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MSA Announces Second Quarter Results
Quarterly GAAP earnings include a charge related to recent product liability settlements and estimated indemnity on all asserted cumulative trauma product liability claims, which did not have a cash impact in the quarter; Adjusted earnings were $33 million, growing 10 percent on continued product margin expansion and a streamlined cost structure

PITTSBURGH, Aug. 3, 2017 /PRNewswire/ -- Global safety equipment manufacturer MSA Safety Incorporated (NYSE: MSA) today reported results for the second quarter of 2017.

MSA Safety Incorporated

Quarterly Highlights

  • Reported revenue was $289 million, decreasing 2 percent from a year ago on both a reported and constant currency basis.
  • GAAP earnings from continuing operations were $13 million or $0.32 per diluted share, compared to $29 million or $0.77 per diluted share in the same period a year ago. The decline in GAAP earnings is fully attributable to a $30 million pre-tax charge related to product liability settlements and an increased reserve reflecting all asserted cumulative trauma product liability claims. This charge did not have a cash impact in the second quarter.
  • Adjusted earnings were $33 million or $0.85 per diluted share, compared to $30 million or $0.79 per diluted share a year ago.
  • The company recently completed its acquisition of Globe Manufacturing Company in an all-cash transaction valued at $215 million. The transaction is expected to be accretive to GAAP earnings by $0.10 - $0.15 per share and accretive to adjusted earnings by $0.20 - $0.25 per share in the first 12 months of ownership.
  • Cash flow from operating activities was $50 million, compared to $24 million in the same period a year ago. The company continues to make progress collecting its insurance receivable, and received $22 million during the quarter from its insurance carriers, bringing total year-to-date collections to $110 million.

Cumulative Trauma Product Liability Charge

The company increased its cumulative trauma product liability reserve by $84 million in the second quarter related to recent product liability settlements and estimated indemnity for all asserted cumulative trauma claims, bringing the total reserve to $93 million. The company's quarterly GAAP results include a $30 million, or $21 million after tax ($0.53 per diluted share) charge, which reflects the increase to the reserve, net of expected insurance collections.

  • Approximately $75 million of the increase to the reserve relates to product liability settlements reached in August 2017. The company will pay $25 million towards these settlements in the second half of 2017, with the balance expected to be paid ratably over seven quarters beginning in the first quarter of 2018 and ending in the third quarter of 2019. The settlements enable the company to gain more certainty around its cash flow position in the coming years while reducing future exposure related to cumulative trauma claims. As a result of these settlements, the company is now largely self-insured for cumulative trauma claims.
  • The remaining increase to the reserve reflects estimated indemnity for all other asserted cumulative trauma product liability claims.
  • The liability is related to legacy products designed, manufactured and sold many years ago. These products are not currently sold by the company.
  • The cash impact associated with payments for cumulative trauma product liability claims has been reflected in the company's operating cash flow since 2005, without the benefit of inflows from insurance proceeds in most of those years. Due to the recent success in collecting disputed available insurance, the company expects to have cash flow streams from past and future settlements to fund this liability without a material impact on its current capital allocation priorities.

Comments from Management

"The charge to our GAAP earnings, which did not have a cash impact in the quarter, relates to product liability settlements and estimated indemnity on all asserted cumulative trauma product liability claims. For more than a decade, we have funded product liability settlements from operating cash flow, without the benefit of inflows from insurance proceeds. In the past year, we have made great progress collecting insurance proceeds and establishing cash flow streams for the future, which will allow us to fund this liability without a material impact on our current capital allocation priorities," said William M. Lambert, MSA Chairman and CEO.

"Our second quarter operating results reflect our ongoing focus on streamlining MSA's cost structure, expanding product margins, and generating higher levels of cash flow," Mr. Lambert continued. "Most notably, we were able to improve gross profit by 40 basis points and drive 10 percent adjusted earnings growth in the quarter."

Mr. Lambert noted that revenue driven by short-cycle industrial products, including hard hats and fall protection equipment, continued to gain momentum in the quarter. "In particular, our previous investments in R&D and acquisitions have enabled us to capitalize on stronger market conditions to drive double-digit revenue growth in each of these areas." Mr. Lambert added that sales of hard hats, which increased 15 percent in the quarter, were supported by the company's market leading Fas-Trac® III Suspension and its ability to offer customers best-in-class customization options. He also commented that the company's    16 percent quarterly growth in fall protection was driven largely by Latchways, the UK-based fall protection manufacturer MSA acquired in 2015.

