The following discussion and analysis should be read in conjunction with the
historical financial statements and other financial information included
elsewhere in this quarterly report on Form 10-Q. 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 our annual
report entitled "Forward-Looking Statements" and "Risk Factors," and those
discussed in our Form 10-Q quarterly reports filed after such annual report
(such as in Part II, Item 1A, "Risk Factors."
BUSINESS OVERVIEW
MSA is a global leader in the development, manufacture and supply of safety
products that protect people and facility infrastructures. Recognized for their
market leading innovation, many MSA products integrate a combination of
electronics, mechanical systems and advanced materials to protect users against
hazardous or life-threatening situations. The Company's comprehensive product
line, which is governed by rigorous safety standards across highly regulated
industries, is used by workers around the world in a broad range of markets,
including fire service, oil, gas and petrochemical industry, construction,
industrial manufacturing applications, utilities, mining and the military. MSA's
core products include breathing apparatus, fixed gas and flame detection
systems, portable gas detection instruments, industrial head protection
products, firefighter helmets and protective apparel, and fall protection
devices. We are committed to providing our customers with service unmatched in
the safety industry and, in the process, enhancing our ability to provide a
growing line of safety solutions for customers in key global markets.
MSA provides safety equipment to a broad range of customers who must continue to
work in times of global pandemic as is now the case with COVID-19. Our customers
include first responders, 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. The Company has established a special advisory committee to
evaluate ongoing concerns, risks and challenges with respect to COVID-19 across
its operations and corporate headquarters in January 2020. The Company's
pandemic response plan includes four key priorities: protecting the health and
safety of MSA associates, enabling business continuity, expanding manufacturing
capacity of MSA's existing air-purifying respirator portfolio, and managing its
operating expenses and capital structure.
During the second quarter the Company developed a thoughtful, phased approach to
begin reconnecting segments of our workforce that had converted to remote
working conditions due to COVID-19. This process includes reengaging elements of
our salesforce in in-person customer interactions on a limited basis, with
additional functions scheduled to begin returning to the office, once deemed
appropriate under the circumstances for each geography. A phased approach to
reconnect employees while adjusting the characteristics of their physical
working environments, providing training and executing enhanced safety and
cleaning protocols, will promote workplace safety. The process and timing to
reconnect our workforce will continue to evolve due to the changing nature of
COVID-19, and the Company expects to modify plans as necessary to respond to
such changes.
We tailor our product offerings and distribution strategy to satisfy distinct
customer preferences that vary across geographic regions. On January 1, 2020, to
best serve these customer preferences, we restructured our business from six
geographical operating segments into four: Northern North America, Latin
America, Europe, Middle East & Africa ("EMEA"), and Asia Pacific ("APAC"). These
four operating segments are further aggregated into three reportable geographic
segments: Americas, International and Corporate. This change did not impact
reportable segments as all changes were within the International segment. In
2019, 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 (U.S.). 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.
                                      -27-
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International. Our International segment includes companies in Europe, the
Middle East and the Asia Pacific region. In our largest International
subsidiaries (in Germany, France, United Kingdom (U.K.), 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.
PRINCIPAL PRODUCTS
The following is a brief description of each of our principal product
categories:
MSA's corporate strategy includes a focus on driving sales of core products
where we have leading market positions and a distinct competitive advantage.
Core products, as mentioned above, 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. Core products comprised approximately 85% and 88% of sales
for the six months ended June 30, 2020 and 2019. MSA also maintains a portfolio
of non-core products. Non-core products reinforce and extend the core offerings,
drawing upon our customer relationships, distribution channels, geographical
presence and technical experience. These products are complementary to the core
offerings and often reflect more episodic or contract-driven growth patterns.
Key non-core products include air-purifying respirators ("APR"), eye and face
protection, ballistic helmets and gas masks.
MSA does not produce disposable respirators of any type; however, Mine Safety
Appliances Company, LLC ("MSA LLC"), one of the Company's subsidiaries, does
produce advanced elastomeric APR, including half-mask respirators,
full-facepiece respirators and powered air purifying respirators, each with
replaceable filters providing a minimum of N-95 filtration capability. These
products have historically been used in many industrial and first responder
applications. APR products represented 9% of our consolidated sales in the first
half of 2020 with approximately 75% of this business being in our Americas
segment. In the first quarter, Emergency Use Authorizations ("EUA") were issued
by the FDA to expand the types of respiratory protection available to the
medical community in response to COVID-19. Those include an EUA that temporarily
permits the use of NIOSH-approved respirators in healthcare settings, including
elastomeric APR that are part of MSA's existing portfolio. MSA LLC is committed
to increasing production of masks within the existing portfolio to support our
customer base and other response efforts.
MSA maintains a diversified portfolio of safety products that protect workers
and facility infrastructure across a broad array of end markets. While the
company sells its products through distribution, which can limit end-user
visibility, the company provides estimated ranges of end market exposure to
facilitate understanding of its growth drivers. The company estimates that
approximately 35%-40% of its overall revenue is derived from the fire service
market and 25%-30% of its revenue is derived from the energy market. The
remaining 30%-40% is split between construction, utilities, general industrial
applications, military and mining.
A detailed listing of our significant product offerings in the aforementioned
product groups above is included in MSA's Annual Report on Form 10-K for the
year ended December 31, 2019.
RESULTS OF OPERATIONS
Three Months Ended June 30, 2020, Compared to Three Months Ended June 30, 2019
Net Sales. Net sales for the three months ended June 30, 2020, were $314.4
million, a decrease of $35.3 million, or 10.1%, driven by lower sales across
most of the core product groups compared to $349.7 million for the three months
ended June 30, 2019. Please refer to the Net Sales table for a reconciliation of
the quarter over quarter sales change.
Net Sales           Three Months Ended June 30,                         Dollar         Percent
(In millions)      2020                    2019                        Decrease       Decrease
Consolidated      $314.4                  $349.7         $(35.3)        (10.1)%
Americas           204.2                   231.4         (27.2)         (11.8)%
International      110.2                   118.3          (8.1)         (6.8)%


