SEC Filing | MSA Safety Incorporated

View:

Download DOC

Download PDF

Download XLS

Download XBRL

msa-20220630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarter ended June 30, 2022

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File No. 1-15579

MSA SAFETY INCORPORATED

(Exact name of registrant as specified in its charter)


Pennsylvania		46-4914539
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

1000 Cranberry Woods Drive
Cranberry Township,	Pennsylvania	16066-5207
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (724) 776-8600

Former name or former address, if changed since last report: N/A

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 x No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨

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

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 Exchange Act). Yes ☐ No x

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which is registered
Common Stock, no par value	MSA	New York Stock Exchange

As of July 22, 2022, 39,125,719 shares of common stock, of the registrant were outstanding.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

MSA SAFETY INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

Unaudited


	Three Months Ended June 30,				Six Months Ended June 30,
(In thousands, except per share amounts)	2022		2021		2022		2021
Net sales	$	372,313	$	341,289	$	703,005	$	649,717
Cost of products sold	207,913		188,289		395,821		361,934
Gross profit	164,400		153,000		307,184		287,783

Selling, general and administrative	86,076		83,426		164,625		158,889
Research and development	15,268		13,970		28,601		27,204
Restructuring charges (Note 3)	57		7,078		2,247		8,385
Currency exchange (gains) losses, net	(1,463)		1,640		1,809		(459)
Product liability expense (Note 18)	2,926		11,751		5,698		14,547
Operating income	61,536		35,135		104,204		79,217

Interest expense	4,578		2,172		8,196		4,082

Other income, net	(6,419)		(2,293)		(12,762)		(6,506)
Total other income, net	(1,841)		(121)		(4,566)		(2,424)

Income before income taxes	63,377		35,256		108,770		81,641
Provision for income taxes (Note 10)	15,684		9,808		25,535		19,557
Net income	47,693		25,448		83,235		62,084

Net income attributable to noncontrolling interests	—		(262)		—		(448)

Net income attributable to MSA Safety Incorporated	$	47,693	$	25,186	$	83,235	$	61,636

Earnings per share attributable to MSA Safety Incorporated common shareholders (Note 9):
Basic	$	1.21	$	0.64	$	2.12	$	1.57
Diluted	$	1.21	$	0.64	$	2.11	$	1.56
Dividends per common share	$	0.46	$	0.44	$	0.90	$	0.87

*Prior periods have been adjusted to reflect the change in inventory accounting method, as described in the Company's fiscal 2021 Annual Report on Form 10-K.

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

-2-

MSA SAFETY INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Unaudited


	Three Months Ended June 30,				Six Months Ended June 30,
(In thousands)	2022		2021		2022		2021
Net income	$	47,693	$	25,448	$	83,235	$	62,084
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments (Note 6)	(31,606)		6,018		(25,714)		(4,205)
Pension and post-retirement plan actuarial gains, net of tax (Note 6)	2,330		3,657		4,594		7,369
Unrealized (losses) gains on available-for-sale securities (Note 6)	(9)		1		(18)		(4)

Total other comprehensive (loss) income, net of tax	(29,285)		9,676		(21,138)		3,160
Comprehensive income	18,408		35,124		62,097		65,244
Less: Comprehensive income attributable to noncontrolling interests	—		(135)		—		(356)
Comprehensive income attributable to MSA Safety Incorporated	$	18,408	$	34,989	$	62,097	$	64,888

*Prior periods have been adjusted to reflect the change in inventory accounting method, as described in the Company's fiscal 2021 Annual Report on Form 10-K.

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

-3-

MSA SAFETY INCORPORATED

CONDENSED CONSOLIDATED BALANCE SHEETS

Unaudited


(In thousands)	June 30, 2022		December 31, 2021
Assets
Cash and cash equivalents	$	134,047	$	140,895
Trade receivables, less allowance for credit loss of $6,051 and $5,789	265,290		254,187
Inventories (Note 4)	341,544		280,617
Investments, short-term (Note 17)	34,857		48,974
Prepaid income taxes	26,789		21,235
Notes receivable, insurance companies (Note 18)	3,972		3,914
Prepaid expenses and other current assets	37,980		42,982
Total current assets	844,479		792,804

