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Item 1. Financial Statements

2021-04-29 compared with 2020-10-30 · 222 added, 277 removed, 494 unchanged (50% of the section changed)

2 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

Three Months Ended September 30, Nine Months Ended September 30,

Three Months Ended March 31,

(In thousands, except per share amounts) 2021 2020

5 unchanged sentences

Restructuring charges (Note 3) 1,308 2,007

Currency exchange losses (gains), net (Note 6) 2,759 ( 913 ) 3,821 17,338

Currency exchange (gains) losses, net (Note 5) ( 2,099 ) 270

Product liability expense (Note 17) 2,796 1,951

2 unchanged sentences

Other income, net ( 4,213 ) ( 1,259 )

Total other expense, net 1,188 1,330 3,531 2,239

Total other (income) expense, net ( 2,302 ) 1,885

Income before income taxes 46,340 56,897

10 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Three Months Ended September 30, Nine Months Ended September 30,

Three Months Ended March 31,

(In thousands) 2021 2020

Net income $ 36,600 $ 43,802

Other comprehensive income (loss), net of tax:

Other comprehensive (loss) income, net of tax:

Foreign currency translation adjustments (Note 5) ( 10,223 ) ( 22,947 )

Pension and post-retirement plan actuarial gains, net of tax (Note 5) 3,712 3,102

Unrealized (loss) gain on available-for-sale securities (Note 6) ( 74 ) ( 9 ) ( 12 ) 554

Unrealized loss on available-for-sale securities (Note 5) ( 5 ) ( 62 )

Reclassification of currency translation from accumulated other comprehensive (loss) into net income (Note 5) — 720

Total other comprehensive income (loss), net of tax 18,504 ( 14,055 ) 7,200 5,244

Total other comprehensive (loss) income, net of tax ( 6,516 ) ( 19,187 )

Comprehensive income 30,084 24,615

4 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands) September 30, 2020 December 31, 2019

(In thousands) March 31, 2021 December 31, 2020

Cash and cash equivalents $ 184,728 $ 160,672

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Notes receivable, insurance companies, noncurrent (Note 17) 48,837 48,540

Net investment in sales-type leases, noncurrent (Note 13) 28,509 —

Insurance receivable (Note 17) and other noncurrent assets 87,896 89,062

5 unchanged sentences

Income taxes payable (Note 9) 15,490 3,580

Warranty reserve (Note 17) and other current liabilities 108,273 93,898

Other current liabilities 107,102 116,128

Total current liabilities

24 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months Ended September 30,

Three Months Ended March 31,

(In thousands) 2021 2020

3 unchanged sentences

Stock-based compensation (Note 10) 3,293 3,522

Pension expense (Note 14) 6,647 3,101

Deferred income tax (benefit) provision (Note 10) ( 1,312 ) 424

Pension (income) expense (Note 14) ( 480 ) 2,216

Deferred income tax benefit (Note 9) ( 595 ) ( 546 )

Loss on asset dispositions, net 19 122

Pension contributions (Note 14) ( 1,923 ) ( 1,891 )

Currency exchange losses, net 3,821 17,338

Currency exchange (gains) losses, net ( 2,099 ) 270

Product liability expense (Note 17) 2,796 1,951

4 unchanged sentences

Inventories (Note 2) ( 10,781 ) ( 18,988 )

Prepaid expenses and other current assets ( 7,673 ) ( 10,755 )

Accounts payable and accrued liabilities 10,782 ( 3,647 )

Accounts payable 532 1,657

Other current assets and liabilities ( 13,966 ) ( 12,887 )

Other noncurrent assets and liabilities ( 362 ) ( 594 )

2 unchanged sentences

Capital expenditures ( 9,582 ) ( 6,562 )

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

Acquisition, net of cash acquired (Note 18) ( 62,992 ) —

Purchase of short-term investments (Note 16) ( 44,970 ) ( 69,612 )

3 unchanged sentences

Financing Activities

Payments on short-term debt, net — ( 63 )

Proceeds from long-term debt (Note 11) 370,017 378,000

3 unchanged sentences

Exercise of stock options (Note 6) 1,790 2,733

Employee stock purchase plan (Note 7) 390 344

Cash Flow Used in Financing Activities ( 76,143 ) ( 40,833 )

Cash Flow From (Used in) Financing Activities 31,639 ( 13,328 )

Effect of exchange rate changes on cash, cash equivalents and restricted cash ( 720 ) ( 3,756 )

Decrease in cash, cash equivalents and restricted cash ( 19,357 ) ( 31,746 )

Increase (decrease) in cash, cash equivalents and restricted cash 24,026 ( 29,559 )

Beginning cash, cash equivalents and restricted cash 161,034 152,543

12 unchanged sentences

(Loss) Noncontrolling Interests

Balances June 30, 2019 $ 971,453 $ ( 203,406 ) $ 6,093

Net income 42,611 — —

Foreign currency translation adjustments — ( 16,091 ) —

Pension and post-retirement plan adjustments, net of tax of $ 468

Unrealized net loss on available-for-sale securities ( 9 ) —

Reclassification from accumulated other comprehensive (loss) into net income — ( 212 ) —

Income attributable to noncontrolling interests ( 372 ) 227 145

Common dividends ( 16,270 ) — —

Preferred dividends ($ 0.5625 per share)

Balances September 30, 2019 $ 997,412 $ ( 217,234 ) $ 6,238

Balances June 30, 2020 $ 1,058,955 $ ( 225,210 ) $ 7,144

Net income 28,234 — —

Foreign currency translation adjustments — 15,520 —

Pension and post-retirement plan adjustments, net of tax of $ 1,111

Unrealized net loss on available-for-sale securities (Note 17) — ( 74 ) —

Income attributable to noncontrolling interests ( 200 ) ( 294 ) 494

Common dividends ( 16,761 ) — —

Preferred dividends ($ 0.5625 per share)

Balances September 30, 2020 $ 1,070,218 $ ( 207,000 ) $ 7,638

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

2 unchanged sentences

Pension and post-retirement plan adjustments, net of tax of $ 1,067

Unrealized net gain on available-for-sale securities (Note 16) — 554 —

Unrealized net losses on available-for-sale securities (Note 16) — ( 62 ) —

Reclassification from accumulated other comprehensive (loss) into net income (Note 5) — 720 —

