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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 September 30, 1998 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 October 31, 1998, there were outstanding 4,960,564 shares of common stock
without par value, including 571,690 shares held by the Mine Safety Appliances
Company Stock Compensation Trust.
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<TABLE>
PART I FINANCIAL INFORMATION
MINE SAFETY APPLIANCES COMPANY
CONSOLIDATED CONDENSED BALANCE SHEET
(Thousands of dollars, except shares data)
<CAPTION>
September 30 December 31
1998 1997
<S> <C> <C>
ASSETS
Current assets
Cash $ 4,310 $ 5,264
Temporary investments, at cost plus accrued interest 21,377 14,657
Accounts receivable, less allowance (1998 - $3,193;
1997 - $3,704) 85,559 91,388
Inventories:
Finished products 33,782 36,626
Work in process 13,503 13,772
Raw materials and supplies 34,379 30,668
-------- ---------
Total inventories 81,664 81,066
-------- ---------
Other current assets 25,709 27,238
-------- ---------
Total current assets 218,619 219,613
-------- ---------
Property, plant and equipment 358,546 354,649
Accumulated depreciation (202,566) (199,465)
-------- ---------
Net property 155,980 155,184
-------- ---------
Other assets 25,989 31,607
-------- ---------
TOTALS $ 400,588 $ 406,404
======== =========
</TABLE>
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<TABLE>
<S>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Current liabilities
Notes and accounts payable $ 55,091 $ 55,990
Federal, foreign, state and local income taxes 5,364 4,089
Other current liabilities 46,152 43,161
-------- ---------
Total current liabilities 106,607 103,240
-------- ---------
Long-term debt 11,629 12,270
Noncurrent liabilities (principally employee/retiree
benefits) and deferred credits 41,584 49,445
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 6,779,231 and 6,779,231 (outstanding
4,400,874 and 4,455,915) 12,591 12,297
Cumulative translation adjustments (10,835) (5,744)
Minimum pension liability adjustment (538) (538)
Retained earnings 352,451 343,534
Common stock compensation trust (571,690 and 600,000 (26,869) (28,200)
shares)
Less treasury shares, at cost:
Preferred - 49,313 and 49,313 shares (1,595) (1,595)
Common - 1,806,667 and 1,723,316 shares (88,006) (81,874)
-------- ---------
Total shareholders' equity 240,768 241,449
-------- ---------
TOTALS $ 400,588 $ 406,404
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</TABLE>
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<TABLE>
MINE SAFETY APPLIANCES COMPANY
CONSOLIDATED CONDENSED STATEMENT OF INCOME
(Thousands of dollars, except earnings per share)
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Net sales $ 114,928 $ 120,602 $ 361,241 $ 363,320
Other income 677 389 4,038 2,558
---------- --------- ---------- ----------
115,605 120,991 365,279 365,878
---------- --------- ---------- ----------
Costs and expenses
Cost of products sold 72,158 72,560 228,840 223,321
Selling, general and administrative 31,599 30,863 96,162 97,974
Depreciation 5,171 5,106 15,627 16,027
Interest 1,006 728 2,416 1,868
Currency exchange (gains)/losses 119 105 287 602
Facilities consolidation &
restructuring charges 349 2,418 642 2,125
---------- --------- ---------- ----------
110,402 111,780 343,974 341,917
---------- --------- ---------- ----------
Income from operations
before income taxes 5,203 9,211 21,305 23,961
Income taxes 2,130 3,379 7,942 9,470
---------- --------- ---------- ----------
Net income $ 3,073 $ 5,832 $ 13,363 $ 14,491
========== ========= ========== ==========
Basic earnings per share $ 0.69 $ 1.29 $ 3.00 $ 3.17
========== ========= ========== ==========
Diluted earnings per share $ 0.69 $ 1.29 $ 2.99 $ 3.16
========== ========= ========== ==========
</TABLE>
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<TABLE>
MINE SAFETY APPLIANCES COMPANY
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(Thousands of dollars)
<CAPTION>
Nine Months Ended
September 30
1998 1997
<S> <C> <C>
OPERATING ACTIVITIES
Income from operations $ 13,363 $ 14,491
Depreciation 15,627 16,027
Deferred taxes,pensions, and other non-cash
charges/(credits) (9,873) (10,244)
Changes in operating assets and liabilities 3,961 5,256
Other - principally currency exchange adjustments (2,411) (5,176)
-------- --------
Cash flow from operating activities 20,667 20,354
-------- --------
INVESTING ACTIVITIES
Property additions (22,838) (23,352)
Property disposals 6,537 1,383
Other investing 4,079 (511)
-------- --------
Cash flow from investing activities (12,222) (22,480)
-------- --------
FINANCING ACTIVITIES
Additions to long-term debt 110 514
Reductions of long-term debt (693) (1,187)
Changes in notes payable and short term debt 9,351 20,146
Cash dividends (4,446) (4,448)
Company stock purchases and sales (4,507) (9,303)
-------- --------
Cash flow from financing activities (185) 5,722
-------- --------
Effect of exchange rate changes on cash (2,494) (2,818)
-------- --------
Increase in cash and cash equivalents 5,766 778
Beginning cash and cash equivalents 19,921 25,096
-------- --------
Ending cash and cash equivalents $ 25,687 $ 25,874
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<FN>
Note 1 - Basis of Presentation
The accompanying unaudited consolidated condensed financial statements
include all adjustments,consisting of only normal recurring adjustments, which
are, in the opinion of management of the registrant, necessary for a fair
statement of the operating results for the three and nine-month periods ended
September 30, 1998 and 1997. These financial statements have been prepared in
accordance with the instructions to Form 10-Q and therefore do not include all
information and footnotes necessary for a fair presentation of financial
position, results of operations, and changes in cash flows in conformity with
generally accepted accounting principles.
