UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒QUARTERLY REPORT ~~UNDER~~PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the quarter ended March 31, ~~2019~~2020

☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File No. 1-15579

MSA SAFETY ~~INCORPORATED~~INCORPORATED

(Exact name of registrant as specified in its charter)



Pennsylvania		46-4914539
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

1000 Cranberry Woods Drive
Cranberry Township,	Pennsylvania	16066-5207
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: ~~(724)~~ (724) 776-8600

Former name or former address, if changed since last report: N/A

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. YesxNo¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). YesxNo¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large ~~accelerated filer~~ x Accelerated Filer	x	Accelerated filer¨	¨	Non-accelerated filer¨	¨	Smaller reporting company¨	☐
						Emerging growth company¨	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes¨☐ Nox

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol(s)	Name of each exchange on which is registered
Common Stock, no par value	MSA	New York Stock Exchange

As of April ~~23, 2019, 38,688,532~~24, 2020, 38,850,476 shares of common stock, of the registrant were outstanding.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

MSA SAFETY INCORPORATED

CONDENSED CONSOLIDATED ~~STATEMENT~~STATEMENTS OF INCOME

Unaudited


	Three Months Ended March 31,						Three Months Ended March 31,
(In thousands, except per share amounts)	2019			2018			2020			2019
Net sales	$	326,038		$	325,894		$	341,145		$	326,038
Cost of products sold	176,056			178,555			183,786			176,056
Gross profit	149,982			147,339			157,359			149,982

Selling, general and administrative	78,429			80,250			80,237			78,429
Research and development	13,705			12,548			14,112			13,705
Restructuring charges (Note 4)	5,831			5,274			2,007			5,831
Currency exchange losses, net (Note 6)	16,961			2,008			270			16,961
Product liability expense (Note 18)	2,896			2,824
Product liability expense (Note 17)							1,951			2,896
Operating income	32,160			44,435			58,782			32,160

Interest expense	2,360			4,781			3,144			2,360
Other income, net	(2,579		)	(2,340		)	(1,259		)	(2,579		)
Total other (income) expense, net	(219		)	2,441
Total other expense (income), net							1,885			(219		)

Income before income taxes	32,379			41,994			56,897			32,379
Provision for income taxes (Note 10)	9,003			9,505			13,095			9,003
Net income	23,376			32,489			43,802			23,376

Net income attributable to noncontrolling interests	(144		)	(118		)	(128		)	(144		)

Net income attributable to MSA Safety Incorporated	$	23,232		$	32,371		$	43,674		$	23,232

Earnings per share attributable to MSA Safety Incorporated common shareholders:
Earnings per share attributable to MSA Safety Incorporated common shareholders (Note 9):
Basic	$	0.60		$	0.85		$	1.12		$	0.60
Diluted	$	0.59		$	0.83		$	1.11		$	0.59
Dividends per common share	$	0.38		$	0.35		$	0.42		$	0.38

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

MSA SAFETY INCORPORATED

CONDENSED CONSOLIDATED ~~STATEMENT~~STATEMENTS OF COMPREHENSIVE INCOME

Unaudited


	Three Months Ended March 31,						Three Months Ended March 31,
(In thousands)	2019			2018			2020			2019
Net income	$	23,376		$	32,489		$	43,802		$	23,376
Other comprehensive income, net of tax:
Other comprehensive (loss) income, net of tax:
Foreign currency translation adjustments (Note 6)	361			13,400			(22,947		)	361
Pension and post-retirement plan actuarial gains, net of tax (Note 6)	2,023			2,329			3,102			2,023
Unrealized gains on available-for-sale securities (Note 6)	536			—
Unrealized (loss) gain on available-for-sale securities (Note 6)							(62		)	536
Reclassification of currency translation from accumulated other comprehensive (loss) into net income (Note 6)	15,359			—			720			15,359
Total other comprehensive income, net of tax	18,279			15,729
Total other comprehensive (loss) income, net of tax							(19,187		)	18,279
Comprehensive income	41,655			48,218			24,615			41,655
Comprehensive income attributable to noncontrolling interests	(287		)	(288		)	(13		)	(287		)
Comprehensive income attributable to MSA Safety Incorporated	$	41,368		$	47,930		$	24,602		$	41,368

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

MSA SAFETY INCORPORATED

CONDENSED CONSOLIDATED BALANCE ~~SHEET~~SHEETS

Unaudited


(In thousands)	March 31, 2019			December 31, 2018			March 31, 2020			December 31, 2019
Assets
Cash and cash equivalents	$	107,668		$	140,095		$	122,629		$	152,195
Trade receivables, less allowance for doubtful accounts of $5,115 and $5,369	253,351			245,032
Trade receivables, less allowance for credit loss of $5,283 and $4,860							263,002			255,082
Inventories (Note 3)	172,663			156,602			195,647			185,027
Investments, short-term (Note 17)	73,619			55,106
Investments, short-term (Note 16)							69,769			49,892
Prepaid income taxes	12,252			10,769			13,913			13,072
Notes receivable, insurance companies (Note 18)	3,586			3,555
Notes receivable, insurance companies (Note 17)							3,706			3,676
Prepaid expenses and other current assets	49,652			45,464			35,114			34,419
Total current assets	672,791			656,623			703,780			693,363

Property, plant and equipment, net (Note 5)	156,099			157,940			163,141			167,038
Operating lease assets, net (Note 14)	52,020			—
Prepaid pension cost	61,500			57,568
Operating lease assets, net							48,341			51,675
Prepaid pension cost (Note 14)							78,512			75,066
Deferred tax assets (Note 10)	29,492			32,522			31,885			32,596
Goodwill (Note 13)	415,254			413,640			430,114			436,679
Intangible assets (Note 13)	168,050			169,515
Notes receivable, insurance companies, noncurrent (Note 18)	56,368			56,012
Insurance receivable (Note 18) and other noncurrent assets	59,794			64,192
Intangible assets, net (Note 13)							165,819			171,326
Notes receivable, insurance companies, noncurrent (Note 17)							52,662			52,336
Insurance receivable (Note 17) and other noncurrent assets							56,672			59,614
Total assets	$	1,671,368		$	1,608,012		$	1,730,926		$	1,739,693

Liabilities
Notes payable and current portion of long-term debt, net (Note 12)	$	20,155		$	20,063
Notes payable and current portion of long-term debt (Note 12)							$	20,000		$	20,000
Accounts payable	75,524			78,367			89,062			89,120
Employees’ compensation	33,740			51,386			28,392			41,882
Insurance and product liability (Note 18)	32,429			48,688
Insurance and product liability (Note 17)							28,177			25,870
Income taxes payable (Note 10)	8,208			—			16,507			6,739
Warranty reserve (Note 18) and other current liabilities	96,214			83,556
Warranty reserve (Note 17) and other current liabilities							82,080			93,898
Total current liabilities	266,270			282,060			264,218			277,509

Long-term debt, net (Note 12)	357,304			341,311			351,592			328,394
Pensions and other employee benefits	166,294			166,101			184,179			186,697
Noncurrent operating lease liabilities (Note 14)	41,962			—
Noncurrent operating lease liabilities							39,857			42,632
Deferred tax liabilities (Note 10)	7,613			7,164			10,069			9,787
Product liability (Note 18) and other noncurrent liabilities	168,640			171,857
Product liability (Note 17) and other noncurrent liabilities							161,629			162,101
Total liabilities	$	1,008,083		$	968,493		$	1,011,544		$	1,007,120
Commitments and contingencies (Note 18)


Equity
Preferred stock, 4 1/2% cumulative, $50 par value (Note 7)	$	3,569		$	3,569		$	3,569		$	3,569
Common stock, no par value (Note 7)	213,099			211,806			232,167			229,127
Treasury shares, at cost (Note 7)	(302,673		)	(298,143		)	(329,674		)	(305,159		)
Accumulated other comprehensive loss (Note 6)	(204,563		)	(218,927		)	(233,075		)	(214,003		)
Retained earnings	947,929			935,577			1,039,609			1,012,266
Total MSA Safety Incorporated shareholders' equity	657,361			633,882			712,596			725,800
Noncontrolling interests	5,924			5,637			6,786			6,773
Total shareholders’ equity	663,285			639,519			719,382			732,573
Total liabilities and shareholders’ equity	$	1,671,368		$	1,608,012		$	1,730,926		$	1,739,693

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

MSA SAFETY INCORPORATED

CONDENSED CONSOLIDATED ~~STATEMENT~~STATEMENTS OF CASH FLOWS

Unaudited


	Three Months Ended March 31,						Three Months Ended March 31,
(In thousands)	2019			2018			2020			2019
Operating Activities
Net income	$	23,376		$	32,489		$	43,802		$	23,376
Depreciation and amortization	9,326			9,671			9,640			9,326
Stock-based compensation (Note 11)	2,745			5,606			3,522			2,745
Pension expense (Note 15)	48			1,488
Deferred income tax provision (benefit) (Note 10)	1,834			(600		)
Pension expense (Note 14)							2,216			48
Deferred income tax provision (Note 10)							(546		)	1,834
Loss on asset dispositions, net	25			17			122			25
Pension contributions (Note 15)	(1,767		)	(1,243		)
Pension contributions (Note 14)							(1,891		)	(1,767		)
Currency exchange losses, net	16,961			2,008			270			16,961
Product liability expense (Note 18)	2,896			2,824
Collections on insurance receivables and notes receivable, insurance companies (Note 18)	8,122			17,700
Product liability payments (Note 18)	(20,003		)	(5,600		)
Product liability expense (Note 17)							1,951			2,896
Collections on insurance receivables and notes receivable, insurance companies (Note 17)							3,000			8,122
Product liability payments (Note 17)							(2,328		)	(20,003		)
Changes in:
Trade receivables	(7,720		)	(6,858		)	(15,339		)	(7,720		)
Inventories (Note 3)	(16,127		)	(14,513		)	(18,988		)	(16,127		)
Prepaid expenses and other current assets	(8,055		)	(1,642		)	(4,396		)	(8,055		)
Accounts payable and accrued liabilities	(10,523		)	(24,372		)	(6,834		)	(10,523		)
Other noncurrent assets and liabilities	79			378			(594		)	79
Cash Flow From Operating Activities	1,217			17,353			13,607			1,217
Investing Activities
Capital expenditures	(4,897		)	(3,241		)	(6,562		)	(4,897		)
Purchase of short-term investments (Note 17)	(52,541		)	—
Proceeds from maturities of short-term investments (Note 17)	33,600			—
Purchase of short-term investments (Note 16)							(69,612		)	(52,541		)
Proceeds from maturities of short-term investments (Note 16)							50,000			33,600
Property disposals	12			58			92			12
Cash Flow Used in Investing Activities	(23,826		)	(3,183		)	(26,082		)	(23,826		)
Financing Activities
Payments on short-term debt, net	91			99			—			91
Proceeds from long-term debt (Note 12)	133,000			137,500			378,000			133,000
Payments on long-term debt (Note 12)	(119,000		)	(147,000		)	(350,000		)	(119,000		)
Cash dividends paid	(14,652		)	(13,390		)	(16,331		)	(14,652		)
Company stock purchases (Note 7)	(7,446		)	(2,673		)	(27,730		)	(7,446		)
Exercise of stock options (Note 7)	1,465			848			2,733			1,465
Cash Flow Used in Financing Activities	(6,542		)	(24,616		)	(13,328		)	(6,542		)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(3,221		)	1,363			(3,756		)	(3,221		)
Decrease in cash, cash equivalents and restricted cash	(32,372		)	(9,083		)	(29,559		)	(32,372		)
Beginning cash, cash equivalents and restricted cash	140,604			137,889			152,543			140,604
Ending cash, cash equivalents and restricted cash	$	108,232		$	128,806		$	122,984		$	108,232

Supplemental cash flow information:
Cash and cash equivalents	$	107,668		$	124,883		$	122,629		$	107,668
Restricted cash included in prepaid expenses and other current assets	564			3,923			355			564
Total cash, cash equivalents and restricted cash	$	108,232		$	128,806		$	122,984		$	108,232

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

MSA SAFETY INCORPORATED

CONDENSED CONSOLIDATED ~~STATEMENT~~STATEMENTS OF CHANGES IN RETAINED EARNINGS,

ACCUMULATED OTHER COMPREHENSIVE LOSS AND NONCONTROLLING INTERESTS

Unaudited


(In thousands)	Retained Earnings			Accumulated Other Comprehensive (Loss)			Noncontrolling Interests		Retained Earnings			Accumulated Other Comprehensive (Loss)			Noncontrolling Interests
Balances December 31, 2017	$	868,675		$	(171,762	)	$	4,977
Net income	32,489			—			—
Foreign currency translation adjustments	—			13,400			—
Pension and post-retirement plan adjustments, net of tax of $1,066	—			2,329			—
Income attributable to noncontrolling interests	(118		)	(170		)	288
Common dividends	(13,380		)	—			—
Preferred dividends ($0.5625 per share)	(10		)	—			—
Balances March 31, 2018	$	887,656		$	(156,203	)	$	5,265

