EXHIBIT 13
Management's Discussion and Analysis
SALES AND EARNINGS
Sales were $487,668,000 in 1995, a 6% increase over the prior year's
$459,607,000. Sales in 1994 were 7% higher than sales in 1993 of $429,220,000.
Net income increased 23% in 1995 to $18,912,000 from $15,329,000 in 1994, which
was 45% higher than 1993's income of $10,555,000. Earnings per share of common
stock was $3.32 in 1995, $2.58 in 1994, and $1.73 in 1993.
The 1995 sales increase has occurred primarily in the international markets,
particularly in Europe. Overall, 1995 sales by U.S. operations are about the
same as 1994, with increases in domestic commercial sales being offset by lower
sales to the U.S. government. Sales of commercial products, especially during
the latter half of 1995, have been adversely impacted by the federal government
budget impasse, which has diminished the purchasing power of some commercial
U.S. customers, particularly those involved in environmental remediation.
Historically, this market, in both the civilian and government sectors, has
produced consistent growth and market share. However, conflict between interest
groups, combined with the federal government budget stalemate, has led to a
temporary stoppage in the issuance of new Superfund and government site cleanup
contracts. If this situation continues, the company's sales could continue to be
adversely affected. The increased sales in 1994 occurred primarily in domestic
commercial product sales, with the main factor being the inclusion of HAZCO
Services, Inc., acquired in the last half of 1993. Equipment rentals to the
hazardous materials/environmental market by HAZCO grew significantly, until the
above-mentioned slowdown in environmental remediation activity. Domestic
commercial sales of instruments and specialty chemicals have continued to grow
in 1995 and 1994, while the U.S. market for safety products continues to be
flat. U.S. commercial sales in 1995 were about 4 1/2% higher than in 1994, which
was 9% higher than 1993.
Sales by international operations, stated in U.S. dollars, increased 16 1/2%
in 1995 and 4 1/2% in 1994, after having decreased 10 1/2% in 1993. Notable
market growth occurred in Europe in 1995, following stabilization of economic
conditions in 1994. Other market growth in 1995 and 1994 occurred in Australia,
Brazil and Chile. The 1993 decrease was due primarily to currency exchange rate
changes and the widespread economic recession, particularly in Europe.
Shipments of defense products to U.S. government agencies in 1995 were
$34,815,000, a 25% decrease from 1994 sales of $46,478,000, which were 7 1/2%
higher than 1993 shipments of $43,234,000. These sales represent 7% of
consolidated sales in 1995 as compared to 10% in 1994 and 1993. New contracts
received in 1995 were $29,002,000 as compared to $27,832,000 in 1994 and
$32,558,000 in 1993. The 1995 year-end backlog was $30,430,000, a 16% decrease
from the 1994 year-end backlog of $36,243,000.
The 1995 gross profit rate was 39.1%, as compared to 37.6% in 1994 and 36.3%
in 1993. The profitability of operations has improved with cost reductions from
enhanced productivity and careful expense management. Historically and
10
currently, commercial sales carry much greater margins than military sales; thus
the change of sales mix has also contributed to higher profit margins. The 1995
and 1994 gross profit has also been favorably affected by LIFO credits of
$5,455,000 and $6,923,000, respectively, arising from liquidations of LIFO
inventory values calculated at lower costs incurred in prior years, and
adversely affected by charges of $2,140,000 and $1,940,000, respectively,
arising from inventory valuation adjustments. The completion and partial
termination of some government contracts and ongoing process reengineering has
resulted in significant reductions in U.S. manufacturing inventories.
Depreciation, selling and administrative expenses were 32% of sales in 1995,
31% in 1994, and 32% in 1993. Charges in 1995 included $520,000 ($1,650,000 in
1994) applicable to the implementation of new cost and manufacturing control
systems, reengineering of the distribution system, and the creation of a
customer service center. Additionally, 1995 operations has absorbed charges of
$730,000 for facilities consolidations and restructuring, as compared to charges
of $3,086,000 in 1994 and credits of $223,000 in 1993. The 1995 charges relate
primarily to workforce reductions, while the 1994 charges relate primarily to
completing the disposition of assets of the former Catalyst Research Division,
which was closed in 1992. Equity in earnings of affiliates was decreased
$980,000 for prior period losses and reorganization costs incurred by a South
African affiliate, Boart MSA, a joint venture in which the company has a
minority position in the ownership and in operating management control.
The above-mentioned LIFO credits, inventory valuation adjustments, systems and
restructuring costs, and losses of Boart MSA had in aggregate only minimal
effect on net income and earnings per share in each of the three years 1993
through 1995.
The after-tax effects of foreign currency exchange losses charged to income in
1995 reduced net income $1,279,000 or $.23 per share, as compared to $3,840,000
or $.65 per share in 1994 and $3,204,000 or $.53 per share in 1993. The more
significant losses resulted from the currency valuation changes that occurred in
Brazil in each of the three years, and the devaluation of the Mexican peso in
1995 and 1994. The effective income tax rates, for which further information is
included at note 8, were 42.9% in 1995, 40.6% in 1994, and 42.1% in 1993.
FINANCIAL CONDITION
AND FUNDS FLOW
Cash and cash equivalents decreased $22,470,000 during 1995. Accounts
receivable increased $2,257,000 to $90,955,000 at December 31, 1995. Trade
receivables expressed in number of days' sales outstanding were 65 days, as
compared to 64 days in 1994. Inventories increased $6,655,000 to $83,621,000 at
December 31, 1995. Inventory measured against sales turned 5.8 times in 1995 and
6.0 times in 1994. Inventories remained about the same in the domestic companies
but increased in the international companies, primarily because of currency
exchange rate changes. The working capital ratio was 3.2 and 3.4 to 1 at years-
end 1995 and 1994, respectively.
Short-term debts of international affiliates are payable in local currencies,
which is in keeping
11
Management's Discussion and Analysis Continued
with the company's policy of minimizing foreign currency exposures by offsetting
foreign currency assets with foreign currency debt. The average interest rate on
these loans, which includes the effects of borrowing in certain countries where
local inflation has resulted in high interest rates, was approximately 13%.
