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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 21, 2015
 
 
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))




Item 2.02
Results of Operations and Financial Condition
On October 21, 2015, the Company issued a press release announcing its financial results for the quarter ended September 30, 2015. 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 21, 2015, announcing financial results for the quarter ended September 30, 2015.




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/ Kerry M. Bove
 
 
Kerry M. Bove
 
 
Senior Vice President and Interim Chief Financial Officer
Duly Authorized Officer and Principal Financial Officer
Date: October 22, 2015




EXHIBIT INDEX
 
 
 
 
Exhibit
No.
  
Description
 
 
99.1

  
MSA Safety Incorporated Press Release dated October 21, 2015, announcing financial results for the quarter ended September 30, 2015.




Exhibit

FOR IMMEDIATE RELEASE

FROM: MSA Safety Incorporated
Ticker: MSA (NYSE)
Media Relations Contact: Mark Deasy (724) 741 - 8570
Investor Relations Contact: Kenneth Krause (724) 741 - 8534

MSA Announces Third Quarter Results
Breathing Apparatus sales up more than 80 percent on strong fire service demand for new G1 Model, helping offset weakness in other end markets
PITTSBURGH, October 21, 2015 - Global safety equipment manufacturer MSA Safety Incorporated (NYSE: MSA) today reported results for the third quarter of 2015.


Quarterly Highlights
•
Reported revenue was $274 million, up 8 percent on a local currency basis from the third quarter of 2014 but down 1 percent on a reported basis, reflecting a 9 percent currency headwind associated with the stronger U.S. dollar. Income from continuing operations was $16 million, or $0.41 per diluted share. Adjusted earnings were $22 million, or $0.59 per diluted share, increasing 4 percent from the third quarter of 2014.
•
Local currency sales of self-contained breathing apparatus (SCBA) increased 83 percent globally, driven by strong demand for the company's new G1 model within the North American fire service market. Global SCBA backlog at the end of the quarter was $68 million, compared to $77 million at the end of the second quarter of 2015.
•
Local currency sales of MSA core products increased by 13 percent in the quarter, with strong performance in SCBA and fire helmets, offset by a lower level of fixed gas and flame detection (FGFD) shipments and continued weakness in the sale of portable gas detection and industrial head protection, both of which are more exposed to employment levels within the energy market.
•
In response to challenging business conditions and weak outlooks in the energy market and key emerging geographies like Brazil and China, the company is executing a restructuring program to reduce operating costs. Restructuring investments are expected to total $4 to $6 million in the fourth quarter of 2015, resulting in approximately $10 million of cost savings in 2016.
•
R&D investments in new products are generating strong returns, as products developed and launched over the last five years represented 44 percent of quarterly core product revenue, compared to 36 percent from a year ago.

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2

•
Earlier today, the company closed on its acquisition of U.K. based Latchways, a market leader in permanent engineered fall protection solutions. The transaction doubles MSA's market share in fall protection, which represents one of the largest and fastest growing segments of the global safety market.
Comments from Management
“The third quarter presented us with several challenges, including a stronger U.S. dollar, softer business conditions in emerging markets, and continued weakness in the energy market. Despite these headwinds, the results we continue to see in the fire service market provide a sense of optimism in an otherwise challenging macro environment,” said William M. Lambert, MSA Chairman, President and CEO. He noted that the company’s revolutionary new G1 SCBA platform continues to generate significant interest among the fire service community and was a key driver of quarterly core product growth of 13 percent.
"Although we continue to see solid results in the fire service, we are actively taking steps to reduce our cost structure to mitigate the weakness we see in the energy sector and certain emerging markets," Mr. Lambert said. He explained that the company has started executing a restructuring program that is expected to generate $10 million of cost savings in 2016.
"The impacts of lower commodity prices, economic challenges in emerging markets like Brazil and China, and continued weakness of foreign currencies are all challenges we foresee lasting into 2016," Mr. Lambert said.
"While we are taking steps to reduce our cost structure, we certainly recognize the importance of investing for growth and advancing the core areas of our business. That commitment, and the R&D investments we've made over the past several years, are what's driving the strong returns we're seeing in the fire service, and on the inorganic side we recently completed a strategic acquisition in a very attractive market," he said. "Overall, we are taking decisive action to mitigate risk in response to this challenging business cycle, but we continue to make key growth investments that have and will continue to generate long-term value for all of our stakeholders," he concluded.

