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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): February 23, 2017
 
https://cdn.kscope.io/8333095349b66401b7c4e3f383f001ba-image0a02a06.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))




Item 2.02
Results of Operations and Financial Condition
On February 23, 2017, the Company issued a press release announcing its financial results for the quarter ended December 31, 2016. 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 February 23, 2017, announcing financial results for the quarter ended December 31, 2016.




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
 
 
Vice President of Finance and Chief Financial Officer
Date: February 23, 2017




EXHIBIT INDEX
 
 
 
 
Exhibit No.
  
Description
 
 
99.1
  
MSA Safety Incorporated Press Release dated February 23, 2017, announcing financial results for the quarter ended December 31, 2016.



Exhibit
1

Exhibit 99.1
https://cdn.kscope.io/8333095349b66401b7c4e3f383f001ba-msaa04.jpg
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 Full-Year and Fourth Quarter Results
Full year net income increases 30 percent and operating income improves 340 basis points, driven by strategic investments in new products, acquisitions and cost reduction programs

PITTSBURGH, February 23, 2017 - Global safety equipment manufacturer MSA Safety Incorporated (NYSE: MSA) today reported results for the fourth quarter and full year of 2016.
Annual Highlights
•
Reported revenue was $1.15 billion, increasing 2 percent from a year ago on a reported basis and 4 percent on a constant currency basis.

•
Operating income was $164 million or 14.3 percent of net sales, increasing 340 basis points from a year ago. Adjusted operating income, excluding foreign currency losses and restructuring, was $171 million or 14.8 percent of net sales, increasing 270 basis points from a year ago. The company’s recent acquisition of UK-based Senscient, Inc. was dilutive to operating margin by 20 basis points for the year.

•
Cash flow from operating activities was $135 million compared to $55 million in the same period a year ago, primarily due to higher cash flow from working capital on increased collections of receivables and effective inventory management programs. A clear focus on improving working capital drove higher cash flow in the quarter, with working capital finishing the year at 21.7 percent of net sales, compared to 25.7 percent of net sales in 2015.

Quarterly Highlights
•
Reported revenue was $296 million, decreasing 6 percent from a year ago on a reported basis, and 4 percent on a constant currency basis.


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•
Operating income was $48 million or 16.1 percent of net sales, increasing 600 basis points from a year ago. Adjusted operating income, excluding foreign currency gains and restructuring, was $48 million or 16.2 percent of net sales, increasing 400 basis points from a year ago.

•
Cash flow from operating activities was $103 million, compared to $45 million in the same period a year ago.

Comments from Management

"Our results for 2016 reflect strong returns on the strategic investments we've made in new products, acquisitions and restructuring programs to drive earnings expansion in a challenging economic cycle," said William M. Lambert, MSA Chairman, President and CEO. "Despite a difficult quarterly revenue comparison - attributable to the clearing of a significant backlog for self-contained breathing apparatus (SCBA) in the fourth quarter of 2015 - we achieved all of our key financial targets for the year and posted record net income of $92 million," he continued.

In particular, Mr. Lambert noted that net income increased 30 percent on revenue growth of 2 percent, driven by higher gross profit and a streamlined cost structure. He added that the company converted 119 percent of full year net income to free cash flow by reducing working capital, and was able to continue funding an increasing dividend while reducing its debt balance by $74 million from the end of 2015.

"While we managed through a slower growth environment in 2016, our corporate strategy was successful in that it allowed us to capture market share while expanding product margins and increasing profitability. As we look ahead to 2017, I'm pleased to see early signs of strengthening macro conditions and an increased order pace across several of our industrial-related product areas," Mr. Lambert said. “This momentum - coupled with

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3

the steps we have taken to drive leadership positions in our core product areas and reduce our cost structure - positions us well to drive enhanced shareholder value in 2017 and beyond."

