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, 2001 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, 2001, there were outstanding 13,490,335 shares of common stock
without par value, including 1,415,373 shares held by the Mine Safety Appliances
Company Stock Compensation Trust.
PART I FINANCIAL INFORMATION
MINE SAFETY APPLIANCES COMPANY
CONSOLIDATED CONDENSED BALANCE SHEET
(Thousands of dollars, except share data)
September 30 December 31
2001 2000
ASSETS
Current assets
Cash $ 18,830 $ 19,408
Temporary investments, at cost which approximates market 6,544 7,133
Trade receivables, less allowance for doubtful accounts
$2,458 and $2,363 54,176 47,055
Other receivables 40,094 30,498
Inventories:
Finished products 32,859 30,743
Work in process 11,864 10,451
Raw materials and supplies 35,442 31,487
------------ ----------
Total inventories 80,165 72,681
Deferred tax assets 15,311 14,167
Prepaid expenses and other current assets 10,168 10,211
------------ ----------
Total current assets 225,288 201,153
Property, plant and equipment 385,927 383,741
Less accumulated depreciation (232,919) (224,155)
------------ ----------
Net property 153,008 159,586
Prepaid pension cost 92,713 78,157
Deferred tax assets 9,418 10,315
Other noncurrent assets 45,027 40,472
------------ ----------
TOTAL $ 525,454 $ 489,683
============ ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Notes payable and current portion of long-term debt $ 7,169 $ 6,616
Accounts payable 33,361 32,387
Employees' compensation 15,931 13,202
Insurance 9,225 8,476
Taxes on income 10,965 2,263
Other current liabilities 26,986 24,034
------------ ----------
Total current liabilities 103,637 86,978
------------ ----------
Long-term debt 71,392 71,806
Pensions and other employee benefits 53,958 54,626
Deferred tax liabilities 47,655 47,151
Other noncurrent liabilities 2,932 2,657
Shareholders' equity
Preferred stock, 4-1/2% cumulative - authorized
100,000 shares of $50 par value; issued 71,373
shares, callable at $52.50 per share 3,569 3,569
Second cumulative preferred voting stock - authorized
1,000,000 shares of $10 par value; none issued
Common stock - authorized 60,000,000 shares of no par
value; issued 20,355,681 and 20,335,797 (outstanding
11,977,997 and 11,827,623) 20,356 18,841
Stock compensation trust - 1,419,373 and 1,639,320 shares (22,242) (25,683)
Less treasury shares, at cost:
Preferred - 50,313 and 49,713 shares (1,629) (1,608)
Common - 6,958,311 and 6,868,854 shares (131,933) (129,066)
Deferred stock compensation (772) (1,145)
Accumulated other comprehensive loss (21,735) (20,869)
Earnings retained in the business 400,266 382,426
------------ ----------
Total shareholders' equity 245,880 226,465
------------ ----------
TOTAL $ 525,454 $ 489,683
============ ==========
See notes to consolidated condensed financial statements
MINE SAFETY APPLIANCES COMPANY
CONSOLIDATED CONDENSED STATEMENT OF INCOME
(Thousands of dollars, except earnings per share)
Three Months Ended Nine Months Ended
September 30 September 30
2001 2000 2001 2000
Net sales $ 137,079 $ 119,745 $ 405,455 $ 370,664
Other income (expense) 930 (528) 1,423 1,390
--------- --------- --------- ---------
138,009 119,217 406,878 372,054
--------- --------- --------- ---------
Costs and expenses
Cost of products sold 83,939 76,869 247,384 234,096
Selling, general and administrative 32,811 29,618 97,817 95,607
Depreciation and amortization 6,256 6,162 19,123 17,977
Interest 1,526 1,277 4,556 2,938
Currency exchange losses (gains) 545 (73) 930 (266)
--------- --------- --------- ---------
125,077 113,853 369,810 350,352
--------- --------- --------- ---------
Income before income taxes 12,932 5,364 37,068 21,702
Provision for income taxes 5,139 1,444 14,454 7,497
--------- --------- --------- ---------
Net income $ 7,793 $ 3,920 $ 22,614 $ 14,205
========= ========= ========= =========
Basic earnings per common share $ 0.65 $ 0.33 $ 1.90 $ 1.14
========= ========= ========= =========
Diluted earnings per common share $ 0.64 $ 0.33 $ 1.88 $ 1.13
========= ========= ========= =========
