2 0 1 3 A n n u Al R e p oR t
Our MissiOn
that men and women may work in safety and
that they, their families and their communities
may live in health throughout the world.
Our Vision
A New Century – A New Company Structure
to be the world’s leading provider of safety solutions that protect
on March 7, 2014, MSA completed a legal realignment
workers when life is on the line. We pursue this vision with an
of its company structure, thereby establishing a new
unsurpassed commitment to integrity, customer service and product
holding company for MSA that now trades under the
innovation that creates exceptional value for all MSA stakeholders.
name MSA Safety Incorporated. As a newly formed
Business of MSA
MSA is in the business of developing, manufacturing and selling
innovative products that enhance the safety and health of workers and
protect facility infrastructures throughout the world. Critical to MSA’s
mission is a clear understanding of customer processes and safety
needs. MSA dedicates significant resources to research which allows
the company to develop a keen understanding of customer safety
requirements for a diverse range of markets, including the fire service,
construction, public utilities, mining, the oil, gas and petrochemical
industry, HVAC, hazardous materials remediation, military, and retail.
MSA’s principal products, each designed to serve the needs of these
target markets, include respiratory protective equipment, portable
gas detection instruments and sensors, fixed gas and flame detection
systems, fall and head protection products, as well as products for eye,
face and hearing protection, and thermal imaging cameras.
pennsylvania corporation, MSA Safety Incorporated now
serves as the parent holding company for a group of
sub-holding and operating companies covering various
aspects of MSA’s businesses throughout the world.
the company’s charter, bylaws, board of
directors, and officers, as well as the
company’s nYSe ticker symbol (MSA),
however, all remain unchanged.
For our shareholders, it is important to
note that at the time of the realignment,
each share of Mine Safety Appliances
Company’s outstanding common and preferred
stock was converted, on a share-for-share basis, to a
share of common and preferred stock of MSA Safety
Incorporated, respectively. As a result, each shareholder
of Mine Safety Appliances Company became the owner
of an identical number of shares of common and
MSA was founded in 1914 by John t. Ryan and George H. Deike, two
preferred stock of MSA Safety Incorporated and ceased
mining engineers who had firsthand knowledge of the terrible human
to own any shares of Mine Safety Appliances Company.
loss that was occurring in underground coal mines at that time. their
knowledge of the mining industry provided the foundation for the
development of safety equipment to better protect underground
miners. While the range of markets served by MSA has expanded greatly
over the years, the founding philosophy of understanding customer
safety needs and designing innovative safety equipment solutions that
addresses those needs remains unchanged.
As MSA embarks on its second century in business, this
corporate realignment ensures MSA’s legal structure
models that of a modern international manufacturing
organization. In turn, the company is better positioned
to realize the excellent growth potential that exists
around the world, without compromising the strong
equity of the MSA name and brand that has been built
MSA is headquartered in Cranberry township, pennsylvania, with
over the past 100 years. Details about the realignment
operations employing 5,300 associates throughout the world. A publicly
can be found by reviewing the company’s current report
held company, MSA’s stock is traded on the new York Stock exchange
on Form 8-K filed with the u.S. Securities and exchange
under the symbol MSA.
Commission on March 7, 2014.
FinanCial HigHligHts
a persistent focus on driving growth of core product sales, which increased by 6% in local currency
terms and now comprise 73% of Msa’s business, provided meaningful improvements in gross profit
and operating margin in 2013.
(In thousands, except per-share amounts)
Income statement data
2011
2012
2013
Net sales
$1,112,814
$1,110,443
$1,112,058
Income from continuing operations
Income from discontinued operations
Net income attributable to Mine Safety Appliances Company
67,518
2,334
69,852
87,557
3,080
90,637
Earnings per share attributable to MSA common shareholders
Basic per common share
Income from continuing operations
Income from discontinued operations
Net income
Diluted per common share
Income from continuing operations
Income from discontinued operations
Net income
Dividends paid per common share
Weighted average common shares outstanding—basic
Weighted average common shares outstanding—diluted
Balance sheet data
Total assets
Long-term debt
Shareholders’ equity
85,858
2,389
88,247
2.31
0.06
2.37
2.28
0.06
2.34
1.18
36,868
37,450
$
$
$
$
$
$
1.85
0.06
1.91
1.81
0.06
1.87
1.03
36,221
36,831
$
$
$
2.37
0.08
2.45
2.34
0.08
2.42
1.38
36,564
37,042
$1,115,052
334,046
433,666
$1,111,746
272,333
462,955
$1,234,270
260,667
566,452
annual sales
by REgiOn
annual sales
by CORE pROduCt gROup
Gross Profit
11%
13%
5%
21%
50%
North America
Western Europe
Emerging Europe
South America and Africa
Asia and Pacific Rim
27%
4%
14%
20%
13%
22%
Supplied- Air Respirators
Industrial Head Protection
Fixed Gas & Flame Detection
Portable Gas Detection
Fall Protection
Other Products
2011
2012
2013
2011
2012
2013
41.2%
44.1%
44.7%
oPeratinG marGin
10.9%
12.2%
12.8%
1
tO OuR sHaREHOldERs, Cust OMERs,
CHannEl paRtnERs, and assOCiatEs:
Despite the exogenous challenges and hurdles we faced
throughout the year, I am pleased to report that in 2013
MSA delivered an 11 percent increase in adjusted earnings,
generating $94 million of net income, or $2.54 per share,
on an adjusted basis. I say adjusted earnings, because
during the fourth quarter, and in line with MSA’s strategy
to invest in core product lines and key markets, we initiated
steps to divest of our South Africa distribution business
and Zambian operations. More than 94 percent of sales
from these businesses are comprised of non-core products,
resulting in lower levels of profitability and a diffusion of
our strategy implementation. By divesting these non-core
assets, we can further increase our focus and resources on
those product areas that truly drive value for our customers
and shareholders.
Challenges, like those previously discussed throughout
the year related to the U.S. government sequestration
and regulatory related delays of product approvals, had
to be dealt with. But dealing with challenges is nothing
new to MSA. In 2014, we celebrate our 100th anniversary
and a century of protecting people at work. And over that
century, our great company has faced and overcome many
challenges. The enduring value of MSA products, our passion
for innovation, the trust our customers place in the MSA
brand, and our commitment to ‘staying the course’ and
executing our strategy, even in challenging times, remain the
essence of our historic success.
Today our overall strategy is focused on two key platforms:
delivering profitable growth and achieving operational
excellence.
• Driving profitable growth places emphasis on introducing
new “core products” that reflect the importance of “voice-of-
the-customer” input and the value of having experienced,
driven and highly skilled product design teams. It also
means enforcing consistently high standards of
performance in every emerging market where the MSA flag
waves, as well as leveraging the product replacement cycle
opportunity that exists right now in the U.S. fire service.
• Achieving operational excellence involves the realignment
of our global corporate structure and the establishment
of a new operating system to help drive cost-efficient
manufacturing. It also means the implementation of new
SAP IT systems to reduce costs and identify more
2
William M. Lambert, President and Chief Executive Officer, stands next to
the MSA Wall of History at the company’s Corporate Center headquarters in
Cranberry Township, Pa.
shared and streamlined processes to enhance our overall
performance, productivity and customer satisfaction.
Guided by these strategic pillars, MSA demonstrated
solid performance in driving higher levels of shareholder
value in 2013. Overall, we did well to turn obstacles into
opportunities every place we could. And our focus on
creating demand for core MSA products in developed and
emerging markets throughout the world clearly provided a
strong finish to the year.
If we exclude sales of self-contained breathing apparatus
(SCBA) to the U.S. fire service, due to the aforementioned
government regulatory and product approval issues, sales
of MSA’s core products increased six percent year-over-year,
and now comprise almost three-fourths of MSA’s total sales.
Revenue across these same core product groups in emerging
markets grew by nine percent for the year, with strong
performances in Latin America, across Asia, and in Mexico.
For the year, MSA reported sales of $1.1 billion. Excluding the
impact of weakening foreign currencies across emerging
markets and results from divested businesses in 2012, sales
grew two percent in 2013 despite a sustained challenging
global economic environment.
Sequestration and Delays
Certainly one of the greatest challenges our company
faced in 2013 was the impact of the U.S. government’s
budget sequestration and the eventual government
shutdown that took place last October. This created ongoing
product approval delays that temporarily set back our U.S.
fire service business.
Specifically, these delays impacted the certification of two
new SCBA models engineered to exceed new performance
standards promulgated by the National Fire Protection
Association (NFPA). In a situation that placed one obstacle
upon another, the same certification process by NIOSH (the
U.S. government agency that certifies respirators and SCBA)
was pushed back even further due to a government misstep
in SCBA testing which, for the record, did not involve MSA
products. However, the retesting delayed NIOSH’s ability to
test and issue new SCBA certifications, including those for
MSA products currently in the approval process pipeline.
During this interim period, we were and continue to be
able to sell and ship SCBA products that are compliant to
the earlier edition of the NFPA standard. However, many
customers are understandably choosing to wait for new
products that are compliant with the new standard. We
believe these setbacks are only temporary and that MSA is
well-positioned to capitalize on the U.S. fire service market
when our new NFPA-compliant products are approved and
introduced this year. But even in the face of these headwinds
in North America, we delivered relatively solid performance
in the global fire service market in 2013, a testament to our
team’s ability to perform well under adverse conditions.
Growing the Core
As The Safety Company, MSA is more focused than ever
on investing in, building and selling our innovative core
products that provide a sustainable competitive advantage.
These product groups include:
> Portable gas detection instruments and sensors,
> Industrial head protection products,
> Fixed gas and flame detection (FGFD) systems,
> Supplied-air respirators, and
> Fall protection products.
Simply stated, our plan is to continue to drive demand
for these products throughout our global footprint. At
the close of 2013, our core products, many of which hold
market leading positions, accounted for 73 percent of
MSA’s total sales, compared to 58 percent in 2009. This
favorable mix has been driven by organic growth as well
as strategic acquisitions, including General Monitors, which
has established MSA as the leader in fixed gas and flame
detection systems and technology and has provided
extensive opportunities in the robust and growing global
energy market.
Accordingly, our largest investments will continue to support
the growth and development of these core products – which
deliver profitable growth for our shareholders and offer the
best return on capital.
At the same time, in order to better leverage the investments
we made in 2013, MSA continued to pare back non-core
assets and peripheral products. Our ongoing efforts to divest
of and realize value from non-core assets ensure that we
remain focused on those areas of our business that provide
the most value for customers and shareholders, and that
most clearly align with our strategy.
Growth in Emerging Markets
Growing MSA’s presence in emerging markets is a key part of
our corporate strategy, especially in the growing economies
of Asia, Mexico and Latin America. Emerging markets were
a significant contributor to our full-year results. In 2013,
emerging market sales grew six percent, with core products
growing nine percent, representing 71 percent of emerging
market sales. This growth was largely driven by strong fixed
gas and flame detection shipments to industrial customers
in China and Latin America.
During the second half of 2013, we began to feel the effects
of global economic sluggishness, including headwinds
related to the global mining market slowdown, particularly
in Australia. However, we continued to exercise cost
discipline to mitigate these challenges, with operating costs
decreasing 16 percent on the 13 percent revenue decline in
this region in 2013.
Operational Excellence
Achieving Operational Excellence is an equally important
pillar of our strategy, because it underpins our business and,
ultimately, our relationship with customers. It is a major focus
across the organization and one that is having a clear and
positive impact on our results.
Last year we made great strides and continued on our path
to transform our European business model, including the
integration and alignment of our SAP IT systems throughout
Europe. A vitally important element of our transformation
is Europe 2.0, a business transformation initiative that
is unifying our businesses across Europe. By year’s end,
MSA Spain and MSA Italy joined Germany and France in
successfully “going live” on the new SAP platform, and our
on-time delivery to customers is better than ever, with lower
costs and improved margins as a result of this undertaking.
3
Europe 2.0 has given us a common IT platform, more
standardized business processes, and consolidation of
distribution facilities, all of which make us more agile and
cost-efficient as we improve our responsiveness to customer
needs. Through these and other changes, I believe MSA is
well positioned to grow in Europe and in a better position to
react to economic hurdles that may lie ahead.
Other operational improvements or process achievements
from the past year include:
• The establishment of an internal Global Customer
Loyalty Council (GCLC) whose focus is on identifying
and prioritizing the actions and process improvements
necessary – at the regional and global level – to enhance
the overall MSA customer experience.
• Creating a Value Added/Value Engineering process that
helps MSA deliver great product functionality while
decreasing manufacturing costs and increasing value to
the customer. Last year’s efforts identified savings of
$2.2 million.