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4

MSA Safety Incorporated
Condensed Consolidated Statement of Income (Unaudited)
(In thousands, except per share amounts)
 
Three Months Ended  
 December 31,
 
Twelve Months Ended 
 December 31,
 
2016
 
2015
 
2016
 
2015
 
 
 
 
 
 
 
 
Net sales
$
296,031

 
$
313,318

 
$
1,149,530

 
$
1,130,783

Cost of products sold
157,710

 
179,308

 
625,887

 
629,680

Gross profit
138,321

 
134,010

 
523,643

 
501,103

 
 
 
 
 
 
 
 
Selling, general and administrative
78,288

 
83,587

 
306,144

 
315,270

Research and development
12,224

 
12,200

 
46,847

 
48,630

Restructuring charges
1,997

 
7,560

 
5,694

 
12,258

Currency exchange (gains) losses, net
(1,732
)
 
(1,132
)
 
766

 
2,204

Operating income
47,544

 
31,795

 
164,192

 
122,741

 
 
 
 
 
 
 
 
Interest expense
3,896

 
3,052

 
16,411

 
10,854

Other (income) loss, net

(426)

 
2,027

 
(4,130)

 
861

Total other expense, net
3,470

 
5,079

 
12,281

 
11,715

 
 
 
 
 
 
 
 
Income from continuing operations before income taxes
44,074

 
26,716

 
151,911

 
111,026

Provision for income taxes
18,938

 
7,738

 
57,804

 
44,407

Income from continuing operations
25,136

 
18,978

 
94,107

 
66,619

(Loss) income from discontinued operations
(300
)
 
85

 
(245
)
 
1,325

Net income
24,836

 
19,063

 
93,862

 
67,944

Net loss (income) attributable to noncontrolling interests
80

 
1,788

 
(1,926
)
 
2,863

Net income attributable to MSA Safety Incorporated
24,916

 
20,851

 
91,936

 
70,807

 
 
 
 
 
 
 
 
Amounts attributable to MSA Safety Incorporated common shareholders:
 
 
 
 
 
 
 
Income from continuing operations
25,216

 
20,840

 
92,691

 
69,590

(Loss) income from discontinued operations
(300
)
 
11

 
(755
)
 
1,217

  Net income
24,916

 
20,851

 
91,936

 
70,807

 
 
 
 
 
 
 
 
Earnings per share attributable to MSA Safety Incorporated common shareholders:
 
 
 
 
 
 
 
Basic
 
 
 
 
 
 
 
Income from continuing operations
$
0.67

 
$
0.56

 
$
2.47

 
$
1.86

(Loss) income from discontinued operations
$
(0.01
)
 
$
—

 
$
(0.02
)
 
$
0.03

  Net income
$
0.66

 
$
0.56

 
$
2.45

 
$
1.89

 
 
 
 
 
 
 
 
Diluted
 
 
 
 
 
 
 
Income from continuing operations
$
0.66

 
$
0.55

 
$
2.44

 
$
1.84

(Loss) income from discontinued operations
$
(0.01
)
 
$
—

 
$
(0.02
)
 
$
0.03

  Net income
$
0.65

 
$
0.55

 
$
2.42

 
$
1.87

 
 
 
 
 
 
 
 
Basic shares outstanding
37,602

 
37,269

 
37,456

 
37,293

Diluted shares outstanding
38,218

 
37,512

 
37,986

 
37,710


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MSA Safety Incorporated
Condensed Consolidated Balance Sheet (Unaudited)
(In thousands)
 
December 31, 2016
 
December 31, 2015
Assets
 
 
 
Cash and cash equivalents
$
113,759

 
$
105,925

Trade receivables, net
209,514

 
232,862

Inventories
103,066

 
125,849

Notes receivable, insurance companies
4,180

 
6,746

Other current assets
42,287

 
33,230

    Total current assets
472,806

 
504,612

 
 
 
 
Property, net
148,678

 
155,839

Prepaid pension cost
62,916

 
62,072

Goodwill
333,276

 
340,338

Notes receivable, insurance companies, noncurrent
63,147

 
1,944

Insurance receivable, noncurrent
157,929

 
227,483

Other noncurrent assets
115,168

 
130,575

   Total assets
$
1,353,920

 
$
1,422,863

 
 
 
 
Liabilities and shareholders' equity
 
 
 
Notes payable and current portion of long-term debt
$
26,666

 
$
6,650

Accounts payable
62,734

 
68,206

Other current liabilities
132,010

 
177,031

   Total current liabilities
221,410

 
251,887

 
 
 
 
