SEC Filing | MSA Safety Incorporated

SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended March 31, 2000 Commission File No. 0-2504 MINE SAFETY APPLIANCES COMPANY (Exact name of registrant as specified in its charter) Pennsylvania 25-0668780 (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) 121 Gamma Drive RIDC Industrial Park O'Hara Township Pittsburgh, Pennsylvania 15238 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: 412/967-3000 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 As of April 30, 2000, there were outstanding 4,839,685 shares of common stock without par value, including 547,870 shares held by the Mine Safety Appliances Company Stock Compensation Trust.

PART I FINANCIAL INFORMATION MINE SAFETY APPLIANCES COMPANY CONSOLIDATED CONDENSED BALANCE SHEET (Thousands of dollars, except share data) March 31 December 3 2000 1999 ASSETS Current assets Cash $ 8,960 $ 8,898 Temporary investments, at cost which approximates market 8,013 8,210 Trade receivables, less allowance for doubtful accounts $2,173 and $2,322 58,947 58,911 Other Receivables 26,616 22,716 Inventories: Finished products 38,644 37,551 Work in process 12,226 11,739 Raw materials and supplies 31,166 32,807 ------- ------- Total inventories 82,036 82,097 ------- ------- Deferred tax assets 14,295 13,348 Prepaid expenses and other current assets 9,435 8,910 ------- ------- Total current assets 208,302 203,090 ------- ------- Property, plant and equipment 375,812 378,495 Less accumulated depreciation (213,960) (214,986) ------- ------- Net property 161,852 163,509 ------- ------- Prepaid pension cost 65,264 61,357 Deferred tax assets 3,985 4,152 Other noncurrent assets 23,380 19,633 ------- ------- TOTAL $ 462,783 $ 451,741 ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Notes payable and current portion of long-term debt $ 5,224 $ 4,477 Accounts payable 28,733 29,056 Employees' compensation 12,119 11,048 Insurance 11,005 10,402 Taxes on income 7,966 3,878 Other current liabilities 23,842 21,144 ------- ------- Total current liabilities 88,889 80,005 ------- ------- Long-term debt 36,506 36,550 Pensions and other employee benefits 53,024 54,111 Deferred tax liabilities 36,281 35,961 Other noncurrent liabilities 2,504 2,657 Shareholders' equity Preferred stock, 4-1/2% cumulative - authorized 100,000 shares of $50 par value; issued 71,373 shares, callable at $52.50 per share 3,569 3,569 Second cumulative preferred voting stock - authorized 1,000,000 shares of $10 par value; none issued Common stock - authorized 20,000,000 shares of no par value; issued 6,778,599 and 6,778,599 (outstanding 4,291,815 and 4,291,671) 12,914 12,596 Stock compensation trust - 547,870 and 567,630 shares (25,750) (26,679) Less treasury shares, at cost: Preferred - 49,713 and 49,713 shares (1,608) (1,608) Common - 1,938,914 and 1,919,298 shares (96,394) (95,154) Deferred stock compensation (1,644) (504) Accumulated other comprehensive loss (16,564) (14,831) Earnings retained in the business 371,056 365,068 ------- ------- Total shareholders' equity 245,579 242,457 ------- ------- TOTAL $ 462,783 $ 451,741 ======= ======= See notes to consolidated condensed financial statements.

MINE SAFETY APPLIANCES COMPANY CONSOLIDATED CONDENSED STATEMENT OF INCOME (Thousands of dollars, except earnings per share) Three Months Ended March 31 2000 1999 Net sales $ 128,218 $ 115,967 Other income 1,088 827 ---------- ---------- 129,306 116,794 ---------- ---------- Costs and expenses Cost of products sold 77,831 73,933 Selling, general and administrative 32,546 32,633 Depreciation and amortization 6,002 5,553 Interest 784 743 Currency exchange gains (188) (277) ---------- ---------- 116,975 112,585 ---------- ---------- Income before income taxes 12,331 4,209 Provision for income taxes 4,872 1,639 ---------- ---------- Net income $ 7,459 $ 2,570 ========== ========== Basic earnings per common share $ 1.74 $ 0.59 ========== ========== Diluted earnings per common share $ 1.73 $ 0.59 ========== ========== See notes to consolidated condensed financial statements.