• Establishing a comprehensive 8D Quality Review Process as
the global standard for ensuring MSA product quality.
This new process focuses on identifying and addressing the
root causes of product quality issues and, most importantly,
the required actions that prevent them from occurring in
the future.
With these and other operational excellence initiatives
gaining traction, I continue to believe we are on track to
reach our longer range operating margin goals, with 2013
finishing at 12.8 percent of sales – reflecting a 60 basis point
improvement over 2012 and a 420 basis
point improvement since 2009.
The V-Gard GREEN
helmet is the
first industrial
hard hat to be
sourced entirely
from renewable
resources.
Innovation with Transformation
Our healthy product development
pipeline launched a number of new
products into our markets during the
past year.
• In 2013 we set a new industry
benchmark with the V-Gard GREEN
hard hat – the industry’s first
sustainable helmet sourced entirely
from sugarcane. Developed by our
team in Brazil, and originally launched
in the Latin American market, the
4
V-Gard GREEN helmet was introduced in North America at
the National Safety Congress last fall. As a breakthrough
new offering from MSA, the V-Gard GREEN helmet was
recognized with the prestigious Frost & Sullivan “New
Product Innovation Leadership Award” in 2013.
• Late last year, we introduced the F1FX helmet, a new
firefighter helmet platform that offers new levels of
modularity, comfort and adjustability to a changing
demographic in the fire service. We are experiencing early
success with this new product in Europe where MSA is
already the fire helmet market leader.
The model AG2100 SCBA
is designed specifically
to meet new Chinese
performance standards
for breathing apparatus,
which are expected to
be adopted in 2014.
• In China we launched
an exciting new
SCBA platform,
the model AG2100,
which has been certified
to meet China’s current
regulatory requirements
for firefighting SCBA,
and is designed to
meet the anticipated
requirements of the
government’s new
SCBA standard, slated
to be adopted later
in 2014.
• A new suspension for the V-Gard helmet, the Fas-Trac III
suspension, was also unveiled at the National Safety
Congress last year. Based on initial shipments, I am pleased
to report that the Fas-Trac III suspension is generating
exceptional customer reviews in the
categories of comfort and helmet stability.
• Lastly, we continue to launch innovative
new Fixed Gas and Flame Detection
systems to fuel growth in this highly
profitable product line. In 2013 we
introduced three exciting new products
including the GasGard 100 model,
a scalable, high-performance data
acquisition/data-logging controller for
the North American market; the PrimaX IR
Pro model, a mid-range combustible gas
“Point Infrared” detector with display and
relays ideal for the Chinese market; and
the model DF-8500, an entry level toxic
gas detector, also for the Chinese market.
To that point, and to drive continued global growth,
MSA’s Board of Directors recently approved a new legal
structure for the company that is comparable to other
global manufacturers in that it allows us to facilitate
more operating efficiencies while maintaining the strong
equity of the century-old MSA brand. As a result, our legal
name has changed to MSA Safety Incorporated, a holding
company model that provides broader options to enhance
the financial transparency of our numerous business
units. Overall, we are making this change because we fully
understand the importance of delivering a great customer
experience and their expectations of us to consistently
deliver the highest quality products, on time and at the
lowest possible cost.
In closing, I want to thank our shareholders for your
investment in MSA, and our distributors and customers
around the world for your continued business, trust and
loyalty to our company.
I greatly appreciate the work and dedication of our 5,300
associates, our company’s most treasured asset, as well as
our Board of Directors and our Executive Leadership Team,
for their extraordinary efforts in making 2013 a year of
transformation in so many respects.
Our 2013 results continue to reflect the sound success of our
long-term strategy and how we manage our business each
day. We will continue to focus on the core competencies that
guide us, even in challenging times, fueling our growth and
enhancing long-term value for our shareholders. I remain
confident that our best years are at hand as we embark on
the second century of MSA and our mission to safeguard
lives around the world.
Sincerely,
William M. Lambert
President and Chief Executive Officer
These latter two models were designed in China, for China, as
part of our growth strategy for the Asian oil and gas markets.
As you can see, we place significant emphasis on bringing
innovative new technology to the marketplace for our
customers. As a measure of this, for the full year 2013, sales
of new core products introduced over the last five years
account for 24 percent of MSA’s revenue, a meaningful
representation of the strength of our new product
development process. Our pipeline of new products is robust
and provides a sense of optimism and momentum as we
look ahead.
Enhancing Shareholder Value
The company’s total shareholder return (TSR) was 120
percent over the last four years compared with a TSR of
80 percent for the S&P 500 Index, reflecting the strong trend
we have seen in profitability and product innovation. At the
end of 2013, MSA’s common stock closed at $50.90, up nearly
23 percent from $41.44 at the end of 2012.
Finally, over the past year, we continued to demonstrate
our ability to successfully convert net income to cash
flow, which ultimately allows us to return greater value to
our shareholders. In 2013, free cash flow was $74 million,
enabling us to pay down $11 million of debt and return $44
million in the form of dividend payments. Needless to say,
we are proud of our long history of strengthening dividend
payments, returning increasing value to our shareholders for
more than 50 years.
In summary, MSA continues to successfully execute on a
long-term growth strategy that is driving stronger operating
margins and operating income by focusing on our core
portfolio, strengthening our position in developed markets,
and expanding our presence in emerging markets – all
of which is supported by our commitment to operational
excellence in everything we do.
MSA Safety Incorporated at 100
As I noted at the outset, this is a very special time for our
company as we celebrate our 100th year in the business
of protecting the health and safety of workers and facility
infrastructures across the globe. A century later, the MSA
brand stands the test of time with a reputation for superior
quality and reliability, durability, low cost of ownership, and
an unparalleled customer experience. We are proud to have
established this reputation over time, but at the same time
we must never be fearful of change.
5
2013 FinanCial COntEnts
> Business of MSA
> Management’s Discussion and Analysis
> Financial Statements and Supplementary Data
Consolidated Statement of Income
Consolidated Statement of Comprehensive Income
Consolidated Balance Sheet
Consolidated Statement of Cash Flows
Consolidated Statement of Changes in Retained Earnings and
Accumulated Other Comprehensive Loss
Notes to Consolidated Financial Statements
4
19
33
35
36
37
38
39
40
6
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2013
Commission File No. 1-15579
MINE SAFETY APPLIANCES COMPANY
(Exact name of registrant as specified in its charter)
Pennsylvania
(State or other jurisdiction of
incorporation or organization)
1000 Cranberry Woods Drive
Cranberry Township, Pennsylvania
(Address of principal executive offices)
(Title of each class)
Common Stock, no par value
Registrant’s telephone number, including area code: (724) 776-8600
Securities registered pursuant to Section 12(b) of the Act:
25-0668780
(IRS Employer Identification No.)
16066-5207
(Zip code)
(Name of each exchange on which registered)
New York Stock Exchange
Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes
No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data
File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant’s knowledge, in the definitive proxy statement incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange
Act. (Check one):
Large accelerated filer
Non-accelerated filer
Accelerated filer
Smaller reporting company
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
No
As of February 17, 2014, there were outstanding 37,212,881 shares of common stock, no par value, not including 282,120 shares held by the
Mine Safety Appliances Company Stock Compensation Trust. The aggregate market value of voting stock held by non-affiliates as of June 30,
2013 was approximately $1.4 billion.
Portions of the Proxy Statement for the May 6, 2014 Annual Meeting of Shareholders are incorporated by reference into Part III.
DOCUMENTS INCORPORATED BY REFERENCE
Item No.
Part I
1.
1A.
1B.
2.
3.
4.
Part II
5.
6.
7.
7A.
8.
9.
9A.
9B.
Part III
10.
11.
12.
13.
14.
Part IV
15.
Table of Contents
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Executive Officers of the Registrant
Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
Exhibits and Financial Statement Schedules
Signatures
Page
4
8
12
13
14
16
16
17
19
19
31
33
65
65
65
66
66
66
66
66
67
70
2
Forward-Looking Statements
This report may contain (and verbal statements made by Mine Safety Appliances Company (MSA) may contain) forward-
looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to future
events or our future financial performance and involve known and unknown risks, uncertainties and other factors that may
cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels
of activity, performance or achievements expressed or implied by these forward-looking statements. These risks and other
factors include, but are not limited to, those listed in this report under “Risk Factors,” “Management’s Discussion and Analysis
of Financial Condition and Results of Operations,” and elsewhere in this report. In some cases, you can identify forward-
looking statements by words such as “may,” “will,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,”
“estimates,” “predicts,” “potential” or other comparable words. Actual results, performance or outcomes may differ materially
from those expressed or implied by these forward-looking statements. Although we believe that the expectations reflected in the
forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements.
We are under no duty to update publicly any of the forward-looking statements after the date of this report, whether as a result
of new information, future events or otherwise.
3
Item 1. Business
PART I
Overview—Mine Safety Appliances Company was founded in Pennsylvania in 1914. We are a global leader in the
development, manufacture and supply of products that protect people’s health and safety. Our safety products typically
integrate a combination of electronics, mechanical systems and advanced materials to protect users against hazardous or life
threatening situations. Our comprehensive line of safety products is used by workers in many industries as well as the military
around the world. Notably, we primarily serve the oil and gas, fire service, mining, and construction industries. Our broad
product offering includes self-contained breathing apparatus, or SCBA, gas masks, gas detection instruments, head protection,
respirators, thermal imaging cameras and fall protection. We also provide a broad offering of consumer and contractor safety
products through retail channels.
We dedicate significant resources to research and development, which allows us to produce innovative safety products
that are often first to market and exceed industry standards. Our global product development teams include cross-geographic
and cross-functional members from various areas throughout the company, including research and development, marketing,
sales, operations and quality management. Our engineers and technical associates work closely with the safety industry’s
leading standards-setting groups and trade associations, such as the National Institute for Occupational Safety and Health, or
NIOSH, and the National Fire Protection Association, or NFPA, and their overseas counterparts, to develop industry product
requirements and standards and to anticipate their impact on our product lines.
Segments—We tailor our product offerings and distribution strategy to satisfy distinct customer preferences that vary
across geographic regions. To best serve these customer preferences, we have organized our business into eleven geographic
operating segments that are aggregated into three reportable geographic segments: North America, Europe and International.
Segment information is presented in the note entitled “Segment Information” in Item 8—Financial Statements and
Supplementary Data.
Because our financial statements are stated in U.S. dollars and much of our business is conducted outside the U.S.,
currency fluctuations may affect our results of operations and financial position and may affect the comparability of our results
between financial periods.
Principal Products—We manufacture and sell a comprehensive line of safety products to protect workers around the
world in the oil and gas, fire service, mining, construction and other industries, as well as the military. We also provide a broad
offering of consumer and contractor safety products through retail channels. Our products protect people against a wide variety
of hazardous or life-threatening situations.
The following is a brief description of each of our principal product categories:
Core products. MSA's strategy includes a focus on driving profitable core product sales. Core products include
breathing apparatus, industrial head protection, fixed gas and flame detection, portable gas detection and fall protection
products. These products receive the highest levels of investment and resources in alignment with our commitment to grow
core products sales in both emerging and developed markets.
Adjacent products. MSA provides a series of adjacent product offerings to its customers that complement its core
products. These products reinforce and extend the core, drawing upon our customer relationships, distribution channels,
geographical presence and technical experience. These products tend to have their roots within the core product value chain,
but receive a smaller allocation of corporate resources than core products. Adjacent product sales comprise approximately one
fourth of consolidated sales.
Peripheral products. MSA provides a series of peripheral product offerings to its customers. MSA's competitive
advantage in serving peripheral product customers tends to be related to our channels of distribution or customer access. These
products are primarily sold to the mining industry and represent a small portion of consolidated sales.
The following is a brief description of our significant product offerings included in the above product categories:
Respiratory protection. We offer a broad and comprehensive line of respiratory protection products. These products are
used to protect against the harmful effects of contamination caused by dust, gases, fumes, volatile chemicals, sprays, micro-
organisms, fibers and other contaminants. These products include:
Self Contained Breathing Apparatus. SCBA are used by first responders, petrochemical plant workers and anyone
entering an environment deemed immediately dangerous to life and health. SCBA are also used by first responders to protect
against exposure to chemical, biological, radiological and nuclear agents, which are collectively referred to as CBRN.
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Air-purifying respirators. Air-purifying respirators range from the simple filtering types to powered full-facepiece
versions for many hazardous applications, including:
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full-face gas masks for industrial workers and first responders exposed to known concentrations of hazardous
gases, chemicals, vapors and particulates, or for escape from unknown concentrations of these hazards;
half-mask respirators for industrial workers, painters and construction workers exposed to known concentrations
of gases, vapors and particulates;
powered-air purifying respirators for industrial, hazmat and remediation workers who have longer term exposures
to hazards in their work environment; and
dust and pollen masks for maintenance workers, contractors and at-home consumers exposed to nuisance dusts,
allergens and other particulates.