Balances December 31, 2018	$	935,577		$	(218,927	)	$	5,637	$	935,577		$	(218,927	)	$	5,637
Net income	23,376			—			—		23,376			—			—
Foreign currency translation adjustments	—			361			—		—			361			—
Pension and post-retirement plan adjustments, net of tax of $666	—			2,023			—		—			2,023			—
Unrealized net gains on available-for-sale securities (Note 17)	—			536			—
Reclassification of currency translation from accumulated other comprehensive (loss) into net income (Note 6)	—			15,359			—
Unrealized net gain on available-for-sale securities (Note 16)									—			536			—
Reclassification from accumulated other comprehensive (loss) into net income (Note 6)									—			15,359			—
Income attributable to noncontrolling interests	(144		)	(143		)	287		(144		)	(143		)	287
Common dividends	(14,642		)	—			—		(14,642		)	—			—
Preferred dividends ($0.5625 per share)	(10		)	—			—		(10		)	—			—
Reclassification due to the adoption of ASU 2018-02 (Note 2)	3,772			(3,772		)	—
Cumulative effect of the adoption of ASU 2018-02									3,772			(3,772		)	—
Balances March 31, 2019	$	947,929		$	(204,563	)	$	5,924	$	947,929		$	(204,563	)	$	5,924

Balances December 31, 2019									$	1,012,266		$	(214,003	)	$	6,773
Net income									43,802			—			—
Foreign currency translation adjustments									—			(22,947		)	—
Pension and post-retirement plan adjustments, net of tax of $1,067									—			3,102			—
Unrealized net loss on available-for-sale securities (Note 16)									—			(62		)	—
Reclassification of currency translation from accumulated other comprehensive (loss) into net income (Note 6)									—			720			—
(Income) loss attributable to noncontrolling interests									(128		)	115			13
Common dividends									(16,321		)	—			—
Preferred dividends ($0.5625 per share)									(10		)	—			—
Balances March 31, 2020									$	1,039,609		$	(233,075	)	$	6,786

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

MSA SAFETY INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Unaudited

Note 1—Basis of Presentation

The condensed consolidated financial statements of MSA Safety Incorporated and its subsidiaries ("MSA" or the "Company") are unaudited. These condensed consolidated financial statements include all adjustments, consisting of normal recurring adjustments, considered necessary by management to fairly state the Company's results. Intercompany accounts and transactions have been eliminated. The results reported in these condensed consolidated financial statements are not necessarily indicative of the results that may be expected for the entire year. The December 31, ~~2018~~2019, Condensed Consolidated Balance Sheet data was derived from the audited ~~consolidated balance sheet,~~Consolidated Balance Sheet, but does not include all disclosures required by accounting principles generally accepted in the United States of America (U.S. GAAP). This Form 10-Q report should be read in conjunction with MSA's Form 10-K for the year ended December 31, ~~2018,~~2019, which includes all disclosures required by U.S. GAAP.

~~Reclassifications~~ - Certain reclassifications of prior years' data have been made to conform to the current year presentation. These reclassifications relate to (1) additional captions disclosed within the operating section of the 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, and (2) additional captions disclosed for product warranty activity within the table that reconciles the changes in the Company's accrued warranty reserve (Note 18—Contingencies).

Note 2—Recently Adopted and Recently Issued Accounting Standards

~~In February 2016, the FASB issued ASU 2016-02,~~ ~~Leases~~. This ASU requires lessees to record a right-of-use asset and a liability for virtually all leases. This ASU was adopted on January 1, 2019, using the modified retrospective transition method at the adoption date. Comparative periods presented in our unaudited condensed consolidated financial statements are reported in accordance with ASC 840, Leases. In addition, the Company elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed us to carry forward the historical lease classification. The Company also elected the practical expedient to not separate lease and non-lease components for new leases entered into after January 1, 2019 when calculating the lease liability under this ASU. Adoption of this ASU resulted in the recording of lease liabilities of approximately $54 million with the offset to lease right-of-use assets of $54 million. The standard did not materially impact our unaudited Condensed Consolidated Statement of Income and had no impact on our unaudited Condensed Consolidated Statement of Cash Flows. The new standard also requires increased disclosures to help financial statement users better understand the amount, timing and uncertainty of cash flows arising from leases. See additional disclosures in Note 14—~~Leases.~~

In June 2016, the FASB issued ASU 2016-13, ~~Allowance for Loan and Lease~~Financial Instruments - Credit Losses. This ASU introduces an approach based on expected losses to estimate credit losses on certain types of financial instruments, including loans, held-to-maturity debt securities, loan commitments, financial guarantees and net investments in leases, as well as reinsurance and trade receivables. This ASU will be effective beginning in 2020. Based on a review of its portfolio of financial instruments, the Company has developed a project plan and is in the process of assessing the impact that this ASU will have on our reserve for trade receivables as recorded in our unaudited Condensed Consolidated Balance Sheet. Additionally, we expect the adoption of this ASU to result in additional disclosures.

~~In January 2017, the FASB issued ASU 2017-04,~~ ~~Simplifying the Test for Goodwill Impairment~~. This ASU simplifies the accounting for goodwill impairments under Step 2 by eliminating the requirement to perform procedures to determine the fair value of the assets and liabilities of the reporting unit, including previously unrecognized assets and liabilities, in order to determine the fair value of the goodwill and any impairment charge to be recognized. Under this ASU, the impairment charge to be recognized should be the amount by which the reporting unit's carrying value exceeds the reporting unit's fair value as calculated under Step 1 provided that the loss recognized should not exceed the total amount of goodwill allocated to the reporting unit. The Companywas adopted ~~ASU 2017-04~~ on January 1, ~~2019 and adoption of this ASU may~~2020, which did not have ~~a material effect~~an impact on ~~our~~the unaudited condensed consolidated financial ~~statements in the event that we determine that goodwill for any of our reporting units is impaired.~~statements.

~~In January 2018, the FASB issued ASU 2018-02,~~ ~~Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income~~ ("AOCI"), which gives entities the option to reclassify to retained earnings the tax effects resulting from the new tax reform legislation commonly known as the Tax Cuts and Jobs Act ("the Act") related to items in AOCI that the FASB refers to as having been stranded in AOCI. The new guidance may be applied retrospectively to each period in which the effect of the Act is recognized in the period of adoption. The Company must adopt this guidance for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. ASU2018-02 requires new disclosures regarding the Company’s accounting policy for releasing the tax effects in accumulated other comprehensive loss and allows the Company to reclassify the effect of remeasuring deferred tax liabilities and assets related to items within accumulated other comprehensive loss using the then newly enacted 21% federal corporate income tax rate. The Company adopted ASU 2018-02 on January 1, 2019 and this adoption resulted in a reclassification that increased retained earnings by $3.8 million, with an offsetting increase to accumulated other comprehensive loss for the same amount.

In August 2018, the FASB issued ASU 2018-13, Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement, which improves fair value disclosure requirements by removing disclosures that are not cost beneficial, clarifying disclosures’ specific requirements and adding relevant disclosure requirements. ~~This~~The Company adopted this ASU ~~is effective for fiscal years,~~on January 1, 2020. Based the Company's portfolio of financial instruments and ~~interim periods within those fiscal years, beginning after December 15, 2019. The amendments on changes in unrealized gains and losses,~~ the ~~range and weighted average~~limited amount of ~~significant unobservable inputs used to develop~~ Level 3 ~~fair value measurements, and~~investments, the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. Early adoption ~~is permitted and an entity can choose to early adopt any removed or modified disclosures upon issuance~~ of this ASU ~~and delay adoption of the additional disclosures until their effective date. The Company is still evaluating the~~did not have a material impact ~~that the adoption of ASU 2018-13 will have~~ on the unaudited condensed consolidated financial ~~statements.~~statements but does expect changes to our annual disclosures.

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

~~In August 2018, the FASB issued ASU 2018-15,~~ ~~Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which will now allow all cloud computing arrangements classified as service contracts~~statements but does expect changes to ~~capitalize certain implementation costs in accordance with ASC 350-40,~~ ~~Intangibles - Goodwill and Other - Internal-Use Software~~, depending on the project stage within which the costs were incurred. This ASU is effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal periods. Early adoption of the amendments in this ASU is permitted, including adoption in any interim period and the amendments can be applied either retrospectively or prospectively. In 2018, the Company has adopted this ASU prospectively for all implementation costs incurred related to cloud computing arrangements and the implementation did not have a material impact on our ~~unaudited condensed consolidated financial statements.~~disclosures.

Note 3—Inventories

The following table sets forth the components of inventory:



(In thousands)	March 31, 2020			December 31, 2019
Finished products	$	74,180		$	71,918
Work in process	8,072			4,083
Raw materials and supplies	155,587			151,129
Inventories at current cost	237,839			227,130
Less: LIFO valuation	(42,192		)	(42,103		)
Total inventories	$	195,647		$	185,027

(In thousands) March 31, 2019 December 31, 2018
Finished products $ 75,164
$ 65,965
Work in process 8,517
6,169
Raw materials and supplies 129,248
124,554
Inventories at current cost 212,929
196,688
Less: LIFO valuation (40,266 ) (40,086 )
Total inventories $ 172,663
$ 156,602

Note 4—Restructuring Charges

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.

During the three months ended March 31, 2019, we recorded restructuring charges of $5.8 million. International segment restructuring charges of $5.7 million during the three months ended March 31, 2019, were primarily related to severance costs for staff reductions associated with our ongoing initiatives to drive profitable growth. Corporate segment restructuring charges of $0.1 million during the three months ended March 31, 2019, were primarily related ~~primarily~~ to the legal and operational realignment of our U.S. and Canadian operations.

During the three months ended March 31, 2018, we recorded restructuring charges of $5.3 million, respectively. Corporate segment restructuring charges of $2.0 million during the three months ended March 31, 2018, related primarily to our ongoing review of the Company's legal structure to evaluate potential realignments to better facilitate the execution of our corporate strategy. International segment restructuring charges of $3.3 million during the three months ended March 31, 2018, were related to severance costs for staff reductions associated with our ongoing initiatives to drive profitable growth in Europe.

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



(In millions)	Americas			International			Corporate			Total
Reserve balances at December 31, 2018	$	0.5		$	4.0		$	—		$	4.5
Restructuring charges	0.5			12.7			0.6			13.8
Currency translation and other adjustments	(0.1		)	(0.6		)	—			(0.7		)
Cash payments / utilization	(0.6		)	(10.2		)	(0.6		)	(11.4		)
Reserve balances at December 31, 2019	$	0.3		$	5.9		$	—		$	6.2
Restructuring charges	0.1			1.9			—			2.0
Currency translation and other adjustments	—			(0.1		)	—			(0.1		)
Cash payments / utilization	(0.1		)	(1.8		)	—			(1.9		)
Reserve balances at March 31, 2020	$	0.3		$	5.9		$	—		$	6.2

(In millions) Americas International Corporate Total
Reserve balances at December 31, 2017 $ 0.5
$ 3.6
$ —
$ 4.1
Restructuring charges 2.3
5.6
5.3
13.2
Currency translation and other adjustments (0.3 ) (0.3 ) —
(0.6 )
Cash payments / utilization (2.0 ) (4.9 ) (5.3 ) (12.2 )
Reserve balances at December 31, 2018 $ 0.5
$ 4.0
$ —
$ 4.5
Restructuring charges —
5.7
0.1
5.8
Currency translation and other adjustments —
(0.1 ) —
(0.1 )
Cash payments (0.1 ) (1.9 ) (0.1 ) (2.1 )
Reserve balances at March 31, 2019 $ 0.4
$ 7.7
$ —
$ 8.1

Note 5—Property, Plant and Equipment

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



(In thousands)	March 31, 2020			December 31, 2019
Land	$	4,107		$	4,194
Buildings	124,221			125,223
Machinery and equipment	395,784			397,287
Construction in progress	24,588			24,759
Total	548,700			551,463
Less: accumulated depreciation	(385,559		)	(384,425		)
Property, plant and equipment, net	$	163,141		$	167,038

(In thousands) March 31, 2019 December 31, 2018
Land $ 3,020
$ 3,188
Buildings 119,051
117,910
Machinery and equipment 387,758
386,690
Construction in progress 26,251
24,044
Total 536,080
531,832
Less: accumulated depreciation (379,981 ) (373,892 )
Net property, plant and equipment $ 156,099
$ 157,940

Note 6—Reclassifications Out of Accumulated Other Comprehensive Loss

During three months ended March 31, 2019 , we recognized non-cash cumulative translation losses of approximately $15.4 million as a result of the approval of our plan to close our South Africa affiliates. This charge is related to the historical translation of the elements of the financial statements for the business from the functional currency to the U.S. Dollar. The translation impact has been historically recorded as currency translation adjustment (“CTA”), a separate component of accumulated other comprehensive loss within the equity section of the unaudited Condensed Consolidated Balance Sheet and has been reclassified into net income during three months ended March 31, 2019.

