return was determined by summing the expected returns over all asset classes.

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Cash and cash equivalents 1 1

Total 100 % 100 %

The overall objective of our pension investment strategy is to earn a rate of return over time to satisfy the benefit obligations of the pension plans and to maintain sufficient liquidity to pay benefits and meet other cash requirements of our pension funds.

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The fair values at December 31, 2020, were as follows:

(In thousands)

Quoted Prices

(In thousands) Total NAV Quoted Prices

(Level 1) Significant

(Level 2) Significant

Equity securities $ 283,516 $ 66,847 $ 216,669 $ — $ —

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Cash and cash equivalents 7,618 6,681 937 — —

Total $ 586,822 $ 196,647 $ 294,108 $ 71,671 $ 24,396

The fair values of the Company's pension plan assets at December 31, 2019, were as follows:

(In thousands)

Quoted Prices

(In thousands) Total NAV Quoted Prices

(Level 1) Significant

(Level 2) Significant

Equity securities $ 235,491 $ 56,449 $ 179,042 $ — $ —

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Cash and cash equivalents 6,852 5,792 1,060 — —

Total $ 515,858 $ 159,614 $ 253,976 $ 80,766 $ 21,502

Equity securities consist primarily of publicly traded U.S.

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The following table presents a reconciliation of Level 3 assets:

(In thousands)

(In thousands) Insurance

Balance January 1, 2019 $ 17,033

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Balance December 31, 2020 $ 24,396

We expect to make net contributions of $ 7.6 million to our pension plans in 2020, which are primarily associated with our International segment.

The following table presents amounts related to Level 3 assets recognized in accumulated other comprehensive loss:

(In thousands) Insurance

Net actuarial losses 972

Prior service cost 1,406

Total (before tax effects) $ 2,378

We expect to make net contributions of $ 7.7 million to our pension plans in 2021, which are primarily associated with statutorily required plans in the International segment.

For the 2020 beginning of the year measurement purposes (net periodic benefit expense), a 6.5 % increase in the costs of covered health care benefits was assumed, decreasing by 0.5 % for each successive year to 4.5 % in 2024 and thereafter.

For the 2019 end of the year measurement purposes (benefit obligation), a 6.5 % increase in the costs of covered health care benefits was assumed, decreasing by 0.5 % for each successive year to 4.5 % in 2024 and thereafter.

A one -percentage-point change in assumed health care cost trend rates would have increased or decreased the other post-retirement benefit obligations and current year plan expense by approximately $ 1.0 million and $ 0.1 million , respectively.

For the 2020 end of the year measurement purposes (benefit obligation), a 5.9 % increase in the costs of covered health care benefits was assumed, decreasing by approximately 0.2 % for each successive year to 4.5 % in 2029 and thereafter.

Expense for defined contribution pension plans was $ 10.6 million in 2020, $ 8.3 million in 2019 and $ 9.0 million in 2018.

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(Loss) Gain on asset dispositions, net ( 236 ) ( 371 ) 646

Other, net 742 ( 943 ) ( 644 )

Total other income, net $ 5,684 $ 11,094 $ 9,231

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The adoption of this standard had a material impact on our Consolidated Balance Sheet as of December 31, 2020 due to the capitalization of right-of-use assets and lease liabilities associated with our current operating leases in which we are the lessee.

Adoption of the new standard resulted in the recording of additional right-of-use assets and lease liabilities of approximately $ 54 million and $ 54 million , respectively, as of January 1, 2019.

Adoption of the new standard resulted in the recording of additional right-of-use assets and lease liabilities of approximately $ 54 million, respectively, as of January 1, 2019.

Upon adoption of the new standard on January 1, 2019, we elected the package of practical expedients provided under the guidance.

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Lease right-of-use assets and liabilities are recognized based on the present value of the fixed future lease payments over the lease term.

Lease expense for all operating leases is classified in cost of products sold or selling, general and administrative expense in the Consolidated Statement of Income.

