A Focus
on Safety
Leadership
2017 Annual Report
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Our Mission
That men and women may work in safety and that they, their families and their communities
may live in health throughout the world.
Our Vision
To be the world’s leading provider of safety solutions that protect workers when life is on
the line. We pursue this vision with an unsurpassed commitment to integrity, customer
service and product innovation that creates exceptional value for all MSA stakeholders.
Business of MSA
MSA is in the business of developing, manufacturing and selling
innovative products that enhance the safety and health of workers and
help protect facility infrastructures throughout the world. Critical to
MSA’s mission is a clear understanding of customer processes and safety
needs. MSA dedicates signifi cant resources to research, which in turn
allows the company to develop a keen understanding of customer safety
requirements for a diverse range of markets, including the oil, gas and
petrochemical industry, the fi re service, the construction industry, mining
and the military. MSA’s Core Products, each designed to serve the needs
of these target markets, include self-contained breathing apparatus, fi xed
gas and fl ame detection systems, portable gas detection instruments,
industrial head protection products, fi refi ghter protective apparel and
helmets, and fall protection devices.
MSA was founded in 1914 by John T. Ryan and George H. Deike, two
mining engineers who had fi rsthand knowledge of the terrible human
loss that was occurring in underground coal mines at that time. Their
knowledge of the mining industry provided the foundation for the
development of safety equipment to better protect miners. While the
range of markets served by MSA has expanded greatly over the years,
the founding philosophy of understanding customer safety needs and
designing innovative safety equipment that addresses those needs
remains unchanged.
MSA is headquartered in Cranberry Township, Pennsylvania, with
About the
Cover
MSA’s G1 SCBA
for fi refi ghters is
more than just
a product – it
is a complete
platform that
allows MSA to
incorporate
technological advancements with ease, thereby
providing fi refi ghters with cutting-edge innovation
as it becomes available. Shown on the cover is
one such innovation – MSA’s Integrated Thermal
Imaging Camera, also referred to as the G1 iTIC.
The G1 iTIC – which is the fi rst thermal imaging
camera integrated directly into an SCBA – gives fi re
departments the opportunity to cost eff ectively
equip every fi refi ghter with this life-saving
technology – enabling fi refi ghters to see through
smoke and darkness. Considering thermal imaging
technology was once only available in handheld
form and at a fi ve-fi gure price point, the G1 iTIC is
a game-changer for MSA and for fi refi ghter safety.
The market has taken note too, as the iTIC is aiding
operations employing 4,700 associates throughout the world. A publicly
in MSA’s overall SCBA market share gains – which
held company, MSA’s stock is traded on the New York Stock Exchange
has now positioned the company as the market
under the symbol MSA.
leader in North America.
2
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A Focus on Safety Leadership | MSA 2017 Annual Report
Financial Highlights
In 2017 we continued to execute our corporate strategy and deploy capital for strategic investments that create shareholder value, such as new product development and acquisitions.
These investments – as well as a sharp focus on operational excellence and working capital management – supported record revenue of $1.2 billion, a 34 percent increase in adjusted earnings,
and more than 100 percent conversion of net income to free cash fl ow for the year. In addition to returning $70 million to shareholders through share repurchases and an increasing dividend, we
invested $216 million in the acquisition of fi refi ghter apparel manufacturer Globe, which was accretive to earnings in the fi rst quarter of ownership. The process model by which we continuously
drive this strategy, including key fi nancial highlights for 2017, is shown below.
Execute our corporate strategy and deploy capital
Design market-leading safety products to
advance our core product portfolio
35%
of 2017 sales from products
introduced over last 5 years
Focus on operational and
process excellence
$25M
of organic constant currency SG&A
expense savings in 2016-2017
Invest in accretive acquisitions to strengthen
positions in core products and markets
2010 2011 2012 2013 2014 2015 2016 2017
Drive profi table growth and generate strong free cash fl ow
7%
3%
2017 Core Product
Revenue Growth*
2017 Total
Revenue Growth*
*stated in constant currency
+150 BPS
2017 Adjusted EBITDA
Margin Improvement
34% 2017 Adjusted
Earnings Growth
100%+
Free Cash Flow Conversion
Reinvest cash fl ow to fund growth
programs and enhance leadership positions
Return value to shareholders through
increasing dividend
Engineering
Investment
$70M 2017 R&D and
$216M 2017
$24M 2017 Capex
Investment
Acquisition
Investment
50+
years of
uninterrupted
dividend
increases
$1.38
$1.27
$1.31
$1.23
$1.18
2013
2014
2015
DIVIDENDS PER SHARE
2016
2017
Committed to delivering top-tier fi nancial performance that drives superior value for all stakeholders of MSA.
This page includes certain non-GAAP fi nancial measures. These fi nancial measures include constant currency revenue growth, organic constant currency SG&A expense, adjusted EBITDA, adjusted earnings and free cash fl ow conversion.
For an explanation of these measures, together with a reconciliation to the most directly comparable GAAP measures, please visit http://investors.MSAsafety.com and click on Quarterly Results (Q4 2017) under the Financial Information header.
58881.indd 1
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4/3/18 4:24 AM
I believe the
word FOCUS
accurately
captures the
essence of our
accomplishments
in 2017, as well
as our vision
for the future.
MSA Chairman and CEO William M. Lambert at the company’s corporate headquarters in Cranberry Township, Pa.
TO OUR SHAREHOLDERS, CUSTOMERS, CHANNEL PARTNERS AND ASSOCIATES:
Our theme for this year’s annual report is A Focus on Safety
Third, our ongoing focus on value creation, cost discipline, and
Leadership. And as I think back on our 103rd year in business,
strategic capital deployment helped generate adjusted earnings
I believe the word “focus” accurately captures the essence of our
of $141 million in 2017, which refl ects a 34 percent increase
accomplishments in 2017, as well as our vision for the future.
over 2016. This combination, which included our acquisition of
First and foremost, our focus and commitment to one singular
mission has never changed. That mission – that men and
women may work in safety throughout the world – is what
inspires all of us at MSA. Because at the end of every day, we are
leading fi refi ghter safety apparel maker Globe Manufacturing
(discussed more on page 6), combined with a lower eff ective tax
rate and further eff orts to streamline our cost structure, were
the key drivers of signifi cant adjusted earnings growth in 2017.
protecting workers when their lives are on the line. And that’s
And fi nally, our focus on safety innovation helped MSA maintain
why we come to work and give our best to design, manufacture
and improve its market-leading positions across our profi table
and sell the world’s best safety equipment that helps protect
core product lines.
people who put their trust in the MSA brand.
To put it more simply, in 2017 we stayed true to our long-term
Second, our continued focus on advancing the profi table
corporate strategy that has consistently centered around three
“core” of MSA – those key product groups in which MSA
key pillars: advancing our core products that represent our
disproportionately invests to create market-leading positions –
best opportunities for market leadership and growth; driving
helped MSA generate record revenue of $1.2 billion for the year.
operational and process excellence to carry that growth to the
bottom line; and eff ectively deploying capital to drive future
growth and return value to our shareholders.
This letter includes certain non-GAAP fi nancial measures. These fi nancial measures include constant currency revenue growth, organic constant currency SG&A expense, adjusted operating margin, adjusted EBITDA, adjusted earnings and free cash fl ow
conversion. For an explanation of these measures, together with a reconciliation to the most directly comparable GAAP measures, please visit http://investors.MSAsafety.com and click on Quarterly Results (Q4 2017) under the Financial Information header.
2
58881.indd 2
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Looking more closely at our 2017 fi nancial highlights:
• Our core product revenue increased by 7 percent, and total
revenue increased 3 percent in constant currency.
• We saw gross margin improvement across many of our
A Focus on Safety Leadership | MSA 2017 Annual Report
ANNUAL SALES
BY REGION
ANNUAL SALES
BY CORE PRODUCT GROUP
11%
14%
25%
core products in 2017, driving overall core product margin
expansion of 50 basis points, excluding the impact of Globe.
28%
$1.2B
51%
9%
8%
• Our adjusted operating margin was 16.1 percent in 2017,
which refl ects a 130 basis point increase from 2016. Going
further back to 2015, we’ve expanded adjusted operating
margin by 400 basis points over two years.
• And we converted more than 100 percent of net income
to free cash fl ow which, in turn, allowed us to invest
$216 million in the acquisition of Globe and return $70 million
to shareholders through dividend payments and repurchases
of common stock.
I’m pleased with the progress we have made in managing our
10%
11%
21%
12%
North America
Latin America
Europe, Middle East,
Africa, and India
Asia and Pacifi c Rim
Breathing Apparatus
Fixed Gas and Flame Detection
Portable Gas Detection
Industrial Head Protection
Fall Protection
Firefi ghter Protective Apparel
& Helmets
Non-core Products
expenses and improving cash fl ow over the past several years.
of industrial hard hats, our breakthrough G1 self-contained
Overall, since 2015, our SG&A expenses have come down
breathing apparatus (SCBA) for fi refi ghters, and several new
$25 million on an organic constant currency basis, while our
fall protection products that, as highlighted later in this letter,
cash fl ow conversion rate has exceeded 100 percent of net
contributed signifi cantly to meaningful growth in our Americas
income for the past two years.
fall protection business.
Total Shareholder Return
(Three Years Ended December 31, 2017)
The result of our
As I’ve noted on diff erent occasions, our Core Product Strategy
comprehensive value creation
is based on a philosophy to disproportionately invest in the
MSA 57%
eff orts has been a total
product groups and market segments that off er MSA the
S&P 500 Index 38%
Russell 2000 Index 33%
shareholder return (TSR) of
greatest opportunity for growth and market leadership. The
57 percent for the three years
success of our G1 SCBA in the North American fi re service
ended December 31, 2017,
market is a good example of that strategy in action.
far outpacing the broader market benchmarks.
The G1 SCBA represents the most technologically advanced
Focus on Safety Leadership
breathing apparatus platform in the world, and it’s designed for
While we reduced certain elements of our cost structure over
continued innovation. It’s also been a catalyst for accelerated
the past several years, we remain highly commited to investing
market share gains. While the breathing apparatus business
in new product development. Innovation in safety is what fuels
is “choppy” by nature, in 2017 our SCBA orders increased
our mission and drives sustainable, long-term earnings growth.
6 percent globally, and we saw a particularly solid increase
For these reasons we invest in R&D at an annual rate of 4 to 4.5
in order activity in the second half of the year. In fact, our
percent of sales.
In 2017, nearly 35 percent of our total sales were generated
from products introduced within the past fi ve years. We refer
fourth quarter order book refl ected the highest SCBA incoming
order pace of this entire fi re service SCBA replacement cycle,
indicative of a U.S. replacement cycle that still has runway to go.
to this as our Vitality Index. Some of these new products
I was also encouraged by the G1’s impact on our Latin
include our ALTAIR® line of portable gas detection products
America SCBA business, which increased 24 percent in 2017.
with their patented XCell® sensors, our V-Gard® 900 series
Of particular note, our team worked for more than three years
58881.indd 3
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MSA’s G1 SCBA with integrated thermal imaging technology is changing the way fi res are fought. The G1 iTIC gives fi re departments the opportunity to cost eff ectively equip every
fi refi ghter with life-saving technology that provides vision in both smoke and darkness– without the burden of carrying an additional piece of equipment.
to secure business with the Panama Fire Department.
On the broader industrial side of our business, we saw solid
Despite a very challenging and competitive environment,
momentum in order pace throughout the year. This was
our team was able to close the deal for $2.6 million.
driven by a combination of factors, most notably a steady
Perhaps most importantly, we fulfi lled a decades-long goal
in 2017 by establishing MSA as the SCBA market share leader
in the North American fi re service. The G1 iTIC, shown on the
recovery in the global oil, gas and petrochemical market
and a general industrial rebound in many of our key end
markets and geographies.
cover of this report, is a game-changing and breakthrough
Particularly encouraging to me was the progress we made in
SCBA accessory which has aided greatly in helping us achieve
the global portable gas detection business, the North American
that market share leader position. Since the product’s launch
market for fall protection, and our success in emerging markets
in early 2017, thousands of fi refi ghters are now equipped with
where we were able to drive year-over-year revenue growth of
this life-saving technology. Overall, nearly 20 percent of all
6 percent in 2017.
G1 units sold in 2017 were equipped with the integrated TIC
option. Accordingly, the G1 iTIC was designated as our own
“Product of the Year” for 2017. It earned this distinction largely
for its contribution to driving growth in both revenue and
market share, for helping us win in head-to-head competitive
SCBA evaluations, and for opening doors to several other fi re
departments that were previously competitive strongholds.
For years, MSA has maintained a leadership position in portable
gas detection by focusing on technology leadership, off ering
customers scalable solutions that incorporate the best sensing
technology available, and providing customers with meaningful
total cost of ownership savings due to the high reliability
and minimal maintenance requirements of our instruments.
Ultimately, this improves customer effi ciency and gives them
The ability to add new technology to the G1 SCBA – as it
peace of mind on the job. In 2017, this continued focus helped
becomes available – highlights a key value proposition for the
generate 4 percent portable instrument revenue growth, along
G1 product platform. In 2017, this modularity and versatility
with solid margin expansion.
enabled the launch of an all-new “industrial” SCBA that
borrows from the G1 design.
This is the same value proposition we pursue in the market for
fi xed gas and fl ame detection (FGFD) systems. For example,
4
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A Focus on Safety Leadership | MSA 2017 Annual Report
our patented XCell sensors, fi rst developed for our ALTAIR line
of portable instruments, provide the same level of reliability
and lower-cost-of-ownership benefi t to those who require a
fi xed gas detection solution. They are also key components in
our next generation FGFD platform – the ULTIMA® X5000 and
S5000 Gas Monitors, both of which were introduced in 2017.
The MSA V-TEC Mini Personal
Fall Limiter (PFL) – one of 15
fall protection products MSA
launched in 2017 – helped drive
fall protection revenue growth in
North America.
overall total cost of ownership, all the while
providing the latest in high quality and
reliable gas detection technology.
As I’ve noted in the past, another key growth
focus for MSA is the global market for fall
protection equipment. This market represents
These new monitors
provide the ability to
remotely confi gure
and test system
functionality.
And with our new
TruCal® technology,
they reduce the need
for time-consuming
calibration, thereby saving
customers time and
money, which in turn
allows them to focus on
their core operations,
rather than gas detection.
These next generation
monitors have an
identical footprint to
our earlier ULTIMA X
and S4000 Monitors. This
means replacement can be
done with ease, without
requiring changes to wiring
or conduit. Again, it’s about
the fastest growing segment of the sophisticated safety
products market, and for our Americas segment, it
represented one of our best areas of performance
in 2017 with year-over-year revenue growth of
22 percent.
The driving force behind our success in the Americas
has been focus and execution. We launched 15 new fall
protection products in 2017, including the V-TEC™ Mini
Personal Fall Limiter, which is a compact, lightweight
lifeline that incorporates Latchways’ patent-pending
energy absorbing technology. We also launched
the V-Series brand of fall protection harnesses,
leveraging the power and equity of our V-Gard®
brand in industrial helmets.
In addition to product launches, we
strengthened our U.S. sales force
representation by establishing two new
manufacturing representative partnerships.
Other key investments included the opening of
two new state-of-the-art training centers; one in
Houston, Texas, and one on our headquarters campus in
Cranberry Township, Pa. And fi nally, we also created localized
distribution centers for immediate customer delivery.
Above: MSA’s new Ultima® X5000
and S5000 fi xed gas and fl ame
detection monitors – known
collectively as our Next Generation
Transmitter Platforms – improve
worker safety and reduce both
maintenance time and overall cost
of ownership for customers.
In May, MSA opened its newest – and largest – safety training and service center in Houston, Texas. The two-story indoor training complex,
featuring a complex rig of ladders, platforms and confi ned spaces, educates industrial workers, contractors and fi refi ghters on how to
properly select, inspect and use personal protective equipment in an application-based environment.
58881.indd 5
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William M. Lambert (left) stands
with MSA President and Chief
Operating Offi cer Nish Vartanian.
At the end of 2017, Mr. Lambert
announced his decision to retire
in May 2018. It is expected that
Mr. Vartanian – who was elected a
director in December 2017 – will
be elected CEO upon Mr. Lambert’s
retirement.
Our challenge and focus now is to replicate this success in
now off er complete head-to-toe solutions that include SCBA,
other parts of the world, and we are very committed to driving
fi re helmets, turnout gear and boots.
performance in those regions.
Overall, since the inception of our Core Product Strategy, we
I say that because we have a number of strong and unique
have deployed more than $700 million of capital on the strategic
capabilities – brought to us by our acquisition of U.K.-based
acquisitions of General Monitors, Latchways and Globe, all
Latchways in 2015 – in both mechanical devices, such as
of which were accretive to EPS in the fi rst year of ownership.
self-retracting lifelines, and in engineered systems, which are
Concurrent with those moves, we also pruned our “non-core”
typically specifi ed and built-in to new building construction
portfolio and divested non-core, lower margin businesses that
projects. These capabilities, combined with a focus on
did not add value.
strengthening our channel partner relationships and off ering
products that meet local needs, will be our keys to success.
Today, our core product business has grown from 55 percent
of total sales in 2009 to more than 85 percent in 2017. And
Inorganic Growth Contribution
collectively, these investments have transformed our profi tability
In many of the aforementioned areas, like SCBA and portable
profi le. In 2017, our adjusted operating margin was 16.1 percent
gas detection, we have gained share through R&D investments
and our adjusted EBITDA margin was 19.5 percent. That’s nearly
that have supported the development of organic, industry-
double the run rate of 2009, when we began executing on our
leading technology.
Core Product Strategy.
For others, like fall protection and FGFD, we’ve made strategic
Focus on People and Performance
investments to acquire market share. In 2017, we took a
To achieve our strategic vision, we also need to get it right on
similar path to strengthen our leadership position in the North
the people side of our business. We never underestimate how
American fi re service market.
important people are in driving superior results. At MSA, our
As I noted earlier, we acquired Globe Manufacturing Company of
Pittsfi eld, New Hampshire, a leading manufacturer of fi refi ghter
protective clothing, or what’s more commonly referred to as
fi refi ghter “turnout gear.”
The integration of Globe into MSA has gone exceptionally
well and I congratulate the teams responsible for assuring this
success. The acquisition establishes our company as the North
American market leader in fi refi ghter safety, with the ability to
workforce is truly a high performance team that has embraced
excellence and continuous improvement as it relates to
customer solutions, processes and fi nancial performance.
Looking at engagement and motivation across the broader
MSA organization, we are generating excellent results. We
recently completed a global engagement survey involving
our entire workforce, and the results highlight our employees’
connection to our mission and their pride in working for MSA.
Our employees understand how a high performance culture
6
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A Focus on Safety Leadership | MSA 2017 Annual Report
translates into their daily roles
and responsibilities, and that
drives many of the effi ciencies
in our business. I’m particularly
proud of the fact that in 2017,
MSA Safety was named by the Ethisphere Institute as a World’s
Most Ethical Company for the third year in a row.
strategic acquisitions that have signifi cantly strengthened our
position in key products and markets, as well as returning value
to shareholders through an increasing dividend.
As I think about MSA and its path forward, I see great opportunity
to continue driving shareholder value by enhancing profi table
growth and maintaining a focus on generating strong free
cash fl ow. Our focus on safety leadership is underpinned by an
At MSA, we reward eff orts by investing in our people and
equal focus on market leadership, profi tability, execution of our
their development. We have a strong pipeline of diversifi ed
capital allocation strategy, and building an internal MSA culture
talent across the world. We use our people development tools
focused on high performance. These are the keys to achieving our
to drive performance, and we do that through our incentive
fi nancial and strategic goals.
compensation structure that, for the next three years, is focused
on revenue growth and further margin expansion, all while
upholding our unwavering commitment to Integrity.
Leadership Transition
I believe we have created a solid foundation for the future of
MSA Safety. But we know more work remains. And in that spirit,
our focus now is to take the steps necessary to fully realize the
growth opportunities I’ve highlighted in this letter. This includes
Most of all, through the people focus I just mentioned, we have
driving innovation and market leadership in our core product
developed a strong roster of exceptional leaders along the way.
areas, executing our strategic initiatives to improve profi tability
And that’s why I feel very comfortable and confi dent in a decision
in our International segment, strategically deploying capital for
that I announced in December 2017, and that is my decision to
growth investments, and investing in our people to build the
step down as CEO in May and hand over the reins of leadership to
high performance culture that is vital to our mission and to
the next generation of leaders at MSA.
our success.
As part of our planned management succession, I also announced
In closing, I would like to thank our Board of Directors, my
that Nish Vartanian had been elected a director of MSA. Nish’s
Executive Leadership Team and each one of the 4,700 associates
election and his earlier appointment to President and Chief
of MSA who live and breathe our mission every day. I have been
Operating Offi cer truly highlight the Board’s and my confi dence
committed to that mission for nearly 38 years, and I am very
in his ability to lead MSA and continue its growth journey. In that
proud of that fact. But more importantly, I am grateful to all of the
spirit, the Board and I expect to elect Nish our next CEO in May 2018.
MSA associates for the work they do on behalf of our customers
Nish is a 32-year veteran of the company and has excelled in
every position he has held. The Board and I are confi dent that
through his strategic vision, growth-focused mindset and
and the dedicated way in which they do it. I feel extremely
privileged to have had the opportunity to lead this great
organization as CEO for the past decade.
leadership skills, he will motivate and inspire our associates to
And lastly, I want to thank our customers, our channel partners
continue driving our business forward.
and you, the shareholders of MSA, for placing your trust in our
As for my own plans, I intend to stay involved with MSA and
remain active as a director and shareholder going forward.
company, and for making the decision to “choose MSA.” That’s an
honor and responsibility we will never take for granted, and it’s
one we will always work hard to keep each and every day.
Our Vision for the Future
I’m pleased with our strong fi nish to 2017 and the positive
trends we are seeing in many of our end markets. I’m also proud
Sincerely,
that, over the past fi ve years, we’ve generated mid-single digit
constant currency revenue growth and 450 basis points of
EBITDA margin expansion. Over the same time frame, we’ve
William M. Lambert
generated strong cash fl ow and deployed that capital for
Chairman and Chief Executive Offi cer
58881.indd 7
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2017 Financial Contents
Business of MSA
Management’s Discussion and Analysis
Financial Statements and Supplementary Data
Consolidated Statement of Income
Consolidated Statement of Comprehensive Income
Consolidated Balance Sheet
Consolidated Statement of Cash Flows
Consolidated Statement of Changes in Retained Earnings and
Accumulated Other Comprehensive Loss
Notes to Consolidated Financial Statements
4
22
40
43
44
45
46
47
48
8
58881.indd 8
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2017
Commission File No. 1-15579
MSA SAFETY INCORPORATED
(Exact name of registrant as specified in its charter)
Pennsylvania
(State or other jurisdiction of
incorporation or organization)
1000 Cranberry Woods Drive
Cranberry Township, Pennsylvania
(Address of principal executive offices)
(Title of each class)
Common Stock, no par value
Registrant’s telephone number, including area code: (724) 776-8600
Securities registered pursuant to Section 12(b) of the Act:
46-4914539
(IRS Employer Identification No.)
16066-5207
(Zip code)
(Name of each exchange on which registered)
New York Stock Exchange
Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes
No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data
File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant’s knowledge, in the definitive proxy statement incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting
company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,”
and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
(Do not check if a smaller
reporting company)
Smaller reporting company
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.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
No
As of February 19, 2018, there were outstanding 38,226,471 shares of common stock, no par value. The aggregate market value of voting
stock held by non-affiliates as of June 30, 2017 was approximately $2.8 billion.
Portions of the Proxy Statement for the May 15, 2018 Annual Meeting of Shareholders are incorporated by reference into Part III.
DOCUMENTS INCORPORATED BY REFERENCE
8881_FIN.pdf March 20, 2018 pg 1
Table of Contents
Page
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Executive Officers of the Registrant
Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
Exhibits and Financial Statement Schedules
Item No.
Part I
1.
1A.
1B.
2.
3.
4.
Part II
5.
6.
7.
7A.
8.
9.
9A.
9B.
Part III
10.
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Part IV
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Form 10-K Summary
Signatures
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Forward-Looking Statements
This report may contain (and verbal statements made by MSA Safety Incorporated (MSA) may contain) forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to future events
or our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our
actual results, levels of activity, performance or achievements to be materially different from any future results, levels of
activity, performance or achievements expressed or implied by these forward-looking statements. These risks and other factors
include, but are not limited to, those listed in this report under “Risk Factors,” “Management’s Discussion and Analysis of
Financial Condition and Results of Operations,” and elsewhere in this report. In some cases, you can identify forward-looking
statements by words such as “may,” “will,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,”
“predicts,” “potential” or other comparable words. Actual results, performance or outcomes may differ materially from those
expressed or implied by these forward-looking statements. Although we believe that the expectations reflected in the forward-
looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. We are
under no duty to update publicly any of the forward-looking statements after the date of this report, whether as a result of new
information, future events or otherwise.
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Item 1. Business
PART I
Overview—MSA was founded in Pennsylvania in 1914. We are a global leader in the development, manufacture and
supply of safety products that protect people and facility infrastructures. Our safety products typically integrate a combination
of electronics, mechanical systems and advanced materials to protect users against hazardous or life threatening situations. Our
comprehensive line of safety products is used by workers around the world in a broad range of markets including the oil, gas
and petrochemical, fire service, construction, utilities, and mining industries. The Company's core products include breathing
apparatus where self-contained breathing apparatus ("SCBA") is the principal product, fixed gas and flame detection
instruments, portable gas detection instruments, industrial head protection products, fall protection devices and firefighter
helmets & protective apparel.
We dedicate significant resources to research and development, which allows us to produce innovative safety products
that are often first to market. Our global product development teams include cross-functional associates throughout the
Company, including research and development, marketing, sales, operations and quality management. Our engineers and
technical associates work closely with the safety industry’s leading standards-setting groups and trade associations to develop
industry specific product standards and to anticipate their impact on our product lines.
Segments—We tailor our product offerings and distribution strategy to satisfy distinct customer preferences that vary
across geographic regions. To best serve these customer preferences, we have organized our business into seven geographic
operating segments that are aggregated into three reportable geographic segments: Americas, International and Corporate.
Segment information is presented in Note 7 of the consolidated financial statements in Part II Item 8 of this Form 10-K.
Because our financial statements are stated in U.S. dollars and much of our business is conducted outside the U.S.,
currency fluctuations may affect our results of operations and financial position and may affect the comparability of our results
between financial periods.
Products—We manufacture and sell a comprehensive line of safety products to protect the health and safety of workers
and facility infrastructures around the world in the oil, gas and petrochemical, fire service, construction, utilities, and mining
industries. We also sell products designed for specific industrial and military applications. Our products protect people against
a wide variety of hazardous or life-threatening situations.
The following is a brief description of each of our product categories:
Core products. MSA's corporate strategy includes a focus on driving sales of core products, where we have leading
market positions and a distinct competitive advantage. Core products, as mentioned above, include fixed gas and flame
detection instruments, breathing apparatus where SCBA is the principal product, portable gas detection instruments, industrial
head protection products, firefighter helmets & protective apparel, and fall protection devices. These products receive the
highest levels of investment and resources as they typically realize higher levels of return on investment than non-core
products. Core products comprised approximately 86% and 82% of sales in 2017 and 2016, respectively.
The following is a brief description of our core product offerings:
Fixed gas and flame detection instruments ("FGFD"). Our permanently installed fixed gas and flame detection
instruments are used in oil, gas and petrochemical facilities and general industrial production facilities to detect the presence or
absence of various gases in the air. Typical applications of these instruments include the detection of an oxygen deficiency in
confined spaces or the presence of combustible or toxic gases. FGFD product lines have a meaningful portion of overall
revenue generated from recurring business including replacement components and related service. A portion of business from
this product line is project-oriented and more closely associated with upstream exploration and production activity. We sell
these instruments in both our Americas and International segments. Key products include:
• Permanently installed gas detection monitoring systems. This product line is used to monitor for combustible and
toxic gases and oxygen deficiency in virtually any application where continuous monitoring is required. Our systems
are used for gas detection in petrochemical, pulp and paper, wastewater, refrigerant monitoring, and general industrial
applications. These systems utilize a wide array of sensor technologies including electrochemical, catalytic, infrared
and ultrasonic. During 2017, we launched a new line of advanced gas detection monitors. The S5000 and
Ultima®X5000 gas monitors – known collectively as MSA's Series 5000 Transmitters – enhance facility and worker
safety while lowering overall cost of ownership for our customers. First used in the oil and gas industry, our systems
also have broad applications in petrochemical facilities, in the transportation industry and in pharmaceutical
production.
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• Flame detectors and open-path infrared gas detectors. These instruments are used for plant-wide monitoring of toxic
gases and for detecting the presence of flames. These systems use infrared optics to detect potentially hazardous
conditions across long distances, making them suitable for use in such applications as offshore oil rigs, storage vessels,
refineries, pipelines and ventilation ducts.
Breathing apparatus products. Breathing apparatus products include SCBA, face masks and respirators, where SCBA is
the primary product offering. SCBA are used by first responders, petrochemical plant workers and anyone entering an
environment deemed immediately dangerous to life and health. Our newest breathing apparatus product, the MSA G1 SCBA,
is an entirely redesigned platform that offers many customizable and differentiated features, including the first and only
Integrated Thermal Imaging Camera available on the market. We currently have 9 patents issued and an additional 5 patents
pending for the MSA G1 SCBA. We sell these products across both the Americas and International segments.
Portable gas detection instruments. Our hand-held portable gas detection instruments are used to detect the presence or
absence of various gases in the air. The product is used by oil, gas and petrochemical workers; general industrial workers;
miners; first responders; or anyone working in a confined space environment. Typical applications of these instruments include
the detection of an oxygen deficiency in confined spaces or the presence of combustible or toxic gases. Our single- and multi-
gas detectors provide portable solutions for detecting the presence of oxygen, combustible gases and various toxic gases,
including hydrogen sulfide, carbon monoxide, ammonia and chlorine, either singularly or up to six gases at once. Our
ALTAIR® 2X, ALTAIR® 4XR and ALTAIR® 5X Multigas Detectors with our internally developed XCell® sensor technology,
provide faster response times and unsurpassed durability. In 2017, we launched the ALTAIR Grid, a secure web-based virtual
control room that interfaces with our Bluetooth-enabled ALTAIR® 4XR and ALTAIR® 5X Multigas Detectors via the MSA
ALTAIR Connect application on a smartphone. We sell portable gas detection instruments in both our Americas and
International segments.
Industrial head protection. We offer a complete line of industrial head protection that includes the iconic V-Gard® helmet
brand, a bellwether product in MSA's portfolio for over 50 years. We offer customers a wide range of color choices and we are
a world leader in the application of customized logos. Our industrial head protection products have a wide user base including
oil, gas and petrochemical workers, steel and construction workers, miners and industrial workers. Our Fas-Trac® III
Suspension system was designed to provide enhanced comfort without sacrificing safety. Our strongest sales of head protection
products have historically been in North America and Latin America.
Firefighter helmets and protective apparel. We offer a complete line of fire helmets that includes our Cairns® and Gallet®
helmet brands. Our Cairns helmets are primarily used by firefighters in North America while the Gallet helmets are primarily
used by firefighters across our International segment. Rescue helmets, including the F2 X-Trem Brand, are used by military
and first responders outside of North America. The recent acquisition of Globe Holding Company, LLC ("Globe"), a leading
innovator and provider of firefighter protective clothing and boots, strengthens our position as a leader in the North American
market for firefighter personal protective equipment (PPE). We can now help protect firefighters from head to toe, with Cairns
Helmets, our industry leading G1 self-contained breathing apparatus, and Globe turnout gear and boots.
Fall protection. Our broad line of fall protection equipment includes confined space equipment, harnesses, fall arrest
equipment, lanyards and lifelines. Fall protection equipment is used by workers in the construction industry, oil, gas and
petrochemical market, utilities industry, aerospace industry, general industrial applications, and anyone working at height. In
October 2015, MSA acquired UK-based Latchways plc ("Latchways"). This acquisition - complementary from a geographic
and end market standpoint - doubled our fall protection revenue, positioning MSA as one of the largest fall protection providers
globally.
Non-core products. MSA maintains a portfolio of non-core products. Non-core products reinforce and extend the core
offerings, drawing upon our customer relationships, distribution channels, geographical presence and technical experience.
These products are complementary to the core offerings and have their roots within the core product value chain. Key non-core
products include respirators, eye and face protection, ballistic helmets and gas masks. Gas masks and ballistic helmet sales are
the primary sales to our military customers and were approximately $36 million globally in 2017 compared to $55 million in
2016.
Customers—Our customers generally fall into two categories: distributors and industrial or military end-users. In our
Americas segment, the majority of our sales are made through distribution. In our International segment, sales are made
through both indirect and direct sales channels. For the year ended December 31, 2017, no individual customer represented
more than 10% of our sales.
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Sales and Distribution—Our sales and distribution team consists of marketing, field sales and customer service
organizations. In most geographic areas, our field sales organizations work jointly with select distributors to call on end-users
and educate them about hazards, exposure limits, safety requirements and product applications, as well as the specific
performance attributes of our products. We believe that understanding end-user requirements is critical to increasing MSA's
market share.
The in-depth customer training and education provided by our sales associates to our customers is critical to ensuring
proper use of many of our products, such as SCBA and gas detection instruments. As a result of our sales associates working
closely with end-users, they gain valuable insight into customer preferences and needs. To better serve our customers and to
ensure that our sales associates are among the most knowledgeable and professional in the industry, we place significant
emphasis on training our sales associates in product application, industry standards and regulations.
We believe our sales and distribution strategy allows us to deliver a customer value proposition that differentiates our
products and services from those of our competitors, resulting in increased customer loyalty and demand.
In areas where we use indirect selling, we promote, distribute and service our products to general industry through
authorized national, regional and local distributors. Some of our key distributors include W.W. Grainger Inc., Airgas, Sonepar,
Bunzl and Fastenal. In North America, we distribute fire service products primarily through specially trained local and regional
distributors who provide advanced training and service capabilities to volunteer and paid municipal fire departments. In our
International segment, we primarily sell to and service the fire service market directly. Because of our broad and diverse
product line and our desire to reach as many markets and market segments as possible, we have over 4,000 authorized
distributor locations worldwide. No individual distributor accounts for more than 10% of our sales.
Competition—The global safety products market is broad and highly fragmented with few participants offering a
comprehensive line of safety products. The sophisticated safety products market in which we compete is comprised of both
core and non-core offerings and is a subset of the larger personal protection equipment market. We maintain leading positions
in nearly all of our core products. Over the long-term, we believe global demand for safety products will continue to grow.
Purchases of these products are non-discretionary, protecting workers' health in hazardous and life-threatening work
environments. Their use is often mandated by government and industry regulations, which are increasingly enforced on a
global basis.
The safety products market is highly competitive, with participants ranging in size from small companies focusing on a
single type of personal protection equipment to several large multinational corporations that manufacture and supply many
types of sophisticated safety products. Our main competitors vary by region and product. We believe that participants in this
industry compete primarily on the basis of product characteristics (such as functional performance, technology, agency
approvals, design and style), brand name recognition, service support and price.
We believe we compete favorably within each of our operating segments as a result of our high quality, innovative
offerings and strong brand trust and recognition.
Research and Development—To achieve and maintain our market leading positions, we operate several sophisticated
research and development facilities. We believe our dedication and commitment to innovation and research and development
allows us to produce state-of-the-art safety products that are often first to market and exceed industry standards. In 2017, 2016
and 2015, on a global basis, we spent $50.1 million, $46.8 million and $48.6 million, respectively, on research and
development, reflecting 4.2%, 4.1% and 4.3% of sales respectively. Our primary engineering groups are located in the United
States, Germany, China and France. Our global product development teams include cross-geographic and cross-functional
members from various areas throughout the company, including research and development, marketing, sales, operations and
quality management. These teams are responsible for setting product line strategy based on their understanding of customers'
needs and available technology, as well as the opportunities and challenges they foresee in each product area. We believe our
team-based, cross-geographic and cross-functional approach to new product development is a source of competitive advantage.
Our approach to the new product development process allows us to tailor our product offerings and product line strategies to
satisfy distinct customer preferences and industry regulations that vary across our operating segments.
