msa-20210630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarter ended June 30, 2021

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File No. 1-15579

MSA SAFETY INCORPORATED

(Exact name of registrant as specified in its charter)


Pennsylvania		46-4914539
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

1000 Cranberry Woods Drive
Cranberry Township,	Pennsylvania	16066-5207
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (724) 776-8600

Former name or former address, if changed since last report: N/A

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 ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which is registered
Common Stock, no par value	MSA	New York Stock Exchange

As of July 23, 2021, 39,189,632 shares of common stock, of the registrant were outstanding.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

MSA SAFETY INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

Unaudited


	Three Months Ended June 30,				Six Months Ended June 30,
(In thousands, except per share amounts)	2021		2020		2021		2020
Net sales	$	341,289	$	314,438	$	649,717	$	655,583
Cost of products sold	188,374		172,841		362,063		356,627
Gross profit	152,915		141,597		287,654		298,956

Selling, general and administrative	83,426		69,034		158,889		149,271
Research and development	13,970		13,760		27,204		27,872
Restructuring charges (Note 3)	7,078		8,865		8,385		10,872
Currency exchange losses (gains), net (Note 5)	1,640		793		(459)		1,063
Product liability expense (Note 17)	11,751		851		14,547		2,802
Operating income	35,050		48,294		79,088		107,076

Interest expense	2,172		2,459		4,082		5,602

Other income, net	(2,293)		(2,000)		(6,506)		(3,258)
Total other (income) expense, net	(121)		459		(2,424)		2,344

Income before income taxes	35,171		47,835		81,512		104,732
Provision for income taxes (Note 9)	9,784		11,429		19,525		24,523
Net income	25,387		36,406		61,987		80,209

Net income attributable to noncontrolling interests	(262)		(340)		(448)		(468)

Net income attributable to MSA Safety Incorporated	$	25,125	$	36,066	$	61,539	$	79,741

Earnings per share attributable to MSA Safety Incorporated common shareholders (Note 8):
Basic	$	0.64	$	0.93	$	1.57	$	2.05
Diluted	$	0.64	$	0.92	$	1.56	$	2.03
Dividends per common share	$	0.44	$	0.43	$	0.87	$	0.85

The accompanying notes are an integral part of the condensed consolidated financial statements.

-2-

MSA SAFETY INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Unaudited


	Three Months Ended June 30,				Six Months Ended June 30,
(In thousands)	2021		2020		2021		2020
Net income	$	25,387	$	36,406	$	61,987	$	80,209
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments (Note 5)	6,018		4,669		(4,205)		(18,278)
Pension and post-retirement plan actuarial gains, net of tax (Note 5)	3,657		3,090		7,369		6,192
Unrealized gain (loss) on available-for-sale securities (Note 5)	1		124		(4)		62
Reclassification of currency translation from accumulated other comprehensive loss into net income (Note 5)	—		—		—		720
Total other comprehensive income (loss), net of tax	9,676		7,883		3,160		(11,304)
Comprehensive income	35,063		44,289		65,147		68,905
Less: Comprehensive income attributable to noncontrolling interests	(135)		(358)		(356)		(371)
Comprehensive income attributable to MSA Safety Incorporated	$	34,928	$	43,931	$	64,791	$	68,534

The accompanying notes are an integral part of the condensed consolidated financial statements.

-3-

MSA SAFETY INCORPORATED

CONDENSED CONSOLIDATED BALANCE SHEETS

Unaudited


(In thousands)	June 30, 2021		December 31, 2020
Assets
Cash and cash equivalents	$	174,078	$	160,672
Trade receivables, less allowance for credit loss of $4,537 and $5,344	226,575		252,283
Inventories (Note 2)	232,658		197,819
Investments, short-term (Note 16)	49,982		74,982
Prepaid income taxes	33,595		26,185
Notes receivable, insurance companies (Note 17)	3,855		3,796
Prepaid expenses and other current assets	49,239		38,541
Total current assets	769,982		754,278

