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Q3 2014 Earnings Release 8-K


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): October 22, 2014
 
 
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:
 
¨
 
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
¨
 
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
¨
 
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
¨
 
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))




Item 2.02
Results of Operations and Financial Condition
On October 22, 2014, the Company issued a press release announcing its financial results for the quarter ended September 30, 2014. 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 October 22, 2014, announcing financial results for the quarter ended September 30, 2014.




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/ Stacy P. McMahan
 
 
Stacy P. McMahan
 
 
Senior Vice President of Finance and Chief Financial Officer
Date: October 23, 2014




EXHIBIT INDEX
 
 
 
 
Exhibit No.
  
Description
 
 
99.1
  
MSA Safety Incorporated Press Release dated October 22, 2014, announcing financial results for the quarter ended September 30, 2014.



Q3 2014 EarningsPressRelease


FOR IMMEDIATE RELEASE

FROM: MSA Safety Incorporated
Ticker: MSA (NYSE)
Media Relations Contact: Mark Deasy (724) 741 - 8570
Investor Relations Contact: Ken Krause (724) 741 - 8534
MSA Announces Third Quarter Results
Strength in core products drives revenue growth
PITTSBURGH, October 22, 2014 - Global safety equipment manufacturer MSA Safety Incorporated (NYSE: MSA) today reported results for the third quarter of 2014.
Quarterly Highlights
•
Revenue was $275 million, up 4 percent from the third quarter of 2013. Income from continuing operations was $19 million or $0.50 per basic share. Excluding after tax restructuring and foreign exchange losses, adjusted earnings were $21 million, or $0.57 per basic share, increasing 2 percent.
•
The company is making progress towards certification of its new G1 self-contained breathing apparatus (SCBA) and expects regulatory approval and shipping to begin in the fourth quarter.
•
Excluding sales of SCBA, quarterly local currency revenue from core product lines increased 13 percent.
•
Products developed within the last five years drove 36 percent of quarterly core product revenue compared to 22 percent in the same period a year ago.
•
Gross profit margin was 45.0 percent of sales, up 140 basis points from a year ago.

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2

Comments from Management
“Our third quarter results reflected solid growth from the core, despite headwinds associated with delays in securing approval of our new SCBA platform. In particular, strength in our gas detection product lines, ongoing product margin expansion and the pending approval of the G1 SCBA provides encouragement as we head into the final quarter of the year," said William M. Lambert, MSA President and CEO.
Sales of core products represented 74 percent of total revenue in the quarter and excluding sales of SCBA, quarterly revenue from core product lines increased 13 percent. "Particularly noteworthy were sales of gas detection products, which grew 17 percent during the quarter on strong demand for portable gas detection instruments and shipments of large orders of fixed gas and flame detection systems," he said. Mr. Lambert also noted that although the company continues to see challenging conditions in certain emerging markets, core product sales across all emerging markets increased 13 percent in the quarter.
“Although we expect business conditions to remain challenged across several of our emerging markets, this quarter showed excellent progress toward clearing our SCBA certification hurdles and reflects meaningful progress against our strategy, highlighting our ongoing focus on increasing shareholder value," Mr. Lambert said. "As we approach the end of our centennial year in business and begin writing the next chapter in MSA's story, we will remain focused on enhancing shareholder value by staying true to our passion for innovation, our commitment to achieving operational excellence, and our desire to create the best customer experience in the safety industry," Mr. Lambert concluded.

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3

MSA Safety Incorporated
Condensed Consolidated Statement of Income (Unaudited)
(In thousands, except earnings per share)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2014
 
2013
 
2014
 
2013
 
 
 
 
 
 
 
 
Net sales
$
275,159

 
$
264,884

 
$
822,697

 
$
820,629

Other income, net
585

 
638

 
986

 
1,015

 
275,744

 
265,522

 
823,683

 
821,644

 
 
 
 
 
 
 
 
Cost of products sold
151,436

 
149,458

 
447,489

 
453,835

Selling, general and administrative
77,301

 
71,390

 
245,377

 
232,097

Research and development
13,420

 
12,298

 
36,604

 
34,280

Restructuring and other charges
3,640

 
1,515

 
6,397

 
3,942

Interest expense
2,493

 
2,741

 
7,617

 
8,151

Currency exchange (gains) losses, net
315

 
1,836

 
358

 
4,148

 
248,605

 
239,238

 
743,842

 
736,453

 
 
 
 
 
 
 
 
Income before income taxes
27,139

 
26,284

 
79,841

 
85,191

Provision for income taxes
8,699

 
7,750

 
26,056

 
24,675

Income from continuing operations
18,440

 
18,534

 
53,785

 
60,516

Income from discontinued operations
765

 
643

 
1,832

 
2,447

Net income
19,205

 
19,177

 
55,617

 
62,963

Net (income) loss attributable to noncontrolling interests
100

 
324

 
202

 
(127
)
Net income attributable to MSA Safety Incorporated
19,305

 
19,501

 
55,819

 
62,836

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income from continuing operations
18,674