MINE SAFETY APPLIANCES COMPANY CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS (Thousands of dollars) Three Months Ended March 31 2000 1999 OPERATING ACTIVITIES Net income $ 7,459 $ 2,570 Depreciation and amortization 6,002 5,553 Pensions (3,410) (2,088) Deferred income taxes (655) (507) Changes in operating assets and liabilities 3,338 (1,325) Other - including currency exchange adjustments (3,291) (2,950) --------- --------- Cash flow from operating activities 9,443 1,253 --------- --------- INVESTING ACTIVITIES Property additions (5,159) (5,459) Dispositions of property and businesses 1,307 109 Acquistions and other investing (4,218) (460) --------- --------- Cash flow from investing activities (8,070) (5,810) --------- --------- FINANCING ACTIVITIES Additions to long-term debt 0 375 Reductions of long-term debt (7) 0 Changes in notes payable and short-term debt 444 8,272 Cash dividends (1,471) (1,493) Company stock purchases and sales 7 (3,136) --------- --------- Cash flow from financing activities (1,027) 4,018 Effect of exchange rate changes on cash (481) (594) --------- --------- Decrease in cash and cash equivalents (135) (1,133) Beginning cash and cash equivalents 17,108 24,020 --------- --------- Ending cash and cash equivalents $ 16,973 $ 22,887 ========= ========= See notes to consolidated condensed financial statements.

MINE SAFETY APPLIANCES COMPANY NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (1) The Management's Discussion and Analysis of Financial Condition and Results of Operations which follows these notes contains additional information on the results of operations and the financial position of the company. Those comments should be read in conjunction with these notes. The company's annual report on Form 10-K for the year ended December 31, 1999 includes additional information about the company, its operations, and its financial position, and should be read in conjunction with this quarterly report on Form 10-Q. (2) The results for the interim periods are not necessarily indicative of the results to be expected for the full year. (3) Certain prior year amounts have been reclassified to conform with the current year presentation. (4) In the opinion of management, all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of these interim periods have been included. (5) Basic earnings per share is computed on the weighted average number of shares outstanding during the period. Diluted earnings per share includes the effect of the weighted average stock options outstanding during the period,using the treasury stock method. Antidilutive options are not considered in computing earnings per share. Three Months Ended March 31 2000 1999 (In Thousands) Net income $ 7,459 $ 2,570 Preferred stock dividends 12 12 ------- ------- Income available to common shareholders 7,447 2,558 ------- ------- Basic shares outstanding 4,292 4,361 Stock options 9 11 ------- ------- Diluted shares outstanding 4,301 4,372 ------- ------- Antidilutive stock options 123 4 ------- ------- (6) Comprehensive income (loss) was $5,726,000 and ($1,356,000) for the three months ended March 31, 2000 and 1999, respectively. Comprehensive income includes net income and changes in accumulated other comprehensive income, primarily cumulative translation adjustments, for the period. (7) The company is organized into three geographic operating segments (North America, Europe and Other Non-North America), each of which includes a number of operating companies. North America (formerly U.S.) includes the United States, Canada and Mexico. Canada and Mexico were formerly part of Other Non-U.S. Comparative amounts for 1999 have been restated. Reportable segment information is presented in the following table: (In Thousands) Three Months Ended March 31, 2000 Other North Non-North Recon- Consol. America Europe America ciling totals Sales to external customers $83,787 $27,257 $17,164 $10 $128,218 Intercompany sales 7,291 3,723 566 (11,580) Net income (loss) 6,812 (146) 700 93 7,459 Three Months Ended March 31, 1999 Other North Non-North Recon- Consol. America Europe America ciling totals Sales to external customers 76,813 28,063 11,156 (65) 115,967 Intercompany sales 7,781 4,236 436 (12,453) Net income (loss) 3,038 (552) 50 34 2,570 Reconciling items consist primarily of intercompany eliminations and items reported at the corporate level.