"We have a strong history of using our balance sheet to complete acquisitions, like Latchways and General Monitors, that drive shareholder value," Mr. Lambert said. "Similarly, our recently completed acquisition of Globe is an excellent strategic and financial fit, helping us continue to enhance our market leadership position in the U.S. fire service. Going forward, we remain focused on managing our cost structure while strategically deploying capital for investments that will continue to drive profitable growth and market share gains," Mr. Lambert concluded.

 

 

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,


2017


2016


2017


2016











Net sales

$

288,775



$

295,998



$

554,540



$

575,266


Cost of products sold

155,170



160,143



301,213



318,706


Gross profit

133,605



135,855



253,327



256,560












Selling, general and administrative

73,943



75,716



149,926



154,911


Research and development

11,933



11,144



22,931



21,507


Restructuring charges

967



1,338



13,706



1,808


Currency exchange losses (gains), net

2,851



(242)



3,431



1,708


Other operating expense(a)

29,610





29,610




Operating income

14,301



47,899



33,723



76,626












Interest expense

3,014



4,201



6,605



8,103


Other income, net

(425)



(775)



(1,080)



(1,663)


Total other expense, net

2,589



3,426



5,525



6,440










Income from continuing operations before income taxes

11,712



44,473



28,198



70,186


(Benefit) provision for income taxes

(902)



15,026



894



27,537


Income from continuing operations

12,614



29,447



27,304



42,649


Income from discontinued operations



2,484





1,355


Net income

12,614



31,931



27,304



44,004


Net income attributable to noncontrolling interests

(82)



(848)



(359)



(1,170)


Net income attributable to MSA Safety Incorporated

12,532



31,083



26,945



42,834












Amounts attributable to MSA Safety Incorporated common shareholders:










Income from continuing operations

12,532



29,306



26,945




41,989


Income from discontinued operations



1,777






845


  Net income

12,532



31,083



26,945




42,834












Earnings per share attributable to MSA Safety Incorporated common shareholders:










Basic










Income from continuing operations

$

0.33



$

0.78



$

0.71



$

1.12


Income from discontinued operations

$



$

0.05



$



$

0.02


  Net income

$

0.33



$

0.83



$

0.71



$

1.14












Diluted










Income from continuing operations

$

0.32



$

0.77



$

0.70



$

1.11


Income from discontinued operations

$



$

0.05



$



$

0.02


  Net income

$

0.32



$

0.82



$

0.70



$

1.13












Basic shares outstanding

38,065



37,411



37,914



37,368


Diluted shares outstanding

38,780



37,860



38,685



37,807


 

a)  Represents a charge related to product liability settlements reached in August 2017 and estimated indemnity for all other asserted cumulative trauma product liability claims.  See further description under Cumulative Trauma Product Liability Charge section of Press Release narrative.


 

 

MSA Safety Incorporated

Condensed Consolidated Balance Sheet (Unaudited)

(In thousands)



June 30, 2017


December 31, 2016

Assets




Cash and cash equivalents

$

115,361



$

113,759


Trade receivables, net

219,491



209,514


Inventories

130,613



103,066


Notes receivable, insurance companies

14,161



4,180


Other current assets

72,531



42,287


    Total current assets

552,157



472,806






Property, net

143,884



148,678


Prepaid pension cost

56,519



62,916


Goodwill

341,925



333,276


Notes receivable, insurance companies, noncurrent

63,833



63,147


Insurance receivable, noncurrent

81,111



157,929


Other noncurrent assets

122,607



115,168


   Total assets

$

1,362,036



$

1,353,920






Liabilities and shareholders' equity




Notes payable and current portion of long-term debt, net

$

26,827



$

26,666


Accounts payable

65,392



62,734


Other current liabilities

163,123



132,010


   Total current liabilities

255,342



221,410






Long-term debt, net

242,679



363,836


Pensions and other employee benefits

166,672



157,927


Deferred tax liabilities

36,176



34,044


Other noncurrent liabilities

59,571



15,491


Total shareholders' equity

601,596



561,212


   Total liabilities and shareholders' equity

$

1,362,036



$

1,353,920


 

 

MSA Safety Incorporated

Condensed Consolidated Statement of Cash Flows (Unaudited)

(In thousands)



Three Months Ended
June 30,


Six Months Ended
June 30,


2017


2016


2017


2016









Net income

$

12,614



$

31,931



$

27,304



$

44,004


Depreciation and amortization

8,984



8,576



17,736



17,732


Change in working capital and other operating

28,294



(16,979)



101,242



(49,214)


  Cash flow from operating activities

49,892



23,528



146,282



12,522










Capital expenditures

(4,685)



(4,776)



(6,127)



(10,595)


Property disposals and other investing

512



1,257



677



16,965


  Cash flow (used in) from investing activities

(4,173)