Long-term debt, net
363,836

 
458,022

Pensions and other employee benefits
157,927

 
156,160

Deferred tax liabilities
34,044

 
24,872

Other noncurrent liabilities
15,491

 
14,794

Total shareholders' equity
561,212

 
517,128

   Total liabilities and shareholders' equity
$
1,353,920

 
$
1,422,863







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MSA Safety Incorporated
Condensed Consolidated Statement of Cash Flows (Unaudited)
(In thousands)
 
Three Months Ended December 31,
 
Twelve Months Ended December 31,
 
2016
 
2015
 
2016
 
2015
 
 
 
 
 
 
 
 
Net income
$
24,836

 
$
19,063

 
$
93,862

 
$
67,944

Depreciation and amortization
8,622

 
9,038

 
35,273

 
31,684

Change in working capital and other operating
69,999

 
17,323

 
5,759

 
(44,374)

  Cash flow from operating activities
103,457

 
45,424

 
134,894

 
55,254

 
 
 
 
 
 
 
 
Capital expenditures
(9,377
)
 
(11,093
)
 
(25,523
)
 
(36,241
)
Acquisition, net of cash acquired
(188
)
 
(180,271
)
 
(18,449
)
 
(180,271
)
Property disposals
282

 
53

 
18,214

 
8,022

  Cash flow (used in) investing activities
(9,283
)
 
(191,311
)
 
(25,758
)
 
(208,490
)
 
 
 
 
 
 
 
 
Change in debt
(76,991
)
 
75,794

 
(60,908
)
 
218,936

Cash dividends paid
(12,399
)
 
(11,932
)
 
(49,074
)
 
(47,380
)
Other financing
7,803

 
888

 
12,141

 
(6,607
)
  Cash flow (used in) from financing activities
(81,587
)
 
64,750

 
(97,841
)
 
164,949

 
 
 
 
 
 
 
 
Effect of exchange rate changes on cash and cash equivalents
(4,861
)
 
(2,281
)
 
(3,461
)
 
(11,786
)
 
 
 
 
 
 
 
 
Increase (decrease) in cash and cash equivalents
7,726

 
(83,418)

 
7,834

 
(73
)

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MSA Safety Incorporated
Segment Information (Unaudited)
(In thousands)
 
Americas
 
International
 
Corporate
 
Consolidated
Three Months Ended December 31, 2016
 
 
 
 
 
 
 
Sales to external customers
$
168,109

 
$
127,922

 
—

 
$
296,031

Operating income
 
 
 
 
 
 
47,544

Operating margin %
 
 
 
 
 
 
16.1
%
Restructuring charges
 
 
 
 
 
 
1,997

Currency exchange (gains), net
 
 
 
 
 
 
(1,732
)
Adjusted operating income (loss)
45,313

 
14,832

 
(12,336
)
 
$
47,809

Adjusted operating margin %
27.0
%
 
11.6
%
 
 
 
16.2
%
 
 
 
 
 
 
 
 
Twelve Months Ended December 31, 2016
 
 
 
 
 
 
 
Sales to external customers
$
678,433

 
$
471,097

 
—

 
$
1,149,530

Operating income
 
 
 
 
 
 
164,192

Operating margin %
 
 
 
 
 
 
14.3
%
Restructuring charges
 
 
 
 
 
 
5,694

Currency exchange losses, net
 
 
 
 
 
 
766

Adjusted operating income (loss)
162,788

 
46,491

 
(38,627
)
 
$
170,652

Adjusted operating margin %
24.0
%
 
9.9
%
 
 
 
14.8
%
 
Americas
 
International
 
Corporate
 
Consolidated
Three Months Ended December 31, 2015
 
 
 
 
 
 
 
Sales to external customers
$
185,404

 
$
127,914

 
—

 
$
313,318

Operating income
 
 
 
 
 
 
31,795

Operating margin %
 
 
 
 
 
 
10.1
%
Restructuring charges
 
 
 
 
 
 
7,560

Currency exchange (gains), net
 
 
 
 
 
 
(1,132
)
Adjusted operating income (loss)
40,138

 
13,632

 
(15,547
)
 
$
38,223

Adjusted operating margin %
21.6
%
 
10.7
%
 
 
 
12.2
%
 
 
 
 
 
 
 
 
Twelve Months Ended December 31, 2015
 
 
 
 
 
 
 
Sales to external customers
$
704,754

 
$
426,029

 
—

 
$
1,130,783

Operating income
 
 
 
 
 
 
122,741

Operating margin %
 
 
 
 
 
 
10.9
%
Restructuring charges
 
 
 
 
 
 
12,258

Currency exchange losses, net
 
 
 
 
 
 
2,204

Adjusted operating income (loss)
141,971

 
33,501

 
(38,269
)
 
$
137,203

Adjusted operating margin %
20.1
%
 
7.9
%
 
 
 
12.1
%

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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 now allocated to each segment in a manner consistent with where the benefits from the expenses are derived. The 2015 segment results have been recast to conform with current period presentation.