Note 2 - Earnings per Share
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 Nine Months Ended
September 30 September 30
1998 1997 1998 1997
<C> <C> <C> <C>
Net income $ 3,073 $ 5,832 $ 13,363 $ 14,491
Preferred stock dividends declared 12 12 37 25
--------- --------- --------- ---------
Income available to common
shareholders 3,061 5,820 13,326 14,466
--------- --------- --------- ---------
Basic shares outstanding 4,432 4,505 4,445 4,563
Stock options 21 11 17 10
--------- --------- --------- ---------
Diluted shares outstanding 4,453 4,516 4,462 4,573
--------- --------- --------- ---------
Antidilutive stock options 0 0 0 0
--------- --------- --------- ---------
Note 3 - Comprehensive Income
Comprehensive income was $1,869,000 and $8,272,000 for the three and nine
months ended September 30, 1998 respectively, and $3,755,000 and $7,198,000
for the three and nine months ended September 30, 1997, respectively.
Comprehensive income includes net income and changes in accumulated other
comprehensive income, primarily cumulative translation adjustments, for the
period.
</TABLE>
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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 include, without limitation, statements regarding expectations as to
future delivery improvements, restructuring plans and benefits, fourth quarter
sales and earnings, and systems problems related to the Year 2000 and Euro
conversion. Actual results may differ from current expectations. Among the
factors that could cause such differences are system performance, availability
of critical material, learning curve of employees, local labor requirements and
the economic environment. Also contained herein is information concerning Year
2000 readiness as defined in the Federal Year 2000 Information and Readiness
Disclosure Act.
Results of operations and financial conditions
- ----------------------------------------------
Consolidated sales for the third quarter of 1998 were $114,928,000
compared with $120,602,000 for the third quarter of 1997. Sales for the nine
months ended September 30, 1998 were $361,241,000 compared with $363,320,000
for the same period last year.
Net income for the 1998 third quarter was $3,073,000, or 69 cents per
share, compared with 1997 third quarter income of $5,832,000, or $1.29 per
share. Net income for the nine months ended September 30, 1998 was $13,363,000,
or $3.00 per share, compared with $14,491,000, or $3.17 per share in 1997.
The principal reason for the lower sales in the third quarter was the
second quarter divestiture of HAZCO and Baseline business units, which
generated revenues of $7.8 million during the third quarter of 1997. Sales of
continuing U.S. operations increased, with most growth occurring in chemical
products. Sales of safety and instrument products in the U.S. were similar to
year-ago levels. The adverse global economic conditions in international
markets also impacted the company's U.S. export performance.
Some time ago the company faced several new challenges. The most
significant of these has been a computer issue related to the Year 2000 and
the vitality of MSA's Esmond, R.I. factory after the completion of large
government contracts that accounted for more than half of the operation's
activity. To address the immediate Year 2000 issue and to resolve similar
issues in major international operations, the company adopted an
enterprise-wide computer system. When fully operational, the system will
provide the company with advanced information systems capabilities to meet
current and future customer needs. On the factory issue, the Esmond plant was
closed in late 1997 on an aggressive schedule, and the remaining work,
particularly the rubber molding activities, was transferred to other facilities.
Implementation of these two initiatives has been very challenging and
difficult. Company earnings in the second and particularly the third quarters
in the U.S. were significantly impacted by the consequences of these
transitions. While the computer system has functioned from the outset, the
ability to manage and track orders through the manufacturing and fulfillment
stages was considerably degraded for several months after the May 1 start-up.
Most of the impediments have now been removed from utilization of the computer
system and the company is returning to the high standard of customer service for
which it is known.
In regard to production of rubber components, the company's rubber molding
start-up operation did not go as planned. Combined with sharply increased
demand for some products, delivery of rubber products and components in the
United States and for export became quite unsatisfactory. With initiatives in
the factory over the past several months and with progress on the learning
curve, considerable improvements on availability of rubber products have been
seen and full resolution of this issue is expected soon.
The combination of computer and rubber supply difficulties caused a
meaningful delay in shipping orders and gaining invoicing in the U.S. These
factors also resulted in the loss of some new business when the company could
not deliver products or provide accurate delivery information. The company
looks forward to customers seeing the results of MSA's substantial progress on
these two issues. Some of the backlog increase during the previous two quarters
should be shipped in the fourth quarter.
