MSA Safety Incorporated — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022; this is an annual report, not a standalone fourth-quarter filing. MSA develops and sells safety equipment and software, including breathing apparatus, gas detection, head protection, firefighter equipment and fall protection. Its reportable segments are Americas and International, with Corporate costs reported separately.
Financial performance
| Metric | FY2022 | FY2021 | Change / context |
|---|---|---|---|
| Net sales | $1,527.9 million | $1,400.2 million | Up 9.1% reported; up 12.2% constant currency and 9.9% organic constant currency |
| Gross profit / margin | $673.8 million / 44.1% | $615.3 million / 43.9% | Margin improved 0.2 percentage points |
| Operating income | $239.1 million | $22.8 million | FY2021 was significantly affected by product-liability expense |
| Net income attributable to MSA | $179.6 million | $21.3 million | Diluted EPS was $4.56 versus $0.54 |
| Operating cash flow | $157.5 million | $199.1 million | Lower mainly because of higher inventory and receivables |
| Cash, cash equivalents and restricted cash | $164.4 million | $141.4 million | At year-end |
| Long-term debt, net | $572.8 million | $597.7 million | Excludes debt raised in January 2023 for the subsequent divestiture |
Cash used in investing activities was $4.5 million, compared with $415.5 million in 2021, when acquisitions drove spending. Cash used in financing activities was $113.4 million; MSA paid $71.5 million in dividends and repurchased $34.4 million of shares. Capital expenditures were $42.6 million.
Americas sales rose 14.9% to $1,043.2 million; International sales fell 1.5% to $484.7 million as currency translation more than offset constant-currency growth. Adjusted operating income, a non-GAAP measure, was $290.4 million versus $240.6 million; adjusted EBITDA was $337.5 million versus $286.0 million. The filing reports adjusted operating margins of 25.6% for Americas and 12.6% for International.
Fourth-quarter sales were $443.3 million versus $410.3 million in Q4 2021. Quarterly net income attributable to MSA was $51.5 million, compared with a $61.5 million loss in Q4 2021.
Material changes and notable items
- Growth reflected pricing, unit growth, new products and the full-year contribution from the 2021 Bacharach acquisition; reported results were reduced by foreign-exchange translation.
- Gross margin edged higher as pricing and productivity were partly offset by inflation, inventory and warranty charges. SG&A was 22.2% of sales, down from 23.8%.
- Product-liability expense fell to $20.6 million from $185.3 million in 2021. The prior-year comparison included substantial reserve expense for legacy claims held by MSA LLC.
- In January 2023, after year-end, MSA divested MSA LLC, which held legacy coal-dust, asbestos, silica and other claims. MSA contributed $341 million cash and the buyers contributed $35 million. MSA expected to remove the subsidiary’s related reserves, insurance assets and deferred tax assets and record an approximately $200 million loss in Q1 2023. The company also entered into a $250 million term loan and drew $65 million on its revolver to fund the transaction.
Liquidity, outlook and risks
At December 31, 2022, $589.9 million of the $900 million revolving facility was unused, including letters of credit; an additional $400 million accordion was subject to approvals. MSA said liquidity and capital access were sufficient. It expected 2023 interest expense of $48–$50 million, primarily reflecting debt associated with the MSA LLC divestiture, and expected non-cash pension income to decline by $8 million from 2022. No specific sales or earnings guidance is provided in the filing.
Management described the operating environment as dynamic and identified supply-chain and semiconductor availability, inflation, labor availability, foreign exchange, interest rates, COVID-related disruption, geopolitical conflict and energy uncertainty in Europe as factors that could affect 2023 results. Other material risks include product-liability and product-quality claims, regulatory changes, dependence on government funding and energy markets, cybersecurity threats, acquisitions and integration, and pension assumptions. The filing notes that industrial electronic-component lead times remained extended.
The independent auditor issued an unqualified opinion on the financial statements and internal controls; management reported effective internal control over financial reporting at year-end.
Important facts for investors to verify
- Track the Q1 2023 accounting and cash-flow effects of the MSA LLC divestiture, including the expected approximately $200 million loss and the treatment of transferred claims and insurance assets.
- Review the new term loan and revolver borrowing, resulting variable-rate debt exposure, 2023 interest expense and remaining revolver availability.
- Assess whether sales growth, pricing and gross-margin performance continue to offset inflation and foreign-exchange headwinds, particularly in International.
- Monitor inventory, receivables and operating cash conversion, which weakened year over year as working-capital needs increased.
- Consider the sensitivity of earnings and liquidity to product warranties and other retained product-liability claims, as well as to currency and interest-rate changes.