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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): February 20, 2018

https://cdn.kscope.io/988d46432c1779c5f5983b61c2449edb-q32017pressrelease8kt_image1.jpg
MSA SAFETY INCORPORATED
(Exact name of registrant as specified in its charter)
 
 
 
 
 
Pennsylvania
 
1-15579
 
46-4914539
(State or other jurisdiction
of incorporation)
 
(Commission File Number)
 
(IRS Employer
Identification Number)

1000 Cranberry Woods Drive
Cranberry Township, Pennsylvania
 
16066-5207
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code: 724-776-8600
 Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
o
 
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o
 
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o
 
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o
 
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2).
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. ☐





Item 2.02
Results of Operations and Financial Condition
On February 20, 2018, the Company issued a press release announcing its financial results for the quarter and full year ended December 31, 2017. A copy of the press release is furnished herewith as Exhibit 99.1 to this report.

Item 9.01
Financial Statements and Exhibits
(d) Exhibits

99.1
MSA Safety Incorporated Press Release dated February 20, 2018, announcing financial results for the quarter and full year ended December 31, 2017.






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 hereunto duly authorized.

 
 
 
MSA SAFETY INCORPORATED
(Registrant)
 
 
By
 
/s/ Kenneth D. Krause
 
 
Kenneth D. Krause
 
 
Vice President, Chief Financial Officer and Treasurer

February 20, 2018




EXHIBIT INDEX

Exhibit No.     Description

99.1



Exhibit
1


https://cdn.kscope.io/988d46432c1779c5f5983b61c2449edb-msaa12.jpg
FOR IMMEDIATE RELEASE
FROM: MSA Safety Incorporated
Ticker: MSA (NYSE)
Media Relations Contact: Mark Deasy (724) 741 - 8570
Investor Relations Contact: Elyse Lorenzato (724) 741 - 8525

MSA Announces Fourth Quarter and Full Year 2017 Results
Quarterly GAAP loss of $0.87 per share includes a noncash increase in the reserve for unasserted product liability claims and a charge associated with U.S. Tax Reform; Quarterly adjusted earnings increased 69 percent to $1.31 per share on double-digit revenue growth and a streamlined cost structure

PITTSBURGH, February 20, 2018 - Global safety equipment manufacturer MSA Safety Incorporated (NYSE: MSA) today reported results for the fourth quarter and full year of 2017.

Quarterly Highlights

•
Reported revenue was $346 million, increasing 17 percent from a year ago on a reported basis and 14 percent on a constant currency basis.

•
Quarterly GAAP loss from continuing operations was $33 million or $0.87 per basic share, compared to earnings of $25 million or $0.67 per basic share in the same period a year ago. The decline in GAAP earnings is attributable to a $93 million non-cash pre-tax charge related primarily to increasing the cumulative trauma product liability reserve for estimated unasserted, or incurred but not reported ("IBNR"), claims, net of expected insurance collections, and a $20 million income tax charge associated with U.S. Tax Reform.

•
Adjusted earnings increased 69 percent to $51 million or $1.31 per diluted share, compared to adjusted earnings of $30 million or $0.78 per diluted share in the same period a year ago, on strong revenue growth throughout MSA’s core product portfolio, the company’s 2017 acquisition of firefighter protective clothing manufacturer Globe Manufacturing, and a streamlined cost structure.



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2

Annual Highlights

•
Reported revenue was $1.197 billion, increasing 4 percent from a year ago on a reported basis and 3 percent on a constant currency basis.

•
Selling, general and administrative expenses declined $8 million on a reported basis and $16 million on an organic constant currency basis, exceeding the company's full year cost savings target of $10 million.

•
GAAP earnings from continuing operations were $26 million, or $0.68 per basic share, compared to $93 million, or $2.47 per basic share, in the same period a year ago. The decline in GAAP earnings is attributable to a $126 million pre-tax charge associated with increasing the company’s cumulative trauma product liability reserve for asserted claims in the second quarter and IBNR claims in the fourth quarter, net of expected insurance collections, and a $20 million income tax charge associated with U.S. Tax Reform.

•
Adjusted earnings increased 34 percent to $141 million, or $3.65 per diluted share, compared to adjusted earnings of $105 million, or $2.77 per diluted share, in the same period a year ago. The acquisition of Globe, a streamlined cost structure, and a lower effective tax rate were the key drivers of earnings growth in 2017.

•
Cash flow from operating activities was $230 million compared to $135 million in the same period a year ago, reflecting higher collections of insurance receivables partially offset by higher levels of working capital to support elevated demand across the company’s core product portfolio. In 2017, the company invested $216 million in the acquisition of Globe and returned $70 million to shareholders through dividend payments and repurchases of common stock.