Dividends per common share $ 0.14 $ 0.12 $ 0.40 $ 0.58
========= ========= ========= =========
See notes to consolidated condensed financial statements
MINE SAFETY APPLIANCES COMPANY
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(Thousands of dollars)
Nine Months Ended
September 30
2001 2000
OPERATING ACTIVITIES
Net income $ 22,614 $ 14,205
Depreciation and amortization 19,123 17,977
Pensions (13,116) (12,486)
Net gain on dispositions of property and businesses (1,984) (1,575)
Deferred income taxes 255 (1,213)
Changes in operating assets and liabilities (8,004) 21,861
Other - including currency exchange adjustments (951) (5,949)
-------- --------
Cash flow from operating activities 17,937 32,820
INVESTING ACTIVITIES
Property additions (15,080) (16,133)
Dispositions of property and businesses 6,475 2,120
Acquisitions and other investing (7,045) (25,162)
-------- --------
Cash flow from investing activities (15,650) (39,175)
FINANCING ACTIVITIES
Changes in notes payable and short-term debt 719 390
Additions to long-term debt 6 40,740
Reductions of long-term debt (484) (267)
Cash dividends (4,775) (4,450)
Company stock purchases (2,809) (54,304)
Company stock sales 4,932 27,088
-------- --------
Cash flow from financing activities (2,411) 9,197
Effect of exchange rate changes on cash (1,043) (869)
-------- --------
(Decrease) increase in cash and cash equivalents (1,167) 1,973
Beginning cash and cash equivalents 26,541 17,108
-------- --------
Ending cash and cash equivalents $ 25,374 $ 19,081
======== ========
See notes to consolidated condensed financial statements
MINE SAFETY APPLIANCES COMPANY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(1) The Management's Discussion and Analysis of Financial Condition and
Results of Operations which follows these notes contains additional
information on the results of operations and the financial position of
the company. Those comments should be read in conjunction with these
notes. The company's annual report on Form 10-K for the year ended
December 31, 2000 includes additional information about the company, its
operations, and its financial position, and should be read in
conjunction with this quarterly report on Form 10-Q.
(2) The results for the interim periods are not necessarily indicative of
the results to be expected for the full year.
(3) Certain prior year amounts have been reclassified to conform with the
current year presentation.
(4) In the opinion of management, all adjustments, consisting of only normal
recurring adjustments, necessary for a fair presentation of these
interim periods have been included.
(5) Basic earnings per share is computed on the weighted average number of
shares outstanding during the period. Diluted earnings per share
includes the effect of the weighted average stock options outstanding
during the period, using the treasury stock method. Antidilutive options
are not considered in computing earnings per share.
Three Months Ended Nine Months Ended
September 30 September 30
2001 2000 2001 2000
( In thousands) ( In thousands)
Net income $ 7,793 $ 3,920 $ 22,614 $ 14,205
Preferred stock dividends declared 12 13 36 37
------- ------- -------- --------
Income available to common shareholders 7,781 3,907 22,578 14,168
------- ------- -------- --------
Basic shares outstanding 11,883 11,900 11,853 12,457
Stock options 246 46 167 50
------- ------- -------- --------
Diluted shares outstanding 12,129 11,946 12,020 12,507
------- ------- -------- --------
Antidilutive stock options 0 29 0 29
------- ------- -------- --------
(6) Comprehensive income was $9,956,000 and $21,748,000 for the three and
nine months ended September 30, 2001, respectively, and $1,134,000 and
$8,184,000 for the three and nine months ended September 30, 2000,
respectively. Comprehensive income includes net income and changes in
accumulated other comprehensive income, primarily cumulative translation
adjustments, for the period.
(7) The company is organized into three geographic operating segments (North
America, Europe and Other International), each of which includes a
number of operating companies.
