MSA SAFETY INC Management’s Discussion and Analysis of Financial Condition and Results of Operations (Form 10-K)

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The following discussion and analysis should be read in conjunction with the
historical financial statements and other financial information included
elsewhere in this annual report on Form 10-K. This discussion may contain
forward-looking statements that involve risks and uncertainties. The
forward-looking statements are not historical facts, but rather are based on
current expectations, estimates, assumptions and projections about our industry,
business and future financial results. Our actual results could differ
materially from the results contemplated by these forward-looking statements due
to a number of factors, including those discussed in the sections of this annual
report entitled "Forward-Looking Statements" and "Risk Factors."

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

MSA Safety Incorporated ("MSA") is organized into four geographical operating
segments that are aggregated into three reportable geographic segments:
Americas, International and Corporate. The Americas segment is comprised of our
operations in North America and Latin America geographies. The International
segment is comprised of our operations of all geographies outside of the
Americas. Certain global expenses are allocated to each segment in a manner
consistent with where the benefits from the expenses are derived. Please refer
to Note 8-Segment Information of the consolidated financial statements in Part
II Item 8 of this Form 10-K for further information.

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

During July 2021the Company purchased the remaining 10% minority interest in MSA (China) Safety Equipment Co., Ltd. of our old China partner for $19.0 millionincluding a $5.6 million Distribution.


On January 25, 2021, the Company acquired 100% of the common stock of B T Q
Limited, including Bristol Uniforms and Bell Apparel ("Bristol") in an all-cash
transaction valued at $63.0 million, net of cash acquired. Bristol, which is
headquartered in the United Kingdom, is a leading innovator and provider of
protective apparel to the fire, rescue services, and utility sectors. The
acquisition strengthens MSA's position as a global market leader in fire service
personal protective equipment ("PPE") products, which include breathing
apparatus, firefighter helmets, thermal imaging cameras, and firefighter
protective apparel, while providing an avenue to expand its business in the
United Kingdom ("U.K") and key European markets. The fire service equipment
brands of MSA, which include Gallet Firefighter Helmets, the M1 and G1
Self-Contained Breathing Apparatus range, Cairns Helmets, Globe Manufacturing,
and now Bristol, represent more than 460 combined years of innovation in the
fire service industry, with a common mission: protecting the health and safety
of firefighters. Bristol is also a leading manufacturer of flame-retardant,
waterproof, and other protective work wear for the utility industry. Marketed
under the Bell Apparel brand, this line complements MSA's existing and broad
range of offerings for the global utilities market. Refer to Note
14-Acquisitions of the consolidated financial statements in Part II Item 8 of
this Form 10-K for further information.

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


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COMPANY OVERVIEW


MSA is a global leader in the development, manufacture and supply of safety
products that protect people and facility infrastructures. Recognized for their
market leading innovation, many MSA products integrate a combination of
electronics, mechanical systems and advanced materials to protect users against
hazardous or life-threatening situations. The Company's comprehensive product
line, which is governed by rigorous safety standards across highly regulated
industries, is used by workers around the world in a broad range of markets,
including fire service, oil, gas and petrochemical industry, construction,
industrial manufacturing applications, utilities, mining and the military. MSA's
core products include breathing apparatus, fixed gas and flame detection
systems, portable gas detection instruments, industrial head protection
products, firefighter helmets and protective apparel, and fall protection
devices. We are committed to providing our customers with service unmatched in
the safety industry and, in the process, enhancing our ability to provide a
growing line of safety solutions for customers in key global markets.

MSA provides safety equipment to a broad range of customers who must continue to
work in times of global pandemic as is the case with COVID-19. Our customers
include first responders, who are tasked with keeping citizens safe, and include
industrial and utility workers tasked with maintaining critical infrastructure.
For this reason, in order to successfully fulfill our mission as The Safety
Company, MSA is an essential business and has continued operating its
manufacturing facilities during these times, to the extent practicable, while
protecting the health and safety of our workforce, and complying with all
applicable laws, all pursuant to an established pandemic response plan.