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We believe another important aspect of our approach to new product development is that our engineers and technical
associates work closely with the safety industry’s leading standards-setting groups and trade associations. These organizations
include the National Institute for Occupational Safety and Health ("NIOSH"), the National Fire Protection Association
("NFPA"), American National Standards Institute ("ANSI"), International Safety Equipment Association ("ISEA"), and their
overseas counterparts. We work with these organizations to develop industry specific product requirements and standards and
anticipate their impact on our product lines. Key members of our management team understand the impact that these standard-
setting organizations have on our new product development pipeline. As such, management devotes significant time and
attention to anticipating a new standard’s impact on our sales and operating results. Because of our understanding of customer
needs, membership on global standards-setting bodies, investment in research and development and our unique new product
development process, we believe we are well positioned to anticipate and adapt to changing product standards. While we
acknowledge that the length of the approval process can be unpredictable, we also believe that we are well positioned to gain
the approvals and certifications necessary to meet new government and multinational product regulations.
Patents and Intellectual Property—We own significant intellectual property, including a number of domestic and foreign
patents, patent applications and trademarks related to our products, processes and business. Although our intellectual property
plays an important role in maintaining our competitive position in a number of markets that we serve, no single patent, or patent
application, trademark or license is, in our opinion, of such value to us that our business would be materially affected by the
expiration or termination thereof, other than the “MSA” trademark. Our patents expire at various times in the future not
exceeding 20 years. Our general policy is to apply for patents on an ongoing basis in the United States and other countries, as
appropriate, to perfect our patent development. In addition to our patents, we have also developed or acquired a substantial
body of manufacturing know-how that we believe provides a significant competitive advantage over our competitors.
Raw Materials and Suppliers—Many of the components of our products are formulated, machined, tooled or molded in-
house from raw materials, which comprise approximately two-thirds of our cost of sales. For example, we rely on integrated
manufacturing capabilities for breathing apparatus, gas masks, ballistic helmets, hard hats and circuit boards. The primary raw
materials that we source from third parties include rubber, high density polyethylene, chemical filter media, eye and face
protective lenses, air cylinders, certain metals, electronic components and ballistic resistant, flame resistant and non-ballistic
fabrics. We purchase these materials both domestically and internationally, and we believe our supply sources are both well
established and reliable. We have close vendor relationship programs with the majority of our key raw material suppliers.
Although we generally do not have long-term supply contracts, thus far we have not experienced any significant problems in
obtaining adequate raw materials. Please refer to MSA's Form SD filed on May 31, 2017 for further information on our
conflict minerals analysis. Form SD may be obtained free of charge at www.sec.gov.
Associates—At December 31, 2017, we employed approximately 4,700 associates, of which approximately 2,000 were
employed by our International segment. None of our U.S. associates are subject to the provisions of a collective bargaining
agreement. Some of our associates outside the United States are members of unions. We have not experienced a significant
work stoppage in over 10 years and believe our relations with our associates are strong.
Environmental Matters—Our facilities and operations are subject to laws and regulations relating to environmental
protection and human health and safety. In the opinion of management, compliance with current environmental protection laws
will not have a material adverse effect on our financial condition. See Item 1A, Risk Factors, for further information regarding
our environmental risks which could impact the Company.
Seasonality—Our operating results are not significantly affected by seasonal factors. Sales are generally higher during
the second and fourth quarters. During periods of economic expansion or contraction and following significant catastrophes,
our sales by quarter have varied from this seasonal pattern. Government-related sales tend to spike in the fourth quarter.
Americas sales tend to be strong during the oil and gas market turnaround seasons late in the first quarter, early in the second
quarter and then again at the end of the third quarter and beginning of the fourth quarter. International segment sales are
typically weaker for the Europe region in the summer holiday months of July and August and seasonality can be strongly
affected by the timing of delivery of larger orders. Invoicing and the delivery of larger orders can affect sales patterns variably
across all reporting segments.
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Available Information—Our Internet address is www.MSAsafety.com. We make the following filings available free of
charge on the Investor Relations page on our website as soon as reasonably practicable after they have been electronically filed
with or furnished to the Securities and Exchange Commission ("SEC"): our annual reports on Form 10-K, our quarterly reports
on Form 10-Q, our current reports on Form 8-K and any amendments to those reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as well as our proxy statement. Information contained on our
website is not part of this annual report on Form 10-K or our other filings with the Securities and Exchange Commission. The
SEC maintains an Internet site at www.sec.gov that contains reports, proxy and information statements and other information
regarding issuers like us who file electronically with the SEC. You also may read and copy any materials we file with the SEC
at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549-0213. You may obtain information on the
operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
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Item 1A. Risk Factors
Claims of injuries from our products, product defects or recalls of our products could have a material adverse effect
on our business, operating results, financial condition and liquidity.
MSA and its subsidiaries face an inherent business risk of exposure to product liability claims arising from the alleged failure
of our products to prevent the types of personal injury or death against which they are designed to protect. In the event the
parties using our products are injured or any of our products prove to be defective, we could be subject to claims with respect
to such injuries. In addition, we may be required to or may voluntarily recall or redesign certain products that could
potentially be harmful to end users. Any claim or product recall that results in significant expense or negative publicity
against us could have a material adverse effect on our business, operating results, financial condition and liquidity, including
any successful claim brought against us in excess or outside of available insurance coverage.
Our subsidiary, Mine Safety Appliances Company, LLC, may experience losses from cumulative trauma product
liability claims. The inability to collect insurance receivables and the transition to becoming largely self-insured for
cumulative trauma product liability claims could have a material adverse effect on our business, operating results,
financial condition and liquidity.
Our subsidiary, Mine Safety Appliances Company, LLC (“MSA LLC”) was named as a defendant in 1,420 cumulative
trauma lawsuits comprised of 2,242 claims at December 31, 2017. Cumulative trauma product liability claims involve
exposures to harmful substances (e.g., silica, asbestos and coal dust) that occurred years ago and may have developed over
long periods of time into diseases such as silicosis, asbestosis, mesothelioma, or coal worker’s pneumoconiosis. The
products at issue were manufactured many years ago and are not currently offered by MSA LLC. A reserve has been
established with respect to cumulative trauma product liability claims currently asserted and estimated incurred but not
reported (“IBNR”) cumulative trauma product liability claims. Because our cumulative trauma product liability risk is
subject to inherent uncertainties, including unfavorable trial rulings or developments, an increase in newly filed claims, or
more aggressive settlement demands, and since MSA LLC is largely self-insured, there can be no certainty that MSA LLC
may not ultimately incur losses in excess of presently recorded liabilities. These losses could have a material adverse effect
on our business, operating results, financial condition and liquidity. We will adjust the reserve relating to cumulative trauma
product liability claims from time to time based on whether the actual numbers, types, and settlement values of claims
asserted differ from current projections and estimates or there are significant changes in the facts underlying the assumptions
used in establishing the reserve. These adjustments may be material and could materially impact future periods in which the
reserve is adjusted.
In the normal course of business, MSA LLC makes payments to settle these types of cumulative trauma product liability
claims and for related defense costs, and records receivables for the amounts believed to be recoverable under insurance.
MSA LLC has recorded insurance receivables totaling $134.7 million at December 31, 2017. As described in greater detail in
Note 19 of the consolidated financial statements in Part II Item 8 of this Form 10-K, MSA LLC is currently involved in
insurance coverage litigation regarding the rights and obligations under numerous insurance policies, and for the payment of
amounts recorded as insurance receivables. Various factors could affect the timing and amount of recovery of insurance
receivables, including: the outcome of coverage litigation, the outcome of negotiations with insurers, and the extent to which
insurers may become insolvent in the future. Failure to recover amounts due from MSA LLC’s insurance carriers would
result in MSA LLC being unable to recover for amounts already paid to resolve claims (and recorded as insurance
receivables) and could have a material adverse effect on our business, operating results, financial condition and liquidity.
Even if the remaining insurance coverage litigation is generally successful, the estimated amount of MSA LLC's potential
insurance coverage applicable to cumulative trauma product liability claims is insufficient to cover the amounts reserved for
such claims at December 31, 2017. Going forward, most of MSA LLC's cumulative trauma product liability costs will be
expensed without the expectation of insurance reimbursement. MSA LLC expects to obtain some limited insurance
reimbursement from negotiated coverage-in-place agreements (although that coverage may not be immediately triggered or
accessible) or from other sources of coverage, but the precise amount of insurance reimbursement that may be available
cannot be determined with specificity at this time.
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Unfavorable economic and market conditions could materially and adversely affect our business, results of operations
and financial condition.
We are subject to risks arising from adverse changes in global economic conditions. We have significant operations in a
number of countries outside the U.S., some of which are located in emerging markets. Long-term economic uncertainty in
some of the regions of the world in which we operate, such as Asia, South America, the Middle East, Europe and emerging
markets, could result in declines in revenue, profitability and cash flow due to reduced orders, payment delays, supply chain
disruptions or other factors caused by the economic challenges faced by our customers and suppliers.
A portion of MSA's sales are made to customers in the oil, gas and petrochemical market. These sales expose MSA to the
risks of doing business in that global market. We estimate that between 25% - 30% of our global business is sold into the
energy market vertical with the most significant exposure in industrial head protection, portable gas detection and FGFD.
Approximately 10% - 15% of consolidated revenue, primarily in industrial head protection and portable gas detection, is
more exposed to a pullback in employment trends across the energy market. Another 5% - 10% of consolidated revenue,
primarily in the FGFD product line is more exposed to a pullback in capital equipment spending within the energy market. It
is possible that the volatility in upstream, midstream and downstream markets, driven partly by geopolitical factors, could
negatively impact our business and could result in declines in our consolidated results of operations and cash flow.
A reduction in the spending patterns of government agencies or delays in obtaining government approval for our
products could materially and adversely affect our net sales, earnings and cash flow.
The demand for our products sold to the fire service market, the homeland security market and other government agencies is,
in large part, driven by available government funding. Government budgets are set annually and we cannot assure that
government funding will be sustained at the same level in the future. A significant reduction in available government funding
could result in declines in our consolidated results of operations and cash flow.
Our inability to successfully identify, consummate and integrate current and future acquisitions or to realize
anticipated cost savings and other benefits could adversely affect our business.
One of our operating strategies is to selectively pursue acquisitions. On September 19, 2016, we completed the acquisition of
Senscient, Inc. ("Senscient"), which is headquartered in the UK and is a leader in laser-based gas detection technology.
Additionally, on July 31, 2017, we completed the acquisition of Globe Holding Company, LLC ("Globe"), which is a leading
innovator and provider of firefighter protective clothing and boots. Please refer to Note 13 of the consolidated financial
statements in Part II Item 8 of this Form 10-K for further details. Any future acquisitions will depend on our ability to
identify suitable acquisition candidates and successfully consummate such acquisitions. Acquisitions involve a number of
risks including:
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failure of the acquired businesses to achieve the results we expect;
diversion of our management’s attention from operational matters;
our inability to retain key personnel of the acquired businesses;
risks associated with unanticipated events or liabilities;
potential disruption of our existing business; and
customer dissatisfaction or performance problems at the acquired businesses.
If we are unable to integrate or successfully manage businesses that we have recently acquired, including Latchways,
Senscient and Globe, or may acquire in the future, we may not realize anticipated cost savings, improved manufacturing
efficiencies and increased revenue, which may result in material adverse short- and long-term effects on our consolidated
operating results, financial condition and liquidity. Even if we are able to integrate the operations of our acquired businesses
into our operations, we may not realize the full benefits of the cost savings, revenue enhancements or other benefits that we
may have expected at the time of acquisition. In addition, even if we achieve the expected benefits, we may not be able to
achieve them within the anticipated time frame, and such benefits may be offset by costs incurred in integrating the acquired
companies and increases in other expenses.
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Our plans to continue to improve productivity and reduce complexity may not be successful, which could adversely
affect our ability to compete.
MSA has integrated parts of its European operating segment that have historically been individually managed entities, into a
centrally managed organization model. We have begun to and plan to continue to leverage the benefits of scale created from
this approach and are in the process of implementing a more efficient and cost-effective enterprise resource planning system
in additional locations across the International Segment. MSA runs the risk that these and similar initiatives may not be
completed substantially as planned, may be more costly to implement than expected, or may not have the positive effects
anticipated. In addition, these various initiatives require MSA to implement a significant amount of organizational change
which could divert management’s attention from other concerns, and if not properly managed, could cause disruptions in our
day-to-day operations and have a negative impact on MSA's financial results. It is also possible that other major productivity
and streamlining programs may be required in the future.
Our plans to improve future profitability through restructuring programs may not be successful and could lead to
unintended consequences.
We have incurred and may incur restructuring charges primarily related to severance costs for staff reductions associated with
our ongoing initiatives to drive profitable growth and right size our operations. For example in 2016, certain employees in
the Americas segment were offered a voluntary retirement incentive package (“VRIP”). Non-cash special termination benefit
expense of approximately $11.4 million was recorded in the first quarter of 2017 related to elections under the VRIP. These
efforts are intended to contribute to increased profitability in 2018. Our cost structure in future periods is somewhat
dependent upon our ability to maintain increased productivity without backfilling certain positions. If our programs are not
successful, there could be a material adverse effect on our business and consolidated results of operations.
Our future results are subject to the risk that purchased components and materials are unavailable or available at
excessive cost due to material shortages, excessive demand, currency fluctuation and other factors.
We depend on various components and materials to manufacture our products. Although we have not experienced any
difficulty in obtaining components and materials, it is possible that any of our supplier relationships could be terminated or
otherwise disrupted. Any sustained interruption in our receipt of adequate supplies could have a material adverse effect on
our business, results of operations and financial condition. Our inability to successfully manage price fluctuations due to
market demand, currency risks or material shortages, or future price fluctuations could have a material adverse effect on our
business, consolidated results of operations and financial condition.
If we fail to introduce successful new products or extend our existing product lines, we could lose our market position
and our financial performance could be materially and adversely affected.
In the safety products market, there are frequent introductions of new products and product line extensions. If we are unable
to identify emerging consumer and technological trends, maintain and improve the competitiveness of our products and
introduce new products, we may lose our market position, which could have a material adverse effect on our business,
financial condition and results of operations. We continue to invest significant resources in research and development and
market research. However, continued product development and marketing efforts are subject to the risks inherent in the
development process. These risks include delays, the failure of new products and product line extensions to achieve
anticipated levels of market acceptance and the risk of failed product introductions.
A failure of our information systems could materially and adversely affect our business, results of operations and
financial condition.
The proper functioning and security of our information systems is critical to the operation of our business. Our information
systems may be vulnerable to damage or disruption from natural or man-made disasters, computer viruses, power losses or
other system or network failures. In addition, hackers and cybercriminals could attempt to gain unauthorized access to our
information systems with the intent of harming our company or obtaining sensitive information such as intellectual property,
trade secrets, financial and business development information, and customer and vendor related information. If our
information systems or security fail, our business, consolidated results of operations and financial condition could be
materially and adversely affected.
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Like many companies, from time to time, we have experienced attacks on our computer systems by unauthorized outside
parties. Because the techniques used by computer hackers and others to access or sabotage networks constantly evolve and
generally are not recognized until launched against a target, we may be unable to anticipate, prevent or detect these attacks.
As a result, our technologies and processes may be misappropriated and the impact of any future incident cannot be
predicted. Any loss of such information could harm our competitive position, or cause us to incur significant costs to remedy
the damages caused by the incident. We routinely implement improvements to our network security safeguards as well as
cybersecurity initiatives. We expect to devote increasing resources to the security of our information technology systems. We
cannot assure that such system improvements will be sufficient to prevent or limit the damage from any future cyber-attack or
network disruptions.
Damage to the reputation of MSA or to one or more of our product brands could adversely affect our business.
Developing and maintaining our reputation, as well as the reputation of our brands, is a critical factor in our relationship with
customers, distributors and others. Our inability to address negative publicity or other issues, including concerns about
product safety or quality, real or perceived, could negatively impact our business which could have a material adverse effect
on our business, consolidated results of operations and financial condition.
If we lose any of our key personnel or are unable to attract, train and retain qualified personnel or plan the succession
of senior management, our ability to manage our business and continue our growth could be negatively impacted.
Our success depends in large part on the continued contributions of our key management, engineering and sales and
marketing personnel, many of whom are highly skilled and would be difficult to replace. Our success also depends on the
abilities of new personnel to function effectively, both individually and as a group. If we are unable to attract, effectively
integrate and retain management, engineering or sales and marketing personnel, then the execution of our growth strategy and
our ability to react to changing market requirements may be impeded, and our business could suffer as a result.
In addition, hiring, training, and successfully integrating replacement critical personnel could be time consuming, may cause
additional disruptions to our operations, and may be unsuccessful, which could negatively impact future revenues.
Competition for personnel is intense, and we cannot assure you that we will be successful in attracting and retaining qualified
personnel. The hiring of new personnel may also result in increased costs and we do not currently maintain key person life
insurance.
Our success also depends on effective succession planning. Failure to ensure effective transfer of knowledge and smooth
transitions involving senior management could hinder our strategic planning and execution. From time to time, senior
management or other key employees may leave our company. While we strive to reduce the negative impact of such changes,
the loss of any key employee could result in significant disruptions to our operations, including adversely affecting the
timeliness of product releases, the successful implementation and completion of company initiatives, the effectiveness of our
disclosure controls and procedures and our internal control over financial reporting, and the results of our operations.
The markets in which we compete are highly competitive, and some of our competitors have greater financial and
other resources than we do. The competitive pressures faced by us could materially and adversely affect our business,
results of operations and financial condition.
The safety products market is highly competitive, with participants ranging in size from small companies focusing on single
types of safety products, to large multinational corporations that manufacture and supply many types of safety products. Our
main competitors vary by region and product. We believe that participants in this industry compete primarily on the basis of
product characteristics (such as functional performance, agency approvals, design and style), price, service and delivery,
customer support, the ability to meet the special requirements of customers, brand name trust and recognition, and e-
business capabilities. Some of our competitors have greater financial and other resources than we do and our business could
be adversely affected by competitors’ new product innovations, technological advances made to competing products and
pricing changes made by us in response to competition from existing or new competitors. We may not be able to compete
successfully against current and future competitors and the competitive pressures faced by us could have a material adverse
effect our business, consolidated results of operations and financial condition. In addition, e-business is a rapidly developing
area, and the execution of a successful e-business strategy involves significant time, investment and resources. If we are
unable to successfully expand e-business capabilities in support of our customer needs, our brands may lose market share
which could negatively impact revenue and profitability.
12
8881_FIN.pdf March 20, 2018 pg 12
We are subject to various federal, state and local laws and any violation of these laws could adversely affect our
results of operations.
We are subject to extensive regulation from U.S. federal, state, and local governments, as well as the governments of the
countries in which we conduct business. Failure to comply with these regulations could result in severe civil or criminal
penalties, sanctions or significant changes to our operations. These actions could have a material adverse effect on our
business, consolidated results of operations and financial condition.
We are subject to various environmental laws and any violation of these laws could adversely affect our results of
operations.
Included in the extensive laws, regulations and ordinances, to which we are subject, are those relating to the protection of the
environment. Examples include those governing discharges to air and water, handling and disposal practices for solid and
hazardous wastes and the maintenance of a safe workplace. These laws impose penalties for noncompliance and liability for
response costs and certain damages resulting from past and current spills, disposals, or other releases of hazardous materials.
We could incur substantial costs as a result of noncompliance with or liability for cleanup pursuant to these environmental
laws. Such laws continue to change, and we may be subject to more stringent environmental laws in the future. If more
stringent environmental laws are enacted, these future laws could have a material adverse effect on our business, consolidated
results of operations and financial condition.
We benefit from free trade laws and regulations, such as the North American Free Trade Agreement and any changes
to these laws and regulations could adversely affect our results of operations.
Existing free trade laws and regulations, such as the North American Free Trade Agreement ("NAFTA"), provide certain
beneficial duties and tariffs for qualifying imports and exports, subject to compliance with the applicable classification and
other requirements. Changes in laws or policies governing the terms of foreign trade, and in particular increased trade
restrictions, tariffs or taxes on imports from countries where we manufacture products, such as China and Mexico, could have
a material adverse effect on our business, consolidated results of operations and financial condition.
We are subject to various U.S and foreign tax laws and any changes in these laws related to the taxation of businesses
and resolutions of tax disputes could adversely affect our results of operations.
The U.S. Congress, the Organization for Economic Co-operation and Development (or, OECD) and other government
agencies in jurisdictions in which we and our affiliates invest or do business have maintained a focus on issues related to the
taxation of multinational companies. The OECD has changed numerous long-standing tax principles through its base erosion
and profit shifting (“BEPS”) project which could adversely impact our effective tax rate.
The Tax Cuts and Jobs Act of 2017 (“the Act”), which was signed into law on December 22, 2017 has resulted in significant
changes to the U.S. corporate income tax system including reducing the U.S. corporate rate to 21% starting in 2018. The Act
also creates a territorial tax system with a one-time mandatory tax on previously deferred foreign earnings of U.S.
subsidiaries. This one-time transition tax will be paid over an eight-year period, starting in 2018 and will not accrue interest.
On December 22, 2017, Staff Accounting Bulletin No. 118 (“SAB 118”) was issued to address the application of US GAAP
in situations when a registrant does not have the necessary information available, prepared or analyzed in reasonable detail to
complete the accounting for certain income tax effects of the Act. In accordance with SAB 118, the Company has calculated
its best estimate of the impact of the Act. Changes to applicable tax law, regulations or interpretations of the Act may require
further adjustments and changes in our estimates, which could have a material adverse effect on our effective tax rate. The
final determination of the transition tax and the revaluation of U.S. deferred assets and liabilities will be completed as
additional information becomes available, but no later than one year from the enactment of the Act.
We are subject to regular review and audit by both foreign and domestic tax authorities. While we believe our tax positions
will be sustained, the final outcome of tax audits and related litigation may differ materially from the tax amounts recorded in
our consolidated financial statements, which could have a material adverse effect on our consolidated results of operations,
financial condition and cash flows.
13
8881_FIN.pdf March 20, 2018 pg 13
We have significant international operations and are subject to the risks of doing business in foreign countries.
We have business operations in over 40 foreign countries. In 2017, approximately half of our net sales were made by
operations located outside the United States. Our international operations are subject to various political, economic and other
risks and uncertainties, which could have a material adverse effect on our business. These risks include the following:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
unexpected changes in regulatory requirements;
changes in trade policy or tariff regulations;
changes in tax laws and regulations;
changes to the Company's legal structure could have unintended tax consequences;
inability to generate sufficient profit in certain foreign jurisdictions could lead to additional valuation allowances on
deferred tax assets;
intellectual property protection difficulties;
difficulty in collecting accounts receivable;
complications in complying with a variety of foreign laws and regulations, some of which may conflict with U.S.
laws;
trade protection measures and price controls;
trade sanctions and embargoes;
nationalization and expropriation;
increased international instability or potential instability of foreign governments;
effectiveness of worldwide compliance with MSA's anti-bribery policy, local laws and the Foreign Corrupt Practices
Act
difficulty in hiring and retaining qualified employees;
the ability to effectively negotiate with labor unions in foreign countries;
the need to take extra security precautions for our international operations;
costs and difficulties in managing culturally and geographically diverse international operations; and
risks associated with the United Kingdom's decision to exit the European Union, including disruptions to trade and
free movement of goods, services and people to and from the United Kingdom; increased foreign exchange volatility
with respect to the British pound; and additional legal and economic uncertainty.
Any one or more of these risks could have a negative impact on the success of our international operations and, thereby, have
a material adverse effect our business, consolidated results of operations and financial condition.
14
8881_FIN.pdf March 20, 2018 pg 14
Because we derive a significant portion of our sales from the operations of our foreign subsidiaries, future currency
exchange rate fluctuations could adversely affect our results of operations and financial condition, and could affect the
comparability of our results between financial periods.
In 2017, our operations outside of the United States accounted for approximately half of our net sales. The results of our
foreign operations are generally reported in the local currency of the affiliate and then translated into U.S. dollars at the
applicable exchange rates for inclusion in our consolidated financial statements. The exchange rates between some of these
currencies and the U.S. dollar have fluctuated significantly in recent years and may continue to do so in the future. A
weakening of the currencies in which sales are generated relative to the currencies in which costs are denominated would
decrease our results of operations and cash flow. Although the Company uses instruments to hedge certain foreign currency
risks, these hedges only offset a portion of the Company’s exposure to foreign currency fluctuations.
In addition, because our consolidated financial statements are stated in U.S. dollars, such fluctuations may affect our
consolidated results of operations and financial position, and may affect the comparability of our results between financial
periods. Our inability to effectively manage our exchange rate risks or any volatility in currency exchange rates could have a
material adverse effect on our business, consolidated results of operations and financial condition.
Our ability to market and sell our products is subject to existing government regulations and standards. Changes in
such regulations and standards or our failure to comply with them could materially and adversely affect our results of
operations.
Most of our products are required to meet performance and test standards designed to protect the safety of people and
infrastructures around the world. Our inability to comply with these standards could result in declines in revenue, profitability
and cash flow. Changes in regulations could reduce the demand for our products or require us to re-engineer our products,
thereby creating opportunities for our competitors. Regulatory approvals for our products may be delayed or denied for a
variety of reasons that are outside of our control. Additionally, market anticipation of significant new standards can cause
customers to accelerate or delay buying decisions.
Our continued success depends on our ability to protect our intellectual property. If we are unable to protect our
intellectual property, our business could be materially and adversely affected.
Our success depends, in part, on our ability to obtain and enforce patents, maintain trade secret protection and operate
without infringing on the proprietary rights of third parties. We have been issued patents and have registered trademarks with
respect to many of our products, but our competitors could independently develop similar or superior products or
technologies, duplicate any of our designs, trademarks, processes or other intellectual property or design around any
processes or designs on which we have or may obtain patents or trademark protection. In addition, it is possible that third
parties may have, or will acquire, licenses for patents or trademarks that we may use or desire to use, so that we may need to
acquire licenses to, or to contest the validity of, such patents or trademarks of third parties. Such licenses may not be made
available to us on acceptable terms, if at all, and we may not prevail in contesting the validity of third party rights.
We also protect trade secrets, know-how and other confidential information against unauthorized use by others or disclosure
by persons who have access to them, such as our employees, through contractual arrangements. These agreements may not
provide meaningful protection for our trade secrets, know-how or other proprietary information in the event of any
unauthorized use, misappropriation or disclosure of such trade secrets, know-how or other proprietary information. Our
inability to maintain the proprietary nature of our technologies could have a material adverse effect on our consolidated
results of operations and financial condition.
If our goodwill, other intangible assets and long-lived assets become impaired, we may be required to record
significant charges to earnings.
We review our long-lived assets for impairment when events or changes in circumstances indicate the carrying amount may
not be recoverable. Goodwill and indefinite-lived intangible assets are required to be assessed for impairment at least
annually. Factors that may be considered a change in circumstances indicating that the carrying amount of our goodwill,
indefinite-lived intangible assets or long-lived assets may not be recoverable include slower growth rates in our markets,
reduced expected future cash flows, increased country risk premium as a result of political uncertainty and a decline in stock
price and market capitalization. We consider available current information when calculating our impairment charge. If there
are indicators of impairment, our long-term cash flow forecasts for our operations deteriorate or discount rates increase, we
may be required to recognize additional impairment charges in later periods. See Note 12 of the consolidated financial
statements in Part II Item 8 of this Form 10-K for the carrying amounts of goodwill in each of our reporting segments.
15
8881_FIN.pdf March 20, 2018 pg 15
Risks related to our defined benefit pension and other post-retirement plans could adversely affect our results of
operations and cash flow.
Significant changes in actual investment return on pension assets, discount rates, and other factors could adversely affect our
results of operations and pension contributions in future periods. U.S. generally accepted accounting principles require that
we calculate income or expense for the plans using actuarial valuations. These valuations reflect assumptions about financial
markets and interest rates, which may change based on economic conditions. Funding requirements for our pension plans
may become more significant. However, the ultimate amounts to be contributed are dependent upon, among other things,
interest rates, underlying asset returns and the impact of legislative or regulatory changes related to pension funding
obligations. For further information regarding our pension plans, refer to "Pensions and Other Post-retirement Benefits" in
Note 14 of the consolidated financial statements in Part II Item 8 of this Form 10-K.
If we fail to meet our debt service requirements or the restrictive covenants in our debt agreements or if interest rates
increase, our results of operations and financial condition could be materially and adversely affected.
We have a substantial amount of debt upon which we are required to make scheduled interest and principal payments and we
may incur additional debt in the future. A significant portion of our debt bears interest at variable rates that may increase in
the future. Our debt agreements require us to comply with certain restrictive covenants. If we are unable to generate sufficient
cash to service our debt or if interest rates increase, our consolidated results of operations and financial condition could be
materially and adversely affected. Additionally, a failure to comply with the restrictive covenants contained in our debt
agreements could result in a default, which if not waived by our lenders, could substantially increase borrowing costs and
require accelerated repayment of our debt. Please refer to Note 11 of the consolidated financial statements in Part II Item 8 of
this Form 10-K for commentary on our compliance with the restrictive covenants.
Item 1B. Unresolved Staff Comments
None.
16
8881_FIN.pdf March 20, 2018 pg 16
Item 2. Properties
Our principal executive offices are located at 1000 Cranberry Woods Drive, Cranberry Township, PA 16066 in a 212,000
square-foot building owned by us. We own or lease our primary facilities in the United States and in a number of other
countries. We believe that all of our facilities, including the manufacturing facilities, are in good repair and in suitable condition
for the purposes for which they are used. The following table sets forth a list of our primary facilities:
Location
Americas
Murrysville, PA
Function
Office and Manufacturing
Cranberry Twp., PA
Office, Research and Development and Manufacturing
New Galilee, PA
Jacksonville, NC
Jacksonville, NC
Queretaro, Mexico
Sao Paulo, Brazil
Cranberry Twp., PA
Lake Forest, CA
Lima, Peru
Santiago, Chile
Corona, CA
Pittsfield, NH
Distribution
Manufacturing
Manufacturing
Office, Manufacturing and Distribution
Office, Manufacturing and Distribution
Research and Development
Office, Research and Development and Manufacturing
Office and Distribution
Office and Distribution
Manufacturing
Office and Manufacturing
Torreon, Mexico
Office
Buenos Aires, Argentina
Office and Distribution
Houston, TX
Lake Forest, CA
International
Berlin, Germany
Suzhou, China
Devizes, UK
Office and Distribution
Office
Office, Research and Development, Manufacturing and
Distribution
Office and Manufacturing
Office, Manufacturing and Distribution
Châtillon-sur-Chalaronne,
France
Office, Research and Development, Manufacturing and
Distribution
Milan, Italy
Johannesburg, South Africa Office, Manufacturing and Distribution
Mohammedia, Morocco
Manufacturing
Office
Barcelona, Spain
Galway, Ireland
Värnamo, Sweden
Warsaw, Poland
Sydney, Australia
Kozina, Slovenia
Rajarhat, India
Office
Office and Manufacturing
Office, Manufacturing and Distribution
Office and Distribution
Office and Manufacturing
Office and Manufacturing
Office and Distribution
Rapperswil, Switzerland
Hoorn, Netherlands
Office
Office
Poole, United Kingdom
Office and Manufacturing
17
8881_FIN.pdf March 20, 2018 pg 17
Square Feet
Owned
or Leased
295,000
212,000
120,000
107,000
79,000
77,000
74,000
68,000
62,000
34,000
32,000
19,000
16,000
15,000
9,000
9,000
6,000
340,000
193,000
115,000
94,000
43,000
35,000
24,000
23,000
20,000
18,000
18,000
18,000
17,000
10,000
8,000
6,000
6,000
Owned
Owned
Leased
Owned
Leased
Leased
Owned
Owned
Leased
Owned
Leased
Leased
Owned
Leased
Owned
Leased
Owned
Leased
Owned
Owned
Owned
Owned
Leased
Owned
Leased
Owned
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Item 3. Legal Proceedings
Please refer to Note 19 to the consolidated financial statements in Part II Item 8 of this Form 10-K.
Item 4. Mine Safety Disclosures
Not applicable.
Executive Officers of the Registrant
The following sets forth the names and ages of our executive officers as of February 22, 2018, indicating all positions held
during the past five years:
Name
William M. Lambert(a)
Steven C. Blanco(b)
Kerry M. Bove(c)
Gavan C. M. Duff(d)
R. Anne Herman(e)
Bob Leenen(f)
Kenneth D. Krause(g)
Douglas K. McClaine(h)
Paul R. Uhler(i)
Nishan J. Vartanian(j)
Markus H. Weber(k)
Age Title
59 Chairman and Chief Executive Officer since June 2017.
51 Vice President, President, MSA Americas segment since August 2017.
59 Senior Vice President and Chief Strategy Officer since May 2015.
52 Vice President, Chief Operating Officer, Latchways since February 2017.
55 Vice President of Global Operational Excellence and Chief Customer Officer since August
2016.
44 Vice President and President, MSA International segment since September 2017.
43 Vice President, Chief Financial Officer and Treasurer since December 2015.
60 Senior Vice President, Secretary and Chief Legal Officer since March 2016.
59 Senior Vice President and Chief Human Resource Officer since March 2016.
58 President and Chief Operating Officer since June 2017.
53 Vice President and Chief Information Officer since April 2010.
(a) Prior to his present position, Mr. Lambert was Chairman, President and Chief Executive Officer since May 2015 and
prior thereto served as President and Chief Executive Officer.
(b) Prior to his present position, Mr. Blanco served as Vice President and General Manager, Northern North America since
August 2015 and prior thereto was Vice President, Global Operational Excellence.
(c) Prior to his present position, Mr. Bove was Vice President and President, MSA International. Mr. Bove also served as
Acting Chief Financial Officer from September to December 2015.
(d) Prior to his present position, Mr. Duff was Executive Director and Chief Operating Officer of Latchways since January
2016 and prior thereto served as Chief Customer Officer following his position as Central and Southern European Sales
Director.
(e) Prior to her present position, Ms. Herman was Chief Customer Officer and Executive Director, Global Quality since
October 2015 and prior thereto was Director, Global Quality.
(f) Prior to his present position, Mr. Leenen was Regional Chief Financial Officer, MSA International and Finance Director,
Europe.
(g) Prior to his present position, Mr. Krause was Vice President, Strategic Finance since August 2015 and prior thereto
served as Treasurer and Executive Director, Global Finance and Assistant Treasurer.
(h) Prior to his present position, Mr. McClaine was Vice President, Secretary and General Counsel.
(i) Prior to his present position, Mr. Uhler was Vice President, Global Human Resources.
(j) Prior to his present position, Mr. Vartanian was Senior Vice President and President, MSA Americas since July 2015;
Vice President and President, MSA North America since August 2013 and prior thereto served as Vice President, Fixed
Gas and Flame Detection.
(k) Prior to joining MSA, Mr. Weber served as Chief Information Officer of Berlin-Chemie AG, an international research-
based pharmaceutical company.
18
8881_FIN.pdf March 20, 2018 pg 18
PART II
Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Our common stock is traded on the New York Stock Exchange under the symbol “MSA.” Stock price ranges and
dividends declared were as follows:
Year ended December 31, 2016
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Year ended December 31, 2017
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
$
$
Price Range of Our
Common Stock
High
Low
Dividends
49.77
$
37.68 $
54.70
58.62
71.28
74.64
84.86
81.88
86.36
$
44.16
51.25
55.00
66.47 $
66.79
65.95
75.79
0.32
0.33
0.33
0.33
0.33
0.35
0.35
0.35
On February 19, 2018, there were 204 registered holders of our shares of common stock.
Issuer Purchases of Equity Securities
Period
October 1 — October 31, 2017
November 1 — November 30, 2017
December 1 — December 31, 2017
Total Number of
Shares Purchased
Average Price Paid
Per Share
595
$
2,746
5,184
78.79
79.59
80.18
Total Number of
Shares Purchased
as Part of Publicly
Announced
Plans or Programs
Maximum Number
of Shares that
May Yet Be
Purchased
Under the Plans or
Programs
—
—
—
1,020,317
943,200
1,046,377
The share repurchase program authorizes up to $100.0 million in repurchases of MSA common stock in the open market
and in private transactions. The share purchase program has no expiration date. The maximum number of shares that may be
purchased is calculated based on the dollars remaining under the program and the respective month-end closing share price. We
repurchased 168,941 shares, or $11.8 million, during the year ended December 31, 2017 under this program and have
purchased a total of 318,941 shares, or $18.9 million, since this program's inception.