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 and currency exchange gains / losses. Adjusted operating margin is defined as adjusted operating income (loss) divided by net sales. Adjusted operating income (loss) and adjusted operating margin are not recognized terms under GAAP, and 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.

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9

MSA Safety Incorporated
Reconciliation of As Reported Financial Measures to Non-GAAP Financial Measures
Constant currency revenue growth (Unaudited)
Organic constant currency revenue growth (Unaudited)
Consolidated
 
Three Months Ended December 31, 2016
 
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
(17
)%
(18
)%
3
%
(3
)%
4
%
23
 %
(5
)%
 
(9
)%
 
(6
)%
Plus: Currency translation effects
1
 %
1
 %
1
%
2
 %
—
%
12
 %
2
 %
 
1
 %
 
2
 %
Constant currency sales change
(16
)%
(17
)%
4
%
(1
)%
4
%
35
 %
(3
)%
 
(8
)%
 
(4
)%
Less: Acquisitions
—
 %
—
 %
—
%
—
 %
4
%
38
 %
4
 %
 
—
 %
 
3
 %
Organic constant currency change
(16
)%
(17
)%
4
%
(1
)%
—
%
(3
)%
(7
)%
 
(8
)%
 
(7
)%

 
Twelve Months Ended December 31, 2016
 
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
—
%
(6
)%
(5
)%
—
%
(1
)%
81
 %
4
%
 
(7
)%
 
2
 %
Plus: Currency translation effects
1
%
1
 %
4
 %
3
%
1
 %
7
 %
2
%
 
3
 %
 
2
 %
Constant currency sales change
1
%
(5
)%
(1
)%
3
%
—
 %
88
 %
6
%
 
(4
)%
 
4
 %
Less: Acquisitions
—
%
—
 %
—
 %
—
%
1
 %
95
 %
6
%
 
—
 %
 
5
 %
Organic constant currency change
1
%
(5
)%
(1
)%
3
%
(1
)%
(7
)%
—
%
 
(4
)%
 
(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.
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
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 December 31, 2016
 
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
(24
)%
(12
)%
4
%
(2
)%
(9
)%
28
 %
(10
)%
 
(4
)%
 
(9
)%
Plus: Currency translation effects
1
 %
—
 %
1
%
3
 %
—
 %
3
 %
1
 %
 
2
 %
 
1
 %
Constant currency sales change
(23
)%
(12
)%
5
%
1
 %
(9
)%
31
 %
(9
)%
 
(2
)%
 
(8
)%
Less: Acquisitions
—
 %
—
 %
—
%
—
 %
—
 %
36
 %
3
 %
 
—
 %
 
2
 %
Organic constant currency change
(23
)%
(12
)%
5
%
1
 %
(9
)%
(5
)%
(12
)%
 
(2
)%
 
(10
)%
 
Twelve Months Ended December 31, 2016
 
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
(4
)%
5
%
(5
)%
—
%
(7
)%
12
 %
(3
)%
 
(7
)%
 
(4
)%
Plus: Currency translation effects
—
 %
1
%
3
 %
3
%
1
 %
4
 %
2
 %
 
3
 %
 
2
 %
Constant currency sales change
(4
)%
6
%
(2
)%
3
%
(6
)%
16
 %
(1
)%
 
(4
)%
 
(2
)%
Less: Acquisitions
—
 %
—
%
—
 %
—
%
—
 %
24
 %
2
 %
 
—
 %
 
1
 %
Organic constant currency change
(4
)%
6
%
(2
)%
3
%
(6
)%
(8
)%
(3
)%
 
(4
)%
 
(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.
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
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 December 31, 2016
 
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
(2
)%
(21
)%
—
%
(6
)%
17
%
18
%
4
%
 