MINE SAFETY APPLIANCES COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS Forward-looking statements This report contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements may include, without limitation, statements regarding expectations for future product introductions, specialty chemicals market conditions, sales and earnings outlook, liquidity, and market risk. Actual results may differ from expectations contained in such forward-looking statements and can be affected by any number of factors, many of which are outside of management's direct control. Among the factors that could cause such differences are the effects of new product introductions, issues affecting major specialty chemical customers, market and operating conditions, the economic environment, and interest and currency exchange rates. Results of operations - Three months ended March 31, 2000 and 1999 Sales for the first quarter of 2000 were $128.2 million, an increase of $12.2 million, or 11%, from $116.0 million in the first quarter of last year. First quarter 2000 sales for North American operations were 8% higher than the first quarter of last year. Improvements in sales of safety products were partially offset by lower specialty chemical sales. Shipments of self-contained breathing apparatus for firefighters, gas masks for defense preparedness, and helmets for industrial head protection all improved significantly. Portable instrument sales also grew significantly, reflecting the late-1999 introduction of the improved Passport FiveStar Alarm multigas detector. Sales of specialty chemicals were significantly lower than the same period last year. Specialty chemical products are sold to a limited number of large pharmaceutical and chemical companies and are largely dependent on the performance of these customers' products in their respective markets. Overall, sales of safety products in the U.S. exceeded incoming commercial orders in the first quarter, particularly for breathing apparatus, as backlog orders were shipped. The specialty chemical order backlog increased during the quarter. Local currency sales in Europe for the quarter were over 10% higher than first quarter 1999. Current year sales were strong in Germany, Italy and Eastern Europe. When stated in U.S. dollars, however, sales in Europe were slightly lower due to adverse currency exchange rate movements. Sales in the company's other international operations were substantially higher than the prior year. Sales in Africa continued to be boosted by the second quarter 1999 acquisition of Campbell Gardwel. Currency exchange effects on sales of other international operations were minor. Gross profit for the first quarter of 2000 was $50.4 million, an increase of $8.4 million, or 20%, from $42.0 million in 1999. The ratio of gross profit to sales was 39.3% in the first quarter of 2000 compared to 36.2% in the corresponding quarter last year. The higher gross profit percentage reflects changes in sales mix and price structure, and improved manufacturing volumes and cost controls. Selling, general and administration costs in the first quarter of 2000 were slightly lower than the prior year first quarter. Higher depreciation and amortization expense of $449,000 in the quarter was primarily due to mid-1999 production equipment and information technology additions in Europe. Income before income taxes was $12.3 million for first quarter 2000 compared to $4.2 million last year. The increase is primarily due to higher sales of safety and instrument products and the improved gross profit percentage. The effective income tax rate for the first quarter of 2000 was 39.5% compared to 38.9% in 1999. The higher effective rate is due to lower losses in higher tax rate European countries. Net income in the first quarter of 2000 was $7.5 million, or $1.74 per basic share, compared to $2.6 million, or 59 cents per basic share, last year. Outlook First quarter results reflect strong sales of breathing apparatus to the North American fire service market, a recovery in core portable instrument product sales in the U.S., and a good start to the year by international operations outside Europe and North America. However, the ongoing transformation of European operations and weakness in the specialty chemicals market, which is expected to continue for some time, could dampen overall results for the year. In addition, sales potential for North America in the remaining three quarters is expected to be five to eight percent lower than the first quarter. While the pace of the first quarter probably cannot be sustained, the company remains optimistic that it will show solid earnings progress for the year. Liquidity and Financial Condition Cash and cash equivalents decreased $135,000 during the first quarter of 2000 compared with a decrease of $1.1 million last year. Cash provided by operating activities totaled $9.4 million for first quarter 2000 compared to $1.3 million last year. The improvement reflects higher income and favorable changes in operating assets and liabilities. Investing activities used $8.1 million in the first quarter of 2000 compared with using $5.8 million in 1999. The increase includes cash used for the acquisition of ISI Group in the first quarter of 2000. Financing activities used $1.0 million in 2000 and provided $4.0 million in 1999. The decrease reflects lower short-term borrowings and treasury stock purchases in 2000. Available credit facilities and internal cash resources are considered adequate to provide for ensuing capital requirements. Financial Instrument Market Risk There have been no material changes in the company's financial instrument market risk during the first quarter of 2000. For additional information, refer to page 15 of the company's Annual Report to Shareholders for the year ended December 31, 1999.

PART II OTHER INFORMATION MINE SAFETY APPLIANCES COMPANY Item 1. Legal Proceedings Not Applicable Item 6. Exhibits and Reports on Form 8-K (a) Exhibits None (b) Reports on Form 8-K No reports on Form 8-K were filed during the quarter ended March 31, 2000. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. MINE SAFETY APPLIANCES COMPANY Date: May 8, 2000 By S/James E. Herald James E. Herald Vice President - Finance; Principal Financial and Accounting Officer

5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MARCH 2000 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.

3-MOS DEC-31-2000 MAR-31-2000 8,960 8,013 87,736 (2,173) 82,036 23,730 375,812 (213,960) 462,783 89,291 36,506 0 3,569 12,914 229,096 462,783 128,218 129,306 77,831 83,833 (188) 0 784 12,331 4,872 7,459 0 0 0 7,459 1.74 1.73