Reportable segment information is presented in the following table:
(In Thousands)
North Other Reconciling Consolidated
America Europe International items totals
Three Months Ended September 30, 2001
Sales to external customers $ 96,378 $ 22,036 $ 18,624 $ 41 $ 137,079
Intercompany sales 5,169 4,716 543 (10,428)
Net income 6,290 860 955 (312) 7,793
Nine Months Ended September 30, 2001
Sales to external customers 280,679 69,453 55,226 97 405,455
Intercompany sales 14,494 15,249 1,504 (31,247)
Net income 18,778 1,379 2,722 (265) 22,614
Three Months Ended September 30, 2000
Sales to external customers 78,941 22,290 18,410 104 119,745
Intercompany sales 5,412 4,140 417 (9,969)
Net income (loss) 3,921 (806) 813 (8) 3,920
Nine Months Ended September 30, 2000
Sales to external customers 242,183 73,884 54,412 185 370,664
Intercompany sales 19,669 11,647 1,099 (32,415)
Net income (loss) 13,639 (1,511) 2,122 (45) 14,205
Reconciling items consist primarily of intercompany eliminations and
items reported at the corporate level.
(8) FAS No. 125, Accounting for Transfers and Servicing of Financial Assets
and Extinguishment of Liabilities, applies a control-oriented, financial
components approach to financial-asset- transfer transactions. Financial
assets, net of retained interests, are removed from the balance sheet
when the assets are sold and control is surrendered. In September 2000,
FAS No. 125 was replaced by FAS 140 which revised certain accounting and
disclosure requirements for securitizations and other transfers of
financial assets, but carried over most FAS No. 125 provisions.
At September 30, 2001, accounts receivable of $67.2 million were owned
by Mine Safety Funding Corporation (MSF), an unconsolidated wholly-owned
special purpose bankruptcy-remote subsidiary of the company. The company
held a subordinated interest in these receivables of $41.1 million, of
which $40.1 million is classified as other receivables. Net proceeds to
the company from the securitization arrangement were $25.0 million at
September 30, 2001.
The key economic assumptions used to measure the retained interest at
September 30, 2001 were a discount rate of 5.2% and an estimated life of
2.6 months. At September 30, 2001, an adverse change in the discount
rate or estimated life of 10% and 20% would reduce the fair value of the
retained interest by $73,000 and $146,000, respectively. The effect of
hypothetical changes in fair value based on variations in assumptions
should be used with caution and generally cannot be extrapolated.
Additionally, the effect on the fair value of the retained interest of
changing a particular assumption has been calculated without changing
other assumptions. In reality, a change in one factor may result in
changes in others.
(9) Effective January 1, 2001, the company adopted FAS No. 133, Accounting
for Derivative Instruments and Hedging Activities, which establishes
accounting and reporting standards for derivative instruments, including
those embedded in other contracts. Adoption of this standard did not
have a significant effect on the company's results or financial
position.
(10) The company will adopt FAS No. 142, Goodwill and Other Intangible
Assets, effective January 1, 2002. Under FAS No. 142 goodwill and other
intangible assets with indefinite lives are not amortized, but are
subject to periodic impairment tests that must be performed at least
annually. Adoption of this standard will reduce amortization expense
beginning in 2002; however, impairment tests could result in future
periodic write-downs. The company is reviewing the provisions of this
statement and its impact on results of operations and financial
position.
FAS No. 143, Acccounting for Asset Retirement Obligations, and FAS No.
144, Accounting for the Impairment or Disposal of Long-Lived Assets, are
effective for the company on January 1, 2003 and January 1, 2002,
respectively. The company is currently evaluating the provisions of
these statements and their impact on results of operations and financial
position.
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 products, cost reduction programs, fire department funding programs,
liquidity, sales and earnings, and market risk. Actual results may differ from
expectations contained in such forward-looking statements and can be affected by
any number of factors, many of which are outside of management's direct control.
Among the factors that could cause such differences are market acceptance of new
products, the company's ability to fulfill order backlogs, fire service market
conditions, the effects of cost reduction efforts, the global economic
environment, and interest and currency exchange rates.
Results of operations
---------------------
Three months ended September 30, 2001 and 2000
----------------------------------------------
Sales for the third quarter of 2001 were $137.1 million, an increase of $17.4
million, or 14%, from $119.7 million in the third quarter of 2000.
Third quarter 2001 sales for North American operations were 22% higher than in
the third quarter of last year. Sales to the fire service market were
significantly higher than last year, reflecting continuing strength in shipments
of breathing apparatus and the introduction of the Evolution line of thermal
imaging cameras and the CairnsHelmets line of firefighter head protection during
the third quarter of 2000. Third quarter 2001 sales included substantial
shipments on an order for more than 1000 self-contained breathing apparatus for
the Chicago Fire Department. Current quarter sales also included higher
shipments of gas masks, breathing apparatus, and goggles to the U.S. government.