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

We tailor our product offerings and distribution strategy to satisfy distinct
customer preferences that vary across geographic regions. To best serve these
customer preferences, we have organized our business into four geographical
operating segments that are aggregated into three reportable geographic
segments: Americas, International and Corporate. In 2021, 65% and 35% of our net
sales were made by our Americas and International segments, respectively.

Americas. Our largest manufacturing and research and development facilities are
located in the United States. We serve our markets across the Americas with
manufacturing facilities in the U.S., Mexico and Brazil. Operations in the other
countries within the Americas segment focus primarily on sales and distribution
in their respective home country markets.

International. Our International segment includes companies in Europe, the
Middle East and Africa ("EMEA") and the Asia Pacific region. In our largest
International subsidiaries (in Germany, France, United Kingdom, Ireland and
China), we develop, manufacture and sell a wide variety of products. In China,
the products manufactured are sold primarily in China as well as in regional
markets. Operations in other International segment countries focus primarily on
sales and distribution in their respective home country markets. Although some
of these companies may perform limited production, most of their sales are of
products manufactured in our plants in Germany, France, the U.S., U.K., Ireland
and China or are purchased from third-party vendors.

Corporate. The Corporate segment primarily consists of general and
administrative expenses incurred in our corporate headquarters, costs associated
with corporate development initiatives, legal expense, interest expense, foreign
exchange gains or losses and other centrally-managed costs. Corporate general
and administrative costs comprise the majority of the expense in the Corporate
segment. During the years ended December 31, 2021, 2020 and 2019 corporate
general and administrative costs were $37.6 million, $28.5 million, and $37.3
million, respectively.


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Year ended December 31, 2021 Compared to the year ended December 31, 2020


             Net Sales                                       Dollar           Percent
                                                            Increase          Increase
             (In millions)      2021          2020         (Decrease)        (Decrease)
             Consolidated     $1,400.2      $1,348.2         $52.0              3.9%
             Americas          908.1         874.3            33.8              3.9%
             International     492.1         473.9            18.2              3.8%



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


Net Sales                                                    Year Ended December 31, 2021 versus December 31, 2020
(Percent Change)                                         Americas                International               Consolidated
GAAP reported sales change                                 3.9%                       3.8%                       3.9%
Currency translation effects                                -%                       (4.0)%                     (1.4)%
Constant currency sales change                             3.9%                      (0.2)%                      2.5%
Less: Acquisitions                                        (3.2)%                     (7.7)%                     (4.8)%
Organic constant currency change                           0.7%                      (7.9)%                     (2.3)%


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


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

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

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

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

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

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

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

Please refer to the Selling, General and Administrative Expenses table for a reconciliation of the change in expenses from year to year.

Year ended

                                                                December 31, 2021 versus December
Selling, general, and administrative expenses                                31, 2020
(Percent Change)                                                           Consolidated
GAAP reported change                                                          14.7%
Currency translation effects                                                  (1.0)%
Constant currency change                                                      13.7%
Less: Acquisitions and related strategic transaction costs                  

(7.3)%

Organic constant currency change                                            

6.4%

Note: Organic change in constant currency general and administrative expenses is a non-GAAP financial measure provided by the Company to provide a better understanding of the Company’s underlying business performance. The organic change in constant currency general and administrative expenses is calculated by deducting the percentage impact of acquisitions and related strategic transaction costs and currency translation effects from the overall percentage change in general and administrative expenses.


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

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

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

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


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Product liability expense. Product liability expense during the year ended
December 31, 2021 was $185.3 million compared to $39.0 million for the year
ended December 31, 2020. The expense in both periods primarily relates to
increases in MSA LLC's reserve for cumulative trauma product liability claims,
and to a far lesser extent, incurred defense costs. Adjustments to the reserve
for the year ended December 31, 2021 totaled $219.0 million net of insurance
receivable of $42.9 million. These adjustments were largely a result of
incorporating the increased number of newly filed claims during the year into
long term trends used in the estimate, particularly, the number of newly filed
coal claims, which were well in excess of historical experience. The reserve
includes estimated amounts for claims expected to be resolved through the year
2074. Please refer to Note 20-Contingencies of the consolidated financial
statements in Part II Item 8 of this Form 10-K for additional information.