Lease expense for all operating leases is classified in Cost of products sold or Selling, general and administrative expense in the Consolidated Statements of Income.

For finance leases, the amortization of the right-of-use asset is included in depreciation and amortization, and the interest is included in interest expense.

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Right-of-use assets obtained in exchange for new operating lease liabilities $ 10,737 $ 6,637

December 31, 2019

December 31, 2020 December 31, 2019

Weighted-average remaining lease term (in years):

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At December 31, 2020, future lease payments under operating leases were as follows:

(In thousands)

Operating Leases

(In thousands) Operating Leases

2021 $ 11,445

After 2025 31,687

Total future minimum operating lease payments $ 66,485

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GAAP criteria for hedge accounting but have the impact of partially offsetting certain foreign currency exposures.

We account for these forward contracts at fair value and report the related gains or losses in currency exchange losses, net, in the Consolidated Statement of Income.

At December 31, 2019 , the notional amount of open forward contracts was $ 74.9 million and the unrealized gain on these contracts was $ 0.6 million .

We account for these forward contracts at fair value and report the related gains or losses in currency exchange losses, net, in the Consolidated Statements of Income.

At December 31, 2020, the notional amount of open forward contracts was $ 96.0 million and there was no unrealized gain/loss on these contracts.

All open forward contracts will mature during the first quarter of 2021.

The following table presents the Consolidated Balance Sheet location and fair value of assets and liabilities associated with derivative financial instruments:

The following table presents the Consolidated Balance Sheets location and fair value of assets and liabilities associated with derivative financial instruments:

(In thousands) 2020 2019

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other current assets 160 687

The following table presents the Consolidated Statement of Income location and impact of derivative financial instruments:

(In thousands)

Income Statement Location

Loss Recognized in Income

The following table presents the Consolidated Statements of Income location and impact of derivative financial instruments:

(In thousands) Income Statement Location (Gain) Loss Recognized in Income

Derivatives not designated as hedging instruments:

Foreign exchange contracts

Currency exchange losses, net

Foreign exchange contracts Currency exchange losses, net $ ( 7,457 ) $ 3,015

Note 18— Fair Value Measurements

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The amortized cost basis of our investments was $ 74.9 million and $ 49.7 million as of December 31, 2020, and 2019, respectively.

The fair value of our investments was $ 49.9 million and $ 55.1 million as of December 31, 2019 , and 2018 , respectively, which was reported in "Investments, short-term" in the accompanying Consolidated Balance Sheet.

The fair value of our investments was $ 75.0 million and $ 49.9 million as of December 31, 2020, and 2019, respectively, which was reported in "Investments, short-term" in the accompanying Consolidated Balance Sheets.

The change in fair value is recorded in other comprehensive income, net of tax.

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The reserve for single incident product liability claims, which includes asserted single incident product liability claims and IBNR single incident product liability claims, was $ 1.4 million at December 31, 2020 and $ 3.1 million at December 31, 2019.

Single incident product liability expense was a benefit of $ 0.5 million for the year ended December 31, 2019 compared to expense of $ 2.0 million and $ 2.4 million for the years ended December 31, 2018 and 2017 , respectively.

Single incident product liability expense was a benefit of $ 1.7 million for the year ended December 31, 2020 compared to a benefit of $ 0.5 million and expense of $ 2.0 million for the years ended December 31, 2019 and 2018, respectively.

Single incident product liability exposures are evaluated on an annual basis, or more frequently if changing circumstances warrant.

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A summary of cumulative trauma product liability lawsuits and asserted cumulative trauma product liability claims activity is as follows:

2020 2019 2018

Open lawsuits, beginning of period 1,605 1,481 1,420

New lawsuits 402 346 369

Settled and dismissed lawsuits ( 385 ) ( 222 ) ( 308 )

Open lawsuits, end of period 1,622 1,605 1,481

2020 2019 2018

Asserted claims, beginning of period 2,456 2,355 2,242

Settled and dismissed claims

New claims 917 486 479

Settled, inactive and dismissed claims ( 495 ) ( 385 ) ( 366 )

Asserted claims, end of period 2,878 2,456 2,355

More than half of the open lawsuits at December 31, 2019 have had a de minimis level of activity over the last 5 years.