The above shares purchased during the quarter relate to stock compensation transactions.
We do not have any other share repurchase programs.
19
8881_FIN.pdf March 20, 2018 pg 19
Comparison of Five-Year Cumulative Total Return
The following paragraph compares the most recent five year performance of MSA stock with (1) the Standard & Poor’s
500 Composite Index and (2) the Russell 2000 Index. Because our competitors are principally privately held concerns or
subsidiaries or divisions of corporations engaged in multiple lines of business, we do not believe it feasible to construct a peer
group comparison on an industry or line-of-business basis. The Russell 2000 Index, while including corporations both larger
and smaller than MSA in terms of market capitalization, is composed of corporations with an average market capitalization
similar to us.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN
ASSUMES INITIAL INVESTMENT OF $100
Among MSA Safety Incorporated, the S&P 500 Index, and the Russell 2000 Index
Assumes $100 invested on December 31, 2012 in stock or index, including reinvestment of dividends. Fiscal year ending
December 31.
2012
2013
2014
2015
2016
2017
MSA Safety Incorporated
$
100.00
$
122.81
$
130.23
$
109.60
$
179.52
$
S&P 500 Index
Russell 2000 Index
100.00
100.00
132.90
138.82
150.51
145.62
152.59
139.19
170.84
168.85
204.55
208.14
193.58
Value at December 31,
Prepared by Zacks Investment Research, Inc. Used with permission. All rights reserved. Copyright 1980-2018.
Index Data: Copyright Standard and Poor’s, Inc. Used with permission. All rights reserved.
Index Data: Copyright Russell Investments, Inc. Used with permission. All rights reserved.
20
8881_FIN.pdf March 20, 2018 pg 20
Item 6. Selected Financial Data
(In thousands, except as noted)
Statement of Income Data:
Net sales
Income from continuing operations
(Loss) income from discontinued operations
Net income attributable to MSA Safety Incorporated
Earnings per share attributable to MSA common
shareholders:
Basic per common share (in dollars):
Income from continuing operations
(Loss) income from discontinued operations
Net income
Diluted per common share (in dollars):
Income from continuing operations
(Loss) income from discontinued operations
Net income
Dividends paid per common share (in dollars)
Weighted average common shares outstanding—basic
Weighted average common shares outstanding—diluted
Balance Sheet Data:
Total assets(d)
Long-term debt, net(d)
Total MSA Safety Incorporated shareholders’ equity
2017(a)
2016(b)
2015(c)
2014
2013
$ 1,196,809
26,027
—
26,027
$ 1,149,530
92,691
(755)
91,936
$ 1,130,783
69,590
1,217
70,807
$ 1,133,885
87,447
1,059
88,506
$ 1,112,058
85,858
2,389
88,247
$
$
$
$
0.68
—
0.68
0.67
—
0.67
1.38
37,997
38,697
$
$
2.47
(0.02)
2.45
2.44
(0.02)
2.42
1.31
37,456
37,986
$
$
1.86
0.03
1.89
1.84
0.03
1.87
1.27
37,293
37,710
$
$
2.34
0.03
2.37
2.30
0.03
2.33
1.23
37,138
37,728
2.31
0.06
2.37
2.28
0.06
2.34
1.18
36,868
37,450
$ 1,684,826
447,832
597,601
$ 1,353,920
363,836
558,165
$ 1,422,863
458,022
516,496
$ 1,263,412
243,620
533,809
$ 1,233,026
259,423
566,452
(a) Includes Globe from the date of acquisition on July 31, 2017. In addition, we were able to reasonably estimate the potential
liability for IBNR cumulative trauma product liability claims in the fourth quarter of 2017 and recognized a significant charge
which reduced net income as compared to prior years. See Note 19 to the Consolidated Financial Statements in Part II Item 8
of this Form 10-K for additional information.
(b) Includes Senscient from the date of acquisition on September 19, 2016.
(c) Includes Latchways from the date of acquisition on October 21, 2015.
(d) The Company adopted Accounting Standards Update (ASU) No. 2015-03, Interest - Imputation of Interest and ASU No.
2015-15, Interest - Imputation of Interest on January 1, 2016, which requires an entity to present the debt issuance costs related
to a recognized debt liability as a direct deduction from the carrying amount of that debt liability, consistent with debt
discounts. All prior periods presented in this Annual Report on Form 10-K were recast to reflect the change in accounting
principle retrospectively applied as of December 31, 2015.
The data presented in the Selected Financial Data table should be read in conjunction with comments provided in
Management's Discussion and Analysis of Financial Condition and Results of Operations in Part II Item 7 and the Consolidated
Financial Statements in Part II Item 8 of this Form 10-K.
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8881_FIN.pdf March 20, 2018 pg 21
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with the historical financial statements and other
financial information included elsewhere in this annual report on Form 10-K. This discussion may contain forward-looking
statements that involve risks and uncertainties. The forward-looking statements are not historical facts, but rather are based on
current expectations, estimates, assumptions and projections about our industry, business and future financial results. Our
actual results could differ materially from the results contemplated by these forward-looking statements due to a number of
factors, including those discussed in the sections of this annual report entitled “Forward-Looking Statements” and “Risk
Factors.”
On October 21, 2015, the Company acquired 100% of the common stock of Latchways plc ("Latchways") for $190.9
million in cash. Latchways, which is headquartered in the United Kingdom, is a leading provider of innovative fall protection
systems and solutions. The acquisition of Latchways represents a key step in the execution of our corporate strategy by
expanding our investment in one of the largest and fastest growing product segments of the global safety market. This
acquisition nearly doubled our fall protection business by the end of December 31, 2017, positioning MSA as one of the largest
fall protection providers globally. Within the fall protection space, the Latchways acquisition strengthens our position in
permanent engineered systems and our presence in other sectors such as utilities, telecommunications, and aircraft
maintenance. The data presented in Part II Item 6 of this Form 10-K should be read in conjunction with the following
comments. Additionally, please refer to Note 13 of the consolidated financial statements in Part II Item 8 of this Form 10-K for
further information.
The Americas and International reportable segments were established on January 1, 2016. The Americas segment is
comprised of our operations in North America and Latin America geographies. The International segment is comprised of our
operations of all geographies outside of the Americas. 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. Please refer to Note 7 of the consolidated financial statements in Part II Item 8 of this Form 10-K
for further information.
MSA's South African personal protective equipment distribution business and MSA's Zambian operations had historically
been part of the International reportable segment. On February 29, 2016, the Company sold 100% of the stock associated with
these operations. In accordance with generally accepted accounting principles, these operations and related results are
excluded from continuing operations and are presented as discontinued operations in all periods presented. Please refer to
Note 20 of the consolidated financial statements in Part II Item 8 of this Form 10-K for further commentary on these
discontinued operations.
On September 19, 2016, the Company acquired 100% of the common stock of Senscient, Inc. for $19.1 million in cash.
Senscient, which is headquartered in the United Kingdom, is a leader in laser-based gas detection technology. The acquisition
of Senscient expands and enhances MSA’s technology offerings in the global market for fixed gas and flame detection systems,
as the Company continues to execute its core product growth strategy. The acquisition was funded through borrowings on our
unsecured senior revolving credit facility. The data presented in Part II Item 6 of this Form 10-K should be read in conjunction
with the following comments. Additionally, please refer to Note 13 of the consolidated financial statements in Part II Item 8 of
this Form 10-K for further information.
On July 31, 2017, the Company acquired 100% of the common stock of Globe Holding Company, LLC ("Globe") for $215
million in cash plus a working capital adjustment of $1.4 million. Based in Pittsfield, NH, Globe is a leading innovator and
provider of firefighter protective clothing and boots. This acquisition aligns with the Company's corporate strategy in that it
strengthens our leading position in the North American fire service market. The transaction was funded through borrowings on
our unsecured senior revolving credit facility. The data presented in Part II Item 6 of this Form 10-K should be read in
conjunction with the following comments. Additionally, please refer to Note 13 of the consolidated financial statements in Part
II Item 8 of this Form 10-K for further information.
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8881_FIN.pdf March 20, 2018 pg 22
BUSINESS OVERVIEW
We are a 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, fire service, construction, utilities, and
mining industries. MSA's core products include fixed gas and flame detection systems; breathing apparatus where SCBA is the
principal product; portable gas detection instruments; industrial head protection products; firefighter helmets and protective
apparel; and fall protection devices. We are committed to providing our customers with service unmatched in the safety
industry and, in the process, enhancing our ability to provide a growing line of safety solutions for customers in key global
markets.
We tailor our product offerings and distribution strategy to satisfy distinct customer preferences that vary across
geographic regions. To best serve these customer preferences, we have organized our business into seven geographical
operating segments that are aggregated into three reportable geographic segments: Americas, International and Corporate. In
2017, 62% and 38% of our net sales were made by our Americas and International segments, respectively.
Americas. Our largest manufacturing and research and development facilities are located in the United States. We serve
our markets across the Americas with manufacturing facilities in the U.S., Mexico and Brazil. Operations in other Americas
segment countries focus primarily on sales and distribution in their respective home country markets.
International. Our International segment includes companies in Europe, Middle East, Africa, and the Asia Pacific region,
some of which are in developing regions of the world. In our largest International affiliates (in Germany, France, United
Kingdom, Ireland and China), we develop, manufacture and sell a wide variety of products. In China, the products
manufactured are sold primarily in the home country as well as regional markets. Operations in other International segment
countries focus primarily on sales and distribution in their respective home country markets. Although some of these
companies may perform limited production, most of their sales are of products manufactured in our plants in Germany, France,
the U.S., United Kingdom, Ireland, Sweden and China or are purchased from third party vendors.
Corporate. The Corporate segment primarily consists of general and administrative expenses incurred in our corporate
headquarters, costs associated with corporate development initiatives, legal expense, interest expense, foreign exchange gains
or losses, and other centrally-managed costs. Corporate general and administrative costs comprise the majority of the expense
in the Corporate segment. During the year ended December 31, 2017, corporate general and administrative costs were $37.6
million, which included $4.2 million of strategic transaction costs related to mergers and acquisitions. During the year ended
December 31, 2016, corporate general and administrative costs were $38.9 million, which included $2.5 million of strategic
transaction costs related to mergers and acquisitions. During the year ended December 31, 2015, corporate general and
administrative costs were $38.3 million, which included $7.5 million of strategic transaction costs related to the Latchways
acquisition.
RESULTS OF OPERATIONS
Year Ended December 31, 2017 Compared to Year Ended December 31, 2016
Net Sales
(In millions)
Consolidated Continuing Operations
Americas
International
2017
$1,196.8
736.8
460.0
2016
$1,149.5
678.4
471.1
Dollar
Increase
(Decrease)
$47.3
58.4
(11.1)
Percent
Increase
(Decrease)
4.1%
8.6%
(2.4)%
Net Sales from continuing operations. Net sales for the year ended December 31, 2017 were $1,196.8 million, an increase of
$47.3 million, from $1,149.5 million for the year ended December 31, 2016. Organic constant currency sales decreased by
1.0% for the year ended December 31, 2017. Please refer to the Net Sales from Continuing Operations table below for a
reconciliation of the year over year sales change.
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8881_FIN.pdf March 20, 2018 pg 23
Net Sales from Continuing Operations
Year Ended December 31, 2017 versus December 31, 2016
(Percent Change)
GAAP reported sales change
Currency translation effects
Constant currency sales change
Acquisitions
Organic constant currency change
Americas
International
8.6%
0.3%
8.3%
6.9%
1.4%
(2.4)%
1.5%
(3.9)%
0.7%
(4.6)%
Consolidated
Continuing
Operations
4.1%
0.8%
3.3%
4.3%
(1.0)%
Note: Organic constant currency sales change is a non-GAAP financial measure provided by the Company to give a better understanding of
the Company's underlying business performance. Organic constant currency sales change is calculated by removing the percentage impact
from acquisitions and currency translation effects from the overall percentage change in net sales.
Net sales for the Americas segment were $736.8 million for the year ended December 31, 2017, an increase of $58.4
million, or 9% compared to $678.4 million for the year ended December 31, 2016. During 2017, constant currency sales in the
Americas segment increased 8% compared to the prior year period, driven primarily by the acquisition of Globe on July 31,
2017 which provided a 7% increase in sales. We also saw growth in head protection and fall protection on improving
conditions in industrial markets. These increases were partially offset by a lower level of shipments of self-contained breathing
apparatus ("SCBA"). At December 31, 2017, we are entering 2018 with a strong pipeline of business secured in the fire
service market as the fourth quarter order book for SCBA reflected our highest incoming order total of this entire replacement
cycle.
Net sales for the International segment were $460.0 million for the year ended December 31, 2017, a decrease of $11.1
million, or 2%, compared to $471.1 million for the year ended December 31, 2016. Constant currency sales in the International
segment decreased 4% during 2017, primarily due to a lower volume of non-core military helmet sales in Europe as well as less
breathing apparatus, fall protection and portable instruments sales across the segment. These decreases were partially offset by
a higher volume of FGFD sales in the Middle East and head protection across the segment.
Gross profit. Gross profit for the year ended December 31, 2017 was $540.4 million, an increase of $16.8 million, or 3%,
compared to $523.6 million for the year ended December 31, 2016. The ratio of gross profit to net sales was 45.2% in 2017
compared to 45.6% in 2016. The slightly lower gross profit ratio during 2017 is primarily attributable to lower product margins
from our Globe acquisition mostly offset by improved margins across many of our core products.
Selling, general and administrative expenses. Selling, general and administrative expenses were $297.8 million for the year
ended December 31, 2017, a decrease of $8.3 million, or 3%, compared to $306.1 million for the year ended December 31,
2016. Selling, general and administrative expenses were 24.9% of net sales in 2017, compared to 26.6% of net sales in 2016.
Excluding acquisitions and related strategic transaction costs of $9.9 million, organic constant currency selling, general and
administrative expenses decreased 6%, or $16.3 million, in the current period exceeding our $10 million full year savings
target. Lower payroll expense, variable compensation expense and corporate legal costs were key drivers of cost savings. The
following table presents a reconciliation of the year over year expense change for selling, general, and administrative expenses.
Selling, general, and administrative expenses
(Percent Change)
GAAP reported change
Currency translation effects
Constant currency change
Acquisitions and related strategic transaction costs
Organic constant currency change
Year Ended
December 31, 2017 versus December 31, 2016
Consolidated Continuing Operations
(2.7)%
0.8%
(3.5)%
2.0%
(5.5)%
Note: Organic constant currency change is a non-GAAP financial measure provided by the Company to give a better understanding of the
Company's underlying business performance. Organic constant currency change in selling, general, and administrative expenses is calculated
by removing the percentage impact from acquisitions and related strategic transaction costs as well as currency translation effects from the
overall percentage change in GAAP selling, general, and administrative expense. Management believes excluding acquisitions and currency
translation effects provide investors with a greater level of clarity into spending levels on a year-over-year basis.
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8881_FIN.pdf March 20, 2018 pg 24
Research and development expense. Research and development expense was $50.1 million for the year ended December 31,
2017, an increase of $3.2 million, or 7%, compared to $46.8 million for the year ended December 31, 2016. Research and
development expense was 4.2% of net sales in 2017, compared to 4.1% of net sales in 2016 and we expect research and
development expense to be approximately 4.0% of sales for the year ending December 31, 2018 as we continue to develop new
products for global safety markets.
Restructuring and other charges. During the year ended December 31, 2017, the Company recorded restructuring charges, net
of adjustments, of $17.6 million, primarily related to the voluntary retirement incentive package discussed below as well as to
severance costs for staff reductions associated with our ongoing initiatives to drive profitable growth in Europe and right size
our operations in Australia and Africa. This compared to charges of $5.7 million during the year ended December 31, 2016,
primarily related to severance costs for staff reductions associated with ongoing initiatives to right size our operations in
Europe, Brazil, and Japan.
In September 2016, certain employees in the Americas segment were offered a voluntary retirement incentive package
(“VRIP”). The election window for participation closed on October 17, 2016. The employees were required to render service
through January 31, 2017 to receive the VRIP and had until February 6, 2017 to revoke their election. None of the 83
employees who accepted the VRIP revoked their election to retire under the terms of the plan. Non-cash special termination
benefit expense of $11.4 million was incurred in the first quarter of 2017 related to these elections. All benefits were paid from
our over funded North America pension plan.
Currency exchange. Currency exchange losses were $5.1 million during the year ended December 31, 2017, compared to $0.8
million during the year ended December 31, 2016. Currency exchange losses in both years were mostly unrealized and related
to management of foreign currency exposure on unsettled intercompany balances and the effect of the weakening U.S. dollar on
these balances. Refer to Note 17 to the consolidated financial statements in Part II Item 8 of this Form 10-K for information
regarding our currency exchange rate risk management strategy.
Other operating expense. Other operating expense during the year ended December 31, 2017 was $126.4 million. In August
2017, MSA LLC agreed to resolve certain asserted cumulative trauma product liability claims. This charge is related to legacy
products designed, manufactured and sold years ago and are not currently sold by the Company. Additionally, in the fourth
quarter of 2017, MSA LLC determined that a reasonable estimate of the liability for incurred but not reported ("IBNR")
cumulative trauma liability claims is $111.1 million as of December 31, 2017. MSA LLC recorded a total charge of $126.4
million before tax ($85.0 million after tax) representing the estimated liability in excess of available insurance coverage for
both asserted and IBNR cumulative trauma liability claims. Cumulative trauma product liability claims incurred in the year
ended December 31, 2016 were covered by insurance. Please refer to Note 19 to the consolidated financial statements in Part II
Item 8 of this Form 10-K for additional information.
GAAP operating income. Consolidated operating income for the year ended December 31, 2017 was $43.3 million compared
to $164.2 million for the year ended December 31, 2016. The reduction in operating income was primarily driven by the Other
operating expense and restructuring charges associated with the voluntary retirement incentive package partially offset by lower
selling, general, and administrative expenses resulting from our cost reduction programs as discussed above.
Adjusted operating income. Americas adjusted operating income for the year ended December 31, 2017 was $184.3 million,
an increase of $21.5 million, or 13%, compared to $162.8 million for the year ended December 31, 2016. The improvement was
driven by higher sales volumes and lower selling, general and administrative costs resulting from effective cost management.
Additionally, we continued to see strength in gross margins during 2017 from improvements in margins across many of our
core products.
International adjusted operating income for the year ended December 31, 2017 was $45.5 million, a decrease of $1.0
million, or 2%, compared to $46.5 million for the year ended December 31, 2016. The decrease in adjusted operating income is
primarily attributable to lower sales volumes.
Corporate segment adjusted operating loss for the year ended December 31, 2017 was $37.2 million, an improvement of
$1.4 million, or 4%, compared to an operating loss of $38.6 million for the year ended December 31, 2016, reflecting lower
legal expenses and variable compensation expense partially offset by higher stock compensation and corporate development
expenses.
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8881_FIN.pdf March 20, 2018 pg 25
The following tables reconcile GAAP operating income to adjusted operating income (loss). Adjusted operating margin % is
calculated as adjusted operating income divided by net sales.
Adjusted operating income
Year Ended December 31, 2017
(In thousands)
Net sales
GAAP operating income
Restructuring and other charges
Currency exchange losses, net
Other operating expense (Note 19)
Adjusted operating income
Adjusted operating margin %
Americas
International
Corporate
Consolidated
Continuing
Operations
$
736,847
$
459,962
$
— $
1,196,809
43,345
17,632
5,127
126,432
192,536
$
184,287
$
45,461
$
(37,212) $
25.0%
9.9%
Adjusted operating income
Year Ended December 31, 2016
(In thousands)
Net sales
GAAP operating income
Restructuring and other charges
Currency exchange losses, net
Other operating expense (Note 19)
Adjusted operating income
Adjusted operating margin %
Americas
International
Corporate
Consolidated
Continuing
Operations
$
678,433
$
471,097
$
— $
1,149,530
164,192
5,694
766
—
$
162,788
$
46,491
$
(38,627) $
170,652
24.0%
9.9%
Note: Adjusted operating income is a non-GAAP financial measure used by the chief operating decision maker to evaluate segment
performance and allocate resources. Adjusted operating income is reconciled above to the nearest GAAP financial measure, Operating
income, and excludes non-cash impacts in the period such as restructuring, currency exchange and other operating expense for charges related
to increasing the cumulative trauma product liability reserve.
Total other expense, net. Other expense for the year ended December 31, 2017 was $13.6 million, an increase of $1.3 million,
or 11%, compared to $12.3 million for the year ended December 31, 2016.
Income taxes. The reported effective tax rate for the year ended December 31, 2017 was 9.5%, which included a benefit of
28.0% for certain share-based payments related to the adoption of ASU 2016-09 and a benefit of 8.4% associated with the
reduction of exit taxes related to our European reorganization as well as benefits related to higher profitability in more
favorable tax jurisdictions and additional manufacturing deduction benefits. The unfavorable effects of U.S. tax reform
partially offset these benefits. The reported effective tax rate for the year ended December 31, 2016 was 38.1%, inclusive of
4.3% associated with exit taxes related to our European reorganization. The remaining effective tax rate change was primarily
due to additional manufacturing deduction benefits and the release of a valuation allowance on foreign losses.
The Tax Cuts and Jobs Act of 2017 ("the Act"), which was signed into law on December 22, 2017, has resulted in
significant changes to the U.S. corporate income tax system including reducing the U.S. corporate rate to 21% starting in 2018.
The Act also creates a territorial tax system with a one-time mandatory tax on previously deferred foreign earnings of U.S.
subsidiaries.
26
8881_FIN.pdf March 20, 2018 pg 26
On December 22, 2017, SAB 118 was issued to address the application of US GAAP in situations when a registrant does
not have the necessary information available, prepared or analyzed in reasonable detail to complete the accounting for certain
income tax effects of the Act. In accordance with SAB 118, the Company has calculated its best estimate of the impact of the
Act and has recorded income tax expense of $19.8 million during the fourth quarter of 2017, the period in which the legislation
was enacted. Of this amount, $18.0 million related to the one-time transition tax and the remaining $1.8 million related to the
revaluation of U.S. deferred tax assets and liabilities. In addition, deferred taxes have been recorded on the outside basis
differences of non-U.S. subsidiaries in the amount of $7.8 million, fully offset by foreign tax credits. Changes to applicable tax
law, regulations or interpretations of the Act may require further adjustments and changes in our estimates. The final
determination of the transition tax and the revaluation of U.S. deferred assets and liabilities will be completed as additional
information becomes available, but no later than one year from the enactment of the Act.
MSA finalized its European reorganization during 2016. The reorganization was designed to drive optimal performance
by aligning certain strategic planning and decision making into a single location enabled by a common IT platform. During the
year ended December 31, 2017, the Company had a benefit due to the reduction of $2.5 million of charges associated with exit
taxes related to our European reorganization, compared to expense of $6.5 million for the year ended December 31, 2016.
In October 2016, the FASB issued ASU 2016-16, Intra-entity Transfers of Assets Other than Inventory. This ASU states
that an entity should recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the
transfer occurs. We have early adopted this ASU on January 1, 2017 using the modified retrospective approach which resulted
in a $6.2 million cumulative-effect adjustment directly to retained earnings during the year ended December 31, 2017 for any
previously deferred income tax effects.
In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, which we
have adopted effective January 1, 2017. From an income tax perspective, this ASU requires that all excess tax benefits and
deficiencies that pertain to share-based payment arrangements be recognized as a component of income tax expense rather than
as a component of additional paid-in-capital. We expect this to create volatility in the effective tax rate on a go-forward basis as
the impact is treated as a discrete item within our quarterly tax provision. The adoption of this standard resulted in an $8.3
million tax benefit during the year ended December 31, 2017.
Please refer to Note 1 to the consolidated financial statements in Part II Item 8 of this Form 10-K for additional
information regarding the two standards adopted.
Net income from continuing operations attributable to MSA Safety Incorporated. Net income from continuing operations was
$26.0 million for the year ended December 31, 2017, or $0.67 per diluted share, compared to $92.7 million, or $2.44 per diluted
share, for the year ended December 31, 2016 as a result of the factors described above.
Net loss from discontinued operations attributable to MSA Safety Incorporated. Net loss from discontinued operations was
$0.8 million, or $0.02 per diluted share, for the year ended December 31, 2016. There was no discontinued operations activity
during 2017. Please refer to Note 20 to the consolidated financial statements in Part II Item 8 of this Form 10-K for additional
information.
Year Ended December 31, 2016 Compared to Year Ended December 31, 2015
Net Sales
(In millions)
Consolidated Continuing Operations
Americas
International
2016
$1,149.5
678.4
471.1
2015
$1,130.8
704.8
426.0
Dollar
Increase
(Decrease)
$18.7
(26.4)
45.1
Percent
Increase
(Decrease)
1.7%
(3.7)%
10.6%
Net Sales from continuing operations. Net sales for the year ended December 31, 2016 were $1,149.5 million, an increase of
$18.7 million, from $1,130.8 million for the year ended December 31, 2015. Organic constant currency sales decreased by 1%
for the year ended December 31, 2016. Please refer to the Net Sales from Continuing Operations table below for a
reconciliation of the year over year sales change.
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8881_FIN.pdf March 20, 2018 pg 27
Net Sales from Continuing Operations
Year Ended December 31, 2016 versus December 31, 2015
(Percent Change)
GAAP reported sales change
Currency translation effects
Constant currency sales change
Acquisitions and related strategic transaction costs
Organic constant currency change
Americas
International
(3.7)%
(1.9)%
(1.8)%
1.3%
(3.1)%
10.6%
(2.4)%
13.0%
10.3%
2.7%
Consolidated
Continuing
Operations
1.7%
(2.1)%
3.8%
4.8%
(1.0)%
Note: Organic constant currency sales change is a non-GAAP financial measure provided by the Company to give a better understanding of
the Company's underlying business performance. Organic constant currency sales change is calculated by removing the percentage impact
from acquisitions and related strategic transaction costs as well as currency translation effects from the overall percentage change in net sales.
Net sales for the Americas segment were $678.4 million for the year ended December 31, 2016, a decrease of $26.4
million, or 4%, compared to $704.8 million for the year ended December 31, 2015. Currency translation effects decreased
Americas segment sales by 2%, reflecting weaker currencies across Latin America. Acquisitions, primarily Latchways,
increased sales in the Americas segment by 1%. In 2016, organic constant currency sales in the Americas segment decreased
3% compared to the prior year. This decrease was primarily related to a lower level of shipments of the G1 self-contained
breathing apparatus ("SCBA"). Our sales in 2015 benefited from a higher backlog at December 31, 2014 of approximately $35
million. We shipped these additional units in 2015 and had a more normalized backlog to start 2016. Furthermore, industrial
head protection sales decreased, there was a lower level of fixed gas and flame detection sales stemming from reduced project
spending in the energy market, and sales of other non-core products decreased. These declines were partially offset by an
improvement in portable gas detection as well as fire and rescue helmet sales.
Net sales for the International segment were $471.1 million for the year ended December 31, 2016, an increase of $45.1
million, or 11%, compared to $426.0 million for the year ended December 31, 2015. Currency translation effects decreased
International segment net sales by 2%, reflecting a weaker British pound and euro. Acquisitions, primarily Latchways,
increased sales in the International segment by 10%. Organic constant currency sales in the International segment increased 3%
in 2016, driven by growth in breathing apparatus in both developed and emerging markets, fixed gas and flame detection
projects in the Middle East, and portable gas detection in Europe. These increases were partially offset by a decline in fire and
rescue helmet sales and other non-core product sales.
Gross profit. Gross profit for the year ended December 31, 2016 was $523.6 million, an increase of $22.5 million, or 4%,
compared to $501.1 million for the year ended December 31, 2015. The ratio of gross profit to net sales was 45.6% in 2016
compared to 44.3% in 2015. The higher gross profit ratio during 2016 is primarily attributable to improved margins on our G1
SCBA associated with our value engineering initiatives and improvements in our warranty expense and inventory and
obsolescence expense.
Selling, general and administrative expenses. Selling, general and administrative expenses were $306.1 million for the year
ended December 31, 2016, a decrease of $9.2 million, or 3%, compared to $315.3 million for the year ended December 31,
2015. Selling, general and administrative expenses were 26.6% of net sales in 2016, compared to 27.9% of net sales in 2015.
Organic constant currency selling, general, and administrative expense decreased 3% during 2016 driven by headcount
reductions and implementation of discretionary spending controls related to our global cost reduction program. The following
table presents a reconciliation of the year over year expense change for selling, general, and administrative expenses.
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8881_FIN.pdf March 20, 2018 pg 28
Selling, general, and administrative expenses
(Percent Change)
GAAP reported change
Currency translation effects
Constant currency change
Acquisitions and related strategic transaction costs
Organic constant currency change
Year Ended
December 31, 2016 versus December 31, 2015
Consolidated Continuing Operations
(2.9)%
(2.2)%
(0.7)%
2.4%
(3.1)%
Note: Organic constant currency change is a non-GAAP financial measure provided by the Company to give a better understanding of the
Company's underlying business performance. Organic constant currency change in selling, general, and administrative expenses is calculated
by removing the percentage impact from acquisitions and currency translation effects from the overall percentage change in GAAP selling,
general, and administrative expense. Management believes excluding acquisitions and currency translation effects provide investors with a
greater level of clarity into spending levels on a year-over-year basis.
Research and development expense. Research and development expense was $46.8 million for the year ended December 31,
2016, a decrease of $1.8 million, or 4%, compared to $48.6 million for the year ended December 31, 2015. Research and
development expense was 4.1% of net sales in 2016, compared to 4.3% of net sales in 2015.
Restructuring and other charges. During the year ended December 31, 2016, the Company recorded restructuring charges, net
of adjustments, of $5.7 million, primarily related to severance costs for staff reductions associated with ongoing initiatives to
right size our operations in Europe, Brazil, and Japan. This compared to charges of $12.3 million during the year ended
December 31, 2015, primarily related to severance costs associated with our global cost reduction program.
In September 2016, certain employees in the Americas segment were offered a voluntary retirement incentive package
(“VRIP”). The election window for participation closed on October 17, 2016. The employees were required to render service
through January 31, 2017 to receive the VRIP and had until February 6, 2017 to revoke their election. None of the 83
employees who accepted the VRIP revoked their election to retire under the terms of the plan. Non-cash special termination
benefit expense of $11.4 million was incurred in the first quarter of 2017 related to these elections. All benefits were paid from
our over funded North America pension plan.
Currency exchange. Currency exchange losses were $0.8 million during the year ended December 31, 2016, compared to $2.2
million during the year ended December 31, 2015. Currency exchange losses in both years were mostly unrealized and related
primarily to the effect of the strengthening U.S. dollar on intercompany balances. Refer to Note 17 to the consolidated financial
statements in Part II Item 8 of this Form 10-K for information regarding our currency exchange rate risk management strategy.
GAAP operating income. Consolidated operating income for the year ended December 31, 2016 was $164.2 million, an
increase of $41.5 million, or 34%, compared to $122.7 million for the year ended December 31, 2015. Improved operating
income for 2016 was driven by higher gross profit margins associated with our value engineering initiatives; lower selling,
general and administrative costs stemming from our cost reduction programs; lower restructuring costs and lower currency
exchange losses.
Adjusted operating income. Americas adjusted operating income for the year ended December 31, 2016 was $162.8 million,
an increase of $20.8 million, or 15%, compared to $142.0 million for the year ended December 31, 2015. Improved margins for
our G1 SCBA associated with our value engineering initiatives and lower selling, general and administrative expense stemming
from our cost reduction programs contributed to adjusted operating income growth during 2016.
International adjusted operating income for the year ended December 31, 2016 was $46.5 million, an increase of
$13.0 million, or 39%, compared to $33.5 million for the year ended December 31, 2015. Increased revenues from the
acquisition of Latchways combined with organic growth in both developed and emerging international markets contributed to
improved adjusted operating income as compared to 2015. Lower selling, general and administrative expense as a result of our
global cost reduction program also contributed to improvements in operating income.
Corporate segment adjusted operating loss for the year ended December 31, 2016 was $38.6 million, an increase of $0.3
million, or 1%, compared to an operating loss of $38.3 million for the year ended December 31, 2015, reflecting higher stock
compensation, bonus, and legal expenses.
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8881_FIN.pdf March 20, 2018 pg 29
The following table reconciles GAAP operating income to adjusted operating income. Adjusted operating margin % is
calculated as adjusted operating income divided by net sales.
Adjusted operating income
Year Ended December 31, 2016
(In thousands)
Net sales
GAAP operating income
Restructuring and other charges
Currency exchange losses, net
Adjusted operating income
Adjusted operating margin %
Americas
International
Corporate
Consolidated
Continuing
Operations
$
678,433
$
471,097
$
— $
1,149,530
164,192
5,694
766
$
162,788
$
46,491
$
(38,627) $
170,652
24.0%
9.9%
Adjusted operating income
Year Ended December 31, 2015
(In thousands)
Net sales
GAAP operating income
Restructuring and other charges
Currency exchange losses, net
Adjusted operating income
Adjusted operating margin %
Americas
International
Corporate
Consolidated
Continuing
Operations
$
704,754
$
426,029
$
— $ 1,130,783
122,741
12,258
2,204
$
141,971
$
33,501
$
(38,269) $
137,203
20.1%
7.9%
Note: Adjusted operating income is a non-GAAP financial measure used by the chief operating decision maker to evaluate segment
performance and allocate resources. Adjusted operating income is reconciled above to the nearest GAAP financial measure, Operating
income.
Total other expense, net. Other expense for the year ended December 31, 2016 was $12.3 million, an increase of $0.6 million,
or 5%, compared to $11.7 million for the year ended December 31, 2015. The increase reflects higher interest expense
associated with the Latchways and Senscient acquisitions.
Income taxes. The effective tax rate for the year ended December 31, 2016 was 38.1%, compared to 40.0% for the year ended
December 31, 2015. The decrease was primarily due to less exit taxes partially offset by higher U.S. profitability. The effective
tax rate for the year is inclusive of exit taxes related to our European reorganization of 4.3% compared to 6.9% for the same
period last year.
MSA finalized its European reorganization during 2016. The reorganization is designed to drive optimal performance by
aligning certain strategic planning and decision making into a single location enabled by a common IT platform. During 2016,
the Company incurred $6.5 million of charges associated with exit taxes related to our European reorganization compared to
$7.7 million in 2015.
Net income from continuing operations attributable to MSA Safety Incorporated. Net income from continuing operations was
$92.7 million for the year ended December 31, 2016, or $2.44 per diluted share, an increase of $23.1 million, or 33%, compared
to $69.6 million, or $1.84 per diluted share, for the year ended December 31, 2015 as a result of the factors described above.
Net (loss) income from discontinued operations attributable to MSA Safety Incorporated. Net loss from discontinued
operations was $0.8 million for the year ended December 31, 2016, or $0.02 per diluted share, compared to net income of
$1.2 million, or $0.03 per diluted share, for the year ended December 31, 2015. Please refer to Note 20 to the consolidated
financial statements in Part II Item 8 of this Form 10-K for additional information.
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8881_FIN.pdf March 20, 2018 pg 30
Non-GAAP Financial Information
We may provide information regarding organic constant currency changes, financial measures excluding the impact of
acquisitions and related strategic transaction costs, adjusted operating income, and adjusted operating margin percentage which
are not recognized terms under U.S. GAAP and do not purport to be alternatives to net sales, selling, general and administrative
expense, operating income, or net income as a measure of operating performance. We believe that the use of these non-GAAP
financial measures provide investors with additional useful information and provide a more complete understanding of the
underlying results. Because not all companies use identical calculations, these presentations may not be comparable to
similarly titled measures from other companies. For more information about these non-GAAP measures and a reconciliation to
the nearest GAAP measure, please refer to the reconciliations referenced above in Management's Discussion & Analysis section
and in Note 7 to the consolidated financial statements in Part II Item 8 of this Form 10-K.