2 unchanged sentences

Preferred dividends ($ 0.5625 per share)

Cumulative effect of the adoption of ASU 2018-02 3,772 ( 3,772 ) —

Balances September 30, 2019 $ 997,412 $ ( 217,234 ) $ 6,238

Balances March 31, 2020 $ 1,039,609 $ ( 233,075 ) $ 6,786

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

2 unchanged sentences

Pension and post-retirement plan adjustments, net of tax of $ 1,084

Unrealized net loss on available-for-sale securities (Note 16) — ( 12 ) —

Unrealized net losses on available-for-sale securities (Note 16) — ( 5 ) —

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

2 unchanged sentences

Preferred dividends ($ 0.5625 per share)

Balances September 30, 2020 $ 1,070,218 $ ( 207,000 ) $ 7,638

Balances March 31, 2021 $ 1,085,383 $ ( 188,948 ) $ 8,214

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

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This Form 10-Q report should be read in conjunction with MSA's Form 10-K for the year ended December 31, 2020, which includes all disclosures required by U.S.

Note 2— Recently Adopted and Recently Issued Accounting Standards

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

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

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

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.

The Company adopted this ASU on January 1, 2020.

The adoption of this ASU did not have a material impact on the unaudited condensed consolidated financial statements.

The Company expects to include changes to our annual disclosures as a result of the adoption of this ASU.

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

This ASU is effective for fiscal years ending after December 15, 2020, and early adoption is permitted.

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

The Company is still evaluating the impact that the adoption of this ASU will have on our consolidated financial statements.

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

These reclassifications relate to additional captions disclosed within the operating section of the unaudited Condensed Consolidated Statement of Cash Flows but do not change the overall cash flow from operating activities for the prior years as previously reported.

Note 2— Inventories

The following table sets forth the components of inventory:

(In thousands) September 30, 2020 December 31, 2019

(In thousands) March 31, 2021 December 31, 2020

Finished products $ 101,064 $ 81,048

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Note 3— Restructuring Charges

During the three and nine months ended September 30, 2020, we recorded restructuring charges of $ 7.6 million and $ 18.5 million, respectively.

International segment restructuring charges of $ 13.7 million during th e nine months ended September 30, 2020, were primarily related to severance costs for staff reductions and footprint optimization associated with our ongoing initiatives to drive profitable growth.

A mericas segment restructuring charges of $ 3.7 million during the nine months ended September 30, 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.

During the three and nine months ended September 30, 2019, we recorded restructuring charges of $ 1.9 million and $ 11.2 million, respectively.

International segment restructuring charges of $ 10.5 million during the nine months ended September 30, 2019, were primarily related to severance costs for staff reductions associated with our ongoing initiatives to drive profitable growth and a non-cash settlement charge for the closure of our pension plan in the United Kingdom.

Corporate segment restructuring charges of $ 0.5 million during the nine months ended September 30, 2019, were primarily related to the legal and operational realignment of our U.S.

and Canadian operations.

During the three months ended March 31, 2021, we recorded restructuring charges of $ 1.3 million.

International segment restructuring charges of $ 1.0 million during th e three months ended March 31, 2021, were primarily related to our ongoing initiatives to drive profitable growth and right size our operations.

A mericas segment restructuring charges of $ 0.2 million during the three months ended March 31, 2021, 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.

During the three months ended March 31, 2020, we recorded restructuring charges of $ 2.0 million.

International segment restructuring charges of $ 1.9 million during the three months ended March 31, 2020, were primarily related to severance costs for staff reductions associated with our ongoing initiatives to drive profitable growth.

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

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Cash payments ( 0.3 ) ( 3.1 ) ( 0.1 ) ( 3.5 )

Reserve balances at September 30, 2020 $ 3.6 $ 14.9 $ 0.8 $ 19.3

Reserve balances at March 31, 2021 $ 2.7 $ 16.6 $ 0.4 $ 19.7

Restructuring reserves are included in Other current liabilities in the accompanying unaudited Condensed Consolidated Balance Sheets.

Note 4— Property, Plant and Equipment

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

(In thousands) September 30, 2020 December 31, 2019

(In thousands) March 31, 2021 December 31, 2020

Land $ 5,189 $ 4,275

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Three Months Ended

September 30, Three Months Ended

September 30,

March 31, Three Months Ended

(In thousands) 2021 2020 2021 2020

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(a) Reclassifications out of accumulated other comprehensive loss and into net income are included in the computation of net periodic pension and other post-retirement benefit costs (refer to Note 14—Pensions and Other Post-retirement Benefits).

(b) Reclassifications into net income relate primarily to the closure of several subsidiaries in our Europe, Middle East & Africa ("EMEA") operating segment and are included in Currency exchange losses (gains), net, within the unaudited Condensed Consolidated Statement of Income.

MSA Safety Incorporated Noncontrolling Interests

Nine Months Ended

September 30, Nine Months Ended

September 30,

(In thousands) 2020 2019 2020 2019

Pension and other post-retirement benefits (a)

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

Amounts reclassified from accumulated other comprehensive loss into net income:

Amortization of prior service credit (Note 14) ( 156 ) ( 141 ) — —

Recognized net actuarial losses (Note 14) 12,663 8,317 — —

Tax benefit ( 3,257 ) ( 2,518 ) — —

Total amount reclassified from accumulated other comprehensive loss, net of tax, into net income 9,250 5,658 — —

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

Balance at end of period $ ( 115,598 ) $ ( 113,631 ) $ — $ —

Available-for-sale securities

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

Unrealized (loss) gain on available-for-sale securities (Note 16) ( 12 ) 554 — —

Balance at end of period $ ( 6 ) $ ( 18 ) $ — $ —

Foreign currency translation

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

Reclassification from accumulated other comprehensive loss into net income 720 (b)

Foreign currency translation adjustments ( 2,955 ) ( 15,894 ) 197 ( 221 )

Balance at end of period $ ( 91,396 ) $ ( 103,585 ) $ 620 $ 275

(b) Reclassifications into net income relate primarily to the approval of our plan to close several subsidiaries in our Europe, Middle East & Africa ("EMEA") operating segment and are included in Currency exchange losses (gains), net, within the unaudited Condensed Consolidated Statement of Income.

