Full Press Release Details
FROM: MSA Safety Incorporated
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
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.
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 |
MSA Safety Incorporated
Condensed Consolidated Balance Sheet (Unaudited)
| 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 |
MSA Safety Incorporated
Condensed Consolidated Statement of Cash Flows (Unaudited)
| 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 | ) |
MSA Safety Incorporated
Segment Information (Unaudited)
| 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 | % |
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.
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)
| 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.
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)
| 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.
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.
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.
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.
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.
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.