(13
)%
 
—
 %
Plus: Currency translation effects
1
 %
1
 %
3
%
2
 %
1
%
20
%
4
%
 
—
 %
 
4
 %
Constant currency sales change
(1
)%
(20
)%
3
%
(4
)%
18
%
38
%
8
%
 
(13
)%
 
4
 %
Less: Acquisitions
—
 %
—
 %
—
%
—
 %
8
%
20
%
7
%
 
—
 %
 
6
 %
Organic constant currency change
(1
)%
(20
)%
3
%
(4
)%
10
%
18
%
1
%
 
(13
)%
 
(2
)%
 
Twelve Months Ended December 31, 2016
 
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
10
%
(12
)%
(4
)%
1
%
7
%
280
%
16
%
 
(6
)%
 
11
%
Plus: Currency translation effects
2
%
1
 %
4
 %
3
%
2
%
16
%
3
%
 
2
 %
 
2
%
Constant currency sales change
12
%
(11
)%
—
 %
4
%
9
%
296
%
19
%
 
(4
)%
 
13
%
Less: Acquisitions
—
%
—
 %
—
 %
—
%
3
%
292
%
14
%
 
—
 %
 
10
%
Organic constant currency change
12
%
(11
)%
—
 %
4
%
6
%
4
%
5
%
 
(4
)%
 
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.
Organic constant currency revenue growth is defined as constant currency revenue growth excluding acquisitions. Management believes that organic constant currency revenue growth is a useful measure for investors to provide an understanding of MSA's standalone results.
There can be no assurances that MSA's definition of constant currency revenue growth or organic constant currency revenue growth is consistent with that of other companies. As such, management believes that it is appropriate to consider revenue growth determined on a GAAP basis in addition to these non-GAAP financial measures.

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12

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

 
Three Months Ended December 31, 2016
 
Consolidated
 
Americas
 
International
Fall Protection*
35
 %
 
31
 %
 
38
 %
Fixed Gas and Flame Detection
4
 %
 
(9
)%
 
18
 %
Head Protection
4
 %
 
5
 %
 
3
 %
Portable Gas Detection
(1
)%
 
1
 %
 
(4
)%
Breathing Apparatus
(16
)%
 
(23
)%
 
(1
)%
Fire & Rescue Helmets
(17
)%
 
(12
)%
 
(20
)%
Total Core Products
(3
)%
 
(9
)%
 
8
 %
Core excluding Acquisitions
(7
)%
 
(12
)%
 
1
 %
 
 
 
 
 
 
Non-Core Products
(8
)%
 
(2
)%
 
(13
)%
 
 
 
 
 
 
Net Sales
(4
)%
 
(8
)%
 
4
 %
Net Sales excluding Acquisitions
(7
)%
 
(10
)%
 
(2
)%

 
Twelve Months Ended December 31, 2016
 
Consolidated
 
Americas
 
International
Fall Protection*
88
 %
 
16
 %
 
296
 %
Fixed Gas and Flame Detection
—
 %
 
(6
)%
 
9
 %
Head Protection
(1
)%
 
(2
)%
 
—
 %
Portable Gas Detection
3
 %
 
3
 %
 
4
 %
Breathing Apparatus
1
 %
 
(4
)%
 
12
 %
Fire & Rescue Helmets
(5
)%
 
6
 %
 
(11
)%
Total Core Products
6
 %
 
(1
)%
 
19
 %
Core excluding Acquisitions
—
 %
 
(3
)%
 
5
 %
 
 
 
 
 
 
Non-Core Products
(4
)%
 
(4
)%
 
(4
)%
 
 
 
 
 
 
Net Sales
4
 %
 
(2
)%
 
13
 %
Net Sales excluding Acquisitions
(1
)%
 
(3
)%
 
3
 %

        
     *Fall protection growth rates include the impact from Latchways sales.
 


