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 June 30, 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 July 31, 2000, there were outstanding 13,545,329 shares of common stock
without par value, including 1,639,320 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)
June 30 December 31
2000 1999
ASSETS
Current assets
Cash $ 10,899 $ 8,898
Temporary investments, at cost which approximates market 6,448 8,210
Trade receivables, less allowance for doubtful accounts
$2,156 and $2,322 54,794 58,911
Other receivables 14,642 22,716
Inventories:
Finished products 33,896 37,551
Work in process 12,000 11,739
Raw materials and supplies 30,761 32,807
--------- ---------
Total inventories 76,657 82,097
Deferred tax assets 14,923 13,348
Prepaid expenses and other current assets 10,371 8,910
--------- ---------
Total current assets 188,734 203,090
Property, plant and equipment 377,721 378,495
Less accumulated depreciation (217,755) (214,986)
--------- ---------
Net property 159,966 163,509
Prepaid pension cost 69,494 61,357
Deferred tax assets 4,033 4,152
Other noncurrent assets 23,079 19,633
--------- ---------
TOTALS $ 445,306 $ 451,741
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Notes payable and current portion of long-term debt $ 15,893 $ 4,477
Accounts payable 25,155 29,056
Employees' compensation 11,677 11,048
Insurance 10,594 10,402
Taxes on income 6,933 3,878
Other current liabilities 25,233 21,144
--------- ---------
Total current liabilities 95,485 80,005
--------- ---------
Long-term debt 36,255 36,550
Pensions and other employee benefits 53,877 54,111
Deferred tax liabilities 36,583 35,961
Other noncurrent liabilities 2,546 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 60,000,000 shares of no par
value; issued 20,335,797 and 6,778,599 (outstanding
11,906,009 and 4,291,671) 18,841 12,596
Stock compensation trust - 1,639,320 and 567,630 shares (25,683) (26,679)
Less treasury shares, at cost:
Preferred - 49,713 and 49,713 shares (1,608) (1,608)
Common - 6,790,468 and 1,919,298 shares (127,366) (95,154)
Deferred stock compensation (1,472) (504)
Accumulated other comprehensive loss (18,066) (14,831)
Earnings retained in the business 372,345 365,068
--------- ---------
Total shareholders' equity 220,560 242,457
--------- ---------
TOTALS $ 445,306 $ 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 Six Months Ended
June 30 June 30
2000 1999 2000 1999
Net sales $ 120,703 $ 123,675 $ 248,921 $ 239,642
Other income 830 561 1,918 1,462
--------- ---------- --------- ----------
121,533 124,236 250,839 241,104
--------- ---------- --------- ----------
Costs and expenses
Cost of products sold 77,398 78,224 155,229 152,157
Selling, general and administrative 33,443 33,503 65,989 66,210
Depreciation and amortization 5,813 5,696 11,815 11,249
Interest 877 1,021 1,661 1,764
Currency exchange gains (5) (77) (193) (354)
Voluntary retirement charges 0 4,608 0 4,608
--------- ---------- --------- ----------
117,526 122,975 234,501 235,634
--------- ---------- --------- ----------
Income before income taxes 4,007 1,261 16,338 5,470
Provision for income taxes 1,181 524 6,053 2,163
--------- ---------- --------- ----------
Net income $ 2,826 $ 737 $ 10,285 $ 3,307
========= ========== ========= ==========
Basic earnings per common share $ 0.22 $ 0.05 $ 0.81 $ 0.25
========= ========== ========= ==========
Diluted earnings per common share $ 0.22 $ 0.05 $ 0.80 $ 0.25
========= ========== ========= ==========
See notes to consolidated condensed financial statements
MINE SAFETY APPLIANCES COMPANY
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(Thousands of dollars)
Six Months Ended
June 30
2000 1999
OPERATING ACTIVITIES
Net income $ 10,285 $ 3,307
Depreciation and amortization 11,815 11,249
Pensions (7,363) (220)
Deferred income taxes (1,004) (750)
Changes in operating assets and liabilities 21,456 (2,426)
Other - including currency exchange adjustments (4,584) (4,376)
---------- ----------
Cash flow from operating activities 30,605 6,784
INVESTING ACTIVITIES
Property additions (9,206) (11,323)
Dispositions of property and businesses 1,888 187
Acquisitions and other investing (4,593) (5,395)
---------- ----------
Cash flow from investing activities (11,911) (16,531)
FINANCING ACTIVITIES
Additions to long-term debt 7 366
Reductions of long-term debt (266) (9)
Changes in notes payable and short-term debt 11,276 15,088
Cash dividends (3,008) (2,779)
Company stock purchases (53,234) (3,744)
Company stock sales 27,088 0
---------- ----------
Cash flow from financing activities (18,137) 8,922
Effect of exchange rate changes on cash (318) (1,223)
---------- ----------
Increase/(decrease) in cash and cash equivalents 239 (2,048)
Beginning cash and cash equivalents 17,108 24,020
---------- ----------
Ending cash and cash equivalents $ 17,347 $ 21,972
========== ==========
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) A pre-tax charge of $4.6 million ($2.8 million after-tax) was recognized in
the second quarter of 1999 related to a voluntary retirement incentive
program that was accepted by 82 non-production employees in the U.S. This
charge was more than offset by related pension settlement gains in the
second half of 1999.