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3

MSA Safety Incorporated
Condensed Consolidated Statement of Income (Unaudited)
(In thousands, except per share amounts)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
 
 
 
 
 
 
 
 
Net sales
$
273,746

 
$
275,159

 
$
817,465

 
$
822,697

Other income, net
431

 
585

 
1,166

 
986

 
274,177

 
275,744

 
818,631

 
823,683

 
 
 
 
 
 
 
 
Cost of products sold
153,965

 
151,436

 
450,372

 
447,489

Selling, general and administrative
72,727

 
77,301

 
231,683

 
245,377

Research and development
12,532

 
13,420

 
36,430

 
36,604

Restructuring and other charges
3,740

 
3,640

 
4,698

 
6,397

Interest expense
2,827

 
2,493

 
7,802

 
7,617

Currency exchange losses, net
4,327

 
315

 
3,336

 
358

 
250,118

 
248,605

 
734,321

 
743,842

 
 
 
 
 
 
 
 
Income from continuing operations before income taxes
24,059

 
27,139

 
84,310

 
79,841

Provision for income taxes
8,935

 
8,699

 
36,669

 
26,056

Income from continuing operations
15,124

 
18,440

 
47,641

 
53,785

Income from discontinued operations
462

 
765

 
1,240

 
1,832

Net income
15,586

 
19,205

 
48,881

 
55,617

Net loss attributable to noncontrolling interests
390

 
100

 
1,075

 
202

Net income attributable to MSA Safety Incorporated
15,976

 
19,305

 
49,956

 
55,819

 
 
 
 
 
 
 
 
Amounts attributable to MSA Safety Incorporated common shareholders:
 
 
 
 
 
 
 
Income from continuing operations
15,712

 
18,674

 
48,750

 
54,328

Income from discontinued operations
264

 
631

 
1,206

 
1,491

  Net income
15,976

 
19,305

 
49,956

 
55,819

 
 
 
 
 
 
 
 
Earnings per share attributable to MSA Safety Incorporated common shareholders:
 
 
 
 
 
 
 
Basic
 
 
 
 
 
 
 
Income from continuing operations
$0.42
 
$0.50
 
$1.30
 
$1.45
Income from discontinued operations
$0.01
 
$0.02
 
$0.03
 
$0.04
  Net income
$0.43
 
$0.52
 
$1.33
 
$1.49
 
 
 
 
 
 
 
 
Diluted
 
 
 
 
 
 
 
Income from continuing operations
$0.41
 
$0.49
 
$1.29
 
$1.43
Income from discontinued operations
$0.01
 
$0.02
 
$0.03
 
$0.04
  Net income
$0.42
 
$0.51
 
$1.32
 
$1.47
 
 
 
 
 
 
 
 
Basic shares outstanding
37,252

 
37,187

 
37,301

 
37,111

Diluted shares outstanding
37,709

 
37,784

 
37,776

 
37,708


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MSA Safety Incorporated
Condensed Consolidated Balance Sheet (Unaudited)
(In thousands)
 
September 30, 2015
 
December 31, 2014
Assets
 
 
 
  Cash and cash equivalents
$
189,343

 
$
105,998

  Trade receivables, net
211,709

 
211,440

  Inventories
150,125

 
122,954

  Other current assets
69,407

 
57,477

    Total current assets
620,584

 
497,869

 
 
 
 
Property, net
144,805

 
151,352

Prepaid pension cost
82,011

 
75,017

Goodwill
248,319

 
252,520

Other noncurrent assets
281,248

 
288,034

   Total assets
1,376,967

 
1,264,792

 
 
 
 