 
18,987

 
54,328

 
60,929

Income from discontinued operations
631

 
514

 
1,491

 
1,907

Net income attributable to MSA Safety Incorporated
19,305

 
19,501

 
55,819

 
62,836

 
 
 
 
 
 
 
 
Earnings Per Share Attributable to MSA Safety Incorporated
 
 
 
 
 
 
 
Basic
 
 
 
 
 
 
 
Income from continuing operations
$0.50
 
$0.51
 
$1.45
 
$1.64
Income from discontinued operations
$0.02
 
$0.01
 
$0.04
 
$0.05
  Net income
$0.52
 
$0.52
 
$1.49
 
$1.69
 
 
 
 
 
 
 
 
Diluted
 
 
 
 
 
 
 
Income from continuing operations
$0.49
 
$0.51
 
$1.43
 
$1.61
Income from discontinued operations
$0.02
 
$0.01
 
$0.04
 
$0.05
  Net income
$0.51
 
$0.52
 
$1.47
 
$1.66
 
 
 
 
 
 
 
 
Basic shares outstanding
37,187

 
36,915

 
37,111

 
36,845

Diluted shares outstanding
37,784

 
37,507

 
37,708

 
37,438


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4

MSA Safety Incorporated
Condensed Consolidated Balance Sheet (Unaudited)
(In thousands)
 
September 30, 2014
 
December 31, 2013
Current assets
 
 
 
  Cash and cash equivalents
$
97,355

 
$
96,265

  Trade receivables, net
200,634

 
200,364

  Inventories
145,217

 
136,837

  Other current assets
58,110

 
67,500

   Total current assets
501,316

 
500,966

 
 
 
 
Property, net
152,377

 
152,755

Prepaid pension cost
130,414

 
121,054

Goodwill
255,049

 
260,134

Other noncurrent assets
221,149

 
199,361

   Total
1,260,305

 
1,234,270

 
 
 
 
Current liabilities
 
 
 
  Notes payable and current portion of long-term debt
$
6,671

 
$
7,500

  Accounts payable
67,253

 
66,902

  Other current liabilities
120,406

 
117,162

   Total current liabilities
194,330

 
191,564

 
 
 
 
Long-term debt
270,667

 
260,667

Pensions and other employee benefits
146,344

 
152,084

Deferred tax liabilities
48,365

 
49,621

Other noncurrent liabilities
10,941

 
7,987

Equity
589,658

 
572,347

   Total
1,260,305

 
1,234,270


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5

MSA Safety Incorporated
Condensed Consolidated Statement of Cash Flows (Unaudited)
(In thousands)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2014
 
2013
 
2014
 
2013
 
 
 
 
 
 
 
 
Net income
$
19,205

 
$
19,177

 
$
55,617

 
$
62,963

Depreciation and amortization
7,196

 
7,615

 
22,311

 
23,392

Change in working capital
15,003

 
10,212

 
(5,842
)
 
(18,291
)
Other operating
(5,912
)
 
5,925

 
(21,284
)
 
(3,358
)
  Cash from operations
35,492

 
42,929

 
50,802

 
64,706

 
 
 
 
 
 
 
 
Capital expenditures
(9,705
)
 
(9,258
)
 
(24,233
)
 
(26,214
)
Property disposals
—

 
1,247

 
—

 
1,333

  Cash from investing
(9,705
)
 
(8,011
)
 
(24,233
)
 
(24,881
)
 
 
 
 
 
 
 
 
Change in debt
(11,012
)
 
(10,921
)
 
9,171

 
10,284

Cash dividends paid
(11,542
)
 
(11,161
)
 
(34,043
)
 
(32,694
)
Other financing
1,938

 
489

 
4,013

 
(1,181
)
  Cash from financing
(20,616
)
 
(21,593)

 
(20,859
)
 
(23,591
)
 
 
 
 
 
 
 
 
Exchange rate changes
(3,999
)
 
272

 
(4,620
)
 
(2,942
)
 
 
 
 
 
 
 
 
Increase in cash
1,172

 
13,597

 
1,090

 
13,292


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6

MSA Safety Incorporated
Segment Information (Unaudited)
(In thousands)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
 
2014
 
2013
 
2014
 
2013
 
 
 
 
 
 
 
 
  Net sales
 
 
 
 
 
 
 
  North America
$
131,844

 
$
130,919

 
$
400,147

 
$
402,539

  Europe
75,785

 
66,360

 
229,606

 
207,480

  International
67,530

 
67,605

 
192,944

 
210,610

   Total
275,159

 
264,884

 
822,697

 
820,629

 
 
 
 
 
 
 
 
  Net income (loss)
 
 
 
 
 
 
 