Long-term debt and the current portion thereof decreased $4,254,000 to
$17,329,000, a conservative 6% of total capital. Total capital is defined as
long-term debt plus current portion of long-term debt and shareholders' equity.
Capital expenditures were $19,136,000 in 1995, as compared to $22,614,000 in
1994. The company has continued its program of plant and equipment modernization
to increase efficiency of existing manufacturing and distribution facilities.
For the most part, capital expenditures were financed internally through
retained earnings. In the past five years, approximately $103 million has been
spent on new plants, equipment and distribution facilities.
Dividends paid on the common stock during 1995 (the 78th consecutive year of a
dividend payment) were $1.06 per share, up from the $.94 per share paid during
1994 and $.92 per share paid in 1993. The current quarterly cash dividend is
$.27 per share on common stock. Cash dividends have been paid at a conservative
percentage of income, which has permitted the company to finance its growth
almost exclusively through retained earnings. During 1995, the company
repurchased 638,815 common shares for $28,277,000. As of December 31, 1995, an
additional 196,417 shares may be repurchased under current authorizations.
Credit available at year-end with banks was the U.S. dollar equivalent of
$15,131,000. The company's financial position remains strong and should provide
adequate capital resources for growth.
CUMULATIVE CURRENCY
TRANSLATION ADJUSTMENT
The year-end position of the U.S. dollar relative to foreign currencies
resulted in translation gains of $2,876,000 being credited to the cumulative
translation adjustments shareholders equity account in 1995, as compared to
gains of $5,050,000 in 1994 and losses of $5,400,000 in 1993. Significant
translation gains occurred in Germany in 1995 and in Australia, Britain, and
Germany in 1994, while significant losses occurred in Germany and Italy in 1993.
COMMON STOCK
At December 31, 1995, there were 5,182,757 shares of common stock outstanding.
There were approximately 420 identifiable common stockholders as of November 17,
1995, a recent date for dividends. The common stock last-sale price and up-to-
the-minute volume information (Symbol: MNES) is included in the National
Association of Security Dealers, Inc., (NASDAQ) National Market System. The
quarterly high and low price quotations for common shares follow:
1995 1994
Quarter High Low High Low
- ------------------------------------------------------
First $45 3/4 $42 1/2 $44 1/2 $41 1/2
Second 53 43 1/2 42 1/2 39 1/2
Third 55 50 1/2 46 1/2 40 3/4
Fourth 52 1/4 41 45 3/4 42 3/4
Common stock quarterly cash dividend information is as follows:
Amount
Per Record Payment
Quarter Share Date Date
- --------------------------------------------------------
1995
----
First $ .25 Feb. 17, 1995 March 10, 1995
Second .27 May 12, 1995 June 10, 1995
Third .27 Aug. 11, 1995 Sept. 10, 1995
Fourth .27 Nov. 17, 1995 Dec. 10, 1995
-----
Total 1.06
-----
1994
----
First $ .23 Feb. 18, 1994 March 10, 1994
Second .23 May 13, 1994 June 10, 1994
Third .23 Aug. 12, 1994 Sept. 10, 1994
Fourth .25 Nov. 18, 1994 Dec. 10, 1994
-----
Total .94
-----
The company's stock transfer agent is Norwest Bank Minnesota, N.A., 161 North
Concord Exchange, P. O. Box 738, South St. Paul, MN 55075-0738.
12
MSA 1995 Financial Review
Report of Management
Mine Safety Appliances Company's consolidated financial statements and
related notes that appear in this Annual Report to Shareholders were prepared
by the company in accordance with generally accepted accounting principles. In
fulfilling its responsibilities for the integrity and objectivity of the
consolidated financial statements, management maintains accounting procedures
designed to provide accurate books, records and accounts which reasonably and
fairly reflect the transactions of the company in a consistent manner on the
accrual basis of accounting.
Company personnel are trained and given responsibilities to ensure adequate
internal accounting controls at a cost commensurate with the risks involved.
Internal accounting controls, monitored by an internal audit staff, provide
reasonable assurances that transactions are executed in accordance with proper
authorization and that adequate accountability for the company's assets is
maintained.
The Board of Directors, through its Audit Committee, is responsible for
assuring that management fulfills its responsibilities in the preparation of
the financial statements. The Audit Committee meets at least twice a year with
the company's independent accountants to discuss the scope of their examination
and any significant findings resulting therefrom.
/S/ James E. Herald
James E. Herald
Vice President--Finance
Chief Financial Officer
Report of Independent Accountants
To the Shareholders and Board of Directors
of Mine Safety Appliances Company:
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, of earnings retained in the business, and of
cash flows present fairly, in all material respects, the financial position of
Mine Safety Appliances Company and its subsidiaries at December 31, 1995 and
1994, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/S/ Price Waterhouse LLP
Price Waterhouse LLP
Pittsburgh, Pennsylvania
February 16, 1996
13
Consolidated Statement of Income
(In thousands, except per share amounts)
Year Ended December 31 1995 1994 1993
Net sales....................................................... $487,668 $459,607 $429,220
Other income.................................................... 4,191 5,463 5,885
--------------------------------------
491,859 465,070 435,105
--------------------------------------
Costs and expenses
Cost of products sold........................................ 296,845 286,725 273,350
Selling, general and administrative.......................... 138,187 124,714 121,529
Depreciation................................................. 20,002 18,527 17,294
Interest..................................................... 1,730 2,224 1,713
Foreign currency losses...................................... 1,233 3,968 3,201
Facilities consolidation and restructuring charges........... 730 3,086 (223)
--------------------------------------
458,727 439,244 416,864
--------------------------------------
Income before income taxes...................................... 33,132 25,826 18,241
Provision for income taxes...................................... 14,220 10,497 7,686
--------------------------------------
Net income...................................................... $ 18,912 $ 15,329 $ 10,555
======================================
Earnings per common share....................................... $ 3.32 $ 2.58 $ 1.73
======================================
Consolidated Statement of
Earnings Retained in the Business
(In thousands, except per share amounts)
Year Ended December 31 1995 1994 1993
At beginning of year............................................ $296,993 $287,286 $282,371
Net income...................................................... 18,912 15,329 10,555
Dividends
Common--$1.06, $.94 and $.92 per share....................... (6,140) (5,569) (5,584)
Preferred--$2.25 per share................................... (53) (53) (56)
--------------------------------------
At end of year.................................................. $309,712 $296,993 $287,286
======================================
See notes to consolidated financial statements.