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3

Cumulative Trauma Product Liability Charge

•
In the fourth quarter of 2017, the company in consultation with an outside valuation consultant and outside legal counsel, performed a review for IBNR cumulative trauma product liability claims. Based on that review process, it was determined that a reasonable estimate for the liability of its IBNR claims was $111 million through the year 2060. The reserve is not discounted to present value.

•
The company's fourth quarter GAAP results include a $93 million non-cash pre-tax charge, or $63 million after tax ($1.65 per diluted share), which primarily reflects the increase to the cumulative trauma product liability reserve for IBNR claims, net of expected insurance collections.

•
The ability to make a reasonable estimate of the potential liability for IBNR cumulative trauma product liability claims reflects stabilization of a number of factors which are important to the estimation process. This stabilization has enabled greater predictability of potential cumulative trauma product liability related to IBNR claims.

•
The company's cumulative trauma product liability reserve balance was $181 million at the end of the quarter, which includes reserves for both asserted and IBNR claims. The company has insurance and notes receivable totaling $212 million.

Comments from Management

“Our fourth quarter results reflect improving macro conditions across many of our key end markets and geographies, as well as returns on investments made in strategic acquisitions and cost reduction programs,” said William M. Lambert, MSA Chairman and CEO. "Our quarterly revenue reflected record performance for MSA and increased 14 percent in constant currency from a year ago, or 6 percent excluding Globe. Additionally, our streamlined cost structure provided support to leverage our revenue growth into a 69 percent increase in adjusted earnings."


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4

Mr. Lambert noted that the company finished the year with a backlog pipeline that is trending approximately 10 percent higher than the end of the third quarter on strong demand for industrial products and self-contained breathing apparatus for the fire service market. “Typically, we see a seasonal decline in backlog during the fourth quarter. The solid quarterly revenue growth coupled with an elevated level of backlog at year end highlights the positive momentum we see occurring in many of our end markets," Mr. Lambert commented.

Regarding the increase to the company's product liability reserve, Mr. Lambert noted the reserve relates to products sold many years ago that are no longer part of the MSA portfolio. "For more than a decade, we have funded product liability settlements from operating cash flow," Mr. Lambert explained. "Through the ongoing successful resolution of insurance litigation, we continue to make good progress collecting insurance proceeds and establishing cash flow streams for the future, which I expect will allow us to fund these liabilities without a material impact on our capital allocation priorities."

"As we look ahead to 2018, we are highly focused on generating revenue growth and investing in the programs, people and technology that will help us reach our growth and profitability targets. With an expected tailwind from U.S. tax reform, combined with healthy conditions in our end markets and a strong balance sheet, we are well positioned to create value for our stakeholders in 2018 and beyond," he concluded.




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5

MSA Safety Incorporated
Condensed Consolidated Statement of Income (Unaudited)
(In thousands, except per share amounts)
 
Three Months Ended December 31,
 
Twelve Months Ended December 31,
 
2017
 
2016
 
2017
 
2016
 
 
 
 
 
 
 
 
Net sales
$
346,140

 
$
296,031

 
$
1,196,809

 
$
1,149,530

Cost of products sold
191,569

 
157,710

 
656,411

 
625,887

Gross profit
154,571

 
138,321

 
540,398

 
523,643

 
 
 
 
 
 
 
 
Selling, general and administrative
75,467

 
78,288

 
297,801

 
306,144

Research and development
14,779

 
12,224

 
50,061

 
46,847

Restructuring charges
712

 
1,997

 
17,632

 
5,694

Currency exchange losses (gains), net
1,133

 
(1,732
)
 
5,127

 
766

Other operating expense (a)
93,476

 
—

 
126,432

 
—

Operating (loss) income
(30,996
)
 
47,544

 
43,345

 
164,192

 
 
 
 
 
 
 
 
Interest expense
4,794

 
3,896

 
15,360

 
16,411

Other expense (income), net

271

 
(426)

 
(1,790)

 
(4,130)

Total other expense, net
5,065

 
3,470

 
13,570

 
12,281

 
 
 
 
 
 
 
 
(Loss) income from continuing operations before income taxes
(36,061
)
 
44,074

 
29,775

 
151,911

(Benefit) provision for income taxes
(3,487
)
 
18,938

 
2,819

 
57,804

(Loss) income from continuing operations
(32,574
)
 
25,136

 
26,956

 
94,107

Loss from discontinued operations
—

 
(300
)
 
—

 
(245
)
Net (loss) income
(32,574
)
 