Sales of international operations as reported in U.S. dollars were lower
than prior year levels, largely due to the stronger U.S. dollar relative to
other currencies. Incoming orders in local currencies in Europe have kept at a
pace to make their annual targets but invoicing, particularly in Germany, has
lagged. International markets outside of Europe have been hurt by the well
publicized economic conditions in those areas, especially those economies that
depend on mineral and energy exports.
A significant factor in the decline in third quarter earnings from the
prior year level is that the 1997 third quarter results included pension
accounting gains associated with former Rhode Island employees, which more than
offset facilities consolidation charges, producing a net income benefit of $1.4
million. Net income from ongoing U.S. operations has declined somewhat due
mainly to higher information systems and rubber production costs.
Income from international operations has also declined, mainly related to
the adverse economic conditions originating in Asia that are impacting other
regions as well, particularly Latin America and South Africa. Actual MSA
companies' sales and earnings in Asia itself were creditable under the highly
difficult circumstances, but in other international areas this adversity had a
greater impact. Action has been taken to mitigate the consequences. There was
improvement over 1997 in most European companies with the exception of the
company's German affiliate, Auergesellschaft, where performance deteriorated
due to a lag between receipt of incoming orders and invoicing and ongoing
factory performance issues.
The third quarter results were disappointing, even setting aside the
effect of the special items in last year's results. Major corporate
innovations and initiatives are disruptive by nature. The company had hoped to
contain the negative effects more than it was able to do in the last two
quarters. Recent internal progress has been considerable, which will
ultimately result in improved U.S. customer satisfaction. Fortunately,
throughout this difficult period incoming orders in two key sales groups in
the U.S. have remained healthy, and MSA has a respectable backlog of business
for future delivery.
Profitability of the company's European operations, especially Germany, is
a major concern. Plans to address this situation are nearing completion, but
implementation will be costly and take some time before significant improvement
is realized. MSA is hopeful for some benefit from seasonal strengthening in
fourth quarter sales. International operations outside of Europe are taking
aggressive actions to control costs in response to the adverse economic
conditions; however, the economic outlook is very uncertain.
Year-to-date results have fallen somewhat behind the prior year. The
fourth quarter of last year was the strongest of the year. While there is some
basis for expecting a degree of improvement in the upcoming quarter relative
to the one just reported, it appears likely that results will fall short of
last year's levels.
Earnings per share have benefited from reduced shares outstanding as a
result of shares purchased by the company.
The higher effective tax rate in the third quarter of 1998 compared to the
third quarter of 1997 was due primarily to the impact of losses of international
affiliates.
Currency exchange adjustments charged directly to the equity cumulative
translation adjustments account are shown below. Significant third quarter 1998
losses relate primarily to Canada and Australia. Significant year-to-date 1998
losses relate primarily to Germany, Australia and Canada. Significant
year-to-date 1997 losses relate primarily to Germany and Australia.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
1998 1997 1998 1997
(Thousands of dollars)(Thousands of dollars)
<S> <C> <C> <C> <C>
Translation (gains)/losses 1,204 2,077 5,091 7,293
</TABLE>
Available credit facilities along with internal cash resources are
adequate to provide for ensuing capital requirements. The company's financial
position and liquidity continue to be adequate. The current ratio and term debt
in relation to capital as of September 30, 1998 were 2.1 and 5.0%,
respectively, as compared to 2.1 and 5.4% at December 31, 1997.
Year 2000
- ---------
State of Readiness - Many information technology (IT) systems and non-IT
systems and equipment use only the last two digits to refer to a year.
Beginning in the year 2000, these systems may not be able to process
date-sensitive data accurately. If not corrected, this could lead to systems
failures or erroneous results causing significant disruptions in a company's
operations.
In 1996, to provide the information infrastructure for MSA's evolving
global management strategy, the company began a project to replace significant
IT systems world-wide with a fully-integrated Enterprise Wide System (EWS)
using SAP R/3. Because SAP R/3 is Year 2000 compliant, implementation of EWS at
various MSA companies has been timed to reduce the Year 2000 impact on IT
systems. EWS is currently operating at all MSA locations in the U.S. and at MSA
Britain. Implementations at additional locations, including Germany, are in
progress. We expect that by the end of 1999 EWS will be implemented at MSA
operations which account for approximately 75% of consolidated sales and over
90% of manufacturing activity. The costs associated with the EWS project are
currently estimated to be approximately $30 million through 1998. A significant
portion of these costs is being capitalized and depreciated over future periods.
IT systems at those operations that will not be on EWS by the end of 1999 are
either currently Year 2000 compliant or will be modified.
In addition to the EWS project, MSA has Year 2000 compliance efforts in a
number of areas, including: non-IT systems (such as physical plant and
manufacturing systems), key vendors and service providers, EDI systems, and MSA
products. These efforts are assessing the Year 2000 impact, assigning
priorities, and modifying or replacing significant items that are not Year 2000
compliant.