14
Consolidated Balance Sheet
(In thousands, except per share amounts)
December 31 1995 1994
Assets
Current Assets Cash...................................................................... $ 4,807 $ 10,108
Temporary investments, at cost which approximates market.................. 27,143 44,312
Receivables, less allowance for doubtful accounts $2,640 and $2,102....... 90,955 88,698
Inventories............................................................... 83,621 76,966
Deferred tax assets--net.................................................. 16,165 13,121
Prepaid expenses and other current assets................................. 5,934 4,111
------------------------
Total current assets...................................................... 228,625 237,316
------------------------
Property Land...................................................................... 6,639 6,502
Buildings................................................................. 106,927 104,487
Machinery and equipment................................................... 218,977 206,001
Construction in progress.................................................. 6,720 5,119
------------------------
Total..................................................................... 339,263 322,109
Less accumulated depreciation............................................. (188,157) (170,153)
------------------------
Net property.............................................................. 151,106 151,956
------------------------
Other Assets Assets of discontinued business........................................... 323 1,208
Other assets.............................................................. 26,546 26,571
------------------------
Total other assets........................................................ 26,869 27,779
------------------------
Total..................................................................... $406,600 $417,051
========================
Liabilities
Current
Liabilities Notes payable and current portion of long-term debt....................... $ 6,003 $ 9,743
Accounts payable.......................................................... 24,123 25,864
Employees' compensation................................................... 13,109 12,180
Insurance................................................................. 9,760 8,675
Taxes on income........................................................... 466 (1,090)
Other current liabilities................................................. 18,523 15,450
------------------------
Total current liabilities................................................. 71,984 70,822
------------------------
Long-term Debt............................................................................ 14,746 16,564
------------------------
Other
Liabilities Deferred tax liabilities--net............................................. 16,957 14,424
Pensions and other employee benefits...................................... 48,276 48,191
Other noncurrent liabilities.............................................. 1,097 1,075
------------------------
Total other liabilities................................................... 66,330 63,690
------------------------
Shareholders' Equity
Preferred stock, 4 1/2% cumulative, $50 par value (callable at $52.50).... 3,569 3,569
Common stock, no par value (shares outstanding:
1995--5,182,757; 1994--5,815,672)....................................... 8,300 8,048
Cumulative translation adjustments........................................ 2,177 (699)
Earnings retained in the business......................................... 309,712 296,993
Treasury shares, at cost.................................................. (70,218) (41,936)
------------------------
Total shareholders' equity................................................ 253,540 265,975
------------------------
Total..................................................................... $406,600 $417,051
========================
See notes to consolidated financial statements.
15
Consolidated Statement of Cash Flows
(In thousands)
Year Ended December 31 1995 1994 1993
Operating Activities
Net income................................................... $18,912 $15,329 $10,555
Depreciation................................................. 20,002 18,527 17,294
Pensions..................................................... (2,510) (1,305) 151
Deferred income taxes........................................ (601) 61 (82)
Receivables.................................................. (2,257) (6,801) (6,118)
Inventories.................................................. (6,655) 4,488 6,330
Accounts payable and accrued liabilities..................... 4,902 6,963 5,442
Other assets and liabilities................................. 210 (754) (3,797)
Other--including currency exchange adjustments............... 3,607 4,163 (3,956)
-------------------------------------
Cash Flow From Operating Activities.......................... 35,610 40,671 25,819
-------------------------------------
Investing Activities
Property additions........................................... (19,136) (22,614) (21,642)
Property disposals........................................... 1,811 4,983 3,420
Acquisitions and other investing............................. (2,170) 6,130 (4,180)
-------------------------------------
Cash Flow From Investing Activities.......................... (19,495) (11,501) (22,402)
-------------------------------------
Financing Activities
Additions to long-term debt.................................. 218 2,167 1,472
Reductions of long-term debt................................. (2,078) (13,949) (1,850)
Cash dividends............................................... (6,193) (5,622) (5,640)
Stock options and purchases of company's stock............... (28,030) (8,526) (4,141)
Changes in notes payable and short-term debt................. (3,973) 2,978 399
-------------------------------------
Cash Flow From Financing Activities.......................... (40,056) (22,952) (9,760)
-------------------------------------
Effect of exchange rate changes on cash......................... 1,471 1,768 (2,632)
-------------------------------------
Increase (decrease) in cash and cash equivalents................ (22,470) 7,986 (8,975)
Beginning cash and cash equivalents............................. 54,420 46,434 55,409
-------------------------------------
Ending cash and cash equivalents................................ $31,950 $54,420 $46,434
=====================================
Supplemental cash flow information:
Interest payments............................................ $ 1,922 $ 1,983 $ 1,467
Income tax payments.......................................... 13,638 13,947 9,013
See notes to consolidated financial statements.
16
Notes to Consolidated Financial Statements
Note 1--Basis of Presentation
Significant accounting policies are stated in italics at the applicable
notes to consolidated financial statements.
THE PREPARATION OF FINANCIAL STATEMENTS IN CONFORMITY WITH GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES REQUIRES MANAGEMENT TO MAKE ESTIMATES AND
ASSUMPTIONS THAT AFFECT THE REPORTED AMOUNTS OF ASSETS AND LIABILITIES AND
DISCLOSURE OF CONTINGENT ASSETS AND LIABILITIES AT THE DATE OF THE FINANCIAL
STATEMENTS AND THE REPORTED AMOUNTS OF REVENUES AND EXPENSES DURING THE
REPORTING PERIOD. ACTUAL RESULTS COULD DIFFER FROM THOSE ESTIMATES.
ALL SIGNIFICANT MAJORITY-OWNED COMPANIES ARE INCLUDED IN THE CONSOLIDATED
FINANCIAL STATEMENTS. INVESTMENTS IN WHICH THE COMPANY HAS AN EQUITY INTEREST
OF 20% TO 50% ARE CARRIED AT EQUITY IN NET ASSETS. INTERCOMPANY TRANSACTIONS
ARE ELIMINATED IN CONSOLIDATION.