Escape respirators. Escape respirators are used by law enforcement personnel, government workers, chemical and
pharmaceutical workers and anyone needing to escape from unknown concentrations of a chemical, biological or radiological
release of toxic gases and vapors. Escape respirators give users respiratory protection to help them escape from threatening
situations quickly and easily.
Portable and fixed gas detection instruments. Our portable and fixed gas detection instruments are used to detect the
presence or absence of various gases in the air. These instruments can be either hand-held or permanently installed. Typical
applications of these instruments include the detection of an oxygen deficiency in confined spaces or the presence of
combustible or toxic gases. Products include:
Single- and multi-gas hand-held detectors. Our single- and multi-gas detectors provide portable solutions for detecting
the presence of oxygen, combustible gases and various toxic gases, including hydrogen sulfide, carbon monoxide, ammonia
and chlorine, either singularly or up to six gases at once. Our hand-held portable instruments are used by chemical workers, oil
and gas workers and utility workers entering confined spaces, or anywhere a user needs to continuously monitor the quality of
the atmosphere they are working in and around. Our ALTAIR® 4X and ALTAIR® 5X Multigas Detectors with XCell® sensor
technology provide faster response times and unsurpassed durability in a tough, easy-to-operate package.
Multi-point permanently installed gas detection systems. Our comprehensive line of fixed gas detection systems, was
greatly expanded with the acquisition of General Monitors in 2010. This line is used to monitor for combustible and toxic
gases and oxygen deficiency in virtually any application where continuous monitoring is required. Our systems are used for gas
detection in petrochemical, pulp and paper, wastewater, refrigerant monitoring, and general industrial applications. These
systems utilize a wide array of sensing technologies including electrochemical, catalytic, infrared and ultrasonic.
Flame detectors and open-path infrared gas detectors. MSA's line of fixed flame and combustible gas detection was
greatly expanded with the acquisition of General Monitors in 2010. These instruments are used for plant-wide monitoring of
toxic gases for detecting the presence of flames. These systems use infrared optics to detect potentially hazardous conditions
across long distances, making them suitable for use in such applications as offshore oil rigs, storage vessels, refineries,
pipelines and ventilation ducts. First used in the oil and gas industry, our systems currently have broad applications in
petrochemical facilities, the transportation industry and in pharmaceutical production.
Thermal imaging cameras. Our hand-held infrared thermal imaging cameras, or TICs, are used in the global fire service
market. TICs detect sources of heat in order to locate downed firefighters and other people trapped inside burning or smoke-
filled structures. TICs can also be used to detect the central source of the fire in order to direct hose streams in a structural fire
attack, as well as to locate remaining embers during post-fire overhaul operations. Our Evolution® 6000 series TICs are
unmatched for ease of use and durability and meet the stringent requirements of the National Fire Protection Association
performance standard.
Head, eye, face and hearing protection. Head, eye, face and hearing protection is used in work environments where
hazards present dangers such as dust, flying particles, metal fragments, chemicals, extreme glare, optical radiation and items
dropped from above.
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Industrial hard hats. We have a complete line of industrial head protection that includes the flagship V-Gard® helmet
brand. We offer customers a wide range of color choices and we are a world leader in the application of customized
logos. Our industrial head protection has a wide user base including oil, gas and petrochemical workers, steel and
construction workers, miners and industrial workers.
Fire helmets. Our fire service products include leather, traditional, modern, jet-style and specialty helmets designed to
satisfy the preferences of firefighters across geographic regions. We believe that our Cairns Helmet is the number one
helmet in the North American fire service market. Similarly, we believe that our Gallet firefighting helmet has the
number one market position in Europe.
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• Ballistic helmets. These helmets provide ballistic head protection in combat and other high-risk environments and are
sold in international markets outside of North America.
• Eye, face and hearing protection. Our broad line of hearing protection products, non-prescription protective eyewear
and face shields is used by workers in a wide variety of industries.
Fall protection. Our broad line of fall protection equipment includes confined space equipment, harnesses, fall arrest
equipment, lanyards and lifelines. Fall protection equipment is used by construction, oil and gas, utilities and plant workers and
anyone working at height.
Customers—Our customers generally fall into three categories: industrial and military end-users, distributors and retail
consumers. In North America, nearly all of our sales are made through our distributors. In our European and International
segments, sales are made through both indirect and direct sales channels. For the year ended December 31, 2013, no individual
customer represented 10% of our sales.
Industrial and military end-users—Examples of the primary industrial and military end-users of our core products are
listed below:
Products
Supplied Air Respirators
Portable Gas Detection
Fixed Gas & Flame Detection
Industrial Head Protection
Fall Protection
Primary End-Users (in order of magnitude)
First Responders; General Industry Workers; Oil, Gas, and
Petrochemical Workers; Military & Police Personnel; and
Miners
Oil, Gas and Petrochemical Workers; General Industry Workers;
Miners; and First Responders
Oil, Gas and Petrochemical Workers; General Industry Workers;
and Miners
General Industry Workers; Oil, Gas, and Petrochemical Workers;
Construction Workers and Contractors; and Miners
General Industry Workers; Construction Workers and
Contractors; Miners; and Oil, Gas, and Petrochemical Workers
Sales and Distribution—Our sales and distribution team consists of distinct marketing, field sales and customer service
organizations. We believe our sales and distribution team, totaling over 800 dedicated associates, is the largest in our industry.
In most geographic areas, our field sales organizations work jointly with select distributors to call on end-users and educate
them about hazards, exposure limits, safety requirements and product applications, as well as the specific performance
attributes of our products. In our International segment and Eastern Europe where distributors are not as well established, our
sales associates often work with and sell directly to end-users. We believe that understanding end-user requirements is critical
to increasing MSA's market share.
The in-depth customer training and education provided by our sales associates to our customers are critical to ensuring
proper use of many of our products, such as SCBA and gas detection instruments. As a result of our sales associates working
closely with end-users, they gain valuable insight into customer preferences and needs. To better serve our customers and to
ensure that our sales associates are among the most knowledgeable and professional in the industry, we place significant
emphasis on training our sales associates in product application, industry standards and regulations.
We believe our sales and distribution strategy allows us to deliver a customer value proposition that differentiates our
products and services from those of our competitors, resulting in increased customer loyalty and demand.
In areas where we use indirect selling, we promote, distribute and service our products to general industry through
authorized national, regional and local distributors. Some of our key distributors include Airgas, W.W. Grainger Inc., Fastenal
and Hagemeyer. In North America, we distribute fire service products primarily through specially trained local and regional
distributors who provide advanced training and service capabilities to volunteer and paid municipal fire departments. In our
European and International segments, we primarily sell to and service the fire service market directly. Because of our broad and
diverse product line and our desire to reach as many markets and market segments as possible, we have over 4,000 authorized
distributor locations worldwide.
Our Safety Works, LLC joint venture provides a broad range of safety products and gloves to the North American do-it-
yourself and independent contractor market through various channels. These include distributors such as Orgill, hardware and
equipment rental outlets such as United Rentals, and retail chains such as The Home Depot, TrueValue and Do-it Best.
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Competition—We believe the worldwide personal protection equipment market, including the sophisticated safety
products market in which we compete, generates annual sales in excess of $20 billion. The industry supplying this market is
broad and highly fragmented with few participants offering a comprehensive line of safety products. Over the long-term, we
believe global demand for safety products will continue to grow. Purchases of these products are non-discretionary, protecting
workers' health in hazardous and life-threatening work environments. Their use is often mandated by government and industry
regulations, which are increasing on a global basis. Moreover, safety products industry revenues reflect the need to consistently
replace many safety products that have limited life spans due to normal wear and tear or because they are one time use products
by design.
The safety products market is highly competitive, with participants ranging in size from small companies focusing on a
single type of personal protection equipment to a few large multinational corporations that manufacture and supply many types
of sophisticated safety products. Our main competitors vary by region and product. We believe that participants in this industry
compete primarily on the basis of product characteristics (such as functional performance, agency approvals, design and style),
price, brand name recognition and support.
We believe we compete favorably within each of our operating segments as a result of our high quality and cost-efficient
product offerings and strong brand trust and recognition.
Research and Development—To maintain our position at the forefront of safety equipment technology, we operate
several sophisticated research and development facilities. We believe our dedication and commitment to innovation and
research and development allows us to produce innovative safety products that are often first to market and exceed industry
standards. In 2013, 2012 and 2011, on a global basis, we spent $45.9 million, $40.9 million and $39.2 million, respectively, on
research and development. Our primary engineering groups are located in the United States, Germany, China and France. Our
global product development teams include cross-geographic and cross-functional members from various areas throughout the
company, including research and development, marketing, sales, operations and quality management. These teams are
responsible for setting product line strategy based on their understanding of customers' needs and available technology, as well
as the opportunities and challenges they foresee in each product area. We believe our team-based, cross-geographic and cross-
functional approach to new product development is a source of competitive advantage. Our approach to the new product
development process allows us to tailor our product offerings and product line strategies to satisfy distinct customer preferences
and industry regulations that vary across our operating segments.
We believe another important aspect of our approach to new product development is that our engineers and technical
associates work closely with the safety industry’s leading standards-setting groups and trade associations. These organizations
include the National Institute for Occupational Safety and Health, or NIOSH, and the National Fire Protection Association, or
NFPA, and their overseas counterparts. We work with these organizations to develop industry product requirements and
standards and anticipate their impact on our product lines. Key members of our management team understand the impact that
these standard-setting organizations have on our new product development pipeline. As such, management devotes significant
time and attention to anticipating a new standard’s impact on our sales and operating results. Because of our understanding of
customer needs, membership on global standard-setting bodies, investment in research and development and our unique new
product development process, we believe we are well-positioned to anticipate and adapt to the needs of changing product
standards. We also believe that we are well positioned to gain the approvals and certifications necessary to meet new
government and multinational product regulations.
Patents and Intellectual Property—We own significant intellectual property, including a number of domestic and foreign
patents, patent applications and trademarks related to our products, processes and business. Although our intellectual property
plays an important role in maintaining our competitive position in a number of markets that we serve, no single patent, or patent
application, trademark or license is, in our opinion, of such value to us that our business would be materially affected by the
expiration or termination thereof, other than the “MSA” trademark. Our patents expire at various times in the future not
exceeding 20 years. Our general policy is to apply for patents on an ongoing basis in the United States and other countries, as
appropriate, to perfect our patent development. In addition to our patents, we have also developed or acquired a substantial
body of manufacturing know-how that we believe provides a significant competitive advantage over our competitors'.
Raw Materials and Suppliers—Many of the components of our products are formulated, machined, tooled or molded in-
house from raw materials. For example, we rely on integrated manufacturing capabilities for breathing apparatus, gas masks,
ballistic helmets, hard hats and circuit boards. The primary raw materials that we source from third parties include rubber,
chemical filter media, eye and face protective lenses, air cylinders, certain metals, electronic components and ballistic resistant
and non-ballistic fabrics. We purchase these materials both domestically and internationally, and we believe our supply sources
are both well established and reliable. We have close vendor relationship programs with the majority of our key raw material
suppliers. Although we generally do not have long-term supply contracts, thus far we have not experienced any significant
problems in obtaining adequate raw materials.
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Associates—At December 31, 2013, we had approximately 5,000 associates, approximately 2,900 of whom were
employed by our European and International segments. None of our U.S. associates are subject to the provisions of a collective
bargaining agreement. Some of our associates outside the United States are members of unions. We have not experienced a
significant work stoppage in over 10 years and believe our relations with our associates are strong.
Available Information—Our internet address is www.MSAsafety.com. We post the following filings on the Investor
Relations page on our website as soon as reasonably practicable after they have been electronically filed with or furnished to
the Securities and Exchange Commission: our annual reports on Form 10-K, our quarterly reports on Form 10-Q, our current
reports on Form 8-K and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934, as well as our proxy statement. Information contained on our website is not part of this annual report on
Form 10-K or our other filings with the Securities and Exchange Commission. The SEC maintains an Internet site at
www.sec.gov that contains reports, proxy and information statements and other information regarding issuers like us who file
electronically with the SEC.
Item 1A. Risk Factors
Unfavorable economic and market conditions could materially and adversely affect our business, results of operations
and financial condition.
We are subject to risks arising from adverse changes in global economic conditions. Although economic conditions
generally improved in 2013, the global economy remains unstable and we expect economic conditions will continue to be
challenging for the foreseeable future. Adverse changes in economic conditions could result in declines in revenue,
profitability and cash flow due to reduced orders, payment delays, supply chain disruptions or other factors caused by the
economic challenges faced by our customers and suppliers.