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13

MSA Safety Incorporated
Reconciliation of As Reported Financial Measures to Non-GAAP Financial Measures
Constant currency selling, general and administrative (SG&A) expense (Unaudited)
Organic constant currency SG&A expense (Unaudited)
(In thousands)

 
Three Months Ended December 31,
 
 
 
Twelve Months Ended December 31,
 
 
 
2016


2015
 
% Change
 
2016


2015
 
% Change
 
 
 
 
 
 
 
 
 
 
 
 
GAAP reported SG&A expense
$
78,288

 
$
83,587

 
(6
)%
 
$
306,144

 
$
315,270

 
(3
)%
Plus: Currency translation effects

 
(1,384
)
 
 
 

 
(6,906
)
 
 
Constant currency SG&A expense
$
78,288

 
$
82,203

 
(5
)%
 
$
306,144

 
$
308,364

 
(1
)%
Less: Acquisitions
4,245

 
3,232

 
 
 
15,101

 
3,232

 
 
Less: Strategic transaction costs
1,710

 
6,755

 
 
 
2,531

 
7,462

 
 
Organic constant currency SG&A expense
$
72,333

 
$
72,216

 
—
 %
 
$
288,512

 
$
297,670

 
(3
)%

Management believes that constant currency SG&A expense and organic constant currency SG&A expense are useful metrics for investors to measure the effectiveness of the company's cost reduction program announced in 2015. Constant currency SG&A expense highlights spending patterns excluding fluctuating foreign currencies. Organic constant currency SG&A expense highlights the impact of acquisitions and strategic transaction costs. These metrics provide investors with a greater level of clarity into spending levels on a year-over-year basis. MSA's definition of this metric may not be comparable to metrics used by other companies. As such, management believes that it is appropriate to consider SG&A expense determined on a GAAP basis in addition to these non-GAAP measures.


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14

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 December 31,
 
 
 
Twelve Months Ended December 31,
 
 
 
2016

2015
 
%
Change
 
2016

2015
 
%
Change
 
 
 
 
 
 
 
 
 
 
 
 
Income from continuing operations attributable to MSA Safety Incorporated
$
25,216

 
$
20,840

 
21%
 
$
92,691

 
$
69,590

 
33%
Tax charges associated with European reorganization
2,873

 
—

 
 
 
6,473

 
7,605

 
 
Non-deductible strategic transaction costs
—

 
2,172

 
 
 
—

 
2,879

 
 
Subtotal
28,089

 
23,012

 
22%
 
99,164

 
80,074

 
24%
 
 
 
 
 
 
 
 
 
 
 
 
Restructuring charges
1,997

 
7,560

 
 
 
5,694

 
12,258

 
 
Strategic transaction costs
1,710

 
4,583

 
 
 
2,531

 
4,583

 
 
Senscient operating loss
788

—

—

 
 
 
788

 
—

 
 
Asset related losses (gains), net
59

 
1,098

 
 
 
(756
)
 
1,636

 
 
Self-insured legal settlements and defense costs
26

 
(69
)
 
 
 
341

 
982

 
 
Currency exchange (gains) losses, net
(1,732
)
 
(1,132
)
 
 
 
766

 
2,204

 
 
Income tax expense on adjustments
(1,038
)
 
(3,492
)
 
 
 
(3,161
)
 
(6,792
)
 
 
Adjusted earnings
29,899

 
31,560

 
(5)%
 
105,367

 
94,945

 
11%
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted earnings per diluted share
$
0.78

 
$
0.84

 
(7)%
 
$
2.77

 
$
2.52

 
10%
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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15

MSA Safety Incorporated
Reconciliation of As Reported Financial Measures to Non-GAAP Financial Measures
Free cash flow (Unaudited)
(In thousands)
 
Three Months Ended
December 31,
 
Twelve Months Ended December 31,
 
2016
 
2015
 
2016
 
2015
 
 
 
 
 
 
 
 
Cash flow from operating activities
$
103,457

 
$
45,424

 
$
134,894

 
$
55,254

Capital expenditures
(9,377
)
 
(11,093
)
 
(25,523
)
 
(36,241
)
 
 
 
 
 
 
 
 
Free cash flow
$
94,080

 
$
34,331

 
$
109,371

 
$
19,013

 
 
 
 
 
 
 
 
Net income attributable to MSA Safety Incorporated
$
24,916

 
$
20,851

 
$
91,936

 
$
70,807

 
 
 
 
 
 
 
 
Free cash flow conversion
378%
 
165%
 
119%
 
27%
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 Safety.


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16

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 29, 2016. 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, constant currency selling, general and administrative expense, organic constant currency selling, general and administrative expense, adjusted operating income, adjusted operating margin, adjusted earnings per diluted share, free cash flow and free cash flow conversion. 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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