Liabilities and shareholders' equity
 
 
 
  Notes payable and current portion of long-term debt
$
6,806

 
$
6,700

  Accounts payable
68,798

 
70,210

  Other current liabilities
175,664

 
157,147

   Total current liabilities
251,268

 
234,057

 
 
 
 
Long-term debt
388,000

 
245,000

Pensions and other employee benefits
167,151

 
174,598

Deferred tax liabilities
29,410

 
26,306

Other noncurrent liabilities
16,235

 
46,198

Total shareholders' equity
524,903

 
538,633

   Total liabilities and shareholders' equity
1,376,967

 
1,264,792


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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,
 
2015
 
2014
 
2015
 
2014
 
 
 
 
 
 
 
 
Net income
$
15,586

 
$
19,205

 
$
48,881

 
$
55,617

Depreciation and amortization
6,982

 
7,196

 
22,646

 
22,311

Change in working capital and other operating
(20,451
)
 
9,091

 
(61,697
)
 
(27,126
)
  Cash from operations
2,117

 
35,492

 
9,830

 
50,802

 
 
 
 
 
 
 
 
Capital expenditures
(9,133
)
 
(9,705
)
 
(25,148
)
 
(24,233
)
Property disposals
—

 
—

 
7,969

 
—

  Cash from investing
(9,133
)
 
(9,705
)
 
(17,179
)
 
(24,233
)
 
 
 
 
 
 
 
 
Cash dividends paid
(11,926
)
 
(11,542
)
 
(35,448
)
 
(34,043
)
Change in debt
125,138

 
(11,012
)
 
143,142

 
9,171

Share repurchase program
—

 
—

 
(7,104)

 
—

Other financing
(136
)
 
1,938

 
(391)

 
4,013

  Cash from financing
113,076

 
(20,616
)
 
100,199

 
(20,859
)
 
 
 
 
 
 
 
 
Exchange rate changes
(4,851
)
 
(3,999
)
 
(9,505
)
 
(4,620
)
 
 
 
 
 
 
 
 
Increase in cash
101,209

 
1,172

 
83,345

 
1,090


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6

MSA Safety Incorporated
Segment Information (Unaudited)
(In thousands)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
 
2015
 
2014
 
2015
 
2014
 
 
 
 
 
 
 
 
Net sales
 
 
 
 
 
 
 
  North America
$
156,141

 
$
131,844

 
$
445,898

 
$
400,147

  Europe
62,489

 
75,785

 
203,819

 
229,606

  International
55,116

 
67,530

 
167,748

 
192,944

    Total
273,746

 
275,159

 
817,465

 
822,697

 
 
 
 
 
 
 
 
Net income (loss)
 
 
 
 
 
 
 
  North America
$
25,225

 
$
18,324

 
$
61,909

 
$
51,991

  Europe
(837
)
 
2,575

 
1,322

 
12,807

  International
2,275

 
3,807

 
8,926

 
11,570

  Corporate
(10,357
)
 
(6,500
)
 
(22,849
)
 
(21,859
)
  Reconciling Items
(594
)
 
468

 
(558
)
 
(181
)
  Income from continuing operations
15,712

 
18,674

 
48,750

 
54,328

  Income from discontinued operations
264

 
631

 
1,206

 
1,491

     Total
15,976

 
19,305

 
49,956

 
55,819


The Corporate segment was established on January 1, 2015 to reflect the activities of centralized functions in our corporate headquarters and to capture results in a manner that the chief operating decision maker reviews. The corporate segment primarily consists of administrative expenses and centrally-managed costs such as interest expense and foreign exchange gains or losses. Additionally, effective January 1, 2015, we changed the allocation methodology applied to Research and Development expense. The 2014 segment results have been recast to conform with current period presentation.