Changes in accumulated other comprehensive loss were as follows:


	MSA Safety Incorporated							Noncontrolling Interests				MSA Safety Incorporated								Noncontrolling Interests
	Three Months Ended March 31,							Three Months Ended March 31,				Three Months Ended March 31,								Three Months Ended March 31,
(In thousands)	2019				2018			2019		2018		2020				2019				2020			2019
Pension and other post-retirement benefits ^(a)
Balance at beginning of period	$	(115,517	)		$	(97,948	)	$	—	$	—	$	(124,848	)		$	(115,517	)		$	—		$	—
Amounts reclassified from accumulated other comprehensive loss into net income:
Amortization of prior service credit (Note 15)	(105		)		(83		)	—		—
Recognized net actuarial losses (Note 15)	2,794				3,478			—		—
Amortization of prior service credit (Note 14)												(52		)		(105		)		—			—
Recognized net actuarial losses (Note 14)												4,221				2,794				—			—
Tax benefit	(666		)		(1,066		)	—		—		(1,067		)		(666		)		—			—
Total amount reclassified from accumulated other comprehensive loss, net of tax, into net income	2,023				2,329			—		—		3,102				2,023				—			—
Reclassification to retained earnings due to the adoption of ASU 2018-02 (Note 2)	(3,772		)		—			—		—
Reclassification to retained earnings due to adoption of ASU 2018-02												$	—			$	(3,772	)
Balance at end of period	$	(117,266	)		$	(95,619	)	$	—	$	—	$	(121,746	)		$	(117,266	)		$	—		$	—
Available-for-sale securities
Balance at beginning of period	$	(572	)		$	—		$	—	$	—	6				(572		)					—
Unrealized gains on available-for-sale securities (Note 17)	536				—			—		—
Unrealized (loss) gain on available-for-sale securities (Note 16)												(62		)		536							—
Balance at end of period	$	(36	)		$	—		$	—	$	—	$	(56	)		$	(36	)		$	—		$	—
Foreign Currency Translation
Balance at beginning of period	$	(102,838	)		$	(73,814	)	$	496	$	801	(89,161		)		(102,838		)		423			496
Reclassification from accumulated other comprehensive loss into net income	15,359			^(b)	—			—		—		720			^(b)	15,359			^(c)	—			—
Foreign currency translation adjustments	218				13,230			143		170		(22,832		)		218				(115		)	143
Balance at end of period	$	(87,261	)		$	(60,584	)	$	639	$	971	$	(111,273	)		$	(87,261	)		$	308		$	639

^(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 ~~15—~~14—Pensions and Other Post-retirement Benefits).

^(b)Reclassifications into net income relate primarily to the approval of our plan to close several subsidiaries in our ~~South~~Europe, Middle East & Africa ~~affiliates as discussed above~~("EMEA") region and are included in Currency exchange losses, net, within the unaudited Condensed Consolidated Statement of Income.

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

Note 7—Capital Stock

Preferred Stock - The Company has authorized 100,000 shares of $50 par value 4.5% cumulative preferred nonvoting stock which is callable at $52.50. There are 71,340 shares issued and ~~52,878~~52,998 shares held in treasury at March 31, ~~2019.~~2020. The Treasury shares at cost line on the unaudited Condensed Consolidated Balance Sheet includes $1.8 million related to preferred stock. There were notreasury purchases of 120 preferred stock shares during the three months ended March 31, 2020. There were 0 treasury purchases of preferred stock during the three months ended March 31, ~~2019 or 2018.~~2019. The Company has also authorized 1,000,000 shares of $10 par value second cumulative preferred voting stock. NoNaN shares have been issued as of March 31, ~~2019.~~2020.

Common Stock - The Company has authorized 180,000,000 shares of no0 par value common stock. There were 62,081,391 shares issued as of December 31, ~~2018. No~~2019. NaN new shares were issued during the three months ended March 31, ~~2019~~2020, or ~~2018.~~2019. There were ~~38,682,918~~38,845,594 and ~~38,526,523~~38,841,194 shares outstanding at March 31, ~~2019,~~2020, and December 31, ~~2018,~~2019, 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. The share purchase program has no expiration date. The maximum number of shares that may be purchased is calculated based on the dollars remaining under the program and the respective month-end closing share price. NoDuring the three months ended March 31, 2020, 175,000 shares were repurchased under this program. NaN shares were repurchased under the program during the three months ended March 31, ~~2019 or 2018.~~2019. We do not have any other share repurchase programs. There were ~~23,398,473~~23,235,797 and ~~23,554,868~~23,240,197 Treasury Shares at March 31, ~~2019,~~2020, and December 31, ~~2018,~~2019, respectively.

The Company issues Treasury Shares for all share based benefit plans. Shares are issued from Treasury at the average Treasury Share cost on the date of the transaction. There were ~~230,112~~58,840 and ~~111,902~~230,112 Treasury Shares issued for these purposes during the three months ended March 31, ~~2019~~2020 and ~~2018,~~2019, respectively.

Common stock activity is summarized as follows:



	Three Months Ended March 31, 2020						Three Months Ended March 31, 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	3,522			—			2,745			—
Restricted and performance stock awards	(2,239		)	2,239			(2,411		)	2,411
Stock options exercised	1,757			976			959			506
Treasury shares purchased	—			(7,617		)	—			(7,446		)
Share repurchase program	—			(20,113		)	—			—
Balance at end of period	$	232,167		$	(328,081	)	$	213,099		$	(300,919	)

Three Months Ended March 31, 2019 Three Months Ended March 31, 2018
(In thousands) Common
Stock Treasury
Cost Common
Stock Treasury
Cost
Balance at beginning of period 211,806
(296,390 ) 194,953
(296,081 )
Stock compensation expense 2,745
—
5,606
—
Restricted and performance stock awards (2,411 ) 2,411
(1,102 ) 1,102
Stock options exercised 959
506
545
302
Treasury shares purchased —
(7,446 ) —
(2,673 )
Balance at end of period 213,099
(300,919 ) 200,002
(297,350 )

Note 8—Segment Information

~~We are organized into~~On January 1, 2020, we restructured our business from six ~~geographic~~geographical operating segments into four geographical operating segments that are based on management ~~responsibilities.~~responsibilities: Northern North America, Latin America, Europe, Middle East & Africa ("EMEA"), and Asia Pacific ("APAC") to better serve customer needs. The operating segments have been aggregated (based on economic similarities, the nature of their products, end-user markets and methods of distribution) into ~~three~~3 reportable segments: Americas, International, and Corporate. The operating segment change did not impact reportable segments as all changes were within the International reportable segment.

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

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

Adjusted operating income (loss), adjusted operating margin, adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) and adjusted EBITDA margin are the measures used by the chief operating decision maker to evaluate segment performance and allocate resources. Adjusted operating income (loss) is defined as operating income excluding restructuring charges, currency exchange ~~gains/losses,~~gains (losses), product liability expense, ~~and~~ strategic transaction costs and COVID-19 related costs 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. Adjusted operating income (loss), adjusted operating margin, adjusted EBITDA and adjusted EBITDA margin are not recognized terms under U.S. GAAP, and therefore, do not purport to be alternatives to operating income or operating margin as a measure of operating performance. Further, the Company's measure of adjusted operating income (loss), adjusted operating margin, adjusted EBITDA and adjusted EBITDA margin may not be comparable to similarly titled measures of other companies. Adjusted operating income (loss) and adjusted EBITDA on a consolidated basis is presented in the following table to reconcile the segment operating performance measure to operating income as presented on the ~~unaudited Condensed~~ Consolidated Statement of Income.

The accounting principles applied at the operating segment level in determining operating income (loss) are generally the same as those applied at the consolidated financial statement level. Sales and transfers between operating segments are accounted for at market-based transaction prices and are eliminated in consolidation.

Reportable segment information is presented in the following table:



(In thousands, except percentage amounts)	Americas			International			Corporate			Consolidated Totals
Three Months Ended March 31, 2020
Sales to external customers	$	231,253		$	109,892		$	—		$	341,145
Operating income										58,782
Restructuring charges (Note 4)										2,007
Currency exchange losses, net (Note 6)										270
Product liability expense (Note 17)										1,951
Strategic transaction costs (Note 18)										97
COVID-19 related costs										757
Adjusted operating income (loss)	59,807			12,671			(8,614		)	63,864
Adjusted operating margin %	25.9		%	11.5		%
Depreciation and amortization										9,640
Adjusted EBITDA	66,257			15,765			(8,518		)	73,504
Adjusted EBITDA %	28.7		%	14.3		%

(In thousands, except percentage amounts) Americas International Corporate
Reconciling
Items₁
Consolidated
Totals
Three Months Ended March 31, 2019
Sales to external customers $ 213,687
$ 112,351
$ —
$ —
$ 326,038
Intercompany sales 159,262
79,329
—
(238,591 ) —
Operating income 32,160
Restructuring charges (Note 4) 5,831
Currency exchange losses, net (Note 6) 16,961
Product liability expense (Note 18) 2,896
Strategic transaction costs 456
Adjusted operating income (loss) 54,803
11,040
(7,539 ) —
58,304
Adjusted operating margin % 25.6 % 9.8 %
Depreciation and amortization 9,326
Adjusted EBITDA 60,900
14,171
(7,441 ) —
67,630
Adjusted EBITDA % 28.5 % 12.6 %



(In thousands, except percentage amounts)	Americas			International			Corporate			Consolidated Totals
Three Months Ended March 31, 2019
Sales to external customers	$	213,687		$	112,351		$	—		$	326,038
Operating income										32,160
Restructuring charges (Note 4)										5,831
Currency exchange losses, net (Note 6)										16,961
Product liability expense (Note 17)										2,896
Strategic transaction costs (Note 18)										456
Adjusted operating income (loss)	54,803			11,040			(7,539		)	58,304
Adjusted operating margin %	25.6		%	9.8		%
Depreciation and amortization										9,326
Adjusted EBITDA	60,900			14,171			(7,441		)	67,630
Adjusted EBITDA %	28.5		%	12.6		%

(In thousands, except percentage amounts) Americas International Corporate
Reconciling
Items₁
Consolidated
Totals
Three Months Ended March 31, 2018
Sales to external customers $ 209,129
$ 116,765
$ —
$ —
$ 325,894
Intercompany sales 34,198
82,379
—
(116,577 ) —
Operating income 44,435
Restructuring charges (Note 4) 5,274
Currency exchange losses, net (Note 6) 2,008
Product liability expense (Note 18) 2,824
Strategic transaction costs 94
Adjusted operating income (loss) 50,086
12,778
(8,229 ) —
54,635
Adjusted operating margin % 23.9 % 10.9 %
Depreciation and amortization 9,671
Adjusted EBITDA 56,225
16,209
(8,128 ) 64,306
Adjusted EBITDA % 26.9 % 13.9 %

₁~~Reconciling items consist primarily of intercompany eliminations and items not directly attributable to reporting segments.~~

Total sales by product group was as follows:



Three Months Ended March 31, 2020	Consolidated			Americas			International
(In thousands, except percentages)	Dollars		Percent	Dollars		Percent	Dollars		Percent
Breathing Apparatus	75,844		22%	52,693		23%	$	23,151	21%
Fixed Gas & Flame Detection	69,911		21%	41,247		18%	28,664		26%
Firefighter Helmets & Protective Apparel	42,547		12%	35,113		15%	7,434		7%
Portable Gas Detection	41,052		12%	27,648		12%	13,404		12%
Industrial Head Protection	35,332		10%	27,555		12%	7,777		7%
Fall Protection	27,428		8%	17,697		8%	9,731		9%
Other*	49,031		15%	29,300		12%	19,731		18%
Total	$	341,145	100%	$	231,253	100%	$	109,892	100%

(In thousands, except percentage amounts) Consolidated Americas International
Three Months Ended March 31, 2019 Dollars Percent Dollars Percent Dollars Percent
Breathing Apparatus $ 75,446
23% $ 50,904
24% $ 24,542
22%
Fixed Gas & Flame Detection 60,398
19% 32,930
15% 27,468
24%
Firefighter Helmets & Protective Apparel 43,577
13% 35,064
16% 8,513
8%
Portable Gas Detection 40,726
13% 26,991
13% 13,735
12%
Industrial Head Protection 35,744
11% 27,836
13% 7,908
7%
Fall Protection 30,128
9% 17,961
8% 12,167
11%
Other 40,019
12% 22,001
11% 18,018
16%
Total $ 326,038
100% $ 213,687
100% $ 112,351
100%


(In thousands, except percentage amounts)	Consolidated			Americas			International
Three Months Ended March 31, 2018	Dollars		Percent	Dollars		Percent	Dollars		Percent
Three Months Ended March 31, 2019										Consolidated			Americas			International
(In thousands, except percentages)										Dollars		Percent	Dollars		Percent	Dollars		Percent
Breathing Apparatus	$	74,618	23%	$	49,333	24%	$	25,285	22%	$	75,446	23%	$	50,904	24%	$	24,542	22%
Fixed Gas & Flame Detection	60,931		19%	32,526		15%	28,405		24%	60,398		19%	32,930		15%	27,468		24%
Firefighter Helmets & Protective Apparel	44,484		14%	34,754		17%	9,730		8%	43,577		13%	35,064		16%	8,513		8%
Portable Gas Detection	42,227		13%	28,762		14%	13,465		12%	40,726		13%	26,991		13%	13,735		12%
Industrial Head Protection	34,956		11%	27,841		13%	7,115		6%	35,744		11%	27,836		13%	7,908		7%
Fall Protection	25,705		8%	14,109		7%	11,596		10%	30,128		9%	17,961		8%	12,167		11%
Other	42,973		12%	21,804		10%	21,169		18%
Other*										40,019		12%	22,001		11%	18,018		16%
Total	$	325,894	100%	$	209,129	100%	$	116,765	100%	$	326,038	100%	$	213,687	100%	$	112,351	100%

* Other products include sales of Air Purifying Respirators.

