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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): July 25, 2018

https://cdn.kscope.io/27b7241632a16d3ea5930125fd877093-q12018_imagea01.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 July 25, 2018, the Company issued a press release announcing its financial results for the quarter ended June 30, 2018. 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 July 25, 2018, announcing financial results for the quarter ended June 30, 2018.






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
 
 
Sr. Vice President, Chief Financial Officer and Treasurer
July 25, 2018




EXHIBIT INDEX

Exhibit No.     Description

99.1



Exhibit
1

Exhibit 99.1

https://cdn.kscope.io/27b7241632a16d3ea5930125fd877093-msaa17.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 Second Quarter Results
Strong revenue growth and U.S. Tax Reform drive GAAP earnings growth of 165 percent and adjusted earnings growth of 25 percent

PITTSBURGH, July 25, 2018 - Global safety equipment manufacturer MSA Safety Incorporated (NYSE: MSA) today reported results for the second quarter of 2018.
Quarterly Highlights

•
Revenue was $339 million, increasing 18 percent from a year ago on a reported basis and 16 percent on a constant currency basis. Excluding the acquisition of Globe, organic revenue was up 5 percent on a constant currency basis.

•
GAAP operating income increased 247 percent to $47 million or 13.8 percent of sales, compared to $13 million or 4.7 percent of sales(1) in the same period a year ago. Adjusted operating income increased 19 percent to $58 million or 17.1 percent of sales, compared to $49 million or 16.8 percent of sales in the same period a year ago.

•
GAAP earnings increased 165 percent to $33 million or $0.85 per diluted share, compared to $13 million or $0.32 per diluted share(1) in the same period a year ago. Adjusted earnings increased 25 percent to $41 million or $1.07 per diluted share, compared to $33 million or $0.85 per diluted share in the same period a year ago.

•
Free cash flow exceeded 100 percent of net income, driven by a 240 basis point reduction in working capital as a percent of sales compared to the first quarter of 2018.


(more)

2

•
The company reached a settlement on the disputed portion of its insurance receivable. The settlement ensures collection of the portion of the insurance receivable that was previously subject to litigation. Payment is expected to be received in the third quarter of 2018.

Comments from Management

“Our second quarter results reflect strong execution of the Growth-in-Focus initiative we highlighted at our New York City investor day conference back in March,” said Nish Vartanian, MSA President and CEO. "Despite incurring $3 million of quarter-specific unfavorable expenses, healthy conditions across our key end markets - coupled with our previous investments in R&D and strategic acquisitions - drove 18 percent revenue growth and 25 percent adjusted earnings growth in the quarter,” he said. Mr. Vartanian noted that the company is entering the third quarter with a backlog pipeline that is trending substantially higher than this time a year ago, reflecting increased levels of demand across its core product areas.

”Beyond the strong operating performance in the quarter, the successful resolution of litigation with a major insurance carrier is a significant milestone for us,” Mr. Vartanian said. “Through this settlement, we secured collection of a significant portion of the insurance receivable, resolving coverage litigation that has been ongoing for nearly a decade.” Mr. Vartanian added that the settlement represents a major step in a multi-year effort to collect insurance monies owed to the company.

"Our Growth-in-Focus initiative is based on achieving market leadership positions in our core product areas and market segments, while driving profitable growth and cash flow for our shareholders. The sustained momentum in our incoming order book, double-digit earnings growth and meaningful improvements in free cash flow were encouraging to see in the quarter. In the

(more)

3

second half of 2018, we will continue to make focused investments to capitalize on this strong growth cycle, while diligently managing our administrative costs to drive operating leverage," Mr. Vartanian concluded.






















(1) GAAP operating income growth of 247 percent and GAAP earnings growth of 165 percent is impacted by a $29.6 million charge taken in Q2 2017 related to product liability settlements reached in August 2017 and estimated indemnity for all other asserted cumulative trauma product liability claims.