Year 2000 costs - Current estimated cost of the company's Year 2000
remediation efforts is expected to be less than $5 million. These costs are
expensed as incurred and are funded from operating cash flow.
Risks and contingency plans - Failure to identify and correct significant
Year 2000 problems could result in interruption of normal business operations.
The company believes that the efforts described above should reasonably
identify and address the impact of the Year 2000 issue and its effect on
operations and should reduce the possibility of significant interruptions.
However, due to uncertainties inherent in the Year 2000 problem, including the
readiness of third party vendors and service providers and customers, there is
a risk of a material adverse affect on future results or financial position.
MSA plans to continue to assess these risks and contingency plans will be
developed during 1999 if additional Year 2000 exposures are identified.
Euro conversion
- ---------------
On January 1, 1999, eleven European Union member countries will establish
fixed conversion rates between their existing currencies (legacy currencies)
and the European Union's common currency (Euro). The participating countries
have agreed to adopt the Euro as their common legal currency on that date.
Between January 1, 1999 and January 1, 2002, the transition period, legacy
currencies are scheduled to remain legal tender as denominations of the Euro.
Beginning January 1, 2002, Euro denominated bills and coins will be issued and
by July 1, 2002, legacy bills and coins will be withdrawn.
MSA affiliates affected by the Euro conversion have established teams to
address issues raised by the Euro conversion. These issues include, among
others, the need to adapt information technology and financial systems and
business processes to accommodate Euro transactions and the impact of one
common currency on pricing. Based on work to date, we do not believe that
system and business process-related costs will be material. Due to numerous
uncertainties, we cannot reasonably estimate the effects of one common currency
on pricing.
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PART II OTHER INFORMATION
MINE SAFETY APPLIANCES COMPANY
Item 1. Legal Proceedings
Not Applicable
Item 5. Other Information
The following description of the registrant's common stock is being
filed for the purpose of being incorporated by reference in Registration
Statements filed or to be filed by the registrant under the Securities Act of
1933:
DESCRIPTION OF COMMON STOCK
The following description of the Common Stock, no par value (the
"Common Stock"), of Mine Safety Appliances Company (the "Company") is
summarized from the relevant provisions of the Company's Restated Articles of
Incorporation (the "Articles"). For a complete statement of such provisions,
reference is hereby made to the Articles, which are incorporated herein by
reference. The statements under this caption are qualified in their entirety
by such reference.
AUTHORIZED SHARES
The Articles authorize the Company to issue from time to time up to
20,000,000 shares of Common Stock. The Company has outstanding shares of a
class of 4-1/2% Cumulative Preferred Stock, par value $50 per share (the"4-1/2%
Preferred Stock") which is limited by the Articles to a maximum of 100,000
shares. The Articles also authorize the Company to issue up to 1,000,000
shares of Second Cumulative Preferred Stock, par value $10 per share (the
"Second Preferred Stock" and, together with the 4-1/2% Preferred Stock, the
"Preferred Stock"). The authorized shares of Second Preferred Stock are
issuable in one or more series on the terms set by the resolution or
resolutions of the Board of Directors of the Company (the "Board") providing
for the issuance thereof. Each series of Second Preferred Stock would have such
dividend rate, which might or might not be cumulative, such voting rights,
which might be general or special, and such liquidation preferences, redemption
and sinking fund provisions, conversion rights or other rights and preferences,
if any, as the Board may determine.
VOTING RIGHTS
General. Except for such voting rights as are granted to the holders
of the Preferred Stock in the Articles or in the resolutions of the Board
establishing any series or Second Preferred Stock, or as otherwise required by
law, all voting power of the Company's shares belongs exclusively to the
holders of Common Stock. The holders of Common Stock are generally entitled to
one vote for each share held of record on all matters submitted to a
shareholder vote and do not have cumulative voting rights in the election of
directors. The absence of cumulative voting means that a nominee for director
must receive the votes of a plurality of the shares voted in order to be
elected.
Special Votes for Transactions with 20% Shareholders. The Articles
contain provisions requiring special shareholder votes to approve certain
types of transactions. In the absence of these provisions, either the
transactions would require approval by a majority of the shares voted at a
meeting or no shareholder vote would be required.
Transactions with an Interested Person. The Articles require that
certain transactions between the Company and an "Interested Person" be approved
by the affirmative votes of the holders of 75% of the outstanding Common Stock.
An "Interested Person" is generally defined by the Articles to mean a person
or a group acting in concert that beneficially owns 20% or more of the
Company's outstanding Common Stock.
The transactions subject to this special vote requirement include (1)
any merger or consolidation to which the Company and an Interested Person are
parties, (2) any sale, lease, exchange or other disposition of 20% or more of
the Company's consolidated assets to an Interested Person or (3) any
transaction of a character described in (1) or (2) involving an "affiliate" or
"associate" of an Interested Person or an associate of any such affiliate or
an affiliate of any such associate. For purposes of this provision, an (a)
"affiliate" of a person is another person that controls, is controlled by or
is under common control with such person and (b) an "associate" of a person is
(i) any corporation or organization of which such person is an officer,
partner or the beneficial owner of 10% or more of any class of securities,
(ii) any trust or estate in which such person has a 10% or greater beneficial
interest or for which such person serves as trustee or in a similar capacity;
or (iii) any relative or spouse of such person, or relative of such spouse,
who has the same residence as such person.