Shipments of air-purifying respirators to distributors serving the three
September 11th disaster sites increased significantly to support rescue and
recovery efforts. Specialty chemical sales in the third quarter of 2001 were 17%
lower than last year's third quarter.
Shipments of safety products exceeded incoming orders in third quarter 2001,
resulting in lower backlog. Management believes that certain fire service orders
in the U.S. were delayed during the second and third quarters until the
recipients of funding granted to U.S. fire departments under the Federal
Emergency Management Agency (FEMA) Assistance to Firefighters Program were
announced. It is expected that the announcement of these awards will lead to
increased fire service orders over time. However, in the short-term, the
September 11th tragedy has resulted in changes in the mix of safety product
orders as some local governments are diverting regular fire service
funding to other priorities, while disaster recovery efforts and defense
preparedness concerns have increased demand for air-purifying respirators, gas
masks, and other personal protective equipment. The longer-term effects of these
events on safety product orders remains to be seen. Specialty chemical order
backlog increased modestly during the current quarter.
Third quarter 2001 sales to external customers by international operations were
unchanged compared to third quarter 2000, with a 1% decrease in European sales
being offset by a 1% increase in other international sales. Local currency
sales of other international companies grew approximately 15%, but these gains
were offset by currency exchange rate effects when stated in U.S. dollars.
Exchange rate effects in Europe were minor during the quarter.
Gross profit for the third quarter of 2001 was $53.1 million, an increase of
$10.2 million, or 24%, from $42.9 million in third quarter 2000. The ratio of
gross profit to sales was 38.8% in the third quarter of 2001 compared to 35.8%
in the corresponding quarter last year. The improved gross profit percentage
reflects reductions in manufacturing costs.
Selling and administration costs in the third quarter of 2001 were $32.8
million, an increase of $3.2 million, or 11%, from $29.6 million in the third
quarter of 2000. The increase occurred primarily in North America and reflects
higher selling expenses associated with increased sales. Additionally, third
quarter 2000 selling and administrative expenses were reduced by a pension
settlement gain of $1.3 million.
Depreciation and amortization expense in third quarter 2001 was $6.3 million, an
increase of 2% over $6.2 million in the corresponding quarter last year. The
increase is primarily due to goodwill amortization associated with acquisitions
made in 2000 and early 2001.
Interest expense was $1.5 million in third quarter 2001 compared to $1.3 million
in third quarter 2000. Higher interest expense in the current quarter reflects
additional debt required for the August 2000 acquisition of CairnsHelmets.
Other income was $930,000 for third quarter 2001 compared to an expense of
$528,000 in third quarter 2000. Other income for third quarter 2001 included a
gain of $1.3 million on the sale of property in Britain.
Income before income taxes was $12.9 million for third quarter 2001 compared to
$5.4 million in third quarter 2000.
The effective income tax rate for the third quarter of 2001 was 39.7% compared
to 26.9% in third quarter 2000. The lower effective rate in 2000 was related to
tax benefits on international operating losses, primarily in Germany, and
adjustments in the U.S. related to prior year foreign sales corporation tax
benefits.
Net income in the third quarter of 2001 was $7.8 million, or 65 cents per basic
share, compared to $3.9 million, or 33 cents per basic share, in the third
quarter last year.
Nine months ended September 30, 2001 and 2000
---------------------------------------------
Sales for the nine months ended September 30, 2001 were $405.5 million, an
increase of $34.8 million, or 9%, from $370.7 million last year.
North American sales for the first nine months of 2001 were 16% higher than the
same period last year. Shipments of breathing apparatus, thermal imaging cameras
and helmets to the fire service market; gas masks and goggles to defense and
civilian preparedness markets; and helmets for construction and industrial
markets all improved significantly in 2001. In September 2001, significant
shipments of air-purifying respirators were made to the September 11th disaster
sites. Instrument sales were also higher in 2001, reflecting new product
introductions. Sales of specialty chemicals were 7% higher than in the first
nine months of 2000. The increase in specialty chemical sales reflects gains in
the first and second quarters, partially offset by lower sales in the third
quarter.