24,836

 
26,956

 
93,862

Net (income) loss attributable to noncontrolling interests
(410
)
 
80

 
(929
)
 
(1,926
)
Net (loss) income attributable to MSA Safety Incorporated
(32,984
)
 
24,916

 
26,027

 
91,936

 
 
 
 
 
 
 
 
Amounts attributable to MSA Safety Incorporated common shareholders:
 
 
 
 
 
 
 
(Loss) income from continuing operations
(32,984
)
 
25,216

 
26,027

 
92,691

Loss from discontinued operations
—

 
(300
)
 
—

 
(755
)
  Net (loss) income
(32,984
)
 
24,916

 
26,027

 
91,936

 
 
 
 
 
 
 
 
Earnings per share attributable to MSA Safety Incorporated common shareholders:
 
 
 
 
 
 
 
Basic
 
 
 
 
 
 
 
(Loss) income from continuing operations
$
(0.87
)
 
$
0.67

 
$
0.68

 
$
2.47

Loss from discontinued operations
$
—

 
$
(0.01
)
 
$
—

 
$
(0.02
)
  Net (loss) income
$
(0.87
)
 
$
0.66

 
$
0.68

 
$
2.45

 
 
 
 
 
 
 
 
Diluted
 
 
 
 
 
 
 
(Loss) Income from continuing operations
$
(0.87
)
 
$
0.66

 
$
0.67

 
$
2.44

Loss from discontinued operations
$
—

 
$
(0.01
)
 
$
—

 
$
(0.02
)
  Net (loss) income
$
(0.87
)
 
$
0.65

 
$
0.67

 
$
2.42

 
 
 
 
 
 
 
 
Basic shares outstanding
38,079

 
37,602

 
37,997

 
37,456

Diluted shares outstanding
38,079

 
38,218

 
38,697

 
37,986

(a) Year to date amount is primarily associated with increasing the company's cumulative trauma product liability reserve for asserted and IBNR claims.

(more)

6

MSA Safety Incorporated
Condensed Consolidated Balance Sheet (Unaudited)
(In thousands)
 
December 31, 2017
 
December 31, 2016
Assets
 
 
 
Cash and cash equivalents
$
134,244

 
$
113,759

Trade receivables, net
244,198

 
209,514

Inventories
153,739

 
103,066

Notes receivable, insurance companies
17,333

 
4,180

Other current assets
72,783

 
42,287

    Total current assets
622,297

 
472,806

 
 
 
 
Property, net
157,014

 
148,678

Prepaid pension cost
83,060

 
62,916

Goodwill
422,185

 
333,276

Notes receivable, insurance companies, noncurrent
59,567

 
63,147

Insurance receivable, noncurrent
123,089

 
157,929

Other noncurrent assets
217,614

 
115,168

   Total assets
$
1,684,826

 
$
1,353,920

 
 
 
 
Liabilities and shareholders' equity
 
 
 
Notes payable and current portion of long-term debt, net
$
26,680

 
$
26,666

Accounts payable
87,061

 
62,734

Other current liabilities
175,538

 
132,010

   Total current liabilities
289,279

 
221,410

 
 
 
 
Long-term debt, net
447,832

 
363,836

Pensions and other employee benefits
170,773

 
157,927

Deferred tax liabilities
9,341

 
34,044

Other noncurrent liabilities
165,023

 
15,491

Total shareholders' equity
602,578

 
561,212

   Total liabilities and shareholders' equity
$
1,684,826

 
$
1,353,920







(more)

7

MSA Safety Incorporated
Condensed Consolidated Statement of Cash Flows (Unaudited)
(In thousands)
 
Three Months Ended December 31,
 
Twelve Months Ended December 31,
 
2017
 
2016
 
2017
 
2016
 
 
 
 
 
 
 
 
Net (loss) income
$
(32,574
)
 
$
24,836

 
$
26,956

 
$
93,862

Depreciation and amortization
10,212

 
8,622

 
37,877

 
35,273

Change in working capital and other operating
63,452

 
69,999

 
165,503

 
5,759

  Cash flow from operating activities
41,090

 
103,457

 
230,336

 
134,894

 
 
 
 
 
 
 
 
Capital expenditures
(11,995
)
 
(9,377
)
 
(23,725
)
 
(25,523
)
Acquisition, net of cash acquired
(2,318
)
 
(188
)
 
(216,308
)
 
(18,449
)
Property disposals and other investing
103

 
282

 
832

 
18,214

  Cash flow used in investing activities
(14,210)

 
(9,283)

 
(239,201
)
 
(25,758)

 
 
 
 
 
 
 
 
Change in debt
1,346

 
(76,991
)
 