SALES UNDER CONTRACTS ARE RECORDED AT FIXED OR ESTIMATED CONTRACT SALES
PRICES AS DELIVERIES ARE MADE. CONTRACTS REQUIRING PERFORMANCE OVER SEVERAL
PERIODS ARE ACCOUNTED FOR BY THE PERCENTAGE-OF-COMPLETION METHOD OF ACCOUNTING.
PROFITS EXPECTED TO BE REALIZED ARE BASED ON ESTIMATES OF TOTAL SALES AND COSTS
AT COMPLETION. THESE ESTIMATES ARE PERIODICALLY REVIEWED AND REVISED DURING THE
CONTRACT PERFORMANCE PERIOD. ADJUSTMENTS TO PROFITS ARE RECORDED IN THE PERIOD
IN WHICH ESTIMATES ARE REVISED; LOSSES ARE RECOGNIZED IN FULL AS THEY ARE
IDENTIFIED.
PROPERTY IS STATED AT COST. DEPRECIATION IS BASED ON ESTIMATED USEFUL LIVES
USING ACCELERATED AND STRAIGHT-LINE METHODS. MAINTENANCE AND REPAIRS ARE
CHARGED TO EXPENSE. RENEWALS AND BETTERMENTS WHICH SUBSTANTIALLY EXTEND THE
USEFUL LIFE OF PROPERTY ARE CAPITALIZED. ACCUMULATED ALLOWANCES FOR
DEPRECIATION OF BUILDINGS, MACHINERY AND EQUIPMENT RETIRED OR OTHERWISE
DISPOSED OF ARE ELIMINATED FROM THE ACCOUNTS UPON DISPOSITION. PROFITS OR
LOSSES RESULTING FROM SUCH DISPOSITIONS ARE INCLUDED IN INCOME.
CASH AND CASH EQUIVALENTS IN THE CONSOLIDATED STATEMENT OF CASH FLOWS
INCLUDES TEMPORARY INVESTMENTS THAT ARE READILY MARKETABLE AND HAVE MINIMAL
RISK AS TO CHANGE IN VALUE. CERTAIN SECURITIES HAVE MATURITIES IN EXCESS OF
NINETY DAYS; BUT, AS PART OF THE COMPANY'S CASH MANAGEMENT PROGRAM, MATURITIES
ARE SCHEDULED BASED ON EXPECTED CASH NEEDS FOR THE ENSUING TWELVE MONTHS.
EARNINGS PER SHARE IS COMPUTED BASED UPON THE WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING DURING EACH YEAR. THE COMPUTATION RECOGNIZES
DIVIDENDS PAID ON PREFERRED STOCK BUT DOES NOT INCLUDE A NEGLIGIBLE DILUTIVE
EFFECT OF STOCK OPTIONS.
Note 2--Leases
The company leases warehouses, sales offices, manufacturing facilities and
equipment under agreements expiring at various dates through 2005, with renewal
options existing for varying periods. Rental expense for these leases charged
to income was $6,970,000 in 1995, $6,452,000 in 1994, and $6,438,000 in 1993.
Future minimum rental commitments under noncancelable leases are not
significant.
Note 3--Other Income
Other income is summarized as follows:
(In thousands)
----------------------
1995 1994 1993
----------------------
Interest............................ $3,585 $3,043 $3,732
Commissions, royalties
and product services.............. 1,959 1,940 1,335
Dispositions of assets.............. (320) 103 127
Equity in earnings of affiliates.... (451) 212 427
Other............................... (582) 165 264
----------------------
Total............................... 4,191 5,463 5,885
----------------------
Note 4--Stock Plans
The company's Management Share Incentive Plan permits the granting of
restricted stock awards and stock options to eligible key employees through
December 1997. The 1990 Non-Employee Directors' Stock Option Plan provides for
annual grants of stock options to eligible directors. Pursuant to these Plans,
337,225 shares were reserved for future grants as of December 31, 1995.
Shares of common stock, in the form of restricted stock bonus, have been
given to employees without payment to the company in consideration of services
to be performed in ensuing five-year periods. So long as certain restrictions
apply, these shares may not be sold and may be subject to forfeiture under
certain circumstances. THE EXPENSE TO THE COMPANY IS MEASURED BY THE MARKET
VALUE OF THE SHARES WHEN AWARDED AND IS AMORTIZED BY CHARGES TO OPERATIONS OVER
THE PERIOD THAT THE EMPLOYEE PROVIDES THE SERVICE. The expense charged to
operations was $238,000 in 1995, $413,000 in 1994, and $371,000 in 1993. A
summary of the restricted stock bonus awards is as follows:
Shares of
common stock
------------
As of December 31, 1995:
Awards...................... 112,471
Restrictions lapsed......... 90,016
Restrictions lapsing in:
1996........................ 7,479
1997 and 1998............... 14,976
Stock options of 38,160 shares for key employees and 8,200 shares for
non-employee directors were outstanding at December 31, 1995. These options may
be exercised in whole or in part at various dates through February 23, 2004 at
option prices equivalent to or higher than the market values at date of grant.
Changes in stock options outstanding follow:
Shares Price per share
------ ---------------
December 31, 1992 38,720 $27.00 to 61.33
Granted 1,400 47.13
Forfeited (7,600) 55.75
------
December 31, 1993 32,520 27.00 to 61.33
Granted 20,140 40.43 to 48.40
Forfeited (3,400) 61.33
------
December 31, 1994 49,260 27.00 to 55.75
Granted 3,000 44.00
Exercised (5,900) 40.43 to 47.13
------
December 31, 1995 46,360 27.00 to 55.75
------
17
Notes to Consolidated Financial Statements
Note 5--Business Segments and International Operations
The company is primarily engaged in the manufacture and sale of safety and
health equipment. Principal products include respiratory protective equipment,
head protection, eye and face protection, hearing protectors, safety clothing,
industrial emergency care products, mining safety equipment and monitoring
instruments. These safety and health products account for more than 90% of
revenues, operating profits and assets. Other products which do not fall within
the safety and health equipment segment of the company's business include
boron-based and other specialty chemicals.
