EX-13 6 dex13.txt ANNUAL REPORT Exhibit 13 Management's Discussion and Analysis Forward-looking Statements The following discussion should be read in conjunction with the consolidated financial statements contained in this Annual Report to Shareholders. Certain statements contained in this discussion and elsewhere in this report may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve a number of risks, uncertainties and other factors that could cause actual results to differ materially from expectations contained in such statements. Factors that may materially affect financial condition and future results include: global economic conditions; the impact of unforeseen economic and political changes, including the threat of terrorism and its potential consequences; the timely and successful introduction of new products; the availability of funding in the fire service and homeland security markets; fluctuations in the cost and availability of key materials and components; the company's ability to generate sufficient cash flow to support capital expenditures, debt repayment, and general operating activities; the company's ability to achieve sales and earnings forecasts; the company's ability to successfully integrate acquisitions and complete divestitures; and interest and currency exchange rates. The foregoing list of important factors is not exclusive. The company undertakes no obligation to publicly update or revise its forward-looking statements. Critical Accounting Policies and Estimates MSA prepares its consolidated financial statements in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires MSA to make estimates and judgements that affect the reported amounts of assets, liabilities, revenues and expenses, and the related disclosures. MSA bases its estimates and judgements on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgements about the carrying values of assets and liabilities that are not readily apparent from other sources. MSA evaluates these estimates and judgements on an on-going basis. Actual results may differ from these estimates and judgements. MSA believes the following critical accounting policies affect its more significant estimates and judgements used in the preparation of the financial statements. MSA recognizes revenue from the sale of products when title, ownership, and risk of loss pass to the customers. Amounts billed to customers for shipping and handling are included in net sales. MSA records estimated reductions to sales for customer programs including volume-based incentives. If market conditions were to change, the amounts due to customers under these programs could differ from the recorded estimates. MSA maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. If the financial condition of MSA's customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances could be required. MSA provides for the estimated cost of product warranties at the time that sales are recognized. While MSA has extensive product quality programs and processes, the company's warranty obligation is affected by product failure rates, material usage, and service delivery costs incurred in correcting a product failure. Should actual product failure rates, material usage, or service delivery costs differ from MSA's estimates, revisions to the estimated warranty liability would be required. MSA maintains reserves covering the uninsured portion of product liability claims. These reserves are based on management's evaluation of known claims and actuarial valuations. Should actual claims be greater than MSA's estimates, additional product liability charges could be required. MSA writes down its inventory for estimated obsolescence or unmarketable inventory equal to the difference between the cost of the inventory and the estimated market value based on assumptions about future demand and market conditions. If actual market conditions were less favorable than those projected by management, additional inventory write-downs could be required. MSA records an estimated income tax liability based on management's best judgement of the amounts likely to be paid in the various tax jurisdictions in which it operates. The tax liabilities ultimately paid are dependent on a number of factors, including the resolution of tax audits, and may differ from the amounts recorded. Tax liabilities are adjusted through income when it becomes probable that the actual liability differs from the amount recorded. Actuarial assumptions have a significant impact on the determination of net periodic pension costs and credits. If actual experience differs from these assumptions, future net periodic pension costs and credits could be adversely affected. Significant accounting policies are described in note 1 to the consolidated financial statements. 14 MSA Results of Operations Corporate initiatives - MSA's performance in recent years is the result of a number of ongoing initiatives intended to improve competitive position and profitability through the development of key new products, increased focus on core safety products business competencies, selective entry into emerging geographic markets, and continuing emphasis on operating cost control. During the second quarter of 2002, MSA acquired CGF Gallet, of Lyon, France, the leading European manufacturer of protective helmets for the fire service, as well as head protection for the police and military. The Gallet acquisition reflects MSA's ongoing strategy of identifying and making targeted acquisitions in focused product and geographic markets. The Gallet product line complements MSA's established line of fire service products and provides the company with opportunities in other areas where Gallet is strong - such as in the law enforcement, military, and aviation markets. Gallet is being integrated into MSA's operations and its products are being marketed under the MSA Gallet name. In November, the company announced its decision to explore strategic options regarding the future operations of Callery Chemical, a division that develops, manufactures, and sells alkali metal strong bases and borane chemicals. These specialty chemicals are used in pharmaceuticals, agricultural chemicals, plastics, and a number of other applications. Current discussions with potential purchasers could result in the division being sold for a gain during 2003. The divestiture of the specialty chemical business will better position the company to focus on its core safety products business. The results of the division and the assets expected to be sold have been reported as discontinued operations and assets held for sale in the accompanying financial statements. Making it easy for customers to do business with us has always been a priority at MSA. This commitment is evident in our award-winning Pittsburgh based customer service center which gives customers in the U.S. and Canada access to knowledgeable and responsive one-stop-shopping. To further enhance our interface with our distributor partners and end-users worldwide, MSA recently introduced new e-business capabilities. Through our ePartner website, our distributor partners in North America and Europe can access the MSA product catalog, check product availability, view order and account status, configure assemble-to-order products, and enter orders. 2002 versus 2001 - Sales for 2002 were $564.4 million, an increase of $54.7 million, or 11%, from $509.7 million in 2001. Sales by North American operations were $369.7 million in 2002, an increase of $26.1 million, or 8%, from $343.6 million in 2001. The sales improvement occurred in the United States and is largely related to higher shipments of gas masks to the military and homeland security markets. Sales to the fire service market were relatively flat year-to-year with increased shipments of self-contained breathing apparatus being offset by lower shipments of thermal imaging cameras. Thermal imaging camera sales are dependent on the level of federal government funding provided to local fire departments. During 2002 much of this funding was diverted to meeting homeland security requirements. Sales of instruments and fall protection equipment were slightly lower in 2002, reflecting sluggishness in industrial markets. Sales by European operations were $122.4 million in 2002, an increase of $28.2 million, or 30%, from $94.2 million in 2001. A significant portion of the improvement was due to the acquisition of Gallet Helmets during the second quarter. European sales also benefited from strong shipments of escape breathing devices for use in the merchant marine fleet. When stated in U.S. dollars, European sales also benefited from the currency translation effects of a strong Euro. Sales by International operations were $72.2 million in 2002 compared to $71.7 million in 2001, an increase of $471,000, or 1%. Local currency sales growth of approximately 7% was offset by unfavorable currency translation effects when stated in U.S. dollars. Local currency sales growth was achieved in Africa, Brazil, and Australia. Gross profit for 2002 was $212.8 million, an increase of $12.7 million, or 6%, from $200.1 million in 2001. The ratio of gross profit to sales was 37.7% in 2002 compared to 39.2% in 2001. The lower gross profit percentage is largely related to sales mix changes and somewhat lower gross margins in North American industrial markets. Research and development expenses, which are included in cost of products sold, were $20.4 million in 2002, an increase of $3.7 million, or 22%, from $16.7 million in 2001. These expenses relate to safety products equipment research and development activities primarily in the U.S. and Europe. The increase reflects higher research and development costs in the U.S. and in Europe due to the acquisition of Gallet. Selling, general and administrative expenses increased $10.8 million, or 8% to $140.9 million in 2002, but decreased as a percent of sales to 25.0% in 2002 compared to 25.5% in 2001. The increase in selling, general and administrative expenses occurred in North America and Europe and reflects costs associated with higher sales volumes, higher insurance costs, and the acquisition of Gallet. 2002 Annual Report 15 Management's Discussion and Analysis Depreciation and amortization expense was $21.5 million in 2002, a decrease of $1.1 million, or 5%, from $22.6 million in 2001. As required by FAS No. 142, goodwill amortization was discontinued at the beginning of 2002. Goodwill amortization expense was $2.2 million in 2001. The decrease associated with the absence of goodwill amortization in 2002 was partially offset by the inclusion of Gallet depreciation and regular asset additions. Cost of products sold and selling, general and administrative expenses include net periodic pension benefit costs and credits. As described in note 6, pension credits, combined with pension costs, resulted in net pension credits of $13.1 million in 2002 and $15.0 million in 2001. The current recognition of pension income is primarily the result of the exceptional investment performance of the U.S. pension fund over the past ten years. During that period, the investment performance of the MSA Noncontributory Pension Fund has ranked among the top 10% of all U.S. pension funds. Future net pension credits can be volatile depending on the future performance of plan assets, changes in actuarial assumptions regarding such factors as the selection of discount rates and rates of return on plan assets, changes in the amortization levels of actuarial gains and losses, plan amendments affecting benefit pay-out levels, and profile changes in the participant populations being valued. Changes in any of these factors could cause net pension credits to change. To the extent net pension credits decline in the future, income would be adversely affected. Interest expense in 2002 was $4.8 million compared to $5.3 million in 2001. The decrease relates to reductions in long term debt and average short term borrowings. Currency exchange gains of $191,000 were recorded in 2002 compared to a loss of $1.2 million in 2001. The favorable swing was primarily due to the strengthening of the Euro during 2002. The most significant losses from currency valuation changes in 2001 related to the strengthening of the U.S. dollar against the Canadian dollar. Other income, for which further information is included in note 14, was $2.3 million in 2002 compared to $2.8 million in 2001. The effective income tax rate for continuing operations, for which further information is included in note 3, was 35.1% in 2002 and 40.7% in 2001. The effective tax rate in 2002 was lower than in 2001 due to favorable tax effects associated with the charitable donation of property and adjustments to prior year tax provisions, net of valuation allowances taken on deferred tax assets. The 2001 effective tax rate included the recognition of a valuation allowance on deferred tax assets related to foreign tax credit carry-forwards in the U.S. and improved earnings in high tax rate countries. Net income from continuing operations was $31.2 million in 2002, an increase of $5.4 million, or 21%, over 2001 net income from continuing operations of $25.9 million. Continuing operations basic earnings per share of common stock improved to $2.56 in 2002 compared to $2.17 in 2001. Income from discontinued operations, for which further information is included in note 17, was $3.9 million in 2002, a decrease of $1.9 million, or 33%, from $5.8 million in 2001. The decrease reflects lower sales and gross margin percentages in 2002. Net income for 2002 was $35.1 million, an increase of $3.5 million, or 11%, over 2001 net income of $31.6 million. Basic earnings per share of common stock improved to $2.88 in 2002 compared to $2.65 in 2001. 