This special shareholder vote requirement does not apply to any
transaction which is (a) approved by the vote of not less than a majority of
the Board prior to the time the Interested Person involved in the transaction
became an Interested Person or (b) approved prior to consummation by the vote
of not less than a majority of the Board disregarding the vote of any director
who is the Interested Person involved in the transaction, an affiliate,
associate or agent of such Interested Person or an associate or agent of any
such affiliate.
Transactions with an Acquiring Person. The Articles require that
certain transactions between the Company and an "Acquiring Person" be approved
by the affirmative votes of the holders of a majority of the voting power of
the Company's voting stock not beneficially owned by an Acquiring Person.
An "Acquiring Person" is generally defined by the Articles to mean any
person which (1) beneficially owns or is a member of a group acting in concert
which beneficially owns 20% or more of the voting power of the Company's
outstanding voting stock, (2) is a director of the Company and at any time
within the preceding two years beneficially owned 20% or more of such voting
power or (3) has succeeded to the beneficial ownership of any shares of the
Company's voting stock which were at any time during the preceding two years
beneficially owned by an Acquiring Person, if such succession occurred through
a transaction not involving a public offering under the Securities Act of
1933. The term "Acquiring Person" does not include the Company, a subsidiary,
a trustee for a Company employee benefit plan or a person or group which on
February 14, 1986 beneficially owned 20% or more of the voting power of the
Company's outstanding voting stock.
The transactions subject to this special vote requirement include (1)
a merger, consolidation or share exchange of the Company or a subsidiary with
an Acquiring Person or with another person which is or after the transaction
would be an "affiliate" or "associate" of an Acquiring Person, (2) a sale,
lease, exchange or other disposition of 10% or more of the book or market value
of the Company's or a subsidiaries' consolidated assets to an Acquiring Person
or of 10% or more of the book or market value of an Acquiring Person's
consolidated assets to the Company or a subsidiary, (3) the issuance, transfer
or delivery (other than on a pro rata basis to all shareholders) of any
securities of the Company or a subsidiary by the Company or a subsidiary to an
Acquiring Person or of any securities of an Acquiring Person by the Acquiring
Person to the Company or a subsidiary, (4) a recapitalization, reorganization,
reclassification of securities or other transaction involving the Company that
would have the effect of increasing an Acquiring Person's voting power or (5)
the adoption of a plan for the liquidation or dissolution of the Company in
which an Acquiring Person is treated differently from other shareholders of the
same class.
With respect to any particular transaction, the term "Acquiring
Person" includes any "affiliate" or "associate" of an Acquiring Person or any
other person acting in concert with such person. For purposes of this
provision, an (a) "affiliate" of a person is another person (other than the
Company or a subsidiary) that controls, is controlled by or is under common
control with such person and (b) an "associate" of a person is (i) a director,
officer or partner of, or the beneficial owner of 10% or more of any class of
equity securities of, such person or any of its affiliates, (ii) a corporation
or organization (other than the Company or a subsidiary) of which such person
is a director, officer, partner or the beneficial owner of 10% or more of any
class of equity securities, (iii) a trust or estate in which such person has a
substantial beneficial interest or as to which such person serves as trustee or
similar fiduciary, (iv) any relative or spouse of such person, or relative of
such spouse, who has the same home as such person or is a director or officer
of the Company or any subsidiary or (v) any registered investment company for
which such person or any of its affiliates or associates serves as investment
advisor.
This special shareholder vote requirement does not apply to any
transaction approved by the Board upon the vote of not less than a majority of
the "Disinterested Directors." A "Disinterested Director" is any director of
the Company who is unaffiliated with and not a representative of any Acquiring
Person and either (1) was a director immediately before the Acquiring Person
became an Acquiring Person or (2) was recommended for election by a majority of
the Disinterested Directors then on the Board. If at any time there are no
Disinterested Directors in office, then any provision in the Articles calling
for a determination, recommendation or approval by a majority of the
Disinterested Directors shall be deemed satisfied if the Board takes such
action by a two-thirds vote of all directors in office.
Shareholder Action - Meetings and Special Meetings. The Articles
require that any action required or permitted to be taken by the shareholders
of the Company must be taken at a duly called annual or special meeting and may
not be taken without a meeting by written consent. Subject to the rights of the
holders of any class or series of Preferred Stock with respect to any separate
class or series vote of such holders, special meetings of shareholders of the
Company may be called only by the Board pursuant to a resolution approved by a
majority vote of the Disinterested Directors.