Property, plant and equipment, net (Note 4)	201,163		189,620
Operating lease assets, net	67,383		53,451
Prepaid pension cost (Note 14)	105,078		97,545
Deferred tax assets (Note 9)	37,007		35,665
Goodwill (Note 12)	447,267		443,272
Intangible assets, net (Note 12)	161,402		161,051
Notes receivable, insurance companies, noncurrent (Note 17)	49,133		48,540
Net investment in sales-type leases, noncurrent (Note 13)	29,383		—
Insurance receivable (Note 17) and other noncurrent assets	95,435		89,062
Total assets	$	1,963,233	$	1,872,484

Liabilities
Notes payable and current portion of long-term debt (Note 11)	$	20,000	$	20,000
Accounts payable	89,086		86,854
Employees’ compensation	37,533		40,277
Insurance and product liability (Note 17)	43,857		43,706
Income taxes payable (Note 9)	19,871		3,580
Other current liabilities	107,494		116,128
Total current liabilities	317,841		310,545

Long-term debt, net (Note 11)	314,587		287,157
Pensions and other employee benefits	201,311		208,068
Noncurrent operating lease liabilities	58,877		44,639
Deferred tax liabilities (Note 9)	13,017		10,916
Product liability (Note 17) and other noncurrent liabilities	208,832		201,268
Total liabilities	$	1,114,465	$	1,062,593

Equity
Preferred stock, 4.5% cumulative, $50 par value (Note 6)	$	3,569	$	3,569
Common stock, no par value (Note 6)	253,773		242,693
Treasury shares, at cost (Note 6)	(331,039)		(327,756)
Accumulated other comprehensive loss (Note 5)	(179,145)		(182,397)
Retained earnings	1,093,261		1,065,789
Total MSA Safety Incorporated shareholders' equity	840,419		801,898
Noncontrolling interests	8,349		7,993
Total shareholders’ equity	848,768		809,891
Total liabilities and shareholders’ equity	$	1,963,233	$	1,872,484

The accompanying notes are an integral part of the condensed consolidated financial statements.

-4-

MSA SAFETY INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Unaudited


	Six Months Ended June 30,
(In thousands)	2021		2020
Operating Activities
Net income	$	61,987	$	80,209
Depreciation and amortization	22,088		19,428

Stock-based compensation (Note 10)	10,695		4,352
Pension expense (Note 14)	919		4,430
Deferred income tax benefit (Note 9)	(3,448)		(711)
Loss on asset dispositions, net	48		127
Pension contributions (Note 14)	(3,845)		(3,781)
Currency exchange (gains) losses, net	(459)		1,063
Product liability expense (Note 17)	14,547		2,802
Collections on insurance receivables and notes receivable, insurance companies (Note 17)	6,069		5,736
Product liability payments (Note 17)	(22,574)		(4,672)

Changes in:
Trade receivables	27,248		9,286
Inventories (Note 2)	(21,431)		(46,886)
Accounts payable	(1,563)		8,806
Other current assets and liabilities	(6,503)		3,423
Other noncurrent assets and liabilities	136		(581)
Cash Flow From Operating Activities	83,914		83,031
Investing Activities
Capital expenditures	(20,288)		(19,834)
Acquisition, net of cash acquired (Note 18)	(62,992)		—
Purchase of short-term investments (Note 16)	(74,955)		(119,402)
Proceeds from maturities of short-term investments (Note 16)	100,000		110,000
Property disposals	60		83
Cash Flow Used in Investing Activities	(58,175)		(29,153)
Financing Activities

Proceeds from long-term debt (Note 11)	605,733		581,000
Payments on long-term debt (Note 11)	(578,729)		(590,000)
Debt issuance costs	(1,494)		—
Cash dividends paid	(34,067)		(33,052)
Company stock purchases (Note 6)	(5,511)		(28,254)
Exercise of stock options (Note 6)	2,161		3,740
Employee stock purchase plan (Note 6)	452		390

Cash Flow Used in Financing Activities	(11,455)		(66,176)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(907)		(3,654)
Increase (decrease) in cash, cash equivalents and restricted cash	13,377		(15,952)
Beginning cash, cash equivalents and restricted cash	161,034		152,543
Ending cash, cash equivalents and restricted cash	$	174,411	$	136,591

Supplemental cash flow information:
Cash and cash equivalents	$	174,078	$	136,238
Restricted cash included in prepaid expenses and other current assets	333		353
Total cash, cash equivalents and restricted cash	$	174,411	$	136,591

The accompanying notes are an integral part of the condensed consolidated financial statements.