(more)

4

MSA Safety Incorporated
Condensed Consolidated Statement of Income (Unaudited)
(In thousands, except per share amounts)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
 
 
 
 
 
 
 
 
Net sales
$
339,331

 
$
288,775

 
$
665,225

 
$
554,540

Cost of products sold
185,495

 
155,812

 
364,050

 
301,855

Gross profit
153,836

 
132,963

 
301,175

 
252,685

 
 
 
 
 
 
 
 
Selling, general and administrative
81,962

 
74,104

 
162,213

 
150,890

Research and development
13,909

 
11,933

 
26,456

 
22,931

Restructuring charges
2,335

 
967

 
7,609

 
13,706

Currency exchange losses, net
815

 
2,851

 
2,823

 
3,431

Other operating expense
8,018

 
29,610

 
10,842

 
29,610

Operating income
46,797

 
13,498

 
91,232

 
32,117

 
 
 
 
 
 
 
 
Interest expense
5,181

 
3,014

 
9,962

 
6,605

Other income, net
(1,701
)
 
(1,228)

 
(4,041
)
 
(2,686)

Total other expense, net
3,480

 
1,786

 
5,921

 
3,919

 
 
 
 
 
 
 
 
Income before income taxes
43,317

 
11,712

 
85,311

 
28,198

Provision (benefit) for income taxes
9,896

 
(902
)
 
19,401

 
894

Net income
33,421

 
12,614

 
65,910

 
27,304

Net income attributable to noncontrolling interests
(242
)
 
(82
)
 
(360
)
 
(359
)
Net income attributable to MSA Safety Incorporated
$
33,179

 
$
12,532

 
65,550

 
26,945

 
 
 
 
 
 
 
 
Earnings per share attributable to MSA Safety Incorporated common shareholders:
 
 
 
 
 
 
 
Basic
$
0.86

 
$
0.33

 
$
1.71

 
$
0.71

Diluted
$
0.85

 
$
0.32

 
$
1.69

 
$
0.70

 
 
 
 
 
 
 
 
Basic shares outstanding
38,327

 
38,065

 
38,272

 
37,914

Diluted shares outstanding
38,903

 
38,780

 
38,841

 
38,685



(more)

5

MSA Safety Incorporated
Condensed Consolidated Balance Sheet (Unaudited)
(In thousands)
 
June 30, 2018
 
December 31, 2017
Assets
 
 
 
Cash and cash equivalents
$
116,650

 
$
134,244

Trade receivables, net
239,406

 
244,198

Inventories
177,256

 
153,739

Notes receivable, insurance companies
3,494

 
17,333

Other current assets
72,705

 
72,783

    Total current assets
609,511

 
622,297

 
 
 
 
Property, net
148,780

 
157,014

Prepaid pension cost
88,237

 
83,060

Goodwill
418,384

 
422,185

Notes receivable, insurance companies, noncurrent
60,340

 
59,567

Insurance receivable, noncurrent
115,143

 
123,089

Other noncurrent assets
210,164

 
217,614

   Total assets
$
1,650,559

 
$
1,684,826

 
 
 
 
Liabilities and shareholders' equity
 
 
 
Notes payable and current portion of long-term debt, net
$
26,895

 
$
26,680

Accounts payable
76,331

 
87,061

Other current liabilities
180,046

 
175,538

   Total current liabilities
283,272

 
289,279

 
 
 
 
Long-term debt, net
403,712

 
447,832

Pensions and other employee benefits
167,906

 
170,773

Deferred tax liabilities
8,589

 
9,341

Other noncurrent liabilities
148,010

 
165,023

Total shareholders' equity
639,070

 
602,578

   Total liabilities and shareholders' equity
$
1,650,559

 
$
1,684,826







(more)

6

MSA Safety Incorporated
Condensed Consolidated Statement of Cash Flows (Unaudited)
(In thousands)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
 
 
 
 
 
 
 
 
Net income
$
33,421

 
$
12,614

 
$
65,910

 
$
27,304

Depreciation and amortization
9,536

 
8,984

 
19,207

 
17,736

Change in working capital and other operating
5,072

 
28,294

 
(19,735
)
 