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7

MSA Safety Incorporated
Supplemental Segment Information (Unaudited)
Local Currency Revenue Growth
 
Three Months Ended September 30, 2015
 
Consolidated
 
North America
 
Europe
 
International
 
 
 
 
 
 
 
 
Breathing Apparatus
83
 %
 
163
 %
 
5
 %
 
48
 %
Fire and Rescue Helmets
32
 %
 
21
 %
 
21
 %
 
82
 %
Fall Protection
(2
)%
 
(1
)%
 
75
 %
 
(4
)%
Industrial Head Protection
(8
)%
 
(10
)%
 
21
 %
 
(10
)%
Fixed Gas and Flame Detection
(9
)%
 
(4
)%
 
(7
)%
 
(26
)%
Portable Gas Detection
(13
)%
 
(15
)%
 
(17
)%
 
(2
)%
  Core Sales
13
 %
 
25
 %
 
(1
)%
 
3
 %
 
 
 
 
 
 
 
 
Non-Core Sales
(11
)%
 
(5
)%
 
(11
)%
 
(18
)%
 
 
 
 
 
 
 
 
Net Sales
8
 %
 
20
 %
 
(4
)%
 
(3
)%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30, 2015
 
Consolidated
 
North America
 
Europe
 
International
 
 
 
 
 
 
 
 
Breathing Apparatus
50
 %
 
105
 %
 
3
 %
 
9
 %
Fire and Rescue Helmets
18
 %
 
7
 %
 
4
 %
 
89
 %
Fall Protection
2
 %
 
3
 %
 
23
 %
 
(3
)%
Industrial Head Protection
(8
)%
 
(9
)%
 
20
 %
 
(13
)%
Fixed Gas and Flame Detection
2
 %
 
3
 %
 
—
 %
 
4
 %
Portable Gas Detection
(7
)%
 
(17
)%
 
6
 %
 
9
 %
  Core Sales
10
 %
 
16
 %
 
3
 %
 
4
 %
 
 
 
 
 
 
 
 
Non-Core Sales
(2
)%
 
(4
)%
 
12
 %
 
(14
)%
 
 
 
 
 
 
 
 
Net Sales
8
 %
 
13
 %
 
5
 %
 
(1
)%

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8

MSA Safety Incorporated
Reconciliation of As Reported Financial Measures to Non-GAAP Financial Measures
Adjusted Earnings / Earnings per Diluted Share (Unaudited)
(In thousands, except per share amounts)
 
Three Months Ended September 30,
 
 
 
Nine Months Ended September 30,
 
 
 
2015


2014
 
%
Change
 
2015
 
2014
 
%
Change
 
 
 
 
 
 
 
 
 
 
 
 
Income from continuing operations attributable to MSA Safety Incorporated
15,712

 
18,674

 
(15.9)%
 
48,750

 
54,328

 
(10.3)%
Nonrecurring tax charges associated with European reorganization
—

 
—

 
 
 
7,605

 
—

 
 
Non-deductible transaction costs associated with Latchways acquisition
707

 
—

 
 
 
707

 
—

 
 
Income from continuing operations excluding non-deductible charges
16,419

 
18,674

 
(12.1)%
 
57,062

 
54,328

 
5.0%
 
 
 
 
 
 
 
 
 
 
 
 
Currency exchange losses, net
4,327

 
315

 
 
 
3,336

 
358

 
 
Restructuring and other charges
3,740

 
3,640

 
 
 
4,698

 
6,397

 
 
Self insured legal settlements and defense costs
708

 
29

 
 
 
1,050

 
2,286

 
 
Asset related losses, net
206

 
—

 
 
 
538

 
—

 
 
Income tax expense on adjustments
(3,287
)
 
(1,279
)
 
 
 
(3,300
)
 
(2,950
)
 
 
Adjusted earnings
22,113

 
21,379

 
3.4%
 
63,384

 
60,419

 
4.9%
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted earnings per diluted share
$
0.59

 
$
0.57

 
3.5%
 
$
1.68

 
$
1.60

 
5.0%
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.

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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, industrial head protection, fire and rescue helmets and fall protection devices. With 2014 revenues of $1.1 billion, MSA employs approximately 4,600 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. 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 25, 2015. 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 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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