-5-

MSA SAFETY INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN RETAINED EARNINGS,

ACCUMULATED OTHER COMPREHENSIVE LOSS AND NONCONTROLLING INTERESTS

Unaudited


(In thousands)	Retained Earnings		Accumulated Other Comprehensive (Loss)		Noncontrolling Interests
Balances March 31, 2020	$	1,039,609	$	(233,075)	$	6,786
Net income	36,406		—		—
Foreign currency translation adjustments	—		4,669		—
Pension and post-retirement plan adjustments, net of tax of $1,079	—		3,090		—
Unrealized net gains on available-for-sale securities (Note 16)	—		124		—

Income attributable to noncontrolling interests	(340)		(18)		358
Common dividends	(16,710)		—		—
Preferred dividends ($0.5625 per share)	(10)		—		—
Balances June 30, 2020	$	1,058,955	$	(225,210)	$	7,144

Balances March 31, 2021	$	1,085,383	$	(188,948)	$	8,214
Net income	25,387		—		—
Foreign currency translation adjustments	—		6,018		—
Pension and post-retirement plan adjustments, net of tax of $1,139	—		3,657		—
Unrealized net gains on available-for-sale securities (Note 16)	—		1		—

Income attributable to noncontrolling interests	(262)		127		135
Common dividends	(17,237)		—		—
Preferred dividends ($0.5625 per share)	(10)		—		—
Balances June 30, 2021	$	1,093,261	$	(179,145)	$	8,349

Balances December 31, 2019	$	1,012,266	$	(214,003)	$	6,773
Net income	80,209		—		—
Foreign currency translation adjustments	—		(18,278)		—
Pension and post-retirement plan adjustments, net of tax of $2,146	—		6,192		—
Unrealized net gains on available-for-sale securities (Note 16)	—		62		—
Reclassification from accumulated other comprehensive (loss) into net income (Note 5)	—		720		—
Income attributable to noncontrolling interests	(468)		97		371
Common dividends	(33,032)		—		—
Preferred dividends ($0.5625 per share)	(20)		—		—

Balances June 30, 2020	$	1,058,955	$	(225,210)	$	7,144

Balances December 31, 2020	$	1,065,789	$	(182,397)	$	7,993
Net income	61,987		—		—
Foreign currency translation adjustments	—		(4,205)		—
Pension and post-retirement plan adjustments, net of tax of $2,223	—		7,369		—
Unrealized net losses on available-for-sale securities (Note 16)	—		(4)		—

Income attributable to noncontrolling interests	(448)		92		356
Common dividends	(34,047)		—		—
Preferred dividends ($0.5625 per share)	(20)		—		—

Balances June 30, 2021	$	1,093,261	$	(179,145)	$	8,349

The accompanying notes are an integral part of the condensed consolidated financial statements.

-6-

MSA SAFETY INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Unaudited

Note 1—Basis of Presentation

The condensed consolidated financial statements of MSA Safety Incorporated and its subsidiaries ("MSA" or the "Company") are unaudited. These condensed consolidated financial statements include all adjustments, consisting of normal recurring adjustments, considered necessary by management to fairly state the Company's results. Intercompany accounts and transactions have been eliminated. The results reported in these condensed consolidated financial statements are not necessarily indicative of the results that may be expected for the entire year. The December 31, 2020, Condensed Consolidated Balance Sheet data was derived from the audited Consolidated Balance Sheet, but does not include all disclosures required by accounting principles generally accepted in the United States of America (U.S. GAAP). This Form 10-Q report should be read in conjunction with MSA's Form 10-K for the year ended December 31, 2020, which includes all disclosures required by U.S. GAAP.

Reclassifications - Certain reclassifications of prior years' data have been made to conform to the current year presentation. These reclassifications relate to additional captions disclosed within the operating section of the unaudited Condensed Consolidated Statement of Cash Flows, but do not change the overall cash flow from operating activities for the prior years as previously reported.