Property, plant and equipment, net (Note 5)	203,036		207,793
Operating lease right-of-use assets, net	46,641		50,178
Prepaid pension cost (Note 15)	176,373		163,283
Deferred tax assets (Note 10)	33,724		35,257
Goodwill (Note 13)	619,449		636,858
Intangible assets, net (Note 13)	290,221		306,948
Notes receivable, insurance companies, noncurrent (Note 18)	45,161		44,626

Insurance receivables (Note 18) and other noncurrent assets	149,363		158,649
Total assets	$	2,408,447	$	2,396,396

Liabilities
Notes payable and current portion of long-term debt (Note 12)	$	7,433	$	—
Accounts payable	111,861		106,780
Employees’ compensation	38,197		49,884
Insurance and product liability (Note 18)	58,661		55,125
Income taxes payable (Note 10)	19,058		5,366
Accrued restructuring and other current liabilities	101,048		113,451
Total current liabilities	336,258		330,606

Long-term debt, net (Note 12)	615,778		597,651
Pensions (Note 15) and other employee benefits	181,958		189,973
Noncurrent operating lease liabilities	37,626		40,706
Deferred tax liabilities (Note 10)	31,342		33,337
Product liability (Note 18) and other noncurrent liabilities	367,415		369,735
Total liabilities	$	1,570,377	$	1,562,008

Equity
Preferred stock, 4.5% cumulative, $50 par value (Note 7)	$	3,569	$	3,569
Common stock, no par value (Note 7)	267,645		260,121
Treasury shares, at cost (Note 7)	(360,914)		(330,376)
Accumulated other comprehensive loss (Note 6)	(170,278)		(149,140)
Retained earnings	1,098,048		1,050,214


Total shareholders’ equity	838,070		834,388
Total liabilities and shareholders’ equity	$	2,408,447	$	2,396,396

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

-4-

MSA SAFETY INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Unaudited


	Six Months Ended June 30,
(In thousands)	2022		2021
Operating Activities
Net income	$	83,235	$	62,084
Depreciation and amortization	28,087		22,088

Stock-based compensation (Note 11)	8,358		10,695
Pension (income) expense (Note 15)	(5,304)		919
Deferred income tax benefit (Note 10)	(1,526)		(3,415)
Loss on asset dispositions, net	124		48
Pension contributions (Note 15)	(3,829)		(3,845)
Currency exchange losses (gains), net	1,809		(459)
Product liability expense (Note 18)	5,698		14,547
Collections on insurance receivables and notes receivable, insurance companies (Note 18)	3,906		6,069
Product liability payments (Note 18)	(3,653)		(22,574)

Changes in:
Trade receivables	(12,505)		27,248
Inventories (Note 4)	(69,726)		(21,561)
Accounts payable	7,106		(1,563)
Other current assets and liabilities	(3,590)		(6,503)
Other noncurrent assets and liabilities	1,786		136
Cash Flow From Operating Activities	39,976		83,914
Investing Activities
Capital expenditures	(19,805)		(20,288)
Acquisition, net of cash acquired (Note 14)	—		(62,992)
Purchase of short-term investments (Note 17)	(54,793)		(74,955)
Proceeds from maturities of short-term investments (Note 17)	69,000		100,000
Property disposals and other investing	—		60
Cash Flow Used in Investing Activities	(5,598)		(58,175)
Financing Activities

Proceeds from long-term debt (Note 12)	572,000		605,733
Payments on long-term debt (Note 12)	(535,000)		(578,729)
Debt issuance costs	—		(1,494)
Cash dividends paid	(35,401)		(34,067)


Company stock purchases (Note 7)	(32,156)		(5,511)
Exercise of stock options (Note 7)	298		2,161
Employee stock purchase plan (Note 7)	486		452

Cash Flow Used In Financing Activities	(29,773)		(11,455)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(10,474)		(907)
(Decrease) Increase in cash, cash equivalents and restricted cash	(5,869)		13,377
Beginning cash, cash equivalents and restricted cash	141,438		161,034
Ending cash, cash equivalents and restricted cash	$	135,569	$	174,411

Supplemental cash flow information:
Cash and cash equivalents	$	134,047	$	174,078
Restricted cash included in prepaid expenses and other current assets	1,522		333
Total cash, cash equivalents and restricted cash	$	135,569	$	174,411

*Prior period has been adjusted to reflect the change in inventory accounting method, as described in the Company's fiscal 2021 Annual Report on Form 10-K.