2001 versus 2000 - Sales for 2001 were $509.7 million, an increase of $41.4 million, or 9%, from $468.3 million in 2000. Sales by North American operations were $343.6 million in 2001, an increase of $47.8 million, or 16%, from $295.8 million in 2000. Approximately half of the sales increase was related to shipments of self-contained breathing apparatus, thermal imaging cameras and fire helmets to the fire service market. Gas mask and respirator sales increased throughout the year, but spiked late in the year in response to the September 11 disasters. Rescue and recovery efforts and heightened emphasis on domestic preparedness and homeland security increased demand for these products. Sales of fall protection equipment also grew in 2001, primarily due to the acquisition of Surety Manufacturing and Testing, Ltd. during the first quarter. Instrument sales were also higher during 2001, particularly in permanent instruments, reflecting market acceptance of the Ultima and other new products. Sales by European operations were $94.2 million in 2001, a decrease of $4.9 million, or 5%, from $99.1 million in 2000. The negative currency translation effects of a strong U.S. dollar accounted for approximately $4.0 million of this decrease. Higher local currency sales in most European markets were offset by lower sales in Sweden and Switzerland, where distribution businesses were divested during 2001. Sales by International operations were $71.7 million in 2001 compared to $73.2 million in 2000, a decrease of $1.5 million, or 2%. Local currency sales growth of approximately 12% was offset by unfavorable currency translation effects when stated in U.S. dollars. Substantial local currency sales growth was achieved in Brazil. 16 MSA Gross profit for 2001 was $200.1 million, an increase of $25.8 million, or 15%, from $174.3 million in 2000. The ratio of gross profit to sales was 39.2% in 2001 compared to 37.2% in 2000. The improved gross profit percentage accounts for almost half of the increase in gross profit dollars. The higher gross profit percentage reflects improvements in production efficiency and inventory management in North America and Europe. Research and development expenses, which are included in cost of products sold, were $16.7 million in 2001, an increase of $752,000, or 5%, from $16.0 million in 2000. These expenses related to safety products equipment research and development activities primarily in the U.S. and Germany. Depreciation, selling and administrative expenses increased $6.9 million, or 7%, to $152.7 million in 2001, but decreased as a percent of sales to 30.0% in 2001 compared to 31.1% in 2000. The increase in depreciation, selling and administrative expenses occurred in North America and reflects costs associated with higher sales volumes and a full year's amortization of goodwill related to mid-2000 acquisitions. Depreciation, selling and administrative expenses at international operations were generally flat year-to-year. Cost of products sold and selling, general and administrative expenses include net periodic pension benefit costs and credits. As described in note 6, pension credits, combined with pension costs, resulted in net pension credits of $15.0 million in 2001 and $14.9 million in 2000. Net pension credits in 2000 included credits of $2.4 million related to settlement and curtailment gains in Canada and Britain. Interest expense in 2001 was $5.3 million compared to $4.0 million in 2000. The increase relates to a full year's interest expense on additional borrowings made during 2000 to finance acquisitions and common share repurchases by the company. Currency exchange losses of $1.2 million were incurred in 2001 compared to a gain of $444,000 in 2000. The unfavorable swing was primarily related to the strengthening of the U.S. dollar against the Canadian dollar. The most significant gains from currency valuation changes in 2000 occurred in Mexico. Other income, for which further information is included in note 14, was $2.8 million in 2001 compared to $2.4 million in 2000. The effective income tax rate for continuing operations, for which further information is included in note 3, was 40.7% in 2001 and 31.1% in 2000. The effective rate in 2001 was higher than the U.S. statutory income tax rate primarily due to the recognition of a valuation allowance on deferred tax assets related to foreign tax credit carry-forwards in the U.S. and improved earnings in high tax rate countries. The lower rate in 2000 was primarily due to operating losses in Germany and adjustments to prior year foreign sales corporation tax benefits in the U.S. Net income from continuing operations for 2001 was $25.9 million, an increase of $7.0 million, or 37%, over 2000 net income of $18.9 million. Continuing operations basic earnings per share of common stock improved to $2.17 in 2001 compared to $1.54 in 2000. Income from discontinued operations, for which further information is included in note 17, was $5.8 million in 2001, an increase of $1.4 million, or 32%, from $4.4 million in 2000. The increase was primarily due to stronger gross margins in 2001. Net income for 2001 was $31.6 million, an increase of $8.4 million, or 36%, over 2000 net income of $23.2 million. Basic earnings per share of common stock improved to $2.65 in 2001 compared to $1.89 in 2000. Liquidity and Financial Condition Continuing operations provided cash of $42.9 million in 2002 compared to providing $20.2 million in 2001. The increase was related to higher net income and favorable changes in operating assets and liabilities. In 2002, increases in receivables used cash of $3.0 million compared to using $16.8 million in 2001. Reductions in inventory provided $5.5 million of cash in 2002 compared to increases in inventory using $10.7 million in 2001. Trade receivables related to continuing operations were $58.6 million at December 31, 2002. Trade receivables for continuing operations expressed in number of days sales outstanding was 38 days at December 31, 2002, compared to 36 days at the end of 2001. Other receivables were $35.5 million at December 31, 2002 and $38.3 million at December 31, 2001, representing the company's retained interest in securitized receivables. Inventories of continuing operations were $76.7 million at December 31, 2002. Inventories of continuing operations measured against sales turned 7.4 times in 2002 and 7.3 times in 2001. Cash provided by continuing operations in 2001 was $24.9 million lower than in 2000. Net income for 2001 was higher than in 2000, however, cash flow in 2000 benefited from significant reductions in receivables and inventories. Cash provided by discontinued operations in 2002 was $1.2 million lower than in 2001. The decrease is primarily due to lower income. Cash provided by discontinued operations in 2001 was $4.2 million higher than in 2000, reflecting higher income. 2002 Annual Report 17 Management's Discussion and Analysis Investing activities used cash of $34.0 million in 2002 compared to using $20.1 million in 2001. The increase in cash used for investing activities was primarily related to higher spending on acquisitions and lower cash received on property disposals. In 2002, net cash of approximately $14.5 million was used for the acquisition of CGF Gallet. In 2001, cash was used for the acquisition of Surety Manufacturing and Testing, Ltd. Property disposals provided cash of $649,000 in 2002 compared to providing $6.7 million in 2001, which included cash received on sales of property in Europe. Cash used for investing activities in 2001 was $22.4 million lower than in 2000, primarily due to lower spending on acquisitions. In 2000, $29.5 million of cash was used for the acquisitions of CairnsHelmets and ISI Group, Inc. Capital expenditures of $19.9 million in 2002, $20.0 million in 2001 and $16.1 million in 2000 were primarily related to purchases of new or replacement tooling and production equipment. Financing activities used cash of $7.1 million in 2002 compared to using $6.3 million in 2001. The increased use of cash for financing activities reflects higher dividend payments and lower net proceeds from company stock sales and repurchases. Financing activities used cash of $6.3 million in 2001 compared to providing $4.1 million in 2000. In 2000, the company issued $40.0 million of private placement debt which was partially used to finance acquisitions and common stock repurchases. Dividends paid on common stock during 2002 (the 85th consecutive year of dividend payment) were 65 cents per share. Dividends paid per share in 2001 and 2000 were 54 cents and 47 cents, respectively. As of December 31, 2002, an additional 43,274 shares of common stock may be repurchased under current authorizations. The average amount of short term debt outstanding during 2002 and 2001 was $3.1 million and $4.2 million, respectively. Credit available with financial institutions at December 31, 2002 was the U.S. dollar equivalent of $18.7 million, of which $9.6 million was unused. Long-term debt, including the current portion, at December 31, 2002 was $69.3 million, or 19.3% of total capital. Total capital is defined as long-term debt plus the current portion of long-term debt and shareholders' equity. Outstanding indebtedness at December 31, 2002 and 2001 was as follows: (In thousands) 2002 2001 -------- ------- Bank lines of credit ....................... $ 9,096 $ 2,167 Industrial development debt ................ 10,750 10,750 Senior notes ............................... 56,000 60,000 Other ...................................... 2,564 906 -------- ------- 78,410 73,823 Current portion ............................ (14,060) (6,442) -------- ------- 64,350 67,381 Accounts Receivable Securitization As described in note 10, the company sells eligible trade accounts receivable to Mine Safety Funding Corporation (MSF), an unconsolidated wholly-owned subsidiary. MSF was established in November 1999 to provide the company with an inexpensive and reliable source of financing to replace borrowings under short term lines of credit. Under accounting principles generally accepted in the United States of America, MSF is not consolidated with MSA because legally it is a bankruptcy remote entity. In the event that MSA declared bankruptcy all cash collections on trade receivables owned by MSF would first be used to satisfy MSF's borrowings before any remaining proceeds could be returned to MSA. This arrangement permits MSF to borrow at advantageous interest rates using its portfolio of trade receivables as security. As a result of the securitization agreement, $29.0 million of accounts receivable and short-term debt has been removed from the company's December 31, 2002 balance sheet. At December 31, 2001, $25.0 million of accounts receivable and short-term debt were removed from the company's balance sheet under this arrangement. Cumulative Translation Adjustments The year-end position of the U.S. dollar relative to international currencies resulted in translation gains of $5.8 million being credited to the cumulative translation adjustments shareholders' equity account in 2002, compared to losses of $4.9 million in 2001 and $5.9 million in 2000. Translation gains in 2002 occurred primarily in Europe and reflect the significant strengthening of the Euro. These gains were partially offset by losses in South America. Translation losses in 2001 occurred primarily in South Africa, Brazil, Chile and most European countries. The losses in 2000 occurred primarily in Australia, South Africa, Britain, Canada, and Germany. Contractual Cash Obligations The company is obligated to make future payments under various contracts such as debt and lease agreements. Significant contractual cash obligations of MSA as of December 31, 2002 were as follows:
(In thousands) .... Total 2003 2004 2005 2006 2007 Thereafter ------- ------ ------ ------ ------ ---- ---------- Long-term debt .... $69,314 $4,964 $4,679 $4,557 $8,140 $ 87 $46,887 Operating leases .. 9,508 2,583 1,903 1,293 835 645 2,249 ------- ------ ------ ------ ------ ---- ------- 78,822 7,547 6,582 5,850 8,975 732 49,136
18 MSA Financial Instrument Market Risk Market risk represents the risk of adverse changes in the value of a financial instrument caused by changes in currency exchange rates, interest rates, and equity prices. The company is exposed to market risks related to currency exchange rates and interest rates. Currency exchange rate sensitivity - By the very nature of its global operations, the company's cash flow and earnings are subject to fluctuations due to exchange rate changes. Because the company operates in a number of locations around the world, currency exchange risk is well diversified. When appropriate, the company may attempt to limit its exposure to changes in currency exchange rates through both operational and financial market actions. These actions may include contracts and other actions designed to hedge existing exposures by essentially creating offsetting currency exposures. At December 31, 2002 and 2001 contracts for the purpose of hedging currency were not significant. Interest rate sensitivity - The company is exposed to changes in interest rates primarily as a result of borrowing and investing activities used to maintain liquidity and fund business operations. Because of the relatively short maturities of temporary investments and the variable rate nature of industrial development debt, the fair values of these financial instruments approximate cost at December 31, 2002 and 2001. The incremental increase in the fair value of fixed rate long term debt resulting from a hypothetical 10% decrease in interest rates would be approximately $1.2 million. However, the company's sensitivity to interest rate declines and the corresponding increase in the fair value of its debt portfolio would unfavorably affect earnings and cash flows only to the extent that the company elected to repurchase or retire all or a portion of its fixed rate debt portfolio at prices above carrying values. Related Party Transactions Transactions with related parties are made at negotiated prices and were not material to the financial position or results of operations of MSA at December 31, 2002. Recently Issued Accounting Standards FAS 143, Accounting for Asset Retirement Obligations, addresses accounting and reporting for obligations associated with the retirement of tangible long-lived assets. The company does not expect that the adoption of this statement, which is effective January 1, 2003, will have a significant effect on its results or financial position. FAS 146, Accounting for Costs Associated with Exit or Disposal Activities, requires that costs associated with exit or disposal activities be recognized when the liability is incurred rather than at the date of commitment to an exit or disposal plan. FAS 146 is effective for exit or disposal activities that are initiated after December 31, 2002. The company does not expect that the adoption of this statement will have a significant effect on its results or financial position. FIN 45, Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, elaborates on the disclosures to be made by a guarantor about its obligations under certain guarantees that it has issued and requires the recognition of a liability at fair value by the guarantor at the inception of a guarantee. The disclosure requirements are effective as of December 31, 2002. The initial measurement and recognition provisions of FIN 45 are required to be applied on a prospective basis to guarantees issued or modified after December 31, 2002. The company does not expect that the adoption of this interpretation will have a significant effect on its financial statements. Common Stock At December 31, 2002, there were 12,207,029 shares of common stock outstanding. There were approximately 1,000 identifiable common stockholders on November 22, 2002, a recent date for dividends. Common stock price and volume information is included on the American Stock Exchange under the symbol MSA. The quarterly high and low price quotations and cash dividend information for common shares follow: 2002 2001 --------------------------------- Quarter High Low High Low ------------------------------------------- First $43.20 $35.35 $25.65 $22.00 Second 50.50 35.00 34.25 25.45 Third 40.75 31.90 47.92 30.35 Fourth 39.25 27.40 51.90 32.10 Dividend Record Payment Quarter Per Share Date Date --------------------------------------------------- 2002 ----------------------------------------- First $.14 Feb. 22, 2002 Mar. 10, 2002 Second .17 May 17, 2002 Jun. 10, 2002 Third .17 Aug. 26, 2002 Sep. 10, 2002 Fourth .17 Nov. 22, 2002 Dec. 10, 2002 ---- Total .65 ---- 2001 ----------------------------------------- First $.12 Feb. 23, 2001 Mar. 10, 2001 Second .14 May 14, 2001 Jun. 8, 2001 Third .14 Aug. 24, 2001 Sep. 10, 2001 Fourth .14 Nov. 23, 2001 Dec. 10, 2001 ---- Total .54 ---- The company's stock transfer agent is Wells Fargo Shareowner Services, 161 North Concord Exchange, P. O. Box 738, South St. Paul, MN 55075-0738. 2002 Annual Report 19 Responsibility Statements Responsibility for Financial Statements The management of Mine Safety Appliances Company prepared the accompanying financial statements and is responsible for their integrity and objectivity. These statements were prepared in conformity with accounting principles generally accepted in the United States of America. The financial statements include amounts that are based on management's best estimates and judgements. The other information in this annual report is consistent with the financial statements. The company maintains a system of internal controls, including accounting controls, and a program of internal auditing. The system of controls provides for appropriate procedures that are consistent with high standards of accounting and administration. Management believes that the company's system of internal accounting controls provides reasonable assurance that assets are safeguarded against losses from unauthorized use or disposition and that the financial records are reliable for use in preparing financial statements. Management recognizes its responsibility for fostering a strong ethical climate so that the company's affairs are conducted according to the highest standards of personal and corporate conduct. This responsibility is characterized and reflected in a broad business ethics policy that addresses, among other things, conduct of business activities within the laws of the United States and other countries in which the company operates and potential conflicts of interests of its associates. The Board of Directors, through its Audit Committee, assumes an oversight role in the preparation of the financial statements. The Audit Committee meets at least twice a year with the company's independent accountants and internal auditors to discuss the scope of their work and the results of their examinations. Report of Independent Accountants To the Shareholders and Board of Directors of Mine Safety Appliances Company: In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, changes in retained earnings and accumulated other comprehensive income, and cash flows present fairly, in all material respects, the financial position of Mine Safety Appliances Company and its subsidiaries (the "Company") at December 31, 2002 and 2001, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2002 in conformity with accounting principles generally accepted in the United States of America. 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 auditing standards generally accepted in the United States of America, 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 our opinion. As discussed in Note 17, the Company has met the requirements under Statement of Financial Accounting Standard No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" to classify the results of its Callery Chemical Division as a discontinued operation and the assets as held for sale. /s/ Dennis L. Zeitler /s/ PricewaterhouseCoopers LLP --------------------------------- ---------------------------------- Dennis L. Zeitler PricewaterhouseCoopers LLP Vice President Pittsburgh, Pennsylvania Chief Financial Officer February 21, 2003 and Treasurer 20 MSA Consolidated Statement of Income (In thousands, except per share amounts)
Year Ended December 31 2002 2001 2000 ---------------------- -------- -------- -------- Net sales .............................................. $564,426 $509,736 $468,307 Other income ........................................... 2,271 2,776 2,444 -------- -------- -------- 566,697 512,512 470,751 -------- -------- -------- Costs and expenses Cost of products sold ............................... 351,587 309,680 293,960 Selling, general and administrative ................. 140,924 130,092 124,840 Depreciation and amortization ....................... 21,525 22,590 20,936 Interest ............................................ 4,769 5,349 4,040 Currency exchange (gains) losses .................... (191) 1,197 (444) -------- -------- -------- 518,614 468,908 443,332 -------- -------- -------- Income from continuing operations before income taxes... 48,083 43,604 27,419 Provision for income taxes ............................. 16,870 17,753 8,531 -------- -------- -------- Net income from continuing operations .................. 31,213 25,851 18,888 Net income from discontinued operations ................ 3,864 5,780 4,351 -------- -------- -------- Net income ............................................. $ 35,077 $ 31,631 $ 23,239 ======== ======== ======== Basic earnings per common share: Continuing operations ............................... $ 2.56 $ 2.17 $ 1.54 Discontinued operations ............................. .32 .48 .35 -------- -------- -------- Net income .......................................... $ 2.88 $ 2.65 $ 1.89 ======== ======== ======== Diluted earnings per common share: Continuing operations ............................... $ 2.54 $ 2.13 $ 1.53 Discontinued operations ............................. .31 .48 .35 -------- -------- -------- Net income .......................................... $ 2.85 $ 2.61 $ 1.88 ======== ======== ========
See notes to consolidated financial statements. 2002 Annual Report 21 Consolidated Balance Sheet (In thousands, except share amounts)