Note 2—Inventories

The following table sets forth the components of inventory:


(In thousands)	June 30, 2021		December 31, 2020
Finished products	$	100,181	$	81,048
Work in process	5,619		2,618
Raw materials and supplies	174,135		161,300
Inventories at current cost	279,935		244,966
Less: LIFO valuation	(47,277)		(47,147)
Total inventories	$	232,658	$	197,819

Note 3—Restructuring Charges

During the three and six months ended June 30, 2021, we recorded restructuring charges of $7.1 million and $8.4 million, respectively. International segment restructuring charges of $7.6 million during the six months ended June 30, 2021, were primarily related to our ongoing initiatives to drive profitable growth and right size our operations. Americas segment restructuring charges of $0.8 million during the six months ended June 30, 2021, were primarily related to costs associated with our global Fixed Gas & Flame Detection manufacturing footprint optimization as well as programs to adjust our operations in response to current business conditions.

During the three and six months ended June 30, 2020, we recorded restructuring charges of $8.9 million and $10.9 million, respectively. International segment restructuring charges of $8.5 million during the six months ended June 30, 2020, were primarily related to severance costs for staff reductions and footprint optimization associated with our ongoing initiatives to drive profitable growth. Americas segment restructuring charges of $2.2 million during the six months ended June 30, 2020, were primarily related to costs associated with our global Fixed Gas & Flame Detection manufacturing footprint optimization.

-7-

Activity and reserve balances for restructuring charges by segment were as follows:


(In millions)	Americas		International		Corporate		Total
Reserve balances at December 31, 2019	$	0.3	$	5.9	$	—	$	6.2
Restructuring charges	4.7		21.9		0.8		27.4
Currency translation and other adjustments	(0.1)		0.1		—		—
Cash payments / utilization	(2.1)		(8.6)		(0.4)		(11.1)
Reserve balances at December 31, 2020	$	2.8	$	19.3	$	0.4	$	22.5
Restructuring charges	0.8		7.6		—		8.4
Currency translation and other adjustments	(0.1)		(0.7)		—		(0.8)
Cash payments	(0.8)		(6.5)		(0.1)		(7.4)
Reserve balances at June 30, 2021	$	2.7	$	19.7	$	0.3	$	22.7

Restructuring reserves are included in Other current liabilities in the accompanying unaudited Condensed Consolidated Balance Sheets.

Note 4—Property, Plant and Equipment

The following table sets forth the components of property, plant and equipment, net:


(In thousands)	June 30, 2021		December 31, 2020
Land	$	5,215	$	4,275
Buildings	129,838		128,887
Machinery and equipment	443,025		422,333
Construction in progress	35,910		38,753
Total	613,988		594,249
Less: accumulated depreciation	(412,825)		(404,629)
Property, plant and equipment, net	$	201,163	$	189,620

-8-

Note 5—Reclassifications Out of Accumulated Other Comprehensive Loss

Changes in accumulated other comprehensive loss were as follows:


	MSA Safety Incorporated				Noncontrolling Interests
	Three Months Ended June 30,				Three Months Ended June 30,
(In thousands)	2021		2020		2021		2020
Pension and other post-retirement benefits (a)
Balance at beginning of period	$	(111,840)	$	(121,746)	$	—	$	—
Amounts reclassified from accumulated other comprehensive loss into net income:
Amortization of prior service credit (Note 14)	(24)		(52)		—		—
Recognized net actuarial losses (Note 14)	4,820		4,221		—		—
Tax benefit	(1,139)		(1,079)		—		—
Total amount reclassified from accumulated other comprehensive loss, net of tax, into net income	3,657		3,090		—		—

Balance at end of period	$	(108,183)	$	(118,656)	$	—	$	—
Available-for-sale securities
Balance at beginning of period	$	(6)	$	(56)	$	—	$	—
Unrealized gain on available-for-sale securities (Note 16)	1		124		—		—
Balance at end of period	$	(5)	$	68	$	—	$	—
Foreign currency translation
Balance at beginning of period	$	(77,102)	$	(111,273)	$	617	$	308

Foreign currency translation adjustments	6,145		4,651		(127)		18
Balance at end of period	$	(70,957)	$	(106,622)	$	490	$	326

(a) Reclassifications out of accumulated other comprehensive loss and into net income are included in the computation of net periodic pension and other post-retirement benefit costs (refer to Note 14—Pensions and Other Post-retirement Benefits).