Note 9—Earnings per Share

Basic earnings per share attributable to MSA Safety Incorporated common shareholders is computed by dividing net income, after the deduction of preferred stock dividends and undistributed earnings allocated to participating securities, by the weighted average number of common shares outstanding during the period. Diluted earnings per share attributable to MSA Safety Incorporated common shareholders assumes the issuance of common stock for all potentially dilutive share equivalents outstanding not classified as participating securities. Participating securities are defined as unvested stock-based payment awards that contain nonforfeitable rights to dividends.



Amounts attributable to MSA Safety Incorporated common shareholders:	Three Months Ended March 31,
(In thousands, except per share amounts)	2020			2019
Net income	$	43,674		$	23,232
Preferred stock dividends	(10		)	(10		)
Net income available to common equity	43,664			23,222
Dividends and undistributed earnings allocated to participating securities	(33		)	(22		)
Net income available to common shareholders	43,631			23,200

Basic weighted-average shares outstanding	38,824			38,536
Stock options and other stock compensation	528			548
Diluted weighted-average shares outstanding	39,352			39,084
Antidilutive stock options	—			—

Earnings per share:
Basic	$	1.12		$	0.60
Diluted	$	1.11		$	0.59

Amounts attributable to MSA Safety Incorporated common shareholders: Three Months Ended March 31,
(In thousands, except per share amounts) 2019 2018
Net income $ 23,232
$ 32,371
Preferred stock dividends (10 ) (10 )
Net income available to common equity 23,222
32,361
Dividends and undistributed earnings allocated to participating securities (22 ) (32 )
Net income available to common shareholders 23,200
32,329

Basic weighted-average shares outstanding 38,536
38,216
Stock options and other stock compensation 548
562
Diluted weighted-average shares outstanding 39,084
38,778
Antidilutive stock options —
—

Earnings per share:
Basic $ 0.60
$ 0.85
Diluted $ 0.59
$ 0.83

Note 10—Income Taxes

The Company's effective tax rate for the three months ended March 31, 2020, was 23.0% and differs from the U.S. federal 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. The Company's effective tax rate for the three months ended March 31, 2019, was 27.8% ~~and~~which differs from the U.S. federal statutory rate of 21% primarily due to non-deductible foreign exchange on entity closures partially offset by tax benefits on certain share-based payments related to the application of ASU 2016-09. The Company's effective tax rate for the three months ended March 31, 2018, was 22.6% which differs from the U.S. federal statutory rate of 21% primarily due to higher profitability in less favorable tax jurisdictions and a charge for Global Intangible Low-Taxed Income (GILTI), partially offset a tax benefit of related to certain share-based payments related to the application of ASU 2016-09.payments.

At March 31, ~~2019,~~2020, the Company had a gross liability for unrecognized tax benefits of ~~$13.2~~$4.8 million. The Company has recognized tax benefits associated with these liabilities of ~~$5.2~~$1.9 million at March 31, ~~2019.~~2020. The gross liability includes amounts associated with prior period foreign tax exposure.

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 ~~$1.6~~$0.7 million at March 31, ~~2019.~~2020.

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 condensed consolidated financial statements.

Note 11—Stock Plans

The 2016 Management Equity Incentive Plan provides for various forms of stock-based compensation for eligible key employees through May 2026. Management stock-based compensation includes stock options, restricted stock awards, restricted stock units and performance stock units. The 2017 Non-Employee Directors’ Equity Incentive Plan provides for grants of stock options and restricted stock to non-employee directors through May 2027. We issue treasury shares for stock option exercises and grants of restricted stock and performance stock. Please refer to Note 7—Capital Stock for further information regarding stock compensation share issuance.

Stock compensation expense is as follows:



	Three Months Ended March 31,
(In thousands)	2020		2019
Stock compensation expense	$	3,522	$	2,745
Income tax benefit	859		670
Stock compensation expense, net of income tax benefit	$	2,663	$	2,075

Three Months Ended March 31,
(In thousands) 2019 2018
Stock compensation expense $ 2,745
$ 5,606
Income tax benefit 670
1,362
Stock compensation expense, net of income tax benefit $ 2,075
$ 4,244

A summary of stock option activity for the three months ended March 31, ~~2019,~~2020, follows:



	Shares		Weighted Average Exercise Price
Outstanding at January 1, 2020	559,656		$	45.78
Exercised	(72,937	)	37.47
Forfeited	(952	)	41.98
Outstanding at March 31, 2020	485,767		47.03
Exercisable at March 31, 2020	481,388		$	47.03

Shares
Weighted Average
Exercise Price
Outstanding at January 1, 2019 735,001
$ 43.79
Exercised (44,407 ) 36.24
Outstanding at March 31, 2019 690,594
44.28
Exercisable at March 31, 2019 690,594
$ 44.28

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 ~~and unit~~ activity for the three months ended March 31, ~~2019,~~2020, follows:



	Shares		Weighted Average Grant Date Fair Value
Unvested at January 1, 2020	172,701		$	90.38
Granted	35,937		124.99
Vested	(30,849	)	73.24
Forfeited	(1,654	)	97.22
Unvested at March 31, 2020	176,135		$	100.38

Shares
Weighted Average
Grant Date Fair Value
Unvested at January 1, 2019 205,449
$ 68.97
Granted 37,320
103.59
Vested (44,421 ) 44.23
Forfeited (1,062 ) 83.33
Unvested at March 31, 2019 197,286
$ 81.38

Performance stock units have a market condition modifier and are valued at an estimated fair value using ~~the~~a Monte Carlo model. The final number of shares to be issued for performance stock units granted in the first quarter of ~~2019~~2020 may range from 0% to 200% of the target award based on achieving the specified performance targets over the performance period plus an additional ~~payout~~ modifier based on total shareholder return (TSR) ~~performance.~~over the performance period. The following weighted average assumptions were used in estimating the ~~Monte Carlo model for~~fair value of the performance stock units granted in the first quarter of ~~2019 with a market condition modifier.~~2020.



Fair value per unit	$~~99.82~~127.36
Risk-free interest rate	~~2.47%~~1.16%
Expected dividend yield	~~1.57%~~1.48%
Expected volatility	~~26.6%~~24.8%
MSA stock beta	~~1.094~~0.988

Note 14—~~Leases~~

~~Effective January 1, 2019, we implemented ASU 2016-02,~~ ~~Leases~~, which amended authoritative guidance on leases and is codified in ASC Topic 842. The amended guidance requires lessees to recognize most leases on their balance sheets as right-of-use assets along with corresponding lease liabilities. The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification determines whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. The FASB's authoritative guidance provides companies with the option to apply this ASU to new and existing leases within the scope of the guidance as of the beginning of the period of adoption. We elected this transition method of applying the new standard and have recognized right-of-use assets and lease liabilities as of January 1, 2019. Prior period amounts were not adjusted and will continue to be reported under the accounting standards in effect for those periods. The adoption of this standard had a material impact on our unaudited Condensed Consolidated Balance Sheet as of March 31, 2019 due to the capitalization of right-of-use assets and lease liabilities associated with our current operating leases in which we are the lessee. Adoption of the new standard resulted in the recording of additional right-of-use assets and lease liabilities of approximately $54 million and $54 million, respectively, as of January 1, 2019.

Upon adoption of the new standard on January 1, 2019, we elected the package of practical expedients provided under the guidance. The practical expedient package applies to leases that commenced prior to adoption of the new standard and permits companies not to reassess whether existing or expired contracts are or contain a lease, the lease classification and any initial direct costs for existing leases. We have elected to not separate the lease and non-lease components within our lease contracts. Therefore, all fixed costs associated with the lease are included in the right-of-use asset and the lease liability. These costs often relate to the payments for a proportionate share of real estate taxes, insurance, common area maintenance and other operating costs in addition to base rent. We did not elect the hindsight practical expedient.

At the inception of our contracts we determine if the contract is or contains a lease. A contract is or contains a lease if it conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Right-of-use assets and operating lease liabilities are recognized based on the present value of lease payments over the lease term at commencement. The discount rate for leases is based on the Company's incremental borrowing rate ("IBR"). Our IBR reflects a fully secured rate based on our credit rating, taking into consideration the repayment timing of the lease and any impacts due to the economic environment in which the lease operates.

Lease right-of-use assets and liabilities are recognized based on the present value of the fixed future lease payments over the lease term. Lease expense for all operating leases is classified in cost of products sold or selling, general and administrative expense in the unaudited Condensed Consolidated Statement of Income. For finance leases, the amortization of the right-of-use asset is included in depreciation and amortization, and the interest is included in interest expense.

As a lessee, we have various operating lease agreements primarily related to real estate, vehicles and office and plant equipment. Our lease payments are largely fixed. Variable lease payments that depend on an index or a rate are included in the lease payments and are measured using the prevailing index or rate at the measurement date, with differences between the calculated lease payment and the actual lease payment being expensed in the period of the change. Other variable lease payments, including utilities, consumption and common area maintenance as well as repairs, maintenance and mileage overages on vehicles, are expensed during the period incurred. Variable lease costs were immaterial for the three months ended March 31, 2019. A majority of our real estate leases include options to extend the lease and options to early terminate the lease. Leases with an early termination option generally involve a termination payment. If we are reasonably certain to exercise an option to extend a lease, the extension period is included as part of the right-of-use asset and the lease liability. Some of our leases contain residual value guarantees. These are guarantees made to the lessor that the value of an underlying asset returned to the lessor at the end of a lease will be at least a specified amount. Our leases do not contain restrictions or covenants that restrict us from incurring other financial obligations. We do not have any significant leases not yet commenced.

For our leases, we have elected to not apply the recognition requirements to leases of less than twelve months. These leases are expensed on a straight-line basis and are not included within the Company's operating lease asset or liability. Lease costs associated with leases of less than twelve months were immaterial for the three months ended March 31, 2019. We ~~did not have any lease transactions with related parties.~~

Other Information
Three Months Ended March 31,
(In thousands, except percentage amounts) 2019
Lease cost:
Operating lease cost recognized as rent expense $ 3,263
Total lease cost 3,263

Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows related to operating leases $ 3,425

Non-cash other information:
Right-of-use assets obtained in exchange for new operating lease liabilities $ 1,883

Weighted-average remaining lease term (in years):
Operating leases 12

Weighted-average discount rate:
Operating leases 4.29 %

~~At March 31, 2019, future lease payments under operating leases were as follows:~~

(In thousands) Operating Leases

Remainder of 2019 $ 8,852
2020 8,941
2021 6,988
2022 4,294
2023 3,843
After 2023 32,744
Total lease payments $ 65,662
Less: Interest 13,870
Present value of operating lease liabilities 51,792
Less: Current operating lease liabilities^(a)
9,830
Noncurrent operating lease liabilities $ 41,962

^(a) ~~Included in "Warranty reserve and other current liabilities" on the unaudited Condensed Consolidated Balance Sheet.~~

~~Note 15—~~Pensions and Other Post-retirement Benefits

Components of net periodic benefit cost consisted of the following:



	Pension Benefits						Other Benefits
(In thousands)	2020			2019			2020			2019
Three Months Ended March 31,
Service cost	$	3,012		$	2,423		$	99		$	89
Interest cost	3,726			4,705			179			249
Expected return on plan assets	(8,503		)	(9,653		)	—			—
Amortization of prior service cost (credit)	46			(4		)	(98		)	(101		)
Recognized net actuarial losses	3,935			2,577			286			217
Net periodic benefit cost ^(a)	$	2,216		$	48		$	466		$	454

Pension Benefits Other Benefits
(In thousands) 2019 2018 2019 2018
Three Months Ended March 31,
Service cost $ 2,423
$ 2,891
$ 89
$ 101
Interest cost 4,705
4,219
249
221
Expected return on plan assets (9,653 ) (9,096 ) —
—
Amortization of prior service credit (4 ) (6 ) (101 ) (77 )
Recognized net actuarial losses 2,577
3,453
217
25
Settlement/curtailment loss (credit) —
27
—
(141 )
Net periodic benefit cost^(a)
48
1,488
454
129

^(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 ~~Statements~~Statement of Income.

