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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): October 24, 2018

https://cdn.kscope.io/10dc16d81972067604ecdec97680e61c-q12018_imagea02.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 October 24, 2018, the Company issued a press release announcing its financial results for the quarter ended September 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 October 24, 2018, announcing financial results for the quarter ended September 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
 
October 24, 2018




EXHIBIT INDEX

Exhibit No.     Description

99.1



Exhibit
1

Exhibit 99.1

https://cdn.kscope.io/10dc16d81972067604ecdec97680e61c-msaa19.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 Third Quarter Results
Strong revenue growth, improvements in productivity and U.S. Tax Reform drive GAAP earnings growth of 5 percent and adjusted earnings growth of 27 percent

PITTSBURGH, October 24, 2018 - Global safety equipment manufacturer MSA Safety Incorporated (NYSE: MSA) today reported results for the third quarter of 2018.

Quarterly Highlights

•
Revenue was $331 million, increasing 12 percent from a year ago on a reported basis and 14 percent on a constant currency basis, driven by strong organic growth across the company’s core product portfolio.

•
GAAP operating income was $40 million or 12.1 percent of sales, compared to $40 million or 13.5 percent of sales in the same period a year ago. Adjusted operating income increased 20 percent to $57 million or 17.2 percent of sales, compared to $47 million or 16.0 percent of sales in the same period a year ago.

•
GAAP earnings were $34 million or $0.86 per diluted share, compared to $32 million or $0.83 per diluted share in the same period a year ago. Adjusted earnings increased 27 percent to $45 million or $1.16 per diluted share, compared to $35 million or $0.92 per diluted share in the same period a year ago.




(more)

2

Comments from Management
“Our third quarter results reflect strong returns on investments we've made in new product development and restructuring programs,” said Nish Vartanian, MSA President and CEO. "We realized double-digit organic revenue growth and our ongoing focus on productivity helped convert that into 27 percent growth in adjusted earnings,” he said.

Mr. Vartanian continued, "It's encouraging to see both the step-change in profitability and improvements in free cash flow." The company's adjusted operating margin increased 120 basis points while free cash flow generation remained strong, with free cash flow conversion in excess of 100 percent of net income in the third quarter. Mr. Vartanian noted that despite investing heavily in research and development projects that will drive future revenue growth, the company’s incremental operating margins are approaching 30 percent for the quarter and year to date.

"Our incoming order book and backlog levels point to sustained strength across our core product portfolio, and we continue to see exciting wins in our industrial and fire service market segments. With this momentum, our global teams remain highly focused on executing our strategy and strengthening our market positions in our core products, while continuing to improve productivity and drive free cash flow,” Mr. Vartanian said. “I’m confident that formula will continue to position us well as we work to increase value for all MSA stakeholders," he concluded.














(more)

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,
 
 
2018
 
2017
 
2018
 
2017
 
 
 
 
 
 
 
 
 
 
Net sales
$
331,096

 
$
296,129

 
$
996,320

 
$
850,669

 
Cost of products sold
182,794

 
163,926

 
546,844

 
465,780

 
Gross profit
148,302

 
132,203

 
449,476

 
384,889

 
 
 
 
 
 
 
 
 
 
Selling, general and administrative
78,013

 
72,852

 
240,226

 
223,741

 
Research and development
13,296

 
12,351

 
39,752

 
35,282

 
Restructuring charges
2,615

 
3,214

 
10,223

 
16,920

 
Currency exchange (gains) losses, net
(252
)
 
562

 
2,571

 
3,994

 
Other operating expense
14,627

 
3,346

 
25,469

 
32,956

 
Operating income
40,003

 
39,878

 
131,235

 
71,996

 
 
 
 
 
 
 
 
 
 
Interest expense
4,492

 
3,961

 
14,454

 
10,566

 
Loss on extinguishment of debt
1,494

 
—

 
1,494

 
—

 
Other income, net
(4,252
)
 
(1,720
)
 
(8,292
)
 
(4,406
)
 
Total other expense, net
1,734

 
2,241

 
7,656

 
6,160

 
 
 
 
 
 
 
 
 
 