(c) Reclassifications out of accumulated other comprehensive loss into net income relate primarily to the closure of our South Africa subsidiaries and are included in Currency exchange losses (gains), net, within the unaudited Condensed Consolidated Statement of Income.

(b) Reclassifications into net income relate primarily to the closure of several subsidiaries in our Europe, Middle East & Africa ("EMEA") operating segment and are included in Currency exchange (gains) losses, net, within the unaudited Condensed Consolidated Statement 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 52,998 shares held in treasury at September 30, 2020.

There are 71,340 shares issued and 52,998 shares held in treasury at March 31, 2021.

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

There were treasury purchases of 120 preferred stock shares during the nine months ended September 30, 2020.

There were no treasury purchases of preferred stock during the nine months ended September 30, 2019.

There were no treasury purchases of preferred stock shares during the three months ended March 31, 2021.

There were treasury purchases of 120 preferred stock shares during the three months ended March 31, 2020.

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

No shares have been issued as of September 30, 2020.

No shares have been issued as of March 31, 2021.

Common Stock - The Company has authorized 180,000,000 shares of no par value common stock.

There were 62,081,391 shares issued as of December 31, 2020.

No new shares were issued during the nine months ended September 30, 2020, or 2019.

There were 38,950,467 and 38,841,194 shares outstanding at September 30, 2020, and December 31, 2019, respectively.

No new shares were issued during the three months ended March 31, 2021, or 2020.

There were 39,167,207 and 39,067,902 shares outstanding at March 31, 2021, and December 31, 2020, respectively.

Treasury Shares - The Company's share repurchase program authorizes up to $ 100.0 million to repurchase MSA common stock in the open market and in private transactions.

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The maximum number of shares that may be repurchased is calculated based on the dollars remaining under the program and the respective month-end closing share price.

During the nine months ended September 30, 2020, 175,000 shares were repurchased under this program and all of the repurchases occurred during the first quarter.

During the nine months ended September 30, 2019, 33,465 shares were repurchased under the program.

There were 23,130,924 and 23,240,197 Treasury Shares at September 30, 2020, and December 31, 2019, respectively.

During the three months ended March 31, 2021, no shares were repurchased under this program.

During the three months ended March 31, 2020, 175,000 shares were repurchased under the program.

There were 22,914,184 and 23,013,489 Treasury Shares at March 31, 2021, and December 31, 2020, respectively.

The Company issues Treasury Shares for all stock-based compensation plans.

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

There were 66,893 and 320,718 Treasury Shares issued for these purposes during the nine months ended September 30, 2020 and 2019, respectively.

There were 32,650 and 58,840 Treasury Shares issued for these purposes during the three months ended March 31, 2021 and 2020, respectively.

Common stock activity is summarized as follows:

Three Months Ended September 30, 2020 Three Months Ended September 30, 2019

Three Months Ended March 31, 2021 Three Months Ended March 31, 2020

(In thousands) Common

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Treasury shares purchased — ( 5,348 ) — ( 7,617 )

Balance at end of period $ 234,703 $ ( 327,432 ) $ 223,412 $ ( 303,500 )

Nine Months Ended

September 30, 2020 Nine Months Ended

September 30, 2019

(In thousands) Common Stock Treasury Cost Common Stock Treasury Cost

Balance at beginning of period $ 229,127 $ ( 303,566 ) $ 211,806 $ ( 296,390 )

Stock compensation expense 3,042 — 10,130 —

Restricted and performance stock awards ( 2,513 ) 2,513 ( 2,713 ) 2,713

Stock options exercised 4,709 2,260 2,967 1,194

Treasury shares purchased — ( 8,578 ) — ( 7,713 )

Stock consideration in acquisition — — 921 —

Employee stock purchase program 338 52 301 43

Share repurchase program — — — ( 20,113 )

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Note 7— Segment Information

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

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

We are organized 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").

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 American and Latin American geographies.

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

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

Adjusted operating income (loss) is defined as operating income excluding restructuring charges, currency exchange gains (losses), product liability expense, acquisition related costs, including acquisition related amortization, 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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(In thousands, except percentage amounts) Americas International Corporate Consolidated

Three Months Ended September 30, 2020

Sales to external customers $ 194,303 $ 110,089 $ — $ 304,392

Operating income 41,149

Restructuring charges (Note 4) 7,603

Currency exchange losses, net (Note 6) 2,759

Product liability expense (Note 17) 2,077

Strategic transaction costs 41

Adjusted operating income (loss) 40,898 15,658 ( 2,927 ) 53,629

Adjusted operating margin % 21.0 % 14.2 %

Depreciation and amortization 9,856

Adjusted EBITDA 47,465 18,848 ( 2,828 ) 63,485

Adjusted EBITDA % 24.4 % 17.1 %

Nine Months Ended September 30, 2020

Sales to external customers $ 629,787 $ 330,188 $ — $ 959,975

Operating income 148,213

Restructuring charges (Note 4) 18,475

Currency exchange losses, net (Note 6) 3,821

Product liability expense (Note 17) 4,878

Strategic transaction costs 202

COVID-19 related costs 757

Adjusted operating income (loss) 149,708 45,719 ( 19,081 ) 176,346

Adjusted operating margin % 23.8 % 13.8 %

Depreciation and amortization 29,284

Adjusted EBITDA 169,343 55,075 ( 18,788 ) 205,630

Adjusted EBITDA % 26.9 % 16.7 %

(In thousands, except percentage amounts) Americas International Corporate Consolidated

Three Months Ended September 30, 2019

Three Months Ended March 31, 2021

Sales to external customers $ 208,340 $ 100,088 $ — $ 308,428

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Product liability expense (Note 17) 2,796

Strategic transaction costs 952

Acquisition related costs (Note 18) 1,373

Adjusted operating income (loss) 45,152 8,790 ( 6,526 ) 47,416

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Adjusted EBITDA 52,186 12,163 ( 6,429 ) 57,920

Adjusted EBITDA % 27.8 % 14.5 %

Nine Months Ended September 30, 2019

Adjusted EBITDA margin % 25.0 % 12.2 %

(In thousands, except percentage amounts) Americas International Corporate Consolidated