The increase in the number of claims in 2020 is largely attributable to an increase in claims alleging injuries from exposure to coal mine dust.

More than half of the total open lawsuits at December 31, 2020 have had a de minimis level of activity over the last 5 years.

It is possible that these cases could become active again at any time due to changes in circumstances.

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The reserve does not include amounts which will be spent to defend the claims covered by the reserve.

Defense costs are recognized in the Consolidated Statement of Income as incurred.

At December 31, 2019 , $ 17.4 million of the total reserve for cumulative trauma product liability claims is recorded in the Insurance and product liability line within other current liabilities in the Consolidated Balance Sheet and the remainder, $ 150.1 million , is recorded in the Product liability and other noncurrent liabilities line.

Defense costs are recognized in the Consolidated Statements of Income as incurred.

At December 31, 2020, $ 35.3 million of the total reserve for cumulative trauma product liability claims is recorded in the Insurance and product liability line within other current liabilities in the Consolidated Balance Sheets and the remainder, $ 186.2 million, is recorded in the Product liability and other noncurrent liabilities line.

At December 31, 2019, $ 17.4 million of the total reserve for cumulative trauma product liability claims was recorded in the Insurance and product liability line within other current liabilities in the Consolidated Balance Sheet and the remainder, $ 150.1 million, was recorded in the Product liability and other noncurrent liabilities line.

Total cumulative trauma liability losses were $ 77.8 million, $ 36.1 million, and $ 63.8 million for the years ended December 31, 2020, 2019 and 2018, respectively.

Uninsured cumulative trauma product liability losses which were included in Product liability and other operating expense on the Consolidated Statement of Income during the years ended December 31, 2019 , 2018 and 2017 , were $ 27.1 million , $ 43.8 million and $ 124.5 million , respectively, and represent the total cumulative trauma liability losses net of any estimated insurance receivables as discussed below.

Uninsured cumulative trauma product liability losses which were included in Product liability and other operating expense on the Consolidated Statements of Income during the years ended December 31, 2020, 2019 and 2018, were $ 39.0 million, $ 27.1 million and $ 43.8 million, respectively, and represent the total cumulative trauma liability losses net of any estimated insurance receivables as discussed below.

To develop a reasonable estimate of MSA LLC’s potential exposure to cumulative trauma product liability claims, Management performs an annual review of MSA LLC’s cumulative trauma product liability claims, in consultation with an outside valuation consultant and outside legal counsel.

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• The venues in which claims are asserted;

The number of claims asserted against MSA LLC and the counsel asserting those claims;

• The number of claims that may be asserted in the future against MSA LLC and the counsel asserting those claims;

• The percentage of claims resolved through settlement and the values of settlements paid to claimants.

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Actual loss amounts for settled claims are highly variable and turn on a case-by-case analysis of the relevant facts.

With respect to asserted or IBNR cumulative trauma product liability claims, MSA LLC’s expense in future periods may vary from the reserve currently established for several reasons.

With respect to asserted or IBNR claims, MSA LLC’s expense in future periods may vary from the reserve currently established for several reasons.

In particular, MSA LLC’s actual claims experience may differ in one or more respects from the significant assumptions listed above that were used by in establishing the reserve.

Other factors that make MSA LLC's asserted and IBNR claims difficult to reasonably estimate include low volumes in the number of claims asserted and resolved (both in general and with respect to particular plaintiffs' counsel, as claims experience can vary significantly among different counsel), inconsistency of claims composition, uncertainty as to if and over what time periods claims might be asserted in the future, and other factors.

Factors that make MSA LLC's asserted and IBNR claims difficult to reasonably estimate include uncertainty as to the number of claims that may be asserted in the future (and over what time periods), the wide variability in the alleged severity of claims asserted, and the number of claims that ultimately will be resolved with payment.

