MSA Safety Incorporated — FY 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021; the filing also reports unaudited quarterly results. MSA develops and manufactures safety equipment, including breathing apparatus, gas detection, protective apparel, head protection and fall protection products. Figures below are U.S. dollars; financial amounts are in millions unless stated otherwise.
Financial performance and liquidity
| Metric | FY 2021 | FY 2020 |
|---|---|---|
| Net sales | $1,400.2 | $1,348.2 |
| Gross profit / gross margin | $615.3 / 43.9% | $595.5 / 44.2% |
| Operating income | $22.8 | $171.9 |
| Net income attributable to MSA | $21.3 | $124.1 |
| Diluted EPS | $0.54 | $3.15 |
| Cash from operating activities | $199.1 | $206.6 |
- Sales rose 3.9% reported and 2.5% on a constant-currency basis; organic constant-currency sales declined 2.3%. Americas sales increased 3.9%; International sales increased 3.8% reported but were nearly flat in constant currency.
- Adjusted operating income, a non-GAAP measure, was $240.6 versus $248.4; adjusted EBITDA was $286.0 versus $288.0. Adjusted operating margins were 22.3% for Americas and 14.9% for International.
- SG&A rose 14.7% to $332.9, including acquisition costs and higher variable compensation. Gross margin edged down 0.3 percentage points amid higher material costs and acquisition-related amortization.
- Cash and cash equivalents were $140.9 at year-end ($141.4 including restricted cash). Total debt was $597.7; $572.4 of the $900 million revolving facility was unused. The company reported compliance with debt covenants.
- Investing activities used $415.5, mainly reflecting acquisitions; financing activities provided $203.9, including net long-term debt proceeds of $293.2. Dividends paid were $68.6. The annual dividend per common share was $1.75.
Material changes and unusual items
- Product liability expense reached $185.3, versus $39.0 in 2020, primarily from a major increase in the reserve for historical cumulative-trauma claims. The year-end reserve was $409.8 and covers estimated claims through 2074. MSA reported 2,134 new claims in 2021, bringing asserted claims to 4,554.
- Fourth-quarter net sales were $410.3; MSA recorded a net loss attributable to the company of $61.5, or diluted loss per share of $1.57. The filing attributes the annual earnings decline principally to the product-liability reserve adjustment.
- MSA acquired Bristol Uniforms/Bell Apparel in January for $63.0 net of cash acquired and Bacharach in July for $329.4 net of cash acquired. Acquired businesses contributed $67.2 of sales and a $6.3 net loss from acquisition dates through year-end. Purchase-price allocations remained preliminary.
- The company retrospectively changed the accounting method for certain U.S. inventory from LIFO to FIFO. For 2021, FIFO increased reported net income by $5.7 and diluted EPS by $0.15 compared with LIFO.
- The effective tax rate fell to 7.7% from 25.6%, reflecting share-based payment benefits, foreign-jurisdiction effects and other items. Pension-related other income included a one-time settlement benefit.
Outlook, commentary and risks
- No quantified sales or earnings guidance is provided. Management said order activity improved late in the fourth quarter and into early 2022, with backlog elevated.
- Management expected supply constraints—especially electronic components affecting gas-detection products—and labor availability to remain challenges into 2022. Inflation in components, resins and other inputs prompted pricing actions; management warned that cost pressures could persist.
- Restructuring charges were $16.4 in 2021. Programs delivered approximately $15 of savings during the year, with expected annual savings of $25–$30 thereafter.
- Key risks include uncertainty in cumulative-trauma claims and insurance collections; supply-chain and inflation pressures; acquisition integration; foreign-exchange exposure; cyber risks; regulatory and product-safety requirements; and economic, energy-market and pandemic-related disruptions. The company is largely self-insured for historical cumulative-trauma claims.
- Auditors issued unqualified opinions on the financial statements and internal controls. Management’s internal-control assessment excluded Bristol and Bacharach, recently acquired businesses.
Important facts for investors to verify
- How future claim filings and settlement experience affect the $409.8 product-liability reserve, and whether insurance receivables of $130.2 and notes receivable of $48.5 are collected as expected.
- Whether organic sales recover and elevated backlog converts to revenue despite component shortages, labor constraints and inflation.
- Acquisition integration, purchase-price allocation and the acquired businesses’ contribution to sales, earnings and cash flow.
- Debt repayment and refinancing capacity, including the $334.4 revolving-facility maturity in 2026, alongside cash needs for claims, dividends and acquisitions.
- The effect of the retrospective FIFO accounting change when comparing reported historical earnings, inventory and margins.