We made contributions of ~~$1.8~~$1.9 million and ~~$1.2~~$1.8 million to our pension plans during the three months ended March 31, ~~2019~~2020 and ~~2018,~~2019, respectively. We expect to make total contributions of approximately ~~$7.1~~$7.6 million to our pension plans in ~~2019~~2020 which are primarily associated with our International segment.

Note ~~16—~~15—Derivative Financial Instruments

As part of our currency exchange rate risk management strategy, we may enter into certain derivative foreign currency forward contracts that do not meet the U.S. 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 ~~$76.4~~$75.4 million and ~~$72.4~~$74.9 million at March 31, ~~2019,~~2020, and December 31, ~~2018,~~2019, 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)	March 31, 2020		December 31, 2019
Derivatives not designated as hedging instruments:
Foreign exchange contracts: Warranty reserve and other current liabilities	$	261	$	125
Foreign exchange contracts: Prepaid expenses and other current assets	2,056		687

(In thousands) March 31, 2019 December 31, 2018
Derivatives not designated as hedging instruments:
Foreign exchange contracts: other current liabilities $ 1,201
$ 12
Foreign exchange contracts: other current assets 36
488

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



		Loss Recognized in Income
		Three Months Ended March 31,
(In thousands)	Statement of Income Location	2020		2019
Derivatives not designated as hedging instruments:
Foreign exchange contracts	Currency exchange losses, net	$	376	$	1,262

Loss (Gain) Recognized in Income
Three Months Ended March 31,
(In thousands) Statement of Income Location 2019 2018
Derivatives not designated as hedging instruments:
Foreign exchange contracts Currency exchange losses, net $ 1,262
$ (2,875 )

Note ~~17—~~16—Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are:

Level 1—Observable inputs that reflect unadjusted quoted prices for identical assets or liabilities in active markets.

Level 2—Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

Level 3—Unobservable inputs for the asset or liability.

The valuation methodologies we used to measure financial assets and liabilities include the derivative financial instruments described in Note ~~16—~~15—Derivative Financial Instruments. We estimate the fair value of the derivative financial instruments, consisting of foreign currency forward contracts, based upon valuation models with inputs that generally can be verified by observable market conditions and do not involve significant management judgment. Accordingly, the fair values of the derivative financial instruments are classified within Level 2 of the fair value hierarchy. With the exception of our investments in marketable securities and fixed rate long-term debt, we believe that the reported carrying amounts of our financial assets and liabilities approximate their fair values.

We value our investments in marketable securities, primarily fixed income, at fair value using quoted market prices for similar securities or pricing models. 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 ~~$73.5~~$69.6 million and ~~$55.4~~$49.7 million as of March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively. The fair value was ~~$73.6~~$69.8 million and ~~$55.1~~$49.9 million as of March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, 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. The Company does not intend to sell, nor is it more likely than not that we will be required to sell, these securities prior to recovery of their cost, as such, management believes that any unrealized gains or losses are temporary; 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 March 31, ~~2019.~~2020.

~~With the exception of fixed rate long-term debt, we believe that the reported carrying amounts of our financial assets and liabilities approximate their fair values.~~ The reported carrying amount of our fixed rate long-term debt (including the current portion) was ~~$131.5~~$108 million and ~~$130.0~~$113 million at March 31, ~~2019,~~2020, and December 31, ~~2018,~~2019, respectively. The fair value of this debt was ~~$144.7~~$115 million and ~~$139.0~~$129 million at March 31, ~~2019,~~2020, and December 31, ~~2018,~~2019, 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.

Note ~~18—~~17—Contingencies

Product liability

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

Single incident product liability claims. Single incident product liability claims involve incidents of short duration that are typically known when they occur and involve observable injuries, which provide an objective basis for quantifying damages. The Company estimates its liability for single incident product liability claims based on expected settlement costs for asserted single incident product liability claims and an estimate of costs for single incident product liability claims incurred but not reported ("IBNR"). 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 ~~$3.5~~$3.3 million and ~~$3.6~~$3.1 million at March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively. Single incident product liability expense was $0.2 million during both the three months ended March 31, ~~2019~~2020 and ~~$0.3 million during the three months ended~~ March 31, ~~2018.~~2019. Single incident product liability exposures are evaluated on an annual basis, or more frequently if changing circumstances warrant. Adjustments are made to the reserve as appropriate.

Cumulative trauma product liability claims. 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 ~~affiliates~~subsidiaries Mine Safety Appliances Company, LLC ("MSA LLC") was named as a defendant in ~~1,481~~1,658 lawsuits comprised of ~~2,371~~2,520 claims as of March 31, ~~2019.~~2020. 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.

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



	Three Months Ended March 31, 2020		Year Ended December 31, 2019
Open lawsuits, beginning of period	1,605		1,481
New lawsuits	113		346
Settled and dismissed lawsuits	(60	)	(222	)
Open lawsuits, end of period	1,658		1,605

Three Months Ended March 31, 2019 Year Ended December 31, 2018
Open lawsuits, beginning of period 1,481
1,420
New lawsuits 70
369
Settled and dismissed lawsuits (70 ) (308 )
Open lawsuits, end of period 1,481
1,481



	Three Months Ended March 31, 2020		Year Ended December 31, 2019
Asserted claims, beginning of period	2,456		2,355
New claims	124		486
Settled and dismissed claims	(60	)	(385	)
Asserted claims, end of period	2,520		2,456

Three Months Ended March 31, 2019 Year Ended December 31, 2018
Asserted claims, beginning of period 2,355
2,242
New claims 87
479
Settled and dismissed claims (71 ) (366 )
Asserted claims, end of period 2,371
2,355

More than half of the open lawsuits at March 31, ~~2019,~~2020, have had a de minimis level of activity over the last 5 years. It is possible that these cases could become active again at any time due to changes in circumstances.

Total cumulative trauma product liability reserve was $167.3 million at March 31, 2020, including $3.2 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. This reserve includes estimated amounts for asserted claims and IBNR claims. Those estimated amounts reflect asbestos, silica and coal dust claims expected to be resolved through the year 2069 and are not discounted to present value. The Company revised its estimates of MSA LLC's potential liability for cumulative trauma product liability claims for the year ended December 31, 2019 as a result of its annual review process described below. The reserve does not include amounts which will be spent to defend the claims covered by the reserve. 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 March 31, 2020.

At March 31, 2020, $17.6 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, $149.7 million, is recorded in the Product liability and other noncurrent liabilities line. At December 31, 2019, $17.4 million of the total reserve for cumulative trauma product liability claims is recorded in the Insurance and product liability line within other current liabilities in the unaudited Condensed Consolidated Balance Sheet and the remainder, $150.1 million, is recorded in the Product liability and other noncurrent liabilities line.

Total cumulative trauma liability losses were $2.1 million for the three months ended March 31, 2020, and $3.3 million for the three months ended March 31, 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 $1.8 million and $2.8 million for the three months ended March 31, 2020 and March 31, 2019, 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. The review process takes into account developments in MSA LLC’s claims experience over the past year, developments in the tort system generally, and any other relevant information. Quarterly, management and outside legal counsel review whether significant new developments have occurred which could materially impact recorded amounts.

Certain significant assumptions underlying the material components of the reserve for cumulative trauma product liability claims have been made based on MSA LLC's experience related to the following:

The types and severity, of illnesses alleged by claimants to give rise to their claims;

The venues in which claims are asserted;

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

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

Additional assumptions include the following:

MSA LLC will continue to evaluate and handle cumulative trauma product liability claims in accordance with its existing defense strategy;

The number and effect of co-defendant bankruptcies will not materially change in the future;

No material changes in medical science occur with respect to cumulative trauma product liability claims; and

No material changes in law occur with respect to cumulative trauma product liability claims including no material state or federal tort reform actions.

Cumulative trauma product liability litigation is inherently unpredictable and MSA LLC's expense with respect to cumulative trauma product liability claims could vary significantly in future periods. ~~Factors that limit MSA LLC's ability~~With respect to ~~estimate potential liability~~asserted claims, this is because it is unclear at the time of filing whether a claim will be actively litigated. Even when a case is actively litigated, it is often difficult to determine if the lawsuit will be dismissed without payment or settled, because of sufficiency of product identification, statute of limitations challenges, or other defenses. As a result, it is typically unclear until late into a lawsuit whether any particular claim will result in a loss and, if so, to what extent. 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. 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’~~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. With respect to the risk associated with any particular case that is filed against MSA LLC, it has typically not been until very late in the legal process that it can be reasonably determined whether it is probable that such a case will ultimately result in a liability. This uncertainty is caused by many factors, including consideration of the applicable statute of limitations, the sufficiency of product identification and other defenses. The complaints initially filed generally have not provided information sufficient to determine if a lawsuit will develop into an actively litigated case. Even when a case is actively litigated, it is often difficult to determine if the lawsuit will be dismissed or otherwise resolved until late in the lawsuit. Moreover, even if it is probable that such a lawsuit will result in a loss, it is often difficult to estimate the amount of actual loss that will be incurred. These actual loss amounts are highly variable and turn on a case-by-case analysis of the relevant facts, including the nature of the injury, the jurisdiction in which the claim is filed, the counsel for the plaintiff and the number of parties in the lawsuit. In addition, there are uncertainties concerning the impact of bankruptcies of other companies that are co-defendants with respect to particular claims and uncertainties surrounding the litigation process in different jurisdictions and from case to case within a particular jurisdiction.

Management works with outside legal counsel quarterly to review and assess MSA LLC's exposure to asserted cumulative trauma product liability claims not yet resolved. In addition, in connection with finalizing and reporting its 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 exposure to all cumulative trauma product liability claims. The review process for asserted cumulative trauma product liability claims not yet resolved takes into account available facts for those claims, including their number and composition, outcomes of matters resolved during current and prior periods, and variances associated with different groups of claims, plaintiffs' counsel, claims filing trends, and venues, as well as any other relevant information.

In August 2017, MSA LLC obtained additional detailed information about a significant number of claims that were then pending against it, including the nature and extent of the alleged injuries, product identification and other factors. MSA LLC subsequently agreed to resolve a substantial number of these claims for $75.2 million, a portion of which was insured. Amounts in excess of estimated insurance recoveries were reflected within Product liability expense in the unaudited Condensed Consolidated Statement of Income. MSA LLC paid a total of $28.6 million during 2018 and $14.3 million during the three months ended March 31, 2019, related to these settlements. MSA LLC expects to pay the final $7.1 million in the second quarter of 2019.

There remains considerable uncertainty in numerous aspects of MSA LLC's potential future claims experience, such as with respect to the number of claims that might be asserted, the alleged severity of those claims and the average settlement values of those claims, and that uncertainty may cause actual claims experience in the future to vary from the current estimate. Numerous uncertainties also exist with respect to factors not specific to MSA ~~LLC’s claims experience,~~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 claims. If future estimates of asserted cumulative trauma product liability claims not yet resolved and/or incurred but not reported ("IBNR") cumulative trauma product liability claims are materially higher (lower) than the accrued liability, we will record an appropriate charge (credit) to the unaudited Condensed Consolidated Statement of Income to increase (decrease) the accrued liability.