Over the past several years our sales have been positively impacted by the General Monitors acquisition and our
organic growth within MSA's line of core products. The increase in sales, primarily to the oil, gas and petrochemical market,
exposes MSA to the risks of doing business in that global market. It is possible that the volatility in this market, driven partly
by geopolitical factors, could negatively impact our business and our results of operations and financial condition.
A reduction in the spending patterns of government agencies or delays in obtaining government approval for our
products could materially and adversely affect our net sales, earnings and cash flow.
The demand for our products sold to the fire service market, the homeland security market and other government
agencies is, in large part, driven by available government funding. Government budgets are set annually and we cannot
assure you that government funding will be sustained at the same level in the future. A significant reduction in available
government funding could materially and adversely affect our net sales, earnings and cash flow.
Our ability to market and sell our products is subject to existing government regulations and standards. Changes in
such regulations and standards or our failure to comply with them could materially and adversely affect our results of
operations.
Most of our products are required to meet performance and test standards designed to protect the health and safety of
people around the world. Our inability to comply with these standards may materially and adversely affect our results of
operations. Changes in regulations could reduce the demand for our products or require us to re-engineer our products,
thereby creating opportunities for our competitors. Regulatory approvals for our products may be delayed or denied for a
variety of reasons that are outside of our control. Additionally, market anticipation of significant new standards can cause
customers to accelerate or delay buying decisions.
Our SCBA in North America must be approved by the National Institute for Occupational Safety and Health, or
NIOSH. NIOSH has informed respirator manufacturers that CBRN Respirator Approval Testing, which was conducted from
July 2012 to October 2013, is invalid due to the concentrations of agents used in testing being lower than the level required
by NIOSH test procedures. NIOSH has informed MSA that the Company does not have any respiratory protective
equipment in use which requires retesting. CBRN testing will restart in January 2014 and priority will be given to retest
previously tested units. This retesting will further delay product approvals and will likely delay the launch of MSA's M7XT
until second quarter 2014. In addition, the backlog of re-testing which resulted from this issue may negatively impact the
approval timing of MSA's entirely new global platform SCBA product, the G1. This new product was to be submitted for
CBRN testing in the first quarter of 2014. The issues noted above will now delay the launch of this new product until at least
the second quarter of 2014. It is possible that the delays associated with this product launch could negatively impact our
business and our results of operations and financial condition.
8
We are subject to various federal, state and local laws and any violation of these laws could adversely affect our
results of operations.
We are subject to extensive regulation from federal, state, local and international governments. Failure to comply with
these regulations could result in severe civil or criminal penalties, sanctions or significant changes to our operations. These
actions could have a materially adverse effect on our business, results of operations and financial condition.
We are subject to various environmental laws and any violation of these laws could adversely affect our results of
operations.
Included in the extensive federal, state and local laws, regulations and ordinances, to which we are subject, are those
relating to the protection of the environment. Examples include those governing discharges to air and water, handling and
disposal practices for solid and hazardous wastes and the maintenance of a safe workplace. These laws impose penalties for
noncompliance and liability for response costs and certain damages resulting from past and current spills, disposals, or other
releases of hazardous materials. We could incur substantial costs as a result of noncompliance with or liability for cleanup
pursuant to these environmental laws. Environmental laws have changed rapidly in recent years, and we may be subject to
more stringent environmental laws in the future. If more stringent environmental laws are enacted, these future laws could
have a materially adverse effect on our results of operations.
The markets in which we compete are highly competitive, and some of our competitors have greater financial and
other resources than we do. The competitive pressures faced by us could materially and adversely affect our business,
results of operations and financial condition.
The safety products market is highly competitive, with participants ranging in size from small companies focusing on
single types of safety products, to large multinational corporations that manufacture and supply many types of safety
products. Our main competitors vary by region and product. We believe that participants in this industry compete primarily
on the basis of product characteristics (such as functional performance, agency approvals, design and style), price, name trust
and recognition and customer service. Some of our competitors have greater financial and other resources than we do and our
business could be adversely affected by competitors’ new product innovations, technological advances made to competing
products and pricing changes made by us in response to competition from existing or new competitors. We may not be able to
compete successfully against current and future competitors and the competitive pressures faced by us could materially and
adversely affect our business, results of operations and financial condition.
If we fail to introduce successful new products or extend our existing product lines, we may lose our market position
and our financial performance may be materially and adversely affected.
In the safety products market, there are frequent introductions of new products and product line extensions. If we are
unable to identify emerging consumer and technological trends, maintain and improve the competitiveness of our products
and introduce new products, we may lose our market position, which could have a materially adverse effect on our business,
financial condition and results of operations. We continue to invest significant resources in research and development and
market research. However, continued product development and marketing efforts are subject to the risks inherent in the
development process. These risks include delays, the failure of new products and product line extensions to achieve
anticipated levels of market acceptance and the risk of failed product introductions.
Product liability claims and our inability to collect related insurance receivables could have a materially adverse effect
on our business, operating results and financial condition.
We face an inherent business risk of exposure to product liability claims arising from the alleged failure of our products
to prevent the types of personal injury or death against which they are designed to protect. Although we have not experienced
any material uninsured losses due to product liability claims, it is possible that we could experience material losses in the
future. In the event any of our products prove to be defective, we could be required to recall or redesign such products. In
addition, we may voluntarily recall or redesign certain products that could potentially be harmful to end users. A successful
claim brought against us in excess of available insurance coverage, or any claim or product recall that results in significant
expense or adverse publicity against us, could have a materially adverse effect on our business, operating results and
financial condition.
In the normal course of business, we make payments to settle product liability claims and for related legal fees and we
record receivables for the amounts covered by insurance. Our insurance receivables totaled $124.8 million at December 31,
2013. Various factors could affect the timing and amount of recovery of insurance receivables, including: the outcome of
negotiations with insurers, legal proceedings with respect to product liability insurance coverage and the extent to which
insurers may become insolvent in the future. Amounts due from insurance carriers are subject to insolvency risk. Failure to
recover amounts due from our insurance carriers could have a materially adverse effect on our business, operating results and
financial condition.
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Damage to the reputation of MSA or to one or more of our product brands could adversely affect our business.
Developing and maintaining our reputation, as well as the reputation of our brands, is a critical factor in our relationship
with customers, distributors and others. Our inability to address adverse publicity or other issues, including concerns about
product safety or quality, real or perceived, could negatively impact our business which could have a materially adverse
effect on our business, operating results and financial condition.
A failure of our information systems could materially and adversely affect our business, results of operations and
financial condition.
The proper functioning and security of our information systems is critical to the operation of our business. Our
information systems may be vulnerable to damage or disruption from natural or man-made disasters, computer viruses,
power losses or other system or network failures. In addition, hackers and cybercriminals could attempt to gain unauthorized
access to our information systems with the intent of harming our company or obtaining sensitive information such as
intellectual property, trade secrets, financial and business development information, and customer and vendor related
information. If our information systems or security fail, our business, results of operations and financial condition could be
materially and adversely affected.
Like many companies, from time to time, we have experienced attacks on our computer systems by unauthorized
outside parties; however, we do not believe that such attacks have resulted in any material damage to us or our customers.
Because the techniques used by computer hackers and others to access or sabotage networks constantly evolve and generally
are not recognized until launched against a target, we may be unable to anticipate, prevent or detect these attacks. As a result,
our technologies and processes may be misappropriated and the impact of any future incident cannot be predicted. Any loss
of such information could harm our competitive position, or cause us to incur significant costs to remedy the damages caused
by the incident. We routinely implement improvements to our network security safeguards and we expect to devote
increasing resources to the security of our information technology systems. We cannot assure that such system improvements
will be sufficient to prevent or limit the damage from any future cyber-attack or network disruptions.
The Company's plans to continue to improve productivity and reduce complexity and costs associated with its
European Segment may not be successful, which could adversely affect its ability to compete.
The Company is currently engaged in an extensive European Transformation Project. Under the organization of a
Principal Operating Company, this program will integrate our historically individually managed entities, into one that is a
centrally managed organization. We plan to leverage the benefits of scale created from this approach and are in the process
of implementing a more efficient and cost-effective enterprise resource planning system. The Company runs the risk that
these and similar initiatives may not be completed substantially as planned, may be more costly to implement than expected,
or may not have the positive effects anticipated. In addition, these various initiatives require the Company to implement a
significant amount of organizational change which could divert management’s attention from other concerns, and if not
properly managed, could cause disruptions in the Company’s day-to-day operations and have a negative impact on the
Company’s financial results. It is also possible that other major productivity and streamlining programs may be required in
the future.
We have significant international operations and are subject to the risks of doing business in foreign countries.
We have business operations in over 40 foreign countries. In 2013, approximately half of our net sales were made by
operations located outside the United States. Our international operations are subject to various political, economic and other
risks and uncertainties, which could adversely affect our business. These risks include the following:
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unexpected changes in regulatory requirements;
changes in trade policy or tariff regulations;
changes in tax laws and regulations;
changes to the company's legal structure could have unintended tax consequences;
intellectual property protection difficulties;
difficulty in collecting accounts receivable;
complications in complying with a variety of foreign laws and regulations, some of which may conflict with U.S.
laws;
trade protection measures and price controls;
trade sanctions and embargoes;
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nationalization and expropriation;
increased international instability or potential instability of foreign governments;
effectiveness of worldwide compliance with MSA's anti-bribery policy, local laws and the Foreign Corrupt Practices
Act
the need to take extra security precautions for our international operations; and
costs and difficulties in managing culturally and geographically diverse international operations.
Any one or more of these risks could have a negative impact on the success of our international operations and,
thereby, materially and adversely affect our business as a whole.
Our future results are subject to availability of, and fluctuations in the costs of, purchased components and materials
due to market demand, currency exchange risks, material shortages and other factors.
We depend on various components and materials to manufacture our products. Although we have not experienced any
difficulty in obtaining components and materials, it is possible that any of our supplier relationships could be terminated. Any
sustained interruption in our receipt of adequate supplies could have a materially adverse effect on our business, results of
operations and financial condition. We cannot assure you that we will be able to successfully manage price fluctuations due
to market demand, currency risks or material shortages, or that future price fluctuations will not have a materially adverse
effect on our business, results of operations and financial condition.
Because we derive a significant portion of our sales from the operations of our foreign subsidiaries, future currency
exchange rate fluctuations may adversely affect our results of operations and financial condition, and may affect the
comparability of our results between financial periods.
For the year ended December 31, 2013, the operations in our European and International segments accounted for
approximately half of our net sales. The results of our foreign operations are reported in the local currency and then translated
into U.S. dollars at the applicable exchange rates for inclusion in our consolidated financial statements. The exchange rates
between some of these currencies and the U.S. dollar have fluctuated significantly in recent years, and may continue to do so
in the future. In addition, because our financial statements are stated in U.S. dollars, such fluctuations may affect our results
of operations and financial position, and may affect the comparability of our results between financial periods. We cannot
assure you that we will be able to effectively manage our exchange rate risks or that any volatility in currency exchange rates
will not have a materially adverse effect on our results of operations and financial condition.
If we lose any of our key personnel or are unable to attract, train and retain qualified personnel, our ability to manage
our business and continue our growth would be negatively impacted.
Our success depends in large part on the continued contributions of our key management, engineering and sales and
marketing personnel, many of whom are highly skilled and would be difficult to replace. Our success also depends on the
abilities of new personnel to function effectively, both individually and as a group. If we are unable to attract, effectively
integrate and retain management, engineering or sales and marketing personnel, then the execution of our growth strategy
and our ability to react to changing market requirements may be impeded, and our business could suffer as a result.
Competition for personnel is intense, and we cannot assure you that we will be successful in attracting and retaining qualified
personnel. In addition, we do not currently maintain key person life insurance.
Our inability to successfully identify, consummate and integrate future acquisitions or to realize anticipated cost
savings and other benefits could adversely affect our business.
One of our operating strategies is to selectively pursue acquisitions. Any future acquisitions will depend on our ability
to identify suitable acquisition candidates and successfully consummate such acquisitions. Acquisitions involve a number of
risks including:
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failure of the acquired businesses to achieve the results we expect;
diversion of our management’s attention from operational matters;
our inability to retain key personnel of the acquired businesses;
risks associated with unanticipated events or liabilities;
potential disruption of our existing business; and
customer dissatisfaction or performance problems at the acquired businesses.