  North America
$
18,018

 
$
17,001

 
$
49,658

 
$
46,638

  Europe
2,587

 
3,141

 
13,027

 
11,734

  International
2,821

 
5,004

 
9,040

 
20,570

  Reconciling Items
(4,752
)
 
(6,159
)
 
(17,397
)
 
(18,013
)
Income from continuing operations
18,674

 
18,987

 
54,328

 
60,929

  Discontinued operations
631

 
514

 
1,491

 
1,907

   Total
19,305

 
19,501

 
55,819

 
62,836

MSA’s sales are allocated to each country based primarily on the destination of the end-customer. Effective January 1, 2014, the General Monitors business has been fully integrated into MSA. As such, sales made by General Monitors companies now follow a similar allocation methodology by which sales are allocated to each country based on the destination of the end-customer and the value added to that order. In prior years, sales made by General Monitors companies were reported as domestic sales based on the country from which the product was shipped. The 2013 results presented above have been restated to reflect this change in allocation methodology.


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7

MSA Safety Incorporated
Supplemental Segment Information (Unaudited)
Local Currency Revenue Growth
 
Three Months Ended September 30, 2014
 
Consolidated
 
North America
 
Europe
 
International
 
 
 
 
 
 
 
 
Fixed Gas and Flame Detection
20
 %
 
12
 %
 
34
 %
 
19
 %
Portable Gas Detection
13
 %
 
4
 %
 
20
 %
 
30
 %
Fall Protection
8
 %
 
8
 %
 
2
 %
 
8
 %
Head Protection
3
 %
 
13
 %
 
(6
)%
 
(10
)%
Breathing Apparatus
(12
)%
 
(26
)%
 
23
 %
 
(23
)%
Core Sales
6
 %
 
—
 %
 
25
 %
 
1
 %
 
 
 
 
 
 
 
 
Non-Core Sales
1
 %
 
2
 %
 
(5
)%
 
7
 %
 
 
 
 
 
 
 
 
Net Sales
5
 %
 
1
 %
 
14
 %
 
3
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30, 2014
 
Consolidated
 
North America
 
Europe
 
International
 
 
 
 
 
 
 
 
Fixed Gas and Flame Detection
4
 %
 
2
 %
 
17
 %
 
(12
)%
Portable Gas Detection
9
 %
 
10
 %
 
1
 %
 
17
 %
Fall Protection
1
 %
 
(4
)%
 
29
 %
 
12
 %
Head Protection
5
 %
 
11
 %
 
1
 %
 
(4
)%
Breathing Apparatus
(12
)%
 
(21
)%
 
3
 %
 
(15
)%
Core Sales
1
 %
 
(1
)%
 
8
 %
 
(4
)%
 
 
 
 
 
 
 
 
Non-Core Sales
3
 %
 
2
 %
 
7
 %
 
1
 %
 
 
 
 
 
 
 
 
Net Sales
1
 %
 
—
 %
 
8
 %
 
(2
)%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

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8

MSA Safety Incorporated
Reconciliation of As Reported Financial Measures to Non-GAAP Financial Measures
Adjusted Earnings / Earnings per Share (Unaudited)
(In thousands, except per share amounts)
 
Three Months Ended September 30,
 
 
 
Nine Months Ended September 30,
 
 
 
2014


2013
 
%
Change
 
2014
 
2013
 
%
Change
 
 
 
 
 
 
 
 
 
 
 
 
Net income attributable to MSA Safety Incorporated
$
19,305

 
$
19,501

 
(1.0)%
 
$
55,819

 
$
62,836

 
(11.2)%
Less: Income from discontinued operations
631

 
514

 
 
 
1,491

 
1,907

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income from continuing operations
18,674

 
18,987

 
(1.6)%
 
54,328

 
60,929

 
(10.8)%
Foreign currency loss
315

 
1,836

 
 
 
358

 
4,148

 
 
Restructuring charges
3,640

 
1,515

 
 
 
6,397

 
3,942

 
 
Asset sale (gain)
—

 
(600
)
 
 
 
—

 
(600
)
 
 
Income tax (expense)
(1,268
)
 
(812
)
 
 
 
(2,202
)
 
(2,172
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted earnings
21,361

 
20,926

 
2.1%
 
58,881

 
66,247

 
(11.1)%
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted earnings per
basic share
$
0.57

 
$
0.56

 
1.8%
 
$
1.58

 
$
1.78

 
(11.2)%
Management believes that adjusted earnings and adjusted earnings per share are useful measures for investors when analyzing 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. Management does not use these non-GAAP financial measures for any purpose other than the reasons stated above.

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9

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 line of products 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. The company’s core products include self‐contained breathing apparatus, fixed gas and flame detection systems, portable gas detection instruments, head protection products and fall protection devices. With 2013 revenues of $1.1 billion, MSA employs approximately 5,300 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 website 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 and timing of new product approvals and related shipments. 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, 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 24, 2014. 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 adjusted earnings and adjusted earnings per basic 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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