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 June 30, 1998 Commission File No. 0-2504 MINE SAFETY APPLIANCES COMPANY (Exact name of registrant as specified in its charter) Pennsylvania 25-0668780 (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) 121 Gamma Drive RIDC Industrial Park O'Hara Township Pittsburgh, Pennsylvania 15238 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: 412/967-3000 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes X No As of July 31, 1998, there were outstanding 5,030,153 shares of common stock without par value, including 577,080 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 shares data) <TABLE> <CAPTION> June 30 December 31 1998 1997 <S> <C> <C> ASSETS Current assets Cash $ 9,692 $ 5,264 Temporary investments, at cost plus accrued interest 37,015 14,657 Accounts receivable, less allowance (1998 - $3,461; 1997 - $3,704) 84,760 91,388 Inventories: Finished products 32,316 36,626 Work in process 12,699 13,772 Raw materials and supplies 31,209 30,668 -------- --------- Total inventories 76,224 81,066 -------- --------- Other current assets 25,987 27,238 -------- --------- Total current assets 233,678 219,613 -------- --------- Property, plant and equipment 354,865 354,649 Accumulated depreciation (201,734) (199,465) -------- --------- Net property 153,131 155,184 -------- --------- Other assets 25,744 31,607 -------- --------- TOTALS $ 412,553 $406,404 ======== ========= </TABLE>
<TABLE> LIABILITIES AND SHAREHOLDERS' EQUITY <S> <C> <C> Current liabilities Notes and accounts payable $ 62,202 $ 55,990 Federal, foreign, state and local income taxes 3,408 4,089 Other current liabilities 47,241 43,161 --------- --------- Total current liabilities 112,851 103,240 --------- --------- Long-term debt 12,006 12,270 Noncurrent liabilities (principally employee/retiree benefits) and deferred credits 43,048 49,445 Shareholders' equity Preferred stock, 4-1/2% cumulative - authorized 100,000 shares of $50 par value; issued 71,373 shares, callable at $52.50 per share 3,569 3,569 Second cumulative preferred voting stock - authorized 1,000,000 shares of $10 par value; none issued Common stock - authorized 20,000,000 shares of no par value; issued 6,779,231 and 6,779,231 (outstanding 4,454,475 and 4,455,915) 12,515 12,297 Cumulative translation adjustments (9,631) (5,744) Minimum pension liability adjustment (538) (538) Retained earnings 350,904 343,534 Common stock compensation trust (579,370 and 600,000 shares) (27,231) (28,200) Less treasury shares, at cost: Preferred - 49,313 and 49,313 shares (1,595) (1,595) Common - 1,745,386 and 1,723,316 shares (83,345) (81,874) --------- --------- Total shareholders' equity 244,648 241,449 --------- --------- TOTALS $ 412,553 $406,404 ========= ========= </TABLE>
MINE SAFETY APPLIANCES COMPANY CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS (Thousands of dollars) <TABLE> <CAPTION> Six Months Ended June 30 1998 1997 <S> <C> <C> OPERATING ACTIVITIES Income from operations $ 10,290 $ 8,659 Depreciation 10,456 10,922 Deferred taxes,pensions, and other non-cash charges/(credits) (7,845) (2,986) Changes in operating assets and liabilities 13,306 7,235 Other - principally currency exchange adjustments (1,304) (6,441) --------- --------- Cash flow from operating activities 24,903 17,389 --------- --------- INVESTING ACTIVITIES Property additions (14,524) (15,135) Property disposals 6,303 624 Acquisitions and other investing 3,814 (495) --------- --------- Cash flow from investing activities (4,407) (15,006) --------- --------- FINANCING ACTIVITIES Additions to long-term debt 119 638 Reductions of long-term debt (361) (855) Changes in notes payable and short term debt 12,175 4,158 Cash dividends (2,920) (3,051) Company stock purchases and sales (284) (1,792) --------- --------- Cash flow from financing activities 8,729 (902) --------- --------- Effect of exchange rate changes on cash (2,439) (2,007) --------- --------- Increase/(decrease) in cash and cash equivalents 26,786 (526) Beginning cash and cash equivalents 19,921 25,096 --------- --------- Ending cash and cash equivalents $ 46,707 $ 24,570 ========= ========= </TABLE>
Note 1 - Basis of Presentation The accompanying unaudited consolidated condensed financial statements include all adjustments,consisting of only normal recurring adjustments, which are, in the opinion of management of the registrant, necessary for a fair statement of the operating results for the three and six-month periods ended June 30, 1998 and 1997. These financial statements have been prepared in accordance with the instructions to Form 10-Q and therefore do not include all information and footnotes necessary for a fair presentation of financial position, results of operations, and changes in cash flows in conformity with generally accepted accounting principles. Note 2 - Earnings per Share Basic earnings per share is computed on the weighted average number of shares outstanding during the period. Diluted earnings per share includes the effect of