Information about the company's operations in different geographic areas is
summarized as follows:
(In thousands)
--------------------------------------
1995 1994 1993
--------------------------------------
Net Sales and Revenues
U.S. operations............................................... $274,148 $277,591 $254,823
European operations........................................... 135,367 114,030 114,169
Other non-U.S. operations..................................... 79,164 70,091 61,969
--------------------------------------
Net Sales and Revenues........................................ 488,679 461,712 430,961
--------------------------------------
Intercompany Transfers
U.S. operations............................................... 22,779 19,067 17,937
European operations........................................... 18,014 13,601 12,886
Other non-U.S. operations..................................... 795 625 550
--------------------------------------
Intercompany Transfers........................................ 41,588 33,293 31,373
--------------------------------------
Operating Profit and Income Before Income Taxes
U.S. operations............................................... 22,870 20,195 13,239
European operations........................................... 4,984 3,896 (1,519)
Other non-U.S. operations..................................... 6,475 4,624 2,944
Eliminations.................................................. (1,970) (935) 931
--------------------------------------
Operating Profit/(1)/......................................... 32,359 27,780 15,595
Interest expense.............................................. (1,730) (2,224) (1,713)
Corporate income/(expense)-net................................ 2,503 270 4,359
--------------------------------------
Income Before Income Taxes.................................... 33,132 25,826 18,241
--------------------------------------
Identifiable Assets and Total Assets
U.S. operations............................................... 234,237 236,286 234,650
European operations........................................... 106,854 96,963 96,064
Other non-U.S. operations..................................... 44,050 38,615 33,705
Eliminations.................................................. (14,684) (14,476) (12,657)
--------------------------------------
Identifiable Assets........................................... 370,457 357,388 351,762
Corporate assets.............................................. 35,820 58,455 48,947
Discontinued operations....................................... 323 1,208 7,175
--------------------------------------
Total Assets.................................................. 406,600 417,051 407,884
--------------------------------------
Net Assets of Non-U.S. Operations/(2)/.......................... 99,163 92,285 82,273
--------------------------------------
Net Income of Non-U.S. Operations............................... 6,364 4,675 2,666
--------------------------------------
(1) Prior years restated to include foreign currency losses $3,968 in 1994
and $3,201 in 1993.
(2) See Note 16 to consolidated financial statements for effects of currency
translation adjustments.
Transfers between geographic areas are stated at established intercompany
selling prices. Operating profit is total revenues less operating expenses.
Interest income and expense, equity in unconsolidated affiliates, facilities
consolidation and restructuring charges, and income taxes have not been
included in computing operating profit. Corporate assets not included in
identifiable assets are principally cash and investments.
Sales by U.S. operations to U.S. government agencies were $34,815,000 in
1995, $46,478,000 in 1994, and $43,234,000 in 1993.
Note 6--Discontinued Operations
In 1992 the company decided to discontinue the operations of
Transfer-Metallisierte Produkte GmbH (TMP), a joint venture in Germany to
produce metallized paper. Operating activities ceased during 1993. The company
continues the process of disposing of the assets and settling its liabilities.
Note 7--Research and Development Expense
RESEARCH AND DEVELOPMENT COSTS, CHARGED AGAINST INCOME AS INCURRED, were
$20,366,000 in 1995, $20,575,000 in 1994, and $21,000,000 in 1993.
18
Notes to Consolidated Financial Statements
Note 8--Income Taxes
INCOME TAXES ARE ACCOUNTED FOR IN ACCORDANCE WITH STATEMENT OF FINANCIAL
ACCOUNTING STANDARDS NO. 109. DEFERRED TAX BALANCES ARE STATED AT TAX RATES
EXPECTED TO BE IN EFFECT WHEN TAXES ARE ACTUALLY PAID OR RECOVERED. NO
PROVISION IS MADE FOR UNDISTRIBUTED EARNINGS OF INTERNATIONAL COMPANIES SINCE
LITTLE OR NO TAX WOULD RESULT UNDER APPLICABLE EXISTING STATUTES OR BECAUSE
MANAGEMENT INTENDS THAT THESE EARNINGS BE PERMANENTLY REINVESTED FOR WORKING
CAPITAL AND CAPITAL EXPENDITURE REQUIREMENTS.
The U.S. and non-U.S. components of income before income taxes, and
provisions for income taxes are summarized as follows:
(In thousands)
-------------------------------------
1995 1994 1993
-------------------------------------
Income Before Income Taxes
U.S. income..................................................... $28,501 $19,933 $16,304
Non-U.S. income................................................. 11,700 11,177 6,055
Currency translation (losses)................................... (887) (3,024) (3,080)
Eliminations.................................................... (6,182) (2,260) (1,038)
-------------------------------------
Income Before Income Taxes...................................... 33,132 25,826 18,241
-------------------------------------
Provisions For Income Taxes
Current
Federal....................................................... 8,451 6,220 4,427
State......................................................... 1,642 1,537 1,122
Non-U.S....................................................... 4,728 2,679 2,219
-------------------------------------
Total current provision....................................... 14,821 10,436 7,768
-------------------------------------
Deferred
Federal....................................................... (584) (801) 351
State......................................................... (13) (43) (2)
Non-U.S....................................................... (4) 905 (431)
-------------------------------------
Total deferred provision...................................... (601) 61 (82)
-------------------------------------
Provisions for Income Taxes..................................... 14,220 10,497 7,686
-------------------------------------
The components of deferred taxes are as follows:
Deferred tax assets:
Postretirement benefits....................................... 5,666 5,903 5,792
Inventory reserves and unrealized profits..................... 5,975 5,344 5,027
Vacation allowances........................................... 2,048 2,054 2,059
Postemployment benefits....................................... 1,251 1,580 1,630
Liability insurance........................................... 3,153 2,319 1,749
Loss carryforwards............................................ 1,785 2,502 5,360
Other......................................................... 3,489 3,583 2,258
-------------------------------------
Total deferred tax assets..................................... 23,367 23,285 23,875
-------------------------------------
Deferred tax (liability)--depreciation.......................... (24,159) (24,588) (25,065)
-------------------------------------
Net deferred taxes.............................................. (792) (1,303) (1,190)
-------------------------------------
The following is a reconciliation of income taxes calculated
at the U.S. Federal income tax rate of 35% to the provision for
income taxes:
Provision for income taxes at statutory rate.................... 11,596 9,039 6,384
State income taxes.............................................. 1,059 971 728
Currency translation............................................ 310 1,058 1,078
Non-U.S. taxes.................................................. 694 (293) (817)
Other--net...................................................... 561 (278) 313
-------------------------------------
Provision for income taxes 14,220 10,497 7,686
-------------------------------------
Undistributed earnings of international companies for which U.S. income
taxes have not been provided were $63,561,000 at December 31, 1995.