77,246

 
(60,908
)
Cash dividends paid
(13,337
)
 
(12,399
)
 
(52,537
)
 
(49,074
)
Company stock purchases
(857
)
 
—

 
(17,513
)
 
(1,881
)
Other financing
3,313

 
7,803

 
15,869

 
14,022

  Cash flow (used in) from financing activities
(9,535
)
 
(81,587
)
 
23,065

 
(97,841
)
 
 
 
 
 
 
 
 
Effect of exchange rate changes on cash and cash equivalents
4,714

 
(4,861
)
 
6,285

 
(3,461
)
 
 
 
 
 
 
 
 
Increase in cash and cash equivalents
22,059

 
7,726

 
20,485

 
7,834





(more)

8

MSA Safety Incorporated
Segment Information (Unaudited)
(In thousands)
 
Americas
 
International
 
Corporate
 
Consolidated
Three Months Ended December 31, 2017
 
 
 
 
 
 
 
Sales to external customers
$
208,421

 
$
137,719

 
—

 
$
346,140

Operating loss
 
 
 
 
 
 
(30,996
)
Operating margin %
 
 
 
 
 
 
(9.0
)%
Restructuring and other charges
 
 
 
 
 
 
712

Currency exchange losses, net
 
 
 
 
 
 
1,133

Other operating expense
 
 
 
 
 
 
93,476

Adjusted operating income (loss)
53,400

 
18,770

 
(7,845
)
 
$
64,325

Adjusted operating margin %
25.6
%
 
13.6
%
 
 
 
18.6
 %
 
 
 
 
 
 
 
 
Twelve Months Ended December 31, 2017
 
 
 
 
 
 
 
Sales to external customers
$
736,847

 
$
459,962

 
—

 
$
1,196,809

Operating income
 
 
 
 
 
 
43,345

Operating margin %
 
 
 
 
 
 
3.6
 %
Restructuring and other charges
 
 
 
 
 
 
17,632

Currency exchange losses, net
 
 
 
 
 
 
5,127

Other operating expense
 
 
 
 
 
 
126,432

Adjusted operating income (loss)
184,287

 
45,461

 
(37,212
)
 
$
192,536

Adjusted operating margin %
25.0
%
 
9.9
%
 
 
 
16.1
 %

 
Americas
 
International
 
Corporate
 
Consolidated
Three Months Ended December 31, 2016
 
 
 
 
 
 
 
Sales to external customers
$
168,109

 
$
127,922

 
—

 
$
296,031

Operating income
 
 
 
 
 
 
47,544

Operating margin %
 
 
 
 
 
 
16.1
%
Restructuring charges
 
 
 
 
 
 
1,997

Currency exchange (gains), net
 
 
 
 
 
 
(1,732
)
Other operating expense
 
 
 
 
 
 
—

Adjusted operating income (loss)
45,313

 
14,832

 
(12,336
)
 
$
47,809

Adjusted operating margin %
27.0
%
 
11.6
%
 
 
 
16.2
%
 
 
 
 
 
 
 
 
Twelve Months Ended December 31, 2016
 
 
 
 
 
 
 
Sales to external customers
$
678,433

 
$
471,097

 
—

 
$
1,149,530

Operating income
 
 
 
 
 
 
164,192

Operating margin %
 
 
 
 
 
 
14.3
%
Restructuring charges
 
 
 
 
 
 
5,694

Currency exchange losses, net
 
 
 
 
 
 
766

Other operating expense
 
 
 
 
 
 
—

Adjusted operating income (loss)
162,788

 
46,491

 
(38,627
)
 
$
170,652

Adjusted operating margin %
24.0
%
 
9.9
%
 
 
 
14.8
%



(more)

9

The Americas and International segments were established on January 1, 2016. The Americas segment is comprised of our operations in the U.S., Canada and Latin America. The International segment is comprised of our operations in all other parts of the world including Europe, Africa, the Middle East, India, China, South East Asia and Australia. Certain global expenses are allocated to each segment in a manner consistent with where the benefits from the expenses are derived.

Adjusted operating income (loss) and adjusted operating margin are the measures used by the chief operating decision maker to evaluate segment performance and allocate resources. As such, management believes that adjusted operating income (loss) and adjusted operating margin are useful metrics for investors. Adjusted operating income (loss) is defined as operating income excluding restructuring, currency exchange gains (losses) and other operating expense. Adjusted operating margin is defined as adjusted operating income (loss) divided by segment sales to external customers. Adjusted operating income (loss) and adjusted operating margin are not recognized terms under GAAP and therefore do not purport to be alternatives to operating income or operating margin as a measure of operating performance. The Company's definition of adjusted operating income (loss) and adjusted operating margin may not be comparable to similarly titled measures of other companies. As such, management believes that it is appropriate to consider operating income determined on a GAAP basis in addition to these non-GAAP measures.