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If we are unable to integrate or successfully manage businesses that we have recently acquired or may acquire in the
future, we may not realize anticipated cost savings, improved manufacturing efficiencies and increased revenue, which may
result in materially adverse short- and long-term effects on our operating results, financial condition and liquidity. Even if we
are able to integrate the operations of our acquired businesses into our operations, we may not realize the full benefits of the
cost savings, revenue enhancements or other benefits that we may have expected at the time of acquisition. In addition, even
if we achieve the expected benefits, we may not be able to achieve them within the anticipated time frame, and such benefits
may be offset by costs incurred in integrating the acquired companies and increases in other expenses.
Our continued success depends on our ability to protect our intellectual property. If we are unable to protect our
intellectual property, our business could be materially and adversely affected.
Our success depends, in part, on our ability to obtain and enforce patents, maintain trade secret protection and operate
without infringing on the proprietary rights of third parties. We have been issued patents and have registered trademarks with
respect to many of our products, but our competitors could independently develop similar or superior products or
technologies, duplicate any of our designs, trademarks, processes or other intellectual property or design around any
processes or designs on which we have or may obtain patents or trademark protection. In addition, it is possible that third
parties may have, or will acquire, licenses for patents or trademarks that we may use or desire to use, so that we may need to
acquire licenses to, or to contest the validity of, such patents or trademarks of third parties. Such licenses may not be made
available to us on acceptable terms, if at all, and we may not prevail in contesting the validity of third party rights.
We also protect trade secrets, know-how and other confidential information against unauthorized use by others or
disclosure by persons who have access to them, such as our employees, through contractual arrangements. These agreements
may not provide meaningful protection for our trade secrets, know-how or other proprietary information in the event of any
unauthorized use, misappropriation or disclosure of such trade secrets, know-how or other proprietary information. If we are
unable to maintain the proprietary nature of our technologies, our results of operations and financial condition could be
materially and adversely affected.
If we fail to meet our debt service requirements or the restrictive covenants in our debt agreements or if interest rates
increase, our results of operations and financial condition could be materially and adversely affected.
We have a substantial amount of debt upon which we are required to make scheduled interest and principal payments
and we may incur additional debt in the future. A significant portion of our debt bears interest at variable rates that may
increase in the future. Our debt agreements require us to comply with certain restrictive covenants. If we are unable to
generate sufficient cash to service our debt or if interest rates increase, our results of operations and financial condition could
be materially and adversely affected. Additionally, a failure to comply with the restrictive covenants contained in our debt
agreements could result in a default, which if not waived by our lenders, could substantially increase borrowing costs and
require accelerated repayment of our debt. Please refer to Note 11 of the Consolidated Financial Statements in Part II Item 8
of this Form 10-K for commentary on our compliance with the restrictive covenants in our debt agreements as of
December 31, 2013.
Item 1B. Unresolved Staff Comments
None.
12
Item 2. Properties
Our principal executive offices are located at 1000 Cranberry Woods Drive, Cranberry Township, PA 16066 in a
212,000 square-foot building owned by us. We own or lease our primary facilities in the United States and in a number of other
countries. We believe that all of our facilities, including the manufacturing facilities, are in good repair and in suitable condition
for the purposes for which they are used.
The following table sets forth a list of our primary facilities:
Location
North America
Murrysville, PA
Cranberry Twp., PA
New Galilee, PA
Jacksonville, NC
Queretaro, Mexico
Cranberry Twp., PA
Lake Forest, CA
Corona, CA
Torreon, Mexico
Lake Forest, CA
Europe
Berlin, Germany
Function
Manufacturing
Office, Research and Development and
Manufacturing
Distribution
Manufacturing
Office, Manufacturing and Distribution
Research and Development
Office, Research and Development and
Manufacturing
Manufacturing
Office
Office
Office, Research and Development, Manufacturing
and Distribution
Chatillon sur Chalaronne,
France
Office, Research and Development, Manufacturing
and Distribution
Milan, Italy
Glasgow, Scotland
Office
Office
Mohammedia, Morocco
Manufacturing
Barcelona, Spain
Galway, Ireland
Varnamo, Sweden
Hoorn, Netherlands
International
Suzhou, China
Office
Office and Manufacturing
Office, Manufacturing and Distribution
Office and Distribution
Office, Research and Development, Manufacturing
and Distribution
Sydney, Australia
Office, Manufacturing and Distribution
Johannesburg, South Africa Office, Manufacturing and Distribution
Sao Paulo, Brazil
Office, Manufacturing and Distribution
Lima, Peru
Santiago, Chile
Rajarhat, India
Office and Distribution
Office and Distribution
Office and Distribution
Buenos Aires, Argentina
Office and Distribution
Square Feet
Owned
or Leased
295,000
212,000
120,000
107,000
77,000
68,000
62,000
19,000
15,000
6,000
340,000
94,000
43,000
25,000
24,000
23,000
20,000
18,000
12,000
193,000
84,000
74,000
74,000
34,000
32,000
10,000
9,000
Owned
Owned
Leased
Owned
Leased
Owned
Leased
Leased
Leased
Owned
Leased
Owned
Owned
Leased
Owned
Owned
Owned
Leased
Owned
Owned
Owned
Leased
Owned
Owned
Leased
Leased
Owned
13
Item 3. Legal Proceedings
We categorize the product liability losses that we experience into two main categories; single incident and cumulative
trauma. Single incident product liability claims are discrete incidents that are typically known to us when they occur and
involve observable injuries and, therefore, more quantifiable damages. Therefore, we maintain a reserve for single incident
product liability claims based on expected settlement costs for pending claims and an estimate of costs for unreported claims
derived from experience, sales volumes and other relevant information. Our reserve for single incident product liability claims
at December 31, 2013 and 2012 was $4.0 million and $4.4 million, respectively. Single incident product liability expense was
negligible during year ended December 31, 2013. During the years ended December 31, 2012 and 2011, single incident product
liability expense was $0.7 million and $1.5 million, respectively. We evaluate our single incident product liability exposures on
an ongoing basis and make adjustments to the reserve as new information becomes available.
Cumulative trauma product liability claims involve exposures to harmful substances (e.g., silica, asbestos and coal dust)
that occurred many years ago and may have developed over long periods of time into diseases such as silicosis, asbestosis or
coal worker’s pneumoconiosis. We are presently named as a defendant in 2,840 lawsuits in which plaintiffs allege to have
contracted certain cumulative trauma diseases related to exposure to silica, asbestos, and/or coal dust. These lawsuits mainly
involve respiratory protection products allegedly manufactured and sold by us. We are unable to estimate total damages sought
in these lawsuits as they generally do not specify the injuries alleged or the amount of damages sought, and potentially involve
multiple defendants.
Cumulative trauma product liability litigation is difficult to predict. In our experience, until late in a lawsuit, we cannot
reasonably determine whether it is probable that any given cumulative trauma lawsuit will ultimately result in a liability. This
uncertainty is caused by many factors, including the following: cumulative trauma complaints generally do not provide
information sufficient to determine if a loss is probable; cumulative trauma litigation is inherently unpredictable and
information is often insufficient to determine if a lawsuit will develop into an actively litigated case; and even when a case is
actively litigated, it is often difficult to determine if the lawsuit will be dismissed or otherwise resolved until late in the lawsuit.
Moreover, even once it is probable that such a lawsuit will result in a loss, it is difficult to reasonably estimate the amount of
actual loss that will be incurred. These amounts are highly variable and turn on a case-by-case analysis of the relevant facts,
which are often not learned until late in the lawsuit.
Because of these factors, we cannot reliably determine our potential liability for such claims until late in the lawsuit.
Therefore, we do not record cumulative trauma product liability losses when a lawsuit is filed, but rather, when we learn
sufficient information to determine that it is probable that we will incur a loss and the amount of loss can be reasonably
estimated. We record expenses for defense costs associated with open cumulative trauma product liability lawsuits as incurred.
We cannot estimate any amount or range of possible losses related to resolving pending and future cumulative trauma
product liability lawsuits that we may face because of the factors described above. As new information about cumulative
trauma product liability cases and future developments becomes available, we reassess our potential exposures.
A summary of cumulative trauma product liability lawsuit activity follows:
Open lawsuits, January 1
New lawsuits
Settled and dismissed lawsuits
Open lawsuits, December 31
2013
2012
2011
2,609
489
(258)
2,840
2,321
750
(462)
2,609
1,900
479
(58)
2,321
Nearly half of the open lawsuits at December 31, 2013 have had a de minimus level of activity over the last five years. It
is possible that these cases could become active again at any point due to changes in circumstances.
With some common contract exclusions, we maintain insurance for cumulative trauma product liability claims. We have
purchased insurance policies for the policy years from 1952-1986 from over 20 different insurance carriers that provide
coverage for cumulative trauma product liability losses and, in many instances, related defense costs. In the normal course of
business, we make payments to settle product liability lawsuits and for related defense costs. We record receivables for the
amounts that are covered by insurance. The available limits of these policies are many times our recorded insurance receivable
balance.
Various factors could affect the timing and amount of recovery of our insurance receivables, including the outcome of
negotiations with insurers, legal proceedings with respect to product liability insurance coverage and the extent to which
insurers may become insolvent in the future.
14
Our insurance receivables at December 31, 2013 and 2012 totaled $124.8 million and $130.0 million, respectively, all of
which is reported in other non-current assets.
A summary of insurance receivable balances and activity related to cumulative trauma product liability losses follows:
(In millions)
Balance January 1
Additions
Collections and settlements
Balance December 31
$
2013
2012
2011
$
130.0
34.0
(39.2)
124.8
$
112.1
29.7
(11.8)
130.0
89.0
35.6
(12.5)
112.1
Additions to insurance receivables in the above table represent insured cumulative trauma product liability losses and
related defense costs. Uninsured cumulative trauma product liability losses during the years ended December 31, 2013, 2012,
and 2011 were $1.7 million, $2.1 million and $1.1 million, respectively. Collections primarily represent agreements with
insurance companies to pay amounts due that are applicable to cumulative trauma claims. In cases where the payment stream
covers multiple years, the present value of the payments is recorded as a note receivable (current and long term) in the balance
sheet within prepaid expenses and other current assets and other noncurrent assets.
Our aggregate cumulative trauma product liability losses and administrative and defense costs for the three years ended
December 31, 2013, totaled approximately $104.2 million, substantially all of which was insured.
We believe that the increase in the insurance receivable balance that we have experienced since 2005 is primarily due to
disagreements among our insurance carriers, and consequently with us, as to when their individual obligations to pay us are
triggered and the amount of each insurer’s obligation, as compared to other insurers. We believe that our insurers do not contest
that they have issued policies to us or that these policies cover certain cumulative trauma product liability claims. We believe
that our ability to successfully resolve our insurance litigation with various insurance carriers in recent years demonstrates that
we have strong legal positions concerning our rights to coverage.
We regularly evaluate the collectability of our insurance receivables and record the amounts that we conclude are
probable of collection. Our conclusions are based on our analysis of the terms of the underlying insurance policies, our
experience in successfully recovering cumulative trauma product liability claims from our insurers under other policies, the
financial ability of our insurance carriers to pay the claims, our understanding and interpretation of the relevant facts and
applicable law and the advice of legal counsel, who believe that our insurers are required to provide coverage based on the
terms of the policies.
Although the outcome of cumulative trauma product liability matters cannot be predicted with certainty and unfavorable
resolutions could materially affect our results of operations, based on information currently available and the amounts of
insurance coverage available to us, we believe that the disposition of cumulative trauma product liability lawsuits that are
pending against us will not have a materially adverse effect on our future results of operations, financial condition, or liquidity.
We are currently involved in insurance coverage litigations with a number of our insurance carriers.
In 2009, we sued The North River Insurance Company (North River) in the United States District Court for the Western
District of Pennsylvania, alleging that North River breached one of its insurance policies by failing to pay amounts owed to us
and that it engaged in bad-faith claims handling. We believe that North River’s refusal to indemnify us under the policy for
product liability losses and legal fees paid by us is wholly contrary to Pennsylvania law and we are vigorously pursuing the
legal actions necessary to collect all due amounts. Motions for summary judgment on certain issues will be submitted to the
court at the earliest possible date. A trial date has not yet been scheduled.
In 2010, North River sued us in the Court of Common Pleas of Allegheny County, Pennsylvania seeking a declaratory
judgment concerning their responsibilities under three additional policies. We assert claims against North River for breaches of
contract for failures to pay amounts owed to us. We also allege that North River engaged in bad-faith claims handling. We
believe that North River’s refusal to indemnify us under these policies for product liability losses and legal fees paid by us is
wholly contrary to Pennsylvania law and we are vigorously pursuing the legal actions necessary to collect all due amounts.
Summary judgment on certain issues is pending with the court. A trial date has not yet been scheduled.