We may also provide financial information on a constant currency basis, which is a non-GAAP financial measure. These
references to a constant currency basis do not include operational impacts that could result from fluctuations in foreign currency
rates, which are outside of management's control. To provide information on a constant currency basis, the applicable financial
results are adjusted by translating current and prior period results in local currency to a fixed foreign exchange rate. This
approach is used for countries where the functional currency is the local country currency. This information is provided so that
certain financial results can be viewed without the impact of fluctuations in foreign currency rates, thereby facilitating period-
to-period comparisons of business performance. Constant currency information is not recognized under U.S. GAAP, and it is
not intended as an alternative to U.S. GAAP measures.
LIQUIDITY AND CAPITAL RESOURCES
Our main source of liquidity is operating cash flows, supplemented by borrowings. Our principal liquidity requirements
are for working capital, capital expenditures, principal and interest payments on debt, dividend payments, and acquisitions. At
December 31, 2017, approximately 38% of our long-term debt is at fixed interest rates with repayment schedules through 2031.
The remainder of our long-term debt is at variable rates on an unsecured revolving credit facility that is due in 2020. At
December 31, 2017, approximately 83% of our borrowings are denominated in US dollars, which limits our exposure to
currency exchange rate fluctuations.
At December 31, 2017, we had cash and cash equivalents totaling $134.2 million, of which $119.9 million was held by
our foreign subsidiaries. Cash and cash equivalents increased $20.5 million during the year ended December 31, 2017,
compared to an increase of $7.8 million during 2016 and a decrease of $0.1 million during 2015. During 2018, we expect to
repatriate between $75 million - $100 million of cash from our foreign affiliates.
Our unsecured senior revolving credit facility provides for borrowings up to $575.0 million through 2020 and is subject to
certain commitment fees. This credit facility has sub-limits for the issuance of letters of credit, swingline borrowings and
foreign currency denominated borrowings; and may be used for general corporate purposes, including working capital,
permitted acquisitions, capital expenditures and repayment of existing indebtedness. Loans under the revolving facility will
bear interest, at a variable rate based on LIBOR or the federal funds rate, at the Company's option. Our weighted average
interest rate was 2.73% in 2017. At December 31, 2017, $273.5 million of the $575.0 million senior revolving credit facility
was unused, including letters of credit.
The Company currently has access to approximately $273.5 million of capital at December 31, 2017. Refer to Note 11 to
the consolidated financial statements in Part II Item 8 of this Form 10-K.
Operating activities. Operating activities provided cash of $230.3 million in 2017, compared to providing cash of $134.9
million in 2016. The increase in operating cash flows during the period was primarily attributable to higher insurance receivable
collections. We collected $62.6 million from insurance companies, net of product liability settlements paid, in the year ended
December 31, 2017 while we paid settlements, net of collections from insurance companies, of $28.5 million in the same period
of 2016. Historically, cumulative trauma liability payments were funded with the Company's operating cash flow, pending
resolution of disputed insurance coverage. For more than a decade, we have funded product liability settlements from operating
cash flow. We continue to make good progress collecting insurance proceeds and establishing cash flow streams for the future.
Although cash flows may vary from quarter to quarter, we do not expect there to be a material impact on our capital allocation
priorities.
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8881_FIN.pdf March 20, 2018 pg 31
The amount recorded in connection with the recent settlements and remaining asserted cumulative trauma claims did not
have a significant cash impact in the year ended December 31, 2017. Approximately $54.5 million of the total $181.1 million
reserve relates to recent product liability settlements. The Company paid a total of $25.2 million in the third and fourth quarters
of 2017 related to settlements reached in August 2017 totaling $75.2 million as discussed in Note 19 to the consolidated
financial statements in Part II Item 8 of this Form 10-K. The remaining balance is expected to be paid ratably over 7 quarters
beginning in the first quarter of 2018 and ending in the third quarter of 2019. The remaining reserve consists of $111.1 million
related to a liability for incurred but not reported ("IBNR") cumulative trauma claims and $15.5 million related primarily to
estimated indemnity for all other remaining asserted cumulative trauma product liability claims that are probable and estimable
at December 31, 2017. Please refer to Note 19 to the consolidated financial statements in Part II Item 8 of this Form 10-K for
additional information.
Operating activities provided cash of $134.9 million in 2016, compared to providing cash of $55.3 million in 2015.
Improved operating cash flow in 2016 was primarily attributable to higher net income and lower working capital driven by
collections of accounts receivable and our ongoing focus on inventory management. Working capital as a percentage of sales
improved by 400 bps to 21.7% in 2016 from 25.7% in 2015. At December 31, 2016, working capital included trade
receivables, inventory and accounts payable of $1.1 million, $3.3 million and $0.9 million, respectively related to the
acquisition of Senscient.
Investing activities. Investing activities used cash of $239.2 million for the year ended December 31, 2017, compared to
using $25.8 million in 2016. The acquisition of Globe drove cash outflows from investing activities during 2017. Refer to Note
13 to the consolidated financial statements in Part II Item 8 of this Form 10-K for additional information on the Globe
acquisition. The sale of our South African personal protective equipment distribution business and its Zambian operations
offset by the acquisition of Senscient drove cash outflows from investing activities during 2016. Refer to Note 20 to the
consolidated financial statements in Part II Item 8 of this Form 10-K for a discussion of discontinued operations. We plan to
invest approximately $30 million in capital expenditures in 2018.
Investing activities used cash of $25.8 million for the year ended December 31, 2016, compared to using $208.5 million
in 2015. The use of cash for investing activities included the acquisition of Senscient in 2016 and the acquisition of Latchways
in 2015. Capital expenditures were $25.5 million in 2016 compared to $36.2 million in 2015. Capital expenditures in 2015
included spending related to initiatives such as the G1 SCBA and our European reorganization.
Financing activities. Financing activities provided cash of $23.1 million for the year ended December 31, 2017,
compared to using cash of $97.8 million in 2016. During 2017, we had net proceeds from debt of $77.2 million to finance the
acquisition of Globe. This compared to net payments on debt of $60.9 million in the same period in 2016.
We made dividend payments of $52.5 million during 2017, compared to $49.1 million during 2016. Dividends paid on
our common stock during 2017 were $1.38 per share. Dividends paid on our common stock in 2016 and 2015 were $1.31 and
$1.27 per share, respectively.
Restricted cash balances were $3.6 million at December 31, 2017 compared to $1.2 million at December 31, 2016 and
were primarily used to support letter of credit balances.
During 2015, the MSA Board of Directors authorized the Company to repurchase up to $100.0 million in shares of MSA
common stock and we executed share repurchases of $7.1 million. There were no share repurchases in 2016 and $11.8 million
in repurchases made in 2017. The program seeks to offset equity dilution associated with employee stock compensation. The
Board of Directors did not set a time limitation on the repurchase program.
Financing activities used cash of $97.8 million for the year ended December 31, 2016, compared to providing cash of
$164.9 million in 2015. The change was primarily related to net payments on debt of $60.9 million in 2016 compared to net
proceeds from borrowings of $218.9 million during 2015 to finance the acquisition of Latchways.
CUMULATIVE TRANSLATION ADJUSTMENTS
The year-end position of the U.S. dollar relative to international currencies resulted in a translation gain of $38.4 million
being recorded to cumulative translation adjustments for the year ended December 31, 2017. This compares to losses of $25.9
million in 2016 and $47.7 million in 2015. The translation gain in 2017 was primarily related to the weakening of the U.S.
dollar against the euro, British pound and Mexican peso. The translation loss in 2016 was primarily related to the strengthening
of the U.S. dollar against the British pound, Mexican peso, Argentine peso, euro, and Brazilian real. The translation loss in
2015 was primarily related to the strengthening of the U.S. dollar against the euro, British pound, Brazilian real and South
African rand.
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COMMITMENTS AND CONTINGENCIES
We are obligated to make future payments under various contracts, including debt and lease agreements. Our significant
cash obligations as of December 31, 2017 are as follows:
(In millions)
Long-term debt
Operating leases
Transition tax
Totals
Total
2018
2019
2020
2021
2022
Thereafter
$
475.8
$
45.9
18.0
539.7
$
26.7
13.0
1.4
41.1
26.7
10.2
1.4
38.3
$
321.5
$
26.7
$
— $
7.1
1.4
330.0
6.1
1.4
34.2
3.7
2.7
6.4
74.2
5.8
9.7
89.7
The significant obligations table does not include obligations to taxing authorities due to uncertainty surrounding the
ultimate settlement of amounts and timing of these obligations.
We expect to meet our 2018 and 2019 debt service obligations through cash provided by operations. Approximately
$294.9 million of debt payable in 2020 relates to our unsecured senior revolving credit facility. We expect to generate sufficient
operating cash flow to make payments against this amount each year. To the extent that a balance remains when the facility
matures in 2020, we expect to refinance the remaining balance through new borrowing facilities. Interest expense on fixed rate
debt over the next five years is expected to be approximately $7.0 million in 2018, $5.8 million in 2019, $4.6 million in 2020,
$3.5 million in 2021, and $2.3 million in 2022.
The Company had outstanding bank guarantees and standby letters of credit with banks as of December 31, 2017 totaling
$13.3 million, of which $6.6 million relate to the senior revolving credit facility. These letters of credit serve to cover customer
requirements in connection with certain sales orders and insurance companies. No amounts were drawn on these arrangements
at December 31, 2017. The Company is also required to provide cash collateral in connection with certain arrangements. At
December 31, 2017, the Company has $3.6 million of restricted cash in support of these arrangements.
We expect to make net contributions of $5.0 million to our pension plans in 2018 which are primarily associated with our
International segment. We have not been required to make contributions to our U.S. based qualified defined benefit pension
plan in many years.
We have purchase commitments for materials, supplies, services and property, plant and equipment as part of our ordinary
conduct of business.
Please refer to Note 19 to the consolidated financial statements in Part II Item 8 of this Form 10-K for further discussion
on the Company's product liabilities.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
We prepare our consolidated financial statements in accordance with U.S. generally accepted accounting principles
(GAAP). The preparation of these financial statements requires us to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenues and expenses and the related disclosures. We evaluate these estimates and judgments on
an on-going basis based on historical experience and various assumptions that we believe to be reasonable under the
circumstances. However, different amounts could be reported if we had used different assumptions and in light of different facts
and circumstances. Actual amounts could differ from the estimates and judgments reflected in our consolidated financial
statements. A summary of the Company's significant accounting policies is included in Note 1 to the consolidated financial
statements in Part II, Item 8 of this Form 10-K.
We believe that the following are the more critical judgments and estimates used in the preparation of our consolidated
financial statements.
Accounting for contingencies. We accrue for contingencies when we believe that it is probable that a liability or loss has
been incurred and the amount can be reasonably estimated. Contingencies relate to uncertainties that require our judgment both
in assessing whether a liability or loss has been incurred and in estimating the amount of the probable loss. Significant
contingencies affecting our consolidated financial statements include pending or threatened litigation, including product
liability claims and product warranties.
Product liability. We face an inherent business risk of exposure to product liability claims arising from the alleged failure
of our products to prevent the types of personal injury or death against which they are designed to protect. Product liability
claims are categorized as either single incident or cumulative trauma.
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Single incident product liability claims involve incidents of short duration that are typically known when they occur and
involve observable injuries, which provide an objective basis for quantifying damages. MSA LLC estimates its liability for
single incident product liability claims based on expected settlement costs for asserted single incident product liability claims
and an estimate of costs for single incident product liability claims incurred but not reported ("IBNR"). Single incident product
liability exposures are evaluated on an annual basis, or more frequently if changing circumstances warrant. Adjustments are
made to the reserve as appropriate.
Cumulative trauma product liability claims involve exposures to harmful substances (e.g., silica, asbestos and coal dust)
that occurred years ago and may have developed over long periods of time into diseases such as silicosis, asbestosis,
mesothelioma, or coal worker’s pneumoconiosis. MSA LLC separately evaluates and estimates its liability for asserted
cumulative trauma product liability claims not yet resolved and IBNR cumulative trauma product liability claims.
Management works with outside legal counsel quarterly to review and assess MSA LLC's exposure to asserted cumulative
trauma product liability claims not yet resolved. In addition, management works with an outside valuation consultant and
outside legal counsel to review MSA LLC's exposure to IBNR cumulative trauma product liability claims on an annual basis, or
more frequently if changing circumstances or developments in existing cases, or in the litigation environment generally, make
an interim review appropriate. The review process for asserted cumulative trauma product liability claims not yet resolved
takes into account available facts for those claims including the number and composition of such claims, outcomes of matters
resolved during current and prior periods, and variances associated with different groups of claims, plaintiffs' counsel, and
venues, as well as any other relevant information. The review process for IBNR claims involves a number of key judgments
and assumptions, including as to the number and types of claims that may be asserted, the period in which claims may be
asserted and resolved, the percentage of claims that may be dismissed without payment, the average cost to resolve claims on
which a payment is made, the manner in which MSA LLC will defend claims, and the medical and legal environments that will
be applicable to the assertion, evaluation, and resolution of claims in the future.
Additional information respecting MSA LLC’s product liability claims and the accounting for such claims in the
Company’s Consolidated Financial Statements, including estimated liabilities accrued on account of such claims, is contained
in Note 19 to the consolidated financial statements in Part II Item 8 of this Form 10-K.
Insurance receivable. In the normal course of business, MSA LLC makes payments to settle product liability claims and
for related defense costs and records receivables for the estimated amounts that are covered by insurance. Various factors could
affect the timing and amount of recovery of the insurance receivable, including the outcome of negotiations with insurers and
the outcome of the coverage litigation with respect to the Occurrence-Based Policies, and the extent to which the issuing
insurers may become insolvent in the future. At December 31, 2017, the amount of the current reserve for cumulative trauma
product liability claims exceeds the potential insurance coverage for such claims and MSA LLC is now largely self-insured for
costs associated with cumulative trauma product liability claims. Going forward, most of MSA LLC's cumulative trauma
product liability costs will be expensed without the expectation of insurance reimbursement.
Income taxes. We recognize deferred tax assets and liabilities using enacted tax rates to record the tax effect of temporary
differences between the book and tax basis of recorded assets and liabilities. We record valuation allowances to reduce deferred
tax assets to the amounts that we estimate are probable to be realized. When assessing the need for valuation allowances, we
consider projected future taxable income and prudent and feasible tax planning strategies. Should a change in circumstances
lead to a change in our judgments about the realizability of deferred tax assets in future years, we adjust the related valuation
allowances in the period that the change in circumstances occurs. We had valuation allowances of $4.6 million and $5.3 million
at December 31, 2017 and 2016, respectively.
We record an estimated income tax liability based on our best judgment of the amounts likely to be paid in the various tax
jurisdictions in which we operate. We record tax benefits related to uncertain tax positions taken or expected to be taken on a
tax return when such benefits meet a more likely than not threshold. We recognize interest related to unrecognized tax benefits
in interest expense and penalties in operating expenses. The tax liabilities ultimately paid are dependent on a number of factors,
including the resolution of tax audits, and may differ from the amounts recorded. Tax liabilities are adjusted through income
when it becomes probable that the actual liability differs from the amount recorded.
The Tax Cuts and Jobs Act of 2017 (“the Act”), which was signed into law on December 22, 2017 has resulted in
significant changes to the U.S. corporate income tax system. The Company has calculated its best estimate of the impact of the
Act. Changes to applicable tax law, regulations or interpretations of the Act may require further adjustments and changes in our
estimates, which could have a material adverse effect on our effective tax rate. The final determination of the transition tax and
the revaluation of U.S. deferred assets and liabilities will be completed as additional information becomes available, but no later
than one year from the enactment of the Act. Please refer to Note 9 to the consolidated financial statements in Part II Item 8 of
this Form 10-K for additional information on the Act.
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8881_FIN.pdf March 20, 2018 pg 34
Pensions and other post-retirement benefits. We sponsor certain pension and other post-retirement benefit plans.
Accounting for the net periodic benefit costs and credits for these plans requires us to estimate the cost of benefits to be
provided well into the future and to attribute these costs over the expected work life of the employees participating in these
plans. These estimates require our judgment about discount rates used to determine these obligations, expected returns on plan
assets, rates of future compensation increases, rates of increase in future health care costs, participant withdrawal and mortality
rates and participant retirement ages. Differences between our estimates and actual results may significantly affect the cost of
our obligations under these plans and could cause net periodic benefit costs and credits to change materially from year-to-year.
Discount rates and plan asset valuations are point-in-time measures. The discount rate assumptions used in determining
projected benefit obligations for a majority of our U.S. and foreign plans were based on the spot rate method at December 31,
2017. The remaining plans' discount rate assumptions are based on published long-term bond indices or a company-specific
yield curve model.
We recognize, as of a measurement date, any unrecognized actuarial net gains or losses that exceed 10% of the larger of
the projected benefit obligations or the plan assets, defined as the "corridor." Amounts inside the corridor are amortized over
the plan participants' life expectancy. Expected returns on plan assets are based on our historical returns by asset class.
Please refer to Note 14 to the consolidated financial statements in Part II Item 8 of this Form 10-K for additional
information on the spot rate method and further details on the funded status of our pension and post-retirement benefit plans.
The following table summarizes the impact of changes in significant actuarial assumptions on our December 31, 2017
actuarial valuations.
(In thousands)
(Decrease) increase in net benefit cost
(Decrease) increase in projected benefit obligation
Increase (decrease) in funded status
Impact of Changes in Actuarial Assumptions
Change in Discount
Rate
Change in Expected
Return
Change in Market Value
of Assets
1%
(1)%
1%
(1)%
5%
(5)%
$ (6,742) $
(71,404)
71,404
8,282
$ (4,864) $
4,864
$
87,827
(87,827)
—
—
—
—
(969) $
—
24,634
933
—
(24,634)
Stock Compensation. We sponsor both a Management and a Non-Employee Directors' Equity Incentive plan which
provide for grants of stock options, restricted stock and other equity-based vehicles such as restricted stock units and
performance stock units; all of which are recognized as compensation expense based on grant date fair value. Except for
retirement-eligible participants, for whom there is no requisite service period, this expense is recognized ratably over the
requisite service periods following the date of grant. For retirement-eligible participants, all expense is recognized at the grant
date. Stock options are valued using the Black-Scholes option pricing model. Performance stock units that have a market
condition are valued on the grant date using a Monte Carlo simulation valuation model. We believe these valuation models are
appropriate for use based on the nature of the awards and are consistent with models used by our peer companies. Please refer
to Note 10 to the consolidated financial statements in Part II Item 8 of this Form 10-K for further details on the assumptions
used in these valuation models.
Revenue Recognition. Revenue from the sale of products is recognized when title, ownership and the risk of loss have
transferred to the customer, which generally occurs either when product is shipped to the customer or, in the case of most U.S.
distributor customers, when product is delivered to the distributor's delivery site. We establish our shipping terms according to
local practice and market characteristics. We do not ship product unless we have an order or other documentation authorizing
shipment to our customers. We make appropriate provisions for uncollectible accounts receivable and product returns, both of
which have historically been insignificant in relation to our net sales. Certain distributor customers receive price rebates based
on their level of purchases and other performance criteria that are documented in established distributor programs. These
rebates are accrued as a reduction of net sales as they are earned by the customer. On January 1, 2018, we will adopt ASU
2014-09, Revenue with Contracts from Customers. See additional information under Recently Adopted and Recently Issued
Accounting Standards.
Goodwill and Indefinite-lived Intangible Assets. On October 1st of each year, or more frequently if indicators of
impairment exist or if a decision is made to sell a business, we evaluate goodwill for impairment. A significant amount of
judgment is involved in determining if an indicator of impairment has occurred. Such indicators may include a decline in
expected cash flows, a significant adverse change in the business climate, unanticipated competition, slower growth rates, or
negative developments in equity and credit markets, among others.
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8881_FIN.pdf March 20, 2018 pg 35
All goodwill is assigned to and evaluated for impairment at the reporting unit level, which is defined as an operating
segment or one level below an operating segment. For goodwill impairment testing purposes, we consider our operating
segments to be our reporting units. The evaluation of impairment involves using either a qualitative or quantitative approach as
outlined in Accounting Standards Codification (ASC) Topic 350. The qualitative evaluation is an assessment of factors to
determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value, including
goodwill. Factors considered as part of the qualitative assessment include entity-specific industry, market and general economic
conditions. In 2017, we elected to bypass the qualitative evaluation for all of our reporting units except for Globe, which was
acquired on July 31, 2017, and performed a two-step quantitative test at October 1, 2017. Quantitative testing involves
comparing the estimated fair value of each reporting unit to its carrying value. We estimate reporting unit fair value using a
weighted average of fair values determined by discounted cash flow (DCF) and market approach methodologies, as we believe
both are equally important indicators of fair value. A number of significant assumptions and estimates are involved in the
application of the DCF model, including sales volumes and prices, costs to produce, tax rates, capital spending, discount rates,
and working capital changes. Cash flow forecasts are generally based on approved business unit operating plans for the early
years and historical relationships in later years. The betas used in calculating the individual reporting units’ weighted average
cost of capital (WACC) rate are estimated for each reporting unit based on peer data. The market approach methodology
measures value through an analysis of peer companies. The analysis entails measuring the multiples of EBITDA at which peer
companies are trading.
In the event the estimated fair value of a reporting unit per the weighted average of the DCF and market approach models
is less than the carrying value, additional analysis would be required. The additional analysis would compare the carrying
amount of the reporting unit’s goodwill with the implied fair value of that goodwill, which may involve the use of valuation
experts. The implied fair value of goodwill is the excess of the fair value of the reporting unit over the fair value amounts
assigned to all of the assets and liabilities of that unit as if the reporting unit had been acquired in a business combination and
the fair value of the reporting unit represented the purchase price. If the carrying value of goodwill exceeds its implied fair
value, an impairment loss equal to such excess would be recognized, which could materially and adversely affect reported
consolidated results of operations and shareholders’ equity. At October 1, 2017, based on our quantitative test, the fair values of
all of our reporting units exceeded their carrying value by at least 55%.
Intangible assets with indefinite lives are also subject to impairment testing on October 1st of each year, or more
frequently if indicators of impairment exist. The impairment test compares the fair value of the intangible assets with their
carrying amounts. We performed a qualitative assessment of the indefinite lived trade name intangible assets acquired on July
31, 207 and determined that there was no indication of impairment.
Foreign currency. As part of our currency exchange rate risk management strategy, we enter into certain derivative
foreign currency forward contracts that do not meet the U.S. GAAP criteria for hedge accounting, but which have the impact of
partially offsetting certain foreign currency exposures. We account for these forward contracts on a full mark-to-market basis
and report the related gains or losses in currency exchange losses (gains) in the consolidated statement of income. Please refer
to Note 17 to the consolidated financial statements in Part II Item 8 of this Form 10-K for further details on our current
positions.
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8881_FIN.pdf March 20, 2018 pg 36
RECENTLY ADOPTED AND RECENTLY ISSUED ACCOUNTING STANDARDS
In May 2014, the FASB issued ASU 2014-09, Revenue with Contracts from Customers. This ASU establishes a single
revenue recognition model for all contracts with customers based on recognizing revenue to depict the transfer of promised
goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange
for those goods or services, eliminates industry specific requirements, and expands disclosure requirements. This ASU is
required to be adopted beginning January 1, 2018. Our revenue streams include agreements with distributors and agreements
with end users, including governmental entities. The Company evaluated the impact that the adoption of this ASU had on the
consolidated financial statements, including the timing of revenue recognition associated with certain customized products. We
evaluated current contracts, conducted a risk assessment and provided numerous training sessions to educate individuals
throughout the business on the requirements of the new standard. We will adopt ASU 2014-09 using the modified retrospective
method as of January 1, 2018. The majority of our revenue transactions consist of a single performance obligation to transfer
promised goods or services. Based on the evaluation of our current contracts and revenue streams, we determined they will be
recorded consistently under both existing GAAP and the new standard. Therefore, ASU 2014-09 does not have a material effect
on the Company. We have drafted a new accounting policy to incorporate the guidance within the new standard into our
revenue recognition policies effective January 1, 2018 and going forward.
In July 2015, the FASB issued ASU 2015-11, Simplifying the Measurement of Inventory. This ASU was adopted on
January 1, 2017. This ASU applies only to inventory measured using the first-in, first-out (FIFO) or average cost methods and
requires inventory to be measured at the lower of cost and net realizable value (NRV). This ASU replaces market with NRV,
defined as estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal
and transportation. This eliminates the need to determine and consider replacement cost or NRV less an approximately normal
profit margin when measuring inventory. The adoption of this ASU did not have a material effect on our consolidated financial
statements.
In February 2016, the FASB issued ASU 2016-02, Leases. This ASU requires lessees to record a right of use asset and a
liability for virtually all leases. This ASU will be effective beginning January 1, 2019. The Company has developed a transition
plan and continues to evaluate the impact that the adoption of this ASU will have on the consolidated financial statements.
During 2017, we conducted a survey to identify all leases across the organization and are currently working to obtain all lease
contracts to accumulate the necessary information for adoption. We have identified that a majority of our leases fall into one of
three categories: office equipment, real estate and vehicles. We have also identified that most office equipment and vehicle
leases utilize standard master leasing contracts that have similar terms. At a minimum, total assets and total liabilities will
increase in the period the ASU is adopted. At December 31, 2017, the Company's undiscounted future minimum rent
commitments under noncancellable operating leases were approximately $45.9 million. We will adopt the standard using the
modified retrospective approach and are still evaluating whether we will elect the practical expedients allowed in the standard.
In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting. This ASU
simplifies the accounting for many aspects associated with share-based payment accounting including income taxes and the use
of forfeiture rates. This ASU was adopted on January 1, 2017. The provisions of this ASU which impacted us included a
requirement that all excess tax benefits and deficiencies that pertain to share-based payment arrangements be recognized as a
component of income tax expense rather than as a component of shareholders’ equity. The Company expects this to create
volatility in its effective tax rate on a go-forward basis as the impact is treated as a discrete item within our quarterly tax
provision. The extent of excess tax benefits/deficiencies is subject to variation in our stock price and timing/extent of stock-
based compensation share vestings and employee stock option exercises. This ASU also removes the impact of the excess tax
benefits and deficiencies from the calculation of diluted earnings per share and no longer requires a presentation of excess tax
benefits and deficiencies related to the vesting and exercise of share-based compensation as both an operating outflow and
financing inflow on the statement of cash flows. We have applied all of these changes on a prospective basis and therefore,
prior years were not adjusted. Additionally, this ASU allows for an accounting policy election to estimate the number of awards
that are expected to vest or account for forfeitures when they occur. We elected to maintain our current forfeitures policy and
will continue to include an estimate of those forfeitures when recognizing stock-based compensation expense. This ASU also
requires cash payments to tax authorities when an employer uses a net-settlement feature to withhold shares to meet statutory
tax withholding provisions to be presented as a financing activity (eliminating previous diversity in practice). Adoption of this
ASU resulted in an additional discrete tax benefit of approximately $8.3 million during year ended December 31, 2017.
In June 2016, the FASB issued ASU 2016-13, Allowance for Loan and Lease Losses. This ASU introduces an approach
based on expected losses to estimate credit losses on certain types of financial instruments including loans, held-to-maturity
debt securities, loan commitments, financial guarantees and net investments in leases as well as reinsurance and trade
receivables. This ASU will be effective beginning in 2020. The Company is currently evaluating the impact that the adoption
of this ASU will have on the consolidated financial statements and expects that adoption will result in increased disclosure.
37
8881_FIN.pdf March 20, 2018 pg 37
In August 2016, the FASB issued ASU 2016-15, Classification of Certain Cash Payments and Cash Receipts. This ASU
clarifies how certain cash receipts and cash payments are presented and classified in the statement of cash flows. This ASU will
be effective beginning in 2018. The Company does not believe that this guidance will have a significant impact on its
presentation of the consolidated statement of cash flows.
In October 2016, the FASB issued ASU 2016-16, Intra-entity Transfers of Assets Other than Inventory. This ASU states
that an entity should recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the
transfer occurs. This ASU was early adopted on January 1, 2017 using the modified retrospective approach which resulted in a
$6.2 million cumulative-effective adjustment directly to retained earnings for any previously deferred income tax effects during
the year ended December 31, 2017.
In November 2016, the FASB issued ASU 2016-18, Restricted Cash. This ASU requires that amounts generally described
as restricted cash and restricted cash equivalents are included with cash and cash equivalents when reconciling the beginning-
of-period and end-of-period total amounts shown on the statement of cash flows. This ASU is effective beginning in 2018 to be
adopted on a retrospective basis and early adoption is permitted. The adoption of ASU 2016-18 is expected to have a financial
statement presentation impact within the consolidated statement of cash flows as amounts generally described as restricted cash
and restricted cash equivalents will be included with cash and cash equivalents when reconciling the beginning-of-period and
end-of-period total amounts shown on the statement of cash flows and transfers of these amounts between balance sheet line
items will not be presented as an operating, investing or financing cash flow. If we would have adopted ASU 2016-18 during
the years ended December 31, 2017, 2016 and 2015, financing cash flows would have been increased by $2.5 million, reduced
by $1.5 million and reduced by $0.3 million, respectively. The Company also expects the adoption of ASU 2016-18 to result in
additional disclosures.
In January 2017, the FASB issued ASU 2017-01, Business Combinations - Clarifying the Definition of a Business. This
ASU provides further guidance for identifying whether a set of assets and activities is a business by providing a screen
outlining that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single
identifiable asset or a group of similar identifiable assets, the set is not a business. This ASU is effective beginning in 2018 and
will be applied prospectively. The adoption of this ASU may have a material effect on our consolidated financial statements in
the event that we have an acquisition or disposal that no longer meets the definition of a business.
In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment. This ASU simplifies the
accounting for goodwill impairments under Step 2 by eliminating the requirement to perform procedures to determine the fair
value of the assets and liabilities of the reporting unit, including previously unrecognized assets and liabilities, in order to
determine the fair value of the goodwill and any impairment charge to be recognized. Under this ASU, the impairment charge
to be recognized should be the amount by which the reporting unit's carrying value exceeds the reporting unit's fair value as
calculated under Step 1 provided that the loss recognized should not exceed the total amount of goodwill allocated to the
reporting unit. This ASU is effective beginning in 2019 for public entities and early adoption is permitted for interim or annual
goodwill impairment tests performed after January 1, 2017. The adoption of this ASU may have a material effect on our
consolidated financial statements in the event that we determine that goodwill for any of our reporting units is impaired.
In March 2017, the FASB issued ASU 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net
Periodic Post-retirement Benefit Cost, to improve the presentation of net periodic pension and net periodic post-retirement
benefit cost. This ASU requires companies to present the service cost component of net periodic benefit cost in the same
income statement line item as other compensation costs arising from services rendered during the period. Only the service cost
component will be eligible for capitalization in assets. Additionally, this ASU requires that companies present the other
components of the net periodic benefit cost separately from the line item that includes the service cost and outside of any
subtotal of income from operations, if one is presented. This ASU is effective for annual periods beginning after December 15,
2017 and early adoption is permitted. The amendments in this ASU are to be applied retrospectively for presentation in the
income statement and prospectively for the capitalization of the service cost component of net periodic pension cost and net
periodic post-retirement benefit in assets. A practical expedient allows the Company to use the amount disclosed in its pension
and other post-retirement benefit plan note for the prior comparative periods as the estimation basis for applying the
retrospective presentation requirements. The Company will adopt ASU 2017-07 on January 1, 2018 and will use the
retrospective method for presentation of the service cost component and the other components of net periodic pension cost and
net periodic postretirement benefit cost in the income statement for our first quarter 2018 Form 10-Q. If the Company would
have applied the provisions of this ASU for the years ended December 31, 2017, 2016 and 2015, operating income would have
decreased by $3.4 million, decreased by $3.5 million and increased by $0.4 million, respectively. The Company does not
capitalize costs in assets so there is no impact from that provision of ASU 2017-07.
38
8881_FIN.pdf March 20, 2018 pg 38
In May 2017, the FASB issued ASU 2017-09, Stock Compensation - Scope of Modification Accounting, which amends the
scope of modification accounting for share-based payment arrangements. This ASU provides guidance on the types of changes
to the terms or conditions of share-based payment awards to which an entity would be required to apply modification
accounting. Specifically, an entity would not apply modification accounting if the fair value, vesting conditions, and
classification of the awards are the same immediately before and after the modification. The Company will adopt ASU 2017-09
on January 1, 2018 and the adoption of this ASU is not expected have a material effect on our consolidated financial statements.
In February 2018, the FASB issued ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other
Comprehensive Income, which allows reclassification from accumulated other comprehensive income to retained earnings for
stranded tax effects resulting from the new tax reform legislation commonly known as the Tax Cuts and Jobs Act. This ASU is
effective for fiscal years beginning after December 15, 2018, including interim periods therein, and early adoption is permitted.
The Company has not elected to early adopt this ASU and is currently evaluating the impact that the adoption of this ASU will
have on the consolidated financial statements.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Market risk represents the risk of adverse changes in the value of a financial instrument caused by changes in currency
exchange rates, interest rates and equity prices. We are exposed to market risks related to currency exchange rates and interest
rates.
Currency exchange rates. We are subject to the effects of fluctuations in currency exchange rates on various transactions
and on the translation of the reported financial position and operating results of our non-U.S. companies from local currencies
to U.S. dollars. A hypothetical 10% strengthening or weakening of the U.S. dollar would increase or decrease our reported sales
and net income for the year ended December 31, 2017 by approximately $52.7 million and $7.3 million, or 4.4% and 27.2%,
respectively.
When appropriate, we may attempt to limit our transactional exposure to changes in currency exchange rates through
forward contracts or other actions intended to reduce existing exposures by creating offsetting currency exposures. At
December 31, 2017, we had open foreign currency forward contracts with a U.S. dollar notional value of $124.7 million. A
hypothetical 10% increase in December 31, 2017 forward exchange rates would result in a $12.5 million increase in the fair
value of these contracts.
Interest rates. We are exposed to changes in interest rates primarily as a result of borrowing and investing activities used
to maintain liquidity and fund business operations. Because of the relatively short maturities of temporary investments and the
variable rate nature of our revolving credit facility, these financial instruments are reported at carrying values which
approximate fair values.
At December 31, 2017, we had $180.9 million of fixed rate debt which matures at various dates through 2031. The
incremental increase in the fair value of fixed rate long-term debt resulting from a hypothetical 10% decrease in interest rates
would be approximately $13.8 million. However, our sensitivity to interest rate declines and the corresponding increase in the
fair value of our debt portfolio would unfavorably affect earnings and cash flows only to the extent that we elected to
repurchase or retire all or a portion of our fixed rate debt portfolio at prices above carrying values.
At December 31, 2017, we had $294.9 million of variable rate borrowings under our revolving credit facility. A 100 basis
point increase or decrease in interest rates could have an impact on future earnings under our current capital structure.
39
8881_FIN.pdf March 20, 2018 pg 39
Item 8. Financial Statements and Supplementary Data
Management’s Reports to Shareholders
Management’s Report on Responsibility for Financial Reporting
Management of MSA Safety Incorporated (the Company) is responsible for the preparation of the consolidated financial
statements included in this annual report. The consolidated financial statements were prepared in accordance with accounting
principles generally accepted in the United States of America and include amounts that are based on the best estimates and
judgments of management. The other financial information contained in this annual report is consistent with the consolidated
financial statements.
Management’s Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting. The
Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles.
The Company’s internal control over financial reporting includes policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets; (2) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with
authorizations of management and the directors of the Company; and (3) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on our
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31,
2017. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) in Internal Control-Integrated Framework (2013). Based on our assessment and those criteria,
management has concluded that the Company maintained effective internal control over financial reporting as of December 31,
2017.
Management has excluded Globe Holding Company, LLC (Globe) from its assessment of internal controls over financial
reporting as of December 31, 2017 because the Company acquired Globe effective July 31, 2017 (Acquisition Date), whose
total assets represents 14%, and net income represents 14%, and whose customer revenues represents 4% of the related
consolidated financial statement amounts as of December 31, 2017 and from the period from the Acquisition Date through
December 31, 2017.
The Company's independent registered public accounting firm that audited the consolidated financial statements included
in this annual report issued an attestation report on the Company's internal control over financial reporting.