101,242

  Cash flow from operating activities
48,029

 
49,892

 
65,382

 
146,282

 
 
 
 
 
 
 
 
Capital expenditures
(5,571
)
 
(4,685
)
 
(8,812
)
 
(6,127
)
Property disposals
3,001

 
512

 
3,059

 
677

  Cash flow used in investing activities
(2,570
)
 
(4,173
)
 
(5,753
)
 
(5,450)

 
 
 
 
 
 
 
 
Change in debt
(32,884
)
 
(28,203
)
 
(42,285
)
 
(124,640
)
Cash dividends paid
(14,591
)
 
(13,369
)
 
(27,981
)
 
(25,824
)
Other financing
2,563

 
5,099

 
738

 
7,555

  Cash flow used in financing activities
(44,912
)
 
(36,473
)
 
(69,528
)
 
(142,909
)
 
 
 
 
 
 
 
 
Effect of exchange rate changes on cash,
cash equivalents and restricted cash
(9,493
)
 
1,702

 
(8,130
)
 
3,327

 
 
 
 
 
 
 
 
(Decrease) / Increase in cash, cash equivalents and restricted cash
(8,946
)
 
10,948

 
(18,029
)
 
1,250





(more)

7

MSA Safety Incorporated
Segment Information (Unaudited)
(In thousands)
 
Americas
 
International
 
Corporate
 
Consolidated
Three Months Ended June 30, 2018
 
 
 
 
 
 
 
Sales to external customers
$
215,339

 
$
123,992

 
$
—

 
$
339,331

Operating income
 
 
 
 
 
 
46,797

Operating margin %
 
 
 
 
 
 
13.8
%
Restructuring charges
 
 
 
 
 
 
2,335

Currency exchange losses, net
 
 
 
 
 
 
815

Other operating expense
 
 
 
 
 
 
8,018

Strategic transaction costs
 
 
 
 
 
 
58

Adjusted operating income (loss)
49,838

 
15,853

 
(7,668
)
 
$
58,023

Adjusted operating margin %
23.1
%
 
12.8
%
 
 
 
17.1
%
 
 
 
 
 
 
 
 
Three Months Ended June 30, 2017
 
 
 
 
 
 
 
Sales to external customers
$
174,960

 
$
113,815

 
$
—

 
$
288,775

Operating income
 
 
 
 
 
 
13,498

Operating margin %
 
 
 
 
 
 
4.7
%
Restructuring charges
 
 
 
 
 
 
967

Currency exchange losses, net
 
 
 
 
 
 
2,851

Other operating expense
 
 
 
 
 
 
29,610

Strategic transaction costs
 
 
 
 
 
 
1,642

Adjusted operating income (loss)
43,573

 
12,122

 
(7,127
)
 
$
48,568

Adjusted operating margin %
24.9
%
 
10.7
%
 
 
 
16.8
%
 
Americas
 
International
 
Corporate
 
Consolidated
Six Months Ended June 30, 2018
 
 
 
 
 
 
 
Sales to external customers
$
424,468

 
$
240,757

 
—

 
$
665,225

Operating income
 
 
 
 
 
 
91,232

Operating margin %
 
 
 
 
 
 
13.7
%
Restructuring charges
 
 
 
 
 
 
7,609

Currency exchange losses, net
 
 
 
 
 
 
2,823

Other operating expense
 
 
 
 
 
 
10,842

Strategic transaction costs
 
 
 
 
 
 
152

Adjusted operating income (loss)
99,924

 
28,631

 
(15,897
)
 
$
112,658

Adjusted operating margin %
23.5
%
 
11.9
%
 
 
 
16.9
%
 
 
 
 
 
 
 
 
Six Months Ended June 30, 2017
 
 
 
 
 
 
 
Sales to external customers
$
341,528

 
$
213,012

 
—

 
$
554,540

Operating income
 
 
 
 
 