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

-5-

MSA SAFETY INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN RETAINED EARNINGS,

ACCUMULATED OTHER COMPREHENSIVE LOSS AND NONCONTROLLING INTERESTS

Unaudited


(In thousands, except per share amounts)	Retained Earnings		Accumulated Other Comprehensive (Loss)		Noncontrolling Interests
Balances March 31, 2021	$	1,122,722	$	(188,948)	$	8,214
Net income	25,448		—		—
Foreign currency translation adjustments	—		6,018		—
Pension and post-retirement plan adjustments, net of tax of $1,139	—		3,657		—
Unrealized net gains on available-for-sale securities (Note 17)	—		1		—

Income attributable to noncontrolling interests	(262)		127		135
Common dividends ($0.44 per share)	(17,237)		—		—
Preferred dividends ($0.5625 per share)	(10)		—		—
Balances June 30, 2021	$	1,130,661	$	(179,145)	$	8,349

Balances March 31, 2022	$	1,068,464	$	(140,993)	$	—
Net income	47,693		—		—
Foreign currency translation adjustments	—		(31,606)		—
Pension and post-retirement plan adjustments, net of tax of $950	—		2,330		—
Unrealized net losses on available-for-sale securities (Note 17)	—		(9)		—




Common dividends ($0.46 per share)	(18,099)		—		—
Preferred dividends ($0.5625 per share)	(10)		—		—
Balances June 30, 2022	$	1,098,048	$	(170,278)	$	—

Balances December 31, 2020	$	1,103,092	$	(182,397)	$	7,993
Net income	62,084		—		—
Foreign currency translation adjustments	—		(4,205)		—
Pension and post-retirement plan adjustments, net of tax of $2,223	—		7,369		—
Unrecognized net losses on available-for-sale securities (Note 17)	—		(4)		—

Income attributable to noncontrolling interests	(448)		92		356
Common dividends ($0.87 per share)	(34,047)		—		—
Preferred dividends ($0.5625 per share)	(20)		—		—

Balances June 30, 2021	$	1,130,661	$	(179,145)	$	8,349

Balances December 31, 2021	$	1,050,214	$	(149,140)	$	—
Net income	83,235		—		—
Foreign currency translation adjustments	—		(25,714)		—
Pension and post-retirement plan adjustments, net of tax of $1,966	—		4,594		—
Unrecognized net losses on available-for-sale securities (Note 17)	—		(18)		—




Common dividends ($0.90 per share)	(35,381)		—		—
Preferred dividends ($0.5625 per share)	(20)		—		—

Balances June 30, 2022	$	1,098,048	$	(170,278)	$	—

*Prior periods have been adjusted to reflect the change in inventory accounting method, as described in the Company's fiscal 2021 Annual Report on Form 10-K.

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

-6-

MSA SAFETY INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Unaudited

Note 1—Basis of Presentation

The condensed consolidated financial statements of MSA Safety Incorporated and its subsidiaries ("MSA" or "the Company") are unaudited. These unaudited condensed consolidated financial statements include all adjustments, consisting of normal recurring adjustments, considered necessary by management to fairly state the Company's results. Intercompany accounts and transactions have been eliminated. The results reported in these unaudited condensed consolidated financial statements are not necessarily indicative of the results that may be expected for the entire year. The December 31, 2021, Balance Sheet data was derived from the audited Consolidated Balance Sheet, but does not include all disclosures required by accounting principles generally accepted in the United States of America ("U.S. GAAP"). This Form 10-Q report should be read in conjunction with MSA's Form 10-K for the year ended December 31, 2021, which includes all disclosures required by U.S. GAAP.

During the fourth quarter of 2021, the Company changed its method of accounting for certain inventory in the United States from the last-in, first-out ("LIFO") method to the first-in, first-out ("FIFO") method. The FIFO method of accounting for inventory is preferable because it conforms the Company's entire inventory to a single method of accounting and improves comparability with the Company's peers. The effects of the change in accounting method from LIFO to FIFO have been retrospectively applied to all periods presented in all sections of this Quarterly Report. Refer to Note 4—Inventory of the consolidated financial statements in Part II Item 8 of our 2021 Form 10-K for further information related to the change in accounting principle.