December 31 2002 2001 --------- --------- Assets Current Assets Cash and cash equivalents .................................................. $ 36,477 $ 26,701 Trade receivables, less allowance for doubtful accounts of $4,134 and $2,956 .............................................................. 58,648 50,704 Other receivables .......................................................... 35,456 38,325 Inventories ................................................................ 76,748 77,874 Deferred tax assets ........................................................ 20,396 13,633 Prepaid expenses and other current assets .................................. 10,157 10,449 Assets held for sale ....................................................... 45,062 --------- --------- Total current assets ....................................................... 282,944 217,686 --------- --------- Property Land ....................................................................... 4,800 4,661 Buildings .................................................................. 87,333 102,555 Machinery and equipment .................................................... 250,797 272,284 Construction in progress ................................................... 5,580 8,289 --------- --------- Total ...................................................................... 348,510 387,789 Less accumulated depreciation .............................................. (222,905) (236,128) --------- --------- Net property ............................................................... 125,605 151,661 Other Assets Prepaid pension cost ....................................................... 107,338 92,437 Deferred tax assets ........................................................ 7,800 12,694 Goodwill ................................................................... 42,963 33,722 Other noncurrent assets .................................................... 13,115 12,498 --------- --------- Total ...................................................................... $ 579,765 $ 520,698 ========= ========= Liabilities Current Liabilities Notes payable and current portion of long-term debt ........................ $ 14,060 $ 6,442 Accounts payable ........................................................... 30,979 24,751 Employees' compensation .................................................... 16,216 14,368 Insurance .................................................................. 8,899 9,267 Taxes on income ............................................................ 3,748 4,812 Other current liabilities .................................................. 25,798 22,860 --------- --------- Total current liabilities .................................................. 99,700 82,500 --------- --------- Long-Term Debt ............................................................................ 64,350 67,381 --------- --------- Other Liabilities Pensions and other employee benefits ....................................... 61,198 55,428 Deferred tax liabilities ................................................... 61,402 56,053 Other noncurrent liabilities ............................................... 4,053 5,832 --------- --------- Total other liabilities .................................................... 126,653 117,313 ========= ========= 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: 2002--12,207,029 2001--12,100,727) ...................................... 28,626 25,386 Stock compensation trust ................................................... (21,697) (22,179) Treasury shares, at cost ................................................... (134,827) (133,981) Deferred stock compensation ................................................ (801) (652) Accumulated other comprehensive income ..................................... (20,501) (26,216) Earnings retained in the business .......................................... 434,693 407,577 --------- --------- Total shareholders' equity ................................................. 289,062 253,504 --------- --------- Total ...................................................................... $ 579,765 $ 520,698 ========= =========
See notes to consolidated financial statements. 22 MSA Consolidated Statement of Cash Flows (In thousands) Year Ended December 31
2002 2001 2000 -------- -------- -------- Operating Activities Net income ...................................... $ 35,077 $ 31,631 $ 23,239 Depreciation and amortization ................... 21,525 22,590 20,936 Pensions ........................................ (13,125) (14,962) (14,900) Net gain on sale of investments and assets ...... (35) (1,764) (2,136) Deferred income taxes ........................... 4,765 9,259 3,432 Net income from discontinued operations ......... (3,864) (5,780) (4,351) Receivables and other receivables ............... (3,008) (16,846) 5,309 Inventories ..................................... 5,518 (10,716) 6,683 Accounts payable and accrued liabilities ........ (3,616) (2,955) 5,476 Other assets and liabilities .................... (1,775) 4,132 237 Other--including currency exchange adjustments .. 1,457 5,561 1,114 -------- -------- -------- Cash Flow From Continuing Operations ............ 42,919 20,150 45,039 Cash Flow From Discontinued Operations .......... 6,412 7,635 3,439 -------- -------- -------- Cash Flow From Operating Activities ............. 49,331 27,785 48,478 -------- -------- -------- Investing Activities Property additions .............................. (19,946) (19,987) (16,067) Property disposals .............................. 649 6,685 3,428 Acquisitions, net of cash acquired, and other investing .............................. (14,668) (6,765) (29,796) -------- -------- -------- Cash Flow From Investing Activities ............. (33,965) (20,067) (42,435) -------- -------- -------- Financing Activities Additions to long-term debt ..................... 677 12 40,720 Reductions of long-term debt .................... (7,089) (5,259) (640) Changes in notes payable and short-term debt .... 5,578 1,150 (2,276) Cash dividends .................................. (7,961) (6,480) (5,881) Company stock purchases ......................... (846) (3,227) (54,948) Company stock sales ............................. 2,508 7,477 27,088 -------- -------- -------- Cash Flow From Financing Activities ............. (7,133) (6,327) 4,063 -------- -------- -------- Effect of exchange rate changes on cash ............ 1,543 (1,231) (673) -------- -------- -------- Increase in cash and cash equivalents .............. 9,776 160 9,433 Beginning cash and cash equivalents ................ 26,701 26,541 17,108 -------- -------- -------- Ending cash and cash equivalents ................... $ 36,477 $ 26,701 $ 26,541 -------- -------- -------- Supplemental cash flow information: Interest payments ............................... $ 5,890 $ 6,566 $ 3,419 Income tax payments ............................. 18,546 9,765 6,789 Noncash investing activity: Investment sold for other current assets ........ 1,334
See notes to consolidated financial statements. 2002 Annual Report 23 Consolidated Statement of Changes in Retained Earnings and Accumulated Other Comprehensive Income
(In thousands) Accumulated Other Retained Comprehensive Comprehensive Earnings Income Income -------- ------------- ------------- Balances January 1, 2000 ..................... $365,068 $(14,831) Net income ................................. 23,239 $23,239 Cumulative translation adjustments ......... (5,921) (5,921) Minimum pension liability adjustments (a) .. (117) (117) ------- Comprehensive income ..................... $17,201 ======= Common dividends ........................... (5,832) Preferred dividends ........................ (49) -------- -------- Balances December 31, 2000 ................... 382,426 (20,869) Net income ................................. 31,631 $31,631 Cumulative translation adjustments ......... (4,934) (4,934) Minimum pension liability adjustments (a) .. (413) (413) ------- Comprehensive income ..................... $26,284 ======= Common dividends ........................... (6,432) Preferred dividends ........................ (48) -------- -------- Balances December 31, 2001 ................... 407,577 (26,216) Net income ................................. 35,077 $35,077 Cumulative translation adjustments ......... 5,772 5,772 Minimum pension liability adjustments (a) .. (57) (57) ------- Comprehensive income ..................... $40,792 ======= Common dividends ........................... (7,914) Preferred dividends ........................ (47) -------- -------- Balances December 31, 2002 ................... $434,693 $(20,501) ======== ========
(a) - Charges to minimum pension liability adjustments in 2002, 2001 and 2000 are net of tax benefit of $38,000, $275,000 and $78,000, respectively. Components of accumulated other comprehensive income are as follows:
(In thousands) ------------------------------ 2002 2001 2000 -------- -------- -------- Cumulative translation adjustments ...... $(19,593) $(25,365) $(20,431) Minimum pension liability adjustments ... (908) (851) (438) -------- -------- -------- Accumulated other comprehensive income .. $(20,501) $(26,216) $(20,869) -------- -------- --------
See notes to consolidated financial statements. 24 MSA Notes to Consolidated Financial Statements Note 1 - Significant Accounting Policies Use of Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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. Principles of Consolidation - The consolidated financial statements include the accounts of the company and all subsidiaries except Mine Safety Funding Corporation. Intercompany accounts and transactions are eliminated. To facilitate timely reporting, several international subsidiaries have November 30th fiscal year ends. Certain prior year amounts have been reclassified to conform with the current year presentation. Currency Translation - The functional currency of all significant foreign subsidiaries is the local currency. Assets and liabilities of these subsidiaries are translated at year-end exchange rates. Income statement accounts are translated at the average rates of exchange prevailing during the year. Translation adjustments for these companies are reported as a component of shareholders' equity and are not included in income. Foreign currency transaction gains and losses are included in net income for the period. Cash Equivalents - Cash equivalents include temporary deposits with financial institutions and highly liquid investments with original maturities of 90 days or less. Inventories - Inventories are stated at the lower of cost or market. Most U.S. inventories are valued on the last-in, first-out (LIFO) cost method. Other inventories are valued on the average cost method or at standard costs which approximate actual costs. Property and Depreciation - Property is recorded at cost. Depreciation is computed using straight-line and accelerated methods over the estimated useful lives of the assets. Expenditures for significant renewals and improvements are capitalized. Ordinary repairs and maintenance are expensed as incurred. Gains or losses on property dispositions are included in income and the cost and related depreciation are removed from the accounts. Goodwill and Other Intangible Assets - Effective January 1, 2002, the company adopted FAS No. 142, Goodwill and Other Intangible Assets. Under this standard, goodwill and intangible assets with indefinite lives are not amortized, but are subject to impairment write-down tests that must be performed at least annually. For years ending prior to 2002, goodwill was amortized on a straight line basis over periods not exceeding 35 years. Other intangible assets are amortized on a straight-line basis over their useful lives. Revenue Recognition - Revenue from the sale of products is recognized when title, ownership, and risk of loss pass to the customer. Shipping and Handling - Shipping and handling expenses for products sold to customers are charged to cost of products sold as incurred. Amounts billed to customers for shipping and handling are included in net sales. Research and Development - Research and development costs are charged to cost of products sold as incurred. Income Taxes - Deferred income taxes are provided for temporary differences between financial and tax reporting. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. If it is more likely than not that some portion or all of a deferred tax asset will not be realized, a valuation allowance is recognized. No provision is made for possible U.S. taxes on the undistributed earnings of foreign subsidiaries that are considered to be reinvested indefinitely. Calculation of the unrecognized deferred tax liability for temporary differences related to these earnings is not practicable. Where it is contemplated that earnings will be remitted, credits for foreign taxes already paid are expected to generally offset applicable U.S. income taxes. In cases where they will not offset U.S. income taxes, appropriate provisions are recorded. Stock-Based Compensation Plans - The company applies the intrinsic value-based method in accordance with Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees. Accordingly, no compensation cost is recognized for stock option grants. Compensation cost for restricted stock awards is measured at the market value of the shares when awarded. Unearned stock compensation is reported in shareholders' equity and is charged to income over the restriction period. Recently Issued Accounting Standards - FAS 143, Accounting for Asset Retirement Obligations, addresses accounting and reporting for obligations associated with the retirement of tangible long-lived assets. The company does not expect that the adoption of this statement, which is effective January 1, 2003, will have a significant effect on its results or financial position. FAS 146, Accounting for Costs Associated with Exit or Disposal Activities, requires that costs associated with exit or disposal activities be recognized when the liability is incurred rather than at the date of commitment to an exit or disposal plan. FAS 146 is effective for exit or disposal activities that are initiated after December 31, 2002. The company does not expect that the adoption of this statement will have a significant effect on its results or financial position. FIN 45, Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, elaborates on the disclosures to be made by a guarantor about its obligations under certain guarantees that it has issued and requires the recognition of a liability at fair value by the guarantor at the inception of a guarantee. The disclosure requirements are effective as of December 31, 2002. The initial measurement and recognition provisions of FIN 45 are required to be applied on a prospective basis to guarantees issued or modified after December 31, 2002. The company does not expect that the adoption of this interpretation will have a significant effect on its financial statements. 2002 Annual Report 25 Notes to Consolidated Financial Statements Note 2 - Segment Information The company is organized into three geographic operating segments: North America, Europe, and International. The company is engaged in the manufacture and sale of safety and health equipment, including respiratory protective equipment, head protection, eye and face protection, hearing protectors, safety clothing, industrial emergency care products, mining safety equipment, thermal imaging cameras and monitoring instruments. In addition, the company manufactures and sells specialty chemicals, including boron-based chemicals. Reportable segment information is presented in the following table:
North Reconciling Consolidated (In thousands) America Europe International items totals -------- -------- ------------- ----------- ------------ 2002 Sales to external customers .............. $369,728 $122,377 $72,206 $ 115 $564,426 Intercompany sales ....................... 21,472 35,733 3,116 (60,321) Net income from continuing operations .... 26,732 2,519 2,372 (410) 31,213 Net income from discontinued operations .. 3,864 3,864 Total assets continuing operations ....... 363,999 145,663 50,364 (25,323) 534,703 Assets held for sale ..................... 45,062 45,062 Interest income .......................... 424 142 281 106 953 Interest expense ......................... 4,501 67 201 4,769 Noncash items: Depreciation and amortization ......... 16,012 4,446 1,047 20 21,525 Pension income (expense) .............. 16,360 (3,123) (112) 13,125 Equity in earnings of affiliates ......... 23 23 Income tax provision ..................... 13,900 1,056 1,647 267 16,870 Investments in affiliates ................ 1,374 158 1,532 Property additions ....................... 15,412 3,698 831 5 19,946 Fixed assets ............................. 95,411 25,329 4,824 41 125,605 2001 Sales to external customers .............. 343,646 94,187 71,735 168 509,736 Intercompany sales ....................... 20,074 21,668 2,124 (43,866) Net income from continuing operations .... 22,575 130 3,619 (473) 25,851 Net income from discontinued operations .. 5,780 5,780 Total assets ............................. 399,912 96,372 48,816 (24,402) 520,698 Interest income .......................... 513 146 408 116 1,183 Interest expense ......................... 4,844 156 349 5,349 Noncash items: Depreciation and amortization ......... 17,714 3,680 1,170 26 22,590 Pension income (expense) .............. 17,885 (2,783) (140) 14,962 Equity in earnings of affiliates ......... 40 40 Income tax provision ..................... 15,094 900 1,732 27 17,753 Investments in affiliates ................ 1,374 135 1,509 Property additions ....................... 13,407 4,916 1,621 43 19,987 Fixed assets ............................. 127,461 18,118 6,033 49 151,661 2000 Sales to external customers .............. 295,789 99,119 73,199 200 468,307 Intercompany sales ....................... 25,573 16,389 1,453 (43,415) Net income from continuing operations .... 17,525 (2,225) 3,624 (36) 18,888 Net income from discontinued operations .. 4,351 4,351 Total assets ............................. 365,035 93,955 50,296 (19,603) 489,683 Interest income .......................... 604 285 329 25 1,243 Interest expense ......................... 3,329 216 495 4,040 Noncash items: Depreciation and amortization ......... 16,123 3,374 1,314 125 20,936 Pension income (expense) .............. 16,640 (1,552) (188) 14,900 Equity in earnings of affiliates ......... 25 25 Income tax provision (benefit) ........... 8,721 (2,041) 1,776 75 8,531 Investments in affiliates ................ 1,358 95 1,453 Property additions ....................... 10,738 3,630 1,694 5 16,067 Fixed assets ............................. 132,597 20,681 6,290 18 159,586
Reconciling items consist primarily of intercompany eliminations and items reported at the corporate level. Sales are attributed to segments and countries based on the location of the selling company. Sales to external customers in Germany were $50,925,000 in 2002, $46,865,000 in 2001, and $47,471,000 in 2000. 26 MSA Note 3 - Income Taxes The U.S. and non-U.S. components of income before income taxes and provisions for income taxes are summarized as follows:
(In thousands) --------------------------- 2002 2001 2000 ------- ------- ------- Income From Continuing Operations Before Income Taxes U.S. income.................................................... $47,850 $34,190 $25,422 Non-U.S. income ............................................... 10,190 6,226 6,080 Currency translation losses.................................... (317) (776) Eliminations................................................... (9,640) 3,964 (4,083) ------- ------- ------- Income Before Income Taxes..................................... 48,083 43,604 27,419 ------- ------- ------- Provision For Income Taxes Current Federal..................................................... 8,115 5,370 1,199 State....................................................... 610 404 512 Non-U.S. ................................................... 3,380 2,720 3,388 ------- ------- ------- Total current provision .................................... 12,105 8,494 5,099 ------- ------- ------- Deferred Federal..................................................... 4,101 8,377 5,150 State ...................................................... 936 1,732 1,137 Non-U.S. ................................................... (272) (850) (2,855) ------- ------- ------- Total deferred provision.................................... 4,765 9,259 3,432 ------- ------- ------- Provision for Income Taxes..................................... 16,870 17,753 8,531 ------- ------- ------- The following is a reconciliation of the U.S. Federal income tax rate to the effective tax rate for continuing operations: Provision for income taxes at statutory rate................... 35.0% 35.0% 35.0% State income taxes, net of federal benefit..................... 2.9 3.2 3.9 Effects of foreign operations.................................. (.5) .4 (3.5) Charitable contribution........................................ (1.4) Valuation allowance............................................ 3.2 2.3 Adjustment of prior years income taxes......................... (3.8) (3.4) Other--net..................................................... (.3) (.2) (.9) ------- ------- ------- Provision for income taxes..................................... 35.1% 40.7% 31.1% ------- ------- ------- The components of deferred taxes are as follows: 2002 2001 ------- ------- Deferred tax assets Postretirement benefits........................... $ 5,628 $ 5,701 Inventory reserves ............................... 4,836 3,463 Vacation allowances .............................. 2,560 2,441 Net operating losses ............................. 5,023 6,629 Foreign tax credit carryforwards (expiring between 2003 and 2007)............... 1,975 2,099 Liability insurance .............................. 1,363 1,931 Basis of capital assets .......................... 5,105 886 Intangibles ...................................... 1,371 679 Warranties ....................................... 1,016 997 Other ............................................ 3,734 2,504 ------- ------- Total deferred tax assets ........................ 32,611 27,330 Valuation allowance .............................. (1,975) (1,000) ------- ------- Net deferred tax assets .......................... 30,636 26,330 ------- ------- Deferred tax liabilities Depreciation ..................................... (26,213) (24,234) Pension .......................................... (37,296) (32,511) Other ............................................ (333) 689 ------- ------- Total deferred tax liabilities ................... (63,842) (56,056) ------- ------- Net deferred taxes .................................. (33,206) (29,726) ------- -------
Net operating loss carryforwards of $4,552,000 have no expiration date and $471,000 expire in 2008. Undistributed earnings of international companies for which U.S. income taxes have not been provided were $85,535,000 at December 31, 2002. 2002 Annual Report 27 Notes to Consolidated Financial Statements Note 4 - Capital Stock . Common stock, no par value - 60,000,000 shares authorized . Second cumulative preferred voting stock, $10 par value - 1,000,000 shares authorized; none issued . 4 1/2% cumulative preferred nonvoting stock, $50 par value - 100,000 shares authorized; 71,373 shares issued and 50,313 shares ($1,629,000) held in treasury (no activity in 2002 and 2000; 600 shares, $21,000, purchased for treasury in 2001) Common stock activity is summarized as follows:
Shares Dollars (In thousands) -------------------------------------- ---------------------------------- Stock Stock Shares Compensation Shares in Shares Compensation Treasury Issued Trust Treasury Issued Trust Cost ---------- ------------ ---------- ------- ------------ --------- Balances January 1, 2000 ....................... 6,778,599 (567,630) (1,919,298) $12,596 $(26,679) $ (95,154) Restricted stock awards (pre-split) ............ 19,760 318 929 Treasury shares purchased (pre-split) .......... (74,616) (4,994) Three-for-one stock split ...................... 13,557,198 (1,095,740) (3,987,828) Restricted stock awards forfeited (post-split).. (2,790) (58) Stock options exercised (post-split) ........... 4,290 21 67 Treasury shares purchased (post-split) ......... (2,009,322) (49,954) Treasury shares issued (post-split) ............ 1,125,000 5,906 21,094 ---------- ---------- ---------- ------- -------- --------- Balances December 31, 2000 ..................... 20,335,797 (1,639,320) (6,868,854) 18,841 (25,683) (129,066) Restricted stock awards ........................ 860 12 13 Restricted stock awards forfeited .............. (3,900) (80) Stock options exercised ........................ 147,254 223,087 4,226 3,491 Tax benefit on exercise of stock options ....... 2,307 Treasury shares purchased ...................... (94,197) (3,206) ---------- ---------- ---------- ------- -------- --------- Balances December 31, 2001 ..................... 20,483,051 (1,415,373) (6,966,951) 25,386 (22,179) (132,352) Restricted stock awards ........................ 23,198 915 Stock options exercised ........................ 73,860 30,744 1,786 482 Tax benefit on exercise of stock options ....... 539 Treasury shares purchased ...................... (21,500) (846) ---------- ---------- ---------- ------- -------- --------- Balances December 31, 2002 ..................... 20,580,109 (1,384,629) (6,988,451) 28,626 (21,697) (133,198) ---------- ---------- ---------- ------- -------- ---------