Three Months Ended March 31, 2020

Sales to external customers $ 231,253 $ 109,892 $ — $ 341,145

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Product liability expense (Note 17) 1,951

Strategic transaction costs 2,937

Acquisition related costs (Note 18) 97

COVID-19 related costs 757

Adjusted operating income (loss) 59,807 12,671 ( 8,614 ) 63,864

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Adjusted EBITDA 66,257 15,765 ( 8,518 ) 73,504

Adjusted EBITDA % 28.0 % 14.2 %

Adjusted EBITDA margin % 28.7 % 14.3 %

Total sales by product group was as follows:

Three Months Ended September 30, 2020 Consolidated Americas International

(In thousands, except percentages) Dollars Percent Dollars Percent Dollars Percent

Breathing Apparatus $ 62,454 20 % $ 38,889 20 % $ 23,565 21 %

Fixed Gas & Flame Detection 70,038 23 % 39,411 20 % 30,627 28 %

Firefighter Helmets & Protective Apparel 38,785 13 % 33,000 17 % 5,785 5 %

Portable Gas Detection 32,701 11 % 20,972 11 % 11,729 11 %

Industrial Head Protection 29,328 10 % 21,489 11 % 7,839 7 %

Fall Protection 24,620 8 % 13,109 7 % 11,511 11 %

46,466 15 % 27,433 14 % 19,033 17 %

Total $ 304,392 100 % $ 194,303 100 % $ 110,089 100 %

Nine Months Ended September 30, 2020 Consolidated Americas International

(In thousands, except percentages) Dollars Percent Dollars Percent Dollars Percent

Breathing Apparatus $ 214,162 22 % $ 141,850 23 % $ 72,312 22 %

Fixed Gas & Flame Detection 205,334 21 % 117,399 19 % 87,935 27 %

Firefighter Helmets & Protective Apparel 121,669 13 % 101,857 16 % 19,812 6 %

Portable Gas Detection 102,138 11 % 65,822 10 % 36,316 11 %

Industrial Head Protection 95,260 10 % 69,549 11 % 25,711 8 %

Fall Protection 73,707 8 % 42,185 7 % 31,522 9 %

147,705 15 % 91,125 14 % 56,580 17 %

Total $ 959,975 100 % $ 629,787 100 % $ 330,188 100 %

Three Months Ended September 30, 2019 Consolidated Americas International

Three Months Ended March 31, 2021 Consolidated Americas International

(In thousands, except percentages) Dollars Percent Dollars Percent Dollars Percent

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Total $ 308,428 100 % $ 208,340 100 % $ 100,088 100 %

Nine Months Ended September 30, 2019 Consolidated Americas International

Three Months Ended March 31, 2020 Consolidated Americas International

(In thousands, except percentages) Dollars Percent Dollars Percent Dollars Percent

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Amounts attributable to MSA Safety Incorporated common shareholders:

Three Months Ended September 30, Nine Months Ended September 30,

Three Months Ended March 31,

(In thousands, except per share amounts) 2021 2020

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Note 9— Income Taxes

The Company's effective tax rate for the third quarter of 2020 was 29.3 % and differs from the U.S.

federal statutory rate of 21% primarily due to state income taxes, increased profitability in less favorable tax jurisdictions, higher foreign entity losses in jurisdictions where we cannot take tax benefits, increased statutory rates in foreign jurisdictions, nondeductible executive compensation, and U.S.

tax on foreign dividends.

The Company's effective tax rate for the third quarter of 2019 was 26.9 %, which differs from the U.S.

statutory rate of 21% primarily due to dividend income subject to income tax in foreign jurisdictions and a reduction in the benefit related to domestic goods sold into foreign markets.

The Company's effective tax rate for the nine months ended September 30, 2020, was 25.1 % and differs from the U.S.

federal statutory rate of 21% primarily due to state income taxes, increased profitability in less favorable tax jurisdictions and higher foreign entity losses in jurisdictions where we cannot take tax benefits, increased statutory rates in foreign jurisdictions, partially offset by tax benefits on certain share-based payments.

The Company's effective tax rate for the nine months ended September 30, 2019, was 26.3 % which differs from the U.S.

federal statutory rate of 21% primarily due to higher profitability and dividend income in less favorable tax jurisdictions, higher foreign entity losses in jurisdictions where we cannot take tax benefits, and nondeductible foreign exchange on entity closures, partially offset by certain share-based payments related to the application of ASU 2016-09.

At September 30, 2020, the Company had a gross liability for unrecognized tax benefits of $ 5.2 million.

The Company has recognized tax benefits associated with these liabilities of $ 2.2 million at September 30, 2020.

The Company's effective tax rate for the first quarter of 2021 was 21.0 % and is consistent with the U.S.

federal statutory rate of 21% as state income taxes and a one time foreign expense associated with pension are offset by tax benefits on certain share-based payments.

The Company's effective tax rate for the first quarter of 2020 was 23.0 %, which differs from the U.S.

statutory rate of 21% primarily due to state income taxes, higher foreign entity losses in jurisdictions where we cannot take tax benefits, partially offset by tax benefits on certain share-based payments.

At March 31, 2021, the Company had a gross liability for unrecognized tax benefits of $ 9.1 million.

The Company has recognized tax benefits associated with these liabilities of $ 2.7 million at March 31, 2021.

The gross liability includes amounts associated with foreign tax exposure in prior periods.

The Company recognizes interest related to unrecognized tax benefits in interest expense and penalties in operating expenses.

The Company's liability for accrued interest related to uncertain tax positions was $ 1.0 million at September 30, 2020.

The Company's liability for accrued interest related to uncertain tax positions was $ 1.1 million at March 31, 2021.

We are subject to regular review and audit by both foreign and domestic tax authorities.

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Stock compensation expense is as follows:

Three Months Ended September 30, Nine Months Ended September 30,

Three Months Ended March 31,

(In thousands) 2021 2020

Stock compensation (benefit) expense (a)

$ ( 1,309 ) $ 4,044 $ 3,042 $ 10,130

Income tax (expense) benefit ( 319 ) 987 742 2,472

Stock compensation (benefit) expense, net of tax $ ( 990 ) $ 3,057 $ 2,300 $ 7,658

(a) The Company adjusted cumulative stock compensation expense for changes in expected performance against target metrics for unvested performance stock units.