the weighted average stock options outstanding during the period, using the treasury stock method. Antidilutive options are not considered in computing earnings per share. <TABLE> <CAPTION> Three Months Ended Six Months Ended June 30 June 30 1998 1997 1998 1997 <S> <C> <C> <C> <C> Net income $ 4,802 $ 5,055 $ 10,290 $ 8,659 Preferred stock dividends declared 13 12 25 12 --------- --------- --------- --------- Income available to common shareholders 4,789 5,043 10,265 8,647 --------- --------- --------- --------- Basic shares outstanding 4,449 4,586 4,451 4,592 Stock options 20 11 15 11 --------- --------- --------- --------- Diluted shares outstanding 4,469 4,597 4,466 4,603 --------- --------- --------- --------- Antidilutive stock options 3 2 3 2 --------- --------- --------- --------- </TABLE> Note 3 - Comprehensive Income Comprehensive income was $3,789,000 and $6,403,000 for the three and six months ended June 30, 1998 respectively, and $5,103,000 and $3,443,000 for the three and six months ended June 30, 1997, respectively. Comprehensive income includes net income and changes in accumulated other comprehensive income, primarily cumulative translation adjustments, for the period.
MINE SAFETY APPLIANCES COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS Consolidated sales for the second quarter of 1998 were $124,168,000 compared with $129,245,000 for the second quarter of 1997. Sales for the six months ended June 30, 1998 were $246,313,000 compared with $242,718,000 for 1997. Net income for the 1998 second quarter was $4,802,000, or $1.08 per share, compared with 1997 second quarter income of $5,055,000, or $1.10 per share. Net income for the six months ended June 30, 1998 was $10,290,000, or $2.31 per share, compared with $8,659,000, or $1.88 per share in 1997. The decline in sales in the second quarter was due to several factors. The most significant was delays in shipping of safety and instrument products from U.S. operations during implementation of new enterprise-wide information systems in May. While shipments have returned to more normal levels in June, the backlog created in May has not yet been cleared. Sales were also adversely affected by transition issues related to some production operations relocated from the company's Esmond, Rhode Island facility, which was closed in 1997. Another factor in the reported sales decline was the continued strengthening of the U.S. dollar relative to international currencies. Local currency sales in most European markets showed some growth, but were below prior year levels when translated to U.S. dollars. Sales declines in other international markets were attributed to the Asian economic crisis and ripple effects in other regions, especially Latin America. Sales to mining markets, especially in South Africa, continued to be adversely affected by the recall of self-contained self-rescuer products. These recalls have now been substantially completed. Worldwide sales of specialty chemical products have continued at strong levels. Second quarter earnings were affected by two unusual factors. A positive impact was recorded from the divestitures of the HAZCO and Baseline business units, which contributed $2.2 million to net income. A negative element was the substantially reduced level of invoicing in the U.S. in May due to the systems and production problems. However, incoming orders in that month were relatively normal and on plan. In addition, MSA's German affiliate continued to record restructuring and product recall-related charges. For the six months, higher sales and income reflect strong first quarter results. Other income for the three months and six months periods is higher than the comparable periods in 1997 primarily as a result of the previously discussed divestitures. The lower effective tax rates for the three and six months periods as compared with the same periods in 1997 are mainly related to the tax effects of the divestitures. The company is cautious regarding the outlook for the second half, which has elements of optimism. Incoming orders in U.S. markets have continued at healthy levels during the second quarter while backlog has grown because of the difficulties previously mentioned. Deliveries by U.S. operations have been improving since May, however, further progress will be required to benefit future periods. Incoming orders have also continued at strong levels and ahead of invoicing in Europe, particularly in Germany, which augers well for shipments in the second half. However, global outlook is tempered by speculation that the consequences of the Asia economic crisis may worsen and adversely affect other regions, including the U.S., throughout the remainder of the year. The company's consumer products initiative has begun to bear fruit. Following an intense competition with other major safety equipment suppliers, products from MSA Safety Works were selected to be carried by a leading U.S. home improvement chain. This is a very encouraging beginning for this important initiative.