Income before income taxes
38,269

 
37,637

 
123,579

 
65,836

 
Provision for income taxes
4,206

 
5,411

 
23,606

 
6,306

 
Net income
34,063

 
32,226

 
99,973

 
59,530

 
Net income attributable to noncontrolling interests
(346
)
 
(160
)
 
(706
)
 
(519
)
 
Net income attributable to MSA Safety Incorporated
$
33,717

 
$
32,066

 
$
99,267

 
$
59,011

 
 
 
 
 
 
 
 
 
 
Earnings per share attributable to MSA Safety Incorporated common shareholders:
 
 
 
 
 
 
 
 
Basic
$
0.88

 
$
0.84

 
$
2.59

 
$
1.55

 
Diluted
$
0.86

 
$
0.83

 
$
2.55

 
$
1.52

 
 
 
 
 
 
 
 
 
 
Basic shares outstanding
38,417

 
38,074

 
38,328

 
37,970

 
Diluted shares outstanding
39,036

 
38,702

 
38,914

 
38,692

 


(more)

4

MSA Safety Incorporated
Condensed Consolidated Balance Sheet (Unaudited)
(In thousands)
 
September 30, 2018
 
December 31, 2017
Assets
 
 
 
Cash and cash equivalents
$
118,161

 
$
134,244

Trade receivables, net
236,245

 
244,198

Inventories
183,829

 
153,739

Notes receivable, insurance companies
3,525

 
17,333

Other current assets
131,577

 
72,783

    Total current assets
673,337

 
622,297

 
 
 
 
Property, net
150,569

 
157,014

Prepaid pension cost
91,914

 
83,060

Goodwill
416,779

 
422,185

Notes receivable, insurance companies, noncurrent
60,726

 
59,567

Insurance receivable, noncurrent
49,280

 
123,089

Other noncurrent assets
208,078

 
217,614

   Total assets
$
1,650,683

 
$
1,684,826

 
 
 
 
Liabilities and shareholders' equity
 
 
 
Notes payable and current portion of long-term debt, net
$
20,005

 
$
26,680

Accounts payable
71,659

 
87,061

Other current liabilities
216,283

 
175,538

   Total current liabilities
307,947

 
289,279

 
 
 
 
Long-term debt, net
370,195

 
447,832

Pensions and other employee benefits
167,373

 
170,773

Deferred tax liabilities
8,973

 
9,341

Product liability and other noncurrent liabilities
136,489

 
165,023

Total shareholders' equity
659,706

 
602,578

   Total liabilities and shareholders' equity
$
1,650,683

 
$
1,684,826







(more)

5

MSA Safety Incorporated
Condensed Consolidated Statement of Cash Flows (Unaudited)
(In thousands)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
 
 
 
 
 
 
 
 
Net income
$
34,063

 
$
32,226

 
$
99,973

 
$
59,530

Depreciation and amortization
9,378

 
9,929

 
28,585

 
27,665

Change in working capital and other operating
77,374

 
809

 
57,639

 
102,051

  Cash flow from operating activities
120,815

 
42,964

 
186,197

 
189,246

 
 
 
 
 
 
 
 
Capital expenditures
(9,808
)
 
(5,603
)
 
(18,620
)
 
(11,730
)
Acquisition, net of cash acquired
—

 
(213,990
)
 
—

 
(213,990
)
Purchase of short-term investments
(57,090
)
 
—

 
(57,090
)
 
—

Property disposals
942

 
52

 
4,001

 
729

  Cash flow used in investing activities
(65,956
)
 
(219,541
)
 
(71,709
)
 
(224,991)

 
 
 
 
 
 
 
 
Change in debt
(38,390
)
 
200,540

 
(80,675
)
 
75,900

Cash dividends paid
(14,624
)
 
(13,376
)
 
(42,605
)
 
(39,200
)
Company stock purchases under repurchase program
—

 
(11,781
)
 
—

 
(11,781
)
Other financing
(1,313
)
 
(346
)
 
(575
)
 
7,209

  Cash flow (used in) provided by financing activities
(54,327
)
 
175,037

 
(123,855
)
 
32,128

 
 