~~Certain significant assumptions underlying the material components of the accrual for IBNR cumulative trauma product liability claims include MSA LLC's experience related to the following:~~

~~The types of illnesses alleged by claimants to give rise to their claims;~~

~~The number of claims asserted against MSA LLC;~~

~~The propensity of claimants and their counsel asserting cumulative trauma product liability claims to name MSA LLC as a defendant;~~

~~The percentage of cumulative trauma product liability claims asserted against MSA LLC that are dismissed without payment;~~

~~The average value of settlements paid to claimants; and~~

~~The jurisdiction in which claims are asserted.~~

~~Additional assumptions include the following:~~

~~MSA LLC will continue to evaluate and handle cumulative trauma product liability claims in accordance with its existing defense strategy;~~

~~The number and effect of co-defendant bankruptcies will not materially change in the future;~~

~~No material changes in medical science occur with respect to cumulative trauma product liability claims; and~~

~~No material changes in law occur with respect to cumulative trauma product liability claims including, in particular, no material state or federal tort reform actions affecting such claims.~~

Total cumulative trauma product liability reserve was $170.7 million at March 31, 2019, including $16.7 million for claims settled but not yet paid and related defense costs, and $187.3 million at December 31, 2018, including $24.5 million for claims settled but not yet paid and related defense costs. This reserve includes estimated amounts for asserted claims not yet resolved and IBNR claims. The amount included in the reserve for IBNR cumulative trauma product liability claims represents the estimated value of such claims if the most likely potential outcome with respect to each of the assumptions described above is applied. Those estimated amounts reflect asbestos, silica and coal dust claims expected to be asserted through the year 2069 and are not discounted to present value. The Company revised its estimates of MSA LLC's potential liability for cumulative trauma product liability claims for the year ended December 31, 2018 as a result of its annual review process. The revisions to the Company’s estimates of potential liability for cumulative trauma product liability claims are based on an assessment of trends in the tort system generally and changes in MSA LLC’s claims experience over the past year, including the number of claims asserted, average value of settlements paid to claimants, the number and percentage of claims resolved with payment, the jurisdiction in which claims are asserted, and the counsel asserting such claims. The reserve does not include amounts which will be spent to defend the claims covered by the reserve. Defense costs are recognized in the unaudited Condensed Consolidated Statement of Income as incurred. There was no interim remeasurement of the cumulative trauma product liability reserve as of March 31, 2019.

At March 31, 2019, $22.4 million of the total reserve for cumulative trauma product liability claims is recorded in the Insurance and product liability line within other current liabilities in the unaudited Condensed Consolidated Balance Sheet and the remainder, $148.3 million, is recorded in the Product liability and other noncurrent liabilities line. At December 31, 2018, $38.8 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, $148.5 million, is recorded in the Product liability and other noncurrent liabilities line.

~~Because~~ 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. The reserve for ~~liabilities relating to~~ cumulative trauma product liability claims may be adjusted from time to time based on ~~whether~~changes to the ~~actual number, types,~~factors and ~~settlement value~~assumptions described above. If future estimates of ~~claims differs from current projections and estimates and other developing facts and circumstances. These adjustments may reflect changes in estimates for asserted~~ cumulative trauma product liability claims ~~not yet resolved and/or IBNR cumulative trauma product~~are materially different than the accrued liability, ~~claims.~~we will record an appropriate adjustment to the unaudited Condensed Consolidated Statement of Income. These adjustments ~~may be material and~~ could materially impact our consolidated financial statements in future periods.

Insurance Receivable and Notes Receivable, Insurance Companies

In the normal course of business, MSA LLC makes payments to settle various claims and for related defense costs and records receivables for the estimated amounts that are covered by insurance. With respect to cumulative trauma product liability claims,Many years ago, MSA LLC purchased insurance policies ~~for the policy years~~ from ~~1952-1986 from over 20 different~~various insurance carriers that, subject to ~~some~~ common contract exclusions, provided coverage for cumulative trauma product liability losses ~~and, in many instances, related defense costs~~ (the "Occurrence-Based Policies"). ~~The Occurrence-Based Policies have significant per claim retentions and applicable exclusions for cumulative trauma product liability claims after April 1986.~~ While we continue to pursue reimbursement under certain ~~policies,~~remaining Occurrence-Based Policies, the vast majority of these ~~insurance~~ policies have been exhausted, settled or converted into either (1) negotiated ~~coverage-in-place~~Coverage-in-Place Agreements, or (2) negotiated settlement agreements, with ~~the applicable insurers (the "Coverage-In-Place Agreements").~~scheduled payment streams. As a result, MSA LLC is ~~now largely self-insured for cumulative trauma product liability claims.~~

~~Since MSA LLC is now~~ largely self-insured for cumulative trauma product liability claims, and additional amounts recorded as insurance receivables or notes receivables will be ~~limited and based on calculating~~limited.

When adjustments are made to amounts recorded in the cumulative trauma product liability reserve, we calculate amounts due to be reimbursed pursuant to negotiated Coverage-In-Place Agreements. Various factors could affect the timing and amount of recovery of the insurance receivables, including assumptions regarding claims composition (which are relevant to calculating reimbursement under the terms of ~~certain~~the negotiated Coverage-In-Place ~~Agreements)~~Agreements, including cumulative trauma product liability losses and related defense costs, and we record the ~~extent to which the issuing insurers may become insolvent in the future.~~reimbursable amounts as insurance receivables.

Insurance receivables at March 31, ~~2019,~~2020, totaled ~~$64.1~~$61.2 million, of which, ~~$11.5~~$7.6 million is reported in Prepaid expenses and other current assets in the unaudited Condensed Consolidated Balance Sheet and ~~$52.6~~$53.6 million is reported in Insurance receivable and other noncurrent assets. Insurance receivables at December 31, ~~2018,~~2019, totaled ~~$71.7~~$63.8 million, of which ~~$14.8~~$7.6 million was reported in Prepaid expenses and other current assets in the unaudited Condensed Consolidated Balance Sheet and ~~$56.9~~$56.2 million was reported in Insurance receivable and other noncurrent assets. The vast majority of the ~~$64.1~~$61.2 million insurance receivable balance at March 31, ~~2019~~2020 is attributable to reimbursement believed to be due under the terms of signed Coverage-In-Place ~~Agreements.~~

Agreements and a portion of the amount represents the estimated recovery of IBNR amounts not yet incurred.

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



(In millions)	Three Months Ended March 31, 2020			Year Ended December 31, 2019
Balance beginning of period	$	63.8		$	71.7
Additions	0.4			9.1
Collections and other adjustments	(3.0		)	(17.0		)
Balance end of period	$	61.2		$	63.8

(In millions) Three Months Ended March 31, 2019 Year Ended December 31, 2018
Balance beginning of period $ 71.7
$ 134.7
Additions 0.5
19.6
Collections, settlements converted to notes receivable and other adjustments (8.1 ) (82.6 )
Balance end of period $ 64.1
$ 71.7

Additions to insurance receivables in the above table represent insured cumulative trauma product liability losses and related defense costs which we believe are covered by the Occurrence-Based Policies or applicable Coverage-in-Place Agreements. Collections of the receivables primarily occur pursuant to the terms of negotiated agreements with the insurance companies, either in a lump sum, in installments over time, or to reimburse a portion of future expense once incurred (i.e. pursuant to a Coverage-In-Place Agreement).

In ~~some~~other cases, we have recorded formal notes receivables due from scheduled payment streams ~~due pursuant~~according to negotiated settlement agreements were converted to formal notes receivable from insurance companies. The notes receivable were recorded as a transfer from the Insurance receivable balance to the Notes receivable, insurance companies (current and noncurrent) in the unaudited Condensed Consolidated Balance Sheet. In cases where the payment stream covers multiple years and there were no contingencies, the present value of the payments was recorded as a transfer from the insurance receivable balance to the Notes receivable, insurance companies (current and long-term) in the unaudited Condensed Consolidated Balance Sheet. Provided the remaining insurance receivable was recoverable through the insurance carriers, no gain or loss was recognized at the time of transfer from Insurance receivable to Notes receivable, insurance companies.agreements.

Notes receivable from insurance companies at March 31, ~~2019,~~2020, totaled ~~$60.0~~$56.4 million, of which ~~$3.6~~$3.7 million is reported in Notes receivable, insurance companies, current on the unaudited Condensed Consolidated Balance Sheet and ~~$56.4~~$52.7 million is reported in Notes receivable, insurance companies, noncurrent. Notes receivable from insurance companies at December 31, ~~2018,~~2019, totaled ~~$59.6~~$56.0 million, of which ~~$3.6~~$3.7 million was reported in Notes receivable, insurance companies, current inon the unaudited Condensed Consolidated Balance Sheet and ~~$56.0~~$52.3 million was reported in Notes receivable, insurance companies, noncurrent.

A summary of ~~Notes receivable,~~notes receivables from insurance companies ~~balances~~balance is as follows:



(In millions)	Three Months Ended March 31, 2020		Year Ended December 31, 2019
Balance beginning of period	$	56.0	$	59.6
Additions	0.4		1.5
Collections	—		(5.1		)
Balance end of period	$	56.4	$	56.0

(In millions) Three Months Ended March 31, 2019 Year Ended December 31, 2018
Balance beginning of period $ 59.6
$ 76.9
Additions 0.4
1.7
Collections —
(19.0 )
Balance end of period $ 60.0
$ 59.6

The collectibility of MSA LLC's insurance receivables and notes ~~receivable~~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)~~, the financial ability of the insurance carriers to pay the claims,~~ and the ~~advice of MSA LLC's outside legal counsel.~~

~~Total cumulative trauma liability losses were $3.3 million and $3.2 million for~~extent to which the three months ended March 31, 2019 and March 31, 2018, respectively, primarily related to the defense of cumulative trauma product liability claims. Uninsured cumulative trauma product liability losses, which were included in Product liability expenseissuing insurers may become insolvent in the ~~unaudited Condensed Consolidated Statement of Income, were $2.8 million for both the three months ended March 31, 2019 and March 31, 2018.~~

~~Insurance Litigation~~

For more than a decade, MSA LLC was engaged in coverage litigation with many of its insurance carriers that issued Occurrence-Based Policies. In July 2010, MSA LLC (as Mine Safety Appliances Company) filed a lawsuit in the Superior Court of the State of Delaware seeking declaratory and other relief concerning the future rights and obligations of MSA LLC and its excess insurance carriers under various insurance policies. During the same time period, MSA LLC was also engaged in coverage disputes with The North River Insurance Company (“North River”) in various courts. Since 2010, MSA LLC reached negotiated resolutions with the vast majority of the insurance carriers once in litigation, including the July 2018 settlement with North River disclosed below.

In July 2018, MSA LLC resolved through a negotiated settlement its remaining coverage litigation with North River. As part of this settlement in October 2018, MSA LLC dismissed all claims and appeals against North River in each of the pending coverage actions. This represents a settlement with MSA LLC’s last major Occurrence-Based insurance carrier. Payment under this negotiated settlement was received in the third quarter of 2018 and was accounted for as a reduction of the insurance receivable balance.

future.

Product Warranty

The Company provides warranties on certain product sales. Product warranty reserves are established in the same period that revenue from the sale of the related products is recognized, or in the period that a specific issue arises as to the functionality of athe Company's product. The determination of such reserves requires the Company to make estimates of product return rates and expected costs to repair or to replace the products under warranty.

The amounts of the reserves are based on established terms and the Company's best estimate of the amounts necessary to settle future and existing claims on products sold as of the balance sheet date. If actual return rates and/or repair and replacement costs differ significantly from estimates, adjustments to recognize additional cost of sales may be required in future periods.

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


(In thousands)	Three Months Ended March 31, 2019			Year Ended December 31, 2018			Three Months Ended March 31, 2020			Year Ended December 31, 2019
Beginning warranty reserve	$	14,214		$	14,753		$	12,715		$	14,214
Warranty payments	(3,198		)	(9,955		)	(3,001		)	(12,664		)
Warranty claims	301			10,585			3,043			12,033
Provision for product warranties and other adjustments	2,423			(1,169		)	(163		)	(868		)
Ending warranty reserve	$	13,740		$	14,214		$	12,594		$	12,715



Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations

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

~~We are~~MSA is a global leader in the development, manufacture and supply of safety products that protect people and facility infrastructures. ~~Many~~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 ~~the~~fire service, oil, gas and petrochemical ~~("OGP"), fire service,~~industry, construction, industrial manufacturing applications, utilities, mining and ~~mining industries.~~the military. MSA's core products include breathing apparatus, fixed gas and flame detection systems, ~~breathing apparatus where self-contained breathing apparatus ("SCBA") is the principal product,~~ 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.

We tailor our product offerings and distribution strategy to satisfy distinct customer preferences that vary across geographic regions. ToOn January 1, 2020, to best serve these customer preferences, we ~~have organized~~restructured our business ~~into seven~~from six geographical operating segments ~~that~~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 ~~2018, 63%~~2019, 65% and ~~37%~~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 ~~countries~~ focus primarily on sales and distribution in their respective home country markets.

International. Our International segment includes companies in Europe, the Middle East ~~Africa~~ and the Asia Pacific ~~region, some of which are in developing regions of the world.~~region. In our largest International ~~affiliates~~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 ~~the home country~~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. During the three months ended March 31, 2019, a plan to close our South Africa affiliates was approved as part of our footprint rationalization but we will continue to serve the Africa region through our channel partners.

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.