-9-


	MSA Safety Incorporated					Noncontrolling Interests
	Six Months Ended June 30,					Six Months Ended June 30,
(In thousands)	2021		2020			2021		2020
Pension and other post-retirement benefits (a)
Balance at beginning of period	$	(115,552)	$	(124,848)		$	—	$	—
Amounts reclassified from accumulated other comprehensive loss into net income:
Amortization of prior service credit (Note 14)	(48)		(104)			—		—
Recognized net actuarial losses (Note 14)	9,640		8,442			—		—
Tax benefit	(2,223)		(2,146)			—		—
Total amount reclassified from accumulated other comprehensive loss, net of tax, into net income	7,369		6,192			—		—

Balance at end of period	$	(108,183)	$	(118,656)		$	—	$	—
Available-for-sale securities
Balance at beginning of period	$	(1)	$	6		$	—	$	—
Unrealized (loss) gain on available-for-sale securities (Note 16)	(4)		62			—		—
Balance at end of period	$	(5)	$	68		$	—	$	—
Foreign currency translation
Balance at beginning of period	$	(66,844)	$	(89,161)		$	582	$	423
Reclassification from accumulated other comprehensive loss into net income	—		720		(b)	—		—
Foreign currency translation adjustments	(4,113)		(18,181)			(92)		(97)
Balance at end of period	$	(70,957)	$	(106,622)		$	490	$	326

(b) Reclassifications into net income relate primarily to the approval of our plan to close several subsidiaries in our Europe, Middle East & Africa ("EMEA") operating segment and are included in Currency exchange losses (gains), net, within the unaudited Condensed Consolidated Statement of Income.

Note 6—Capital Stock

Preferred Stock - The Company has authorized 100,000 shares of $50 par value 4.5% cumulative preferred nonvoting stock which is callable at $52.50. There are 71,340 shares issued and 52,998 shares held in treasury at June 30, 2021. The Treasury shares at cost line on the unaudited Condensed Consolidated Balance Sheets includes $1.8 million related to preferred stock. There were no treasury purchases of preferred stock shares during the six months ended June 30, 2021. There were treasury purchases of 120 preferred stock shares during the six months ended June 30, 2020. The Company has also authorized 1,000,000 shares of $10 par value second cumulative preferred voting stock. No shares have been issued as of June 30, 2021.

Common Stock - The Company has authorized 180,000,000 shares of no par value common stock. There were 62,081,391 shares issued as of December 31, 2020. No new shares were issued during the six months ended June 30, 2021, or 2020. There were 39,189,632 and 39,067,902 shares outstanding at June 30, 2021, and December 31, 2020, respectively.

Treasury Shares - The Company's share repurchase program authorizes up to $100.0 million to repurchase MSA common stock in the open market and in private transactions. The share repurchase program has no expiration date. The maximum number of shares that may be repurchased is calculated based on the dollars remaining under the program and the respective month-end closing share price. During the six months ended June 30, 2021, no shares were repurchased under this program. During the six months ended June 30, 2020, 175,000 shares were repurchased under the program. There were 22,891,759 and 23,013,489 Treasury Shares at June 30, 2021, and December 31, 2020, respectively.

The Company issues Treasury Shares for all stock-based compensation plans. Shares are issued from Treasury at the average Treasury Share cost on the date of the transaction. There were 33,625 and 63,405 Treasury Shares issued for these purposes during the six months ended June 30, 2021 and 2020, respectively.

Common stock activity is summarized as follows:

-10-


	Three Months Ended June 30, 2021				Three Months Ended June 30, 2020
(In thousands)	Common Stock		Treasury Cost		Common Stock		Treasury Cost
Balance at beginning of period	$	245,887	$	(329,615)	$	232,167	$	(328,081)
Stock compensation expense	7,403		—		830		—
Restricted and performance stock awards	(170)		170		(226)		226
Stock options exercised	244		126		677		330
Treasury shares purchased	—		(163)		—		(524)

Employee stock purchase program	409		43		338		52

Balance at end of period	$	253,773	$	(329,439)	$	233,786	$	(327,997)

Six Months Ended June 30, 2021

Six Months Ended June 30, 2020

(In thousands)

Common
Stock

Treasury
Cost

Common
Stock

Treasury
Cost

Balance at beginning of period

242,693