This resulted in a benefit during the three months ended September 30, 2020.

A summary of stock option activity for the nine months ended September 30, 2020, follows:

Stock compensation expense $ 3,293 $ 3,522

Income tax expense 794 859

Stock compensation expense, net of tax $ 2,499 $ 2,663

A summary of stock option activity for the three months ended March 31, 2021, follows:

Shares Weighted Average

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Forfeited ( 81 ) 49.66

Outstanding at September 30, 2020 395,719 47.03

Exercisable at September 30, 2020 392,726 $ 47.03

Outstanding at March 31, 2021 245,111 46.26

Exercisable at March 31, 2021 243,563 $ 46.25

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

A summary of restricted stock activity for the nine months ended September 30, 2020, follows:

A summary of restricted stock activity for the three months ended March 31, 2021, follows:

Shares Weighted Average

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Forfeited ( 156 ) 121.83

Unvested at September 30, 2020 152,654 $ 103.75

Unvested at March 31, 2021 144,182 $ 122.62

Performance stock units have a market condition modifier and are valued at an estimated fair value using a Monte Carlo model.

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Expected life is based on historical stock option exercise data.

A summary of performance stock unit activity for the nine months ended September 30, 2020, follows:

A summary of performance stock unit activity for the three months ended March 31, 2021, follows:

Shares Weighted Average

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Vested ( 63,286 ) 84.97

Forfeited ( 3,698 ) 120.69

Unvested at September 30, 2020 201,782 $ 104.41

Unvested at March 31, 2021 187,937 $ 128.72

The performance adjustments above relate primarily to the final number of shares issued for the 2018 performance unit awards which vested in the first quarter of 2021 at 105.4 % of the target award based on both cumulative performance against the operating margin and revenue growth targets and MSA's TSR during the three-year performance period.

Note 11— Long-Term Debt

(In thousands) September 30, 2020 December 31, 2019

(In thousands) March 31, 2021 December 31, 2020

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

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The Company pays a credit spread of 0 to 175 basis points based on the Company’s net EBITDA leverage ratio and elected rate (BASE or LIBOR).

The Company has a weighted average revolver interest rate of 1.15 % as of September 30, 2020.

At September 30, 2020, $ 366.2 million of the existing $ 600.0 million senior revolving credit facility was unused, including letters of credit issued under the facility.

The Company has a weighted average revolver interest rate of 1.09 % as of March 31, 2021.

At March 31, 2021, $ 333.1 million of the existing $ 600.0 million senior revolving credit facility was unused, including letters of credit issued under the facility.

The facility also provides an accordion feature that allows the Company to access an additional $ 400.0 million of capacity pending approval from the bank group.

On January 22, 2016, the Company entered into an amended multi-currency note purchase and private shelf agreement, pursuant to which the Company issued notes in an aggregate original principal amount of £ 54.9 million (approximately $ 71.0 million at September 30, 2020).

The Notes are repayable in annual installments of £ 6.1 million (approximately $ 7.9 million at September 30, 2020), commencing January 22, 2023, with a final payment of any remaining amount outstanding on January 22, 2031.

The Notes are repayable in annual installments of £ 6.1 million (approximately $ 8.4 million at March 31, 2021), commencing January 22, 2023, with a final payment of any remaining amount outstanding on January 22, 2031.

The interest rate on these Notes is fixed at 3.4 %.

On September 7, 2018, the Company further amended the multi-currency note purchase and private shelf agreement, among other things, to allow the Company to request from time to time during a three-year period ending September 7, 2021, the issuance of up to $ 150 million of additional senior notes.

No additional notes have been issued under the amended agreement as of September 30, 2020.

On September 7, 2018, the Company further amended the multi-currency note purchase and private shelf agreement to, among other things, allow the Company to request from time to time during a three-year period ending September 7, 2021, the issuance of up to $ 150 million of additional senior notes.

No additional notes have been issued under the amended agreement as of March 31, 2021.

On January 4, 2019, the Company entered into an amended and restated master note facility with New York Life.

Under the amended facility, the Company may request from time to time during a three-year period ending January 4, 2022, the issuance of up to $ 150 million of additional senior promissory notes.

As of September 30, 2020, no notes have been issued under the amended facility.

As of March 31, 2021, no notes have been issued under the amended facility.

The senior revolving credit facility and the multi-currency note purchase and private shelf agreement require the Company to comply with specified financial covenants, including a requirement to maintain a minimum fixed charges coverage ratio of not less than 1.50 to 1.00 and a consolidated leverage ratio not to exceed 3.50 to 1.00;

except during an acquisition period in which case the consolidated net leverage ratio shall not exceed 4.00 to 1.00;

except during an acquisition period, defined as four consecutive fiscal quarters beginning with the quarter of acquisition, in which case the consolidated net leverage ratio shall not exceed 4.00 to 1.00;

in each case calculated on the basis of the trailing four fiscal quarters.

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However, the covenants contained in the New York Life amended facility do not apply until promissory notes are issued.

The Company was in compliance with all debt covenants at September 30, 2020.

The Company had outstanding bank guarantees and standby letters of credit with banks as of September 30, 2020, totaling $ 9.6 million, of which $ 1.9 million relat e to the senior revolving credit facility.

The Company was in compliance with all debt covenants at March 31, 2021.

The Company had outstanding bank guarantees and standby letters of credit with banks as of March 31, 2021, totaling $ 11.4 million, of which $ 1.3 million relat e to the senior revolving credit facility.

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

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

At September 30, 2020, the Company has $ 0.4 million of restricted cash in support of these arrangements.

At March 31, 2021, the Company has $ 0.3 million of restricted cash in support of these arrangements.

Note 12— Goodwill and Intangible Assets

Changes in goodwill during the nine months ended September 30, 2020 are as follows:

Changes in goodwill during the three months ended March 31, 2021 are as follows:

(In thousands) Goodwill

Balance at January 1, 2021 $ 443,272

Additions (Note 18) 4,708

Currency translation ( 921 )

Balance at September 30, 2020 $ 436,273

At September 30, 2020, the Company had goodwill of $ 293.2 million and $ 143.1 million related to the Americas and International reportable segments, respectively.