19
Notes to Consolidated Financial Statements
Note 9--Capital Stock
The authorized capital of the company consists of:
. Common stock, no par value--20,000,000 shares
. Second cumulative preferred voting stock, $10 par value--1,000,000 shares
. 4 1/2% cumulative preferred stock, $50 par value--100,000 shares
Common stock activity is summarized as follows:
(In thousands)
----------------------------
Shares Shares In Common Treasury
Issued Treasury Stock Cost
--------------------------- ----------------------------
Balances January 1, 1993.......................... 6,686,317 607,531 $6,872 $(27,779)
Management Share Incentive Plan issues............ 27,186 1,176
Purchased for treasury............................ 94,344 (4,099)
--------------------------- ----------------------------
Balances December 31, 1993........................ 6,713,503 701,875 8,048 (31,878)
Management Share Incentive Plan forfeitures....... 632 (27)
Purchased for treasury............................ 195,324 (8,483)
--------------------------- ----------------------------
Balances December 31, 1994........................ 6,713,503 897,831 8,048 (40,388)
Stock options exercised........................... 5,900 252
Purchased for treasury............................ 638,815 (28,277)
--------------------------- ----------------------------
Balances December 31, 1995........................ 6,719,403 1,536,646 8,300 (68,665)
--------------------------- ----------------------------
Second cumulative preferred voting stock--none has been issued.
As to the 4 1/2% cumulative preferred stock, 71,373 shares have been issued
(none during the three years ended December 31, 1995), while the amounts held
in treasury are as follows:
December 31 Shares Cost (in thousands)
----------- ------ -------------------
1993 47,268 $(1,532)
1994 47,775 (1,548)
1995 47,935 (1,553)
Note 10--Inventories
THE U.S. INVENTORIES ARE VALUED ON THE LAST-IN, FIRST-OUT (LIFO) COST
METHOD. OTHER INVENTORIES ARE VALUED AT THE LOWER OF COST, USING AVERAGE OR
CURRENT STANDARD COSTS WHICH APPROXIMATE ACTUAL COSTS ON A FIRST-IN, FIRST-OUT
(FIFO) BASIS, OR MARKET, DETERMINED BY REPLACEMENT COST OR NET REALIZABLE VALUE.
Significant reductions of domestic inventories during 1995 and 1994 caused
liquidations of LIFO inventory values calculated at lower costs incurred in
prior years. The effect of these liquidations has been to reduce cost of sales
by $5,455,000 in 1995 and $6,923,000 in 1994, and to increase net income by
$3,200,000 ($.56 per share) and $4,189,000 ($.71 per share), respectively.
Inventories are summarized as follows:
(In thousands)
-----------------------
1995 1994 1993
-----------------------
Finished products.......................... $34,970 $33,576 $30,409
Work in process............................ 16,135 14,013 20,001
Raw materials and supplies................. 32,516 29,377 31,044
-----------------------
Total inventories.......................... 83,621 76,966 81,454
-----------------------
Excess of FIFO costs over LIFO costs....... 55,185 59,178 63,033
-----------------------
Inventories stated on the LIFO basis represent 39%, 43%, and 58% of the
total inventories at December 31, 1995, 1994, and 1993, respectively.
Note 11--Long-Term Debt
(In thousands)
---------------
U.S. 1995 1994
---------------
Industrial development debt issues
payable through 2022, 5.4%.................... $10,750 $13,650
Other, 2.2% to 16.9%............................. 336 952
International companies
Various notes payable through 1998,
5% to 9.1% ($4,990 secured
by pledge of assets located abroad)........... 6,243 6,981
---------------
Total.............................................. 17,329 21,583
Amounts due within one year........................ 2,583 5,019
---------------
Long-term debt..................................... 14,746 16,564
---------------
Approximate maturities of these obligations over the next five years are
$2,583,000 in 1996, $1,480,000 in 1997, $1,057,000 in 1998, $417,000 in 1999,
and $348,000 in 2000. Some U.S. loan agreements contain covenants to maintain
specified levels of shareholders' equity.
Note 12--Contingencies
A portion of the company's business is with departments and agencies of the
United States government. Contracts related to this business are subject to
profit limitations and terminations. The company also has certain contingent
liabilities with respect to commitments and litigation. In the opinion of
management, these contingencies will not result in any significant losses to
the company.
20
Notes to Consolidated Financial Statements
Note 13--Short-Term Debt
Short-term bank lines of credit amounted to $18,493,000 of which $15,131,000
was unused at December 31, 1995. Generally, these short-term lines of credit
are renewable annually and there are no significant commitment fees or
compensating balance requirements. Short-term borrowings with banks, which
exclude the current portion of long-term debt, were $3,362,000 and $4,679,000
at December 31, 1995 and 1994, respectively. The average month-end balance
of total short-term borrowings during 1995 was $4,891,000 while the maximum
month-end balance of $6,073,000 occurred at January 31, 1995. The average
interest rate during 1995 was approximately 13% based upon total short-term
interest expense divided by the average month-end balance outstanding, and 14%
at year-end. This average interest rate is affected by borrowings in certain
countries where local inflation has resulted in relatively high interest rates.
Note 14--Retirement Plans
Substantially all employees are covered by non-contributory pension plans.
Various U.S. employees also participate in a contributory retirement savings
plan wherein employees may contribute from 1% to 8% of their compensation
to a trust fund, to which the company contributes an amount equal to 50% of
the employees' contributions. The company's expense for these plans was
$3,069,000 in 1995, $4,647,000 in 1994, and $4,408,000 in 1993.