GAAP operating profit. Consolidated operating profit for the year ended
December 31, 2021 has been $22.8 million compared to $171.9 million for the year ended December 31, 2020. The decline in operating results is attributable to the factors described in the previous sections.


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

International adjusted operating profit for the year ended December 31, 2021 has been
$73.3 millionan augmentation of $2.2 millioni.e. 3%, compared to an adjusted operating profit of $71.1 million for the year ended December 31, 2020. The increase in adjusted operating profit is mainly attributable to the increase in revenues.


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

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

Adjusted operating income                                           Year Ended December 31, 2021
(In thousands)                                        Americas    International     Corporate     Consolidated
Net sales                                           $ 908,068    $     492,114    $         -    $  1,400,182
GAAP operating income                                                                                  22,780
Restructuring charges (Note 3)                                                                         16,433
Currency exchange losses, net                                                                             216
Product liability expense (Note 20)                                                                   185,264
Acquisition related costs (Note 14)(a)                                                                 15,884
Adjusted operating income (loss)                      202,496           73,279        (35,198)        240,577
Adjusted operating margin %                              22.3  %          14.9  %
Depreciation and amortization(a)                       31,236           13,718            463          45,417
Adjusted EBITDA                                       233,732           86,997        (34,735)        285,994
Adjusted EBITDA %                                        25.7  %          17.7  %


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Adjusted operating income                                           Year Ended December 31, 2020
(In thousands)                                        Americas    International     Corporate     Consolidated
Net sales                                           $ 874,305    $     473,918    $         -    $  1,348,223
GAAP operating income                                                                                 171,895
Restructuring charges (Note 3)                                                                         27,381
Currency exchange losses, net                                                                           8,578
Product liability expense (Note 20)                                                                    39,036
Acquisition related costs (Note 14)(a)                                                                    717
COVID-19 related costs                                                                                    757
Adjusted operating income (loss)                      205,304           71,140        (28,080)        248,364
Adjusted operating margin %                              23.5  %          15.0  %
Depreciation and amortization(a)                       26,762           12,521            391          39,674
Adjusted EBITDA                                       232,066           83,661        (27,689)        288,038
Adjusted EBITDA %                                        26.5  %          17.7  %

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


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

Note: Adjusted operating income (loss) and adjusted EBITDA are non-GAAP
financial measures used by the chief operating decision maker to evaluate
segment performance and allocate resources. Adjusted operating income (loss) is
reconciled above to the nearest GAAP financial measure, Operating income (loss),
and excludes restructuring, currency exchange, product liability expense, and
acquisition related costs. Adjusted EBITDA is reconciled above to the nearest
GAAP financial measure, Operating income (loss) and excludes depreciation and
amortization expense.

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

Income taxes. The reported effective tax rate for the year ended December 31,
2021 was 7.7%, which includes a benefit of 18.3% for share-based payments, a
benefit of 10.9% related to higher profits in foreign jurisdictions and
settlement of a foreign audit, and an expense of 15.3% due to nondeductible
compensation. This compared to a reported effective tax rate for the year ended
December 31, 2020 of 25.6%, which included a benefit of 3.9% for share-based
payments, an expense of 3.4% due to nondeductible compensation, and expense of
1.5% related to a foreign audit.

We are subject to regular review and audit by both foreign and domestic tax
authorities. While we believe our tax positions will be sustained, the final
outcome of tax audits and related litigation may differ materially from the tax
amounts recorded in our consolidated financial statements.