Changes in intangible assets, net during the nine months ended September 30, 2020, are as follows:

Balance at March 31, 2021 $ 447,059

At March 31, 2021, the Company had goodwill of $ 293.2 million and $ 153.9 million related to the Americas and International reportable segments, respectively.

Changes in intangible assets, net during the three months ended March 31, 2021, are as follows:

(In thousands) Intangible Assets

Net balance at January 1, 2021 $ 161,051

Additions (Note 18) 5,940

Amortization expense ( 3,055 )

Currency translation 298

Net balance at September 30, 2020 $ 161,765

At September 30, 2020, the above intangible assets balance includes a trade name related to the Globe acquisition with an indefinite life totaling $ 60.0 million.

Net balance at March 31, 2021 $ 164,234

At March 31, 2021, the above intangible assets balance includes a trade name related to the Globe acquisition with an indefinite life totaling $ 60.0 million.

Note 13— Leases

Lessor Arrangements

The Company derives a portion of its revenue from various leasing arrangements.

Such arrangements provide for monthly payments covering the equipment provided and interest.

These arrangements meet the criteria to be accounted for as sales-type leases under ASC Topic 842, Leases .

Accordingly, revenue from the provision of the equipment is recognized upon lease commencement.

Upon the recognition of such revenue, an asset is established for the investment in sales-type leases.

Interest income is recognized monthly over the lease term.

Revenue from sales-type leases recognized by the Company, included in Net sales in the unaudited Condensed Consolidated Statements of Income, was $ 1.0 million during the three months ended March 31, 2021.

Gross profit recognized at commencement from our various leasing arrangements was $ 0.6 million during the three months ended March 31, 2021.

There were no new sales-type lease transactions commencing and no lease revenue recognized during the three months ended March 31, 2020.

Note 14— Pensions and Other Post-retirement Benefits

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(In thousands) 2021 2020 2021 2020

Three Months Ended September 30,

Service cost $ 3,012 $ 2,579 $ 99 $ 88

Interest cost 3,726 4,712 179 249

Expected return on plan assets ( 8,503 ) ( 9,655 ) — —

Amortization of prior service cost (credit) 46 54 ( 98 ) ( 101 )

Recognized net actuarial losses 3,935 2,555 286 217

Net periodic benefit cost (a)

$ 2,216 $ 245 $ 466 $ 453

Nine Months Ended September 30,

Three Months Ended March 31,

Service cost $ 3,242 $ 3,012 $ 99 $ 99

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Recognized net actuarial losses 4,421 3,935 399 286

Settlements — 2,363 (b)

Net periodic benefit cost (a)

Settlements ( 1,879 ) — — —

Net periodic benefit (income) cost (a)

$ ( 480 ) $ 2,216 $ 524 $ 466

(a) Components of net periodic benefit cost other than service cost are included in the line item "Other income, net" in the unaudited Condensed Consolidated Statement of Income.

(b) Related to a non-cash charge associated with the closure of our pension plan in the U.K.

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

We made contributions of $ 5.7 million and $ 5.3 million to our pension plans during the nine months ended September 30, 2020 and 2019, respectively.

(a) Components of net periodic benefit (income) cost other than service cost are included in the line item "Other income, net" in the unaudited Condensed Consolidated Statements of Income.

We made contributions of $ 1.9 million to our pension plans during both the three months ended March 31, 2021 and 2020, respectively.

We expect to make total contributions of approximately $ 7.7 million to our pension plans in 2021 primarily associated with statutorily required plans in the International segment.

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GAAP criteria for hedge accounting, but which 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 unaudited Condensed Consolidated Statement of Income.

The notional amount of open forward contracts was $ 86.9 million and $ 74.9 million at September 30, 2020, and December 31, 2019, respectively.

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

The notional amount of open forward contracts was $ 94.3 million and $ 96.0 million at March 31, 2021, and December 31, 2020, respectively.

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

(In thousands) September 30, 2020 December 31, 2019

(In thousands) March 31, 2021 December 31, 2020

Derivatives not designated as hedging instruments:

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

(Gain) Loss Recognized in Income

Nine Months Ended September 30,

Loss Recognized in Income

Three Months Ended March 31,

(In thousands) Statement of Income Location 2021 2020

Derivatives not designated as hedging instruments:

Foreign exchange contracts Currency exchange losses (gains), net $ ( 4,226 ) $ 4,647

Foreign exchange contracts Currency exchange (gains) losses, net $ 3,388 $ 376

Note 16— Fair Value Measurements

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Accordingly, the fair values of the investments are classified within Level 2 of the fair value hierarchy.

The amortized cost basis of our investments was $ 69.9 million and $ 49.7 million as of September 30, 2020 and December 31, 2019, respectively.

The fair value was $ 69.9 million and $ 49.9 million as of September 30, 2020 and December 31, 2019, respectively, which was reported in "Investments, short-term" in the accompanying unaudited Condensed Consolidated Balance Sheet.

The amortized cost basis of our investments was $ 55 million and $ 75 million as of March 31, 2021 and December 31, 2020, respectively.

The fair value was $ 55 million and $ 75 million as of March 31, 2021 and December 31, 2020, respectively, which was reported in "Investments, short-term" in the accompanying unaudited Condensed Consolidated Balance Sheet.

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

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therefore, no impairment gains or losses relating to these securities have been recognized.

All investments in marketable securities have maturities of one year or less and are currently in an unrealized loss position as of September 30, 2020.

The reported carrying amount of our fixed rate long-term debt (including the current portion) was $ 111 million and $ 113 million at September 30, 2020, and December 31, 2019, respectively.

The fair value of this debt was $ 128 million and $ 129 million at September 30, 2020, and December 31, 2019, respectively.

All investments in marketable securities have maturities of one year or less and are currently in an unrealized loss position as of March 31, 2021.

The reported carrying amount of our fixed rate long-term debt (including the current portion) was $ 96 million and $ 95 million at March 31, 2021, and December 31, 2020, respectively.

The fair value of this debt was $ 112 million and $ 113 million at March 31, 2021, and December 31, 2020, respectively.

The fair value of this debt was determined using Level 2 inputs by evaluating similarly rated companies with publicly traded bonds where available or current borrowing rates available for financings with similar terms and maturities.