This difficulty is increased when claims are asserted by plaintiff's counsel with which MSA LLC does not have substantial prior experience (as claims experience can vary significantly among different counsel), the absence of discovery into many pending claims, the historically low volume of claims asserted and resolved, and numerous other factors.

Numerous uncertainties also exist with respect to factors not specific to MSA LLC, including potential legislative or judicial changes at the federal level or in key states concerning claims adjudication, future bankruptcy proceedings involving key co-defendants, payments from trusts established to compensate claimants, and/or changes in medical science relating to the diagnosis and treatment of claims.

Because cumulative trauma product liability litigation is subject to the significant modeling assumptions and inherent uncertainties described above, and unfavorable rulings or developments could occur, there can be no certainty that MSA LLC may not ultimately incur charges in excess of presently recorded liabilities.

Because cumulative trauma product liability litigation is subject to the significant modeling assumptions and inherent uncertainties described above, and unfavorable developments or rulings could occur, there can be no certainty that MSA LLC may not ultimately incur charges in excess of presently recorded liabilities.

The reserve for cumulative trauma product liability claims may be adjusted from time to time based on changes to the factors and assumptions described above.

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Many years ago, MSA LLC purchased insurance policies from various insurance carriers that, subject to common contract exclusions, provided coverage for cumulative trauma product liability losses (the "Occurrence-Based Policies").

While we continue to pursue reimbursement under certain remaining Occurrence-Based Policies, the vast majority of these policies have been exhausted, settled or converted into either (1) negotiated Coverage-in-Place Agreements, or (2) negotiated settlement agreements, with scheduled payment streams.

While we continue to pursue reimbursement under certain remaining Occurrence-Based Policies, the vast majority of these policies have been exhausted, settled or converted into either (1) negotiated settlement agreements, with scheduled payment streams (recorded as notes receivables) or (2) negotiated Coverage-in-Place Agreements (recorded as insurance receivables).

As a result, MSA LLC is largely self-insured for cumulative trauma product liability claims, and additional amounts recorded as insurance receivables or notes receivables will be limited.

When adjustments are made to amounts recorded in the cumulative trauma product liability reserve, we calculate amounts due to be reimbursed pursuant to the terms of the negotiated Coverage-In-Place Agreements, including cumulative trauma product liability losses and related defense costs, and we record the reimbursable amounts as insurance receivables.

These amounts are not subject to current coverage litigation.

Insurance receivables at December 31, 2020, totaled $ 97.0 million, of which $ 12.0 million is reported in Prepaid expenses and other current assets in the Consolidated Balance Sheet and $ 85.0 million is reported in Insurance receivable and other noncurrent assets.

Insurance receivables at December 31, 2018 , totaled $ 71.7 million , of which $ 14.8 million was reported in Prepaid expenses and other current assets in the Consolidated Balance Sheet and $ 56.9 million was reported in Insurance receivable and other noncurrent assets.

Insurance receivables at December 31, 2019, totaled $ 63.8 million, of which $ 7.6 million was reported

in Prepaid expenses and other current assets in the Consolidated Balance Sheet and $ 56.2 million was reported in Insurance receivable and other noncurrent assets.

The vast majority of the $ 97.0 million insurance receivables balance at December 31, 2020, is attributable to reimbursement believed to be due under the terms of signed Coverage-In-Place Agreements and a portion of this amount represents the estimated recovery of IBNR amounts not yet incurred.

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Balance beginning of period $ 63.8 $ 71.7

Additions 39.0 9.1

Collections and other adjustments ( 5.8 ) ( 17.0 )

Balance end of period $ 97.0 $ 63.8

In other cases, we have recorded formal notes receivables due from scheduled payment streams according to negotiated settlement agreements.

The notes receivables were recorded as a transfer from the insurance receivables balance to Notes receivable, insurance companies (current and noncurrent) in the Consolidated Balance Sheet.

In cases where the payment stream covers multiple years and there were no contingencies, the present value of the payments was recorded as a transfer from the insurance receivable balance to Notes receivable, insurance companies (current and long-term) in the Consolidated Balance Sheet.