(more)

10

MSA Safety Incorporated
Reconciliation of As Reported Financial Measures to Non-GAAP Financial Measures
Constant currency revenue growth (Unaudited)
Organic constant currency revenue growth (Unaudited)

Consolidated
 
Three Months Ended December 31, 2017
 
Breathing Apparatus
Firefighter Helmets and Protective Apparel(b)
Industrial Head Protection
Portable Gas Detection
Fixed Gas and Flame Detection
Fall Protection
Core Sales
 
Non-Core Sales
 
Net Sales
GAAP reported sales change
9
 %
236
 %
9
 %
14
 %
11
 %
8
 %
22
 %
 
(10
)%
 
17
 %
Plus: Currency translation effects
(2
)%
(7
)%
(2
)%
(2
)%
(5
)%
(4
)%
(3
)%
 
(3
)%
 
(3
)%
Constant currency sales change
7
 %
229
 %
7
 %
12
 %
6
 %
4
 %
19
 %
 
(13
)%
 
14
 %
Less: Acquisitions
—
 %
207
 %
—
 %
—
 %
(4
)%
—
 %
10
 %
 
—
 %
 
8
 %
Organic constant currency change
7
 %
22
 %
7
 %
12
 %
10
 %
4
 %
9
 %
 
(13
)%
 
6
 %
 
Twelve Months Ended December 31, 2017
 
Breathing Apparatus
Firefighter Helmets and Protective Apparel(b)
Industrial Head Protection
Portable Gas Detection
Fixed Gas and Flame Detection
Fall Protection
Core Sales
 
Non-Core Sales
 
Net Sales
GAAP reported sales change
(4
)%
97
 %
13
 %
4
%
4
 %
2
%
8
 %
 
(12
)%
 
4
 %
Plus: Currency translation effects
—
 %
(1
)%
(2
)%
—
%
(2
)%
2
%
(1
)%
 
(2
)%
 
(1
)%
Constant currency sales change
(4
)%
96
 %
11
 %
4
%
2
 %
4
%
7
 %
 
(14
)%
 
3
 %
Less: Acquisitions
—
 %
89
 %
—
 %
—
%
—
 %
—
%
5
 %
 
—
 %
 
4
 %
Organic constant currency change
(4
)%
7
 %
11
 %
4
%
2
 %
4
%
2
 %
 
(14
)%
 
(1
)%

(b) Firefighter helmets and protective apparel includes the impact of the Globe acquisition, completed on July 31, 2017.

Management believes that constant currency revenue growth is a useful metric for investors, as foreign currency translation can have a material impact on revenue growth trends. Constant currency revenue growth highlights ongoing business performance excluding the impact of fluctuating foreign currencies, which is outside of management's control. Organic constant currency revenue growth is defined as constant currency revenue growth excluding acquisitions. Management believes that organic constant currency revenue growth is a useful measure for investors to provide an understanding of MSA's standalone results. There can be no assurances that MSA's definition of constant currency revenue growth or organic constant currency revenue growth is consistent with that of other companies. As such, management believes that it is appropriate to consider revenue growth determined on a GAAP basis in addition to these non-GAAP financial measures.

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11

MSA Safety Incorporated
Reconciliation of As Reported Financial Measures to Non-GAAP Financial Measures
Constant currency revenue growth (Unaudited)
Organic constant currency revenue growth (Unaudited)

Americas Segment
 
Three Months Ended December 31, 2017
 
Breathing Apparatus
Firefighter Helmets and Protective Apparel(b)
Industrial Head Protection
Portable Gas Detection
Fixed Gas and Flame Detection
Fall Protection
Core Sales
 
Non-Core Sales
 
Net Sales
GAAP reported sales change
10
%
581
%
10
 %
11
%
4
%
19
 %
29
 %
 
(5
)%
 
24
%
Plus: Currency translation effects
—
%
2
%
(1
)%
—
%
—
%
(1
)%
(1
)%
 
(1
)%
 
—
%
Constant currency sales change
10
%
583
%
9
 %
11
%
4
%
18
 %
28
 %
 
(6
)%
 
24
%
Less: Acquisitions
—
%
559
%
—
 %
—
%
—
%
—
 %
18
 %
 
—
 %
 
16
%
Organic constant currency change
10
%
24
%
9
 %
11
%
4
%
18
 %
10
 %
 
(6
)%
 
8
%
 
Twelve Months Ended December 31, 2017
 
Breathing Apparatus
Firefighter Helmets and Protective Apparel(b)
Industrial Head Protection
Portable Gas Detection
Fixed Gas and Flame Detection
Fall Protection
Core Sales
 