Amendment of Articles and Bylaws. The Articles require the affirmative
votes of the holders of a majority of the voting power of the voting stock not
beneficially owned by an Acquiring Person to approve any amendment to the
Articles or any shareholder amendment to the bylaws. This special voting
requirement does not apply to an amendment previously approved by a majority
vote of the Disinterested Directors. In addition, any amendment to the
Articles provisions described under "Transactions with an Interested Person"
above would require approval by the affirmative votes of the holders of 75% of
the outstanding shares of Common Stock. By statute, any amendment to any other
provision of the Articles or any amendment of the bylaws by the shareholders
would also require approval by a majority of the votes cast on the proposed
amendment at a meeting of shareholders at which a quorum of a majority of the
voting power of the voting stock was present. Except as to matters for which a
shareholder vote is required by statute, the Board may also amend the bylaws
without shareholder approval by a vote of a majority of the Disinterested
Directors.
Preferred Stock Restrictions. The Articles provide that except with
the affirmative vote of the holders of at least 60% of the outstanding shares
of 4-1/2% Preferred Stock or Second Preferred Stock, as the case may be, the
Company may not, whether by amendment of the Articles, sale of assets, merger,
consolidation or otherwise, (a) amend the Articles so as to affect adversely
the relative rights, preferences or powers of such class of Preferred Stock or
(b) authorize, or increase the authorized amount of, such class of Preferred
Stock or any class or series ranking senior to or on a parity with such class
in the payment of dividends or the preferential distribution of assets. No such
vote is required for any sale of assets, merger or consolidation if (i) such
holders of Preferred Stock immediately prior thereto shall thereafter continue
to hold or shall receive in connection therewith the same number of shares of
preferred stock, with the same relative rights, preferences and powers, of the
acquiring, surviving or resulting corporation, or (ii) the authorized capital
stock of the acquiring, surviving or resulting corporation immediately
thereafter shall include only classes of stock which no such vote would have
been required to authorize under clauses (a) or (b) of the previous sentence.
BOARD OF DIRECTORS
Classified Board. The Articles divide the Board into three classes,
each consisting of one-third (or as near as may be) of the whole number of the
Board. One class of directors is elected at each Annual Meeting of
Shareholders, and each class serves for a term of three years.
The number of directors which constitute the full Board may be not be
less than 5 nor more than 15, with the exact number to be determined from time
to time by the Board by a majority vote of the Disinterested Directors then in
office. Except as otherwise required by law, vacancies on the Board, including
vacancies resulting from an increase in the number of directors, may be filled
only by a majority vote of the Disinterested Directors then in office, even if
less than a quorum of the Board. Directors elected by the Board to fill
vacancies serve for the full remainder of the term of the class to which they
have been elected.
Removal of Directors. The Articles provide that a director, any class
of directors or the entire Board may be removed from office by shareholder
vote only for cause and only if, in addition to any other vote required by
law, such removal is approved by a majority of the voting power of the
outstanding voting stock which is not beneficially owned by an Acquiring
Person.
Nomination of Director Candidates. The Articles require that any
shareholder intending to nominate a candidate for election as a director must
give written notice of the nomination, containing certain specified
information, to the Secretary of the Company not later than 90 days in advance
of the meeting at which the election is to be held.
Preferred Stock Directors. The Articles provide that if at any time
dividends payable on the 4-1/2% Preferred Stock or the Second Preferred Stock
shall be accrued and unpaid in an amount equal to or exceeding six quarterly
dividends, then the holders of such class of Preferred Stock, voting as a
separate class without regard to series, shall be entitled to elect two
directors, in addition to the directors elected by the holders of Common Stock
and any directors elected by the other class of Preferred Stock. In the case
of the 4-1/2% Preferred Stock, such voting power and the terms of office of any
directors so elected shall cease when all accrued and unpaid dividends on such
stock to the beginning of the then current dividend period shall have been
paid in full or funds for the payment thereof shall have been set apart. In the
case of the Second Preferred Stock, such voting power shall cease when all
accrued and unpaid dividends on all series of such stock shall have been paid
to the end of the last preceding quarterly dividend, but any such director
previously elected shall continue to serve until the next annual meeting of
shareholders.
The provisions of the Articles described above under "Classified
Board," "Removal of Directors" and "Nomination of Director Candidates" do not
apply to any directors elected by a separate class vote of the holders of
Preferred Stock.
SHAREHOLDER RIGHTS PLAN
The Company has established a shareholder rights plan under which each
share of Common Stock presently outstanding or which is issued hereafter prior
to the Distribution Date (defined below) is granted one preferred share
purchase right (a "Right"). Each Right entitles the registered holder to
purchase from the Company one one-thousandth (1/1000) of a share of Series A
Junior Participating Preferred Stock, par value $10.00 per share (the
"Preferred Shares"), of the Company at a price of $255 per 1/1000th of a
Preferred Share, subject to adjustment in the event of stock dividends and
similar events occurring prior to the Distribution Date. Each 1/1000th of a
Preferred Share would have voting, dividend and liquidation rights which are
the approximate equivalent of one share of Common Stock.