(6) On May 10, 2000 the shareholders of the company approved a 3-for-1 split of
the common stock, which was paid May 24, 2000.
(7) 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. All share and per share
amounts have been restated to reflect the 3-for-1 stock split.
Three Months Ended Six Months Ended
June 30 June 30
2000 1999 2000 1999
( In thousands) ( In thousands)
Net income $ 2,826 $ 737 $ 10,285 $ 3,307
Preferred stock dividends
declared 12 24 24 37
------- ------- ------- -------
Income available to common
shareholders 2,814 713 10,261 3,270
------- ------- ------- -------
Basic shares outstanding 12,599 12,968 12,738 13,025
Stock options 77 27 52 30
------- ------- ------- -------
Diluted shares outstanding 12,676 12,995 12,790 13,055
------- ------- ------- -------
Antidilutive stock options 14 108 14 108
------- ------- ------- -------
(8) Comprehensive income (loss) was $1,324,000 and $7,050,000 for the three and
six months ended June 30, 2000, respectively, and ($126,000) and
($1,482,000) for the three and six months ended June 30, 1999,
respectively. Comprehensive income includes net income and changes in
accumulated other comprehensive income, primarily cumulative translation
adjustments, for the period.
(9) The company is organized into three geographic operating segments (North
America, Europe and Other International), 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
International. Comparative amounts for 1999 have been restated.
Reportable segment information is presented in the following table:
(In Thousands) Other
North Inter- Recon- Consol.
America Europe national ciling totals
Three Months Ended June 30, 2000
Sales to external customers $78,383 $24,264 $18,252 ($196) $120,703
Intercompany sales 6,385 3,784 697 (10,866)
Net income(loss) 2,766 (559) 623 (4) 2,826
Six Months Ended June 30, 2000
Sales to external customers 162,170 51,521 35,416 (186) 248,921
Intercompany sales 13,676 7,507 1,263 (22,446)
Net income(loss) 9,578 (705) 1,323 89 10,285
Three Months Ended June 30, 1999
Sales to external customers 78,926 27,915 17,153 (319) 123,675
Intercompany sales 7,670 4,897 591 (13,158)
Net income(loss) (260) 254 759 (16) 737
Six Months Ended June 30, 1999
Sales to external customers 155,739 55,978 28,309 (384) 239,642
Intercompany sales 15,451 9,133 1,027 (25,611)
Net income(loss) 2,778 (298) 809 18 3,307
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, cost reduction and restructuring plans,
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 restructuring efforts in
Europe, timing and market acceptance of new product introductions, market and
operating conditions affecting specialty chemical customers, the economic
environment, and interest and currency exchange rates.
Results of operations
Three months ended June 30, 2000 and 1999
Sales for the second quarter of 2000 were $120.7 million, a decrease of $3
million, or 2%, from $123.7 million in the second quarter of 1999.
Second quarter 2000 sales for North American operations were slightly lower
than the second quarter of last year. Significantly lower sales of specialty
chemicals were nearly offset by improved sales of safety products. Lower
specialty chemical sales in second quarter 2000 were a continuation of a
slow-down in sales that began in the second half of 1999. Specialty chemical
products are sold to a limited number of pharmaceutical and chemical companies
and sales levels are largely dependent on the performance of these customers'
products in their respective markets. Shipments of gas masks for defense
preparedness and helmets and fall protection equipment for industrial and
construction markets were significantly higher in 2000. Portable instrument
sales also grew significantly, reflecting the late-1999 introduction of the
improved Passport FiveStar Alarm multigas detector.
Overall, incoming orders of safety products in the U.S. exceeded shipments in
the second quarter, particularly for gas masks for government markets. The
specialty chemical order backlog also increased during the quarter.
In Europe, local currency sales for the quarter were 4% lower than second
quarter 1999. When stated in U.S. dollars, however, sales in Europe were 13%
lower due to adverse currency exchange rate movements. Lower current quarter
sales in Germany, Britain, and France were partially offset by higher sales in
Eastern European markets.