In March 2019, we entered into a definitive agreement to acquire California-based Sierra Monitor Corporation ("SRMC") in an all-cash transaction valued at approximately $33 million. The acquisition accelerates MSA’s strategy to enhance worker safety through the use of cloud technology and wireless connectivity, while supplementing the Company’s organic investments in software-as-a-service applications, including its recently established Safety io subsidiary. Additionally, SRMC's FGFD line enables us to better serve end markets where we do not have leading positions. The transaction is expected to close in the second quarter of 2019, subject to customary closing conditions. With approximately 85 percent of its revenue from the U.S. and Canada, SRMC’s financial results will be primarily reflected in our Americas 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 ~~instruments, breathing apparatus where SCBA is the principal product,~~systems, portable gas detection instruments, industrial head protection products, firefighter helmets and protective apparel, and fall protection devices. ~~These products receive the highest levels of investment and resources as they typically realize higher levels of return on investment than non-core products.~~ Core products comprised approximately 85% and 88% of sales for ~~both~~ the three months ended March 31, ~~2019~~2020 and ~~2018.~~

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 ~~have their roots within the core product value chain.~~ 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. ~~Ballistic helmet~~

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 ~~gas mask~~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 8% of our consolidated sales in the first quarter of 2020 with approximately 70% of this business being in our Americas segment. In the first quarter, Emergency Use Authorizations ("EUA") have been 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 ~~primary sales~~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 ~~customers~~ and ~~were approximately $9.3 million and $10.2 million globally during the three months ended March 31, 2019 and 2018, respectively.~~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, ~~2018.~~2019.

RESULTS OF OPERATIONS

Three Months Ended March 31, ~~2019,~~2020, Compared to Three Months Ended March 31, ~~2018~~2019

Net Sales. Net sales for the three months ended March 31, ~~2019,~~2020, were ~~$326.0~~$341.1 million, an increase of $15.1 million, or 4.6%, driven by a strong March compared to ~~$325.9~~$326.0 million for the three months ended March 31, ~~2018.~~2019. Please refer to the Net Sales table for a reconciliation of the quarter over quarter sales change.


Net Sales	Three Months Ended March 31,		Dollar Increase/ (Decrease)	Percent Increase/(Decrease)	Three Months Ended March 31,		Dollar Increase	Percent Increase
(In millions, except percentage amounts)	2019	2018	Dollar Increase/ (Decrease)	Percent Increase/(Decrease)			Dollar Increase	Percent Increase
(In millions)					2020	2019	Dollar Increase	Percent Increase
Consolidated	$326.0	$325.9	$0.1	—%	$341.1	$326.0	Dollar Increase	Percent Increase
Americas	213.7	209.1	4.6	2.2%	231.2	213.7	17.5	8.2%
International	112.3	116.8	(4.5)	(3.9)%	109.9	112.3	(2.4)	(2.1)%

LIQUIDITY AND CAPITAL RESOURCES

Our primary 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, dividend payments and acquisitions. At March 31, ~~2019,~~2020, approximately ~~35%~~29% of our long-term debt is at fixed interest rates with repayment schedules through 2031. The remainder of our long-term debt is at variable rates on an unsecured revolving credit facility that is due in 2023. At March 31, ~~2019,~~2020, approximately 80% of our borrowings are denominated in U.S. ~~dollars.~~dollars, which limits our exposure to currency exchange rate fluctuations.

At March 31, ~~2019, we~~2020, the Company had cash, cash equivalents and restricted cash totaling ~~$108.2~~$123.0 million, ~~which included $88.7~~including $105.6 million ~~of cash and cash equivalents~~ held by our foreign ~~subsidiaries.~~ subsidiaries, and access to sufficient capital, providing ample liquidity and flexibility to continue to maintain our balanced capital allocation strategy. We believe MSA's healthy balance sheet and access to significant capital at March 31, 2020, positions us well to navigate through the COVID-19 pandemic and challenging business conditions.

Cash, cash equivalents and restricted cash decreased ~~$32.4~~$29.6 million during the three months ended March 31, ~~2019,~~2020, compared to decreasing ~~$9.1~~$32.4 million during the same period in ~~2018.~~2019. We continue to employ a balanced capital allocation strategy that prioritizes growth investments, funding our dividend and servicing debt obligations.

Operating activities. Operating activities provided cash of ~~$1.2~~$13.6 million during the three months ended March 31, ~~2019,~~2020, compared to providing ~~$17.4~~$1.2 million during the same period in ~~2018.~~2019. The ~~decrease~~increase in operating cash flows during the period was primarily attributable to ~~higher~~lower product liability payments. Our collections from insurance companies exceeded payments ~~partially offset~~for product liability claims by ~~working capital improvement. We made~~$0.7 million, in the three months ended March 31, 2020, compared to product liability payments of $11.9 million, net of collections on insurance receivables, in the ~~three months ended March 31, 2019, while we collected $12.1 million from insurance companies, net of product liability settlements paid, in the~~ same period of ~~2018.~~2019. Historically, cumulative trauma liability payments were funded with the Company's operating cash flow, pending resolution of disputed insurance coverage. For more than a decade, we have funded product liability settlements from operating cash flow. The vast majority of the insurance receivable and notes receivable - insurance companies balances at March 31, ~~2019,~~2020, is attributable to reimbursement believed to be due under the terms of signed agreements with insurers and are not currently subject to litigation. While the timing of cash flows for product liability and insurance receivable can and do vary from quarter to quarter, we have been successful in establishing cash flow streams that have allowed us to fund these liabilities without a material impact on our capital allocation priorities.

On March 25, 2020, the U.S. Senate passed the Coronavirus Aid, Relief, and Economic Security Act, (the “CARES Act”). The CARES Act includes a number of tax provisions relevant to business. As permitted under the CARES Act, MSA will defer estimated payments of U.S. income taxes of between $16 million and $20 million to July 15, 2020. As is also permitted under the CARES Act, MSA will defer the remittance of the employer portion of the social security tax. The social security tax provision requires that the deferred employment tax be paid over the following two years, with half of the amount required to be paid by December 31, 2021 and the other half by December 31, 2022. We expect to defer between $6 million and $7 million of payments related to the employer’s portion of social security tax in 2020.

Investing activities. Investing activities used cash of ~~$23.8~~$26.1 million during the three months ended March 31, ~~2019,~~2020, compared to using ~~$3.2~~$23.8 million during the same period in ~~2018. Purchase~~2019. The purchase of short-term investments, net of proceeds from maturities and capital expenditures drove cash outflows from investing activities during both the three months ended March 31, ~~2019, while~~2020, and 2019. During 2020, we incurred capital expenditures ~~drove cash outflows from investing~~of $6.6 million including $1.8 million associated with software development and other growth programs compared to capital expenditures of $4.9 million in the same period in ~~2018.~~2019. MSA LLC, one of the Company's subsidiaries, is quickly ramping up the capacity for its APR production in the U.S. in response to demand created by the global pandemic. MSA LLC has increased its available workforce for APR production and expect to invest between $11 million to $13 million of capital expenditures to expand its APR production capacity.

Financing activities. Financing activities used cash of ~~$6.5~~$13.3 million during the three months ended March 31, ~~2019,~~2020, compared to using ~~$24.6~~$6.5 million during the same period in ~~2018.~~2019. During the three months ended March 31, ~~2019,~~2020, we had net proceeds on long-term debt of ~~$14.0~~$28.0 million as compared to net ~~payments~~proceeds of ~~$9.5~~$14.0 million during the same period in ~~2018.~~2019. We paid cash dividends of ~~$14.7~~$16.3 million during the three months ended March 31, ~~2019,~~2020, compared to ~~$13.4~~$14.7 million in the same period in ~~2018.~~2019. We also used cash of $27.7 million during the three months ended March 31, 2020 to repurchase shares, including $20.1 million related to purchases under our 2015 stock repurchase program, compared to using $7.4 million during the same period in 2019.

CUMULATIVE TRANSLATION ADJUSTMENTS

The position of the U.S. dollar relative to international currencies at March 31, ~~2019,~~2020, resulted in a translation ~~gain~~loss of ~~$0.2~~$22.8 million being recorded to the cumulative translation adjustments shareholders' equity account during the three months ended March 31, ~~2019,~~2020, compared to ~~$13.2~~a translation gain of $0.2 million during the same period in ~~2018. The translation gain during the three months ended March 31, 2018, was primarily related to the strengthening of the euro, British pound and Mexican peso relative to the U.S. dollar.~~

During the three months ended March 31, 2019, we recognized approximately $15.4 million of cumulative translation losses in our unaudited Condensed Consolidated Statement of Income as non-cash currency exchange losses due primarily to an approved plan to close our South Africa affiliates. This charge is related to the historical translation of the elements of the financial statements for the business from the functional currency to the U.S. Dollar. The translation impact has been historically recorded as currency translation adjustment (“CTA”), a separate component of accumulated other comprehensive loss within the equity section of the unaudited Condensed Consolidated Balance Sheet.

Inflation in Argentina in the second quarter of 2018 increased at an accelerated rate and effective June 30, 2018, Argentina’s economy is considered highly inflationary. Beginning July 1, 2018, under a highly-inflationary basis of accounting, the Company’s monetary assets (such as cash and receivables) and monetary liabilities (such as payables and accruals) at its operations in Argentina are remeasured at the end of each reporting period with such entries recorded to the unaudited Condensed Consolidated Statement of Income rather than to accumulated other comprehensive loss on the unaudited Condensed Consolidated Balance Sheet. Because the Argentinian peso is subject to fluctuation, such remeasurement will increase the volatility of reported results of operations in future periods. However, as the Company has a small presence, including one manufacturing plant in the country, the impact from the highly-inflationary basis of accounting is not material to our unaudited condensed consolidated financial statements.

2019.

Brexit has caused, and may continue to create, volatility in global stock markets and regional and global economic uncertainty particularly in the U.K. financial and banking markets. Weakening of economic conditions or economic uncertainties tend to harm our business, and if such conditions worsen in the U.K. or in the rest of Europe, it may have an adverse effect on our consolidated operations and sales. The Company continues to monitor the economic situation related to Brexit and current analysis indicates that exposure in our supply chain related to additional duties and sourcing costs is not material. ~~MSA has~~We have approximately $45 million of annual sales denominated in the British pound which are subject to exchange rate risk associated with any volatility in the British pound. ~~Our~~We have long-term debt ~~in the U.K. associated with the Latchways acquisition was $71.5~~of $73.5 million at March 31, ~~2019 and~~2020, that is denominated in British pounds. Because the debt is denominated in local currency, the value of the debt and local cash flows are aligned with respect to movements in the exchange rate between the British pound and U.S. dollar.

COMMITMENTS AND CONTINGENCIES

We made contributions of ~~$1.8~~$1.9 million to our pension plans during the three months ended March 31, ~~2019.~~2020. We expect to make total contributions of approximately ~~$7.1~~$7.6 million to our pension plans in ~~2019~~2020 which are primarily associated with our International segment.

The Company had outstanding bank guarantees and standby letters of credit with banks as of March 31, ~~2019,~~2020, totaling ~~$10.2~~$8.3 million, of which ~~$2.7~~$1.8 million related 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 March 31, ~~2019,~~2020, the Company has ~~$0.6~~$0.4 million of restricted cash in support of these arrangements.

We have purchase commitments for materials, supplies, services, and property, plant and equipment as part of our ordinary conduct of business.

Please refer to Note ~~18—~~17—Contingencies to the unaudited condensed consolidated financial statements in Part I Item 1 of this Form 10-Q for further discussion on the Company's single incident and cumulative trauma product liabilities.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP). The preparation of these consolidated 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 condensed consolidated financial statements.

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 our Annual Report on Form 10-K for the year ended December 31, ~~2018.~~

~~Refer to Note 14~~—~~Leases to the unaudited condensed consolidated financial statements for an update to the accounting policy for leases as a result of the adoption of ASU 2016-02,~~ ~~Leases, on January 1,~~ 2019.

RECENTLY ADOPTED AND RECENTLY ISSUED ACCOUNTING STANDARDS

Please refer to Note 2— Recently Adopted and Recently Issued Accounting Standards to the unaudited condensed consolidated financial statements in Part I Item 1 of this Form 10-Q.



Item 3.	Quantitative and Qualitative Disclosures About Market Risk

Market risk represents the risk of adverse changes in the value of a financial instrument caused by changes in currency exchange rates, interest rates and equity prices. We are exposed to market risks related to currency exchange rates and interest rates.

Currency exchange rate sensitivity. We are subject to the effects of fluctuations in currency exchange rates on various transactions and on the translation of the reported financial position and operating results of our non-U.S. companies from local currencies to U.S. dollars. A hypothetical 10% strengthening or weakening of the U.S. dollar would decrease or increase our reported sales and net income by approximately ~~$14.8~~$13.7 million or ~~4.5%~~4% and $0.9 million or ~~3.7%~~2%, respectively, for the three months ended March 31, ~~2019.~~2020.