THE NON-CONTRIBUTORY PENSION PLANS ARE ACCOUNTED FOR IN ACCORDANCE WITH
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 87 WHICH REQUIRES USE OF THE
PROJECTED UNIT CREDIT COST METHOD TO DETERMINE THE PROJECTED BENEFIT OBLIGATION
AND PLAN COST. THE PRINCIPAL U.S. PLAN IS FUNDED IN COMPLIANCE WITH THE
EMPLOYEE RETIREMENT INCOME SECURITY ACT (ERISA). IT IS THE GENERAL POLICY TO
FUND CURRENT COSTS FOR THE INTERNATIONAL PLANS EXCEPT IN GERMANY, WHERE IT IS
COMMON PRACTICE AND PERMISSIBLE UNDER TAX LAWS TO ACCRUE BOOK RESERVES.
Non-contributory plan benefits are generally based on years of service and
employees' compensation during the last years of employment. Benefits are paid
from funds previously provided to trustees or are paid by the company and
charged to the book reserves.
Information pertaining to the non-contributory defined benefit plans is
provided in the following tables.
Cost for Defined Benefits Plans
(In thousands) U.S. Plans International Plans
- -------------- ----------------------------- ---------------------------
1995 1994 1993 1995 1994 1993
----------------------------- ---------------------------
Service cost--benefits earned during the period..................... $ 2,826 $ 3,458 $ 2,894 $ 1,939 $ 1,686 $ 1,361
Interest cost on projected benefit obligation....................... 10,023 9,834 9,558 4,055 3,170 2,910
Actual (return)/loss on plan assets................................. (45,817) (971) (22,879) (1,964) (704) (2,219)
Net amortization and deferral....................................... 29,169 (13,137) 9,937 896 (267) 1,320
Special pension benefit adjustments associated
with early retirement and restructuring........................ (508) (728) (1,655)
----------------------------- ---------------------------
Pension expense (income)............................................ (4,307) (816) (1,218) 4,926 3,885 1,717
----------------------------- ---------------------------
Funding Status and Projected Benefit Obligation Reconciliation
December 31 (In thousands)
- --------------------------
Actuarial present value of benefit obligations:
Accumulated benefit obligation
Vested...................................................... 119,959 108,697 108,439 47,125 41,058 22,157
Nonvested................................................... 1,962 2,043 1,917 1,230 2,422 980
----------------------------- ---------------------------
Total....................................................... 121,921 110,740 110,356 48,355 43,480 23,137
----------------------------- ---------------------------
Plan assets at fair value, primarily listed stocks and bonds........ 209,902 173,171 179,832 18,211 16,922 16,071
Projected benefit obligation........................................ 146,097 128,389 136,034 54,101 48,112 35,621
----------------------------- ---------------------------
Plan assets in excess of (less than) projected benefit obligation... 63,805 44,782 43,798 (35,890) (31,190) (19,550)
----------------------------- ---------------------------
The excess (less than) consists of:
Unamortized portion of transition gain (loss), being
recognized over future years................................ 7,017 7,931 9,231 (1,422) (1,325) (886)
Unrecognized net gain (loss) from past experience
different from that assumed................................. 52,979 38,144 37,331 (331) (1,719) 1,836
Unrecognized prior service cost................................ (2,693) (3,074) (3,380) (815) (544) (579)
Minimum liability for unfunded plans........................... 1,301 1,042 1,097
(Accrued)/prepaid pension cost included in the
consolidated balance sheet.................................. 5,201 739 (481) (33,322) (27,602) (19,921)
----------------------------- ---------------------------
Total.......................................................... 63,805 44,782 43,798 (35,890) (31,190) (19,550)
----------------------------- ---------------------------
Assumed long-term rates of return on assets......................... 9% 9% 9% 8-9% 8-9% 7-9%
Assumed discount rates for future benefits.......................... 7 1 /4 8 1/4 7 1/2 7-8 1/2 7-8.9 5 3/4-9
Assumed long-term rates for compensation increases.................. 5 5 5 4-6 1/2 4-6 3-6
21
Notes to Consolidated Financial Statements
Note 15--Postretirement Benefits
The company provides certain health care benefits and limited life insurance
for retired employees and their eligible dependents, THE COSTS FOR WHICH ARE
ACCOUNTED FOR IN ACCORDANCE WITH STATEMENT OF FINANCIAL ACCOUNTING STANDARDS
(SFAS) NO. 106. SFAS NO. 106 REQUIRES RECOGNITION OF RETIREE HEALTH AND LIFE
INSURANCE BENEFITS DURING THE EMPLOYEES' SERVICE WITH THE COMPANY. Further
information about these benefits is provided in the following tables.
Cost for Benefits
(In thousands) 1995 1994 1993
- -------------- -------------------------------------
Service cost--benefits earned during the period.................................... $ 349 $ 471 $ 447
Interest cost on projected benefit obligation...................................... 1,168 1,198 1,192
Amortization of (gain)/loss........................................................ 40
Special benefit adjustments associated with early retirement and restructuring..... (247)
-------------------------------------
Retirement benefits expense........................................................ 1,270 1,709 1,639
-------------------------------------
Funded Status and Accumulated Postretirement Benefit Obligation Reconciliation
December 31 (In thousands)
- --------------------------
Accumulated postretirement benefit obligation:
Active employees.............................................................. 3,352 3,188 3,582
Other active participants..................................................... 7,224 6,098 7,647
-------------------------------------
10,576 9,286 11,229
Retirees...................................................................... 6,031 5,389 5,615
-------------------------------------
Total......................................................................... 16,607 14,675 16,844
Unamortized (loss)................................................................. (2,241) (222) (2,565)
-------------------------------------
Accrued postretirement benefit cost included in consolidated balance sheet......... 14,366 14,453 14,279
-------------------------------------
Assumed discount rates for future benefits......................................... 7 1/4% 8 1/4% 7 1/2%
Annual rates of increase in the costs of covered health care benefits
assumed for 1995 were 7%, decreasing gradually to 4% for the year 1998 and
thereafter. The health care cost trend rate assumption has a significant effect
on the amounts reported; a one-percentage-point increase in each year would
increase the accumulated postretirement benefit obligation by $1,220,000 and
increase the current service and interest costs for the year by $230,000.