The Rights are not exercisable until the Distribution Date, which is
the earlier to occur of (i) 10 days following the date (the "Stock Acquisition
Date") of a public announcement that a person or group (an "Acquiring Person")
has acquired beneficial ownership, after excluding Exempted Shares (defined
below), of 15% or more of the outstanding Common Stock or (ii) 10 business
days (unless extended by the Board) following the commencement of a tender
offer or exchange offer the consummation of which would result in the
beneficial ownership by a person or group of 15% or more of the outstanding
Common Stock without excluding any Exempted Shares.
In general, the term "Exempted Shares" means shares held by a natural
person, trust, estate, tax-exempt foundation or similar entity (eligible
person) which have been held continuously since February 10, 1997 or were
acquired since that date pursuant to an employee benefit plan of the Company
or by gift, inheritance or other testamentary distribution from an eligible
person who had acquired them prior to February 10, 1997 or from a Company
employee benefit plan.
Until the Distribution Date, the Rights will be transferred with and
only with the Common Stock, and the surrender for transfer of any certificate
for Common Stock will also constitute the transfer of the Rights associated
with the shares represented by such certificate. As soon as practicable
following the Distribution Date, separate certificates evidencing the Rights
will be mailed to holders of record of the Common Stock as of the close of
business on the Distribution Date, and the Rights will then become separately
tradable.
In the event that any person or group becomes, after excluding any
Exempted Shares, the beneficial owner of 15% or more of the outstanding shares
of Common Stock (other than pursuant to a tender or exchange offer for all
outstanding shares of Common Stock at a price and on terms determined by a
majority of the nonofficer members of the Board who are not representatives,
affiliates or associates of an Acquiring Person, after receiving advice from
one or more investment banking firms, to be at a price which is fair to
shareholders and otherwise in the best interests of the Company and its
shareholders), each holder of a Right, other than Rights beneficially owned
by, or in certain circumstances acquired from, the Acquiring Person or its
associates or affiliates (which will be void), will thereafter have the right
to receive upon exercise that number of shares of Common Stock (or, in certain
circumstances, cash, property or other securities of the Company) having a
value equal to two times the exercise price of the Right. However, the Rights
are not exercisable following any such event until such time as the Rights are
no longer redeemable by the Company as set forth below.
In the event that after the Stock Acquisition Date, (i) the Company
engages in a merger or consolidation in which it is not the surviving
corporation or in which shares of Common Stock are converted or exchanged
(other than a transaction pursuant to a Qualifying Offer) or (ii) 50% or more
of its consolidated assets or earning power are sold or transferred, proper
provision will be made so that each holder of a Right (other than Rights which
have previously been voided as set forth above) will thereafter have the right
to receive, upon exercise of the Right, that number of shares of common stock
of the acquiring company which at the time of such transaction will have a
market value of two times the exercise price of the Right.
At any time after a person or group becomes an Acquiring Person and
prior to the acquisition by such person or group of 50% or more of the
outstanding Common Stock, the Board may exchange the Rights (other than Rights
owned by such person or group, which have become void), in whole or in part, at
an exchange ratio of one share of Common Stock, or 1/1000th of a Preferred
Share (or of a share of a class or series of the Company's preferred stock
having equivalent rights, preferences and privileges), per Right (subject to
adjustment).
At any time until 10 days following the Stock Acquisition Date, the
Board may redeem the Rights in whole, but not in part, at a redemption price of
$.01 per Right (subject to adjustment).
Prior to the Distribution Date, the terms of the Rights may without
the consent of the holders of the Rights be amended by the Board in any respect
whatever, except for an amendment that would change the redemption price, the
exercise price of the Rights, the number of 1/1000ths of a Preferred Share
purchasable upon exercise of the Rights or the final expiration date of the
Rights. After the Distribution Date, the Board may amend the Rights Agreement
to cure any ambiguity or inconsistency, to make changes which do not adversely
affect the interests of holders of Rights (excluding the interest of any
Acquiring Person), or to shorten or lengthen any time period under the Rights
Agreement; provided, however, that no amendment to adjust the time period
governing redemption shall be made at such time as the Rights are not
redeemable. The Rights will expire on February 21, 2007, unless the Rights are
earlier redeemed by the Company as described above.
PENNSYLVANIA BUSINESS CORPORATION LAW
The provisions of the Articles described under "Voting Rights" and
"Board of Directors" above and the Company's shareholder rights plan are in
addition to certain provisions of Chapter 25 of the Pennsylvania Business
Corporation Law ("BCL") which may have the effect of discouraging or rendering
more difficult a hostile takeover attempt against the Company.