Acquisitions are measured at fair value, refer to Note 18— Acquisitions for a description of the mehodologies and fair vlue measurements utilized in the business combination.

Note 17— Contingencies

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The estimate for IBNR claims is based on experience, sales volumes, and other relevant information.

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 and $ 3.1 million at September 30, 2020 and December 31, 2019, respectively.

Single incident product liability expense was a benefit of $ 1.7 million during the nine months ended September 30, 2020 and $ 0.6 million during the nine months ended September 30, 2019.

The reserve for single incident product liability claims, which includes asserted single incident product liability claims and IBNR single incident product liability claims, was $ 1.5 million and $ 1.4 million at March 31, 2021 and December 31, 2020, respectively.

Single incident product liability expense was $ 0.1 million during the three months ended March 31, 2021 and $ 0.2 million during the three months ended March 31, 2020.

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

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Cumulative trauma product liability claims.

Cumulative trauma product liability claims involve exposures to harmful substances (e.g., silica, asbestos and coal dust) that occurred years ago and may have developed over long periods of time into diseases such as silicosis, asbestosis, mesothelioma, or coal worker’s pneumoconiosis.

One of the Company's subsidiaries Mine Safety Appliances Company, LLC ("MSA LLC") was named as a defendant in 1,743 lawsuits comprised of 2,840 claims as of September 30, 2020.

Cumulative trauma product liability claims involve alleged 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.

One of the Company's affiliates, Mine Safety Appliances Company, LLC ("MSA LLC"), was named as a defendant in 1,632 lawsuits comprised of 3,043 claims as of March 31, 2021.

These lawsuits mainly involve respiratory protection products allegedly manufactured and sold by MSA LLC or its predecessors.

The products at issue were manufactured many years ago and are not currently offered by MSA LLC.

The products at issue were manufactured many years ago by MSA LLC and are no longer sold.

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

Nine Months Ended September 30, 2020 Year Ended December 31, 2019

Three Months Ended March 31, 2021 Year Ended December 31, 2020

Open lawsuits, beginning of period 1,622 1,605

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Open lawsuits, end of period 1,632 1,622

Nine Months Ended September 30, 2020 Year Ended December 31, 2019

Three Months Ended March 31, 2021 Year Ended December 31, 2020

Asserted claims, beginning of period 2,878 2,456

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Asserted claims, end of period 3,043 2,878

More than half of the open lawsuits at September 30, 2020, have had a de minimis level of activity over the last 5 years.

The increases in the number of claims in 2020 and in the first quarter of 2021, are largely attributable to an increase in claims alleging injuries from exposure to coal mine dust, involving products that were manufactured many years ago by MSA LLC and are no longer sold.

More than half of the total open lawsuits at March 31, 2021, 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.

Total cumulative trauma product liability reserve was $ 166.5 million at September 30, 2020, including $ 3.3 million for claims settled but not yet paid and related defense costs, and $ 167.5 million at December 31, 2019, including $ 3.0 million for claims settled but not yet paid and related defense costs.

Total cumulative trauma product liability reserve was $ 216.8 million at March 31, 2021, including $ 3.6 million for claims settled but not yet paid and related defense costs, and $ 221.5 million at December 31, 2020, including $ 7.8 million for claims settled but not yet paid and related defense costs.

This reserve includes estimated amounts for asserted claims and IBNR claims.

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

There was no change in trends or other activity during the quarter that required an interim remeasurement of the cumulative trauma product liability reserve as of September 30, 2020.

At September 30, 2020, $ 17.7 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 unaudited Condensed Consolidated Balance Sheet and the remainder, $ 148.8 million, is recorded in the Product liability and other noncurrent liabilities line.

There was no change in trends or other activity during the quarter that required an interim remeasurement of the cumulative trauma product liability reserve as of March 31, 2021.

At March 31, 2021, $ 30.9 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 unaudited Condensed Consolidated Balance Sheet and the remainder, $ 185.9 million, is recorded in the Product liability and other noncurrent liabilities line.

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 unaudited Condensed Consolidated Balance Sheet and the remainder, $ 186.2 million, is recorded in the Product liability and other noncurrent liabilities line.

Total cumulative trauma liability losses were $ 5.7 million for the nine months ended September 30, 2020, and $ 9.6 million for the nine months ended September 30, 2019, both primarily related to the defense of cumulative trauma product liability claims.

Uninsured cumulative trauma product liability losses, which were included in Product liability expense on the unaudited Condensed Consolidated Statement of Income, were $ 4.9 million and $ 8.6 million for the nine months ended September 30, 2020 and September 30, 2019, respectively, and represent the total cumulative trauma liability losses net of any estimated insurance receivables as discussed below.

Total cumulative trauma liability losses were $ 3.0 million for the three months ended March 31, 2021, and $ 2.1 million for the three months ended March 31, 2020, both primarily related to the defense of cumulative trauma product liability claims.

Uninsured cumulative trauma product liability losses, which were included in Product liability and other operating expense on the unaudited Condensed Consolidated Statements of Income, were $ 2.8 million and $ 1.8 million for the three months ended March 31, 2021 and March 31, 2020, 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.

Insurance receivables at September 30, 2020, totaled $ 59.1 million, of which, $ 7.6 million is reported in Prepaid expenses and other current assets in the unaudited Condensed Consolidated Balance Sheet and $ 51.5 million is reported in Insurance receivable and other noncurrent assets.

These amounts are not subject to current coverage litigation.

Insurance receivables at March 31, 2021, totaled $ 95.6 million, of which, $ 12.0 million is reported in Prepaid expenses and other current assets in the unaudited Condensed Consolidated Balance Sheet and $ 83.6 million is reported in Insurance receivable and other noncurrent assets.

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

The vast majority of the $ 59.1 million insurance receivable balance at September 30, 2020 is attributable to reimbursement believed to be due under the terms of signed Coverage-In-Place Agreements and a portion of the amount represents the estimated recovery of IBNR amounts.

The vast majority of the $ 95.6 million insurance receivables balance at March 31, 2021 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.