 
32,117

Operating margin %
 
 
 
 
 
 
5.8
%
Restructuring charges
 
 
 
 
 
 
13,706

Currency exchange losses, net
 
 
 
 
 
 
3,431

Other operating expense
 
 
 
 
 
 
29,610

Strategic transaction costs
 
 
 
 
 
 
2,979

Adjusted operating income (loss)
79,724

 
19,918

 
(17,799
)
 
$
81,843

Adjusted operating margin %
23.3
%
 
9.4
%
 
 
 
14.8
%

(more)

8

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 charges, currency exchange gains / losses, other operating expense and strategic transaction costs. 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)

9

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 June 30, 2018
 
Breathing Apparatus
Firefighter Helmets and Protective Apparel(a)
Industrial Head Protection
Portable Gas Detection
Fixed Gas and Flame Detection
Fall Protection
Core Sales
 
Non-Core Sales
 
Net Sales
GAAP reported sales change
7
 %
232
 %
10
%
12
 %
6
 %
2
 %
20
 %
 
3
 %
 
18
 %
Plus: Currency translation effects
(2
)%
(4
)%
2
%
(1
)%
(3
)%
(2
)%
(1
)%
 
(1
)%
 
(2
)%
Constant currency sales change
5
 %
228
 %
12
%
11
 %
3
 %
—
 %
19
 %
 
2
 %
 
16
 %
Less: Acquisitions
—
 %
229
 %
—
%
—
 %
—
 %
—
 %
13
 %
 
—
 %
 
11
 %
Organic constant currency change
5
 %
(1
)%
12
%
11
 %
3
 %
—
 %
6
 %
 
2
 %
 
5
 %
 
Six Months Ended June 30, 2018
 
Breathing Apparatus
Firefighter Helmets and Protective Apparel(a)
Industrial Head Protection
Portable Gas Detection
Fixed Gas and Flame Detection
Fall Protection
Core Sales
 
Non-Core Sales
 
Net Sales
GAAP reported sales change
8
 %
220
 %
12
%
14
 %
12
 %
9
 %
24
 %
 
1
 %
 
20
 %
Plus: Currency translation effects
(3
)%
(8
)%
—
%
(2
)%
(4
)%
(3
)%
(3
)%
 
(3
)%
 
(3
)%
Constant currency sales change
5
 %
212
 %
12
%
12
 %
8
 %
6
 %
21
 %
 
(2
)%
 
17
 %
Less: Acquisitions
—
 %
213
 %
—
%
—
 %
—
 %
—
 %
13
 %
 
—
 %
 
11
 %
Organic constant currency change
5
 %
(1
)%
12
%
12
 %
8
 %
6
 %
8
 %
 
(2
)%
 
6
 %

(a) 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.

(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)

Americas Segment
 
Three Months Ended June 30, 2018
 
Breathing Apparatus
Firefighter Helmets and Protective Apparel(a)
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
%
566
%
10
%
10
%
8
%
6
%
28
%
 
(7
)%
 
23
%
Plus: Currency translation effects
—
%
2
%
4
%
2
%
—
%
—
%
2
%
 
2
 %
 
1
%
Constant currency sales change
3
%
568
%
14
%
12
%
8
%
6
%
30
%
 
(5
)%
 
24
%
Less: Acquisitions
—
%
566
%
—
%
—
%
—
%
—
%
22
%
 
—
 %
 
18
%
Organic constant currency change
3
%
2
%
14
%
12
%
8
%
6
%
8
%
 
(5
)%
 
6
%
 
Six Months Ended June 30, 2018
 
Breathing Apparatus
Firefighter Helmets and Protective Apparel(a)
Industrial Head Protection
Portable Gas Detection
Fixed Gas and Flame Detection
Fall Protection
Core Sales
 
Non-Core Sales
 
Net Sales
GAAP reported sales change
2
%
516
 %
11
%
13
%
12
%
15
 %
29
%
 
(6
)%
 
24
%
Plus: Currency translation effects
—
%
1
 %
2
%
1
%
—
%
(1
)%
1
%
 
1
 %
 
1
%
Constant currency sales change
2
%
517
 %
13
%
14
%
12
%
14
 %
30
%
 
(5
)%
 
25
%
Less: Acquisitions
—
%
519
 %
—
%
—
%
—
%
—
 %
21
%
 
—
 %
 
18
%
Organic constant currency change
2
%
(2
)%
13
%
14
%
12
%
14
 %
9
%
 
(5
)%
 
7
%

(a) 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.