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


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Non-GAAP Financial Information


We may provide information regarding financial measures such as organic constant
currency changes, financial measures excluding the impact of acquisitions and
related acquisition related costs (including acquisition related amortization
and COVID-19 related costs, consisting of a one-time bonus for essential
manufacturing employees), adjusted operating income, adjusted operating margin
percentage, adjusted EBITDA and adjusted EBITDA margin percentage, which are not
recognized terms under U.S. GAAP and do not purport to be alternatives to net
sales, selling, general and administrative expense, operating income or net
income as a measure of operating performance. We believe that the use of these
non-GAAP financial measures provide investors with additional useful information
and provide a more complete understanding of the underlying results. Because not
all companies use identical calculations, these presentations may not be
comparable to similarly titled measures from other companies. For more
information about these non-GAAP measures and a reconciliation to the nearest
U.S. GAAP measure, please refer to the reconciliations referenced above in
Management's Discussion & Analysis section and in Note 8-Segment Information of
the consolidated financial statements in Part II Item 8 of this Form 10-K.

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

CASH AND CAPITAL RESOURCES


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

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

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


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

Financing activities. Financing activities provided cash of $203.9 million for
the year ended December 31, 2021, compared to using cash of $126.5 million in
2020. During 2021, we had net proceeds on long-term debt of $293.2 million to
fund the acquisitions of Bacharach and Bristol and buy-out our minority partner
in our China business, as compared to net payments on long-term debt of $44.0
million during the same period in 2020. We paid cash dividends, exclusive of a
$5.6 million dividend to our former noncontrolling interest partner in China as
part of the buy-out, of $68.6 million during 2021, compared to $66.6 million
during 2020. We also used cash of $6.2 million during 2021 to repurchase shares,
compared to using $29.1 million during the same period in 2020. In 2020, $20.1
million of our repurchase activity was related to purchases under our 2015 stock
repurchase program.

CUMULATIVE TRANSLATION ADJUSTMENTS


The year-end position of the U.S. dollar relative to international currencies at
December 31, 2021, resulted in a translation loss of $25.4 million being
recorded to cumulative translation adjustments shareholders' equity account for
the year ended December 31, 2021, compared to a $22.3 million translation gain
being recorded to the cumulative translation adjustments account during 2020.

COMMITMENTS AND CONTINGENCIES


We are obligated to make future payments under various contracts, including debt
and lease agreements. Our significant cash obligations as of December 31, 2021,
are as follows:

(In millions)                    Total            2022             2023            2024            2025             2026            Thereafter
Long-term debt                 $ 600.4          $    -          $   8.3          $  8.3          $  8.3          $ 334.3          $     241.2
Operating leases                  59.2            10.6              8.5             6.4             4.2              3.7                 25.8
Inventory costing method
change tax                        10.7             2.7              2.7             2.7             2.6                -                    -
Transition tax                     2.0               -              0.7             1.3               -                -                    -
Totals                         $ 672.3          $ 13.3          $  20.2          $ 18.7          $ 15.1          $ 338.0          $     267.0

The table of significant obligations does not include obligations to tax authorities due to the uncertainty surrounding the ultimate settlement of the amounts and the timing of these obligations.


We expect to meet our future debt service obligations through cash provided by
operations. Approximately $334.4 million of debt payable in 2026 relates to our
unsecured senior revolving credit facility. We expect to generate sufficient
operating cash flow to make payments against this amount each year. To the
extent that a balance remains when the facility matures in 2026, we expect to
refinance the remaining balance through new borrowing facilities. Interest
expense on fixed rate debt over the next five years is expected to be
approximately $7.9 million in 2022, $7.8 million in 2023, $7.6 million in 2024,
$7.1 million in 2025, and $7.0 million in 2026. We expect total interest expense
for 2022 to be between $13 million and $15 million.


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

We expect to make net contributions of $7.7 million to our pension plans in 2022
which are primarily associated with our International segment. We have not been
required to make contributions to our U.S. based qualified defined benefit
pension plan in many years.

We have purchase commitments for materials, supplies, services and property, plant and equipment in the normal course of our business.