Non-Core Sales
 
Net Sales
GAAP reported sales change
(4
)%
219
%
11
 %
8
%
(2
)%
22
%
11
%
 
(7
)%
 
9
 %
Plus: Currency translation effects
—
 %
—
%
(1
)%
—
%
—
 %
—
%
—
%
 
(1
)%
 
(1
)%
Constant currency sales change
(4
)%
219
%
10
 %
8
%
(2
)%
22
%
11
%
 
(8
)%
 
8
 %
Less: Acquisitions
—
 %
213
%
—
 %
—
%
—
 %
—
%
8
%
 
—
 %
 
7
 %
Organic constant currency change
(4
)%
6
%
10
 %
8
%
(2
)%
22
%
3
%
 
(8
)%
 
1
 %

(b) Firefighter helmets and protective apparel includes the impact of the Globe acquisition, completed on July 31, 2017.

Management believes that constant currency revenue growth is a useful metric for investors, as foreign currency translation can have a material impact on revenue growth trends. Constant currency revenue growth highlights ongoing business performance excluding the impact of fluctuating foreign currencies, which is outside of management's control. Organic constant currency revenue growth is defined as constant currency revenue growth excluding acquisitions. Management believes that organic constant currency revenue growth is a useful measure for investors to provide an understanding of MSA's standalone results. There can be no assurances that MSA's definition of constant currency revenue growth or organic constant currency revenue growth is consistent with that of other companies. As such, management believes that it is appropriate to consider revenue growth determined on a GAAP basis in addition to these non-GAAP financial measures.

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12

MSA Safety Incorporated
Reconciliation of As Reported Financial Measures to Non-GAAP Financial Measures
Constant currency revenue growth (Unaudited)
Organic constant currency revenue growth (Unaudited)

International Segment
 
Three Months Ended December 31, 2017
 
Breathing Apparatus
Firefighter Helmets and Protective Apparel
Industrial Head Protection
Portable Gas Detection
Fixed Gas and Flame Detection
Fall Protection
Core Sales
 
Non-Core Sales
 
Net Sales
GAAP reported sales change
9
 %
29
 %
5
 %
20
 %
16
 %
(3
)%
13
 %
 
(15
)%
 
8
 %
Plus: Currency translation effects
(7
)%
(9
)%
(3
)%
(7
)%
(7
)%
(7
)%
(7
)%
 
(5
)%
 
(7
)%
Constant currency sales change
2
 %
20
 %
2
 %
13
 %
9
 %
(10
)%
6
 %
 
(20
)%
 
1
 %
Less: Acquisitions
—
 %
—
 %
—
 %
—
 %
(6
)%
—
 %
(2
)%
 
—
 %
 
(2
)%
Organic constant currency change
2
 %
20
 %
2
 %
13
 %
15
 %
(10
)%
8
 %
 
(20
)%
 
3
 %
 
Twelve Months Ended December 31, 2017
 
Breathing Apparatus
Firefighter Helmets and Protective Apparel
Industrial Head Protection
Portable Gas Detection
Fixed Gas and Flame Detection
Fall Protection
Core Sales
 
Non-Core Sales
 
Net Sales
GAAP reported sales change
(3
)%
10
 %
18
 %
(2
)%
9
 %
(15
)%
2
 %
 
(18
)%
 
(2
)%
Plus: Currency translation effects
(2
)%
(2
)%
(1
)%
(2
)%
(2
)%
3
 %
(2
)%
 
(2
)%
 
(2
)%
Constant currency sales change
(5
)%
8
 %
17
 %
(4
)%
7
 %
(12
)%
—
 %
 
(20
)%
 
(4
)%
Less: Acquisitions
—
 %
—
 %
—
 %
—
 %
1
 %
—
 %
—
 %
 
—
 %
 
—
 %
Organic constant currency change
(5
)%
8
 %
17
 %
(4
)%
6
 %
(12
)%
—
 %
 
(20
)%
 
(4
)%



Management believes that constant currency revenue growth is a useful metric for investors, as foreign currency translation can have a material impact on revenue growth trends. Constant currency revenue growth highlights ongoing business performance excluding the impact of fluctuating foreign currencies, which is outside of management's control. Organic constant currency revenue growth is defined as constant currency revenue growth excluding acquisitions. Management believes that organic constant currency revenue growth is a useful measure for investors to provide an understanding of MSA's standalone results. There can be no assurances that MSA's definition of constant currency revenue growth or organic constant currency revenue growth is consistent with that of other companies. As such, management believes that it is appropriate to consider revenue growth determined on a GAAP basis in addition to these non-GAAP financial measures.