In July 2010, we filed a lawsuit in the Superior Court of the State of Delaware seeking declaratory and other relief from
the majority of our excess insurance carriers concerning the future rights and obligations of MSA and our excess insurance
carriers under various insurance policies. The reason for this insurance coverage action is to secure a comprehensive resolution
of our rights under the insurance policies issued by our insurers. The case is currently in discovery. We have resolved our
claims against certain of our insurance carriers on some of their policies through negotiated settlements. When settlement is
reached, we dismiss the settling carrier from this action in Delaware.
15
During September 2013, we resolved coverage litigation with Associated International Insurance Company, through a
negotiated settlement. As part of this settlement, we dismissed all claims against Associated International Insurance Company
in the above-referenced coverage litigation in the Superior Court of the State of Delaware. The settlement did not have an
impact on our operating results.
During December 2013, we resolved coverage litigation with Allstate Insurance Company, through a negotiated
settlement. As part of this settlement, both parties dismissed all claims against one another under the above-referenced coverage
litigations in the Court of Common Pleas of Allegheny County, Pennsylvania and the Superior Court of the State of Delaware.
The settlement did not have an impact on our operating results.
During December 2013, we resolved coverage litigation with Columbia Casualty Company, through a negotiated
settlement. As part of this settlement, we dismissed all claims against Columbia Casualty Company in the above-referenced
coverage litigation in the Superior Court of the State of Delaware. The settlement did not have an impact on our operating
results.
Item 4. Mine Safety Disclosures
Not applicable.
Executive Officers of the Registrant
The following sets forth the names and ages of our executive officers as of February 24, 2014, indicating all positions held
during the past five years:
Name
William M. Lambert
Joseph A. Bigler(a)
Steven C. Blanco(b)
Kerry M. Bove(c)
Age Title
55 President and Chief Executive Officer since May 2008.
64 Vice President and Chief Customer Officer since August 2013.
47 Vice President, Global Operational Excellence since April 2012.
55 Vice President and President, MSA International, Asia-Pacific Zone and Africa/Latin
America Zone since November 2011.
Ronald N. Herring, Jr.(d)
53 Vice President and President, MSA International, Western Europe Zone and Middle Eurasia
Zone since November 2011.
Douglas K. McClaine
Stacy McMahan(e)
Thomas Muschter(f)
Paul R. Uhler
Nishan Vartanian(g)
Markus H. Weber(h)
56 Vice President, Secretary and General Counsel since May 2005.
50 Senior Vice President, Chief Financial Officer and Treasurer since August 2013.
53 Vice President, Global Product Leadership since November 2011.
55 Vice President, Global Human Resources since May 2007.
54 Vice President and President, MSA North America since August 2013.
49 Vice President and Chief Information Officer since April 2010.
(a) Prior to his present position, Mr. Bigler served as Vice President and President, MSA North America.
(b) Prior to joining MSA, Mr. Blanco served as Vice President of Manufacturing for the Electrical Sector of Eaton
Corporation, a diversified power management company.
(c) Prior to his present position, Mr. Bove was Vice President, Global Operational Excellence.
(d) Prior to his present position, Mr. Herring was Vice President, Global Product Leadership.
(e) Prior to her current position, Ms. McMahan served as Senior Vice President of Finance, MSA. Prior to joining MSA,
Ms. McMahan served as Customer Channels Group Vice President, Finance, for Thermo Fisher Scientific, Inc., a global
provider of laboratory equipment and supplies.
(f) Prior to his present position, Dr. Muschter held the positions of Director, Research & Development, International; and
Director, Research & Development, Europe.
(g) Prior to his present position, Mr. Vartanian was Vice President, Fixed Gas and Flame Detection.
(h) Prior to joining MSA, Mr. Weber served as Chief Information Officer of Berlin-Chemie AG, an international research-
based pharmaceutical company.
16
Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
PART II
Our common stock is traded on the New York Stock Exchange under the symbol “MSA.” Stock price ranges and
dividends declared were as follows:
Year ended December 31, 2012
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Year ended December 31, 2013
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Price Range of Our
Common Stock
High
Low
Dividends
$
$
42.47
$
32.65 $
44.34
40.81
42.87
37.38
32.93
35.37
51.07
$
43.04 $
51.12
55.38
54.84
43.97
46.60
46.54
0.26
0.28
0.28
0.56
0.28
0.30
0.30
0.30
On February 17, 2014, there were 502 registered holders of our shares of common stock.
Issuer Purchases of Equity Securities
Period
October 1 — October 31, 2013
November 1 — November 30, 2013
December 1 — December 31, 2013
Total
Number of
Shares
Purchased
Average
Price Paid
Per Share
$
2,475
6,934
2,370
48.91
44.91
42.37
Total Number
of Shares
Purchased as
Part of
Publicly
Announced
Plans or
Programs
Maximum
Number of
Shares that
May Yet Be
Purchased
Under the
Plans or
Programs
—
—
—
1,011,217
977,523
950,990
In November 2005, the Board of Directors authorized the purchase of up to $100 million of MSA common stock either
through private transactions or open market transactions. The share purchase program has no expiration date. The maximum
shares that may yet be purchased is calculated based on the dollars remaining under the program and the respective month-end
closing share price. We do not have any other share purchase programs. The above share purchases are related to stock
compensation transactions.
17
Comparison of Five-Year Cumulative Total Return
The following paragraph compares the most recent five year performance of MSA stock with (1) the Standard & Poor’s
500 Composite Index and (2) the Russell 2000 Index. Because our competitors are principally privately held concerns or
subsidiaries or divisions of corporations engaged in multiple lines of business, we do not believe it feasible to construct a peer
group comparison on an industry or line-of-business basis. The Russell 2000 Index, while including corporations both larger
and smaller than MSA in terms of market capitalization, is composed of corporations with an average market capitalization
similar to us.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Mine Safety Appliance Company, the S&P 500 Index,
and the Russell 2000 Index
* $100 invested on 12/31/08 in stock or index, including reinvestment of dividends. Fiscal year ending December 31.
2008
2009
2010
2011
2012
2013
Value at December 31,
Mine Safety Appliances Co
S&P 500 Index
Russell 2000 Index
$
$
100.00
100.00
100.00
$
115.55
126.46
127.09
$
140.90
145.51
161.17
$
154.61
148.59
154.44
$
206.83
172.37
179.75
254.02
228.19
249.53
Prepared by Zacks Investment Research, Inc. Used with permission. All rights reserved. Copyright 1980-2014.
Index Data: Copyright Standard and Poor’s, Inc. Used with permission. All rights reserved.
Index Data: Copyright Russell Investments, Inc. Used with permission. All rights reserved.
18
Item 6. Selected Financial Data
(In thousands, except as noted)
Statement of Income Data:
Net sales
Income from continuing operations
Income from discontinued operations
Net income attributable to Mine Safety
Appliances Company
Earnings per share attributable to MSA
common shareholders:
Basic per common share (in dollars):
Income from continuing operations
Income from discontinued operations
Net income
Diluted per common share (in dollars):
Income from continuing operations
Income from discontinued operations
Net income
Dividends paid per common share (in dollars)
Weighted average common shares outstanding
—basic
Weighted average common shares outstanding
—diluted
Balance Sheet Data:
Total assets
Long-term debt
Shareholders’ Equity
2013
2012
2011
2010
2009
$ 1,112,058
$ 1,110,443
$ 1,112,814
$
922,552
$
865,718
85,858
2,389
87,557
3,080
67,518
2,334
35,886
2,218
42,072
1,223
88,247
90,637
69,852
38,104
43,295
$
$
$
$
2.31
0.06
2.37
2.28
0.06
2.34
1.18
$
$
2.37
0.08
2.45
2.34
0.08
2.42
1.38
$
$
1.85
0.06
1.91
1.81
0.06
1.87
1.03
$
$
1.00
0.06
1.06
0.99
0.06
1.05
0.99
1.18
0.03
1.21
1.18
0.03
1.21
0.96
36,868
36,564
36,221
35,880
35,668
37,450
37,042
36,831
36,422
35,879
$ 1,234,270
$ 1,111,746
$ 1,115,052
$ 1,197,188
$
875,228
260,667
272,333
334,046
367,094
82,114
566,452
462,955
433,666
451,368
436,616
The data presented in the Selected Financial Data table should be read in conjunction with comments provided in
Management's Discussion and Analysis of Financial Condition and Results of Operations in Part II Item 7 and the Consolidated
Financial Statements in Part II Item 8 of this Form 10-K.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with the historical financial statements and other
financial information included elsewhere in this annual report on Form 10-K. This discussion may contain forward-looking
statements that involve risks and uncertainties. The forward-looking statements are not historical facts, but rather are based on
current expectations, estimates, assumptions and projections about our industry, business and future financial results. Our
actual results could differ materially from the results contemplated by these forward-looking statements due to a number of
factors, including those discussed in the sections of this annual report entitled “Forward-Looking Statements” and “Risk
Factors.”
MSA's South African personal protective equipment distribution business and MSA's Zambian operations had historically
been part of the International reportable segment. In accordance with generally accepted accounting principles, these results
are excluded from continuing operations and are presented as discontinued operations in all periods presented. Please refer to
Note 19 Assets Held for Sale and Discontinued Operations, which is included in Part II Item 8 of this form 10-K for further
commentary on these discontinued operations.
19
BUSINESS OVERVIEW
We are a global leader in the development, manufacture and supply of products that protect people’s health and safety.
Our safety products typically integrate any combination of electronics, mechanical systems and advanced materials to protect
users against hazardous or life threatening situations. Our comprehensive lines of safety products are used by workers around
the world in the oil and gas, fire service, mining, construction and other industries, as well as the military. We are committed to
providing our customers with service unmatched in the safety industry and, in the process, enhancing our ability to provide a
growing line of safety solutions for customers in key global markets.
We tailor our product offerings and distribution strategy to satisfy distinct customer preferences that vary across
geographic regions. To best serve these customer preferences, we have organized our business into eleven geographical
operating segments that are aggregated into three reportable geographic segments: North America, Europe and International.
Each segment includes a number of operating segments. In 2013, 50%, 26% and 24% of our net sales were made by our North
American, European and International segments, respectively.
North America. Our largest manufacturing and research and development facilities are located in the United States. We
serve our North American markets with sales and distribution functions in the U.S., Canada and Mexico.
Europe. Our European segment includes companies in most Western European countries, and a number of Eastern
European countries along with locations in the Middle East and Russia. Our largest European companies, based in Germany
and France, develop, manufacture and sell a wide variety of products. Operations in other European segment countries focus
primarily on sales and distribution in their respective home country markets. While some of these companies may perform
limited production, most of their sales are of products that are manufactured in our plants in Germany, France, the U.S. and
China, or are purchased from third party vendors.
International. Our International segment includes companies in South America, Africa and the Asia Pacific region, some
of which are in developing regions of the world. Principal International segment manufacturing operations are located in
Australia, Brazil, China and South Africa. These companies manufacture products that are sold primarily in each company’s
home country and regional markets. The other companies in the International segment focus primarily on sales and distribution
in their respective home country markets. While some of these companies may perform limited production, most of their sales
are of products that are manufactured in our plants in China, Germany, France and the U.S., or are purchased from third party
vendors.
RESULTS OF OPERATIONS
Year Ended December 31, 2013 Compared to Year Ended December 31, 2012
Net sales from continuing operations. Net sales for the year ended December 31, 2013 were $1,112.1 million, an
increase of $1.7 million, from $1,110.4 million for the year ended December 31, 2012.
For the year ended December 31, 2013, local currency core product sales increased by 6%, now comprising 73% of our
total business, up from 70% for the year ended December 31, 2012. By product group, portable instruments increased 11%,
fixed gas & flame detection instruments and fall protection each increased 6%, breathing apparatus increased 4%, and head
protection increased 3% on a local currency basis. The remaining 27% of sales decreased 10% on a lower level of mining
related business in the International segment, lower gas mask sales in the United States, and the absence of ballistic helmet
sales in North America due to the divestiture of this business in the first half of 2012.
The unfavorable translation effects of weaker foreign currencies decreased net sales from continuing operations, when
stated in U.S. dollars, by $9.5 million. Excluding the impact of weakening foreign currencies and the divestiture of our North
American ballistic helmet business of $9.6 million, net sales from continuing operations increased $20.8 million or 2%.