On May 10, 2000, the company's shareholders approved a three-for-one stock split of both the issued and authorized common stock, which was distributed on May 24, 2000, to shareholders of record on May 12, 2000. During 2000, the company purchased 2.1 million shares of common stock from a major shareholder for $54.9 million. In a subsequent transaction, the company sold 1,125,000 shares of common stock that were held in treasury to the MSA Non-Contributory Pension Plan for Employees for $27.0 million. The Mine Safety Appliances Company Stock Compensation Trust was established to fund certain benefit plans, including employee and non-employee directors stock options and awards. Shares held by the Stock Compensation Trust, and the corresponding cost of those shares, are reported as a reduction of common shares issued. Differences between the cost of the shares held by the Stock Compensation trust and the market value of shares released for stock-related benefits are reflected in shares issued. The company has a Shareholder Rights Plan under which each outstanding share of common stock is granted one-third of a preferred share purchase right. The rights are exercisable for a fraction of a share of preferred stock, only if a person or group acquires or commences a tender offer for 15% or more of the company's common stock. In the event a person or group acquires 15% or more of the outstanding common stock, each right not owned by that person or group will entitle the holder to purchase that number of shares of common stock having a value equal to twice the $225 exercise price. The Board of Directors may redeem the rights for $.01 per right at any time until ten days after the announcement that a 15% position has been acquired. The rights expire on February 21, 2007. 28 MSA Note 5 - Stock Plans The 1998 Management Share Incentive Plan provides for grants of restricted stock awards and stock options to eligible key employees through March 2008. The 1990 Non-Employee Directors' Stock Option Plan, as amended April 1, 2001, provides for annual grants of stock options and restricted stock awards to eligible directors. As of December 31, 2002, there were 824,625 shares and 66,432 shares, respectively, reserved for future grants under these plans. Restricted stock awards are granted without payment to the company in consideration of services to be performed in the ensuing three years (four years for employee awards prior to 2002). Restricted stock awards of 23,198 shares (fair value of $915,000), 860 shares (fair value of $25,000), and 19,760 pre-split shares (fair value of $1,247,000) were granted in 2002, 2001, and 2000, respectively. Restricted stock awards expense charged to operations was $766,000 in 2002, $437,000 in 2001, and $547,000 in 2000. Stock options are generally granted at market value option prices, are exercisable beginning six months after the grant date, and expire after ten years (limited instances of option prices in excess of market value and expiration after five years). A summary of option activity under the two plans, adjusted to reflect the three-for-one stock split in May 2000, follows:
2002 2001 2000 --------------------------- --------------------------- -------------------------- Weighted-Average Weighted-Average Weighted-Average Shares Exercise Price Shares Exercise Price Shares Exercise Price -------- ---------------- -------- ---------------- ------- ---------------- Outstanding at beginning of year ... 413,487 $22.55 544,794 $20.08 305,379 $19.24 Granted ............................ 184,055 39.51 244,344 25.38 267,120 21.11 Exercised .......................... (104,604) 21.68 (370,341) 20.84 (4,290) 20.56 Forfeited .......................... (5,310) 18.79 (23,415) 19.30 -------- ------ -------- ------ ------- ------ Outstanding at end of year ......... 492,938 29.06 413,487 22.55 544,794 20.08 -------- ------ -------- ------ ------- ------ Options exercisable at year-end .... 492,938 413,487 544,794 -------- ------ ------- ------ ------- ------
The following table summarizes information about options outstanding at December 31, 2002: Weighted-Average Range of Exercise ------------------------------- Shares Price per Share Exercise Price Remaining Life ------- ----------------- -------------- -------------- 163,450 $14.83 - $21.02 $20.74 6.6 145,433 $22.88 - $29.20 25.20 8.0 184,055 $39.26 - $43.88 39.51 8.7 ------- --------------- ----- --- 492,938 $14.83 - $43.88 29.06 7.8 ------- --------------- ----- --- The company has adopted the disclosure-only provisions of FAS 123, Accounting for Stock-Based Compensation, and FAS 148, Accounting for Stock-Based Compensation - Transition and Disclosure. Accordingly, no compensation cost has been recognized for the company's stock option plans. If the company had elected to recognize compensation cost based on the fair value of the options at the grant date as prescribed by FAS 123 and FAS 148, net income and earnings per share would have been reduced to the pro forma amounts shown below: (In thousands) --------------------------- 2002 2001 2000 ------- ------- ------- Net income as reported ........................... $35,077 $31,631 $23,239 Fair value of stock options granted, net of tax .. (1,717) (1,519) (1,464) ------- ------- ------- Pro forma net income ............................. 33,360 30,112 21,775 ------- ------- ------- Basic earnings per share: As reported ................................... $ 2.88 $ 2.65 $ 1.89 Pro forma ..................................... 2.74 2.52 1.77 Diluted earnings per share: As reported ................................... $ 2.85 $ 2.61 $ 1.88 Pro forma ..................................... 2.71 2.49 1.76 The fair value of the options granted was estimated at the grant dates using the Black-Scholes option pricing model and the following weighted average assumptions for options granted in 2002, 2001, and 2000, respectively: risk-free interest rate of 5.3%, 5.2%, and 7.0%; dividend yield of 2.0%, 2.1%, and 2.3%; expected option life of 9.9 years, 9.9 years, and 9.8 years; and expected volatility factor of 23%, 23%, and 19%. 2002 Annual Report 29 Notes to Consolidated Financial Statements Note 6 - Pensions and Other Postretirement Benefits The company maintains various defined benefit and defined contribution plans covering the majority of its employees. 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 and Mexico, where it is common practice and permissible under tax laws to accrue book reserves. A minimum liability is recognized for unfunded defined benefit plans for which the accumulated benefit obligation exceeds accrued pension costs. The amount of the minimum liability in excess of unrecognized prior service cost, net of tax benefit, is recorded as a reduction in shareholders' equity. 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. During 2001, the principal U.S. and German non-contributory pension plans were amended to permit the payment of certain unfunded German benefits from assets of the U.S. plan. The company provides certain health care benefits and limited life insurance for retired employees and their eligible dependents. Information pertaining to defined benefit pension plans and other postretirement benefits plans is provided in the following table.
(In thousands) ----------------------------------------- Pension Benefits Other Benefits ------------------- ------------------- 2002 2001 2002 2001 -------- -------- -------- -------- Change in Benefit Obligations Benefit obligations at January 1 ............... $193,603 $177,032 $ 21,835 $ 19,370 Service cost ................................... 5,378 4,645 392 502 Interest cost .................................. 12,917 12,393 1,404 1,488 Employee contributions ......................... 214 231 Plan amendments ................................ 454 (1,319) Actuarial losses ............................... 11,666 14,594 487 2,484 Benefits paid .................................. (12,242) (11,998) (2,122) (2,009) Curtailments ................................... (167) Settlements .................................... (1,245) Currency translation effects ................... 6,020 (1,882) -------- -------- -------- -------- Benefit obligations at December 31 ............. 218,010 193,603 20,677 21,835 -------- -------- -------- -------- Change in Plan Assets Fair value of plan assets at January 1 ......... 314,122 324,824 Actual return on plan assets ................... (32,599) 5,383 Employer contributions ......................... 2,433 1,177 122 94 Employee contributions ......................... 263 231 Benefits paid .................................. (12,242) (11,998) (2,122) (2,009) Section 420 transfer to retiree medical plan ... (2,000) (1,915) 2,000 1,915 Reimbursement of German benefits ............... (719) (1,888) Settlements .................................... (1,245) Currency translation effects ................... 578 (447) -------- -------- -------- -------- Fair value of plan assets at December 31 ....... 269,836 314,122 -------- -------- -------- -------- Funded Status Funded status at December 31 ................... 51,826 120,519 (20,677) (21,835) Unrecognized transition gains .................. (137) (748) Unrecognized prior service cost ................ 1,647 1,488 (2,138) (957) Unrecognized net actuarial losses (gains) ...... 9,846 (65,695) 6,768 6,833 -------- -------- -------- -------- Prepaid (accrued) benefit cost ................. 63,182 55,564 (16,047) (15,959) -------- -------- -------- -------- Amounts Recognized in the Balance Sheet Prepaid benefit cost ........................... 107,338 92,437 Accrued benefit liability ...................... (46,226) (38,987) (16,047) (15,959) Intangible asset ............................... 557 696 Minimum pension liability adjustments .......... 1,513 1,418 -------- -------- -------- -------- Prepaid (accrued) benefit cost ................. 63,182 55,564 (16,047) (15,959) -------- -------- -------- --------
30 MSA
(In thousands, except percents) ---------------------------------- Pension Benefits Other Benefits ----------------- -------------- 2002 2001 2002 2001 ------- ------- ---- ---- Actuarial Assumptions at December 31 Discount rate ..................................................... 6.4% 6.8% 7.0% 7.5% Expected return on plan assets .................................... 8.2% 9.0% Rate of compensation increases .................................... 3.9% 4.2% Plans with Accumulated Benefit Obligations in Excess of Plan Assets Projected benefit obligations ..................................... $57,196 $40,547 Accumulated benefit obligations ................................... 50,494 37,759 Plan assets ....................................................... 0 0
(In thousands) Pension Benefits Other Benefits ------------------------------ -------------------------- 2002 2001 2000 2002 2001 2000 -------- -------- -------- ------ ------ ------ Components of Net Periodic Benefit Cost (Credit) Service cost ................................ $ 5,378 $ 4,645 $ 4,358 $ 392 $ 502 $ 409 Interest cost ............................... 12,917 12,393 12,537 1,404 1,488 1,390 Expected return on plan assets .............. (27,332) (27,202) (25,181) Amortization of transition asset ............ (592) (597) (624) Amortization of prior service cost .......... 298 300 302 (138) (108) (108) Recognized net actuarial (gains) losses ..... (3,794) (4,745) (3,914) 552 377 310 Settlement gain ............................. (2,093) Curtailment loss (gain) ..................... 244 (285) -------- -------- -------- ------ ------ ------ Net periodic benefit (credit) cost .......... (13,125) (14,962) (14,900) 2,210 2,259 2,001 -------- -------- -------- ------ ------ ------
For measurement purposes, a 7.5% increase in the costs of covered health care benefits was assumed for the year 2002, decreasing by .5% for each successive year to 4% in 2009 and thereafter. A one-percentage-point change in assumed health care cost trend rates would have increased or decreased the other postretirement benefit obligations and current year plan expense by approximately $1.0 million and $100,000, respectively. Expense for defined contribution pension plans was $3,049,000 in 2002, $2,739,000 in 2001, and $2,619,000 in 2000. The U.S. defined benefit pension plan owned 1,016,500 shares (market value $32.8 million) at December 31, 2002 and 1,072,500 shares (market value $43.1 million) at December 31, 2001 of the company's common stock. The pension plan received dividends of $666,650 and $601,200, respectively, on these shares. Note 7 - Short-Term Debt Short-term bank lines of credit amounted to $18,664,000 of which $9,568,000 was unused at December 31, 2002. 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 $9,096,000 and $2,167,000 at December 31, 2002 and 2001, respectively. The average month-end balance of total short-term borrowings during 2002 was $3,100,000 while the maximum month-end balance of $9,096,000 occurred at December 31, 2002. The average interest rate during 2002 was approximately 6% based upon total short-term interest expense divided by the average month-end balance outstanding, and 3% at year-end. Note 8 - Leases The company leases office space, manufacturing and warehouse facilities, automobiles and other equipment under operating lease arrangements. Rent expense was $6,879,000 in 2002, $6,020,000 in 2001, and $5,917,000 in 2000. Minimum rental commitments under noncancelable leases are $2,583,000 in 2003, $1,903,000 in 2004, $1,293,000 in 2005, $835,000 in 2006, $645,000 in 2007, and $2,249,000 after 2007. Note 9 - Earnings per Share Basic earnings per share is computed on the weighted average number of common 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 diluted earnings per share.