/s/ WILLIAM M. LAMBERT
William M. Lambert
Chief Executive Officer
/s/ KENNETH D. KRAUSE
Kenneth D. Krause
Vice President of Finance and Chief Financial Officer
40
February 22, 2018
8881_FIN.pdf March 20, 2018 pg 40
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of MSA Safety Incorporated
Opinion on Internal Control over Financial Reporting
We have audited MSA Safety Incorporated’s internal control over financial reporting as of December 31, 2017, based on criteria
established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (2013 framework) (the COSO criteria). In our opinion, MSA Safety Incorporated (the Company) maintained, in all
material respects, effective internal control over financial reporting as of December 31, 2017, based on the COSO criteria.
As indicated in the accompanying Management’s Report on Internal Control Over Financial Reporting, management’s assessment
of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of Globe
Holding Company, LLC, which is included in the 2017 consolidated financial statements of the Company and constituted 14%
and 37% of total and net assets, respectively, as of December 31, 2017 and 4% and 14% of revenues and net income, respectively,
for the year then ended. Our audit of internal control over financial reporting of the Company also did not include an evaluation
of the internal control over financial reporting of Globe Holding Company, LLC.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated balance sheets of the Company as of December 31, 2017 and 2016, the related consolidated statements
of income, comprehensive income, cash flows, and changes in retained earnings and accumulated other comprehensive loss for
each of the three years in the period ended December 31, 2017, and the related notes and the financial statement schedule listed
in the index at Item 15(a) and our report dated February 22, 2018 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment
of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal
Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial
reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with
respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities
and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material
respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness
exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing
such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for
our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets
of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that
could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Pittsburgh, Pennsylvania
February 22, 2018
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8881_FIN.pdf March 20, 2018 pg 41
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of MSA Safety Incorporated
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of MSA Safety Incorporated (the Company) as of December 31,
2017 and 2016, the related consolidated statements of income, comprehensive income, cash flows, and changes in retained earnings
and accumulated other comprehensive loss for each of the three years in the period ended December 31, 2017, and the related
notes and financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial
statements“). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of
the Company at December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the three years in the
period ended December 31, 2017, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company’s internal control over financial reporting as of December 31, 2017, based on criteria established in
Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(2013 framework), and our report dated February 22, 2018 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company‘s management. Our responsibility is to express an opinion on
the Company‘s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error
or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether
due to error or fraud, and performing procedures that respond to those risks. Such procedures include examining, on a test basis,
evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2014
Pittsburgh, Pennsylvania
February 22, 2018
42
8881_FIN.pdf March 20, 2018 pg 42
MSA SAFETY INCORPORATED
CONSOLIDATED STATEMENT OF INCOME
(In thousands, except per share amounts)
Net sales
Cost of products sold
Gross profit
Selling, general and administrative
Research and development
Restructuring charges (Note 2)
Currency exchange losses, net
Other operating expense (Note 19)
Operating income
Interest expense
Other (income) loss, net (Note 15)
Total other expense, net
Income from continuing operations before income taxes
Provision for income taxes (Note 9)
Income from continuing operations
(Loss) income from discontinued operations (Note 20)
Net income
Net (income) loss attributable to noncontrolling interests
Net income attributable to MSA Safety Incorporated
Year ended December 31,
2017
2016
2015
$ 1,196,809
$ 1,149,530
$ 1,130,783
656,411
540,398
297,801
50,061
17,632
5,127
126,432
43,345
15,360
(1,790)
13,570
29,775
2,819
26,956
—
26,956
625,887
523,643
306,144
46,847
5,694
766
—
629,680
501,103
315,270
48,630
12,258
2,204
—
164,192
122,741
16,411
(4,130)
12,281
151,911
57,804
94,107
(245)
93,862
10,854
861
11,715
111,026
44,407
66,619
1,325
67,944
$
$
(929) $
(1,926) $
2,863
26,027
$
91,936
$
70,807
Amounts attributable to MSA Safety Incorporated common shareholders:
Income from continuing operations
(Loss) income from discontinued operations (Note 20)
Net income
26,027
—
$
26,027
$
92,691
(755)
91,936
$
69,590
1,217
70,807
Earnings per share attributable to MSA Safety Incorporated common
shareholders:
Basic
Income from continuing operations
(Loss) income from discontinued operations (Note 20)
Net income
Diluted
Income from continuing operations
(Loss) income from discontinued operations (Note 20)
Net income
Dividends per common share
$
$
$
$
$
$
$
0.68
$
— $
0.68
0.67
$
$
— $
0.67
1.38
$
$
2.47
$
(0.02) $
$
2.45
2.44
$
(0.02) $
$
2.42
1.31
$
1.86
0.03
1.89
1.84
0.03
1.87
1.27
The accompanying notes are an integral part of the consolidated financial statements.
43
8881_FIN.pdf March 20, 2018 pg 43
MSA SAFETY INCORPORATED
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(In thousands)
Net income
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments (Note 5)
Pension and post-retirement plan actuarial gains, net of tax (Note 5)
Reclassification from accumulated other comprehensive (loss) into net income (Note 5)
Total other comprehensive income (loss), net of tax
Comprehensive income
Comprehensive (income) loss attributable to noncontrolling interests
Comprehensive income attributable to MSA Safety Incorporated
Year ended December 31,
2017
2016
2015
$ 26,956
$ 93,862
$ 67,944
41,129
20,120
—
61,249
88,205
(3,694)
$ 84,511
(24,986)
1,321
3,270
(20,395)
73,467
(3,578)
$ 69,889
(49,067)
6,181
—
(42,886)
25,058
4,280
$ 29,338
The accompanying notes are an integral part of the consolidated financial statements.
44
8881_FIN.pdf March 20, 2018 pg 44
MSA SAFETY INCORPORATED
CONSOLIDATED BALANCE SHEET
(In thousands, except share amounts)
Assets
Cash and cash equivalents
Trade receivables, less allowance for doubtful accounts of $5,540 and $5,610
Inventories (Note 3)
Prepaid income taxes
Notes receivable, insurance companies (Note 19)
Prepaid expenses and other current assets
Total current assets
Property, plant, and equipment, net (Note 4)
Prepaid pension cost (Note 14)
Deferred tax assets (Note 9)
Goodwill (Note 12)
Intangible assets, net (Note 12)
Notes receivable, insurance companies, noncurrent (Note 19)
Insurance receivable (Note 19) and other noncurrent assets
Total assets
Liabilities
Notes payable and current portion of long-term debt (Note 11)
Accounts payable
Employees’ compensation
Insurance and product liability (Note 19)
Income taxes payable (Note 9)
Warranty reserve (Note 19) and other current liabilities
Total current liabilities
Long-term debt, net (Note 11)
Pensions and other employee benefits (Note 14)
Deferred tax liabilities (Note 9)
Product liability (Note 19) and other noncurrent liabilities
Total liabilities
Commitments and contingencies (Note 19)
Shareholders' Equity
Preferred stock, 4 1/2% cumulative, $50 par value (Note 6)
Common stock, no par value (180,000,000 shares authorized; 62,081,391 shares issued;
38,222,928 and 37,736,578 shares outstanding at December 31, 2017 and 2016, respectively)
Treasury shares, at cost (Note 6)
Accumulated other comprehensive loss
Retained earnings
Total MSA Safety Incorporated shareholders’ equity
Noncontrolling interests
Total shareholders’ equity
Total liabilities and shareholders’ equity
December 31,
2017
2016
$
$
134,244
244,198
153,739
31,448
17,333
41,335
622,297
113,759
209,514
103,066
16,378
4,180
25,909
472,806
157,014
83,060
25,825
422,185
183,088
59,567
131,790
$ 1,684,826
148,678
62,916
23,240
333,276
77,015
63,147
172,842
$ 1,353,920
$
26,680
87,061
39,377
59,116
—
77,045
289,279
447,832
170,773
9,341
165,023
$ 1,082,248
$
$
26,666
62,734
39,880
19,438
3,889
68,803
221,410
363,836
157,927
34,044
15,491
792,708
3,569
3,569
194,953
(297,834)
(171,762)
868,675
597,601
4,977
602,578
$ 1,684,826
172,681
(289,254)
(230,246)
901,415
558,165
3,047
561,212
$ 1,353,920
The accompanying notes are an integral part of the consolidated financial statements.
45
8881_FIN.pdf March 20, 2018 pg 45
MSA SAFETY INCORPORATED
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
Operating Activities
Net income
Depreciation and amortization
Restructuring charges (Note 2)
Stock-based compensation (Note 10)
Pension expense (Note 14)
Deferred income tax (benefit) provision (Note 9)
Loss (gain) on asset dispositions, net
Pension contributions (Note 14)
Currency exchange losses, net
Other operating expense (Note 19)
Asset Impairment Charges (Note 15)
Changes in:
Trade receivables
Inventories (Note 3)
Income taxes receivable, prepaid expenses and other current assets
Accounts payable and accrued liabilities
Other noncurrent assets and liabilities
Cash Flow From Operating Activities
Investing Activities
Capital expenditures
Acquisition, net of cash acquired (Note 13)
Property disposals and other investing
Cash Flow (Used In) Investing Activities
Financing Activities
Proceeds from short-term debt, net (Note 11)
Payments on long-term debt (Note 11)
Proceeds from long-term debt (Note 11)
Restricted cash
Cash dividends paid
Company stock purchases (Note 6)
Exercise of stock options (Note 6)
Employee stock purchase plan (Note 6)
Other, net
Cash Flow From (Used In) Financing Activities
Effect of exchange rate changes on cash and cash equivalents
Increase (decrease) in cash and cash equivalents
Beginning cash and cash equivalents
Ending cash and cash equivalents
Supplemental cash flow information:
Interest payments
Income tax payments
Year ended December 31,
2017
2016
2015
26,956
37,877
11,384
11,758
7,142
(31,320)
557
(4,094)
5,127
126,432
—
(6,384)
(30,363)
13,840
(19,424)
80,848
230,336
(23,725)
(216,308)
832
(239,201)
13
(559,767)
637,000
(2,538)
(52,537)
(17,513)
18,465
532
(590)
23,065
6,285
20,485
113,759
134,244
15,504
40,376
$
$
$
$
93,862
35,273
—
9,211
6,332
14,393
(1,453)
(3,878)
785
—
—
13,239
14,394
(12,853)
(46,957)
12,546
134,894
(25,523)
(18,449)
18,214
(25,758)
—
(443,572)
382,664
1,505
(49,074)
(1,881)
12,476
571
(530)
(97,841)
(3,461)
7,834
105,925
113,759
15,861
57,551
$
$
67,944
31,684
—
7,599
11,955
(1,699)
(1,745)
(4,058)
2,471
—
4,946
(21,959)
(9,403)
(7,584)
19,690
(44,587)
55,254
(36,241)
(180,271)
8,022
(208,490)
5
(291,525)
510,456
264
(47,380)
(9,885)
1,930
488
596
164,949
(11,786)
(73)
105,998
105,925
10,818
50,001
$
$
$
The accompanying notes are an integral part of the consolidated financial statements.
46
8881_FIN.pdf March 20, 2018 pg 46
MSA SAFETY INCORPORATED
CONSOLIDATED STATEMENT OF CHANGES IN RETAINED EARNINGS AND
ACCUMULATED OTHER COMPREHENSIVE LOSS
Retained
Earnings
$
835,126
$
Accumulated
Other
Comprehensive
(Loss)
(166,730)
—
(49,067)
6,181
1,417
—
—
(208,199)
—
(24,986)
1,321
3,270
(1,652)
—
—
(230,246)
—
41,129
20,120
(2,765)
—
—
—
(171,762)
$
67,944
—
—
2,863
(47,338)
(42)
858,553
93,862
—
—
—
(1,926)
(49,032)
(42)
901,415
26,956
—
—
(929)
(52,495)
(42)
(6,230)
868,675
(In thousands)
Balances January 1, 2015
Net income
Foreign currency translation adjustments
Pension and post-retirement plan adjustments, net of tax of $1,160
Loss attributable to noncontrolling interests
Common dividends
Preferred dividends
Balances December 31, 2015
Net income
Foreign currency translation adjustments
Pension and post-retirement plan adjustments, net of tax of $1,146
Reclassification from accumulated other comprehensive (loss) into net income
Income attributable to noncontrolling interests
Common dividends
Preferred dividends
Balances December 31, 2016
Net income
Foreign currency translation adjustments
Pension and post-retirement plan adjustments, net of tax of $10,417
Income attributable to noncontrolling interests
Common dividends
Preferred dividends
Cumulative effect of the adoption of ASU 2016-16 (Note 1)
Balances December 31, 2017
$
The accompanying notes are an integral part of the consolidated financial statements.
47
8881_FIN_C1.pdf 47
MSA SAFETY INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1—Significant Accounting Policies
Basis of Presentation—The Consolidated Financial Statements of MSA Safety Incorporated ("MSA" or "the Company")
are prepared in conformity with accounting principles generally accepted in the United States of America (GAAP) and require
management to make certain judgments, estimates, and assumptions. These may affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements. They also
may affect the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates
upon subsequent resolution of identified matters.
Principles of Consolidation—The consolidated financial statements include the accounts of the Company and all
subsidiaries. Intercompany accounts and transactions are eliminated.
Noncontrolling Interests—Noncontrolling interests reflect noncontrolling shareholders’ investments in certain
consolidated subsidiaries and their proportionate share of the income and accumulated other comprehensive income (loss) of
those subsidiaries.
Currency Translation—The functional currency of all significant non-U.S. subsidiaries is the local currency. Assets and
liabilities of these operations are translated at year-end exchange rates. Income statement accounts are translated using the
average exchange rates for the reporting period. Translation adjustments for these companies are reported as a component of
shareholders’ equity and are not included in income. Foreign currency transaction gains and losses are included in net income
for the reporting period.
Cash Equivalents—Cash equivalents include temporary deposits with financial institutions and highly liquid investments
with original maturities of 90 days or less.
Restricted Cash—Restricted cash, which is designated for use other than current operations, is included in prepaid
expenses and other current assets in the Consolidated Balance Sheet. Restricted cash balances were $3.6 million and $1.2
million at December 31, 2017 and 2016, respectively. These balances were used to support letter of credit balances.
Inventories—Inventories are stated at the lower of cost or market. The majority of U.S. inventories are valued on the last-
in, first-out (LIFO) cost method which is used since this method provides better matching of costs and revenues. Other
inventories are valued at actual costs, at standard costs which approximate actual costs or in very rare occasions, on the average
cost method. It is the Company's general policy to write-down any inventory identified as obsolete. Additionally, it will write-
down any inventory balance in excess of the last twenty-four months of consumption.
Property and Depreciation—Property is recorded at cost. Depreciation is computed using straight-line and accelerated
methods over the estimated useful lives of the assets, generally as follows: buildings 20 to 40 years and machinery and
equipment 3 to 10 years. Expenditures for significant renewals and improvements are capitalized. Ordinary repairs and
maintenance are expensed as incurred. Gains or losses on property dispositions are included in other income and the cost and
related depreciation are removed from the accounts. Depreciation expense for the years ended December 31, 2017, 2016 and
2015 was $28.0 million, $27.0 million and $26.9 million, respectively. Properties, plants, and equipment are reviewed for
impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be
recoverable. Recoverability of assets is determined by comparing the estimated undiscounted net cash flows of the operations
related to the assets to their carrying amount. An impairment loss would be recognized when the carrying amount of the assets
exceeds the estimated undiscounted net cash flows. The amount of the impairment loss to be recorded is calculated as the
excess of the carrying value of the assets over their fair value, with fair value determined using the best information available,
which generally is a discounted cash flow model.
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8881_FIN.pdf March 20, 2018 pg 48
Goodwill and Other Intangible Assets—Intangible assets with a finite useful life are amortized on a straight-line basis
over their useful lives. Indefinite lived intangible assets are assessed for possible impairment annually on October 1st or
whenever circumstances change such that the recorded value of the asset may not be recoverable. We performed a qualitative
assessment of the indefinite lived trade name intangible assets recently acquired and determined that there was no indication of
impairment for 2017.
Goodwill is not amortized, but is subject to impairment assessments. On October 1st of each year, or more frequently if
indicators of impairment exist or if a decision is made to sell a business, we evaluate goodwill and indefinite lived intangible
assets for impairment. A significant amount of judgment is involved in determining if an indicator of impairment has occurred.
Such indicators may include a decline in expected cash flows, a significant adverse change in the business climate,
unanticipated competition, slower growth rates, or negative developments in equity and credit markets, among others.
All goodwill is assigned to and evaluated for impairment at the reporting unit level, which is defined as an operating
segment or one level below an operating segment. For goodwill impairment testing purposes, we consider our operating
segments to be our reporting units. The evaluation of impairment involves using either a qualitative or quantitative approach as
outlined in Accounting Standards Codification (ASC) Topic 350. The qualitative evaluation is an assessment of factors to
determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value, including
goodwill. Factors considered as part of the qualitative assessment include entity-specific industry, market and general economic
conditions. In 2017, we elected to bypass the qualitative evaluation for all of our reporting units except for Globe, which was
acquired on July 31, 2017, and performed a two-step quantitative test at October 1, 2017. Step 1 of the quantitative testing
involves comparing the estimated fair value of each reporting unit to its carrying value. We estimate reporting unit fair value
using a weighted average of fair values determined by discounted cash flow (DCF) and market approach methodologies, as we
believe both are equally important indicators of fair value. A number of significant assumptions and estimates are involved in
the application of the DCF model, including sales volumes and prices, costs to produce, tax rates, capital spending, discount
rates, and working capital changes. Cash flow forecasts are generally based on approved reporting unit operating plans for the
early years and historical relationships in later years. The betas used in calculating the individual reporting units’ weighted
average cost of capital (WACC) rate are estimated for each reporting unit based on peer data. The market approach
methodology measures value through an analysis of peer companies. The analysis entails measuring the multiples of EBITDA
at which peer companies are trading.
In the event the estimated fair value of a reporting unit per the weighted average of the DCF and market approach models
is less than the carrying value, Step 2 of the analysis would be required. The additional analysis would compare the carrying
amount of the reporting unit’s goodwill with the implied fair value of that goodwill, which may involve the use of valuation
specialist. The implied fair value of goodwill is the excess of the fair value of the reporting unit over the fair value amounts
assigned to all of the assets and liabilities of that unit as if the reporting unit had been acquired in a business combination and
the fair value of the reporting unit represented the purchase price. If the carrying value of goodwill exceeds its implied fair
value, an impairment loss equal to such excess would be recognized, which could materially and adversely affect reported
consolidated results of operations and shareholders’ equity. There has been no impairment of our goodwill as of December 31,
2017, 2016 or 2015.
Revenue Recognition—Revenue from the sale of products is recognized when title, ownership and the risk of loss have
transferred to the customer, which generally occurs either when product is shipped to the customer or, in the case of most U.S.
distributor customers, when product is delivered to the distributor's delivery site. We establish our shipping terms according to
local practice and market characteristics. We do not ship product unless we have an order or other documentation authorizing
shipment to our customers. We make appropriate provisions for uncollectible accounts receivable and product returns, both of
which have historically been insignificant in relation to our net sales. Certain distributor customers receive price rebates based
on their level of purchases and other performance criteria that are documented in established distributor programs. These
rebates are accrued as a reduction of net sales as they are earned by the customer. On January 1, 2018, we will adopt ASU
2014-09, Revenue with Contracts from Customers. See additional information under Recently Adopted and Recently Issued
Accounting Standards.
Shipping and Handling—Shipping and handling expenses for products sold to customers are charged to cost of products
sold as incurred. Amounts billed to customers for shipping and handling are included in net sales.
Product Warranties—Estimated expenses related to product warranties and additional service actions are charged to cost
of products sold in the period in which the related revenue is recognized or when significant product quality issues are
identified.
Research and Development—Research and development costs are expensed as incurred.
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8881_FIN.pdf March 20, 2018 pg 49
Income Taxes—Deferred income taxes are recognized for temporary differences between financial and tax reporting.
Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary
differences are expected to be recovered or settled. If it is more likely than not that some portion or all of a deferred tax asset
will not be realized, a valuation allowance is recognized. We record tax benefits related to uncertain tax positions taken or
expected to be taken on a tax return when such benefits meet a more likely than not threshold. We recognize interest related to
unrecognized tax benefits in interest expense and penalties in operating expenses.
Stock-Based Compensation—We recognize compensation expense for employee and non-employee director stock-based
compensation based on the grant date fair value. Except for retirement-eligible participants, for whom there is no requisite
service period, this expense is recognized ratably over the requisite service periods following the date of grant. For retirement-
eligible participants, this expense is recognized at the grant date.
Derivative Instruments—We may use derivative instruments to minimize the effects of changes in currency exchange
rates. We do not enter into derivative transactions for speculative purposes and do not hold derivative instruments for trading
purposes. Changes in the fair value of derivative instruments designated as fair value hedges are recorded in the balance sheet
as adjustments to the underlying hedged asset or liability. Changes in the fair value of derivative instruments that do not qualify
for hedge accounting treatment are recognized in the consolidated statements of income as currency exchange (income) loss in
the current period.
Commitments and Contingencies—For asserted claims and assessments, liabilities are recorded when an unfavorable
outcome of a matter is deemed to be probable and the loss is reasonably estimable. Management determines the likelihood of an
unfavorable outcome based on many factors such as the nature of the matter, available defenses and case strategy, progress of
the matter, views and opinions of legal counsel and other advisors, applicability and success of appeals processes, and the
outcome of similar historical matters, among others. Once an unfavorable outcome is deemed probable, management weighs
the probability of estimated losses, and the most reasonable loss estimate is recorded. If an unfavorable outcome of a matter is
deemed to be reasonably possible, then the matter is disclosed and no liability is recorded. With respect to unasserted claims or
assessments, management must first determine that the probability that an assertion will be made is likely, then, a determination
as to the likelihood of an unfavorable outcome and the ability to reasonably estimate the potential loss is made. Legal matters
are reviewed on a continuous basis to determine if there has been a change in management’s judgment regarding the likelihood
of an unfavorable outcome or the estimate of a potential loss. Please refer to Note 19 of the consolidated financial statements in
Part II Item 8 of this Form 10-K for further details on product liability related matters.
Discontinued Operations and Assets Held For Sale—For those businesses where management has committed to a plan
to divest, each business is valued at the lower of its carrying amount or estimated fair value less cost to sell. If the carrying
amount of the business exceeds its estimated fair value, an impairment loss is recognized. Fair value is estimated using accepted
valuation techniques such as a discounted cash flow model, valuations performed by third parties, earnings multiples, or
indicative bids, when available. A number of significant estimates and assumptions are involved in the application of these
techniques, including the forecasting of markets and market share, sales volumes and prices, costs and expenses, and multiple
other factors. Management considers historical experience and all available information at the time the estimates are made;
however, the fair value that is ultimately realized upon the divestiture of a business may differ from the estimated fair value
reflected in the Consolidated Financial Statements. Depreciation and amortization expense is not recorded on assets of a
business to be divested once they are classified as held for sale.
For businesses classified as discontinued operations, the results of operations are reclassified from their historical
presentation to discontinued operations on the Consolidated Statement of Income, for all periods presented. The gains or losses
associated with these divested businesses are recorded in discontinued operations on the Consolidated Statement of Income.
Additionally, segment information does not include the operating results of businesses classified as discontinued operations for
all periods presented. Management does not expect any continuing involvement with these businesses following their
divestiture, and these businesses are expected to be disposed of within one year.
Concentration of credit and business risks - We are exposed to credit risk in the event of nonpayment by customers,
principally in the oil, gas and petrochemical, fire service, construction, utilities, and mining industries. Changes in these
industries may significantly affect our financial performance and management's estimates. We mitigate our exposure to credit
risk by performing ongoing credit evaluations and, when deemed necessary, requiring letters of credit, credit insurance,
prepayments, guarantees or other collateral. No individual customer represented more than 10% of our sales.
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8881_FIN.pdf March 20, 2018 pg 50
Reclassifications - Certain reclassifications of prior years' data have been made to conform to the current year
presentation. These reclassifications relate to how amounts are classified within the operating section of the Consolidated
Statement of Cash Flows but do not change the overall cash flow from operating activities for the prior years as previously
reported. Additionally, we reclassified amounts within the financing section of the Consolidated Statement of Cash Flows but
did not change the overall cash flow from financing activities for the prior years as previously reported.
Recently Adopted and Recently Issued Accounting Standards—In May 2014, the FASB issued ASU 2014-09, Revenue
with Contracts from Customers. This ASU establishes a single revenue recognition model for all contracts with customers based
on recognizing revenue to depict the transfer of promised goods or services to customers in an amount that reflects the
consideration to which the entity expects to be entitled in exchange for those goods or services, eliminates industry specific
requirements, and expands disclosure requirements. This ASU is required to be adopted beginning January 1, 2018. Our
revenue streams include agreements with distributors and agreements with end users, including governmental entities. The
Company evaluated the impact that the adoption of this ASU had on the consolidated financial statements, including the timing
of revenue recognition associated with certain customized products. We evaluated current contracts, conducted a risk
assessment and provided numerous training sessions to educate individuals throughout the business on the requirements of the
new standard. We will adopt ASU 2014-09 using the modified retrospective method as of January 1, 2018. The majority of our
revenue transactions consist of a single performance obligation to transfer promised goods or services. Based on the evaluation
of our current contracts and revenue streams, we determined they will be recorded consistently under both existing GAAP and
the new standard. Therefore, ASU 2014-09 does not have a material effect on the Company. We have drafted a new accounting
policy to incorporate the guidance within the new standard into our revenue recognition policies effective January 1, 2018 and
going forward.
In July 2015, the FASB issued ASU 2015-11, Simplifying the Measurement of Inventory. This ASU was adopted on
January 1, 2017. This ASU applies only to inventory measured using the first-in, first-out (FIFO) or average cost methods and
requires inventory to be measured at the lower of cost and net realizable value (NRV). This ASU replaces market with NRV,
defined as estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal
and transportation. This eliminates the need to determine and consider replacement cost or NRV less an approximately normal
profit margin when measuring inventory. The adoption of this ASU did not have a material effect on our consolidated financial
statements.
In February 2016, the FASB issued ASU 2016-02, Leases. This ASU requires lessees to record a right of use asset and a
liability for virtually all leases. This ASU will be effective beginning January 1, 2019. The Company has developed a transition
plan and continues to evaluate the impact that the adoption of this ASU will have on the consolidated financial statements.
During 2017, we conducted a survey to identify all leases across the organization and are currently working to obtain all lease
contracts to accumulate the necessary information for adoption. We have identified that a majority of our leases fall into one of
three categories: office equipment, real estate and vehicles. We have also identified that most office equipment and vehicle
leases utilize standard master leasing contracts that have similar terms. At a minimum, total assets and total liabilities will
increase in the period the ASU is adopted. At December 31, 2017, the Company's undiscounted future minimum rent
commitments under noncancellable operating leases were approximately $45.9 million. We will adopt the standard using the
modified retrospective approach and are still evaluating whether we will elect the practical expedients allowed in the standard.
In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting. This ASU
simplifies the accounting for many aspects associated with share-based payment accounting including income taxes and the use
of forfeiture rates. This ASU was adopted on January 1, 2017. The provisions of this ASU which impacted us included a
requirement that all excess tax benefits and deficiencies that pertain to share-based payment arrangements be recognized as a
component of income tax expense rather than as a component of shareholders’ equity. The Company expects this to create
volatility in its effective tax rate on a go-forward basis as the impact is treated as a discrete item within our quarterly tax
provision. The extent of excess tax benefits/deficiencies is subject to variation in our stock price and timing/extent of stock-
based compensation share vestings and employee stock option exercises. This ASU also removes the impact of the excess tax
benefits and deficiencies from the calculation of diluted earnings per share and no longer requires a presentation of excess tax
benefits and deficiencies related to the vesting and exercise of share-based compensation as both an operating outflow and
financing inflow on the statement of cash flows. We have applied all of these changes on a prospective basis and therefore,
prior years were not adjusted. Additionally, this ASU allows for an accounting policy election to estimate the number of awards
that are expected to vest or account for forfeitures when they occur. We elected to maintain our current forfeitures policy and
will continue to include an estimate of those forfeitures when recognizing stock-based compensation expense. This ASU also
requires cash payments to tax authorities when an employer uses a net-settlement feature to withhold shares to meet statutory
tax withholding provisions to be presented as a financing activity (eliminating previous diversity in practice). Adoption of this
ASU resulted in an additional discrete tax benefit of approximately $8.3 million during year ended December 31, 2017.
51
8881_FIN.pdf March 20, 2018 pg 51
In June 2016, the FASB issued ASU 2016-13, Allowance for Loan and Lease Losses. This ASU introduces an approach
based on expected losses to estimate credit losses on certain types of financial instruments including loans, held-to-maturity
debt securities, loan commitments, financial guarantees and net investments in leases as well as reinsurance and trade
receivables. This ASU will be effective beginning in 2020. The Company is currently evaluating the impact that the adoption
of this ASU will have on the consolidated financial statements and expects that adoption will result in increased disclosure.
In August 2016, the FASB issued ASU 2016-15, Classification of Certain Cash Payments and Cash Receipts. This ASU
clarifies how certain cash receipts and cash payments are presented and classified in the statement of cash flows. This ASU will
be effective beginning in 2018. The Company does not believe that this guidance will have a significant impact on its
presentation of the consolidated statement of cash flows.
In October 2016, the FASB issued ASU 2016-16, Intra-entity Transfers of Assets Other than Inventory. This ASU states
that an entity should recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the
transfer occurs. This ASU was early adopted on January 1, 2017 using the modified retrospective approach which resulted in a
$6.2 million cumulative-effective adjustment directly to retained earnings for any previously deferred income tax effects during
the year ended December 31, 2017.
In November 2016, the FASB issued ASU 2016-18, Restricted Cash. This ASU requires that amounts generally described
as restricted cash and restricted cash equivalents are included with cash and cash equivalents when reconciling the beginning-
of-period and end-of-period total amounts shown on the statement of cash flows. This ASU is effective beginning in 2018 to be
adopted on a retrospective basis and early adoption is permitted. The adoption of ASU 2016-18 is expected to have a financial
statement presentation impact within the consolidated statement of cash flows as amounts generally described as restricted cash
and restricted cash equivalents will be included with cash and cash equivalents when reconciling the beginning-of-period and
end-of-period total amounts shown on the statement of cash flows and transfers of these amounts between balance sheet line
items will not be presented as an operating, investing or financing cash flow. If we would have adopted ASU 2016-18 during
the years ended December 31, 2017, 2016 and 2015, financing cash flows would have been increased by $2.5 million, reduced
by $1.5 million and reduced by $0.3 million, respectively. The Company also expects the adoption of ASU 2016-18 to result in
additional disclosures.
In January 2017, the FASB issued ASU 2017-01, Business Combinations - Clarifying the Definition of a Business. This
ASU provides further guidance for identifying whether a set of assets and activities is a business by providing a screen
outlining that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single
identifiable asset or a group of similar identifiable assets, the set is not a business. This ASU is effective beginning in 2018 and
will be applied prospectively. The adoption of this ASU may have a material effect on our consolidated financial statements in
the event that we have an acquisition or disposal that no longer meets the definition of a business.
In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment. This ASU simplifies the
accounting for goodwill impairments under Step 2 by eliminating the requirement to perform procedures to determine the fair
value of the assets and liabilities of the reporting unit, including previously unrecognized assets and liabilities, in order to
determine the fair value of the goodwill and any impairment charge to be recognized. Under this ASU, the impairment charge
to be recognized should be the amount by which the reporting unit's carrying value exceeds the reporting unit's fair value as
calculated under Step 1 provided that the loss recognized should not exceed the total amount of goodwill allocated to the
reporting unit. This ASU is effective beginning in 2019 for public entities and early adoption is permitted for interim or annual
goodwill impairment tests performed after January 1, 2017. The adoption of this ASU may have a material effect on our
consolidated financial statements in the event that we determine that goodwill for any of our reporting units is impaired.
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8881_FIN.pdf March 20, 2018 pg 52
In March 2017, the FASB issued ASU 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net
Periodic Post-retirement Benefit Cost, to improve the presentation of net periodic pension and net periodic post-retirement
benefit cost. This ASU requires companies to present the service cost component of net periodic benefit cost in the same
income statement line item as other compensation costs arising from services rendered during the period. Only the service cost
component will be eligible for capitalization in assets. Additionally, this ASU requires that companies present the other
components of the net periodic benefit cost separately from the line item that includes the service cost and outside of any
subtotal of income from operations, if one is presented. This ASU is effective for annual periods beginning after December 15,
2017 and early adoption is permitted. The amendments in this ASU are to be applied retrospectively for presentation in the
income statement and prospectively for the capitalization of the service cost component of net periodic pension cost and net
periodic post-retirement benefit in assets. A practical expedient allows the Company to use the amount disclosed in its pension
and other post-retirement benefit plan note for the prior comparative periods as the estimation basis for applying the
retrospective presentation requirements. The Company will adopt ASU 2017-07 on January 1, 2018 and will use the
retrospective method for presentation of the service cost component and the other components of net periodic pension cost and
net periodic postretirement benefit cost in the income statement for our first quarter 2018 Form 10-Q. If the Company would
have applied the provisions of this ASU for the years ended December 31, 2017, 2016 and 2015, operating income would have
decreased by $3.4 million, decreased by $3.5 million and increased by $0.4 million, respectively. The Company does not
capitalize costs in assets so there is no impact from that provision of ASU 2017-07.
In May 2017, the FASB issued ASU 2017-09, Stock Compensation - Scope of Modification Accounting, which amends the
scope of modification accounting for share-based payment arrangements. This ASU provides guidance on the types of changes
to the terms or conditions of share-based payment awards to which an entity would be required to apply modification
accounting. Specifically, an entity would not apply modification accounting if the fair value, vesting conditions, and
classification of the awards are the same immediately before and after the modification. The Company will adopt ASU 2017-09
on January 1, 2018 and the adoption of this ASU is not expected have a material effect on our consolidated financial statements.
In February 2018, the FASB issued ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other
Comprehensive Income, which allows reclassification from accumulated other comprehensive income to retained earnings for
stranded tax effects resulting from the new tax reform legislation commonly known as the Tax Cuts and Jobs Act. This ASU is
effective for fiscal years beginning after December 15, 2018, including interim periods therein, and early adoption is permitted.
The Company has not elected to early adopt this ASU and is currently evaluating the impact that the adoption of this ASU will
have on the consolidated financial statements.
Note 2—Restructuring Charges
During the years ended December 31, 2017, 2016 and 2015, we recorded restructuring charges, net of adjustments, of
$17.6 million, $5.7 million, and $12.3 million, respectively. These charges were primarily related to reorganization activities.
Americas segment restructuring charges of $13.0 million during the year ended December 31, 2017 related primarily to
the voluntary retirement incentive package described below as well as severance from staff reductions in Brazil. International
segment restructuring charges of $4.9 million during the year ended December 31, 2017 were related to severance costs for
staff reductions associated with our ongoing initiatives to drive profitable growth in Europe and right size our operations in
Africa. Favorable adjustments for changes in estimates on employee restructuring reserves of $0.3 million were recorded during
the year ended December 31, 2017.
In September 2016, certain employees in the Americas segment were offered a voluntary retirement incentive package
(“VRIP”). The election window for participation closed on October 17, 2016. The employees were required to render service
through January 31, 2017 to receive the VRIP and had until February 6, 2017 to revoke their election. None of the 83
employees who accepted the VRIP revoked their election to retire under the terms of the plan. Non-cash special termination
benefit expense of $11.4 million was incurred in the first quarter of 2017 related to these elections. All benefits were paid from
our over funded North America pension plan.
Headcount was reduced by approximately 155 in 2017. Headcount was reduced by approximately 90 in the Americas
segment and approximately 65 in the International segment.
International segment restructuring charges of $5.3 million during the year ended December 31, 2016 were related to
severance costs for staff reductions associated with ongoing initiatives to right size our operations in Europe and Japan.
Americas segment restructuring charges of $1.8 million during the year ended December 31, 2016 related primarily to
severance from staff reductions in Brazil and North America. Corporate segment restructuring charges were $0.2 million during
the year ended December 31, 2016. Favorable adjustments for changes in estimates on employee restructuring reserves of $1.6
million were recorded during the year ended December 31, 2016.
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8881_FIN.pdf March 20, 2018 pg 53
Headcount was reduced by 179 in 2016. Headcount was reduced by 103 in the Americas segment, 75 in the International
segment, and 1 in the Corporate segment.