(more)

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)

International Segment
 
Three Months Ended June 30, 2018
 
Breathing Apparatus
Firefighter Helmets and Protective Apparel(a)
Industrial Head Protection
Portable Gas Detection
Fixed Gas and Flame Detection
Fall Protection
Core Sales
 
Non-Core Sales
 
Net Sales
GAAP reported sales change
14
 %
6
 %
9
 %
15
 %
3
 %
(3
)%
8
 %
 
15
 %
 
9
 %
Plus: Currency translation effects
(6
)%
(6
)%
(4
)%
(6
)%
(5
)%
(4
)%
(6
)%
 
(4
)%
 
(5
)%
Constant currency sales change
8
 %
—
 %
5
 %
9
 %
(2
)%
(7
)%
2
 %
 
11
 %
 
4
 %
Less: Acquisitions
—
 %
3
 %
—
 %
—
 %
—
 %
—
 %
—
 %
 
—
 %
 
—
 %
Organic constant currency change
8
 %
(3
)%
5
 %
9
 %
(2
)%
(7
)%
2
 %
 
11
 %
 
4
 %
 
Six Months Ended June 30, 2018
 
Breathing Apparatus
Firefighter Helmets and Protective Apparel(a)
Industrial Head Protection
Portable Gas Detection
Fixed Gas and Flame Detection
Fall Protection
Core Sales
 
Non-Core Sales
 
Net Sales
GAAP reported sales change
21
 %
12
 %
12
 %
16
 %
13
 %
3
 %
14
 %
 
10
 %
 
13
 %
Plus: Currency translation effects
(10
)%
(10
)%
(6
)%
(9
)%
(8
)%
(7
)%
(9
)%
 
(8
)%
 
(8
)%
Constant currency sales change
11
 %
2
 %
6
 %
7
 %
5
 %
(4
)%
5
 %
 
2
 %
 
5
 %
Less: Acquisitions
—
 %
2
 %
—
 %
—
 %
—
 %
—
 %
—
 %
 
—
 %
 
—
 %
Organic constant currency change
11
 %
—
 %
6
 %
7
 %
5
 %
(4
)%
5
 %
 
2
 %
 
5
 %

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

 
Three Months Ended June 30, 2018
 
Consolidated
 
Americas
 
International
Firefighter Helmets and Protective Apparel(a)
228
%
 
568
 %
 
—
 %
Industrial Head Protection
12
%
 
14
 %
 
5
 %
Portable Gas Detection
11
%
 
12
 %
 
9
 %
Breathing Apparatus
5
%
 
3
 %
 
8
 %
Fixed Gas and Flame Detection
3
%
 
8
 %
 
(2
)%
Fall Protection
—
%
 
6
 %
 
(7
)%
Core Sales
19
%
 
30
 %
 
2
 %
Core excluding Acquisitions
6
%
 
8
 %
 
2
 %
 
 
 
 
 
 
Non-Core Sales
2
%
 
(5
)%
 
11
 %
 
 
 
 
 
 
Net Sales
16
%
 
24
 %
 
4
 %
Net Sales excluding Acquisitions
5
%
 
6
 %
 
4
 %
 
Six Months Ended June 30, 2018
 
Consolidated
 
Americas
 
International
Firefighter Helmets and Protective Apparel(a)
212
 %
 
517
 %
 
2
 %
Industrial Head Protection
12
 %
 
13
 %
 
6
 %
Portable Gas Detection
12
 %
 
14
 %
 
7
 %
Breathing Apparatus
5
 %
 
2
 %
 
11
 %
Fixed Gas and Flame Detection
8
 %
 
12
 %
 
5
 %
Fall Protection
6
 %
 
14
 %
 
(4
)%
Core Sales
21
 %
 
30
 %
 
5
 %
Core excluding Acquisitions
8
 %
 
9
 %
 
5
 %
 
 
 