(In thousands) --------------------------- 2002 2001 2000 ------- ------- ------- Net income from continuing operations ..... $31,213 $25,851 $18,888 Preferred stock dividends ................. (47) (48) (49) ------- ------- ------- Income available to common shareholders ... 31,166 25,803 18,839 ------- ------- ------- Basic shares outstanding .................. 12,171 11,910 12,301 Stock options ............................. 124 169 55 ------- ------- ------- Diluted shares outstanding ................ 12,295 12,079 12,356 ------- ------- ------- Antidilutive stock options ................ 184 0 18 ------- ------- -------
2002 Annual Report 31 Notes to Consolidated Financial Statements Note 10 - Accounts Receivable Securitization The company has securitization agreements with Mine Safety Funding Corporation (MFS) under which the company sells MSF, on a continuous basis, an undivided interest in eligible trade accounts receivable generated by the company, while maintaining a subordinated interest in a portion of the receivables. MSF is an unconsolidated wholly-owned, bankruptcy-remote subsidiary of the company. Financial assets, net of retained interests, are removed from the balance sheet when the assets are sold and control is surrendered. The company services the sold receivables for MSF at market rates and, accordingly, no servicing asset or liability has been recorded. MSF and the company have also entered into securitization agreements with financial institutions under which MSF may sell up to $30 million of accounts receivable to a multi-seller asset-backed commercial paper issuer. At December 31, 2002, accounts receivable of $66.2 million were owned by MSF. The company held a subordinated interest in these receivables of $36.5 million, of which $35.5 million is classified as other receivables. Net proceeds to the company from the securitization arrangement were $29.0 million at December 31, 2002. The company incurred net costs associated with the securitization facility of $2.1 million in 2002, representing the discount loss on the sale of the receivables, partially offset by related servicing income and dividends received from MSF. The net cost includes $884,000 in bad debt expense borne by MSF during 2002. At December 31, 2001, accounts receivable of $65.0 million were owned by MSF. The company held a subordinated interest in these receivables of $39.3 million, of which $38.3 million is classified as other receivables. Net proceeds to the company from the securitization arrangement were $25.0 million at December 31, 2001. The company incurred net costs associated with the securitization facility of $2.3 million in 2001, representing the discount loss on the sale of the receivables, partially offset by related servicing income and dividends received from MSF. The net cost includes $598,000 in bad debt expense borne by MSF during 2001. The key economic assumptions used to measure the retained interest at December 31, 2002 were a discount rate of 3.7% and an estimated life of 2.5 months. At December 31, 2002, an adverse change in the discount rate or estimated life of 10% and 20% would reduce the fair value of the retained interest by $51,000 and $102,000, 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. Note 11 - Inventories (In thousands) ----------------- 2002 2001 ------- ------- Finished products ....................... $28,964 $30,375 Work in process ......................... 14,936 12,099 Raw materials and supplies .............. 32,848 35,400 ------- ------- Total inventories ....................... 76,748 77,874 ------- ------- Excess of FIFO costs over LIFO costs .... 39,431 38,059 ------- ------- Inventories stated on the LIFO basis represent 38%, 52%, and 45% of the total inventories at December 31, 2002, 2001, and 2000, respectively. Reductions in certain inventory quantities during 2002 and 2000 resulted in liquidations of LIFO inventory quantities carried at lower costs prevailing in prior years. The effect of these liquidations reduced cost of sales by $387,000 in 2002 and $1,920,000 in 2000, and increased net income by $235,000 ($.02 per share) and $1,171,000 ($.10 per share), respectively. Note 12 - Long-Term Debt
(In thousands) ----------------- 2002 2001 ------- ------- U.S. Industrial development debt issues payable through 2022, 1.6% ........ $10,750 $10,750 Series B Senior Notes payable through 2006, 7.69% ....... 16,000 20,000 Senior Notes payable through 2012, 8.39% ....... 40,000 40,000 Other ................................ 200 38 International Various notes payable through 2007, 4.9% to 9.5% ...................... 2,364 868 ------- ------- Total ................................... 69,314 71,656 Amounts due within one year ............. 4,964 4,275 ------- ------- Long-term debt .......................... 64,350 67,381 ------- -------
Approximate maturities of these obligations over the next five years are $4,964,000 in 2003, $4,679,000 in 2004, $4,557,000 in 2005, $8,140,000 in 2006, and $87,000, in 2007. Some debt agreements require the company to maintain certain financial ratios and minimum net worth and contain restrictions on the total amount of debt. Note 13 - Research and Development Expense Research and development expense was $20,372,000 in 2002, $16,740,000 in 2001, and $15,988,000 in 2000. Note 14 - Other Income (In thousands) ----------------------- 2002 2001 2000 ----- ------ ------ Interest ................. $ 953 $1,183 $1,243 Rent ..................... 710 739 957 Dividends ................ 725 625 555 Dispositions of assets ... (864) (136) (528) Other, net ............... 747 365 217 ----- ------ ------ Total .................... 2,271 2,776 2,444 ----- ------ ------ 32 MSA Note 15 - Goodwill and Intangible Assets During 2002, the company adopted FAS No. 142, Goodwill and Other Intangible Assets. Under this standard, goodwill and other intangible assets with indefinite lives are not amortized, but are subject to impairment tests that must be performed at least annually. Transitional impairment tests performed as of January 1, 2002 indicated that no goodwill impairment existed and as a result the company did not recognize a transitional impairment loss. Annual goodwill impairment tests performed during the fourth quarter also indicated that no goodwill impairment existed and as a result the company has not recognized an impairment loss. The effects of adopting the non-amortization provisions of FAS 142 on net income from continuing operations and basic earnings per share were as follows:
(In thousands, except per share amounts) ---------------------------------------- 2002 2001 2000 ------- ------- ------- Reported net income from continuing operations .. $31,213 $25,851 $18,888 Goodwill amortization, net of tax ............... 1,365 964 ------- ------- ------- Adjusted net income from continuing operations .. 31,213 27,216 19,852 ------- ------- ------- Basic earnings per share: Reported net income from continuing operations .. $ 2.56 $ 2.17 $ 1.54 Goodwill amortization, net of tax ............... .11 .07 ------- ------- ------- Adjusted net income from continuing operations .. 2.56 2.28 1.61 ------- ------- -------
Intangible assets include non-compete agreements that will be fully amortized in 2003 and patents that will be fully amortized in 2005. These items are included in other noncurrent assets. At December 31, 2002, intangible assets totaled $171,000, net of accumulated amortization of $1.0 million. Intangible asset amortization expense is expected to be $115,000 in 2003, $52,000 in 2004, and $4,000 in 2005. Changes in goodwill and intangible assets, net of accumulated amortization during the year ended December 31, 2002 were as follows: (In thousands) ---------------------- Goodwill Intangibles -------- ----------- Net balances at January 1, 2002 $33,722 $ 526 Goodwill acquired 7,863 Amortization expense (355) Currency translation and other 1,378 ------- ----- Net balances at December 31, 2002 42,963 171 ------- ----- There are no goodwill or intangible assets related to discontinued operations. Note 16 - Acquisitions On April 30, 2002, the company acquired CGF Gallet of Lyon, France. Gallet is the leading European manufacturer of protective helmets for the fire service, as well as head protection for the police and military. The acquisition of Gallet complements the company's strong existing line of fire service products and provides the opportunity to capitalize on opportunities in other areas where Gallet is strong - such as the law enforcement, military, and aviation markets. Gallet's results of operations have been included in the company's consolidated financial statements from the acquisition date. The aggregate purchase price was $16.6 million of cash and includes amounts paid to the previous owners and other direct external costs associated with the acquisition. The acquisition was recorded using the purchase method of accounting and, accordingly, the purchase price was allocated to assets acquired and liabilities assumed based on their estimated fair values at the acquisition date. The following table summarizes the estimated fair values of the Gallet assets acquired and the liabilities assumed at the date of acquisition: April 30 (In thousands) 2002 -------- Current assets ............. $17,427 Property ................... 5,800 Goodwill ................... 7,863 ------- Total assets acquired ...... 31,090 ------- Current liabilities ........ 11,093 Long term debt ............. 3,016 Other liabilities .......... 349 ------- Total liabilities assumed .. 14,458 ------- Net assets acquired ........ 16,632 ------- Goodwill related to the Gallet acquisition, which is primarily included in the European operating segment, is not expected to be deductible for tax purposes. On February 1, 2001, the company acquired Surety Manufacturing and Testing, Ltd. (Surety), a leading provider of fall protection equipment and rescue systems. The acquisition was recorded using the purchase method of accounting. The purchase price of $7.1 million was allocated to assets acquired and liabilities assumed based on estimated fair values and included $5.6 million in goodwill, which is included in the North American operating segment. During 2000, the company acquired ISI Group, Inc. (ISIG) and CairnsHELMETS (Cairns). The acquisitions were recorded using the purchase method of accounting. The aggregate purchase price of $29.7 million was allocated to assets acquired and liabilities assumed based on estimated fair values and included $24.9 million in goodwill, which is included in the North American operating segment. The results of operations of Surety, ISIG, and Cairns are included in the financial statements from their respective acquisition dates. Goodwill associated with acquisitions completed after June 30, 2001 has not been amortized. The following unaudited pro forma summary presents the company's consolidated results as if the acquisitions had occurred at the beginning of 2000. The pro forma information does not necessarily reflect the actual results that would have occurred and is not necessarily indicative of future results of operations for the combined companies.