Second quarter 2000 sales for other international operations were 6% higher
than in the prior year. Sales in Africa continued to benefit from the second
quarter 1999 acquisition of Campbell Gardwel. Adverse currency exchange
effects reduced sales of other international operations slightly when stated
in U.S. dollars.
Gross profit for the second quarter of 2000 was $43.3 million, a decrease of
$2.2 million, or 5%, from $45.5 million in 1999. The ratio of gross profit to
sales was 35.9% in the second quarter of 2000 compared to 36.8% in the
corresponding quarter last year. The slightly lower gross profit percentage
reflects changes in sales mix.
Selling, general and administration costs in the second quarter of 2000 were
essentially unchanged from the prior year second quarter.
Higher depreciation and amortization expense in second quarter 2000 was
primarily due to mid-1999 additions of production and information technology
equipment in Europe.
Lower interest expense in second quarter 2000 reflects a reduction in debt that
resulted from the use of an accounts receivable securitization facility that
was established in late-1999.
Second quarter 1999 included $4.6 million in special termination benefit
charges related to a voluntary retirement incentive program in the U.S. These
charges were more than offset by related pension settlement gains in the
second half of 1999.
Income before income taxes was $4.0 million for second quarter 2000 compared
to $1.3 million in 1999. Income before taxes in 1999 was after the $4.6
million voluntary retirement charge. Excluding this item, income before taxes
in the second quarter of 2000 was $1.9 million lower than in 1999, primarily
due to lower sales and gross profits.
The effective income tax rate for the second quarter of 2000 was 29.5%
compared to 41.6% in second quarter 1999. The lower effective rate in 2000
reflects tax benefits on international operating losses, primarily in Germany,
and adjustments to prior year taxes in the U.S. related to foreign sales
corporation tax benefits.
Net income in the second quarter of 2000 was $2.8 million, or 22 cents per
basic share, compared to $737,000, or 5 cents per basic share, last year.
Six months ended June 30, 2000 and 1999
Sales for the six months ended June 30, 2000 were $248.9 million, an increase
of $9.3 million, or 4%, from $239.6 million last year.
North American sales for the first six months of 2000 were 4% higher than the
same period last year. Improved sales of safety products were partially offset
by lower specialty chemical sales. Shipments of self-contained breathing
apparatus to firefighters, gas masks for defense preparedness, and helmets for
industrial head protection all improved significantly. Portable instrument
sales also grew significantly, reflecting new product introductions in
late-1999. 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. were higher than incoming orders
in the first half of 2000, which reduced backlog slightly. Specialty chemical
order backlog increased during the first six months of 2000.
Local currency sales in Europe for the first half of 2000 were 3% higher than
first half of 1999. When stated in U.S. dollars, however, sales in Europe were
8% lower due to adverse currency exchange rate movements. Current year sales
improved in Eastern Europe and were mixed in other European markets.
Sales of other international operations for the first six months of 2000 were
25% higher than in the prior year, with substantial improvements in nearly
every market. Currency exchange effects on sales of other international
operations were minor.
Gross profit for the six months ended June 30, 2000 was $93.7 million, an
increase of $6.2 million, or 7%, from $87.5 million in 1999. The ratio of
gross profit to sales was 37.6% in the six months ended June 30, 2000 compared
to 36.5% in the corresponding period last year. The somewhat higher gross
profit percentage is largely related to changes in sales mix.
Selling, general and administration costs in the six months ended June 30,
2000 were largely unchanged from the prior year.
Higher depreciation and amortization expense in the six months ended June 30,
2000 was primarily due to mid-1999 production equipment and information
technology additions in Europe.
The six months ended June 30, 1999 included a $4.6 million charge for special
termination benefits related to a voluntary retirement incentive program in
the U.S. These charges were more than offset by related pension settlement
gains in the second half of 1999.
Income before income taxes was $16.3 million for the six months ended June 30,
2000 compared to $5.5 million last year. Improved income before taxes in 2000
is primarily due to higher gross profits and the effect of voluntary
retirement charges on 1999 results.
The effective income tax rate for the six months ended June 30, 2000 was 37.0%
compared to 39.5% in 1999. The lower effective rate for 2000 reflects tax
benefits on international operating losses, primarily in Germany, and
adjustments in the U.S. related to prior year foreign sales corporation tax
benefits.
Net income in the six months ended June 30, 2000 was $10.3 million, or 81
cents per basic share, compared to $3.3 million, or 25 cents per basic share,
last year.
