22
<PAGE>
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, 1999 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, 1999, there were outstanding 4,896,792 shares of common stock
without par value, including 571,690 shares held by the Mine Safety Appliances
Company Stock Compensation Trust.
<PAGE>
<TABLE>
PART I FINANCIAL INFORMATION
MINE SAFETY APPLIANCES COMPANY
CONSOLIDATED CONDENSED BALANCE SHEET
(Thousands of dollars, except share data)
<CAPTION>
March 31 December 31
1999 1998
<S> <C> <C>
ASSETS
Current assets
Cash $ 13,407 10,084
Temporary investments, at cost plus accrued interest 9,480 13,936
Accounts receivable, less allowance (1999 - $3,023;
1998 - $3,004) 90,729 94,850
Inventories:
Finished products 37,049 36,956
Work in process 11,942 12,445
Raw materials and supplies 39,139 36,090
--------- ---------
Total inventories 88,130 85,491
--------- ---------
Other current assets 24,581 24,848
--------- ---------
Total current assets 226,327 229,209
--------- ---------
Property, plant and equipment 370,724 371,687
Accumulated depreciation (207,931) (207,126)
--------- ---------
Net property 162,793 164,561
--------- ---------
Prepaid pension cost 48,970 46,162
Other assets 17,219 16,784
--------- ---------
TOTALS $ 455,309 456,716
========= =========
</TABLE>
<TABLE>
<S>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Current liabilities
Notes and accounts payable $ 70,125 68,416
Federal, foreign, state and local income taxes 2,436 991
Other current liabilities 42,951 40,599
--------- ---------
Total current liabilities 115,512 110,006
--------- ---------
Long-term debt 12,226 11,919
Pensions and other employee benefits 59,304 60,550
Noncurrent liabilities and deferred credits 31,307 31,395
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
4,328,200 and 4,378,874) 12,591 12,591
Common stock compensation trust - 571,690 and 571,690
shares (26,869) (26,869)
Less treasury shares, at cost:
Preferred - 49,313 and 49,313 shares (1,595) (1,595)
Common - 1,879,341 and 1,828,667 shares (92,657) (89,521)
Deferred stock compensation (852) (951)
Accumulated other comprehensive (loss) (14,166) (10,240)
Retained earnings 356,939 355,862
--------- ---------
Total shareholders' equity 236,960 242,846
--------- ---------
TOTALS $ 455,309 456,716
========= =========
</TABLE>
See notes to consolidated condensed financial statements.
<PAGE>
<TABLE>
MINE SAFETY APPLIANCES COMPANY
CONSOLIDATED CONDENSED STATEMENT OF INCOME
(Thousands of dollars, except earnings per share)
<CAPTION>
Three Months Ended
March 31
1999 1998
<S> <C> <C>
Net sales $ 115,967 $ 123,408
Other income 596 813
---------- ----------
116,563 124,221
---------- ----------
Costs and expenses
Cost of products sold 73,933 77,227
Selling, general and administrative 32,402 31,642
Depreciation and amortization 5,553 5,413
Interest 743 646
Currency exchange (gains)/losses (277) 147
---------- ----------
112,354 115,075
---------- ----------
Income from operations before income taxes 4,209 9,146
Provision for income taxes 1,639 3,658
---------- ----------
Net income $ 2,570 $ 5,488
========== ==========
Basic earnings per common share $ 0.59 $ 1.23
========== ==========
Diluted earnings per common share $ 0.59 $ 1.23
========== ==========
</TABLE>
See notes to consolidated condensed financial statements.
<PAGE>
<TABLE>
MINE SAFETY APPLIANCES COMPANY
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(Thousands of dollars)
<CAPTION>
Three Months Ended
March 31
1999 1998
<S> <C> <C>
OPERATING ACTIVITIES
Income from operations $ 2,570 $ 5,488
Depreciation and amortization 5,553 5,413
Deferred taxes,pensions, and other non-cash
charges/(credits) (2,595) (5,967)
Changes in operating assets and liabilities (1,325) 619
Other - principally currency exchange adjustments (2,950) (830)
--------- ---------
Cash flow from operating activities 1,253 4,723
--------- ---------
INVESTING ACTIVITIES
Property additions (5,459) (7,256)
Property disposals, net 109 31
Other investing (460) (589)
--------- ---------
Cash flow from investing activities (5,810) (7,814)
--------- ---------
FINANCING ACTIVITIES
Additions to long-term debt 375 7
Reductions of long-term debt 0 (344)
Changes in notes payable and short term debt 8,272 11,117
Cash dividends (1,493) (1,393)
Company stock purchases and sales (3,136) (524)
--------- ---------
Cash flow from financing activities 4,018 8,863
--------- ---------
Effect of exchange rate changes on cash (594) (2,309)
--------- ---------
Net (decrease) increase in cash and cash equivalents (1,133) 3,463
Beginning cash and cash equivalents 24,020 19,921
--------- ---------
Ending cash and cash equivalents $ 22,887 $ 23,384
========= =========
</TABLE>
See notes to consolidated condensed financial statements.