Please refer to Note 20 – Contingencies to the consolidated financial statements in Part II, Item 8 of this Form 10-K for more information on the Company’s product liabilities.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES


We prepare our consolidated financial statements in accordance with U.S.
generally accepted accounting principles (U.S. GAAP). The preparation of these
financial statements requires us to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses and the related
disclosures. We evaluate these estimates and judgments on an on-going basis
based on historical experience and various assumptions that we believe to be
reasonable under the circumstances. However, different amounts could be reported
if we had used different assumptions and in light of different facts and
circumstances. Actual amounts could differ from the estimates and judgments
reflected in our consolidated financial statements. A summary of the Company's
significant accounting policies is included in Note 1-Significant Accounting
Policies to the consolidated financial statements in Part II, Item 8 of this
Form 10-K.

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

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

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

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

Single incident product liability claims involve incidents of short duration
that are typically known when they occur and involve observable injuries, which
provide an objective basis for quantifying damages. The Company estimates its
subsidiaries' liability for single incident product liability claims based on
expected settlement costs for asserted single incident product liability claims
and an estimate of costs for single incident product liability claims incurred
but not reported ("IBNR"). Single incident product liability exposures are
evaluated on an annual basis, or more frequently if changing circumstances
warrant. Adjustments are made to the reserve as appropriate.
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Cumulative trauma product liability claims involve exposures to harmful
substances (e.g., silica, asbestos and coal dust) that occurred years ago and
may have developed over long periods of time into diseases such as silicosis,
asbestosis, mesothelioma, or coal worker's pneumoconiosis. MSA LLC's combined
cumulative trauma product liability reserve is based upon estimates of its
liability for asserted and IBNR cumulative trauma product liability claims. In
addition, in connection with finalizing and reporting the Company's results of
operations, management works annually (unless significant changes in trends or
new developments warrant an earlier review) with an outside valuation consultant
and outside legal counsel to review MSA LLC's potential exposure to all
cumulative trauma product liability claims. Each of these factors may increase
or decrease significantly within an individual period depending on, among other
things, the timing of claims filings or settlements, or litigation outcomes
during a particular period that are especially favorable or unfavorable to MSA
LLC. We accordingly consider MSA LLC's claims experience over multiple periods
and/or whether there are changes in MSA LLC's claims experience and trends that
are likely to continue for a significant time into the future in determining
whether to make an adjustment to the reserve, rather than evaluating such
factors solely in the short term.

Please refer to Note 20 – Contingencies to the consolidated financial statements in Part II, Item 8 of this Form 10-K for more information on the Company’s product liabilities.


Income taxes. We recognize deferred tax assets and liabilities using enacted tax
rates to record the tax effect of temporary differences between the book and tax
basis of recorded assets and liabilities. We record valuation allowances to
reduce deferred tax assets to the amounts that we estimate are probable to be
realized. When assessing the need for valuation allowances, we consider
projected future taxable income and prudent and feasible tax planning
strategies. Should a change in circumstances lead to a change in our judgments
about the realizability of deferred tax assets in future years, we adjust the
related valuation allowances in the period that the change in circumstances
occurs.

We record an estimated income tax liability based on our best judgment of the
amounts likely to be paid in the various tax jurisdictions in which we operate.
We record tax benefits related to uncertain tax positions taken or expected to
be taken on a tax return when such benefits meet a more likely than not
threshold. We recognize interest related to unrecognized tax benefits in
interest expense and penalties in operating expenses. The tax liabilities
ultimately paid are dependent on a number of factors, including the resolution
of tax audits, and may differ from the amounts recorded. Tax liabilities are
adjusted through income when it becomes probable that the actual liability
differs from the amount recorded.