Note 16--Foreign Currency
AN APPROPRIATE FUNCTIONAL CURRENCY IS DETERMINED FOR EACH ENTITY. THE
FINANCIAL STATEMENTS OF COMPANIES FOR WHICH THE UNITED STATES DOLLAR IS
DETERMINED TO BE THE FUNCTIONAL CURRENCY ARE TRANSLATED USING APPROPRIATE
CURRENT AND HISTORIC EXCHANGE RATES; ADJUSTMENTS RELATED THERETO ARE INCLUDED
IN INCOME FOR THE CURRENT PERIOD. THE FINANCIAL STATEMENTS OF ALL OTHER
COMPANIES ARE TRANSLATED FROM THEIR FUNCTIONAL CURRENCY INTO UNITED STATES
DOLLARS USING CURRENT EXCHANGE RATES; THE RESULTANT TRANSLATION ADJUSTMENTS ARE
NOT INCLUDED IN INCOME BUT ARE ACCUMULATED IN A SEPARATE EQUITY ACCOUNT.
TRANSACTION GAINS AND LOSSES ARE RECOGNIZED IN INCOME FOR THE CURRENT PERIOD.
Foreign currency effects are summarized as follows:
(In thousands)
----------------------
1995 1994 1993
----------------------
Currency (gains)/losses charged
to income arising from:
Translation--Latin American
companies................................ $ 887 $3,024 $3,080
Transactions............................... 346 944 121
----------------------
Total...................................... 1,233 3,968 3,201
----------------------
Currency translation (gains)/losses
charged directly to equity
adjustment account............................ (2,876) (5,050) 5,400
----------------------
Note 17--Quarterly Financial Information (Unaudited)
(In thousands, except earnings per share)
1995 1994
---------------------------------------------------- ----------------------------------------------------
Quarters Quarters
----------------------------------------- -----------------------------------------
1st 2nd 3rd 4th Year 1st 2nd 3rd 4th Year
---------------------------------------------------- ----------------------------------------------------
Net sales............. $118,162 $125,207 $119,995 $124,304 $487,668 $109,522 $115,133 $114,889 $120,063 $459,607
Gross profit.......... 46,346 48,523 45,110 50,844 190,823 39,009 43,854 42,749 47,270 172,882
Net income............ 5,718 5,611 3,836 3,747 18,912 2,560 3,468 4,593 4,708 15,329
---------------------------------------------------- ----------------------------------------------------
Earnings per share.... .98 .96 .67 .71 3.32 .43 .57 .78 .80 2.58
---------------------------------------------------- ----------------------------------------------------
22
Five-Year Summary of Selected Financial Data
SUMMARY OF OPERATIONS 1995 1994 1993 1992 1991
- -------------------------------------------------------------------------------------------------------------------------------
(In thousands, except as noted)
Net sales $487,668 $459,607 $429,220 $502,366 $499,240
- -------------------------------------------------------------------------------------------------------------------------------
Other income 4,191 5,463 5,885 9,755 8,886
- -------------------------------------------------------------------------------------------------------------------------------
Cost of products sold 296,845 286,725 273,350 327,555 324,448
- -------------------------------------------------------------------------------------------------------------------------------
Selling, general and administrative 138,187 124,714 121,529 130,182 124,983
- -------------------------------------------------------------------------------------------------------------------------------
Depreciation 20,002 18,527 17,294 16,831 16,230
- -------------------------------------------------------------------------------------------------------------------------------
Interest expense 1,730 2,224 1,713 1,536 1,739
- -------------------------------------------------------------------------------------------------------------------------------
Foreign currency losses 1,233 3,968 3,201 5,507 2,456
- -------------------------------------------------------------------------------------------------------------------------------
Unusual items 730 3,086 (223) 2,700
- -------------------------------------------------------------------------------------------------------------------------------
Taxes on income 14,220 10,497 7,686 11,107 15,846
- -------------------------------------------------------------------------------------------------------------------------------
Income from continuing operations 18,912 15,329 10,555 16,703 22,424
- -------------------------------------------------------------------------------------------------------------------------------
Per common share (in dollars)/(1)/ 3.32 2.58 1.73 2.67 3.52
- -------------------------------------------------------------------------------------------------------------------------------
Discontinued operations (5,067) (3,773)
- -------------------------------------------------------------------------------------------------------------------------------
Cumulative effect to January 1, 1992 of
changes in accounting principles/(2)/ (8,964)
- -------------------------------------------------------------------------------------------------------------------------------
Net income 18,912 15,329 10,555 2,672 18,651
- -------------------------------------------------------------------------------------------------------------------------------
Per common share (in dollars)/(1)/ 3.32 2.58 1.73 .42 2.92
- -------------------------------------------------------------------------------------------------------------------------------
Cash dividends 6,193 5,622 5,640 5,608 5,659
- -------------------------------------------------------------------------------------------------------------------------------
Per common share (in dollars) 1.06 .94 .92 .89 .88
- -------------------------------------------------------------------------------------------------------------------------------
Weighted average number of common shares outstanding 5,681 5,921 6,069 6,225 6,353
- -------------------------------------------------------------------------------------------------------------------------------
YEAR-END POSITION
- -------------------------------------------------------------------------------------------------------------------------------
Working capital $156,641 $166,494 $164,199 $177,287 $184,378
- -------------------------------------------------------------------------------------------------------------------------------
Working capital ratio 3.2 3.4 3.7 4.2 3.7
- -------------------------------------------------------------------------------------------------------------------------------
Property, at cost 339,263 322,109 306,691 305,908 292,338
- -------------------------------------------------------------------------------------------------------------------------------
Total assets 406,600 417,051 407,884 407,772 430,869
- -------------------------------------------------------------------------------------------------------------------------------
Long-term debt 14,746 16,564 27,476 28,868 23,009
- -------------------------------------------------------------------------------------------------------------------------------
Common shareholders' equity 252,368 264,795 258,539 261,927 277,866
- -------------------------------------------------------------------------------------------------------------------------------
Equity per common share (in dollars) 48.69 45.53 43.00 43.09 44.27
- -------------------------------------------------------------------------------------------------------------------------------
(1) Earnings per common share are calculated after deducting dividends on
preferred stock and are based on the weighted average number of shares
outstanding during each year.
(2) Statements of Financial Accounting Standards No. 106 (Postretirement
Benefits), No. 109 (Income Taxes), and No. 112 (Postemployment Benefits)
adopted January 1, 1992.
23