(Dollars in millions)
North America
Europe
International
Total
$
2013
2012
$
559.2
289.8
263.1
$
551.9
289.5
269.0
1,112.1
1,110.4
Dollar
Increase
(Decrease)
Percent
Increase
(Decrease)
7.3
0.3
(5.9)
1.7
1 %
—
(2)%
— %
20
Net sales by the North American segment were $559.2 million for the year ended December 31, 2013, an increase of $7.3
million, or 1%, compared to $551.9 million for the year ended December 31, 2012. Excluding the effects of the divestiture of
the North American ballistic helmet business, North American segment sales increased $16.9 million, or 3%, when compared to
2012. North American ballistic helmet sales were $9.6 million lower in the current year, reflecting the divestiture. During the
year ended December 31, 2013, we continued to see growth in the fire service and industrial markets. Shipments of instruments,
self-contained breathing apparatus (SCBA) and head, eye and face protection were up $21.3 million, $3.2 million and $2.9
million, respectively. These increases were partially offset by a $7.6 million decrease in shipments of gas masks to military
markets and other small decreases across a broad range of product lines.
Net sales for the European segment were $289.8 million for the year ended December 31, 2013, an increase of $0.3
million from $289.5 million for the year ended December 31, 2012. Local currency sales in Europe decreased $5.6 million.
Shipments of fixed gas & flame detection decreased $3.2 million on a local currency basis, while the remaining decrease in
local currency sales was primarily due to lower adjacent product shipments to military markets. The favorable translation
effects of a stronger euro in the current year increased European segment sales, when stated in U.S. dollars, by $5.9 million.
Net sales for the International segment were $263.1 million for the year ended December 31, 2013, a decrease of $5.9
million, or 2%, compared to $269.0 million for the year ended December 31, 2012. Currency translation effects decreased
International segment sales, when stated in U.S. dollars, by $16.1 million, primarily related to a weaker Australian dollar and
Brazilian real. Local currency sales in the International segment increased $10.2 million, as strength in the industrial markets
was partially offset by weakness in the fire service and military markets. Shipments of instruments, self-contained breathing
apparatus (SCBA) and fall protection, up $9.1 million, $5.7 million and $2.0 million, respectively, were partially offset by
lower shipments of head, eye, and face protection and circuit breathing apparatus, down $3.1 million and $2.7 million,
respectively.
Other (loss) income. Other loss for the year ended December 31, 2013 was $0.2 million. A $1.6 million land impairment
loss in the North American segment was partially offset by interest income of $1.1 million and small gains from asset
dispositions. The 2013 loss compares with income of $10.9 million for the year ended December 31, 2012. In 2012, we
recognized gains totaling $8.4 million on property sales in our Cranberry Woods office park. In December 2012, we sold the
last available parcel in Cranberry Woods. Other income for 2012 also included a $4.8 million gain on an escrow settlement
related to our October 2010 acquisition of the General Monitors group of companies. These improvements were partially offset
by impairment losses on intangible assets and tooling related to our firefighter location project of $4.3 million and $0.5 million,
respectively.
Cost of products sold. Cost of products sold was $615.2 million for the year ended December 31, 2013, a decrease of
$5.7 million, or 1%, from $620.9 million for the year ended December 31, 2012. Cost of products sold as a percentage of net
sales was 55.3% in the year ended December 31, 2013 compared to 55.9% in 2012. The effect of LIFO liquidations during
2013 reduced cost of sales by $2.1 million. The decrease in cost of products sold in relation to sales was also due to a more
favorable product mix, lower manufacturing costs, and improved pricing.
Gross profit. Gross profit for the year ended December 31, 2013 was $496.8 million, an increase of $7.3 million, or 1%,
from $489.5 million for the year ended December 31, 2012. The ratio of gross profit to net sales was 44.7% for 2013 compared
to 44.1% in 2012. The higher gross profit ratio in 2013 was primarily related to a more favorable proportion of core product
sales, lower manufacturing costs including the effect of LIFO liquidations, and improved pricing.
Selling, general and administrative expenses. Selling, general and administrative expenses for the year ended
December 31, 2013 were $309.2 million, a decrease of $3.7 million, or 1%, from $312.9 million for the year ended
December 31, 2012. Selling, general and administrative expenses were 27.8% of net sales in 2013 compared to 28.2% of net
sales in 2012. Local currency selling, general and administrative expenses decreased $0.9 million in the current period. The
decrease reflects reduced administrative expense in our International and European segments and lower legal expense
associated with the product liability matters, partially offset by higher pension expense. Currency translation effects decreased
selling, general and administrative expenses for the year ended December 31, 2013, when stated in U.S. dollars, by $2.8
million. The decrease was primarily related to a Australian dollar, Brazilian real and South African rand, partially offset by a
stronger euro.
Research and development expenses. Research and development expenses were $45.9 million for the year ended
December 31, 2013, an increase of $5.0 million, or 12%, from $40.9 million for the year ended December 31, 2012. The
increase reflects our ongoing focus on developing innovative new core products, including the G1 SCBA and FAS-Trac III
Industrial Helmet Suspension.
Restructuring and other charges. For the year ended December 31, 2013, we recorded non-recurring charges of $5.3
million. European segment charges of $3.0 million related primarily to staff reductions in Germany and the Netherlands.
International segment charges of $2.3 million were primarily related to staff reductions in Australia and South Africa.
21
Charges for the year ended December 31, 2012 were related to severance costs associated with staff reductions in our
North American, European and International segments of $1.5 million, $1.1 million and $0.2 million, respectively.
Interest expense. Interest expense for the year ended December 31, 2013 was $10.7 million, a decrease of $0.6 million,
or 5%, from $11.3 million for the year ended December 31, 2012. The decrease in interest expense reflects lower borrowing
levels in the current year.
Currency exchange. Currency exchange losses were $5.5 million during the twelve months ended December 31, 2013,
compared to losses of $3.2 million during the same period in 2012. Currency exchange losses in both periods were mostly
unrealized and relate primarily to the effect of the strengthening U.S. dollar on intercompany balances.
Income tax provision. Our effective tax rate from continuing operations for the year ended December 31, 2013 was
29.3% compared to 32.0% for the year ended December 31, 2012. The lower effective tax rate for the year was primarily
related to a tax benefit recognized for the research and development tax credit, including the benefit related to the recognition of
the 2012 credit in January 2013. A favorable mix of income sourced from lower tax jurisdictions also contributed to the lower
effective tax rate in 2013.
Net income from continuing operations. Net income from continuing operations for the year ended December 31, 2013
was $85.9 million, a decrease of $1.7 million, or 2%, from net income from continuing operations for the year ended
December 31, 2012 of $87.6 million. Local currency net income decreased by $0.9 million. Currency translation effects
decreased current period net income when stated in U.S. dollars, by $0.8 million. Basic earnings per share from continuing
operations was $2.31 in 2013 compared to $2.37 in 2012, a decrease of 6 cents per share, or 3%.
North American segment net income for the year ended December 31, 2013 was $70.6 million, an improvement of $6.3
million, or 10%, from $64.3 million for the year ended December 31, 2012. The increase in North American segment net
income reflects higher sales and gross profits and decreased restructuring expense, partially offset by increased selling, general
and administrative expenses from higher payroll, legal fees, and other professional services fees.
European segment net income for the year ended December 31, 2013 was $18.4 million, a decrease of $2.0 million, or
10%, from $20.4 million for the year ended December 31, 2012. Local currency net income decreased by $3.1 million,
reflecting lower gross profits on lower sales and increased restructuring expense, partially offset by lower selling, general and
administrative expense. The favorable translation effects of a stronger euro in the current year increased European segment net
income, when stated in U.S. dollars, by $1.1 million.
International segment net income for the year ended December 31, 2013 was $20.4 million, an increase of $1.2 million,
or 6%, from $19.2 million for the year ended December 31, 2012. Currency translation effects decreased current period
International segment net income when stated in U.S. dollars, by $1.2 million, primarily due to a weaker Australian dollar and
Brazilian real. Higher local currency net income was primarily related to increased gross profits from increased sales, lower
selling, general and administrative expenses, partially offset by increased restructuring expense.
The net loss reported in reconciling items for the year ended December 31, 2013 was $23.5 million, compared to a net
loss of $16.4 million for the year ended December 31, 2012. The higher loss during the year ended December 31, 2013 reflects
higher currency exchange losses. Additionally, the year ended December 31, 2012 benefited from the previously-discussed
one-time gain on the sale of land in our Cranberry Woods office park.
Year Ended December 31, 2012 Compared to Year Ended December 31, 2011
Net sales. Net sales for the year ended December 31, 2012 were $1,110.4 million, a decrease of $2.4 million, from
$1,112.8 million for the year ended December 31, 2011. Excluding the effects of weakening currencies and the divestitures of
our ballistic vest and North American ballistic helmet businesses, sales increased $67.4 million, or 6%. Sales of ballistic vests
and helmets were $36.0 million lower in 2012, reflecting the divestiture of those businesses. The unfavorable translation effects
of weaker foreign currencies decreased sales, when stated in U.S. dollars, by $33.8 million.
Net Sales
(Dollars in millions)
North America
Europe
International
Total
$
2012
2011
$
551.9
289.5
269.0
1,110.4
$
561.1
286.8
264.9
1,112.8
Dollar
Increase
(Decrease)
Percent
Increase
(Decrease)
(9.2)
2.7
4.1
(2.4)
(2)%
1 %
2 %
— %
22
Net sales by the North American segment were $551.9 million for the year ended December 31, 2012, a decrease of
$9.2 million, or 2%, compared to $561.1 million for the year ended December 31, 2011. During the year ended December 31,
2012, we continued to see growth in the fire service and industrial markets. Shipments of instruments, head, eye and face
protection and self-contained breathing apparatus (SCBA) were up $25.1 million, $4.7 million and $2.2 million, respectively.
These increases were offset by a $4.7 million decrease in shipments of communication devices and a $36.0 million decrease in
shipments of ballistic helmets and vests to military markets. We divested our ballistic vest and North American ballistic helmet
businesses during the fourth quarter of 2011 and the second quarter of 2012, respectively.
Net sales for the European segment were $289.5 million for the year ended December 31, 2012, an increase of $2.7
million, or 1%, from $286.8 million for the year ended December 31, 2011. Local currency sales increased $22.4 million,
reflecting higher shipments of instruments, SCBA, ballistic helmets, and respirators, up $10.8 million, $4.8 million, $4.2
million, and $3.3 million, respectively. The increase was partially offset by a $2.1 million decrease in shipments of gas masks to
military markets. Currency translation effects decreased European segment sales, when stated in U.S. dollars, by $19.7 million,
primarily related to a weaker euro.
Net sales of our International segment were $269.0 million for the year ended December 31, 2012, an increase of $4.1
million, or 2%, compared to $264.9 million for the year ended December 31, 2011. Local currency sales in the International
segment increased $16.6 million during the year ended December 31, 2012. Growth in fire service markets in China and Latin
America led to increases in sales of SCBA and fire helmets of $10.0 million and $3.9 million, respectively. In addition, sales of
head, eye and face protection to industrial markets improved by $7.6 million, offset by decreased shipments of circuit breathing
apparatus and gas masks of $4.5 million and $0.4 million, respectively. Currency translation effects decreased International
segment sales, when stated in U.S. dollars, by $12.5 million, primarily related to a weaker Brazilian real and South African
rand.
Other income. Other income for the year ended December 31, 2012 was $10.9 million, an increase of $5.4 million,
from $5.5 million for the year ended December 31, 2011. During the year ended December 31, 2012, we recognized gains on
the sale of assets totaling $8.4 million compared to gains of $3.3 million in 2011. These gains in both years were primarily
related to property sales in our Cranberry Woods office park. In December 2012, we sold the last available parcel in Cranberry
Woods. Other income for the year ended December 31, 2012 also includes a $4.8 million gain on an escrow settlement related
to our October 2010 acquisition of the General Monitors group of companies. These improvements were partially offset by
impairment losses on intangible assets and tooling related to our firefighter location project of $4.3 million and $0.5 million,
respectively.
Cost of products sold. Cost of products sold was $620.9 million for the year ended December 31, 2012, a decrease of
$33.5 million, or 5%, from $654.4 million for the year ended December 31, 2011. Cost of products sold as a percentage of sales
was 55.9% in the year ended December 31, 2012 compared to 58.8% in 2011. The decrease in cost of products sold in relation
to sales was primarily due to lower manufacturing costs, a more favorable product mix, and improved pricing.
Gross profit. Gross profit for the year ended December 31, 2012 was $489.5 million, an increase of $31.1 million, or
7%, from $458.4 million for the year ended December 31, 2011. The ratio of gross profit to sales was 44.1% for 2012 compared
to 41.2% in 2011. The higher gross profit ratio in 2012 was primarily related to lower manufacturing costs, a more favorable
product mix, and improved pricing.