                                      -28-

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Net Sales                                                   Three Months Ended June 30, 2020 versus June 30, 2019
(Percent Change)                                        Americas                International               Consolidated
GAAP reported sales change                              (11.8)%                     (6.8)%                    (10.1)%
Currency translation effects                              2.3%                       2.5%                       2.3%
Constant currency sales change                           (9.5)%                     (4.3)%                     (7.8)%


Note: Constant currency sales change is a non-GAAP financial measure provided by
the Company to give a better understanding of the Company's underlying business
performance. Constant currency sales change is calculated by deducting the
percentage impact from currency translation effects from the overall percentage
change in net sales.
Net sales for the Americas segment were $204.2 million in the second quarter of
2020, a decrease of $27.2 million, or 11.8%, compared to $231.4 million in the
second quarter of 2019. During the quarter, constant currency sales in the
Americas segment decreased 9.5% compared to the prior year period, driven by
weakness across most of our portfolio due to the fallout from the COVID-19
pandemic. Employment based industrial PPE products such as head protection, fall
protection and portable gas detection experienced challenges based on high
unemployment rates and closed worksites, down 33%. The decline was partially
offset by increased sales of air purifying respirators ("APR"). The Company's
subsidiary, MSA LLC, continues to ramp up production of APR in its Jacksonville,
NC plant and expects to work down its backlog in this area over the next several
quarters.
Net sales for the International segment were $110.2 million in the second
quarter of 2020, a decrease of $8.1 million, or 6.8%, compared to $118.3 million
for the second quarter of 2019. Constant currency sales in the International
segment decreased 4.3% during the quarter as sales in the EMEA region were down
6.6% driven by general business weakness due to the disruption to the business
stemming from the COVID-19 pandemic. This decrease was partially offset by an
increase in sales of head protection and breathing apparatus products across a
number of geographies, including China, where sales increased by 9.5%. Incoming
orders in China were up 16% in the quarter reflecting improved business
conditions.

    Our incoming orders have been choppy throughout the second quarter and
remain that way into the third quarter. We started the quarter strongly in
April, followed by a weak May. We then saw a rebound in the order book in June
with a slow down again in July with the virus resurgence and related economic
challenges. There is a great deal of uncertainty in the economy and the
Company's key end markets which makes it difficult to provide an outlook for the
second half of the year. These conditions could impact our future results and
growth expectations.

Our backlog continues to be healthy, and is consistent with the first quarter,
but we remain disciplined in managing our cost structure and executing on long
term margin improvement projects. We have been proactive managing through a
challenging environment, and we are committed to continuing that approach. We
are well positioned to manage through and emerge from this downturn as a
stronger organization.