 
 
 
 
 
 
Effect of exchange rate changes on cash,
cash equivalents and restricted cash
(1,822
)
 
(1,705
)
 
(9,952
)
 
1,622

 
 
 
 
 
 
 
 
Decrease in cash, cash equivalents and restricted cash
$
(1,290
)
 
$
(3,245
)
 
$
(19,319
)
 
$
(1,995
)




(more)

6

MSA Safety Incorporated
Segment Information (Unaudited)
(In thousands)
 
Americas
 
International
 
Corporate
 
Consolidated
Three Months Ended September 30, 2018
 
 
 
 
 
 
 
Sales to external customers
$
209,343

 
$
121,753

 
$
—

 
$
331,096

Operating income
 
 
 
 
 
 
40,003

Operating margin %
 
 
 
 
 
 
12.1
%
Restructuring charges
 
 
 
 
 
 
2,615

Currency exchange gains, net
 
 
 
 
 
 
(252
)
Other operating expense
 
 
 
 
 
 
14,627

Strategic transaction costs
 
 
 
 
 
 
56

Adjusted operating income (loss)
51,532

 
13,329

 
(7,812
)
 
57,049

Adjusted operating margin %
24.6
%
 
10.9
%
 
 
 
17.2
%
 
 
 
 
 
 
 
 
Three Months Ended September 30, 2017
 
 
 
 
 
 
 
Sales to external customers
$
186,898

 
$
109,231

 
$
—

 
$
296,129

Operating income
 
 
 
 
 
 
39,878

Operating margin %
 
 
 
 
 
 
13.5
%
Restructuring charges
 
 
 
 
 
 
3,214

Currency exchange losses, net
 
 
 
 
 
 
562

Other operating expense
 
 
 
 
 
 
3,346

Strategic transaction costs
 
 
 
 
 
 
386

Adjusted operating income (loss)
45,365

 
10,229

 
(8,208
)
 
47,386

Adjusted operating margin %
24.3
%
 
9.4
%
 
 
 
16.0
%
 
Americas
 
International
 
Corporate
 
Consolidated
Nine Months Ended September 30, 2018
 
 
 
 
 
 
 
Sales to external customers
$
633,812

 
$
362,508

 
$
—

 
$
996,320

Operating income
 
 
 
 
 
 
131,235

Operating margin %
 
 
 
 
 
 
13.2
%
Restructuring charges
 
 
 
 
 
 
10,223

Currency exchange losses, net
 
 
 
 
 
 
2,571

Other operating expense
 
 
 
 
 
 
25,469

Strategic transaction costs
 
 
 
 
 
 
208

Adjusted operating income (loss)
151,456

 
41,960

 
(23,710
)
 
169,706

Adjusted operating margin %
23.9
%
 
11.6
%
 
 
 
17.0
%
 
 
 
 
 
 
 
 
Nine Months Ended September 30, 2017
 
 
 
 
 
 
 
Sales to external customers
$
528,426

 
$
322,243

 
$
—

 
$
850,669

Operating income
 
 
 
 
 
 
71,996

Operating margin %
 
 
 
 
 
 
8.5
%
Restructuring charges
 
 
 
 
 
 
16,920

Currency exchange losses, net
 
 
 
 
 
 
3,994

Other operating expense
 
 
 
 
 
 
32,956

Strategic transaction costs
 
 
 
 
 
 
3,365

Adjusted operating income (loss)
125,087

 
30,146

 
(26,002
)
 
129,231

Adjusted operating margin %
23.7
%
 
9.4
%
 
 
 
15.2
%

(more)

7

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)

8

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 September 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
22
%
12
 %
7
%
11
%
6
%
13
%
12
%
 
9
%
 
12
%
Plus: Currency translation effects
1
%
1
 %
4
%
2
%
1
%
2
%
2
%
 
3
%
 
2
%
Constant currency sales change
23
%
13
 %
11
%
13
%
7
%
15
%
14
%
 
12
%
 
14
%
Less: Acquisitions
—
%
29
 %
—
%
—
%
—
%
—
%
1
%
 
—
%
 
1
%
Organic constant currency change
23
%
(16
)%
11
%
13
%
7
%
15
%
13
%
 
12
%
 
13
%
 
Nine Months Ended September 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
12
 %
110
 %
10
%
13
 %
10
 %
10
 %
20
 %
 