<PAGE>
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, 1998 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.
1999 1998
[C] [C]
Net income $ 2,570 $ 5,488
Preferred stock dividends declared 12 12
------- -------
Income available to common shareholders 2,558 5,476
------- -------
Basic shares outstanding 4,361 4,452
Stock options 11 10
------- -------
Diluted shares outstanding 4,372 4,462
------- -------
Antidilutive stock options 4 2
------- -------
(6) Comprehensive (loss) income was $(1,356,000) and $2,614,000 for the three
months ended March 31, 1999 and 1998, 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 (U.S.,
Europe, and Other non-U.S.), each of which includes a number of operating
companies. There have not been any changes in the basis of segmentation
and measurement of segment profit and loss.
Reportable segment information is presented in the following table:
<TABLE>
<CAPTION>
(In Thousands)
First Quarter 1999
Other Recon- Consol.
U.S. Europe non-U.S. ciling totals
<S> <C> <C> <C> <C> <C>
Sales to external customers $70,198 $28,063 $17,771 ($65) $115,967
Intercompany sales 7,942 4,236 275 (12,453)
Net income 2,947 (552) 141 34 2,570
First Quarter 1998
Other Recon- Consol.
U.S. Europe non-U.S. ciling totals
Sales to external customers 75,163 27,415 19,323 1,507 123,408
Intercompany sales 9,521 3,536 492 (13,549)
Net income 6,759 (384) 380 (1,267) 5,488
Reconciling items consist primarily of intercompany eliminations and items
reported at the corporate level.
</TABLE>
<PAGE>
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 new product introductions, delivery improvements, restructuring plans,
sales and earnings, liquidity, Year 2000 readiness, 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 management's direct control. Among the factors that could cause such
differences are the economic environment, Year 2000 readiness of critical
third party suppliers, and interest and currency exchange rates.
Results of operations
- ---------------------
First Quarter 1999 versus First Quarter 1998 - Sales for the first quarter of
1999 were $116.0 million, a decrease of $7.4 million, or 6%, from $123.4
million last year. The decrease reflects the divestitures of HAZCO Services,
Inc. and Baseline Industries, Inc., which were sold on June 30, 1998. The
divestitures resulted in $7.1 million less sales in first quarter 1999
compared to first quarter 1998. Sales of ongoing businesses were essentially
even with prior-year levels.
Total sales of ongoing U.S. operations were about the same as last year, with
higher sales of specialty chemicals, respirators and breathing apparatus,
offset by somewhat lower sales of other safety and instrument products.
Overall, international sales in local currencies were similar to prior year
levels. Favorable exchange rates increased slightly the U.S. dollars from
European operations but unfavorable movements in other areas had the opposite
effect.
In early 1999 the company saw a pattern in its U.S. business that is
encouraging and parallels a pattern seen prior to 1998. Incoming orders came
in close to internal targets which represented an increase over last year's
actual results. However, the mix of orders between those that could be
immediately invoiced and those that would be invoiced over time was such that
invoicing in U.S. commercial business lagged incoming orders by 7%. In most
cases the company believes this does not relate to delivery or production
problems, but rather, to customer delivery requirements. After four months the
incoming order trend in the United States is 5% above 1998, which is a
positive indication for the company's sales in the months to come.
Gross profit for the first quarter of 1999 was $42.0 million, a $4.2 million
decrease from $46.2 million in 1998. The 1999 ratio of gross profit to sales
was 36.2% compared to 37.4% last year. The lower gross profit percentage
reflects somewhat lower margins in the U.S.
Income from operations was $4.2 million for first quarter 1999 compared with
$9.1 million last year. First quarter 1998 results included a $4.0 million
pre-tax ($2.4 million after-tax) pension settlement gain. This gain resulted
from settling remaining pension liabilities to former employees from the
Esmond, Rhode Island plant which closed in 1997. The absence of a similar gain
in 1999 accounts for most of the decrease in earnings in the first quarter of
1999 as compared to 1998. Increases in depreciation and selling and
administrative expenses reflect higher operating costs associated with the new
enterprise-wide computer system, partially offset by the absence of HAZCO
Services, Inc. and Baseline Industries, Inc. operations in 1999. The company
is working to utilize the enterprise-wide system to improve performance and
efficiency throughout the operations and to make reductions in cost elsewhere.