Note 2—Cash and Cash Equivalents

Several of the Company's affiliates participate in a notional cash pooling arrangement to manage global liquidity requirements. As part of a master netting arrangement, the participants combine their cash balances in pooling accounts at the same financial institution with the ability to offset bank overdrafts of one participant against positive cash account balances held by another participant. Under the terms of the master netting arrangement, the financial institution has the right, ability and intent to offset a positive balance in one account against an overdrawn amount in another account. Amounts in each of the accounts are unencumbered and unrestricted with respect to use. As such, the net cash balance related to this pooling arrangement is included in Cash and cash equivalents in the unaudited Condensed Consolidated Balance Sheets.

The Company's net cash pool position consisted of the following:


(In thousands)	June 30, 2022
Gross cash pool position	$	62,496
Less: cash pool borrowings	(60,062)
Net cash pool position	$	2,434

Note 3—Restructuring Charges

During the three and six months ended June 30, 2022, we recorded restructuring charges of $0.1 million and $2.2 million, respectively. International segment restructuring charges of $2.1 million during the six months ended June 30, 2022, were primarily related to the implementation of our new European Shared Service Center in Warsaw, Poland. Americas segment restructuring charges of $0.3 million during the six months ended June 30, 2022, were primarily related to initiatives to optimize our manufacturing footprint.

During the three and six months ended June 30, 2021, we recorded restructuring charges of $7.1 million and $8.4 million, respectively. International segment restructuring charges of $7.6 million during the six months ended June 30, 2021, were primarily related to our ongoing initiatives to drive profitable growth and rightsize our operations. Americas segment restructuring charges of $0.8 million during the six months ended June 30, 2021, were primarily related to costs associated with our global Fixed Gas & Flame Detection manufacturing footprint optimization as well as programs to adjust our operations in response to current business conditions.

-7-

Activity and reserve balances for restructuring charges by segment were as follows:


(In millions)	Americas		International		Corporate		Total
Reserve balances at December 31, 2020	$	2.8	$	19.3	$	0.4	$	22.5
Restructuring charges	4.6		11.2		0.6		16.4
Currency translation	(0.1)		(0.2)		—		(0.3)
Cash payments / utilization	(4.0)		(12.9)		(0.7)		(17.6)
Reserve balances at December 31, 2021	$	3.3	$	17.4	$	0.3	$	21.0
Restructuring charges (releases)	0.3		2.1		(0.2)		2.2
Currency translation and other adjustments	0.1		(1.4)		—		(1.3)
Cash payments	(2.2)		(3.8)		—		(6.0)
Reserve balances at June 30, 2022	$	1.5	$	14.3	$	0.1	$	15.9

Restructuring reserves are included in Accrued restructuring and other current liabilities in the accompanying unaudited Condensed Consolidated Balance Sheets.

Note 4—Inventories

The following table sets forth the components of inventory:


(In thousands)	June 30, 2022		December 31, 2021
Finished products	$	92,068	$	87,657
Work in process	18,579		6,534
Raw materials and supplies	230,897		186,426
Total inventories	$	341,544	$	280,617

Note 5—Property, Plant and Equipment

The following table sets forth the components of property, plant and equipment, net:


(In thousands)	June 30, 2022		December 31, 2021
Land	$	4,888	$	5,131

Buildings	137,924		136,272
Machinery and equipment	448,686		435,652
Construction in progress	25,662		36,552
Total	617,160		613,607
Less: accumulated depreciation	(414,124)		(405,814)
Property, plant and equipment, net	$	203,036	$	207,793

-8-

Note 6—Reclassifications Out of Accumulated Other Comprehensive Loss

Changes in accumulated other comprehensive loss were as follows:


	MSA Safety Incorporated				Noncontrolling Interests
	Three Months Ended June 30,				Three Months Ended June 30,
(In thousands)	2022		2021		2022		2021
Pension and other post-retirement benefits (a)
Balance at beginning of period	$	(55,032)	$	(111,840)	$	—	$	—
Amounts reclassified from accumulated other comprehensive loss into net income:
Amortization of prior service credit (Note 15)	(48)		(24)		—		—
Recognized net actuarial losses (Note 15)	3,328		4,820		—		—
Tax benefit	(950)		(1,139)		—		—
Total amount reclassified from accumulated other comprehensive loss, net of tax, into net income	2,330		3,657		—		—

Balance at end of period	$	(52,702)	$	(108,183)	$	—	$	—
Available-for-sale securities
Balance at beginning of period	$	(14)	$	(6)	$	—	$	—
Unrealized net (losses) gains on available-for-sale securities (Note 17)	(9)		1		—		—
Balance at end of period	$	(23)	$	(5)	$	—	$	—
Foreign currency translation
Balance at beginning of period	$	(85,947)	$	(77,102)	$	—	$	617


Foreign currency translation adjustments	(31,606)		6,145		—		(127)
Balance at end of period	$	(117,553)	$	(70,957)	$	—	$	490

(a) Reclassifications out of accumulated other comprehensive loss and into net income are included in the computation of net periodic pension and other post-retirement benefit costs (refer to Note 15—Pensions and Other Post-retirement Benefits).

-9-


	MSA Safety Incorporated				Noncontrolling Interests
	Six Months Ended June 30,				Six Months Ended June 30,
(In thousands)	2022		2021		2022		2021
Pension and other post-retirement benefits (a)
Balance at beginning of period	$	(57,296)	$	(115,552)	$	—	$	—
Amounts reclassified from accumulated other comprehensive loss into net income:
Amortization of prior service credit (Note 15)	(96)		(48)		—		—
Recognized net actuarial losses (Note 15)	6,656		9,640		—		—
Tax benefit	(1,966)		(2,223)		—		—
Total amount reclassified from accumulated other comprehensive loss, net of tax, into net income	4,594		7,369		—		—

Balance at end of period	$	(52,702)	$	(108,183)	$	—	$	—
Available-for-sale securities
Balance at beginning of period	$	(5)	$	(1)	$	—	$	—
Unrealized net losses on available-for-sale securities (Note 17)	(18)		(4)		—		—
Balance at end of period	$	(23)	$	(5)	$	—	$	—
Foreign currency translation
Balance at beginning of period	$	(91,839)	$	(66,844)	$	—	$	582


Foreign currency translation adjustments	(25,714)		(4,113)		—		(92)
Balance at end of period	$	(117,553)	$	(70,957)	$	—	$	490

Note 7—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 52,998 shares held in treasury at June 30, 2022. The Treasury shares at cost line in the unaudited Condensed Consolidated Balance Sheets includes $1.8 million related to preferred stock. There were no treasury purchases of preferred stock shares during both the six months ended June 30, 2022 and 2021. 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 June 30, 2022.

Common Stock - The Company has authorized 180,000,000 shares of no par value common stock. There were 62,081,391 shares issued as of December 31, 2021. No new shares were issued during the six months ended June 30, 2022, or 2021. There were 39,124,837 and 39,276,518 shares outstanding at June 30, 2022 and December 31, 2021, respectively.

Treasury Shares - The Company's share repurchase 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 repurchased is calculated based on the dollars remaining under the program and the respective month-end closing share price. During the six months ended June 30, 2022, 231,835 shares were repurchased under this program. During the six months ended June 30, 2021, no shares were repurchased under this program. There were 22,956,554 and 22,804,873 Treasury Shares at June 30, 2022 and December 31, 2021, respectively.

The Company issues Treasury Shares for all stock-based compensation plans. Shares are issued from Treasury at the average Treasury Share cost on the date of the transaction. There were 110,696 and 33,625 Treasury Shares issued for these purposes during the six months ended June 30, 2022 and 2021, respectively.

-10-

Common stock activity is summarized as follows:


	Three Months Ended June 30, 2022				Three Months Ended June 30, 2021
(In thousands)	Common Stock		Treasury Cost		Common Stock		Treasury Cost
Balance at beginning of period	$	262,627	$	(331,160)	$	245,887	$	(329,615)
Stock compensation expense	4,629		—		7,403		—
Restricted and performance stock awards	(201)		201		(170)		170
Stock options exercised	166