(In thousands, except earnings per share) ----------------------------------------- 2002 2001 2000 -------- -------- -------- Net sales .............................. $578,252 $535,317 $511,941 Net income from continuing operations .. 32,189 26,559 18,588 Basic earnings per share ............... 2.64 2.23 1.51
2002 Annual Report 33 Notes to Consolidated Financial Statements Note 17 - Discontinued Operations In November 2002, the company announced its decision to explore strategic options, including the sale, of the Callery Chemical Division. Callery Chemical Division develops, manufactures, and sells specialty chemicals, including alkali metal strong bases and borane chemicals, for use in pharmaceuticals, agricultural chemicals, plastics, and a number of other applications. Current discussions with potential purchasers could result in the division being sold for a gain during 2003. The results of the Callery Chemical Division, as summarized below, have been classified as discontinued operations for all periods presented. The results for 2002 include $42,000 of expenses directly related to disposal activities. (In thousands) --------------------------- 2002 2001 2000 ------- ------- ------- Net sales ................................ $29,473 $33,120 $32,060 Income before income taxes ............... 6,147 9,282 6,631 Provision for income taxes ............... 2,283 3,502 2,280 Net income from discontinued operations .. 3,864 5,780 4,351 At December 31, 2002, net assets of Callery Chemical Division classified as held for sale consisted of the following: (In thousands) Accounts receivable and other current assets .. $ 7,983 Inventory ..................................... 7,705 Property, net ................................. 29,374 ------- Net assets held for sale ...................... 45,062 ------- Note 18 - Contingencies Various lawsuits and claims have been or may be instituted or asserted against the company, including those pertaining to product liability. While the amounts claimed may be substantial, the ultimate liability of the company may not be determinable because uncertainties exist. Based on information currently available, management believes that the disposition of matters that are pending or asserted will not have a materially adverse effect on the financial position of the company. Note 19 - Quarterly Financial Information (Unaudited)
2002 ---------------------------------------------------- (In thousands, except earnings per share) Quarters ----------------------------------------- 1st 2nd 3rd 4th Year -------- -------- -------- -------- -------- Net sales ................................ $128,058 $141,862 $143,398 $151,108 $564,426 Gross profit ............................. 50,271 51,896 53,000 57,222 212,839 Net income from continuing operations .... 7,724 7,897 5,323 10,269 31,213 Net income from discontinued operations .. 260 1,587 470 1,547 3,864 -------- -------- -------- -------- -------- Net income ............................... 7,984 9,484 5,793 11,816 35,077 Basic earnings per share: Continuing operations .................... .64 .65 .44 .84 2.56 Discontinued operations .................. .02 .13 .03 .13 .32 -------- -------- -------- -------- -------- Total ................................... .66 .78 .47 .97 2.88 Diluted earnings per share: Continuing operations .................... .63 .64 .43 .83 2.54 Discontinued operations .................. .02 .13 .04 .13 .31 -------- -------- -------- -------- -------- Total ................................... .65 .77 .47 .96 2.85 2001 ---------------------------------------------------- (In thousands, except earnings per share) Quarters ----------------------------------------- 1st 2nd 3rd 4th Year -------- -------- -------- -------- -------- Net sales ................................ $124,839 $126,179 $131,101 $127,617 $509,736 Gross profit ............................. 48,809 47,922 50,746 52,579 200,056 Net income from continuing operations .... 6,195 5,577 7,303 6,776 25,851 Net income from discontinued operations .. 1,652 1,397 490 2,241 5,780 -------- -------- -------- -------- -------- Net income ............................... 7,847 6,974 7,793 9,017 31,631 Basic earnings per share: Continuing operations .................... .52 .47 .61 .56 2.17 Discontinued operations .................. .14 .12 .04 .19 .48 -------- -------- -------- -------- -------- Total ................................... .66 .59 .65 .75 2.65 Diluted earnings per share: Continuing operations .................... .52 .46 .60 .55 2.13 Discontinued operations .................. .14 .12 .04 .18 .48 -------- -------- -------- -------- -------- Total .................................... .66 .58 .64 .73 2.61
34 MSA Summary of Selected Financial Data
(In thousands, except as noted) 2002 2001 2000 1999 1998 -------- -------- -------- -------- -------- Summary of Operations Net sales $564,426 $509,736 $468,307 $462,166 $460,973 ------------------------------------------------------------------------------------------------------------------ Other income 2,271 2,776 2,444 3,619 6,354 ------------------------------------------------------------------------------------------------------------------ Cost of products sold (see note a below) 351,587 309,680 293,960 297,922 291,347 ------------------------------------------------------------------------------------------------------------------ Selling, general and administrative (see note a below) 140,924 130,092 124,840 131,281 135,627 ------------------------------------------------------------------------------------------------------------------ Depreciation and amortization 21,525 22,590 20,936 20,550 19,912 ------------------------------------------------------------------------------------------------------------------ Interest expense 4,769 5,349 4,040 3,916 3,017 ------------------------------------------------------------------------------------------------------------------ Currency exchange (gains) losses (191) 1,197 (444) (694) 315 ------------------------------------------------------------------------------------------------------------------ Provision for income taxes 16,870 17,753 8,531 3,098 5,885 ------------------------------------------------------------------------------------------------------------------ Net income from continuing operations 31,213 25,851 18,888 9,712 11,224 ------------------------------------------------------------------------------------------------------------------ Net income from discontinued operations 3,864 5,780 4,351 6,614 7,051 ------------------------------------------------------------------------------------------------------------------ Change in reporting period, net of tax (see note b below) (1,192) ------------------------------------------------------------------------------------------------------------------ Net Income 35,077 31,631 23,239 15,134 18,275 ------------------------------------------------------------------------------------------------------------------ Basic per common share continuing operations (in dollars) 2.56 2.17 1.54 .65 .84 ------------------------------------------------------------------------------------------------------------------ Diluted per common share continuing operations (in dollars) 2.54 2.13 1.53 .65 .84 ------------------------------------------------------------------------------------------------------------------ Dividends paid per common share (in dollars) .65 .54 .47 .44 .44 ------------------------------------------------------------------------------------------------------------------ Weighted average number of common shares outstanding--basic 12,171 11,910 12,301 12,972 13,290 ------------------------------------------------------------------------------------------------------------------ Year-End Position ------------------------------------------------------------------------------------------------------------------ Working capital (see note c below) $138,182 $135,186 $114,175 $123,085 $119,203 ------------------------------------------------------------------------------------------------------------------ Working capital ratio (see note c below) 2.4 2.6 2.3 2.5 2.1 ------------------------------------------------------------------------------------------------------------------ Net property 125,605 151,661 159,586 163,509 164,561 ------------------------------------------------------------------------------------------------------------------ Total assets 579,765 520,698 489,683 451,741 457,721 ------------------------------------------------------------------------------------------------------------------ Long-term debt 64,350 67,381 71,806 36,550 11,919 ------------------------------------------------------------------------------------------------------------------ Common shareholders' equity 288,009 252,451 225,382 241,374 241,743 ------------------------------------------------------------------------------------------------------------------ Equity per common share (in dollars) 23.59 20.86 19.06 18.75 18.40 ------------------------------------------------------------------------------------------------------------------ Market capitalization 393,677 485,844 297,169 274,624 310,904 ------------------------------------------------------------------------------------------------------------------ $ 13,125 $ 14,962 $ 14,900 $ 10,175 $ 10,344
Notes: a. Noncash pension income, pre-tax Cost of products sold and selling, general and administrative expenses include noncash pension income. b. In 1999, the fiscal year end for certain international affiliates was changed from November 30th to December 31st. The after-tax effect of the change in reporting period is included in the 1999 income statement as a change in accounting principle. c. Working capital at December 31, 2002 excludes assets held for sale. 2002 Annual Report 35