Currency exchange adjustments charged directly to the equity cumulative translation adjustments account are shown below. Significant second quarter 1998 losses relate primarily to Australia, Japan and Canada. Significant year-to-date 1998 losses relate to Germany and Australia. Significant year-to-date 1997 losses relate primarily to Germany and Italy. <TABLE> <CAPTION> Three Months Ended Six Months Ended June 30 June 30 1998 1997 1998 1997 (Thousands of dollars) (Thousands of dollars) <S> <C> <C> <C> <C> Translation (gains)/losses 1,013 (48) 3,887 5,216 </TABLE> Available credit facilities along with internal cash resources are adequate to provide for ensuing capital requirements. The company's financial position and liquidity continue to be adequate. The current ratio and term debt in relation to capital as of June 30, 1998 were 2.1 and 5.1%, respectively, as compared to 2.1 and 5.4% at December 31, 1997.
PART II OTHER INFORMATION MINE SAFETY APPLIANCES COMPANY Item 1. Legal Proceedings Not Applicable Item 4. Submission of Matters to a Vote of Security Holders. (a) May 5, 1998 - Annual Meeting (b) Directors elected at Annual Meeting: Helen Lee Henderson John T. Ryan III Directors whose term of office continued after the meeting: Joseph L. Calihan Thomas H. Witmer Calvin A. Campbell, Jr. G. Donald Gerlach Thomas B. Hotopp (c) Election of two Directors for a term of three years Helen Lee Henderson For 4,359,921 Withhold 54,586 Broker Nonvotes -0- John T. Ryan III For 4,359,922 Withhold 54,585 Broker Nonvotes -0- Approval of the adoption of the Company's 1998 Management Share Incentive Plan: For 4,048,687 Against 142,156 Abstain 16,771 Broker Nonvotes 206,893 Selection of Price Waterhouse LLP as Auditors for the year ending December 31, 1998: For 4,032,808 Against 326,298 Abstain 55,401 Broker Nonvotes -0- (d) Not applicable Item 6. Exhibits and Reports on Form 8-K (a) Exhibits (10) (f) Mine Safety Appliances Company Retirement Plan for Directors, as amended and restated effective as of May 5,1998 (10) (g) Mine Safety Appliances Company Supplemental Pension Plan as of May 5,1998 (10) (h) Mine Safety Appliances Company 1990 Non- Employee Directors' Stock Option Plan as amended on May 5,1998
(10) (i) First Amendment to 1987 Management Share Incentive Plan Restricted Stock Agreement as of June 2,1998 (10) (j) Mine Safety Appliances Company Executive Insurance Program as Amended and Restated as of May 5,1998 (10) (k) Mine Safety Appliances Company Annual Incentive Bonus Plan as of May 5,1998 (10) (l) Severance Agreement as of May 20,1998 (10) (m) Severance Agreement as of May 20,1998 (10) (n) Severance Agreement as of May 20,1998 (b) Reports on Form 8-K No reports on Form 8-K were filed during the quarter ended June 30, 1998.
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. MINE SAFETY APPLIANCES COMPANY Date: August 14, 1998 By /S/ James E. Herald James E. Herald Vice President - Finance; Principal Financial and Accounting Officer