Refer to Note 8-Segment Information to the unaudited condensed consolidated
financial statements in Part I Item 1 of this Form 10-Q, for information
regarding sales by product group.
Gross profit. Gross profit for the second quarter of 2020 was $141.6 million, a
decrease of $19.5 million or 12.1%, compared to $161.1 million for the second
quarter of 2019. The ratio of gross profit to net sales was 45.0% in the second
quarter of 2020 compared to 46.1% in the same quarter last year. The lower gross
profit ratio during the current quarter is primarily attributable to higher
costs related to COVID-19, driven by lower throughput in our factories, higher
freight costs and implementing COVID-19 safety protocols across our worksites,
coupled with a less favorable mix, partially offset by strategic pricing
improvements particularly in our International segment.
Selling, general and administrative expenses. Selling, general and
administrative ("SG&A") expenses were $69.0 million during the second quarter of
2020, a decrease of 15.0 million or 17.8%, compared to $84.0 million in the
second quarter of 2019. Overall, selling, general and administrative expenses
were 22.0% of net sales during the second quarter of 2020, compared to 24.0% of
net sales during the same period in 2019.  The decrease was the result of
returns from previously executed restructuring programs and discretionary cost
controls implemented in March 2020, in response to the COVID-19 pandemic and
slowdown in certain end markets. These actions provided approximately $6 million
of cost savings in the quarter. Additionally, a decrease in variable
compensation expense related to bonus and performance-based stock awards
provided approximately $5 million of cost savings.
                                      -29-
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Please refer to the Selling, general and administrative expenses table for a reconciliation of the period over period expense change.


                                                                        Three Months Ended
Selling, general, and administrative expenses                   June 30, 2020 versus June 30, 2019
(Percent Change)                                                           Consolidated
GAAP reported change                                                         (17.8)%
Currency translation effects                                                   1.9%
Constant currency change                                                     (15.9)%
Less: Acquisitions and related strategic transaction costs

1.9%


Organic constant currency change

(14.0)%




Note: Organic constant currency change is a non-GAAP financial measure provided
by the Company to give a better understanding of the Company's underlying
business performance. Organic constant currency change in selling, general, and
administrative expenses is calculated by deducting the percentage impact from
acquisitions and related strategic transaction costs as well as the currency
translation effects from the overall percentage change in selling, general, and
administrative expense. Management believes excluding acquisitions and currency
translation effects provides investors with a greater level of clarity into
spending levels on a year-over-year basis.
Research and development expense. Research and development expense was $13.8
million during the second quarter of 2020, a decrease of $0.5 million, compared
to $14.3 million during the second quarter of 2019. Research and development
expense was 4.4% of net sales in the second quarter of 2020 compared to 4.1% in
the same period of 2019. During the second quarter of 2020, we capitalized $2
million of software development costs.
Restructuring charges. Restructuring charges during the second quarter of 2020,
were $8.9 million primarily related to footprint rationalization projects
including the Company's Fixed Gas & Flame Detection ("FGFD") manufacturing
footprint optimization and the acceleration of cost reduction programs
associated with our ongoing initiatives to drive profitable growth in our
International segment. This compared to restructuring charges of $3.5 million
during the second quarter of 2019, primarily related to a non-cash settlement
charge associated with the closure of our pension plan in the U.K. as well as
footprint rationalization and other restructuring programs associated with our
ongoing initiatives to drive profitable growth in our International segment. We
remain focused on executing programs that will optimize our cost structure.
Currency exchange. Currency exchange losses were $0.8 million in the second
quarter of 2020 compared to $1.3 million in the second quarter of 2019. Currency
exchange losses in both periods were related to foreign currency exposure on
unsettled inter-company balances.
Refer to Note 15-Derivative Financial Instruments to the unaudited condensed
consolidated financial statements in Part I Item 1 of this Form 10-Q, for
information regarding our currency exchange rate risk management strategy.
Product liability expense. Product liability expense for the three months ended
June 30, 2020 was $0.9 million compared to $3.5 million in the same period last
year. Product liability expense for both periods related primarily to defense
costs incurred for cumulative trauma product liability claims.
GAAP operating income. Consolidated operating income for the second quarter of
2020 was $48.3 million compared to $54.5 million in the same period last year.
The decrease in operating results was driven by lower sales volumes and lower
gross profit for the reasons noted above and increased restructuring charges
partially offset by improved SG&A expense leverage.
Adjusted operating income. Americas adjusted operating income for the second
quarter of 2020 was $49.0 million, a decrease of $8.7 million, or 15%, compared
to $57.7 million in the prior year quarter. The decrease was related to the
lower level of sales and lower gross profit for reasons noted above, which were
partially offset by improved SG&A leverage. Sales for the quarter declined 12%
as compared to the prior year while SG&A expenses declined 18%.
International adjusted operating income for the second quarter of 2020 was $17.4
million, an increase of $2.3 million, or 15%, compared to $15.1 million in the
prior year quarter. The increase in adjusted operating income is primarily
attributable to selling, general and administrative costs being down over 10% as
we realize returns from restructuring programs executed over the past 12 to 18
months and strategic pricing improvements which more than offset the decrease in
sales volumes.
Corporate segment adjusted operating loss for the second quarter of 2020 was
$7.5 million, a decrease of $0.9 million, or 10%, compared to an adjusted
operating loss of $8.4 million in the second quarter of 2019 due to lower
professional service and other expenses due to cost control initiatives.
                                      -30-

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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.

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