 
 
 
Non-Core Sales
(2
)%
 
(5
)%
 
2
 %
 
 
 
 
 
 
Net Sales
17
 %
 
25
 %
 
5
 %
Net Sales excluding Acquisitions
6
 %
 
7
 %
 
5
 %

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






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13

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 June 30,
 
 
 
Six Months Ended June 30,
 
 
 
2018
 
2017
 
%
Change
 
2018
 
2017
 
%
Change
 
 
 
 
 
 
 
 
 
 
 
 
Net income attributable to MSA Safety Incorporated
$
33,179

 
$
12,532

 
165%
 
$
65,550

 
$
26,945

 
143%
Tax benefit associated with ASU 2016-09: Improvements to employee share-based payment accounting
(962
)
 
(4,030
)
 
 
 
(1,875
)
 
(6,812
)
 
 
Subtotal
32,217

 
8,502

 
279%
 
63,675

 
20,133

 
216%
 
 
 
 
 
 
 
 
 
 
 
 
Restructuring charges
2,335

 
967

 
 
 
7,609

 
13,706

 
 
Currency exchange losses, net
815

 
2,851

 
 
 
2,823

 
3,431

 
 
Other operating expense
8,018

 
29,610

 
 
 
10,842

 
29,610

 
 
Strategic transaction costs
58

 
1,642

 
 
 
152

 
2,979

 
 
Asset related losses and other, net
1,131

 
180

 
 
 
1,148

 
244

 
 
Income tax expense on adjustments
(3,102
)
 
(10,681
)
 
 
 
(5,621
)
 
(14,769
)
 
 
Adjusted earnings
$
41,472

 
$
33,071

 
25%
 
$
80,628

 
$
55,334

 
46%
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted earnings per diluted share
$
1.07

 
$
0.85

 
26%
 
$
2.08

 
$
1.43

 
45%


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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14

MSA Safety Incorporated
Reconciliation of As Reported Financial Measures to Non-GAAP Financial Measures
Free Cash Flow (Unaudited)
(In thousands, except percentages)



 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2018
 
2017
 
2018
 
2017
 
 
 
 
 
 
 
 
Cash flow from operating activities
$
48,029

 
$
49,892

 
$
65,382

 
$
146,282

Capital expenditures
(5,571
)
 
(4,685
)
 
(8,812
)
 
(6,127
)
 
 
 
 
 
 
 
 
Free cash flow
$
42,458

 
$
45,207

 
$
56,570

 
$
140,155

 
 
 
 
 
 
 
 
Net income attributable to MSA Safety Incorporated
$
33,179

 
$
12,532

 
$
65,550

 
$
26,945

 
 
 
 
 
 
 
 
Free cash flow conversion
128%
 
361%
 
86%
 
520%


Management believes that free cash flow is a meaningful measure for investors. Management reviews cash from operations after deducting capital expenditures because these expenditures are necessary to promote growth of MSA’s business and are likely to produce cash from operations in future periods. It is important to note that free cash flow does not reflect the residual cash balance of the company for discretionary spending since other items, including debt and dividend payments, are deducted from free cash flow before arriving at the company’s ending cash balance. Management defines free cash flow conversion as free cash flow divided by net income attributable to MSA. There can be no assurances that MSA's definition of free cash flow is consistent with that of other companies. As such, management believes that it is appropriate to consider cash from operating activities determined on a GAAP basis as well as free cash flow.


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15

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 22, 2018. 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 revenue growth, adjusted operating income, adjusted operating margin, adjusted earnings, adjusted earnings per diluted share and free cash flow. 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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