In the U.S., a voluntary early retirement program has been offered to qualified
retirement-age employees. The company is being managed to have lower selling,
general and administrative expenses. As part of this, the company is evaluating
its need for office space in the Pittsburgh area and studying whether
significant cost improvements can be achieved by consolidation. The company
may incur more restructuring charges as part of its efforts to reduce ongoing
operating expenses. The extent of these, which are currently expected to be
moderate, is not clear at this time.
The effective income tax rate for the first quarter of 1999 was 38.9% compared
to 40.0% in 1998.
Net income in the first quarter of 1999 was $2.6 million, or 59 cents per basic
share compared to $5.5 million, or $1.23 per basic share, for the same period
last year. Earnings per share benefited from share repurchases that reduced
average shares outstanding by approximately 2%.
Liquidity and Financial Condition
- ---------------------------------
Cash and cash equivalents decreased $1.1 million during first quarter 1999
compared to a $3.5 million increase in first quarter 1998. Cash provided by
operating activities totaled $1.3 million during first quarter 1999 compared to
$4.7 million last year. The decrease reflects higher inventory levels in the
U.S. and currency exchange impacts on working capital, principally in Brazil
and Germany. Cash used for investing activities totaled $5.8 million this year
compared to $7.8 million last year. The decrease relates primarily to higher
property additions for the enterprise-wide information system in 1998.
Financing activities provided $4.0 million during first quarter 1999 compared
to $8.9 million in 1998. The decrease reflects lower borrowings and higher
share repurchases in 1999.
Available credit facilities along with internal cash resources are adequate to
provide for ensuing capital requirements.
Year 2000 Readiness
- -------------------
The company is continuing Year 2000 readiness action plans which focus on
computerized and automated systems and processes which are critical to
operations, key vendors and service providers, and MSA products.
State of readiness - In 1996, to provide the information infrastructure for
MSA's evolving global management strategy, the company began a project to
replace significant information technology (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 international affiliates in Britain,
Germany and Sweden.
Implementation at the affiliate in Mexico is expected to be completed during
1999. By the end of 1999, EWS will have been implemented at MSA operations
which account for approximately 75% of consolidated sales and over 90% of
manufacturing activity. IT systems at those operations which will not be on
EWS by the end of 1999 are either currently Year 2000 compliant or will be
modified or replaced by mid-1999.
MSA continues to address Year 2000 compliance in a number of other areas,
including: non-IT systems and processes (such as physical plant and
manufacturing systems), key vendors and service providers, EDI systems, and
The following chart provides estimated percentages of completion for the
inventory of systems and processes that may be affected by the Year 2000, the
analysis performed to determine the Year 2000 impact on inventoried systems
and processes, and the Year 2000 readiness of the inventoried systems and
processes.
Percent Completed
---------------------------------
Y2K Y2K Impact Y2K
As of April 30, 1999 Inventory Assessment Readiness
--------- --------- ---------
Information technology 100% 100% 85%
Non-information technology 90% 85% 80%
Costs of Year 2000 remediation - Costs associated with Year 2000 remediation,
which exclude costs associated with the EWS project, are currently estimated
to total less then $5 million. These costs, which are funded from operating
cash flow, are expensed as incurred each year.
Risks and contingency plans - Failure to identify and correct significant Year
2000 issues 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
the 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 effect on future results or financial position. The most
reasonably likely worst case Year 2000 scenario would be the inability of
critical third party suppliers, such as warehouse and distribution service
providers and utilities and telecommunication companies, to continue
providing their services. MSA is continuing to assess these risks. Contingency
plans are expected to be in place during the third quarter of 1999.
Financial Instrument Market Risk
- --------------------------------
There have been no material changes in the company's financial instrument
market risk during the first quarter of 1999. For additional information, refer
to page 14 of the company's Annual Report to Shareholders for the year ended
December 31, 1998.
<PAGE>
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, 1999.
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 14, 1999 By S/James E. Herald
James E. Herald
Vice President - Finance;
Principal Financial and
Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MARCH 1999
FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 13,407
<SECURITIES> 9,480
<RECEIVABLES> 93,752
<ALLOWANCES> (3,023)
<INVENTORY> 88,130
<CURRENT-ASSETS> 24,581
<PP&E> 370,724
<DEPRECIATION> (207,931)
<TOTAL-ASSETS> 455,309
<CURRENT-LIABILITIES> 115,512
<BONDS> 12,226
0
3,569
<COMMON> 12,591
<OTHER-SE> 220,800
<TOTAL-LIABILITY-AND-EQUITY> 455,309
<SALES> 115,967
<TOTAL-REVENUES> 116,563
<CGS> 73,933
<TOTAL-COSTS> 79,486
<OTHER-EXPENSES> (277)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 743
<INCOME-PRETAX> 4,209
<INCOME-TAX> 1,639
<INCOME-CONTINUING> 2,570
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,570
<EPS-PRIMARY> .59
<EPS-DILUTED> .59
</TABLE>