For the year ended December 31, 2015, International segment restructuring charges of $7.4 million were primarily related
to staff reductions in Europe, Australia, Japan, and China and a one-time benefit for employees impacted by our European
Principal Operating Company. Americas segment restructuring charges of $3.3 million and Corporate segment restructuring
charges of $1.6 million were primarily related to staff reductions in North America.
Headcount was reduced by 216 in 2015. Headcount was reduced by 70 in the Americas segment, 134 in the International
segment, and 12 in the Corporate segment.
Activity and reserve balances for restructuring charges by segment were as follows:
(in millions)
Reserve balances at January 1, 2015
Restructuring charges
Cash payments
Reserve balances at December 31, 2015
Restructuring charges
Adjustments to estimates on restructuring reserves
Cash payments
Reserve balances at December 31, 2016
Restructuring charges
Adjustments to estimates on restructuring reserves
Cash payments / utilization
Reserve balances at December 31, 2017
Note 3—Inventories
The following table sets forth the components of inventory:
Americas
International
Corporate
Total
$
$
$
$
0.2
$
2.6
$
— $
3.3
(1.9)
1.6
1.8
(0.5)
(2.0)
0.9
13.0
(0.2)
(13.2)
0.5
$
$
$
7.4
(4.6)
5.4
5.3
(0.6)
(7.3)
2.8
4.9
(0.1)
(4.0)
3.6
$
$
$
$
$
1.6
(0.5)
1.1
0.2
(0.5)
(0.5)
0.3
—
—
(0.3)
— $
2.8
12.3
(7.0)
8.1
7.3
(1.6)
(9.8)
4.0
17.9
(0.3)
(17.5)
4.1
(In thousands)
Finished products
Work in process
Raw materials and supplies
Inventories at current cost
Less: LIFO valuation
Total inventories
December 31,
2017
2016
$
66,064
$
10,141
117,388
193,593
(39,854)
153,739
$
$
54,348
6,542
84,069
144,959
(41,893)
103,066
Inventories stated on the LIFO basis represent 39% and 25% of total inventories at December 31, 2017 and 2016,
respectively.
Reductions in certain inventory quantities during the years ended December 31, 2016 and 2015 resulted in liquidations of
LIFO inventories carried at lower costs prevailing in prior years. The effect of LIFO liquidations during 2016 reduced cost of
sales by $0.3 million and increased net income by $0.2 million. The effect of LIFO liquidations during 2015 reduced cost of
sales by $1.4 million and increased net income by $0.9 million. We did not have any LIFO liquidations during the year ended
December 31, 2017.
54
8881_FIN.pdf March 20, 2018 pg 54
Note 4—Property, Plant, and Equipment
The following table sets forth the components of property, plant and equipment:
(In thousands)
Land
Buildings
Machinery and equipment
Construction in progress
Total
Less accumulated depreciation
Property, plant, and equipment, net
Note 5—Reclassifications Out of Accumulated Other Comprehensive Loss
December 31,
2017
2016
$
3,312
$
119,970
379,747
12,036
515,065
(358,051)
157,014
$
$
2,684
111,762
361,010
10,714
486,170
(337,492)
148,678
Tax (expense) benefit
(6,124)
5,033
(In thousands)
Pension and other post-retirement benefits
Balance at beginning of period
Unrecognized net actuarial gains (losses)
Unrecognized prior service credit (cost)
Total other comprehensive income (loss)
before reclassifications, net of tax
Amounts reclassified from accumulated other
comprehensive loss:
Amortization of prior service cost(a)
Recognized net actuarial losses(a)
Tax benefit
Total amount reclassified from accumulated
other comprehensive loss, net of tax
Total other comprehensive income
Balance at end of period
Foreign currency translation
Balance at beginning of period
MSA Safety Incorporated
Noncontrolling Interests
2017
2016
2015
2017
2016
2015
$(118,068) $(119,389)
(12,473)
1,092
17,659
—
$(125,570) $
(8,002)
(604)
4,173
11,535
(6,348)
(4,433)
(176)
13,054
(4,293)
(427)
11,989
(3,893)
(268)
16,215
(5,333)
8,585
7,669
10,614
— $
—
—
—
—
—
—
—
—
20,120
1,321
$ (97,948) $(118,068)
6,181
$(119,389) $
— $
—
—
—
—
—
—
—
—
—
—
$
$
—
—
—
—
—
—
—
—
—
—
—
38,364
2,500 (b)
$(112,178) $ (88,810)
Reclassification into net income
$ (41,160) $ (1,964) $ (3,616)
Foreign currency translation adjustments
$ (2,199)
—
(1,417)
Balance at end of period
$ (3,616)
(a)Included in the computation of net periodic pension and other post-retirement benefit costs (see Note 14 - Pensions and Other
Post-Retirement Benefits).
(b)Of the $2.5 million reclassified into net income, $3.4 million is included in (Loss) income from discontinued operations (see
Note 20 - Discontinued Operations) on the Consolidated Statement of Income offset by a gain of $0.9 million included in
Currency exchange losses, net.
(c)Included in (Loss) income from discontinued operations (See Note 20 - Discontinued Operations) and Net (income) loss
attributable to noncontrolling interests on the Consolidated Statement of Income.
(25,868)
$ (73,814) $(112,178)
—
(47,650)
$ (88,810) $
770 (c)
882
$ (1,964)
2,765
801
—
55
8881_FIN.pdf March 20, 2018 pg 55
Note 6—Capital Stock
Preferred Stock - The Company has authorized 100,000 shares of $50 par value 4.5% cumulative preferred nonvoting
stock which is callable at $52.50. There are 71,340 shares issued and 52,878 shares held in treasury at December 31, 2017.
There were 33 shares of preferred stock repurchased and subsequently canceled during 2015. The Treasury shares at cost line of
the Consolidated Balance Sheet includes $1.8 million related to preferred stock. There were no treasury purchases of preferred
stock during the years ended December 31, 2017 or 2016. The Company has also authorized 1,000,000 shares of $10 par value
second cumulative preferred voting stock. No shares have been issued as of December 31, 2017 or 2016.
Common Stock - The Company has authorized 180,000,000 shares of no par value common stock. There were
38,222,928 and 37,736,578 shares outstanding at December 31, 2017 and 2016, respectively.
Treasury Shares - On May 12, 2015, the Board of Directors adopted a new stock repurchase program replacing the
existing program. The program authorizes up to $100.0 million to repurchase MSA common stock in the open market and in
private transactions. The share repurchase program has no expiration date. The maximum number of shares that may be
purchased is calculated based on the dollars remaining under the program and the respective month-end closing share price.
There were 168,941 shares repurchased during 2017 and 150,000 shares repurchased during the year ended December 31, 2015.
No shares were repurchased during 2016. We do not have any other share repurchase programs. There were 23,858,463 and
24,344,813 Treasury Shares at December 31, 2017 and 2016, respectively.
The Company issues Treasury Shares for all share based benefit plans. Shares are issued from Treasury at the average
Treasury Share cost on the date of the transaction. There were 648,164 and 40,429 Treasury Shares issued for these purposes
during the years ended December 31, 2017 and 2016, respectively.
56
8881_FIN.pdf March 20, 2018 pg 56
Common stock activity is summarized as follows:
Shares
Dollars
Issued
Treasury
Common
Stock
34,624
(24,633,081) $ 148,401
(404)
3,461
(426)
1,714
—
(18,468)
64,752
—
—
52,839
—
—
11,517
—
(71,100)
(150,000) $
2,572
(118)
(616)
2,265
(155)
352
597
—
— $
29,836
(24,708,917) $ 157,643
(355)
3,604
(148)
5,617
—
(2,800)
341,063
—
(24,344,813) $ 172,681
(422)
4,746
(49)
10,901
34,798
—
(690)
620,646
—
—
31,093
—
—
9,500
—
(44,588)
—
72,504
—
7,127
(79,094)
(168,941)
—
2,484
(25)
(371)
3,324
(28)
458
478
380
(866)
6,687
445
—
—
450
(23,858,463) $ 194,953
Treasury
Cost
$ (284,805)
404
—
—
216
—
—
616
—
—
136
—
(2,781)
(7,104)
$ (293,318)
355
—
—
6,859
—
—
371
—
—
113
—
(1,881)
$ (287,501)
422
—
(6)
7,564
—
866
—
87
(5,732)
(11,781)
—
$ (296,081)
(Dollars in thousands)
Balances January 1, 2015
Restricted stock awards
Restricted stock expense
Restricted stock forfeitures
Stock options exercised
Stock option expense
Stock option forfeitures
Performance stock issued
Performance stock expense
Performance stock forfeitures
Employee stock purchase plan
Tax benefit related to stock plans
Treasury shares purchased for stock compensation programs
Share repurchase program
Balances December 31, 2015
Restricted stock awards
Restricted stock expense
Restricted stock forfeitures
Stock options exercised
Stock option expense
Stock option forfeitures
Performance stock issued
Performance stock expense
Performance stock forfeitures
Employee stock purchase plan
Tax benefit related to stock plans
Treasury shares purchased for stock compensation programs
Balances December 31, 2016
Restricted stock awards
Restricted stock expense
Restricted stock forfeitures
Stock options exercised
Stock option expense
Performance stock issued
Performance stock expense
Employee stock purchase plan
Treasury shares purchased for stock compensation programs
Share repurchase program
Acquisition of noncontrolling interest
Balances December 31, 2017
8881_FIN.pdf March 20, 2018 pg 57
62,081,391
—
—
—
—
—
—
—
—
—
—
—
—
—
62,081,391
—
—
—
—
—
—
—
—
—
—
—
—
62,081,391
—
—
—
—
—
—
—
—
—
—
62,081,391
57
Note 7—Segment Information
We are organized into seven geographic operating segments based on management responsibilities. The operating
segments have been aggregated (based on economic similarities, the nature of their products, end-user markets and methods of
distribution) into three reportable segments: Americas, International, and Corporate.
The Americas and International segments were established on January 1, 2016. The Americas segment is comprised of
our operations in North America and Latin America geographies. The International segment is comprised of our operations in
all geographies outside of the Americas. Certain global expenses are 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.
The Company's sales are allocated to each country based primarily on the destination of the end-customer.
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. Adjusted operating income (loss) is defined as operating income
from continuing operations excluding restructuring charges, 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 from continuing operations as a measure of operating
performance. Further, the Company's measure of adjusted operating income and adjusted operating margin may not be
comparable to similarly titled measures of other companies. Adjusted operating income (loss) on a consolidated basis is
presented in the following table to reconcile the segment operating performance measure to operating income as presented on
the Consolidated Statement of Income.
The accounting principles applied at the operating segment level in determining operating income (loss) are generally the
same as those applied at the consolidated financial statement level. Sales and transfers between operating segments are
accounted for at market-based transaction prices and are eliminated in consolidation.
58
8881_FIN.pdf March 20, 2018 pg 58
Reportable segment information is presented in the following table:
(In thousands)
2017
Sales to external customers
Intercompany sales
Operating income
Restructuring and other charges
Currency exchange losses, net
Other operating expense (Note 19)
Adjusted operating income (loss)
Adjusted operating margin %
Noncash items:
Depreciation and amortization
Pension expense
Total Assets
Capital expenditures
2016
Sales to external customers
Intercompany sales
Operating income
Restructuring and other charges
Currency exchange losses, net
Other operating expense (Note 19)
Adjusted operating income (loss)
Adjusted operating margin %
Noncash items:
Depreciation and amortization
Pension (income) expense
Total Assets
Capital expenditures
2015
Sales to external customers
Intercompany sales
Operating income
Restructuring and other charges
Currency exchange losses, net
Other operating expense (Note 19)
Adjusted operating income (loss)
Adjusted operating margin %
Noncash items:
Depreciation and amortization
Pension expense
Total Assets
Capital expenditures
Americas
International
Corporate
Reconciling
Items(1)
Consolidated
Totals
$ 736,847
124,886
$ 459,962
304,376
$
— $
—
184,287
25.0%
45,461
(37,212)
9.9%
(429,262)
— $1,196,809
—
43,345
17,632
5,127
126,432
192,536
—
23,207
246
1,110,698
16,910
14,265
6,896
563,480
6,815
405
—
12,099
—
—
—
(1,451)
—
37,877
7,142
1,684,826
23,725
$ 678,433
113,273
$ 471,097
275,640
$
— $
—
162,788
24.0%
21,046
(544)
836,243
16,306
46,491
(38,627)
9.9%
13,767
6,876
505,278
9,217
—
—
10,903
—
$ 704,754
134,185
$ 426,029
225,358
$
— $
—
141,971
20.1%
33,501
(38,269)
7.9%
(388,913)
— $1,149,530
—
164,192
5,694
766
—
170,652
—
—
—
1,496
—
34,813
6,332
1,353,920
25,523
(359,543)
— $1,130,783
—
122,741
12,258
2,204
—
137,203
—
21,180
3,759
873,045
22,568
11,500
8,196
532,960
13,673
—
—
16,362
—
—
—
496
—
32,680
11,955
1,422,863
36,241
(1)Reconciling items consist primarily of intercompany eliminations and items not directly attributable to operating segments.
Geographic information on sales to external customers, based on country of origin:
(In thousands)
United States
Other
Total
2017
2016
2015
$
622,276
$
580,724
$
593,539
574,533
568,806
537,244
$ 1,196,809
$ 1,149,530
$ 1,130,783
59
8881_FIN.pdf March 20, 2018 pg 59
Geographic information on long-lived assets, based on country of origin:
(In thousands)
United States
China
Germany
Other
Total
Percentage of total sales by product group was as follows:
Breathing Apparatus
Fixed Gas and Flame Detection
Portable Gas Detection
Head Protection
Fire Helmets & Protective Apparel
Fall Protection
Other
2017
2016
2015
$
91,730
$
84,675
$
11,641
9,350
44,293
11,732
7,919
44,352
88,368
13,504
7,596
46,371
$
157,014
$
148,678
$
155,839
2017
2016
2015
25%
21%
12%
11%
9%
8%
14%
26%
21%
12%
10%
5%
8%
18%
27%
21%
13%
11%
5%
5%
18%
60
8881_FIN.pdf March 20, 2018 pg 60
Note 8—Earnings per Share
Basic earnings per share is computed by dividing net income, after the deduction of preferred stock dividends and
undistributed earnings allocated to participating securities, by the weighted average number of common shares outstanding
during the period. Diluted earnings per share assumes the issuance of common stock for all potentially dilutive share
equivalents outstanding not classified as participating securities. Participating securities are defined as unvested stock-based
payment awards that contain nonforfeitable rights to dividends.
2017
2016
2015
(In thousands, except per share amounts)
Net income attributable to continuing operations
Preferred stock dividends
Income from continuing operations available to common equity
Dividends and undistributed earnings allocated to participating securities
Income from continuing operations available to common shareholders
$
$
26,027
(42)
25,985
(62)
25,923
Net (loss) income attributable to discontinued operations
$
— $
Preferred stock dividends
(Loss) income from discontinued operations available to common equity
Dividends and undistributed earnings allocated to participating securities
(Loss) income from discontinued operations available to common shareholders
Basic weighted-average shares outstanding
Stock options and other stock compensation
Diluted weighted-average shares outstanding
Antidilutive stock options
Earnings per share attributable to continuing operations:
Basic
Diluted
—
—
—
—
37,997
700
38,697
—
$0.68
$0.67
$
92,691
(42)
92,649
(144)
92,505
(755) $
—
(755)
1
(754)
37,456
530
37,986
—
$2.47
$2.44
69,590
(41)
69,549
(192)
69,357
1,217
(1)
1,216
(3)
1,213
37,293
417
37,710
658
$1.86
$1.84
(Loss) earnings per share attributable to discontinued operations:
Basic
Diluted
$
$
— $
— $
(0.02) $
(0.02) $
0.03
0.03
61
8881_FIN.pdf March 20, 2018 pg 61
Note 9—Income Taxes
(In thousands)
Components of income (loss) before income taxes*
U.S. (loss) income
Non-U.S. income
Income before income taxes
Provision for income taxes*
Current
Federal
State
Non-U.S.
Total current provision
Deferred
Federal
State
Non-U.S.
Total deferred (benefit) provision
Provision for income taxes
2017
2016
2015
$
(20,555) $
50,330
29,775
100,382
$
51,529
151,911
71,547
39,479
111,026
$
22,272
$
19,968
$
813
11,054
34,139
2,231
21,188
43,387
$
$
(26,931) $
(3,630)
(759)
(31,320)
2,819
$
11,580
$
1,977
860
14,417
57,804
$
21,253
2,389
22,979
46,621
3,813
(213)
(5,814)
(2,214)
44,407
*The components of income before income taxes and the provision for income taxes relate to continuing operations.
The Tax Cuts and Jobs Act of 2017 ("the Act"), which was signed into law on December 22, 2017, has resulted in
significant changes to the U.S. corporate income tax system including reducing the U.S. corporate rate to 21% starting in 2018.
The Act also creates a territorial tax system with a one-time mandatory tax on previously deferred foreign earnings of U.S.
subsidiaries.
On December 22, 2017, SAB 118 was issued to address the application of US GAAP in situations when a registrant does
not have the necessary information available, prepared or analyzed in reasonable detail to complete the accounting for certain
income tax effects of the Act. In accordance with SAB 118, the Company has calculated its best estimate of the impact of the
Act and has recorded income tax expense of $19.8 million during the fourth quarter of 2017, the period in which the legislation
was enacted. Of this amount, $18.0 million related to the one-time transition tax and the remaining $1.8 million was related to
the revaluation of U.S. deferred tax assets and liabilities. In addition, deferred taxes have been recorded on the outside basis
differences of non-U.S. subsidiaries in the amount of $7.8 million, fully offset by foreign tax credits. Changes to applicable tax
law, regulations or interpretations of the Act may require further adjustments and changes in our estimates. The final
determination of the transition tax and the revaluation of U.S. deferred assets and liabilities will be completed as additional
information becomes available, but no later than one year from the enactment of the Act.
MSA finalized its European reorganization during 2016. The reorganization is designed to drive optimal performance by
aligning certain strategic planning and decision making into a single location enabled by a common IT platform. During 2017,
the Company recognized a benefit of $2.5 million associated with the reduction of exit taxes related to our European
reorganization compared to incurring charges of $6.5 million and $7.7 million in 2016 and 2015, respectively, related to the
European reorganization.
Included in discontinued operations is tax expense of $0.3 million in 2016 and $0.6 million in 2015. There were no
discontinued operations in 2017.
Cash flows from operations in the Consolidated Statement of Cash Flows includes an insignificant deferred income tax
provision (benefit) from discontinued operations for 2017 and 2016, compared to $0.5 million in 2015.
62
8881_FIN.pdf March 20, 2018 pg 62
Reconciliation of the U.S. federal income tax rates for continuing operations to our effective tax rate:
2017
2016
2015
U.S. federal income tax rate
U.S. tax reform
Employee shared-based payments
Taxes on non-U.S. income
Manufacturing deduction
(Benefit) taxes on non-U.S. income - European reorganization
State income taxes—U.S.
Research and development credit
Valuation allowances
Other
Effective income tax rate
Components of deferred tax assets and liabilities:
(In thousands)
Deferred tax assets
Product liability
Net operating losses and tax credit carryforwards
Share-based compensation
Employee benefits
Accrued expenses and other reserves
Capitalized research and development
Reserve for doubtful accounts
Inventory
Other
Total deferred tax assets
Valuation allowances
Net deferred tax assets
Deferred tax liabilities
Goodwill and intangibles
Property, plant and equipment
Other
Total deferred tax liabilities
Net deferred taxes
35.0%
66.6
(28.0)
(24.6)
(15.3)
(8.4)
(6.2)
(4.7)
(3.3)
(1.6)
9.5%
35.0%
35.0%
—
—
(2.5)
(1.3)
4.3
1.8
(0.6)
1.5
(0.1)
38.1%
—
—
(2.1)
(1.6)
6.9
1.3
(1.1)
1.7
(0.1)
40.0%
December 31,
2017
2016
$
28,481
$
10,013
6,444
6,401
4,237
2,442
928
636
1,127
60,709
(4,559)
56,150
1,303
16,218
10,462
9,538
5,381
4,654
1,178
1,218
1,316
51,268
(5,303)
45,965
(30,368)
(8,056)
(1,242)
(39,666)
16,484
$
(42,007)
(11,394)
(3,368)
(56,769)
(10,804)
$
At December 31, 2017, we had net operating loss carryforwards of approximately $35.1 million, all of which are in non-
U.S. tax jurisdictions. All net operating loss carryforwards without a valuation allowance may be carried forward for a period of
at least six years. The change in valuation allowance for the year of $0.7 million is primarily due to the release of a valuation
allowance on certain losses partially offset by our inability to recognize deferred tax assets on certain foreign entities that
continue to generate losses.
63
8881_FIN.pdf March 20, 2018 pg 63
A reconciliation of the change in the tax liability for unrecognized tax benefits for the years ended December 31, 2017
and 2016 is as follows:
(In thousands)
Beginning balance
Adjustments for tax positions related to the current year
Adjustments for tax positions related to prior years
Statute expiration
Ending balance
2017
2016
$
14,393
$
1,921
(766)
(493)
15,055
$
$
13,070
2,359
(856)
(180)
14,393
The total amount of unrecognized tax benefits, if recognized, would reduce our future effective tax rate. We have
recognized tax benefits associated with these liabilities in the amount of $5.5 million and $4.3 million at December 31, 2017
and 2016, respectively.
We recognize interest related to unrecognized tax benefits in interest expense and penalties in operating expenses. Our
liability for accrued interest and penalties related to uncertain tax positions was $2.2 million and $1.5 million at December 31,
2017 and 2016, respectively.
We file a U.S. federal income tax return along with various state and foreign income tax returns. Examinations of our
U.S. federal returns have been completed through 2013, with the 2013 tax year closed by statute. Various state and foreign
income tax returns may be subject to tax audits for periods after 2010.
Note 10—Stock Plans
The 2016 Management Equity Incentive Plan provides for various forms of stock-based compensation for eligible key
employees through May 2026. Management stock-based compensation includes stock options, restricted stock, restricted stock
units and performance stock units. The 2017 Non-Employee Directors’ Equity Incentive Plan provides for grants of stock
options and restricted stock to non-employee directors through May 2027. Stock options are granted at market prices and expire
after ten years. Stock options are exercisable beginning three years after the grant date. Restricted stock and restricted stock
units are granted without payment to the Company and generally vest three years after the grant date. Restricted stock and
restricted stock units are valued at the market value of the stock on the grant date. Performance stock units with a market
condition are valued at an estimated fair value using the Monte Carlo model. The final number of shares to be issued for
performance stock units may range from zero to 200% of the target award based on achieving the specified performance targets
over the performance period. In general, unvested stock options, restricted stock and performance stock units are forfeited if the
participant’s employment with the Company terminates for any reason other than retirement, death or disability. We issue
Treasury shares for stock option exercises and grants of restricted stock and performance stock. Please refer to Note 6 for
further information regarding stock compensation share issuance. As of December 31, 2017, there were 1,160,905 and 126,731
shares, respectively, reserved for future grants under the management and non-employee directors’ equity incentive plans.
Stock-based compensation expense was as follows:
(In thousands)
Restricted stock
Stock options
Performance stock
Total compensation expense before income taxes
Income tax benefit
2017
2016
2015
$
4,691
$
3,456
$
380
6,687
11,758
4,440
2,459
3,296
9,211
3,375
3,035
2,454
2,110
7,599
2,896
4,703
Total compensation expense, net of income tax benefit
$
7,318
$
5,836
$
We did not capitalize any stock-based compensation expense, and all expense is recorded in selling, general and
administrative expense in 2017, 2016, and 2015.
Stock option expense is based on the fair value of stock option grants estimated on the grant dates using the Black-
Scholes option pricing model and the following weighted average assumptions for options granted in 2016 and 2015. There
were no stock options granted in 2017.
64
8881_FIN.pdf March 20, 2018 pg 64
Fair value per option
Risk-free interest rate
Expected dividend yield
Expected volatility
Expected life (years)
2016
2015
$
11.69
$
15.63
1.6%
2.8%
34%
7.0
1.8%
2.3%
39%
6.7
The risk-free interest rate is based on the U.S. Treasury Constant Maturity rates as of the grant date converted into an
implied spot rate yield curve. Expected dividend yield is based on the most recent annualized dividend divided by the one year
average closing share price. Expected volatility is based on the ten year historical volatility using daily stock prices. Expected
life is based on historical stock option exercise data.
A summary of option activity follows:
Outstanding January 1, 2015
Granted
Exercised
Expired
Forfeited
Outstanding December 31, 2015
Granted
Exercised
Forfeited
Outstanding December 31, 2016
Exercised
Outstanding December 31, 2017
Shares
1,618,561
$
170,683
(64,752)
(1,109)
(28,708)
1,694,675
235,233
(341,063)
(12,753)
1,576,092
(620,646)
955,446
$
Weighted
Average
Exercise Price
Exercisable at
Year-end
35.74
48.64
38.59
44.36
49.71
36.69
44.50
37.34
46.11
37.63
29.75
42.75
1,280,665
1,098,615
614,414
For various exercise price ranges, characteristics of outstanding and exercisable stock options at December 31, 2017 were
as follows:
Range of Exercise Prices
$17.83 – $33.00
$33.01 – $45.00
$45.01 – $51.69
$17.83 – $51.69
Range of Exercise Prices
$17.83 – $33.00
$33.01 – $45.00
$45.01 – $51.69
$17.83 – $51.69
Stock Options Outstanding
Weighted-Average
Shares
Exercise Price
Remaining Life
85,607
$
464,364
405,475
955,446
$
23.98
40.23
49.61
42.75
1.82
5.59
5.96
5.41
Stock Options Exercisable
Weighted-Average
Shares
Exercise Price
Remaining Life
85,607
$
260,278
268,529
614,414
$
23.98
36.88
50.10
40.86
1.82
3.57
5.34
4.10
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Cash received from the exercise of stock options was $18.5 million, $12.5 million and $1.9 million for the years ended
December 31, 2017, 2016 and 2015, respectively. The tax benefit (provision) we realized from these exercises was $7.4 million,
$0.6 million and $(0.1) million for the years ended December 31, 2017, 2016 and 2015, respectively.
Stock options become exercisable when they are vested. The aggregate intrinsic value of stock options exercisable at
December 31, 2017 was $47.6 million. The aggregate intrinsic value of all stock options outstanding at December 31, 2017 was
$74.1 million.
A summary of restricted stock and unit activity follows:
Unvested at January 1, 2015
Granted
Vested
Forfeited
Unvested at December 31, 2015
Granted
Vested
Forfeited
Unvested at December 31, 2016
Granted
Vested
Forfeited
Unvested at December 31, 2017
A summary of performance stock unit activity follows:
Unvested at January 1, 2015
Granted
Vested
Performance adjustments
Forfeited
Unvested at December 31, 2015
Granted
Vested
Performance adjustments
Forfeited
Unvested at December 31, 2016
Granted
Vested
Performance adjustments
Unvested at December 31, 2017
Shares
Weighted Average
Grant Date
Fair Value
268,743
$
83,725
(111,834)
(22,925)
217,709
107,465
(76,568)
(14,014)
234,592
72,878
(76,834)
(3,475)
227,161
$
45.34
48.06
39.01
45.84
49.70
50.65
49.12
48.23
49.76
75.27
52.74
50.46
57.50
Shares
Weighted Average
Grant Date
Fair Value
143,961
$
87,256
(52,839)
3,086
(9,820)
171,644
65,355
(31,093)
(15,682)
(3,603)
186,621
98,886
(72,504)
29,183
242,186
$
52.42
41.99
41.75
41.45
51.51
50.24
44.28
58.54
58.54
44.47
46.18
72.73
57.19
57.27
55.06
The 2017 performance adjustments above relate to the final number of shares issued for the 2014 Management
Performance Units, which were 189.2% of the target award based on Total Shareholder Return during the three year
performance period, and vested in the first quarter of 2017.
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During the years ended December 31, 2017, 2016 and 2015, the total intrinsic value of stock options exercised (the
difference between the market price on the date of exercise and the option price paid to exercise the option) was $29.3 million,
$6.4 million and $0.5 million, respectively. The fair values of restricted stock vested during the years ended December 31,
2017, 2016 and 2015 were $4.1 million, $3.7 million and $5.3 million, respectively. The fair value of performance stock units
vested during the year ended December 31, 2017 was $4.1 million.
On December 31, 2017, there was $7.5 million of unrecognized stock-based compensation expense. The weighted
average period over which this expense is expected to be recognized was approximately two years.
Note 11—Short and Long-Term Debt
Short-Term Debt
Short-term borrowings with banks, which excludes the current portion of long-term debt, was insignificant at
December 31, 2017 and 2016, respectively. The average month-end balance of total short-term borrowings during 2017 was
$0.1 million. The maximum month-end balance of $0.2 million occurred in July, 2017.
Long-Term Debt
(In thousands)
2006 Senior Notes payable through 2021, 5.41%, net of debt issuance costs
2010 Senior Notes payable through 2021, 4.00%, net of debt issuance costs
2016 Senior Notes payable through 2031, 3.40%, net of debt issuance costs
Senior revolving credit facility maturing in 2020, net of debt issuance costs
Total
Amounts due within one year
Long-term debt
$
December 31,
2017
2016
$
26,667
80,000
74,139
293,693
474,499
26,667
33,333
100,000
67,713
189,456
390,502
26,666
$
447,832
$
363,836
Under the 2015 Amended and Restated Credit Agreement associated with our senior revolving credit facility, the
Company may elect either a Base rate of interest (“BASE”) or an interest rate based on the London Interbank Offered Rate
(“LIBOR”). The BASE is a daily fluctuating per annum rate equal to the highest of (i) the Prime Rate, (ii) the Federal Funds
Open Rate plus one half of one percent (0.5%) or (iii) the Daily Libor Rate plus one percent (1.00%). The Company pays a
credit spread of 0 to 175 basis points based on the Company’s net EBITDA leverage ratio and elected rate (BASE or LIBOR).
The Company has a weighted average revolver interest rate of 2.73% as of December 31, 2017. At December 31, 2017, $273.5
million of the existing $575.0 million senior revolving credit facility was unused, including letters of credit.
On January 22, 2016, the Company entered into multi-currency note purchase and private shelf agreement, pursuant to
which MSA issued notes in an aggregate original principal amount of £54.9 million (approximately $74.2 million at
December 31, 2017). The Notes are repayable in annual installments of £6.1 million (approximately $8.2 million at
December 31, 2017), commencing January 22, 2023, with a final payment of any remaining amount outstanding on January 22,
2031. The interest rate on these notes is fixed at 3.4%. The note purchase agreement requires MSA to comply with specified
financial covenants including a requirement to maintain a minimum fixed charges coverage ratio of not less than 1.50 to 1.00
and a consolidated leverage ratio not to exceed 3.25 to 1.00; in each case calculated on the basis of the trailing four fiscal
quarters. In addition, the note purchase agreement contains negative covenants limiting the ability of MSA and its subsidiaries
to incur additional indebtedness or issue guarantees, create or incur liens, make loans and investments, make acquisitions,
transfer or sell assets, enter into transactions with affiliated parties, make changes in its organizational documents that are
materially adverse to lenders or modify the nature of MSA's or its subsidiaries' business.
Approximate maturities on our long-term debt over the next five years are $26.7 million in 2018, $26.7 million in 2019,
$321.5 million in 2020, $26.7 million in 2021, none in 2022, and $74.2 million thereafter. The revolving credit facilities require
the Company to comply with specified financial covenants. In addition, the credit facilities contain negative covenants limiting
the ability of the Company and its subsidiaries to enter into specified transactions. The Company was in compliance with all
covenants at December 31, 2017.
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The Company had outstanding bank guarantees and standby letters of credit with banks as of December 31, 2017, totaling
$13.3 million, of which $6.6 million relate to the senior revolving credit facility. The letters of credit serve to cover customer
requirements in connection with certain sales orders and insurance companies. The full amount of the letters of credit remains
unused and available at December 31, 2017. The Company is also required to provide cash collateral in connection with certain
arrangements. At December 31, 2017, the Company has $3.6 million of restricted cash in support of these arrangements.
Note 12—Goodwill and Intangible Assets
Changes in goodwill during the years ended December 31, 2017 and 2016 were as follows:
(In thousands)
Net balance at January 1
Additions (Note 13)
Disposal
Currency translation
Net balance at December 31
2017
2016
$
333,276
$
340,338
74,453
—
14,456
$
422,185
$
10,485
(338)
(17,209)
333,276
At December 31, 2017, goodwill of $273.2 million and $149.0 million related to the Americas and International reporting
segments, respectively.
During the 2016 first quarter, we sold 100% of the stock associated with our South African personal protective equipment
distribution business and our Zambian operations, as disclosed in Note 20. This transaction resulted in a $0.2 million disposal
of goodwill.
Changes in intangible assets, net of accumulated amortization, during the years ended December 31, 2017 and 2016 were
as follows:
(In thousands)
Net balance at January 1
Additions (Note 13)
Amortization expense
Currency translation
Net balance at December 31
2017
2016
$
77,015
$
110,680
(9,434)
4,827
$
183,088
$
90,068
4,420
(7,885)
(9,588)
77,015
(In millions)
December 31, 2017
December 31, 2016
Intangible Assets:
Customer relationships
Distribution agreements
Technology related assets
Patents, trademarks and
copyrights
License agreements
Other
Total
Weighted Average
Useful Life (years)
14
20
8
13
5
2
15
Gross
Carrying
Amount
Accumulated
Amortization
and Reserves
Net
Carrying
Amount
Gross
Carrying
Amount
Accumulated
Amortization
and Reserves
Net
Carrying
Amount
$
$
49.6
66.3
28.7
19.2
5.3
2.9
172.0
$
$
(7.6) $
(10.9)
(13.0)
(9.7)
(5.3)
(2.5)
(49.0) $
$
42.0
55.4
15.7
9.5
—
0.4
123.0
$
45.5
25.2
18.0
17.0
5.3
2.6
113.6
$
$
(3.6) $
(8.0)
(10.3)
(7.1)
(5.3)
(2.3)
(36.6) $
41.9
17.2
7.7
9.9
—
0.3
77.0
During 2017, we acquired a trade name with an indefinite life totaling $60.0 million. This intangible asset is tested for
impairment on October 1st of each year, or more frequently if indicators of impairment exist.
Intangible asset amortization expense over the next five years is expected to be approximately $10.6 million in 2018,
$10.6 million in 2019, $10.5 million in 2020, $10.4 million in 2021, and $9.1 million in 2022.
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Note 13—Acquisitions
Acquisition of Globe Holding Company, LLC
On July 31, 2017, we acquired 100% of the common stock in Globe Holding Company, LLC ("Globe") in an all-cash
transaction valued at $215 million plus a working capital adjustment of $1.4 million. There is no contingent consideration.
Based in Pittsfield, NH, Globe is a leading innovator and provider of firefighter protective clothing and boots. This
acquisition aligns with our corporate strategy in that it strengthens our leading position in the North American fire service
market. The transaction was funded through borrowings on our unsecured senior revolving credit facility.
Globe operating results are included in our consolidated financial statements from the acquisition date as part of the
Americas reportable segment. The acquisition qualifies as a business combination and will be accounted for using the
acquisition method of accounting.
The following table summarizes the preliminary fair values of the Globe assets acquired and liabilities assumed at the
date of acquisition:
(In millions)
Current assets (including cash of $58 thousand)
Property, plant and equipment
Trade name
Distributor relationships
Acquired technology and other intangible assets
Goodwill
Total assets acquired
Total liabilities assumed
Net assets acquired
July 31, 2017
28.6
8.3
60.0
40.2
10.5
74.5
222.1
5.7
216.4
$
$
Goodwill changed from the third to fourth quarter primarily as a result of the final working capital adjustment that was
paid in October 2017. The amounts in the table above are subject to change upon completion of the valuation of the assets
acquired and liabilities assumed. This valuation is expected to be completed by mid-2018.