Business Outlook and Other Matters
Results for the six months ended June 30, 2000 reflect strong sales of safety
products in North American markets, a recovery in core portable instrument
product sales in the U.S., and respectable growth by international operations
outside Europe and North America. However, the ongoing transformation of
European operations and sustained weakness in specialty chemicals markets are
expected to continue and could dampen overall results for the year. While the
strong results of the first quarter were not expected to continue, some aspects
of second quarter performance were disappointing. The combined first half
performance was generally as anticipated and meaningfully improved earnings are
expected for the year.
During the second quarter of 2000, the company purchased approximately 2.1
million shares of common stock from the family of a co-founder for $52
million. Approximately 1.1 million shares of common stock held in treasury
were subsequently sold to the MSA pension plan for $27 million. The combined
effect of these two transactions was to reduce total shares outstanding by
approximately 970,000 shares, or 7.6%.
In June 2000, the company agreed to acquire CairnsHelmets, the leading U.S.
manufacturer of protective helmets for the fire service. This acquisition,
which is expected to be finalized in August 2000, will significantly
strengthen the company's presence in the fire service market by adding fire
helmets to an already strong product line of self-contained breathing
apparatus, thermal imaging cameras, and portable gas detection instruments.
Liquidity and Financial Condition
Cash and cash equivalents increased $239,000 during the first six months of
2000 compared with a decrease of $2.0 million in the first six months of 1999.
Operating activities provided $30.6 million of cash in the first six months of
2000 compared to providing $6.8 million last year. The improvement is due to
changes in operating assets and liabilities, reflecting higher accrued
expenses and lower inventories and receivables.
Cash of $11.9 million was used for investing activities in the first six
months of 2000 compared to using $16.5 million in 1999. The decrease reflects
lower property additions and higher cash proceeds on sales of businesses and
property.
Financing activities used $18.1 million in the first six months of 2000 and
provided $8.9 million in 1999. The higher use of cash for financing
activities results from significant treasury stock purchases in the six months
ended June 30, 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 six months of 2000. For additional information,
refer to page 15 of the company's Annual Report to Shareholders for the year
ended December 31, 1999.
Recently Issued Accounting Standards
FASB Interpretation No. 44, Accounting for Certain Transactions involving
Stock Compensation, provides guidance on issues related to applying APB No.
25, Accounting for Stock Issued to Employees. The impact of Interpretation
No. 44, which is effective July 1, 2000, is not expected to be significant for
the company.
FAS No. 133, Accounting for Derivative Instruments and Hedging Activities,
establishes accounting and reporting standards for derivative instruments,
including those embedded in other contracts. FAS No. 133 is effective for
fiscal years beginning after June 15, 2000. Adoption of this statement is not
expected to have a significant effect on company results or financial position.
SEC Staff Accounting Bulletin No. 101, Revenue Recognition in Financial
Statements, which is effective beginning in fourth quarter 2000, provides
guidance on the recognition, presentation, and disclosure of revenue. The
company is evaluating the effects, if any, of this guidance on its financial
statements.
PART II OTHER INFORMATION
MINE SAFETY APPLIANCES COMPANY
Item 1. Legal Proceedings
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
(a) May 10, 2000 - Annual Meeting
(b) Directors elected at Annual Meeting:
Calvin A. Campbell, Jr.
Thomas B. Hotopp
Directors whose term of office continued after the meeting:
Joseph L. Calihan
Helen Lee Henderson
John T. Ryan III
L. Edward Shaw, Jr.
Thomas H. Witmer
(c) Election of two Directors for a term of three years:
Calvin A. Campbell, Jr. For 4,375,812
Withhold 889
Abstentions/ 0
Broker Nonvotes
Thomas B. Hotopp For 4,375,584
Withhold 1,117
Abstentions/ 0
Broker Nonvotes
3-for-1 Stock Split For 4,358,753
Against 9,250
Abstentions/ 8,698
Broker Nonvotes
Selection of PricewaterhouseCoopers LLP as independent
accountants for the year ending December 31, 2000.
For 4,373,662
Against 1,489
Abstentions/ 1,550
Broker Nonvotes
(d) Not Applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
A report on Form 8-K was filed on June 20, 2000 reporting
in Item 5 the Company's repurchase of common stock from the
estate and family of a company cofounder.
A report on Form 8-K was filed on June 28, 2000 reporting
in Item 5 the sale by the Company of company stock to the trust
for the MSA Pension Plan.
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: August 11, 2000 By S/James E. Herald
James E. Herald
Vice President - Finance;
Principal Financial and
Accounting Officer
5
6-MOS
DEC-31-2000
JUN-30-2000
10,899
6,448
71,592
(2,156)
76,657
25,294
377,721
(217,755)
445,306
95,485
36,255
0
3,569
18,841
198,150
445,306
248,921
250,839
155,229
167,044
(193)
0
1,661
16,338
6,053
10,285
0
0
0
10,285
.81
.80