4
 %
 
17
 %
Plus: Currency translation effects
(1
)%
(2
)%
1
%
(1
)%
(2
)%
(1
)%
(2
)%
 
(1
)%
 
(1
)%
Constant currency sales change
11
 %
108
 %
11
%
12
 %
8
 %
9
 %
18
 %
 
3
 %
 
16
 %
Less: Acquisitions
—
 %
113
 %
—
%
—
 %
—
 %
—
 %
9
 %
 
—
 %
 
8
 %
Organic constant currency change
11
 %
(5
)%
11
%
12
 %
8
 %
9
 %
9
 %
 
3
 %
 
8
 %

(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)

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)

Americas Segment
 
Three Months Ended September 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
23
%
20
 %
5
%
12
%
4
%
20
%
14
%
 
(2
)%
 
12
%
Plus: Currency translation effects
1
%
—
 %
4
%
2
%
1
%
2
%
1
%
 
3
 %
 
2
%
Constant currency sales change
24
%
20
 %
9
%
14
%
5
%
22
%
15
%
 
1
 %
 
14
%
Less: Acquisitions
—
%
32
 %
—
%
—
%
—
%
—
%
2
%
 
—
 %
 
2
%
Organic constant currency change
24
%
(12
)%
9
%
14
%
5
%
22
%
13
%
 
1
 %
 
12
%
 
Nine Months Ended September 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
%
177
 %
9
%
13
%
9
%
16
%
24
%
 
(5
)%
 
20
%
Plus: Currency translation effects
1
%
1
 %
3
%
1
%
—
%
1
%
1
%
 
2
 %
 
1
%
Constant currency sales change
9
%
178
 %
12
%
14
%
9
%
17
%
25
%
 
(3
)%
 
21
%
Less: Acquisitions
—
%
183
 %
—
%
—
%
—
%
—
%
15
%
 
—
 %
 
12
%
Organic constant currency change
9
%
(5
)%
12
%
14
%
9
%
17
%
10
%
 
(3
)%
 
9
%

(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)

International Segment
 
Three Months Ended September 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
19
%
(18
)%
14
%
8
%
7
%
4
%
9
%
 
23
%
 
11
%
Plus: Currency translation effects
4
%
1
 %
4
%
4
%
2
%
2
%
3
%
 
4
%
 
3
%
Constant currency sales change
23
%
(17
)%
18
%
12
%
9
%
6
%
12
%
 
27
%
 
14
%
Less: Acquisitions
—
%
2
 %
—
%
—
%
—
%
—
%
1
%
 
—
%
 
—
%
Organic constant currency change
23
%
(19
)%
18
%
12
%
9
%
6
%
11
%
 
27
%
 
14
%
 
Nine Months Ended September 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
20
 %
3
 %
13
 %
13
 %
11
 %
3
 %
12
 %
 
14
 %
 
12
 %
Plus: Currency translation effects
(5
)%
(6
)%
(3
)%
(4
)%
(5
)%
(4
)%
(5
)%
 
(4
)%
 
(4
)%
Constant currency sales change
15
 %
(3
)%
10
 %
9
 %
6
 %
(1
)%
7
 %
 
10
 %
 
8
 %
Less: Acquisitions
—
 %
2
 %
—
 %
—
 %
—
 %
—
 %
—
 %
 
—
 %
 
—
 %
Organic constant currency change
15
 %
(5
)%
10
 %
9
 %
6
 %
(1
)%
7
 %
 
10
 %
 
8
 %

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

 
Three Months Ended September 30, 2018
 
Consolidated
 
Americas
 
International
Breathing Apparatus
23
%
 
24
%
 
23
 %
Fall Protection
15
%
 
22
%
 
6
 %
Portable Gas Detection
13
%
 
14
%
 
12
 %
Firefighter Helmets and Protective Apparel(a)
13
%
 
20
%
 
(17
)%
Industrial Head Protection
11
%
 
9
%
 
18
 %
Fixed Gas and Flame Detection
7
%
 
5
%
 
9
 %
Core Sales
14
%
 
15
%
 
12
 %
Core excluding Acquisitions
13
%
 
13
%
 
11
 %
 
 
 