Assets acquired and liabilities assumed in connection with the acquisition have been recorded at their fair values. Fair
values were determined by management, based, in part on an independent valuation performed by a third party valuation
specialist. The valuation methods used to determine the fair value of intangible assets included the relief from royalty method
for trade name and technology related intangible assets; the excess earnings approach for distributor relationships using
distributor inputs and contributory charges; and the cost method for assembled workforce which is included in goodwill. A
number of significant assumptions and estimates were involved in the application of these valuation methods, including sales
volumes and prices, royalty rates, costs to produce, tax rates, capital spending, discount rates, and working capital changes.
Cash flow forecasts were generally based on Globe pre-acquisition forecasts coupled with estimated MSA sales synergies.
Identifiable intangible assets with finite lives are subject to amortization over their estimated useful lives. The distributor
relationships acquired in the Globe transaction will be amortized over a period of 20 years and the remaining identifiable assets
will be amortized over 5 years. The trade name was determined to have an indefinite useful life. We will perform an
impairment assessment annually on October 1st on the trade name, or sooner if there is a triggering event. Additionally, as part
of each impairment assessment, we will reassess whether the asset continues to have an indefinite life or whether it should be
reassessed with a finite life. Estimated future amortization expense related to the identifiable intangible assets is approximately
$4.1 million in each of the next four years and $3.2 million in year five. Estimated future depreciation expense related to Globe
property, plant and equipment is approximately $1.0 million in each of the next five years.
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Acquisition of Senscient, Inc.
On September 19, 2016, we acquired 100% of the common stock of Senscient, Inc. ("Senscient") for $19.1 million in
cash. There is no contingent consideration. Senscient, which is headquartered in the UK, is a leader in laser-based gas detection
technology. The acquisition of Senscient expands and enhances MSA’s technology offerings in the global market for fixed gas
and flame detection systems, as the Company continues to execute its core product growth strategy. The acquisition was
funded through borrowings on our unsecured senior revolving credit facility.
The following table summarizes the preliminary fair values of the Senscient assets acquired and liabilities assumed at the
date of acquisition:
(In millions)
Current assets (including cash of $0.7 million)
Property, plant and equipment and other noncurrent assets
Acquired technology
Customer-related intangibles
Goodwill
Total assets acquired
Total liabilities assumed
Net assets acquired
September 19, 2016
5.9
$
0.3
1.6
2.8
10.5
21.1
2.0
19.1
$
The purchase price allocation was finalized in the 2017 third quarter and did not result in any adjustments to the
preliminary fair values.
Acquisition of Latchways
On October 21, 2015, MSA Safety Incorporated acquired Latchways plc and its affiliated companies, Latchways Australia
Pty Limited ("LA"), Latchways Inc. ("LI"), HCL Group Plc ("HCL"), Height Solutions Limited ("HSL"), and Sigma 6 d.o.o.
('Sigma 6"), collectively referred to as ("Latchways"), for $190.9 million. There is no contingent consideration.
The acquisition was funded through cash on hand and borrowings on our $125.0 million unsecured senior revolving credit
facility.
Latchways is a global provider of innovative fall protection systems based in the United Kingdom. Latchways solutions
are found throughout the aerospace, power transmission, utility and telecommunication sectors, and Latchways products are
integrated with major roofing and tower systems. In addition to providing us with greater access to the fall protection market,
we believe that the acquisition significantly enhances our long-term corporate strategy in fall protection by providing us with
world-class research and development talent and an industry-leading product line. While Latchways products will be sold
globally, its operations will most significantly impact our International reportable segment.
The following table summarizes the preliminary fair values of the Latchways assets acquired and liabilities assumed at the
date of acquisition:
(In millions)
Current assets (including cash of $10.6 million)
Property, plant and equipment
Trade name and acquired technology
Customer-related intangibles
Goodwill
Total assets acquired
Total liabilities assumed
Net assets acquired
October 21, 2015
35.7
9.5
14.6
53.0
98.0
210.8
19.9
190.9
$
$
The purchase price allocation was finalized in the 2016 third quarter and did not result in any adjustments to the
preliminary fair values.
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Assets acquired and liabilities assumed in connection with both acquisitions have been recorded at their fair values. Fair
values were determined by management, based, in part on an independent valuation performed by a third party valuation
specialist. The valuation methods used to determine the fair value of intangible assets included the excess earnings approach for
all customer relationships and Latchways technology related intangible assets; the relief from royalty method for the Latchways
trade name and Senscient technology related intangible assets; and the cost method for assembled workforce which is included
in goodwill for both acquisitions. A number of significant assumptions and estimates were involved in the application of these
valuation methods, including sales volumes and prices, costs to produce, tax rates, capital spending, discount rates, and working
capital changes. Cash flow forecasts were generally based on Latchways and Senscient pre-acquisition forecasts coupled with
estimated MSA sales synergies. Identifiable intangible assets with finite lives are subject to amortization over their estimated
useful lives. The identifiable intangible assets acquired in the Latchways transaction will be amortized over an estimated
amortization period of 15 years. The identifiable intangible assets for Senscient include technology and customer-related
intangibles which will be amortized over ten and five years, respectively. Estimated future amortization expense related to
Senscient identifiable intangible assets is approximately $0.7 million in each of the next three years, $0.5 million in year four
and $0.2 million in year five. Estimated future amortization expense related to Latchways identifiable intangible assets is
approximately $4.5 million in each of the next five years. Additionally, a step up to fair value of acquired inventory of $1.6
million was recorded as part of the Latchways purchase price allocation. Amortization expense for inventory step up was $1.4
million in 2016 and the remaining $0.2 million was amortized in 2017. Estimated future depreciation expense related to
Latchways property, plant and equipment is approximately $0.9 million in each of the next five years.
Goodwill is calculated as the excess of the purchase price over the fair value of net assets acquired and represents the
future economic benefits arising from other assets acquired that could not be individually identified and separately recognized.
Among the factors that contributed to a purchase price in excess of the fair value of the net tangible and intangible assets
acquired were the acquisition of an assembled workforce, the expected synergies and other benefits that we believe will result
from combining the operations of Globe, Latchways and Senscient with our operations. Goodwill of $74.5 million related to the
Globe acquisition has been recorded in the Americas reportable segment and is expected to be tax deductible. Goodwill related
to the Latchways acquisition was recorded in our reportable segments as follows: $96.6 million in the International segment and
$1.4 million in the Americas segment. Goodwill for Latchways is not expected to be tax deductible. Goodwill of $10.5 million
related to the Senscient acquisition was recorded in the International reportable segment and is expected to be tax deductible.
Our results for the year ended December 31, 2017 include transaction and integration costs of $1.8 million related to the
Globe acquisition as well as integration costs of $0.4 million and an insignificant amount, respectively, related to the Senscient
and Latchways acquisitions. Our results for the year ended December 31, 2016, include transaction and integration costs of $0.8
million related to the Senscient acquisition as well as integration costs of $0.5 million ($0.4 million after tax) related to the
Latchways acquisition. Our results for the year ended December 31, 2015, include transaction costs related to the Latchways
acquisition of $5.0 million, of which $2.8 million was non-deductible for tax purposes. Integration costs related to the
Latchways acquisition totaled $2.5 million ($1.6 million after tax). All transaction and integrations costs are all reported in
selling, general and administrative expenses.
The operating results of all three acquisitions have been included in our consolidated financial statements from the
acquisition date. Our results for the year ended December 31, 2017 include Globe sales of $46.1 million and net income of
$3.7 million. These results include depreciation expense of $0.5 million and amortization expense of $1.7 million. Excluding
transaction and integration costs, Globe provided $4.9 million of net income for the year ended December 31, 2017. Our
results for the year ended December 31, 2016 include Senscient sales of $2.7 million and a net loss of $1.1 million which
includes amortization, primarily related to intangible assets, of $0.2 million. Our results for the year ended December 31, 2015
include Latchways sales $10.1 million and a net loss of $0.7 million.
The following unaudited pro forma information presents our combined results as if all three acquisitions had occurred at
the beginning of 2015. The unaudited pro forma financial information was prepared to give effect to events that are (1) directly
attributable to the acquisition; (2) factually supportable; and (3) expected to have a continuing impact on the combined
company’s results. There were no material transactions between MSA and Latchways, Senscient or Globe during the periods
presented that are required to be eliminated. Intercompany transactions between Latchways companies, Senscient companies
and Globe companies during the periods presented have been eliminated in the unaudited pro forma condensed combined
financial information. The unaudited pro forma financial information does not reflect any cost savings, operating synergies or
revenue enhancements that the combined companies may achieve as a result of the acquisitions or the costs to integrate the
operations or the costs necessary to achieve cost savings, operating synergies or revenue enhancements.
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8881_FIN.pdf March 20, 2018 pg 71
Pro forma financial information (Unaudited)
(In millions, except per share amounts)
Net sales
Income from continuing operations
Basic earnings per share from continuing operations
Diluted earnings per share from continuing operations
2017
2016
2015
$
1,261 $
1,263 $
1,280
35
0.93
0.92
105
2.81
2.78
87
2.33
2.30
The unaudited pro forma condensed combined financial information is presented for information purposes only and is not
intended to represent or be indicative of the combined results of operations or financial position that we would have reported
had the acquisitions been completed as of the date and for the periods presented, and should not be taken as representative of
our consolidated results of operations or financial condition following the acquisitions. In addition, the unaudited pro forma
condensed combined financial information is not intended to project the future financial position or results of operations of the
combined company.
The unaudited pro forma financial information was prepared using the acquisition method of accounting for all three
acquisitions under existing U.S. GAAP. MSA has been treated as the acquirer.
Note 14—Pensions and Other Post-retirement Benefits
We maintain various defined benefit and defined contribution plans covering the majority of our employees. Our principal
U.S. plan is funded in compliance with the Employee Retirement Income Security Act (ERISA). It is our general policy to fund
current costs for the international plans, except in Germany and Mexico, where it is common practice and permissible under tax
laws to accrue book reserves.
We provide health care benefits and limited life insurance for certain retired employees who are covered by our principal
U.S. defined benefit pension plan until they become Medicare-eligible.
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8881_FIN.pdf March 20, 2018 pg 72
Information pertaining to defined benefit pension plans and other post-retirement benefits plans is provided in the
following table:
Pension Benefits
Other Benefits
2017
2016
2017
2016
$ 503,997
$ 491,180
$
23,680
$
22,974
11,023
18,450
100
—
27,967
(28,953)
—
(573)
11,384
16,990
560,385
10,417
18,752
100
(1,092)
9,123
(19,550)
(163)
(381)
—
(4,389)
503,997
433,262
419,088
81,192
4,094
100
(573)
(28,953)
(222)
3,777
492,677
(67,708)
6
(764)
162,032
93,566
31,418
3,878
100
(381)
(19,550)
—
(1,291)
433,262
(70,735)
8
(646)
187,738
116,365
83,060
(5,126)
(145,642)
(67,708)
62,916
(4,620)
(129,031)
(70,735)
162,032
(764)
6
161,274
525,385
187,738
(646)
8
187,100
465,448
403
882
264
(1,694)
1,465
(2,973)
—
—
—
—
22,027
—
—
2,709
264
—
(2,973)
—
—
—
(22,027)
—
(2,328)
5,007
(19,348)
—
(1,584)
(20,443)
(22,027)
5,007
(2,328)
—
2,679
—
426
946
222
(400)
1,285
(1,773)
—
—
—
—
23,680
—
—
1,551
222
—
(1,773)
—
—
—
(23,680)
—
(1,505)
3,643
(21,542)
—
(1,638)
(22,042)
(23,680)
3,643
(1,505)
—
2,138
—
(In thousands)
Change in Benefit Obligations
Benefit obligations at January 1
Service cost
Interest cost
Participant contributions
Plan amendments
Actuarial losses
Benefits paid
Curtailments
Settlements
Special termination benefits
Currency translation
Benefit obligations at December 31
Change in Plan Assets
Fair value of plan assets at January 1
Actual return on plan assets
Employer contributions
Participant contributions
Settlements
Benefits paid
Administrative Expenses Paid
Currency translation
Fair value of plan assets at December 31
Funded Status
Funded status at December 31
Unrecognized transition losses
Unrecognized prior service credit
Unrecognized net actuarial losses
Net amount recognized
Amounts Recognized in the Balance Sheet
Noncurrent assets
Current liabilities
Noncurrent liabilities
Net amount recognized
Amounts Recognized in Accumulated Other Comprehensive Loss
Net actuarial losses
Prior service credit
Unrecognized net initial obligation
Total (before tax effects)
Accumulated Benefit Obligations for all Defined Benefit Plans
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8881_FIN.pdf March 20, 2018 pg 73
(In thousands)
Components of Net Periodic Benefit Cost
Pension Benefits
Other Benefits
2017
2016
2015
2017
2016
2015
Service cost
Interest cost
Expected return on plan assets
Amortization of transition amounts
Amortization of prior service (credit) cost
Recognized net actuarial losses
Settlement/curtailment loss (credit)
Special termination charge
Net periodic benefit cost
$
11,023
$
10,417
$
11,517
$
18,450
(35,417)
2
(19)
12,955
148
11,384
18,752
(34,751)
2
(14)
11,921
5
—
18,314
(34,130)
2
66
15,545
641
—
$
403
882
—
—
(307)
100
(562)
—
$
426
946
—
—
(419)
68
—
—
$
18,526
$
6,332
$
11,955
$
516
$
1,021
$
444
863
—
—
(335)
27
—
—
999
Effective December 31, 2017, the Company changed the method it uses to estimate the service and interest cost
components of net periodic benefit cost for pension and other postretirement benefits for a majority of its U.S. and foreign
plans. Historically, the service and interest cost components for these plans were estimated using a single weighted-average
discount rate derived from the yield curve used to measure the projected benefit obligation at the beginning of the period. The
Company has elected to utilize a spot rate approach, which discounts the individual plan specific expected cash flows
underlying the service and interest cost using the applicable spot rates derived from a yield curve used in the determination of
the benefit obligation to the relevant projected cash flows. The Company made this change to improve the correlation between
projected benefit cash flows and the corresponding yield curve spot rates and to provide a more precise measurement of service
and interest costs. This change does not affect the measurement of total benefit obligations. We estimate that service and
interest cost for the pension and OPEB plans will be reduced by approximately $1.8 million in 2018 as a result of this change.
The Company has accounted for this change to the spot rate approach as a change in accounting estimate that is inseparable
from a change in accounting principle, pursuant to Accounting Standards Codification (ASC) 250, Accounting Changes and
Error Corrections, and accordingly has accounted for it prospectively. For plans where the discount rate is not derived from
plan specific expected cash flows, the Company will continue to employ the current approaches for measuring both the project
benefit obligations and the service and interest cost components of net periodic benefit cost for pension and other
postretirement benefits.
We recognize, as of a measurement date, any unrecognized actuarial net gains or losses that exceed 10% of the larger of
the projected benefit obligations or the plan assets, defined as the "corridor." Amounts inside the corridor are amortized over
the plan participants' life expectancy.
Amounts included in accumulated other comprehensive income expected to be recognized in 2018 net periodic benefit
costs.
(In thousands)
Loss recognition
Prior service credit recognition
Transition obligation recognition
Pension Benefits
Other Benefits
$
$
12,971
(23)
1
305
(405)
—
Information for pension plans with an accumulated benefit obligation in excess of plan assets.
(In thousands)
Aggregate accumulated benefit obligations (ABO)
Aggregate projected benefit obligations (PBO)
Aggregate fair value of plan assets
2017
2016
$
169,065
$
182,159
31,471
147,531
160,543
26,986
74
8881_FIN.pdf March 20, 2018 pg 74
Assumptions used to determine benefit obligations
Average discount rate
Rate of compensation increase
Assumptions used to determine net periodic benefit cost
Average discount rate
Expected return on plan assets
Rate of compensation increase
Pension Benefits
Other Benefits
2017
2016
2017
2016
3.34%
3.00%
3.67%
8.04%
2.99%
3.67%
2.99%
3.92%
8.18%
3.06%
3.57%
—
4.05%
—
4.05%
4.20%
—
—
—
—
Discount rates for a majority of our U.S. and foreign plans were determined using the aforementioned spot rate
methodology for 2017. All remaining plans' discount rates as well as all discount rates for 2016 were determined using various
corporate bond indexes as indicators of interest rate levels and movements and by matching our projected benefit obligation
payment stream to current yields on high quality bonds.
The expected return on assets for the 2017 net periodic pension cost was determined by multiplying the expected returns
of each asset class (based on historical returns) by the expected percentage of the total portfolio invested in that asset class. A
total return was determined by summing the expected returns over all asset classes.
Equity securities
Fixed income securities
Pooled investment funds
Insurance contracts
Cash and cash equivalents
Total
Pension Plan Assets at
December 31,
2017
2016
57%
26
12
3
2
70%
20
5
4
1
100%
100%
The overall objective of our pension investment strategy is to earn a rate of return over time to satisfy the benefit
obligations of the pension plans and to maintain sufficient liquidity to pay benefits and meet other cash requirements of our
pension funds. Investment policies for our primary U.S. pension plan are determined by the plan’s Investment Committee and
set forth in the plan’s investment policy. Asset managers are granted discretion for determining sector mix, selecting securities
and timing transactions, subject to the guidelines of the investment policy. An aggressive, flexible management of the portfolio
is permitted and encouraged, with shifts of emphasis among equities, fixed income securities and cash equivalents at the
discretion of each manager. No target asset allocations are set forth in the investment policy. For our non-U.S. pension plans,
our investment objective is generally met through the use of pooled investment funds and insurance contracts.
The fair values of the Company's pension plan assets are determined using net asset value (NAV) as a practical expedient,
or by information categorized in the fair value hierarchy level based on the inputs used to determine fair value, as further
discussed in Note 18. The fair values at December 31, 2017 were as follows:
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
Fair Value
Significant
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
NAV
$
278,606
$
64,840
$
213,766
$
— $
127,128
60,014
17,834
9,095
—
60,014
—
7,974
40,778
86,350
—
—
1,121
—
—
—
—
—
—
17,834
—
$
492,677
$
132,828
$
255,665
$
86,350
$
17,834
75
(In thousands)
Equity securities
Fixed income securities
Pooled investment funds
Insurance contracts
Cash and cash equivalents
Total
8881_FIN.pdf March 20, 2018 pg 75
The fair values of the Company's pension plan assets at December 31, 2016 were as follows:
(In thousands)
Equity securities
Fixed income securities
Pooled investment funds
Insurance contracts
Cash and cash equivalents
Total
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
Fair Value
Significant
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
NAV
$
304,460
$
62,094
$
242,161
$
205
$
87,776
20,156
14,948
5,922
—
20,156
—
5,231
25,109
62,667
—
—
691
—
—
—
—
—
—
14,948
—
$
433,262
$
87,481
$
267,961
$
62,872
$
14,948
Equity securities consist primarily of publicly traded U.S. and non-U.S. common stocks. Equities are valued at closing
prices reported on the listing stock exchange.
Fixed income securities consist primarily of U.S. government and agency bonds and U.S. corporate bonds. Fixed income
securities are valued at closing prices reported in active markets or based on yields currently available on comparable securities
of issuers with similar credit ratings. When quoted prices are not available for identical or similar bonds, the bond is valued
under a discounted cash flow approach that maximizes observable inputs, such as current yields of similar instruments, and may
include adjustments, for certain risks that may not be observable, such as credit and liquidity risks.
A financial instrument's categorization within the valuation hierarchy is based upon the lowest level of input that is
significant to the fair value measurement. Pooled investment funds consist of mutual and collective investment funds that
invest primarily in publicly traded equity and fixed income securities. Pooled investment funds are valued using the net asset
value (NAV) provided by the administrator of the fund. The NAV is based on the value of the underlying assets owned by the
fund, minus its liabilities, divided by the number of shares outstanding. The underlying securities are generally valued at
closing prices reported in active markets, quoted prices of similar securities, or discounted cash flows approach that maximizes
observable inputs such as current value measurement at the reporting date. These investments are not classified in the fair value
hierarchy in accordance with guidance in ASU 2015-07.
Insurance contracts are valued in accordance with the terms of the applicable collective pension contract. The fair value
of the plan assets equals the discounted value of the expected cash flows of the accrued pensions which are guaranteed by the
counterparty insurer.
Cash equivalents consist primarily of money market and similar temporary investment funds. Cash equivalents are valued
at closing prices reported in active markets.
The preceding methods may produce fair value measurements that are not indicative of net realizable value or reflective
of future fair values. Although we believe the valuation methods are appropriate and consistent with other market participants,
the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a
different fair value measurement at the reporting date.
The following table presents a reconciliation of Level 3 assets:
(In thousands)
Balance January 1, 2016
Net realized and unrealized gains included in earnings
Net purchases, issuances and settlements
Balance December 31, 2016
Net realized and unrealized gains included in earnings
Net purchases, issuances and settlements
Balance December 31, 2017
76
8881_FIN.pdf March 20, 2018 pg 76
Insurance
Contracts
$
13,681
975
292
14,948
2,741
145
17,834
$
We expect to make net contributions of $5.0 million to our pension plans in 2018 which are primarily associated with our
International segment.
For the 2017 beginning of the year measurement purposes (net periodic benefit expense), a 6.5% increase in the costs of
covered health care benefits was assumed, decreasing by 0.5% for each successive year to 4.5% in 2021 and thereafter. For the
2017 end of the year measurement purposes (benefit obligation), a 6.5% increase in the costs of covered health care benefits
was assumed, decreasing by 0.5% for each successive year to 4.5% in 2022 and thereafter. A one-percentage-point change in
assumed health care cost trend rates would have increased or decreased the other post-retirement benefit obligations and current
year plan expense by approximately $760 thousand and $100 thousand, respectively.
Expense for defined contribution pension plans was $8.1 million in 2017, $5.1 million in 2016 and $6.8 million in 2015.
Estimated pension benefits to be paid under our defined benefit pension plans during the next five years are $23.6 million
in 2018, $23.8 million in 2019, $24.9 million in 2020, $25.8 million in 2021 and $26.5 million in 2022, and an aggregated
$146.8 million for the five years thereafter. Estimated other post-retirement benefits to be paid during the next five years are
$1.6 million in 2018, $1.7 million in 2019, $1.7 million in 2020, $1.8 million in 2021, $1.8 million in 2022, and are expected to
aggregate $7.4 million for the five years thereafter.
Note 15—Other Income (Loss), Net
(In thousands)
Interest income
(Loss) gain on asset dispositions, net
Other, net
Disposal of non-core product lines
Impairment of intangible assets
Total other income (loss), net
2017
2016
2015
$
3,596
(557)
(1,249)
—
—
$
2,827
$
593
710
—
—
$
1,790
$
4,130
$
1,525
1,724
836
(4,223)
(723)
(861)
During the years ended December 31, 2017, 2016 and 2015, we recognized $3.6 million, $2.8 million and $1.5 million of
income, respectively, related to interest earned on cash balances and notes receivable from insurance companies. Please refer to
Note 19 Contingencies for further discussion on the Company's notes receivable from insurance companies.
During the year ended December 31, 2015, we recorded $4.2 million of losses associated with the disposal of net assets
related to the Safety Works business in our Americas segment. A discounted cash flow valuation was also performed and
showed that the book value of intangible assets used to support certain non-core product sales exceeded their fair value by $0.7
million in our Americas segment. Additionally, we recognized a $2.0 million gain on the sale of property in Australia, which is
part of our International segment, as the Company continues to right-size operations and optimize its global footprint.
Note 16—Leases
We lease office space, manufacturing and warehouse facilities, automobiles and other equipment under operating lease
arrangements. Rent expense was $13.7 million in 2017, $12.6 million in 2016 and $10.8 million in 2015. Minimum rent
commitments under noncancellable leases are $13.0 million in 2018, $10.2 million in 2019, $7.1 million in 2020, $6.1 million
in 2021, $3.7 million in 2022 and $5.8 million thereafter.
Note 17—Derivative Financial Instruments
As part of our currency exchange rate risk management strategy, we enter into certain derivative foreign currency forward
contracts that do not meet the U.S. GAAP criteria for hedge accounting, but which have the impact of partially offsetting certain
foreign currency exposures. We account for these forward contracts at fair value and report the related gains or losses in
currency exchange losses (gains) in the consolidated statement of income. At December 31, 2017, the notional amount of open
forward contracts was $124.7 million and the unrealized gain on these contracts was $0.5 million. All open forward contracts
will mature during the first quarter of 2018.
77
8881_FIN.pdf March 20, 2018 pg 77
The following table presents the balance sheet location and fair value of assets and liabilities associated with derivative
financial instruments.
(In thousands)
Derivatives not designated as hedging instruments:
Foreign exchange contracts: other current liabilities
Foreign exchange contracts: other current assets
December 31,
2017
2016
$
$
314
840
258
566
The following table presents the income statement location and impact of derivative financial instruments:
(In thousands)
Derivatives not designated as hedging instruments:
Foreign exchange contracts
Note 18—Fair Value Measurements
Income Statement
Location
(Gain) Loss
Recognized in Income
Year ended
December 31,
2017
2016
Currency exchange (gains)
losses, net
$
(5,124) $
6,675
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. The fair value hierarchy consists of three broad levels, which
gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest
priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are:
Level 1—Observable inputs that reflect unadjusted quoted prices for identical assets or liabilities in active markets.
Level 2—Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either
directly or indirectly.
Level 3—Unobservable inputs for the asset or liability.
The valuation methodologies we used to measure financial assets and liabilities were limited to the pension plan assets
described in Note 14 and the derivative financial instruments described in Note 17. See Note 14 for the fair value hierarchy
classification of pension plan assets. We estimate the fair value of the derivative financial instruments, consisting of foreign
currency forward contracts, based upon valuation models with inputs that generally can be verified by observable market
conditions and do not involve significant management judgment. Accordingly, the fair values of the derivative financial
instruments are classified within Level 2 of the fair value hierarchy.
78
8881_FIN.pdf March 20, 2018 pg 78
With the exception of fixed rate long-term debt, we believe that the reported carrying amounts of our financial assets and
liabilities approximate their fair values. The reported carrying amount of fixed rate long-term debt (including the current
portion) was $181 million and $201 million at December 31, 2017 and 2016, respectively. The fair value of this debt was $200
million and $222 million at December 31, 2017 and 2016, respectively. The fair value of this debt was determined using Level
2 inputs by evaluating like rated companies with publicly traded bonds where available or current borrowing rates available for
financings with similar terms and maturities.
Note 19—Contingencies
Product liability
We face an inherent business risk of exposure to product liability claims arising from the alleged failure of our products to
prevent the types of personal injury or death against which they are designed to protect. Product liability claims are categorized
as either single incident or cumulative trauma.
Single incident product liability claims. Single incident product liability claims involve incidents of short duration that
are typically known when they occur and involve observable injuries, which provide an objective basis for quantifying
damages. MSA LLC estimates its liability for single incident product liability claims based on expected settlement costs for
asserted single incident product liability claims, and an estimate of costs for single incident product liability claims incurred but
not reported ("IBNR"). The estimate for IBNR claims is based on experience, sales volumes, and other relevant information.
The reserve for single incident product liability claims, which includes asserted single incident product liability claims and
IBNR single incident product liability claims, was $5.4 million at December 31, 2017 and $3.4 million at December 31, 2016.
Single incident product liability expense was $2.4 million, $0.8 million and $0.9 million for the years ended December 31,
2017, 2016 and 2015, respectively. Single incident product liability exposures are evaluated on an annual basis, or more
frequently if changing circumstances warrant. Adjustments are made to the reserve as appropriate.
Cumulative trauma product liability claims. Cumulative trauma product liability claims involve exposures to harmful
substances (e.g., silica, asbestos and coal dust) that occurred years ago and may have developed over long periods of time into
diseases such as silicosis, asbestosis, mesothelioma, or coal worker’s pneumoconiosis. MSA LLC was named as a defendant in
1,420 lawsuits comprised of 2,242 claims as of December 31, 2017. These lawsuits mainly involve respiratory protection
products allegedly manufactured and sold by MSA LLC or its predecessors. The products at issue were manufactured many
years ago and are not currently offered by MSA LLC.
A summary of cumulative trauma product liability lawsuits and asserted cumulative trauma product liability claims
activity follows:
Open lawsuits, January 1
New lawsuits
Settled and dismissed lawsuits
Open lawsuits, December 31
Asserted claims, January 1
New claims
Settled and dismissed claims
Asserted claims, December 31
2017
2016
2015
1,794
398
(772)
1,420
1,988
379
(573)
1,794
2,326
340
(678)
1,988
2017
2016
2015
3,023
455
(1,236)
2,242
3,779
843
(1,599)
3,023
5,539
465
(2,225)
3,779
More than half of the open lawsuits at December 31, 2017 have had a de minimis level of activity over the last 5 years. It
is possible that these cases could become active again at any time due to changes in circumstances.
79
8881_FIN.pdf March 20, 2018 pg 79
Cumulative trauma product liability litigation is inherently unpredictable and MSA LLC's expense with respect to
cumulative trauma product liability claims could vary significantly in future periods. Factors that have historically limited
MSA LLC's ability to estimate potential liability for cumulative trauma product liability claims include low volumes in the
number of claims asserted and resolved (both in general and with respect to particular plaintiffs' counsel as claims experience
can vary significantly among different counsel), inconsistency of claims composition, uncertainty as to if and over what time
periods claims might be asserted in the future, or other factors. With respect to the risk associated with any particular case that
is filed against MSA LLC, it has typically not been until very late in the legal process that it can be reasonably determined
whether it is probable that such a case will ultimately result in a liability. This uncertainty is caused by many factors, including
consideration of the applicable statute of limitations, the sufficiency of product identification and other defenses. The
complaints initially filed generally have not provided information sufficient to determine if a lawsuit will develop into an
actively litigated case. Even when a case is actively litigated, it is often difficult to determine if the lawsuit will be dismissed or
otherwise resolved until late in the lawsuit. Moreover, even if it is probable that such a lawsuit will result in a loss, it is often
difficult to estimate the amount of actual loss that will be incurred. These actual loss amounts are highly variable and turn on a
case-by-case analysis of the relevant facts, including the nature of the injury, the jurisdiction in which the claim is filed, the
counsel for the plaintiff and the number of parties in the lawsuit. In addition, there are uncertainties concerning the impact of
bankruptcies of other companies that are co-defendants with respect to particular claims and uncertainties surrounding the
litigation process in different jurisdictions and from case to case within a particular jurisdiction.
Management works with outside legal counsel quarterly to review and assess MSA LLC's exposure to asserted cumulative
trauma product liability claims not yet resolved. In addition, management works with an outside valuation consultant and
outside legal counsel to review MSA LLC's exposure to incurred but not reported ("IBNR") cumulative trauma product liability
claims. The review process for asserted cumulative trauma product liability claims not yet resolved takes into account available
facts for those claims, including their number and composition, outcomes of matters resolved during current and prior periods,
and variances associated with different groups of claims, plaintiffs' counsel, claims filing trends, and venues, as well as any
other relevant information.
In August 2017, MSA LLC obtained additional detailed information about a significant number of claims that were
then pending against it, including the nature and extent of the alleged injuries, product identification and other factors. MSA
LLC subsequently agreed to resolve a substantial number of these claims, for $75.2 million, a portion of which was insured.
Amounts in excess of estimated insurance recoveries were reflected within Other operating expense in the Consolidated
Statement of Income. MSA LLC paid a total of $25.2 million related to these settlements during the third and fourth quarters of
2017. The balance is expected to be paid ratably over 7 quarters beginning in the first quarter of 2018 and ending in the third
quarter of 2019. As a result of these developments, the cumulative trauma product liability reserve covers all cumulative
trauma product liability claims that have been asserted against MSA LLC, both those that have been settled but not yet paid and
an estimated amount for asserted cumulative trauma product liability claims not yet resolved.
In the fourth quarter of 2017, MSA LLC, in consultation with an outside valuation consultant and outside legal counsel,
performed a review for IBNR cumulative trauma product liability claims. Based on that review process, which concluded in early
2018, it was determined that a reasonable estimate for the liability of MSA LLC's IBNR claims was $111.1 million. Accordingly,
the cumulative trauma product liability reserve was increased by $111.1 million for estimated IBNR cumulative trauma product
liability claims. This estimated amount is not discounted to present value. This amount represents estimated liability relating to
asbestos, silica and coal dust claims projected to be asserted through 2060.
80
8881_FIN.pdf March 20, 2018 pg 80
The ability to make a reasonable estimate of the potential liability for IBNR cumulative trauma product liability claims
reflects recent developments affecting asbestos claims, recent developments affecting silica claims, and recent developments
affecting coal dust claims. Significant changes in MSA LLC’s claims experience over the last few years have resulted in
stabilization of a number of factors important to the estimation process and enabled greater predictability of IBNR claims.
These developments occurred as a result of changes in defense strategy implemented in recent years, increased experience in
defending, negotiating, and resolving key groups of claims, and resolutions of a substantial number of cumulative trauma
product liability claims in the last few years. These changes have collectively resulted in MSA LLC having a more stable
recent claims history that could be extrapolated into the future and greater certainty as to the number of claims that might be
asserted against MSA LLC in the future, the percentage of those claims that might be resolved without payment, and the
potential settlement value of those claims that are not resolved without payment. All of these factors were considered by MSA
LLC’s valuation consultant in estimating the IBNR cumulative trauma product liability claims. MSA LLC, taking into account
the analysis and estimates developed by its consultant, concluded that reasonable estimates for its IBNR asbestos, silica and
coal dust claims could be made and that the liability described above should be accrued.
Notwithstanding these developments, there remains considerable uncertainty in numerous aspects of MSA LLC's potential
future claims experience, such as with respect to the number of claims that might be asserted, the alleged severity of those
claims and the average settlement values of those claims, and that uncertainty may cause actual claims experience in the future
to vary from the current estimate. Numerous uncertainties also exist with respect to factors not specific to MSA LLC’s claims
experience, including potential legislative or judicial changes at the federal level or in key states concerning claims
adjudication, future bankruptcy proceedings involving key co-defendants, payments from trusts established to compensate
claimants, and/or changes in medical science relating to the diagnosis and treatment of cumulative trauma product liability
claims. If future estimates of asserted cumulative trauma product liability claims not yet resolved and/or IBNR cumulative
trauma product liability claims are materially higher (lower) than the accrued liability, we will record an appropriate charge
(credit) to the Consolidated Statement of Income to increase (decrease) the accrued liability.
Certain significant assumptions underlying the material components of the accrual for IBNR cumulative trauma product
liability claims include MSA LLC's experience related to the following:
• The types of illnesses alleged by claimants to give rise to their claims;
• The number of claims asserted against MSA LLC;
• The propensity of claimants and their counsel asserting cumulative trauma claims to name MSA LLC as a defendant;
• The percentage of cumulative trauma product liability claims asserted against MSA LLC that are dismissed without
payment; and
• The average value of settlements paid to claimants.
Additional assumptions include the following:
• MSA LLC will continue to evaluate and handle cumulative trauma claims in accordance with its existing defense
strategy;
• The number and effect of co-defendant bankruptcies will not materially change in the future;
• No material changes in medical science occur with respect to cumulative trauma product liability claims; and
• No material changes in law occur with respect to cumulative trauma product liability claims including, in particular, no
material state or federal tort reform actions affecting such claims.
81
8881_FIN.pdf March 20, 2018 pg 81
At December 31, 2016, there was an $11.1 million reserve for cumulative trauma product liability claims, of which $3.6
million related to claims settled but not yet paid and $7.5 million related to the estimated value of claims that had been asserted
but not yet resolved. This reserve was increased by $170.0 million to $181.1 million as of December 31, 2017, of which $70.0
million related to asserted cumulative trauma product liability claims ($54.5 million for claims settled but not yet paid and
$15.5 million for the estimated value of claims asserted but not yet resolved) and $111.1 million related to estimated IBNR
cumulative trauma product liability claims. The bulk of the increase in the reserve relating to claims settled but not yet paid
resulted from the August 2017 settlement of certain coal dust claims described above. The amount included in the reserve for
IBNR cumulative trauma product liability claims represents the estimated value of such claims if the most likely potential
outcome with respect to each of the assumptions described above is applied. The reserve does not include amounts which will
be spent to defend the claims covered by the reserve. Defense costs are recognized in the Consolidated Statement of Income as
incurred. At December 31, 2017, $48.6 million of the reserve for asserted cumulative trauma product liability claims is
recorded in the Insurance and product liability line within other current liabilities in the Condensed Consolidated Balance Sheet
and the remainder, $21.4 million, is recorded in the Other noncurrent liabilities line. All of the reserve for IBNR claims as of
December 31, 2017 is recorded in the Other noncurrent liabilities line. All of the liability as of December 31, 2016 was
recorded in the Insurance and product liability line within other current liabilities.