When appropriate, we may attempt to limit our transactional exposure to changes in currency exchange rates through forward contracts or other actions intended to reduce existing exposures by creating offsetting currency exposures. At March 31, ~~2019,~~2020, we had open foreign currency forward contracts with a U.S. dollar notional value of ~~$76.4~~$75.4 million. A hypothetical 10% strengthening or weakening of the U.S. dollar would result in a ~~$7.6~~$7.5 million increase or decrease in the fair value of these contracts at March 31, ~~2019.~~2020.

Interest rates. We are exposed to changes in interest rates primarily as a result of borrowing and investing activities used to maintain liquidity and fund business operations.

At March 31, ~~2019,~~2020, we had ~~$131.7~~$108.3 million of fixed rate debt which matures at various dates through 2031. The incremental increase in the fair value of fixed rate long-term debt resulting from a hypothetical 10% decrease in interest rates would be approximately ~~$10.9~~$8.7 million. However, our sensitivity to interest rate declines and the corresponding increase in the fair value of our debt portfolio would unfavorably affect earnings and cash flows only to the extent that we elected to repurchase or retire all or a portion of our fixed rate debt portfolio at prices above carrying values.

At March 31, ~~2019,~~2020, we had ~~$247.5~~$264.7 million of variable rate borrowings under our revolving credit facility. A 100 basis point increase or decrease in interest rates could impact our future earnings under our current capital structure.



Item 4.	Controls and Procedures

(a)

Evaluation of disclosure controls and procedures. Based on their evaluation as of the end of the period covered by this Form 10-Q, the Company’s principal executive officer and principal financial officer have concluded that the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and (ii) accumulated and communicated to our management, including the principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.


(b)	Changes in internal control. There were no changes in the Company’s internal control over financial reporting that occurred during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION



Item 1A.	Risk Factors

Claims of injuries from our products, product defects or recalls of our products could have a ~~materially~~material adverse effect on our business, operating results, financial condition and liquidity.

MSA 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. In the event the parties using our products are injured or any of our products prove to be defective, we could be subject to claims with respect to such injuries. In addition, we may be required to or may voluntarily recall or redesign certain products that could potentially be harmful to end users. Any claim or product recall that results in significant expense or negative publicity against us could have a material adverse effect on our business, operating results, financial condition and liquidity, including any successful claim brought against us in excess or outside of available insurance coverage.

Our subsidiary, Mine Safety Appliances Company, LLC, may experience losses from cumulative trauma product liability claims. The inability to collect insurance receivables and the transition to becoming largely self-insured for cumulative trauma product liability claims could have a material adverse effect on our business, operating results, financial condition and liquidity.

Our subsidiary, Mine Safety Appliances Company, LLC (“MSA LLC”) was named as a defendant in ~~1,481~~1,658 cumulative trauma lawsuits comprised of ~~2,371~~2,520 claims at March 31, ~~2019.~~2020. 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. The products at issue were manufactured many years ago and are not currently offered by MSA LLC. A reserve has been established with respect to estimated amounts for cumulative trauma product liability claims currently asserted but not yet resolved and ~~estimated~~ incurred but not reported (“IBNR”) cumulative trauma product liability claims. Because our cumulative trauma product liability risk is subject to inherent uncertainties, including unfavorable trial rulings or developments, an increase in newly filed claims, or more aggressive settlement demands, and since MSA LLC is largely self-insured, there can be no certainty that MSA LLC may not ultimately incur losses in excess of presently recorded liabilities. These losses could have a material adverse effect on our business, operating results, financial condition and liquidity.

We will adjust the reserve ~~relating to cumulative trauma product liability claims~~ from time to time based on whether the actual numbers, types and settlement values of claims asserted differ from current projections and estimates or there are significant changes in the facts underlying the assumptions used in establishing the reserve. ~~These~~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. Any future adjustments to the reserve may be material and could materially impact future periods in which the reserve is adjusted.

In the normal course of business, MSA LLC makes payments to settle these types of cumulative trauma product liability claims and for related defense costs, and records receivables for the ~~estimated~~ amounts believed to be recoverable under insurance. MSA LLC has recorded insurance receivables totaling ~~$64.1~~$61.2 million and notes receivables of ~~$60.0~~$56.4 million at March 31, ~~2019.~~2020. Since MSA LLC is now largely self-insured for cumulative trauma claims, additional amounts recorded as insurance receivables will be limited and based on calculating the amounts to be reimbursed pursuant to negotiated Coverage-in-Place Agreements. Various factors could affect the timing and amount of recovery of the insurance ~~receivable,~~receivables, including assumptions regarding claims composition (which are relevant to calculating reimbursement under the terms of certain Coverage-In-Place ~~Arrangements)~~Agreements) and the extent to which the issuing insurers may become insolvent in the future.

Pandemics or disease outbreaks, such as COVID-19, may cause unfavorable economic or market conditions which could impact demand patterns and/or disrupt global supply chains and manufacturing operations. Collectively, these outcomes could materially and adversely affect our business, results of operations and financial condition.

Pandemics or disease outbreaks such as the novel coronavirus (COVID-19) could result in a widespread health crisis that could adversely affect the economies of developed and emerging markets, potentially resulting in an economic downturn that could affect customers’ demand for our products in certain industrial-based end-markets. The spread of pandemics or disease outbreaks may also disrupt the company’s manufacturing operations, supply chain, or logistics necessary to import, export and deliver products to our customers. During a pandemic or crisis, applicable laws and response directives could, in some circumstances, adversely affect our ability to operate our plants, or to deliver our products in a timely manner. Some laws and directives may also hinder our ability to move certain products across borders. Economic conditions can also influence order patterns. These factors could negatively impact our consolidated results of operations and cash flow.



Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds


(c)	Issuer Purchases of Equity Securities

Period
Total Number of
Shares
Purchased

Average Price Paid
Per Share

Total Number of
Shares Purchased
As Part of Publicly
Announced Plans or
Programs

Maximum Number
of Shares
That May Yet Be
Purchased Under
the Plans or
Programs
January 2019 430
$ 100.18
—
809,694
February 2019 5,931
103.55
—
784,555
March 2019 67,356
101.33
—
784,479



Period	Total Number of Shares Purchased	Average Price Paid Per Share		Total Number of Shares Purchased As Part of Publicly Announced Plans or Programs	Maximum Number of Shares That May Yet Be Purchased Under the Plans or Programs
January 2020	96	$	135.60	—	575,232
February 2020	59,992	122.06		58,685	580,399
March 2020	173,752	117.38		116,315	569,711

The share repurchase program authorizes up to $100.0 million in repurchases of MSA common stock in the open market and in private transactions. The share purchase program has no expiration date. The maximum shares that may be purchased is calculated based on the dollars remaining under the program and the respective month-end closing share price. We repurchased 175,000 shares during the quarter ended March 31, 2020, under this program.

~~Shares~~Additional shares purchased during the quarter relate to stock compensation transactions.

We do not have any other share repurchase programs.



Item 6.	Exhibits

(a) Exhibits

31.1 Certification of Chief Executive Officer pursuant to Rule 13a-14(a)

31.2 Certification of Chief Financial Officer pursuant to Rule 13a-14(a)

32 Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. (S)1350

101.INS XBRL Instance Document

101.SCH XBRL Taxonomy Extension Schema Document

101.CAL XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF XBRL Taxonomy Extension Definition Linkbase Document

101.LAB XBRL Taxonomy Extension Label Linkbase Document

101.PRE XBRL Taxonomy Extension Presentation Linkbase Document

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.




		MSA SAFETY INCORPORATED

April ~~25, 2019~~30, 2020		/s/ Kenneth D. Krause
		Kenneth D. Krause
		Sr. Vice President, Chief Financial Officer and Treasurer Duly Authorized Officer and Principal Financial Officer

~~-37-~~-35-



	Shares		Weighted Average Grant Date Fair Value
Unvested at January 1, 2020	238,035		$	85.39
Granted	64,791		127.36
Performance adjustments	33,499		72.36
Vested	(132,036	)	73.00
Forfeited	(448	)	72.28
Unvested at March 31, 2020	203,841		$	104.65



	Shares		Weighted Average Grant Date Fair Value
Unvested at January 1, 2019	218,886		$	68.43
Granted	76,813		100.66
Performance adjustments	77,783		43.77
Vested	(139,476	)	44.75
Unvested at March 31, 2019	234,006		$	84.93



(In thousands)	March 31, 2020		December 31, 2019
2010 Senior Notes payable through 2021, 4.00%, net of debt issuance costs	$	40,000	$	40,000
2016 Senior Notes payable through 2031, 3.40%, net of debt issuance costs	68,160		72,708
Senior revolving credit facility maturing in 2023, net of debt issuance costs	263,432		235,686
Total	371,592		348,394
Amounts due within one year, net of debt issuance costs	20,000		20,000
Long-term debt, net of debt issuance costs	$	351,592	$	328,394



(In thousands)	March 31, 2019		December 31, 2018
2010 Senior Notes payable through 2021, 4.00%, net of debt issuance costs	60,000		$	60,000
2016 Senior Notes payable through 2031, 3.40%, net of debt issuance costs	71,494		69,604
Senior revolving credit facility maturing in 2023, net of debt issuance costs	245,810		231,707
Total	377,304		361,311
Amounts due within one year, net of debt issuance costs	20,000		20,000
Long-term debt, net of debt issuance costs	$	357,304	$	341,311



(In thousands)	Intangible Assets
Net balance at January 1, 2020	$	171,326
Amortization expense	(2,886		)
Currency translation	(2,621		)
Net balance at March 31, 2020	$	165,819



	Shares		Weighted Average Exercise Price
Outstanding at January 1, 2019	735,001		$	43.79
Exercised	(44,407	)	36.24
Outstanding at March 31, 2019	690,594		44.28
Exercisable at March 31, 2019	690,594		$	44.28



(In thousands)	Goodwill
Balance at January 1, 2020	$	436,679
Currency translation	(6,565		)
Balance at March 31, 2020	$	430,114



(In thousands)	Goodwill
Balance at January 1, 2019	$	413,640
Currency translation	1,614
Balance at March 31, 2019	$	415,254



(In thousands)	Intangible Assets
Net balance at January 1, 2019	$	169,515
Amortization expense	(2,613		)
Currency translation	1,148
Net balance at March 31, 2019	$	168,050



		Other Information
		Three Months Ended March 31,
(In thousands, except percentage amounts)		2019
Lease cost:
	Operating lease cost recognized as rent expense	$	3,263
	Total lease cost	3,263

Cash paid for amounts included in the measurement of lease liabilities:
	Operating cash flows related to operating leases	$	3,425

Non-cash other information:
	Right-of-use assets obtained in exchange for new operating lease liabilities	$	1,883

Weighted-average remaining lease term (in years):
	Operating leases	12

Weighted-average discount rate:
	Operating leases	4.29		%




(In thousands)	Operating Leases

Remainder of 2019	$	8,852
2020	8,941
2021	6,988
2022	4,294
2023	3,843
After 2023	32,744
Total lease payments	$	65,662
Less: Interest	13,870
Present value of operating lease liabilities	51,792
Less: Current operating lease liabilities^(a)	9,830
Noncurrent operating lease liabilities	$	41,962



		Loss (Gain) Recognized in Income
		Three Months Ended March 31,
(In thousands)	Statement of Income Location	2019		2018
Derivatives not designated as hedging instruments:
Foreign exchange contracts	Currency exchange losses, net	$	1,262	$	(2,875	)



(In millions)	May 20, 2019
Current assets (including cash of $2.1 million)	$	10.5
Property, plant and equipment and other noncurrent assets	1.3
Customer relationships	9.6
Acquired technology	1.4
Goodwill	19.9
Total assets acquired	42.7
Total liabilities assumed	6.5
Net assets acquired	$	36.2



(In millions, except per share amounts)	Three months ended March 31, 2019
Net sales	$	331.6
Net income	23.2
Basic earnings per share	0.60
Diluted earnings per share	0.59


Net Sales	Three Months Ended March 31, 2019 versus March 31, 2018			Three Months Ended March 31, 2020 versus March 31, 2019
(Percent Change)	Americas	International	Consolidated	Americas	International	Consolidated
GAAP reported sales change	2.2%	(3.9)%	—%	8.2%	(2.1)%	4.6%
Currency translation effects	(1.1)%	(7.4)%	(3.4)%	1.6%	2.9%	2.1%
Constant currency sales change	3.3%	3.5%	3.4%	9.8%	0.8%	6.7%



Selling, general, and administrative expenses	Three Months Ended March 31, 2020 versus March 31, 2019 ~~versus March 31, 2018~~
(Percent Change)	Consolidated
GAAP reported change	~~(2.3)%~~2.3%
~~Less:~~ Currency translation effects	~~(3.2)%~~1.8%
Constant currency change	~~0.9%~~4.1%
Less: Acquisitions and related strategic transaction costs	(1.5)%
Organic constant currency change	2.6%