A summary of insurance receivables balance and activity related to cumulative trauma product liability losses is as follows:

(In millions) Nine Months Ended September 30, 2020 Year Ended December 31, 2019

(In millions) Three Months Ended March 31, 2021 Year Ended December 31, 2020

Balance beginning of period $ 97.0 $ 63.8

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Balance end of period $ 95.6 $ 97.0

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

Notes receivable from insurance companies at September 30, 2020, totaled $ 52.0 million, of which $ 3.8 million is reported in Notes receivable, insurance companies, current on the unaudited Condensed Consolidated Balance Sheet and $ 48.2 million is reported in Notes receivable, insurance companies, noncurrent.

We record formal notes receivable 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 March 31, 2021, totaled $ 52.7 million, of which $ 3.9 million is reported in Notes receivable, insurance companies, current on the unaudited Condensed Consolidated Balance Sheet and $ 48.8 million is reported in Notes receivable, insurance companies, noncurrent.

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

A summary of notes receivables from insurance companies balance is as follows:

(In millions) Nine Months Ended September 30, 2020 Year Ended December 31, 2019

(In millions) Three Months Ended March 31, 2021 Year Ended December 31, 2020

Balance beginning of period $ 52.3 $ 56.0

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Balance end of period $ 52.7 $ 52.3

The vast majority of the insurance receivables balance at March 31, 2021, 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.

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The following table reconciles the changes in the Company's accrued warranty reserve:

(In thousands) Nine Months Ended September 30, 2020 Year Ended December 31, 2019

(In thousands) Three Months Ended March 31, 2021 Year Ended December 31, 2020

Beginning warranty reserve $ 11,428 $ 12,715

Warranty payments ( 2,277 ) ( 10,861 )

Provision for warranties 6,777 11,165

Warranty claims 2,221 10,233

Provision for product warranties and other adjustments 56 ( 659 )

Ending warranty reserve $ 11,428 $ 11,428

Warranty expense was $ 6.8 million and $ 8.8 million for the nine months ended September 30, 2020 and 2019, respectively, and is included in "Costs of products sold" on the unaudited Condensed Consolidated Statement of Income.

Warranty expense was $ 2.3 million and $ 2.9 million for the three months ended March 31, 2021 and 2020, respectively, and is included in "Costs of products sold" on the unaudited Condensed Consolidated Statements of Income.

Note 18— Acquisitions

Acquisition of Bristol Uniforms and Bell Apparel

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 $ 63.0 million, net of cash acquired.

Bristol, which is headquartered in the United Kingdom (U.K.), is a leading innovator and provider of protective apparel to the fire, rescue services, and utility sectors.

The acquisition strengthens MSA's position as a global market leader in fire service personal protective equipment (PPE) products, which include breathing apparatus, firefighter helmets, thermal imaging cameras, and firefighter protective apparel, while providing an avenue to expand its business in the U.K.

and key European markets.

The fire service equipment brands of MSA, which include Gallet Firefighter Helmets, the M1 and G1 Self-Contained Breathing Apparatus range, Cairns Helmets, Globe Manufacturing, and now Bristol Uniforms, represent more than 460 combined years of innovation in the fire service industry, with a common mission:

protecting the health and safety of firefighters.

Bristol is also a leading manufacturer of flame-retardant, waterproof, and other protective work wear for the utility industry.

Marketed under the Bell Apparel brand, this line complements MSA's existing and broad range of offerings for the global utilities market.

Bristol's operating results are included in our unaudited condensed consolidated financial statements from the acquisition date as part of the International reportable segment.

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

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

(In millions) January 25, 2021

Current assets (including cash of $ 13.3 million)

Net investment in sales-type leases, noncurrent 29.0

Property, plant and equipment and other noncurrent assets 11.9

Customer relationships 4.5

Trade name and other intangible assets 1.4

Total assets acquired 88.6

Total liabilities assumed ( 12.3 )

Net assets acquired $ 76.3

The amounts in the table above are subject to change upon completion of the valuation of the assets acquired and liabilities assumed.

This valuation is expected to be completed by first quarter of 2022.

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

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

The valuation methods used to determine the fair value of intangible assets included the excess earnings approach for customer relationships using customer inputs and contributory charges;

the relief from royalty method for trade name;

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 volume and prices, royalty rates, costs to produce, tax rates, capital spending, discount rates, attrition rates and working capital changes.

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

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

The customer relationships and trade name acquired in the Bristol transaction will be amortized over a period of 15 years.

Estimated future amortization expense related to the identifiable intangible assets is approximately $ 0.3 million for the remainder of 2021, $ 0.5 million in 2022 and 2023, $ 0.4 million in 2024 and 2025, and $ 3.8 million thereafter.

The step up to fair value of acquired inventory as part of the purchase price allocation totaled $ 1.5 million which will be amortized over four months , which is included in Cost of products sold in the unaudited condensed consolidated statement of income.

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 Bristol with our operations.

Goodwill of $ 4.7 million related to the Bristol acquisition has been recorded in the International reportable segment and is non-deductible for tax purposes.

Our results for the three months ended March 31, 2021, include acquisition related costs of approximately $ 1.4 million, including costs related to the acquisition of Bristol.

Our results for the three months ended March 31, 2020, include an immaterial amount of acquisition related costs.

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

The operating results of the Bristol acquisition have been included in our unaudited condensed consolidated financial statements from the acquisition date through March 31, 2021.

Our results for the three months ended March 31, 2021, include Bristol sales and net loss of $ 4.2 million and $ 1.4 million, respectively.

The following unaudited pro forma information presents our combined results as if the Bristol acquisition had occurred on January 1, 2020.

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

(2) factually supportable;

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

There were no material transactions between MSA and Bristol during the periods presented that are required to be eliminated in the unaudited pro forma condensed combined financial information.

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

Pro forma condensed combined financial information (Unaudited)

Three months ended March 31,

(In millions, except per share amounts) 2021 2020

Net sales $ 310.4 $ 364.3

Net income 36.6 46.7

Basic earnings per share 0.94 1.20

Diluted earnings per share 0.93 1.19

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

In addition, the unaudited pro forma condensed combined financial information is not intended to project the future financial position or result of operations of the combined company.

The unaudited pro forma condensed combined financial information was prepared using the acquisition method of accounting under existing U.S.

MSA has been treated as the acquirer.

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-Q

Item 1. Financial Statements