Because litigation is subject to inherent uncertainties, and unfavorable rulings or developments could occur, there can be no
certainty that MSA LLC may not ultimately incur charges in excess of presently recorded liabilities. The reserve for liabilities
relating to cumulative trauma product liability claims may be adjusted from time to time based on whether the actual number,
types, and settlement value of claims differs from current projections and estimates, and other developing facts and
circumstances. These adjustments may reflect changes in estimates for asserted cumulative trauma product liability claims not
yet resolved and/or IBNR cumulative trauma product liability claims. These adjustments may be material and could materially
impact our consolidated financial statements in future periods in which a reserve is recorded.
Insurance Receivable and Notes Receivable, Insurance Companies
MSA LLC purchased insurance policies for the policy years from 1952-1986 from over 20 different insurance carriers
that, subject to some common contract exclusions, provide coverage for cumulative trauma product liability losses and, in many
instances, related defense costs (the "Occurrence-Based Policies"). As of April 1986, MSA LLC’s insurance policies have
significant per claim retentions and applicable exclusions.
In the normal course of business, MSA LLC makes payments to settle product liability claims and for related defense
costs and records receivables for the estimated amounts that are covered by insurance. Since MSA LLC is now largely self-
insured for cumulative trauma claims, additional amounts recorded as insurance receivables will be limited. Various factors
could affect the timing and amount of recovery of the insurance receivable, including the outcome of negotiations with insurers
and the outcome of the coverage litigation with respect to the Occurrence-Based Policies (discussed below), and the extent to
which the issuing insurers may become insolvent in the future.
Insurance receivables at December 31, 2017 totaled $134.7 million, of which $11.6 million is reported in Prepaid
expenses and other current assets and $123.1 million is reported in Insurance receivable and other noncurrent assets in the
Consolidated Balance Sheet. Insurance receivables at December 31, 2016 totaled $159.9 million, of which $2.0 million was
reported in Prepaid expenses and other current assets and $157.9 million was reported in Insurance receivable and other
noncurrent assets in the Consolidated Balance Sheet.
A summary of Insurance receivable balances and activity related to cumulative trauma product liability losses follows:
(In millions)
Balance beginning of period
Additions
Collections and settlements converted to notes receivable
Balance end of period
2017
2016
$
$
159.9
$
94.6
(119.8)
134.7
$
229.5
29.2
(98.8)
159.9
Additions to insurance receivables in the above table represent insured cumulative trauma product liability losses and
related defense costs which we believe are covered by the Occurrence-Based Policies. Collections and settlements primarily
represent agreements with insurance companies to pay amounts due that are applicable to cumulative trauma claims. When
there are contingencies embedded in these agreements, we apply payments to the undiscounted receivable in the period when
the contingency is met.
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In some cases, settlements are converted to formal notes receivable from insurance companies. The notes receivable are
recorded as a transfer from the Insurance receivable balance to the Notes receivable, insurance companies (current and
noncurrent) in the Consolidated Balance Sheet. In cases where the payment stream covers multiple years and there are no
contingencies, the present value of the payments is recorded as a transfer from the insurance receivable balance to the Notes
receivable, insurance companies (current and long-term) in the Consolidated Balance Sheet. Provided the remaining insurance
receivable is recoverable through the insurance carriers, no gain or loss is recognized at the time of transfer from Insurance
receivable to Notes receivable, insurance companies.
Notes receivable from insurance companies at December 31, 2017 totaled $76.9 million, of which $17.3 million is
reported in Notes receivable, insurance companies, current and $59.6 million is reported in Notes receivable, insurance
companies, noncurrent. Notes receivable from insurance companies at December 31, 2016 totaled $67.3 million, of which $4.2
million was reported in Notes receivable, insurance companies, current and $63.1 million was reported in Notes receivable,
insurance companies, noncurrent.
A summary of Notes receivable, insurance companies, balances is as follows:
(In millions)
Balance beginning of period
Additions
Collections
Balance end of period
December 31,
2017
2016
67.3
$
35.1
(25.5)
76.9
$
8.7
95.6
(37.0)
67.3
$
$
The collectibility of MSA LLC's insurance receivables is regularly evaluated and we believe that the amounts recorded are
probable of collection. The determination that the recorded insurance receivables are probable of collection is based on analysis
of the terms of the underlying insurance policies, experience in successfully recovering cumulative trauma product liability
claims from MSA LLC's insurers under other policies during coverage litigation, the financial ability of the insurance carriers to
pay the claims, understanding and interpretation of the relevant facts and applicable law and the advice of MSA LLC's outside
legal counsel. We believe that successful resolution of insurance litigation with various insurance carriers over the years, as
well as the recent trial verdict against North River, which resulted in a favorable outcome, demonstrate that MSA LLC has
strong legal positions concerning its rights to coverage. The trial verdict is described below. Approximately $60 million of the
$134.7 million insurance receivable balance at December 31, 2017 is attributable to coverage in place agreements or negotiated
installment payments.
Total cumulative trauma liability losses were $219.0 million for the year ended December 31, 2017 consisting of $99.8
million relating to the defense and settlement of cumulative trauma product liability claims (including the $75.2 million of
settlements described earlier in this Note), and $111.1 million and $8.1 million relating to the estimated liability for the
remaining IBNR cumulative trauma product liability claims and asserted cumulative trauma product liability claims not yet
resolved, respectively. Total cumulative trauma liability losses were $30.5 million for the year ended December 31, 2016 all
related to the defense and settlement of cumulative trauma product liability claims and $18.3 million for the year ended
December 31, 2015 consisting of $12.2 million related to the defense and settlement of cumulative trauma product liability
claims and $6.1 million related to the estimated liability for asserted cumulative trauma product liability claims not yet
resolved. Uninsured cumulative trauma product liability losses which were included in Other operating expense on the
Consolidated Statement of Income during the year ended December 31, 2017 were $124.5 million. Uninsured cumulative
trauma product liability losses recorded during the years ended December 31, 2016 and 2015 were $0.3 million and $1.0
million, respectively.
Insurance Litigation
MSA LLC has reached resolution with the majority of its insurance carriers through negotiated settlements regarding its
Occurrence-Based Policies. It is currently involved in insurance coverage litigation with its three remaining insurance carriers,
including The North River Insurance Company ("North River"). Assuming satisfactory resolution, once disputes are resolved
with the three remaining carriers, as described below, including North River, MSA LLC anticipates having commitments to
provide future payment streams which should be sufficient to satisfy its presently recorded insurance receivables due from
insurance carriers.
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Even if the remaining insurance coverage litigation is generally successful, the estimated amount of MSA LLC's potential
insurance coverage applicable to cumulative trauma product liability claims is insufficient to cover the amounts reserved for
such claims at December 31, 2017. As a result, MSA LLC is now largely self-insured for costs associated with cumulative
trauma product liability claims. MSA LLC expects to obtain some limited insurance reimbursement from negotiated coverage-
in-place agreements (although that coverage may not be immediately triggered or accessible) or from other sources of coverage,
but the precise amount of insurance reimbursement then triggered cannot be determined with specificity at this time.
North River
In 2009, MSA LLC (as Mine Safety Appliances Company) sued North River in the United States District Court for the
Western District of Pennsylvania, alleging that North River breached one of its insurance policies by failing to pay amounts
owed to MSA LLC and that it engaged in bad-faith claims handling. MSA LLC believes that North River’s refusal to indemnify
it under the policy for product liability losses and legal fees paid by MSA LLC is wholly contrary to Pennsylvania law and
MSA LLC is vigorously pursuing the legal actions necessary to collect all due amounts. A trial date has not yet been scheduled.
In 2010, North River sued MSA LLC (as Mine Safety Appliances Company) in the Court of Common Pleas of Allegheny
County, Pennsylvania seeking a declaratory judgment concerning their responsibilities under three additional policies. MSA
LLC asserted claims against North River for breaches of contract for failures to pay amounts owed to MSA LLC. MSA LLC
also alleged that North River engaged in bad-faith claims handling.
On October 6, 2016, a Pennsylvania state court jury found that North River breached the three contracts at issue in the
case, and that North River also violated common law standards in handling MSA LLC's claims. As a result of the jury's
findings, the court entered a verdict in favor of MSA LLC and against North River for $10.9 million, the full amount of the
contractual damages at issue in the case. The $10.9 million, which is comprised of previously recorded payments to settle
product liability claims and related defense costs, is part of MSA LLC's insurance receivable. In addition to the claims decided
by the jury, MSA LLC also presented a claim under Pennsylvania's bad faith statute, which is decided by the court. Following
the jury verdict, the court also issued a verdict finding that North River had acted in bad faith. In December 2016 and January
2017, the Pennsylvania state court heard evidence regarding the extent of damages awardable as a result of the statutory bad
faith claim. In an order dated February 9, 2017, the Court of Common Pleas of Allegheny County awarded MSA LLC an
additional $46.9 million in damages related to this statutory bad faith claim. The $46.9 million award was comprised of $30.0
million in punitive damages, $11.8 million in attorneys' fees, and $5.1 million in pre-judgment interest, each of which is
authorized by a Pennsylvania statute covering bad faith claims handling matters. Thereafter the court awarded an additional
$2.0 million in attorney's fees. In August 2017, the court entered judgment on the verdicts. North River has filed a Notice of
Appeal with the Pennsylvania Supreme Court.
In the first quarter of 2017, MSA LLC received payments of approximately $80.9 million (the "Payment") pursuant to
insurance policies issued by North River. The Payment reflects amounts previously invoiced to North River for reimbursement
on cumulative trauma product liability claims and therefore was recorded as a reduction to the insurance receivable. North
River has reserved its rights to recover from MSA LLC any portion of the Payment that may later be judicially determined is
not owed to MSA LLC under the relevant policies. The Payment does not constitute a full and final settlement from North
River regarding its coverage obligations owed to MSA LLC. MSA LLC continues to seek additional amounts due from North
River, including those amounts relating to the awards referenced in the paragraph above, which were not part of the Payment.
Delaware Matter
In July 2010, MSA LLC (as Mine Safety Appliances Company) filed a lawsuit in the Superior Court of the State of
Delaware seeking declaratory and other relief concerning the future rights and obligations of MSA LLC and its excess
insurance carriers under various insurance policies. The court is in the process of entering judgment on its rulings, and the case
will proceed to appellate review with the remaining defendant insurance carriers.
In February 2017, MSA LLC resolved through a negotiated settlement its coverage litigation with The Hartford
("Hartford"). Additionally, in April 2017, MSA LLC resolved through negotiated settlements its coverage litigation with
Travelers Insurance Company ("Travelers") and Wausau Indemnity Company ("Wausau"). Each of the settling carriers agreed
to cash payments which were made in 2017 or January 2018. In addition, Travelers has agreed to pay a percentage of future
cumulative trauma product liability settlements paid as incurred on a claim-by-claim basis. As part of these settlements, MSA
LLC dismissed all claims against Hartford, Travelers and Wausau in the coverage litigation in the Superior Court of the State of
Delaware. These settlements did not have an impact on our operating results.
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Product Warranty
The Company provides warranties on certain product sales. Product warranty reserves are established in the same period
that revenue from the sale of the related products is recognized, or in the period that a specific issue arises as to the
functionality of a Company's product. The determination of such reserves requires the Company to make estimates of product
return rates and expected costs to repair or to replace the products under warranty.
The amounts of the reserves are based on established terms and the Company's best estimate of the amounts necessary to
settle future and existing claims on products sold as of the balance sheet date. If actual return rates and/or repair and
replacement costs differ significantly from estimates, adjustments to recognize additional cost of sales may be required in future
periods.
The following table reconciles the changes in the Company's accrued warranty reserve:
(In millions)
Beginning accrued warranty reserve
Warranty claims
Provision for product warranties
Ending accrued warranty reserve
December 31,
2017
2016
2015
11,821
$
1,566
1,366
$
10,296
(950)
2,475
14,753
$
11,821
$
9,438
1,203
(345)
10,296
$
$
Warranty expense for the years ended December 31, 2017, 2016 and 2015 was $13.8 million, $14.0 million and $15.5
million, respectively.
Note 20—Discontinued Operations
On February 29, 2016, the Company sold 100% of the stock associated with its South African personal protective
equipment distribution business and its Zambian operations, which were reported in the International segment.
The Company received $15.9 million from the closing of this transaction and recorded a loss of approximately $0.3
million during the first quarter of 2016.
During the second quarter of 2016, the Company corrected its gain calculation on the disposition of the South African
personal protective equipment distribution business and its Zambian operations. This resulted in a gain of approximately $2.5
million being recorded during the second quarter in discontinued operations that should have been recorded in the first quarter
of 2016. The Company evaluated materiality in accordance with SEC Staff Accounting Bulletins Topics 1.M and 1.N and
considered relevant qualitative and quantitative factors. The Company concluded that this modification was not material to the
first quarter of 2016 or the trend in earnings over the affected periods. The modification had no effect on cash flows or debt
covenant compliance.
The operations of this business qualify as a component of an entity under FASB ASC 205-20 "Presentation of Financial
Statements - Discontinued Operations", and thus the operations have been reclassified as discontinued operations and prior
periods have been reclassified to conform to this presentation.
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Summarized financial information for discontinued operations is as follows:
(In thousands)
Discontinued Operations
Net sales
Cost and expenses:
Cost of products sold
Selling, general and administrative
Restructuring and other charges
Currency exchange losses, net
Other income, net
Income from discontinued operations before income taxes
Provision for income taxes
Year ended December 31,
2017
2016
2015
$
— $
5,261
$
43,043
—
—
—
—
—
—
—
4,819
937
—
18
596
83
328
(245) $
34,764
6,680
14
266
580
1,899
574
1,325
(Loss) income from discontinued operations, net of tax
$
— $
The following assets and liabilities are included in the balance sheet line items noted below and are included in the
International Segment detail in Note 7.
(In thousands)
Discontinued Operations assets and liabilities
Total assets
Accrued and other liabilities
Total liabilities
Net (liabilities) assets
December 31,
2017
2016
$
$
— $
—
—
— $
—
686
686
(686)
The following summary provides financial information for discontinued operations related to net (income) loss related to
noncontrolling interests:
(In thousands)
Net (income) loss attributable to noncontrolling interests
(Income) loss from continuing operations
Income from discontinued operations
Net (income) loss
Year ended December 31,
2017
2016
2015
$
$
(929) $
—
(929) $
(1,416) $
(510)
(1,926) $
2,971
(108)
2,863
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Note 21—Quarterly Financial Information (Unaudited)
(In thousands, except earnings per share)
Continuing Operations:
Net sales
Gross profit
Net income (loss) attributable to MSA Safety Incorporated
Quarters
2017
3rd
1st
2nd
4th
Year
$ 265,765
$ 288,775
$ 296,129
$ 346,140
$1,196,809
119,722
14,413
133,605
12,532
132,499
32,066
154,572
(32,984)
540,398
26,027
Earnings (loss) per share(2)
Basic
Diluted
Discontinued Operations:
Net sales
Gross profit
Net (loss) income attributable to MSA Safety Incorporated
(Loss) earnings per share(2)
Basic
Diluted
(In thousands, except earnings per share)
Continuing Operations:
Net sales
Gross profit
Net income attributable to MSA Safety Incorporated
Earnings per share(2)
Basic
Diluted
Discontinued Operations:
Net sales
Gross profit
0.38
0.37
0.33
0.32
0.84
0.83
(0.87)
(0.87)
0.68
0.67
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1st(1)
2nd(1)
Quarters
2016
3rd
4th
Year
$ 279,268
$ 295,998
$ 278,233
$ 296,031
$1,149,530
120,705
12,683
135,855
29,306
128,762
25,486
138,321
25,216
523,643
92,691
0.34
0.34
5,261
442
0.78
0.77
—
—
0.68
0.67
—
—
0.67
0.66
—
—
2.47
2.44
5,261
442
Net (loss) income attributable to MSA Safety Incorporated
(932)
1,777
(1,300)
(300)
(755)
(Loss) earnings per share(2)
Basic
Diluted
(0.03)
(0.03)
0.05
0.05
(0.04)
(0.04)
(0.01)
(0.01)
(0.02)
(0.02)
(1) During the second quarter of 2016, the Company corrected its gain calculation on the disposition of the South African
personal protective equipment distribution business and its Zambian operations. This resulted in a gain of approximately $2.5
million being recorded during the second quarter in discontinued operations that should have been recorded in the first quarter
of 2016. The Company evaluated materiality in accordance with SEC Staff Accounting Bulletins Topics 1.M and 1.N and
considered relevant qualitative and quantitative factors. The Company concluded that this modification was not material to the
first quarter of 2016 or the trend in earnings over the affected periods. The modification had no effect on cash flows or debt
covenant compliance.
(2) Per share amounts are calculated independently for each period presented; therefore, the sum of the quarterly per share
amounts may not equal the per share amounts for the year.
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Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
(a) Evaluation of disclosure controls and procedures. Based on their evaluation as of the end of the period covered by this
Form 10-K, the Company’s principal executive officer and principal financial officer have concluded that the Company’s
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the
“Exchange Act”)) are effective to ensure that information required to be disclosed by the Company in reports that it files or
submits under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in
Securities and Exchange Commission rules and forms and (ii) accumulated and communicated to our management, including
the principal executive officer and principle financial officer, as appropriate to allow timely decisions regarding required
disclosure.
Management has excluded Globe from its assessment of internal control over financial reporting as of December 31, 2017
because it was acquired by the Company in a purchase business combination early in the third quarter of 2017. Globe is wholly-
owned by MSA.
(b) Changes in internal control. There were no changes in the Company’s internal control over financial reporting that
occurred during the Company’s most recent fiscal quarter, that have materially affected, or are reasonably likely to materially
affect, the Company’s internal control over financial reporting.
See Item 8. Financial Statements and Supplementary Data—“Management’s Report on Internal Control Over Financial
Reporting” and “Report of Independent Registered Public Accounting Firm.”
Item 9B. Other Information
None.
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Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
PART III
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accountant Fees and Services
With respect to this Part III, incorporated by reference herein pursuant to Rule 12b—23 are (1) “Election of
Directors,” (2) “Executive Compensation,” (3) “Other Information Concerning the Board of Directors,” (4) “Stock Ownership,”
and (5) “Selection of Independent Registered Public Accounting Firm,” appearing in the Proxy Statement filed pursuant to
Regulation 14A in connection with the registrant’s Annual Meeting of Shareholders to be held on May 15, 2018. The
information appearing in such Proxy Statement under the caption “Audit Committee Report” and the other information
appearing in such Proxy Statement and not specifically incorporated by reference herein is not incorporated herein. As to
Item 10 above, also see the information reported in Part I of this Form 10-K, under the caption “Executive Officers of the
Registrant,” which is incorporated herein by reference. As to Item 10 above, the Company has adopted a Code of Ethics
applicable to its principal executive officer, principal financial officer and principal accounting officer and other Company
officials. The text of the Code of Ethics is available on the Company’s website at www.MSAsafety.com. Any amendment to, or
waiver of, a required provision of the Code of Ethics that applies to the Company’s principal executive, financial or accounting
officer will also be posted on the Company’s Internet site at that address.
As to Item 12 above, the following table sets forth information as of December 31, 2017 concerning common stock
issuable under the Company’s equity compensation plans.
Plan Category
Equity compensation plans approved by security holders
Equity compensation plans not approved by security holders
Total
Number of securities
to be issued upon
exercise of
outstanding
options,
warrants and rights
(a)
Weighted average
exercise price of
outstanding options,
warrants and rights
(b)
Number of securities
remaining available
for future issuance
under equity
compensation plans
(excluding securities
reflected in column (a))
(c)
955,446
$
None
955,446
42.75
—
42.75
1,287,636 *
None
1,287,636
*Includes 1,160,905 shares available for issuance under the Amended and Restated 2016 Management Equity Incentive Plan
and 126,731 shares available for issuance under the 2017 Non-Employee Directors’ Equity Incentive Plan.
89
8881_FIN.pdf March 20, 2018 pg 89
Item 15. Exhibits and Financial Statement Schedules
PART IV
(a) 1. Financial Statements and Report of Independent Registered Public Accounting Firm (see Part II, Item 8 of this
Form 10-K).
The following information is filed as part of this Form 10-K.
Management's Report on Responsibility for Financial Reporting and Management's Report on Internal
Control Over Financial Reporting
Report of Independent Registered Public Accounting Firm
Consolidated Statement of Income—three years ended December 31, 2017
Consolidated Statement of Comprehensive Income—three years ended December 31, 2017
Consolidated Balance Sheet—December 31, 2017 and 2016
Consolidated Statement of Cash Flows—three years ended December 31, 2017
Consolidated Statement of Changes in Retained Earnings and Accumulated Other Comprehensive
Income—three years ended December 31, 2017
Notes to Consolidated Financial Statements
Page
40
41
43
44
45
46
47
48
(a) 2. The following additional financial information for the three years ended December 31, 2017 is filed with the report
and should be read in conjunction with the above financial statements:
Schedule II—Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable, not material or the required information is shown in the
consolidated financial statements and consolidated notes to the financial statements listed above.
(a) 3. Exhibits
Several of the following exhibits are incorporated herein by reference under Rule 12b-32 of the Securities Exchange Act
of 1934, as amended, as indicated next to the name of the exhibit. Several other instruments, which would otherwise be
required to be listed below, have not been so listed because those instruments do not authorize securities in an amount that
exceeds 10% of the total assets of the registrant and its subsidiaries on a consolidated basis. The registrant agrees to furnish a
copy of any instrument that was so omitted on that basis to the Commission upon request.
3(i)
3(ii)
4(a)
4(b)
4(c)
Amended and restated Articles of Incorporation, filed as Exhibit 3.1 to Form 8-K on March 7, 2014, is incorporated
herein by reference.
Amended and restated By-laws of the registrant, filed as Exhibit 3.2 to Form 8-K on March 7, 2014, is incorporated
herein by reference.
Second Amended and Restated Note Purchase and Private Shelf Agreement dated January 22, 2016 by and among
MSA Safety Incorporated, Mine Safety Appliances Company, LLC, and the Purchasers named therein, filed as
Exhibit 4.1 to the January 28, 2016 Form 8-K, is incorporated herein by reference.
Form of Amended and Restated Guarantee Agreement entered into as of March 7, 2014 by each of General Monitors,
Inc., General Monitors Transnational, LLC and MSA International, Inc., in favor of the Note Purchasers under the
Amended and Restated Note Purchase and Private Shelf Agreement dated as of March 7, 2014 (as confirmed and
reaffirmed by such guarantors as of January 22, 2016), filed as Exhibit 4(b) to Form 10-K on February 25, 2015, is
incorporated herein by reference.
Form of Amended and Restated Guarantee Agreement entered into as of March 7, 2014 by each of General Monitors,
Inc., General Monitors Transnational, LLC and MSA International, Inc., in favor of the Note Purchasers under the
Amended and Restated Note Purchase and Private Shelf Agreement dated as of March 7, 2014 (as confirmed and
reaffirmed by such guarantors as of January 22, 2016), filed as Exhibit 4(c) to Form 10-K on February 25, 2015, is
incorporated herein by reference.
10(a)*
MSA Safety Incorporated Amended and Restated 2016 Management Equity Incentive Plan, filed as Appendix A to the
registrant’s definitive proxy statement dated March 31, 2016, is incorporated herein by reference.
90
8881_FIN.pdf March 20, 2018 pg 90
10(b)*
10(c)*
10(d)*
10(e)*
10(f)*
10(g)*
10(h)*
10(i)*
10(j)*
10(k)*
10(l)*
10(m)
21
23
31.1
31.2
32
Retirement Plan for Directors, as amended effective April 1, 2001, filed as Exhibit 10(a) to Form 10-Q on May 10,
2006, is incorporated herein by reference.
Supplemental Pension Plan as of May 5, 1998, filed as Exhibit 10(d) to Form 10-Q on August 12, 2003, is
incorporated herein by reference.
Supplemental Pension Plan as amended and restated effective January 1, 2005, filed as Exhibit 10.3 to Form 10-Q on
April 30, 2009, is incorporated herein by reference.
2017 Non-Employee Directors’ Equity Incentive Plan, filed as Exhibit A to the registrant's definitive proxy statement
dated April 7, 2017, is incorporated herein by reference.
Executive Insurance Program as Amended and Restated as of January 1, 2006, filed as Exhibit 10(a) to Form 10-Q on
August 7, 2007, is incorporated herein by reference.
Annual Incentive Bonus Plan as of May 5, 1998, filed as Exhibit 10(g) to Form 10-Q on August 12, 2003, is
incorporated herein by reference.
Supplemental Executive Retirement Plan, effective January 1, 2008, filed as Exhibit 10.2 to Form 10-Q on April 30,
2009, is incorporated herein by reference.
Form of Change-in-Control Severance Agreement between the registrant and its executive officers, filed as
Exhibit 10.1 to Form 10-Q on April 30, 2009, is incorporated herein by reference.
2003 Supplemental Savings Plan, effective January 1, 2003, filed as Exhibit 10(k) to Form 10-K on February 24,
2014, is incorporated herein by reference.
2005 Supplemental Savings Plan, effective January 1, 2005, filed as Exhibit 10.4 to Form 10-Q on April 30, 2009, is
incorporated herein by reference.
Amended and Restated CEO Annual Incentive Award Plan filed as Appendix B to the registrant’s definitive proxy
statement dated March 31, 2016, is incorporated herein by reference.
Second Amended and Restated Credit Agreement dated as of December 9, 2015 by and among MSA Safety
Incorporated, the guarantors party thereto, the lenders party thereto, and PNC Bank, National Association, as
administrative agent for the lenders, filed as Exhibit 10.1 to Form 8-K on December 11, 2015, is incorporated herein
by reference.
Affiliates of the registrant is filed herewith.
Consent of Ernst & Young LLP, independent registered public accounting firm is filed herewith.
Certification of William M. Lambert pursuant to Rule 13a-14(a) is filed herewith.
Certification of Kenneth D. Krause pursuant to Rule 13a-14(a) is filed herewith.
Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C.(S)1350 is filed herewith.
101.INS XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF XBRL Taxonomy Extension Definition Linkbase Document
101.LAB XBRL Taxonomy Extension Label Linkbase Document
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document
*The exhibits marked by an asterisk are management contracts or compensatory plans or arrangements.
Item 16. Form 10-K Summary
None.
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8881_FIN.pdf March 20, 2018 pg 91
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
MSA SAFETY INCORPORATED
SIGNATURES
February 22, 2018
(Date)
By
/S/ WILLIAM M. LAMBERT
William M. Lambert
Chairman and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/S/ WILLIAM M. LAMBERT
William M. Lambert
Chairman and Chief Executive Officer
February 22, 2018
/S/ NISHAN J. VARTANIAN
Nishan J. Vartanian
President and Chief Operating Officer
February 22, 2018
/S/ KENNETH D. KRAUSE
Kenneth D. Krause
Vice President, Chief Financial Officer and
Treasurer
February 22, 2018
February 22, 2018
February 22, 2018
February 22, 2018
February 22, 2018
February 22, 2018
February 22, 2018
February 22, 2018
February 22, 2018
/S/ ROBERT A. BRUGGEWORTH
Robert A. Bruggeworth
Director
/S/ ALVARO GARCIA-TUNON
Alvaro Garcia-Tunon
Director
/S/ THOMAS W. GIACOMINI
Thomas W. Giacomini
Director
/S/ DIANE M. PEARSE
Diane M. Pearse
Director
/S/ REBECCA B. ROBERTS
Rebecca B. Roberts
Director
/S/ SANDRA PHILLIPS ROGERS
Sandra Phillips Rogers
Director
/S/ JOHN T. RYAN III
John T. Ryan III
Director
/S/ L. EDWARD SHAW, JR.
L. Edward Shaw, Jr.
Director
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MSA SAFETY INCORPORATED AND AFFILIATES
VALUATION AND QUALIFYING ACCOUNTS
THREE YEARS ENDED DECEMBER 31, 2017
SCHEDULE II
Allowance for doubtful accounts:
Balance at beginning of year
Additions—
Charged to costs and expenses (2)
Deductions—
Deductions from reserves, net (1)(2)
Balance at end of year
Income tax valuation allowance:
Balance at beginning of year
Additions—
Charged to costs and expenses
Deductions—
Deductions from reserves (3)
Balance at end of year
(1) Bad debts written off, net of recoveries.
2017
2016
(In thousands)
2015
$
5,610
$
8,189
$
7,821
1,649
1,719
5,540
1,471
4,050
5,610
1,676
1,308
8,189
5,303
$
5,153
$
3,763
906
3,095
1,390
1,650
4,559
$
2,945
5,303
$
—
5,153
$
$
(2) Activity for 2017, 2016 and 2015 includes currency translation gains (losses) of $285, $(203) and $(535), respectively.
(3) Activity for 2017, 2016 and 2015 includes currency translation gains of $248, $113 and $392, respectively.
93
8881_FIN.pdf March 20, 2018 pg 93
Directors and Corporate Officers
Board of Directors
John T. Ryan III (3) (4) (5) (6)
Officers
William M. Lambert
Retired (2008); formerly Chief Executive Officer and
Chairman and Chief Executive Officer
Chairman of the Company
Robert A. Bruggeworth (2) (3) (5)
Kenneth D. Krause
Senior Vice President, Chief Financial Officer and Treasurer
Lead Director, President and Chief Executive Officer, Qorvo, Inc. (high-
Steven C. Blanco
performance RF components and compound semiconductors
Vice President and President, MSA Americas
Kerry M. Bove
Senior Vice President and Chief Strategy Officer
Gavan C. M. Duff
Vice President, Chief Operating Officer, Latchways
R. Anne Herman
Vice President of Global Operational Excellence and
Chief Customer Officer
Bob Leenen
Vice President and President, MSA International
Douglas K. McClaine
Senior Vice President, Secretary and Chief Legal Officer
Paul R. Uhler
Senior Vice President and Chief Human Resource Officer
Nishan J. Vartanian
President and Chief Operating Officer
Markus H. Weber
Vice President and Chief Information Officer
manufacturer); Director, Qorvo, Inc.
Alvaro Garcia-Tunon (1) (4) (6)
Retired (2014); formerly Executive Vice President and
Chief Financial Officer, Wabtec Corporation (supplier of technology-
based products and services for rail, transit and other global
industries); Director, Matthews International Corp.;
Director, Allison Transmission Holdings, Inc.
Thomas W. Giacomini (1)
Chairman, President and Chief Executive Officer, JBT Corporation
(global technology solutions provider to food and aviation industries)
William M. Lambert (3)
Chairman and Chief Executive Officer of the Company;
Director, Kennametal, Inc.
Sandra Phillips Rodgers (1) (6)
Group Vice President , General Counsel, Chief Legal Officer and
Corporate Secretary, Toyota Motor North America, Inc.
(automobile manufacturer and seller)
Diane M. Pearse (1) (2) (4) (6)
Chief Executive Officer and President, Hickory Farms, LLC
(a specialty foods company)
Rebecca B. Roberts (2) (5)
Retired (2011); formerly President of Chevron Pipe Line Company;
Director, Black Hills Corporation; Director, Enbridge Inc.
L. Edward Shaw, Jr. (4) (5) (6)
Retired (2010); formerly Senior Managing Director, Breeden
Capital Management LLC (investment management and multidisciplinary
professional services firm); Director, Encompass Health Corporation
(formerly HealthSouth Corporation)
Nishan J. Vartanian
President and Chief Operating Officer of the Company (as of June 2017)
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
(3) Member of the Executive Committee
(4) Member of the Finance Committee
(5) Member of the Nominating and Corporate Governance Committee
(6) Member of the Law Committee
94
8881_FIN.pdf March 20, 2018 pg 94
Organization
Nishan J. Vartanian
Steven C. Blanco
Bob Leenen
Ronald N. Herring, Jr.
A Focus on Safety Leadership | MSA 2017 Annual Report
Continuing to add leadership expertise to its executive management
team, as well as its Board of Directors, MSA made a number of key
organizational changes in 2017.
As part of a long-term eff ort to continue to develop the company’s
senior leaders, Nishan J. Vartanian was elected President and
Chief Operating Offi cer, responsible for overseeing the continued
implementation of strategic initiatives across the company’s global
portfolio. Later in 2017, Mr. Vartanian was also elected a director
of the company as part of a planned management succession.
A 32-year veteran of the company, Mr. Vartanian has served in a
variety of capacities since joining MSA in 1985. These include Sales
Representative; U.S. National Sales Manager; Director of North
America Commercial Sales and Distribution; Vice President and
Global Business Leader for MSA's Fixed Gas and Flame Detection
business; Vice President of MSA North America; and Senior Vice
President and President, MSA Americas.
Steven C. Blanco was elected Vice President and President of MSA’s
Americas segment, responsible for all of the company’s business
interests in Latin America, while continuing to oversee MSA’s
operations in the U.S. and Canada. Most recently, Mr. Blanco served
as Vice President and General Manager of MSA’s operations in the
U.S. and Canada. He joined the company in 2012 as Vice President of
Global Operational Excellence.
Similarly, Bob Leenen was elected Vice President and President of
MSA’s International segment, responsible for all of MSA’s business
interests outside of North America and South America. Most recently, Mr. Leenen served as the company’s Regional Chief Financial Offi cer for
MSA’s International business segment. He joined the company as Director of Finance for MSA’s European operations in 2012.
We also want to acknowledge the contributions of Ronald N. Herring, Jr., who retired from the company in October 2017. Mr. Herring
dedicated nearly 35 years of his career to advancing the mission of MSA. In 2011, Mr. Herring was named Vice President of MSA International.
In this role, he guided MSA’s business in Europe, North Africa, the Middle East, India, and Russia during a most challenging economic period.
In 2015, Mr. Herring's responsibilities were expanded to include oversight of MSA’s business in Australia, China, Southeast Asia and Sub-
Saharan Africa. It goes without saying that we are grateful for Mr. Herring's many years of service and dedication to our people, our customers,
and to the ongoing success of MSA.
In anticipation of future retirements among the company’s
Board of Directors, in 2017 MSA elected Thomas W. Giacomini
and Sandra Phillips Rogers to its Board of Directors.
Mr. Giacomini is Chairman, President and CEO of JBT Corporation
(NYSE: JBT), a leading global technology solutions provider to the
food and aviation industries.
Ms. Rogers is Group Vice President, General Counsel, Chief Legal
Offi cer and Corporate Secretary for Toyota Motor North America, Inc.
In addition to her executive role at Toyota Motor North America,
Ms. Rogers serves on the Boards of YWCA USA, United Way of
Metropolitan Dallas, and the University of Texas Law School
Foundation. She is also a founding member of the Center for Women
in Law at The University of Texas School of Law.
Thomas W. Giacomini
Sandra Phillips Rogers
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Section 302 Certifi cations and
NYSE CEO Certifi cation
In June 2017, the Company’s Chief Executive Offi cer submitted
to the New York Stock Exchange the annual certifi cation as to
compliance with the Exchange’s Corporate Governance Listing
Standards required by Section 303A.12(a) of the Exchange’s Listed
Company Manual. The certifi cation was unqualifi ed.
The Company’s reports fi led with the Securities and Exchange
Commission during the past year, including the Annual Report on
Form 10-K for the year ended December 31, 2017, have contained
the certifi cations of the Company’s Chief Executive Offi cer and Chief
Financial Offi cer regarding the quality of the Company’s public
disclosure required by Section 302 of the Sarbanes-Oxley Act.
Shareholders’ Inquiries
Additional copies of the company’s 2017 Annual Report, including
Form 10-K, as fi led with the Securities and Exchange Commission,
may be obtained by shareholders after April 6, 2018. Printed and
electronic versions are available. Requests should be directed to the
Chief Financial Offi cer, who can be reached at one of the following:
Phone:
Internet:
U.S. Mail: MSA
724-741-8221
www.MSAsafety.com
Chief Financial Offi cer
1000 Cranberry Woods Drive
Cranberry Township, PA 16066
1000 Cranberry Woods Drive
Cranberry Township, PA 16066
724-776-8600
www.MSAsafety.com
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