MSA Safety rporated(MSA) - 2021 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements Presents MSA Safety's unaudited condensed consolidated financial statements for Q1 2021, including income, comprehensive income, balance sheets, cash flows, and equity, with explanatory notes on key accounting events Condensed Consolidated Statements of Income Q1 2021 vs Q1 2020 Income Statement | Metric (in thousands, except per share) | Q1 2021 | Q1 2020 | | :--- | :--- | :--- | | Net sales | $308,428 | $341,145 | | Gross profit | $134,740 | $157,359 | | Operating income | $44,038 | $58,782 | | Net income attributable to MSA | $36,414 | $43,674 | | Diluted EPS | $0.92 | $1.11 | | Dividends per common share | $0.43 | $0.42 | Condensed Consolidated Statements of Comprehensive Income Comprehensive income attributable to MSA Safety Incorporated was $29.9 million for Q1 2021, an increase from $24.6 million in Q1 2020, primarily due to a smaller negative impact from foreign currency translation adjustments[10] Condensed Consolidated Balance Sheets Balance Sheet Summary | Metric (in thousands) | March 31, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Total current assets | $764,578 | $754,278 | | Total assets | $1,942,762 | $1,872,484 | | Total current liabilities | $306,727 | $310,545 | | Total liabilities | $1,119,872 | $1,062,593 | | Total shareholders' equity | $822,890 | $809,891 | Condensed Consolidated Statements of Cash Flows Cash Flow Summary (Three Months Ended March 31) | Metric (in thousands) | 2021 | 2020 | | :--- | :--- | :--- | | Cash Flow From Operating Activities | $45,616 | $13,607 | | Cash Flow Used in Investing Activities | $(52,509) | $(26,082) | | Cash Flow From (Used in) Financing Activities | $31,639 | $(13,328) | | Increase (decrease) in cash | $24,026 | $(29,559) | | Ending cash, cash equivalents and restricted cash | $185,060 | $122,984 | Notes to Condensed Consolidated Financial Statements - In Q1 2021, the company recorded restructuring charges of $1.3 million, primarily related to initiatives in the International segment to drive profitable growth and optimize operations[23] Sales by Reportable Segment (Three Months Ended March 31) | Segment (in thousands) | 2021 | 2020 | | :--- | :--- | :--- | | Americas | $208,340 | $231,253 | | International | $100,088 | $109,892 | | Total | $308,428 | $341,145 | - The company's effective tax rate for Q1 2021 was 21.0%, consistent with the U.S. federal statutory rate, compared to 23.0% in Q1 2020[43] - As of March 31, 2021, a subsidiary (MSA LLC) was a defendant in 1,632 lawsuits involving 3,043 cumulative trauma product liability claims, with a total reserve for these claims of $216.8 million[70][73] - On January 25, 2021, MSA acquired Bristol Uniforms and Bell Apparel for $63.0 million in an all-cash transaction, strengthening MSA's position in fire service PPE in the U.K. and European markets[89][90] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 2021 financial results, noting a 9.6% decrease in net sales due to economic challenges and pre-pandemic comparisons, while detailing segment performance, gross margin, cost controls, the Bristol acquisition, and liquidity Business Overview - MSA is a global leader in safety products, with core offerings including breathing apparatus, gas and flame detection systems, and head protection, representing approximately 88% of sales in Q1 2021[102][110] - The company acquired Bristol Uniforms and Bell Apparel on January 25, 2021, for $63.0 million to strengthen its fire service PPE business in the U.K. and Europe[103] - MSA is considered an essential business and has continued manufacturing operations during the COVID-19 pandemic, focusing on employee safety, business continuity, and expense management[104] Results of Operations Q1 2021 vs Q1 2020 Performance | Metric | Q1 2021 | Q1 2020 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $308.4M | $341.1M | $(32.7)M | (9.6)% | | Gross Profit | $134.7M | $157.4M | $(22.7)M | (14.4)% | | Gross Margin | 43.7% | 46.1% | (2.4) p.p. | N/A | | SG&A Expenses | $75.5M | $80.2M | $(4.7)M | (5.9)% | | Operating Income | $44.0M | $58.8M | $(14.8)M | (25.2)% | - The decrease in sales was driven by economic challenges and a difficult comparison to a pre-pandemic Q1 2020, notably impacting industrial PPE and Fixed Gas & Flame Detection (FGFD)[116] - The gross profit ratio declined from 46.1% to 43.7% due to lower factory throughput, inventory charges for respiratory protection, unfavorable product mix, and higher input costs[120] - SG&A expenses decreased by 5.9% due to savings from restructuring and discretionary cost controls, offsetting additional expenses from the Bristol acquisition[121] Liquidity and Capital Resources - The company's main sources of liquidity are operating cash flows and borrowings, with cash and cash equivalents totaling $185.1 million at March 31, 2021[140][141] - Operating activities provided $45.6 million in cash for Q1 2021, a significant improvement from $13.6 million in Q1 2020, primarily due to better working capital management[143] - Investing activities used $52.5 million, largely for the Bristol acquisition ($63.0 million) and capital expenditures ($9.6 million)[145][89] - Financing activities provided $31.6 million, reflecting net proceeds from long-term debt of $52.0 million used to fund the acquisition, partially offset by dividend payments of $16.8 million[146] Critical Accounting Policies and Estimates - Due to the Q1 2021 acquisition, 'Business Combinations' has been added as a critical accounting policy and estimate, involving the acquisition method to allocate costs to assets acquired and liabilities assumed based on estimated fair values[152][153] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company faces market risks from currency exchange rate fluctuations and interest rate changes, with a 10% USD strengthening potentially impacting sales by $12.8 million and earnings by $0.8 million - The company is exposed to currency exchange rate risk, where a hypothetical 10% strengthening of the U.S. dollar would decrease reported sales by approximately $12.8 million (4.1%) and net income by $0.8 million (2.2%) for the quarter[157] - The company is exposed to interest rate risk, primarily on its $265.7 million of variable rate borrowings, where a 100 basis point change in interest rates could impact future earnings[161] Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of March 31, 2021, with no material changes to internal control over financial reporting during the quarter - The principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective as of March 31, 2021[163] PART II. OTHER INFORMATION Item 1A. Risk Factors This section details key business risks, particularly the material adverse effects from product liability claims and recalls, specifically highlighting the self-insured cumulative trauma claims against MSA LLC - The company faces inherent business risk from product liability claims, defects, or recalls, which could materially harm business, operating results, and financial condition[164] - Subsidiary MSA LLC faces significant risk from cumulative trauma product liability claims (3,043 claims as of March 31, 2021), and as MSA LLC is now largely self-insured, losses could exceed established reserves and materially impact financial results[165] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company details equity security purchases for the quarter, noting all shares were related to stock compensation transactions, not the publicly announced share repurchase program Issuer Purchases of Equity Securities (Q1 2021) | Period | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | January 2021 | 234 | $156.12 | | February 2021 | 900 | $166.10 | | March 2021 | 31,516 | $163.80 | - Shares purchased during the quarter were related to stock compensation transactions, and no shares were repurchased under the publicly announced $100.0 million share repurchase program[168][169] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications and XBRL data files - The exhibits filed with this report include CEO/CFO certifications (31.1, 31.2, 32) and XBRL interactive data files (101 series)[170]