Incoming orders for safety products exceeded sales during the first nine months
of 2001, particularly in U.S. government markets, resulting in a higher backlog.
Specialty chemical order backlog decreased modestly during the same period.
Sales in Europe for the first nine months of 2001 were 6% lower than during the
same period in 2000. Modest local currency sales growth was more than offset by
currency exchange rate movements when stated in U.S. dollars. The local
currency sales improvement occurred primarily in Germany.
Local currency sales of other international operations for the first nine months
of 2001 were approximately 15% higher than in the same period last year. When
stated in U.S. dollars, however, other international sales increased only 1% due
to negative currency exchange rate movements. Local currency sales were higher
in all geographic markets, particularly Australia and Brazil.
Gross profit for the nine months ended September 30, 2001 was $158.1 million, an
increase of $21.5 million, or 16%, from $136.6 million in the first nine months
of 2000. The ratio of gross profit to sales was 39.0% in the nine months ended
September 30, 2001 compared to 36.8% in the corresponding period last year. The
higher gross profit percentage reflects manufacturing cost reductions.
Selling, general and administration costs in the nine months ended September 30,
2001 were $97.8 million, an increase of $2.2 million, or 2%, from $95.6 million
in the same period last year. The increase occurred mainly in North America and
includes higher selling expenses associated with sales increases.
Depreciation and amortization expense was $19.1 million in the nine months ended
September 30, 2001 an increase of $1.1 million, or 6%, from $18.0 million in the
same
period last year. The increase is primarily due to depreciation and goodwill
amortization associated with acquisitions made during 2000 and early 2001.
Interest expense for the nine months ended September 30, 2001 was $4.6 million,
an increase of $1.7 million, or 59%, from $2.9 million in the same period last
year. Higher interest expense in 2001 relates to mid-2000 borrowings to finance
acquisitions and stock repurchases.
Other income was $1.4 million for both the nine months ended September 30, 2001
and the same period in 2000. Other income included interest and rent income
totaling approximately $1.5 million in both years and net losses of
approximately $350,000 on the sales of property and trade accounts receivables
in both years.
Income before income taxes was $37.1 million for the nine months ended September
30, 2001 compared to $21.7 million in the first nine months of 2000, an increase
of $15.4 million, or 71%.
The effective income tax rate for the nine months ended September 30, 2001 was
39.0% compared to 34.5% in the same period last year. The lower effective rate
in 2000 was due to tax benefits on international operating losses, primarily in
Germany, and adjustments in the U.S. related to prior year foreign sales
corporation tax benefits.
Net income in the nine months ended September 30, 2001 was $22.6 million, or
$1.90 per basic share, compared to $14.2 million, or $1.14 per basic share, in
the first nine months of 2000.
Liquidity and Financial Condition
---------------------------------
Cash and cash equivalents decreased $1.2 million during the first nine months of
2001 compared with an increase of $2.0 million in the first nine months of 2000.
Operating activities provided $17.9 million of cash in first nine months of 2001
compared to providing $32.8 million in the same period last year. Lower cash
provided by operations in 2001 is related to changes in working capital,
primarily increases in receivables and inventory, partially offset by higher
income. During the first nine months of 2000, inventory and receivables
decreased significantly.
Investing activities used $15.7 million of cash in the first nine months of 2001
compared to using $39.2 million in 2000. The higher use of cash in 2000 was
primarily related to the acquisition of CairnsHelmets in August 2000.
Financing activities used cash of $2.4 million in the first nine months of 2001
and provided $9.2 million in the same period last year. Financing activities in
2000 included $40 million provided from issuance of private placement bonds,
partially offset by net purchases of common stock from the family of a co-
founder.
Available credit facilities and internal cash resources are considered adequate
to provide for future operations, capital requirements and dividends to
shareholders.
Financial Instrument Market Risk
--------------------------------
There have been no material changes in the company's financial instrument market
risk during the first nine months of 2001. For additional information, refer to
page 17 of the company's Annual Report to Shareholders for the year ended
December 31, 2000.
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 September 30, 2001.
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 2, 2001 By /s/ Dennis L. Zeitler
Dennis L. Zeitler
Vice President - Finance;
Principal Financial Officer