MSA Safety Incorporated — 2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. This is an annual filing, not a standalone fourth-quarter filing; quarterly figures below are unaudited. MSA develops and sells safety equipment globally, including breathing apparatus, gas detection, firefighter protection, head protection and fall protection products.
Financial performance and liquidity
| Metric | FY 2020 | FY 2019 |
|---|---|---|
| Net sales | $1,348.2 million | $1,402.0 million |
| Gross profit / margin | $590.4 million / 43.8% | $636.6 million / 45.4% |
| Operating income | $166.9 million | $186.2 million |
| Net income attributable to MSA | $120.1 million | $136.4 million |
| Diluted EPS | $3.05 | $3.48 |
| Operating cash flow | $206.6 million | $165.0 million |
- Fourth-quarter sales were $388.2 million versus $375.3 million in Q4 2019; net income attributable to MSA was $12.3 million versus $31.2 million, and diluted EPS was $0.31 versus $0.79.
- Year-end cash, cash equivalents and restricted cash totaled $161.0 million; short-term investments were $75.0 million. Current assets were $754.3 million and current liabilities $310.5 million.
- Total debt was approximately $307.2 million, including $212.2 million drawn on the variable-rate revolving facility. Of the $600 million facility, $385.5 million was unused, including letters of credit. The company reported covenant compliance.
- Capital expenditures were $48.9 million; dividends paid were $66.6 million, or $1.71 per common share. Net cash used in financing activities was $126.5 million.
Changes and management commentary
- Sales declined 3.8% as reported and 3.0% in constant currency. Americas sales fell 4.5% and International sales fell 2.7% as reported. Weakness in oil and gas and commercial construction, amid COVID-19, was partly offset by stronger fire-service breathing apparatus and pandemic-related respirator demand.
- Gross margin fell 1.6 percentage points, primarily due to lower factory throughput and inventory-related charges. MSA recorded $13 million of inventory-related and manufacturing costs after a significant pandemic-response order did not materialize; management said these charges were not expected to recur in 2021.
- SG&A declined 12.2%, reflecting restructuring benefits and discretionary cost controls. Restructuring charges rose to $27.4 million from $13.8 million; 121 positions were eliminated. Management expected $15 million of restructuring savings in 2021 and $20 million annually thereafter.
- Management approached the first half of 2021 cautiously and expected a stronger second half relative to the first, while noting uncertainty around vaccine rollout, further restrictions, economic recovery and government stimulus. It expected 2021 capital expenditures of 2.5%–3.5% of sales and total interest expense of $8–$9 million.
- On January 25, 2021, after year-end, MSA acquired Bristol Uniforms and Bell Apparel for $62.4 million net of cash acquired. Initial purchase accounting was incomplete when the filing was issued.
Risks, contingencies and unusual items
- The cumulative-trauma product liability reserve was $221.5 million at year-end, up from $167.5 million. MSA LLC faced 1,622 lawsuits comprising 2,878 asserted claims; the company cited increased coal-dust claims. The estimate is highly judgmental and could change materially. Related insurance receivables were $97.0 million and notes receivable from insurers were $52.3 million; recovery timing and amount remain exposed to assumptions and insurer credit risk.
- Product liability and other operating expense was $39.0 million, versus $28.4 million in 2019. The filing identifies the cumulative-trauma reserve increase as the primary driver.
- Other material risks include COVID-related demand and supply disruption, energy-market weakness, foreign currency exposure, product defects or recalls, regulation, raw-material availability, cybersecurity, pension assumptions and acquisition integration. The company operates in approximately 40 foreign countries; about half of 2020 sales came from operations outside the United States.
- Debt includes variable-rate borrowing and a significant $221.6 million scheduled maturity in 2023, principally revolving-facility debt. MSA said it expected operating cash flow to fund obligations and planned to refinance any remaining facility balance at maturity. Foreign-exchange movements and LIBOR transition were also identified as risks.
- Goodwill and indefinite-lived trade name impairment tests found fair-value cushions at October 2020; reporting-unit fair values exceeded carrying values by at least 109%, while the trade name’s fair value exceeded carrying value by approximately 22%.
Important facts for investors to verify
- Review the assumptions, claims trends and insurance-recovery estimates supporting the $221.5 million cumulative-trauma reserve and related receivables.
- Track whether sales recover in energy and commercial construction, and whether management’s expected stronger second half of 2021 materializes.
- Assess whether inventory charges, factory throughput and restructuring savings develop as management anticipated.
- Review the 2023 debt maturity, variable-rate exposure, available facility capacity and the effect of the Bristol acquisition on leverage and liquidity.
- Monitor Bristol integration and acquisition returns; the filing did not yet provide pro forma combined revenue or earnings.