Pensions and other post-retirement benefits. We sponsor certain pension and
other post-retirement benefit plans. Accounting for the net periodic benefit
costs and credits for these plans requires us to estimate the cost of benefits
to be provided well into the future and to attribute these costs over the
expected work life of the employees participating in these plans. These
estimates require our judgment about discount rates used to determine these
obligations, expected returns on plan assets, rates of future compensation
increases, rates of increase in future health care costs, participant withdrawal
and mortality rates and participant retirement ages. Differences between our
estimates and actual results may significantly affect the cost of our
obligations under these plans and could cause net periodic benefit costs and
credits to change materially from year-to-year. Discount rates and plan asset
valuations are point-in-time measures. The discount rate assumptions used in
determining projected benefit obligations for our U.S. and foreign plans were
based on the spot rate method at December 31, 2021.

Expected returns on plan assets are based on financial market expectations by asset class.

The following table summarizes the impact of changes in key actuarial assumptions on our December 31, 2021 actuarial valuations.

                                                                                 Impact of Changes in Actuarial Assumptions
                                              Change in Discount                     Change in Expected
                                                     Rate                                  Return                            Change in Market Value of Assets
(In thousands)                               1%                 (1)%                 1%                (1)%                        5%                   

(5)%

(Decrease) increase in net benefit
cost                                   $    (7,600)         $   9,302          $    (4,958)         $ 4,958          $           (1,028)                  $  1,050
(Decrease) increase in projected
benefit obligation                         (86,513)           109,624                    -                -                           -                 

Increase (decrease) in funded status        86,513           (109,624)                   -                -                      32,514                    (32,514)



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Goodwill and Indefinite-lived Intangible Assets. On October 1st of each year, or
more frequently if indicators of impairment exist or if a decision is made to
sell a business, we evaluate goodwill for impairment. Such indicators may
include a decline in expected cash flows, a significant adverse change in the
business climate, unanticipated competition, slower growth rates, or negative
developments in equity and credit markets, among others.

All goodwill is assigned to and evaluated for impairment at the reporting unit
level, which is defined as an operating segment or one level below an operating
segment. The evaluation of impairment involves using either a qualitative or
quantitative approach as outlined in Accounting Standards Codification ("ASC")
Topic 350. In 2021, we performed a quantitative test at October 1, 2021.
Quantitative testing involves comparing the estimated fair value of each
reporting unit to its carrying value. We estimate reporting unit fair value
using a weighted average of fair values determined by discounted cash flow
("DCF") and market approach methodologies, as we believe both are important
indicators of fair value. A number of assumptions and estimates are involved in
the application of the DCF model, including sales volumes and prices, costs to
produce, tax rates, capital spending, discount rates, and working capital
changes. Cash flow forecasts are generally based on approved business unit
operating plans for the early years and historical relationships in later years.
The market approach methodology measures value through an analysis of peer
companies. The analysis entails measuring the multiples of EBITDA at which peer
companies are trading.

In the event the carrying value is in excess of the estimated fair value of a
reporting unit per the weighted average of the DCF and market approach models,
an impairment loss equal to such excess would be recognized, which could
materially and adversely affect reported consolidated results of operations and
shareholders' equity. At October 1, 2021, based on our quantitative test, the
fair values of each of our reporting units exceeded their carrying value by at
least 56%.

The intangible asset with an indefinite life is also subject to impairment
testing on October 1st of each year, or more frequently if indicators of
impairment exist. The impairment test compares the fair value of the intangible
asset with its carrying amount. We perform a quantitative assessment of the
indefinite lived trade name intangible asset as outlined in ASC 350 by comparing
the estimated fair value of the trade name intangible asset to its carrying
value. We estimate the fair value using the relief from royalty income approach.
A number of significant assumptions and estimates are involved in the
application of the relief from royalty model, including sales volumes and
prices, royalty rates and tax rates. Forecasts are based on sales generated by
the underlying trade name assets and are generally based on approved business
unit operating plans for the early years and historical relationships in later
years. At October 1, 2021, based on our quantitative test, the fair value of the
trade name asset exceeded its carrying value by approximately 29%.

RECENTLY ADOPTED AND ISSUED ACCOUNTING STANDARDS

Any

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