(3,519)



(5,450)



6,370










Change in debt

(28,203)



(17,009)



(124,640)



(3,376)


Cash dividends paid

(13,369)



(12,348)



(25,824)



(24,284)


Other financing

5,098



1,605



7,944



3,161


  Cash flow (used in) financing activities

(36,474)



(27,752)



(142,520)



(24,499)










Effect of exchange rate changes on cash and cash equivalents

1,689



(1,009)



3,290



2,831










Increase (decrease) in cash and cash equivalents

10,934



(8,752)



1,602



(2,776)


 

 

MSA Safety Incorporated

Segment Information (Unaudited)

(In thousands)



Americas


International


Corporate


Consolidated

Three months ended June 30, 2017








Sales to external customers

$

174,960



$

113,815





$

288,775


Operating income







14,301


Operating margin %







5.0

%

Restructuring charges







967


Currency exchange losses, net







2,851


Other operating expense







29,610


Adjusted operating income (loss)

45,528



10,970



(8,769)



$

47,729


Adjusted operating margin %

26.0

%


9.6

%




16.5

%









Six Months Ended June 30, 2017








Sales to external customers

$

341,528



$

213,012





$

554,540


Operating income







33,723


Operating margin %







6.1

%

Restructuring charges







13,706


Currency exchange losses, net







3,431


Other operating expense







29,610


Adjusted operating income (loss)

83,634



17,614



(20,778)



$

80,470


Adjusted operating margin %

24.5

%


8.3

%




14.5

%




Americas


International


Corporate


Consolidated

Three months ended June 30, 2016








Sales to external customers

$

177,623



$

118,375





$

295,998


Operating income







47,899


Operating margin %







16.2

%

Restructuring charges







1,338


Currency exchange (gains), net







(242)


Other operating expense








Adjusted operating income (loss)

44,671



12,741



(8,417)



$

48,995


Adjusted operating margin %

25.1

%


10.8

%




16.6

%









Six Months Ended June 30, 2016








Sales to external customers

$

344,965



$

230,301





$

575,266


Operating income







76,626


Operating margin %







13.3

%

Restructuring charges







1,808


Currency exchange losses, net







1,708


Other operating expense








Adjusted operating income (loss)

76,016



21,148



(17,022)



$

80,142


Adjusted operating margin %

22.0

%


9.2

%




13.9

%

 

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

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

 

MSA Safety Incorporated

Reconciliation of As Reported Financial Measures to Non-GAAP Financial Measures

Constant currency revenue growth (Unaudited)


Consolidated



Three Months Ended June 30, 2017


Breathing Apparatus

Fire and Rescue Helmets

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)

%

(4)

%

15

%

(8)

%

10

%

11

%

%


(12)

%


(2)

%

Plus: Currency
translation effects

%

1

%

%

%

1

%

5

%

%


%


%

Constant currency
sales change

(12)

%

(3)

%

15

%

(8)

%

11

%

16

%

%


(12)

%


(2)

%




Six Months Ended June 30, 2017


Breathing Apparatus

Fire and Rescue Helmets

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)

%

(1)

%

17

%

1

%

%

(1)

%

(2)

%


(11)

%


(4)

%

Plus: Currency
translation effects

%

2

%

(1)

%

%

1

%

5

%

1

%


(1)

%


1

%

Constant currency
sales change

(12)

%

1

%

16

%

1

%

1

%

4

%

(1)

%


(12)

%


(3)

%

 

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.

There can be no assurances that MSA's definition of 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 this non-GAAP financial measure.

 

MSA Safety Incorporated

Reconciliation of As Reported Financial Measures to Non-GAAP Financial Measures

Constant currency revenue growth (Unaudited)


Americas Segment



Three Months Ended June 30, 2017


Breathing Apparatus

Fire and Rescue Helmets

Industrial Head Protection

Portable Gas Detection

Fixed Gas and Flame Detection

Fall Protection

Core Sales


Non-
Core Sales


Net Sales

GAAP reported
sales change

(16)

%

(5)

%

15

%

4

%

2

%

31

%

%


(9)

%


(1)

%

Plus: Currency
translation effects

%

%

(1)

%

(1)

%

%

1

%

%


%


(1)

%

Constant currency
sales change

(16)

%

(5)

%

14

%

3

%

2

%

32

%

%


(9)

%


(2)

%




Six Months Ended June 30, 2017


Breathing Apparatus

Fire and Rescue Helmets

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)

%

(5)

%

16

%

11

%

(5)

%

22

%

%


(6)

%


(1)

%

Plus: Currency
translation effects

%

%

(2)

%

(1)

%

1

%

1

%

%


(1)

%


%

Constant currency
sales change

(12)

%

(5)

%

14

%

10

%

(4)

%

23

%

%


(7)

%


(1)

%

 

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.