Under Section 2538 of the BCL, any merger, consolidation, share
exchange or sale of assets between the Company or a subsidiary and any
shareholder of the Company, any division of the Company in which any
shareholder receives a disproportionate amount of any shares or other
securities of any corporation resulting from the division, any voluntary
dissolution of the Company in which a shareholder is treated differently from
other shareholders of the same class or any reclassification in which any
shareholder's voting or economic interest in the Company is materially
increased relative to substantially all other shareholders must, in addition to
any other shareholder vote required, be approved by a majority of the votes
which all shareholders other than the shareholder receiving the special
treatment are entitled to cast with respect to the transaction. This special
vote requirement does not apply to a transaction (1) which has been approved by
a majority vote of the Board, without counting the vote of certain directors
affiliated with or nominated by the interested shareholder or (2) in which the
consideration to be received by the shareholders is not less than the highest
amount paid by the interested shareholder in acquiring shares of the same
class.
Under Subchapter 25E of the BCL, if any person or group acting in
concert acquires voting power over shares representing 20% or more of the
votes which all shareholders of the Company would be entitled to cast in an
election of directors, any other shareholder may demand that such person or
group purchase such shareholder's shares at a price determined in an appraisal
proceeding.
Under Subchapter 25G of the BCL, the Company may not engage in merger,
consolidation, share exchange, division, asset sale or a variety of other
"business combination" transactions with a person which becomes the
"beneficial owner" of shares representing 20% or more of the voting power in
an election of directors of the Company unless (1) the business combination or
the acquisition of the 20% interest is approved by the Board prior to the date
the 20% interest is acquired, (2) the person beneficially owns at least 80% of
the outstanding shares and the business combination (a) is approved by a
majority vote of the disinterested shareholders and (b) satisfies certain
minimum price and other conditions prescribed in Subchapter 25F, (3) the
business combination is approved by a majority vote of the disinterested
shareholders at a meeting called no earlier than five years after the date the
20% interest is acquired or (4) the business combination (a) is approved by
shareholder vote at a meeting called no earlier than five years after the date
the 20% interest is acquired and (b) satisfies certain minimum price and other
conditions prescribed in Subchapter 25F.
The Company has elected to opt out from coverage by Subchapter 25G of
the BCL, which would have required a shareholder vote to accord voting rights
to control shares acquired by a 20% shareholder in a control-share acquisition,
and Subchapter 25H of the BCL, which would have required a person or group to
disgorge to the Company any profits received from a sale of the Company's
equity securities within 18 months after the person or group acquired or
offered to acquire 20% of the Company's voting power or publicly disclosed an
intention to acquire control of the Company.
DIVIDEND RIGHTS
Subject to the rights of the holders of the Preferred Stock, the
holders of Common Stock are entitled to dividends when, as and if declared by
the Board out of funds legally available therefor.
The Articles provide that the holders of the 4-1/2% Preferred Stock
are entitled to quarterly dividends at the rate of 4-1/2% per annum, when and
as declared by the Board, and that no dividends may be paid, or distribution
ordered or made, on the Common Stock or the Second Preferred Stock
(collectively, the "Junior Stock") in any year while dividends are accumulated
and unpaid upon the 4-1/2% Preferred Stock unless and until dividends for the
current year shall have been declared and paid or set apart for the 4-1/2%
Preferred Stock. The Articles further provide that so long as any 4-1/2%
Preferred Stock is outstanding, the Company shall not declare or pay any
dividend (except dividends payable in shares of Junior Stock) on any shares of
Junior Stock which would reduce the earned surplus of the Company below an
amount equal to 50% of the aggregate par value of the then outstanding shares
of 4-1/2% Preferred Stock.
If Second Preferred Stock is issued, the Board may also grant to the
holders of such stock preferential dividend rights which would prohibit payment
of dividends on the Common Stock unless and until specified dividends on the
Second Preferred Stock had been paid or in other circumstances and/or rights to
share ratably in any dividends payable on the Common Stock.
LIQUIDATION RIGHTS
Upon liquidation, dissolution or winding up of the Company, whether
voluntary or involuntary, the holders of Common Stock are entitled to share
ratably in the assets of the Company available for distribution after all
liabilities of the Company have been satisfied and all preferential amounts
payable to the holders of Preferred Stock have been paid.
The Articles provide that in the event of liquidation, dissolution or
winding up of the Company, the holders of the 4-1/2% Preferred Stock shall be
entitled to receive, before any distribution may be paid to the holders of
Junior Stock, the sum of $50 per share if the liquidation, dissolution or
winding up shall be involuntary, or $52.50 per share if it shall be voluntary,
together in either case with all accrued and unpaid dividends to the date fixed
for payment of such preferential amounts.
If Second Preferred Stock is issued, the Board may also grant to the
holders of such stock preferential liquidation rights which would entitle them
to be paid out of the assets of the Company available for distribution before
any distribution is made to the holders of Common Stock and/or rights to
participate ratably with the Common Stock in any such distribution.
MISCELLANEOUS
There are no preemptive rights, sinking fund provisions, conversion
rights or redemption provisions applicable to the Common Stock. Holders of
fully paid shares of Common Stock are not subject to any liability for further
calls or assessments.
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
September 30, 1998.
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: November 13, 1998 By S/James E. Herald
James E. Herald
Vice President - Finance;
Principal Financial and
Accounting Officer
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THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SEPTEMBER
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FINANCIAL STATEMENTS
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