 
 
 
Non-Core Sales
12
%
 
1
%
 
27
 %
 
 
 
 
 
 
Net Sales
14
%
 
14
%
 
14
 %
Net Sales excluding Acquisitions
13
%
 
12
%
 
14
 %
 
Nine Months Ended September 30, 2018
 
Consolidated
 
Americas
 
International
Breathing Apparatus
11
%
 
9
 %
 
15
 %
Fall Protection
9
%
 
17
 %
 
(1
)%
Portable Gas Detection
12
%
 
14
 %
 
9
 %
Firefighter Helmets and Protective Apparel(a)
108
%
 
178
 %
 
(3
)%
Industrial Head Protection
11
%
 
12
 %
 
10
 %
Fixed Gas and Flame Detection
8
%
 
9
 %
 
6
 %
Core Sales
18
%
 
25
 %
 
7
 %
Core excluding Acquisitions
9
%
 
10
 %
 
7
 %
 
 
 
 
 
 
Non-Core Sales
3
%
 
(3
)%
 
10
 %
 
 
 
 
 
 
Net Sales
16
%
 
21
 %
 
8
 %
Net Sales excluding Acquisitions
8
%
 
9
 %
 
8
 %

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






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12

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 September 30,
 
 
 
Nine Months Ended September 30,
 
 
 
2018
 
2017
 
%
Change
 
2018
 
2017
 
%
Change
 
 
 
 
 
 
 
 
 
 
 
 
Net income attributable to MSA Safety Incorporated
$
33,717

 
$
32,066

 
5%
 
$
99,267

 
$
59,011

 
68%
Tax benefit associated with U.S. Tax Reform
(1,956
)
 
—

 
 
 
(1,956
)
 
—

 
 
Tax benefit associated with European reorganization
—

 
(2,474
)
 
 
 
—

 
(2,474
)
 
 
Tax benefit associated with ASU 2016-09: Improvements to employee share-based payment accounting
(430
)
 
(98
)
 
 
 
(2,306
)
 
(6,910
)
 
 
Subtotal
31,331

 
29,494

 
6%
 
95,005

 
49,627

 
91%
 
 
 
 
 
 
 
 
 
 
 
 
Restructuring charges
2,615

 
3,214

 
 
 
10,223

 
16,920

 
 
Currency exchange (gains) losses, net
(252
)
 
562

 
 
 
2,571

 
3,994

 
 
Loss on extinguishment of debt
1,494

 
—

 
 
 
1,494

 
—

 
 
Other operating expense
14,627

 
3,346

 
 
 
25,469

 
32,956

 
 
Strategic transaction costs
56

 
386

 
 
 
208

 
3,365

 
 
Asset related (gain) losses and other, net
(733
)
 
30

 
 
 
415

 
274

 
 
Income tax expense on adjustments
(4,024
)
 
(1,598
)
 
 
 
(9,645
)
 
(16,367
)
 
 
Adjusted earnings
$
45,114

 
$
35,434

 
27%
 
$
125,740

 
$
90,769

 
39%
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted earnings per diluted share
$
1.16

 
$
0.92

 
26%
 
$
3.23

 
$
2.35

 
37%

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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13

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 September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
 
 
 
 
 
 
 
 
Cash flow from operating activities
$
120,815

 
$
42,964

 
$
186,197

 
$
189,246

Capital expenditures
(9,808
)
 
(5,603
)
 
(18,620
)
 
(11,730
)
 
 
 
 
 
 
 
 
Free cash flow
$
111,007

 
$
37,361

 
$
167,577

 
$
177,516

 
 
 
 
 
 
 
 
Net income attributable to MSA Safety Incorporated
$
33,717

 
$
32,066

 
$
99,267

 
$
59,011

 
 
 
 
 
 
 
 
Free cash flow conversion
329%
 
117%
 
169%
 
301%


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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14

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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