There can be no assurances that MSA's definition of 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 this non-GAAP financial measure.

 

MSA Safety Incorporated

Reconciliation of As Reported Financial Measures to Non-GAAP Financial Measures

Constant currency revenue growth (Unaudited)


International Segment



Three Months Ended June 30, 2017


Breathing Apparatus

Fire and Rescue Helmets

Industrial Head Protection

Portable Gas Detection

Fixed Gas and Flame Detection

Fall Protection

Core Sales


Non-
Core Sales


Net Sales

GAAP reported
sales change

(5)

%

(4)

%

16

%

(25)

%

20

%

(8)

%

(1)

%


(16)

%


(4)

%

Plus: Currency
translation effects

1

%

2

%

1

%

1

%

1

%

9

%

2

%


%


2

%

Constant currency
sales change

(4)

%

(2)

%

17

%

(24)

%

21

%

1

%

1

%


(16)

%


(2)

%




Six Months Ended June 30, 2017


Breathing Apparatus

Fire and Rescue Helmets

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)

%

3

%

20

%

(14)

%

6

%

(19)

%

(5)

%


(17)

%


(8)

%

Plus: Currency
translation effects

1

%

2

%

1

%

1

%

2

%

8

%

3

%


1

%


3

%

Constant currency
sales change

(11)

%

5

%

21

%

(13)

%

8

%

(11)

%

(2)

%


(16)

%


(5)

%

 

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.

There can be no assurances that MSA's definition of 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 this non-GAAP financial measure.

 

MSA Safety Incorporated

Supplemental Segment Information (Unaudited)

Summary of constant currency revenue growth by segment and product group



Three Months Ended June 30, 2017


Consolidated


Americas


International

Fall Protection

16

%


32

%


1

%

Industrial Head Protection

15

%


14

%


17

%

Fixed Gas and Flame Detection

11

%


2

%


21

%

Fire and Rescue Helmets

(3)

%


(5)

%


(2)

%

Portable Gas Detection

(8)

%


3

%


(24)

%

Breathing Apparatus

(12)

%


(16)

%


(4)

%

Core Sales

%


%


1

%







Non-Core Sales

(12)

%


(9)

%


(16)

%







Net Sales

(2)

%


(2)

%


(2)

%




Six Months Ended June 30, 2017


Consolidated


Americas


International

Fall Protection

4

%


23

%


(11)

%

Industrial Head Protection

16

%


14

%


21

%

Fixed Gas and Flame Detection

1

%


(4)

%


8

%

Fire and Rescue Helmets

1

%


(5)

%


5

%

Portable Gas Detection

1

%


10

%


(13)

%

Breathing Apparatus

(12)

%


(12)

%


(11)

%

Core Sales

(1)

%


%


(2)

%







Non-Core Sales

(12)

%


(7)

%


(16)

%







Net Sales

(3)

%


(1)

%


(5)

%

 

 

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,




2017


2016


%
Change


2017


2016


%
Change













Income from continuing operations attributable to MSA Safety Inc.

$

12,532



$

29,306



(57)%


$

26,945



$

41,989



(36)%

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

(4,030)







(6,812)






Tax charges associated with European reorganization









3,600




Subtotal

8,502



29,306



(71)%


20,133



45,589



(56)%













Self-insured legal settlements and defense costs(a)

29,653



275





29,685



295




Currency exchange losses (gains), net

2,851



(242)





3,431



1,708




Strategic transaction costs

1,642







2,979



511




Restructuring charges

967



1,338





13,706



1,808




Asset related losses (gains), net

137



(216)





169



(559)




Income tax expense on adjustments

(10,681)



(390)





(14,769)



(1,295)




Adjusted earnings

33,071



30,071



10%


55,334



48,057



15%













Adjusted earnings per diluted share

$

0.85



$

0.79



8%


$

1.43



$

1.27



13%


(a)  Represents a charge related to product liability settlements reached in August 2017 and estimated indemnity for all other asserted cumulative trauma product liability claims.  See further description under Cumulative Trauma Product Liability Charge section of Press Release narrative.

 

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.

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, fire and rescue helmets, and fall protection devices.  With 2016 revenues of $1.15 billion, MSA employs approximately 4,300 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 web site at www.MSAsafety.com.

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

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

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SOURCE MSA

Media Relations Contact: Mark Deasy (724) 741 - 8570; Investor Relations Contact: Kenneth Krause (724) 741 - 8534