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13

MSA Safety Incorporated
Supplemental Segment Information (Unaudited)
Summary of constant currency revenue growth by segment and product group

 
Three Months Ended December 31, 2017
 
Consolidated
 
Americas
 
International
Firefighter Helmets and Protective Apparel(b)
229
 %
 
583
 %
 
20
 %
Portable Gas Detection
12
 %
 
11
 %
 
13
 %
Industrial Head Protection
7
 %
 
9
 %
 
2
 %
Breathing Apparatus
7
 %
 
10
 %
 
2
 %
Fixed Gas and Flame Detection
6
 %
 
4
 %
 
9
 %
Fall Protection
4
 %
 
18
 %
 
(10
)%
Core Sales
19
 %
 
28
 %
 
6
 %
Core excluding Acquisitions
9
 %
 
10
 %
 
8
 %
 
 
 
 
 
 
Non-Core Sales
(13
)%
 
(6
)%
 
(20
)%
 
 
 
 
 
 
Net Sales
14
 %
 
24
 %
 
1
 %
Net Sales excluding Acquisitions
6
 %
 
8
 %
 
3
 %

 
Twelve Months Ended December 31, 2017
 
Consolidated
 
Americas
 
International
Firefighter Helmets and Protective Apparel(b)
96
 %
 
219
 %
 
8
 %
Portable Gas Detection
4
 %
 
8
 %
 
(4
)%
Industrial Head Protection
11
 %
 
10
 %
 
17
 %
Breathing Apparatus
(4
)%
 
(4
)%
 
(5
)%
Fixed Gas and Flame Detection
2
 %
 
(2
)%
 
7
 %
Fall Protection
4
 %
 
22
 %
 
(12
)%
Core Sales
7
 %
 
11
 %
 
—
 %
Core excluding Acquisitions
2
 %
 
3
 %
 
—
 %
 
 
 
 
 
 
Non-Core Sales
(14
)%
 
(8
)%
 
(20
)%
 
 
 
 
 
 
Net Sales
3
 %
 
8
 %
 
(4
)%
Net Sales excluding Acquisitions
(1
)%
 
1
 %
 
(4
)%

(b) Firefighter helmets and protective apparel includes the impact of the Globe acquisition, completed on July 31, 2017.







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14

MSA Safety Incorporated
Reconciliation of As Reported Financial Measures to Non-GAAP Financial Measures
Organic constant currency SG&A expense (Unaudited)
(In thousands)

 
Three Months Ended December 31,
 
 
 
Twelve Months Ended December 31,
 
 
 
2017

2016
 
%
Change
 
2017

2016
 
%
Change
 
 
 
 
 
 
 
 
 
 
 
 
GAAP reported SG&A expense
$
75,467

 
$
78,288

 
(4)%
 
$
297,801

 
$
306,144

 
(3)%
Plus: currency translation effects
—

 
2,334

 
 
 
—

 
2,279

 
 
Constant currency SG&A expense
75,467

 
80,622

 
(6)%
 
297,801

 
308,423

 
(3)%
Less: Acquisitions and strategic transaction costs
2,957

 
3,173

 
 
 
9,783

 
3,994

 
 
Organic constant currency SG&A expense
72,510

 
77,449

 
(6)%
 
288,018

 
304,429

 
(5)%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Management believes that organic constant currency SG&A expense is a useful metric for investors to measure the effectiveness of the company's cost reduction programs. Constant currency SG&A expense highlights spending patterns excluding fluctuating foreign currencies. Organic constant currency SG&A expense highlights the impact of acquisitions and strategic transaction costs. These metrics provide investors with a greater level of clarity into spending levels on a year-over-year basis. There can be no assurances that MSA's definition of organic constant currency SG&A expense is consistent with that of other companies. As such, management believes that it is appropriate to consider SG&A expense determined on a GAAP basis in addition to this non-GAAP financial measure.