Provided the remaining insurance receivable was recoverable through the insurance carriers, no gain or loss was recognized at the time of transfer from insurance receivables to Notes receivable, insurance companies.

We record formal notes receivables due from scheduled payment streams according to negotiated settlement agreements with insurers.

These amounts are not subject to current coverage litigation.

Notes receivable from insurance companies at December 31, 2020, totaled $ 52.3 million, of which $ 3.8 million is reported in Notes receivable, insurance companies, current on the Consolidated Balance Sheet and $ 48.5 million is reported in Notes receivable, insurance companies, noncurrent.

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Balance beginning of period $ 56.0 $ 59.6

Additions 1.4 1.5

Collections ( 5.1 ) ( 5.1 )

Balance end of period $ 52.3 $ 56.0

The vast majority of the insurance receivables balances at December 31, 2020, is attributable to reimbursement under the terms of signed agreements with insurers and are not currently subject to litigation.

The collectibility of MSA LLC's insurance receivables and notes receivables is regularly evaluated and we believe that the amounts recorded are probable of collection.

The determination that the recorded insurance receivables are probable of collection is based on the terms of the settlement agreements reached with the insurers, our history of collection, and the advice of MSA LLC's outside legal counsel.

Various factors could affect the timing and amount of recovery of the insurance and notes receivables, including assumptions regarding various aspects of the composition and characteristics of future claims (which are relevant to calculating reimbursement under the terms of certain Coverage-In-Place Agreements) and the extent to which the issuing insurers may become insolvent in the future.

12 unchanged sentences

Ending warranty reserve $ 11,428 $ 12,715 $ 14,214

Warranty expense for the years ended December 31, 2019 , 2018 and 2017 was $ 11.2 million , $ 9.4 million and $ 13.8 million , respectively and is included in "Costs of products sold" on the Consolidated Statement of Income.

Warranty expense for the years ended December 31, 2020, 2019 and 2018 was $ 9.6 million, $ 11.2 million and $ 9.4 million, respectively and is included in Costs of products sold on the Consolidated Statements of Income.

Note 20— Quarterly Financial Information (Unaudited)

(In thousands, except earnings per share)

(In thousands, except earnings per share) 1st 2nd 3rd 4th Year

Net sales $ 341,145 $ 314,438 $ 304,392 $ 388,248 $ 1,348,223

Gross profit 157,359 141,585 132,232 159,272 590,448

Net income attributable to MSA Safety Incorporated 43,674 36,055 28,034 12,338 120,101

Earnings per share (1)

(In thousands, except earnings per share)

Basic $ 1.12 $ 0.93 $ 0.72 $ 0.32 $ 3.09

Diluted 1.11 0.92 0.71 0.31 3.05

(In thousands, except earnings per share) 1st 2nd 3rd 4th Year

Net sales $ 326,038 $ 349,675 $ 351,014 $ 375,254 $ 1,401,981

Gross profit 149,982 161,084 158,701 166,845 636,612

Net income attributable to MSA Safety Incorporated 23,232 39,806 42,239 31,163 136,440

Earnings per share (1)

Basic $ 0.60 $ 1.03 $ 1.09 $ 0.80 $ 3.52

Diluted 0.59 1.01 1.08 0.79 3.48

(1) Per share amounts are calculated independently for each period presented;

therefore, the sum of the quarterly per share amounts may not equal the per share amounts for the year.

Note 21 - 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 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 European markets.

Our results for the year ended December 31, 2020 include transaction and integration costs of $ 0.5 million related to the acquisition.

These costs are reported in selling, general and administrative expenses.

Bristol operating results will be included in our financial statements from the acquisition date.

The acquisition qualifies as a business combination and will be accounted for using the acquisition method of accounting.

At the date of issuance of these financial statements, the initial purchase accounting was not complete.

We are also unable to provide pro forma revenues and earnings of the combined entity due to the limited time since the acquisition.

This information will be included in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2021.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data