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15

MSA Safety Incorporated
Reconciliation of As Reported Financial Measures to Non-GAAP Financial Measures
Adjusted earnings (Unaudited)
Adjusted earnings per diluted share (Unaudited)
(In thousands, except per share amounts)
 
Three Months Ended December 31,
 
 
 
Twelve Months Ended December 31,
 
 
 
2017

2016
 
%
Change
 
2017

2016
 
%
Change
 
 
 
 
 
 
 
 
 
 
 
 
(Loss) income from continuing operations attributable to MSA Safety Inc.
$
(32,984
)
 
$
25,216

 
(231)%
 
$
26,027

 
$
92,691

 
(72)%
Tax charges associated with U.S. Tax Reform
19,817

 
—

 
 
 
19,817

 
 
 
 
Tax (benefit) associated with ASU 2016-09: Improvements to employee share-based payment accounting
(1,413
)
 
—

 
 
 
(8,323
)
 
—

 
 
Tax (benefits) charges associated with European reorganization
(30
)
 
2,873

 
 
 
(2,504
)
 
6,473

 
 
Subtotal
(14,610
)
 
28,089

 
(152)%
 
35,017

 
99,164

 
(65)%
 
 
 
 
 
 
 
 
 
 
 
 
Self-insured legal settlements and defense costs (a)
93,476

 
26

 
 
 
126,432

 
341

 
 
Currency exchange losses (gains), net
1,133

 
(1,732
)
 
 
 
5,127

 
766

 
 
Strategic transaction costs
860

 
1,710

 
 
 
4,225

 
2,531

 
 
Restructuring charges
712

 
1,997

 
 
 
17,632

 
5,694

 
 
Asset related losses and other, net
492

 
847

 
 
 
678

 
32

 
 
Income tax expense on adjustments
(31,443
)
 
(1,038
)
 
 
 
(47,810
)
 
(3,161
)
 
 
Adjusted earnings
50,620

 
29,899

 
69%
 
141,301

 
105,367

 
34%
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted earnings per diluted share
$
1.31

 
$
0.78

 
68%
 
$
3.65

 
$
2.77

 
32%

(a) Year to date amount is primarily associated with increasing the company's cumulative trauma product liability reserve for asserted and IBNR claims.

Management believes that adjusted earnings and adjusted earnings per diluted share are useful measures for investors, as management uses these measures to internally assess the company’s performance and ongoing operating trends. There can be no assurances that additional special items will not occur in future periods, nor that MSA's definition of adjusted earnings is consistent with that of other companies. As such, management believes that it is appropriate to consider both net income determined on a GAAP basis as well as adjusted earnings.


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16

About MSA:    
Established in 1914, MSA Safety Incorporated is the global leader in the development, manufacture and supply of safety products that protect people and facility infrastructures.  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 is used by workers around the world in a broad range of markets, including the oil, gas and petrochemical industry, the fire service, the construction industry, mining and the military.  MSA's core products include self-contained breathing apparatus, fixed gas and flame detection systems, portable gas detection instruments, industrial head protection products, firefighter helmets and protective apparel, and fall protection devices.  With 2017 revenues of $1.2 billion, MSA employs approximately 4,700 people worldwide.  The company is headquartered north of Pittsburgh in Cranberry Township, Pa., and has manufacturing operations in the United States, Europe, Asia and Latin America.  With more than 40 international locations, MSA realizes approximately half of its revenue from outside North America.  For more information visit MSA's web site at www.MSAsafety.com.

Cautionary Statement Regarding Forward-Looking Statements:
Except for historical information, certain matters discussed in this press release may be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include but are not limited to all projections and anticipated levels of future performance. Forward looking statements involve risks, uncertainties and other factors that may cause our actual results to differ materially from those discussed herein. Any number of factors could cause actual results to differ materially from projections or forward looking statements, including without limitation global economic conditions, spending patterns of government agencies, competitive pressures, the impact of acquisitions and related integration activities, product liability claims, the success of new product introductions, currency exchange rate fluctuations and the risks of doing business in foreign countries. A full listing of these risks, uncertainties and other factors are detailed from time-to-time in our filings with the United States Securities and Exchange Commission ("SEC"), including our most recent Form 10-K filed on February 28, 2017. You are strongly urged to review all such filings for a more detailed discussion of such risks and uncertainties. MSA’s SEC filings are readily obtainable at no charge at www.sec.gov, as well as on its own investor relations website at http://investors.MSAsafety.com. MSA undertakes no duty to publicly update any forward looking statements contained herein, except as required by law.

Non-GAAP Financial Measures:
This earnings release includes certain non-GAAP financial measures. These financial measures include constant currency revenue growth, organic constant currency growth, organic constant currency SG&A expense, adjusted operating income, adjusted operating margin, adjusted earnings and adjusted earnings per diluted share. The presentation of these financial measures does not comply with U.S. generally accepted accounting principles ("GAAP"). For an explanation of these measures, together with a reconciliation to the most directly comparable GAAP financial measure, see the Reconciliation of As Reported Financial Measures to Non-GAAP Financial Measures in the financial tables section above.
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