Selling, general and administrative expenses. Selling, general and administrative expenses for the year ended
December 31, 2012 were $312.9 million, an increase of $15.1 million, or 5%, from $297.8 million for the year ended
December 31, 2011. Selling, general and administrative expenses were 28.2% of sales in 2012 compared to 26.8% of sales in
2011. Local currency selling, general and administrative expenses increased $24.2 million across all segments, reflecting higher
selling costs, an increase in due diligence and consulting expense related to special projects and an increase in product liability
related legal and administrative expenses. Currency translation effects decreased selling, general and administrative expenses
for the year ended December 31, 2012, when stated in U.S. dollars, by $9.1 million, primarily related to a weaker euro,
Brazilian real and South African rand.
Research and development expenses. Research and development expenses were $40.9 million for the year ended
December 31, 2012, an increase of $1.7 million, or 4%, from $39.2 million for the year ended December 31, 2011. The increase
reflected our ongoing focus on developing innovative new core products.
Restructuring and other charges. For the year ended December 31, 2012, we recorded charges of $2.8 million.
Charges for the year ended December 31, 2012 were related to severance costs associated with staff reductions in our North
American, European and International segments of $1.5 million, $1.1 million and $0.2 million, respectively.
23
For the year ended December 31, 2011, we recorded charges of $8.6 million. European segment charges of $5.8
million for the year ended December 31, 2011, related primarily to staff reductions and the transfer of certain production
activities to China. North American segment charges for the year ended December 31, 2011 of $1.7 million included costs
associated with the relocation of certain administrative and production activities. International segment charges for the year
ended December 31, 2011 of $1.1 million were related primarily to severance costs associated with the relocation of our Wuxi,
China operations to Suzhou, China.
Interest expense. Interest expense for the year ended December 31, 2012 was $11.3 million, a decrease of $2.8
million, or 20%, from $14.1 million for the year ended December 31, 2011. The decrease in interest expense reflects lower
borrowing on our revolving credit line and lower interest rates.
Income tax provision. Our effective tax rate for the year ended December 31, 2012 was 32.0% compared to 33.4% for
the year ended December 31, 2011. The lower effective tax rate for the year was primarily related to a tax benefit associated
with a non cash charitable contribution of land at our Cranberry Woods office park and a higher manufacturing deduction
credit. These gains were partially offset by the expiration of the research and development tax credit at the end of 2011. In
January 2013, the research and development tax credit was reinstated retroactively to the beginning of 2012.
Net income from continuing operations. Net income from continuing operations for the year ended December 31,
2012 was $87.6 million, an increase of $20.1 million, or 30%, from net income for the year ended December 31, 2011 of $67.5
million. Local currency net income increased by $23.0 million. Currency translation effects decreased current period net
income when stated in U.S. dollars, by $2.9 million, primarily due to a weaker Australian dollar, Brazilian real, and euro. Basic
earnings per share from continuing operations was $2.37 in 2012 compared to $1.85 in 2011, an increase of 52 cents per share,
or 28%.
North American segment net income for the year ended December 31, 2012 was $64.3 million, an improvement of $10.6
million, or 20%, from $53.7 million for the year ended December 31, 2011. The increase in North American segment net
income reflects higher gross profits driven by controlled manufacturing costs, a more favorable sales mix and improved pricing,
partially offset by an increase in selling, general and administrative expenses.
European segment net income for the year ended December 31, 2012 was $20.4 million, an increase of $8.7 million, or
74%, from $11.7 million for the year ended December 31, 2011. Local currency net income increased by $9.4 million,
reflecting improved gross profits and lower restructuring charges. Currency translation effects decreased European segment net
income, when stated in U.S. dollars, by $0.7 million, mainly due to a weaker euro.
International segment net income for the year ended December 31, 2012 was $19.2 million, a decrease of $5.6 million, or
23%, from $24.8 million for the year ended December 31, 2011. Currency translation effects decreased current period
International segment net income when stated in U.S. dollars, by $2.4 million, primarily due to a weaker Australian dollar and
Brazilian real. Lower local currency net income decreased $3.2 million reflecting higher selling, general and administrative
expenses and higher income taxes, partially offset by improved gross profits.
The net loss reported in reconciling items for the year ended December 31, 2012 was $16.4 million, compared to a net
loss of $22.7 million for the year ended December 31, 2011. The lower loss during the year ended December 31, 2012 reflects
the one-time gain on the sale of land in our Cranberry Woods office park.
LIQUIDITY AND CAPITAL RESOURCES
Our main source of liquidity is operating cash flows, supplemented by borrowings. Our principal liquidity requirements
are for working capital, capital expenditures, principal and interest payments on debt, dividend payments, and acquisitions.
Approximately half of our long-term debt is at fixed interest rates with repayment schedules through 2021. The remainder of
our long-term debt is at variable rates on an unsecured revolving credit facility that is due in 2016. Substantially all of our
borrowings originate in the U.S., which has limited our exposure to non-U.S. credit markets and to currency exchange rate
fluctuations.
At December 31, 2013, we had cash and cash equivalents totaling $96.3 million, of which $87.2 million was held by our
foreign subsidiaries. The $87.2 million of cash and cash equivalents are held by our foreign subsidiaries whose earnings are
considered indefinitely reinvested at December 31, 2013. These funds could be subject to additional income taxes if
repatriated. It is not practical to determine the potential income tax liability that we would incur if these funds were repatriated
to the U.S. because the time and manner of repatriation is uncertain. We believe that domestic cash and cash equivalents,
domestic cash flows from operations, annual repatriation of a portion of the current period's foreign earnings, and the
availability of our domestic line of credit are sufficient to fund our domestic liquidity requirements.
24
Our unsecured senior revolving credit facility provides for borrowings up to $300.0 million through 2016 and is subject
to certain commitment fees. Loans made under the senior revolving credit facility bear interest at a variable rate. Loan proceeds
may be used for general corporate purposes, including working capital, permitted acquisitions, capital expenditures and
repayment of existing indebtedness. The credit agreement also provides for an uncommitted incremental facility that permits us,
subject to certain conditions, to request an increase in the senior credit facility of up to $50.0 million. At December 31, 2013,
$184.0 million of the $300.0 million senior revolving credit facility was unused.
In January 2014 the Company determined that it was in technical violation of one loan covenant related to the threshold
for priority indebtedness in its 2006 Senior Note Purchase Agreement dated December 20, 2006 which resulted in cross default
violations in two other loan agreements. The Company obtained the appropriate waivers from its lenders which were fully
executed on February 12, 2014. The underlying financial covenants of the Note Purchase Agreement were amended at the
same time. We are currently in compliance with all of our debt covenants.
During 2013 and 2012, we reduced borrowings on the senior revolving credit facility by $5.0 million and $55.0 million,
respectively.
Management has filed to redeem the $4.0 million of Industrial development debt on February 28, 2014.
Cash and cash equivalents increased $13.5 million during the year ended December 31, 2013, compared to an increase of
$22.8 million during 2012 and an increase of $0.2 million during 2011.
Operating activities. Operating activities provided cash of $110.8 million in 2013, compared to providing cash of $150.5
million in 2012. Lower operating cash flow in 2013 is primarily related to changes in working capital, higher notes receivables
from insurance companies, and lower net income. Insurance receivables related to cumulative trauma product liability losses
were $124.8 million at December 31, 2013 compared to $130.0 million at December 31, 2012. Trade receivables were $200.4
million at December 31, 2013 compared to $191.3 million at December 31, 2012, reflecting a local currency increase of $13.2
million on strong sales results in December, partially offset by unfavorable currency translation effects of $4.1 million.
Inventories were $136.8 million at December 31, 2013, compared to $136.3 million at December 31, 2012. Local currency
inventory increased $6.3 million, partially due to anticipated demand for new products. Local currency increases were offset by
unfavorable currency translation effects of $5.8 million. Accounts payable were $66.9 million at December 31, 2013 compared
to $59.5 million at December 31, 2012. Local currency accounts payable increased $8.8 million, primarily in International and
North America reflecting our ongoing initiative to improve operating cash flow, partially offset by favorable currency
translation effects of $1.4 million.
Operating activities provided cash of $150.5 million in 2012, compared to providing cash of $85.3 million in 2011.
Significantly higher cash from operating activities in 2012 was primarily related to working capital improvements and higher
net income. Trade receivables were $191.3 million at December 31, 2012, a decrease of $1.3 million, compared to $192.6
million at December 31, 2011. The $1.3 million decrease in trade receivables reflects a $2.3 million decrease in local currency
balances, partially offset by a $1.0 million increase due to currency translation effects. LIFO inventories were $136.3 million at
December 31, 2012, a decrease of $5.2 million, compared to $141.5 million at December 31, 2011. The $5.2 million decrease in
inventories reflects a $6.1 million decrease in local currency inventories, partially offset by a $0.9 million increase due to
currency translation effects. The decrease in local currency inventories reflects the divestiture of the ACH business, as well as
our ongoing initiative to manage inventory levels. Accounts payable were $59.5 million at December 31, 2012, an increase of
$9.3 million, compared to $50.2 million at December 31, 2011. The $9.3 million increase in accounts payable reflects our
focus on extending payments by negotiating favorable terms with our vendors. Currency translation effects on accounts
payable were negligible.
Investing activities. Investing activities used cash of $35.2 million for the year ended December 31, 2013, compared to
using $17.3 million in 2012. The increase in cash used by investing activities in 2013 was due to lower cash generated by
property disposals. Cash generated from property disposals was $1.4 million in 2013 compared to $20.2 million in 2012. The
cash received from property disposals in 2012 include proceeds from the sale of land in our Cranberry Woods office park.
Capital expenditures were $36.5 million compared to $32.2 million in 2012. The $4.3 million increase in expenditures was
driven primarily from higher investment in manufacturing in the International segment.
Investing activities used cash of $17.3 million for the year ended December 31, 2012, compared to using $11.7 million in
2012. The higher use of cash in 2012 relates to a $5.3 million short-term investment in the International segment. This
investment was liquidated in 2013.
25
Financing activities. Financing activities used cash of $58.2 million for the year ended December 31, 2013, compared to
using cash of $110.5 million in 2012. During 2013, we paid down $11.7 million of long-term debt compared to paying down
$63.0 million in 2012. We made dividend payments of $44.0 million during 2013, compared to $51.0 million during 2012.
Dividends paid on our common stock during 2013 (our 97th consecutive year of dividend payment) were $1.18 per share.
Dividends paid on our common stock in 2012 and 2011 were $1.38 and $1.03 per share, respectively. The 2012 dividend
included a special one-time dividend of $0.28 per share that was paid on December 28, 2012. Restricted cash balances were
$2.8 million at December 31, 2013 and were primarily used to support letter of credit balances.
Financing activities used cash of $110.5 million in 2012 compared to using cash of $71.3 million in 2011. During 2012,
we paid down $63.0 million of long-term debt compared to paying down $35.0 million in 2011. We made dividend payments of
$51.0 million during 2012, compared to $37.7 million during 2011.
CUMULATIVE TRANSLATION ADJUSTMENTS
The year-end position of the U.S. dollar relative to international currencies resulted in a translation loss of $6.1 million
being credited to cumulative translation adjustments for the year ended December 31, 2013. This compares to a translation gain
of $4.1 million in 2012 and a translation loss of $14.7 million in 2011. The translation loss in 2013 was primarily related to the
weakening of the Australian Dollar, Brazilian Real and the Argentine Peso. The translation gain in 2012 was primarily related to
the strengthening of the euro. The translation loss in 2011 was primarily related to the weakening of the euro and South African
rand.
COMMITMENTS AND CONTINGENCIES
We are obligated to make future payments under various contracts, including debt and lease agreements. Our significant
cash obligations as of December 31, 2013 were as follows:
(In millions)
Long-term debt
Operating leases
Totals
Total
2014
2015
2016
2017
2018
$
$
267.3
32.9
300.2
$
6.7
11.9
18.6
$
6.7
9.8
16.5
$
116.7
4.2
120.9
$
26.7
2.4
29.1
26.7
1.8
28.5
Thereafter
83.8
$
2.8
86.6
The significant obligations table does not include obligations to taxing authorities due to uncertainty surrounding the
ultimate settlement of amounts and timing of these obligations.
We expect to meet our 2014, 2015, and 2017 debt service obligations through cash provided by operations.
Approximately $110.0 million of debt payable in 2016 relates to our unsecured senior revolving credit facility. We expect to
generate sufficient operating cash flow to make payments against this amount each year. To the extent that a balance remains
when the facility matures in 2016, we expect to refinance the remaining balance through new borrowing facilities.
The Company had outstanding bank guarantees and standby letters of credit with banks as of December 31, 2013 totaling
$9.0 million, of which $6.0 million relate to the senior revolving credit facility. These letters of credit serve to cover customer
requirements in connection with certain sales orders, insurance companies and the Company's industrial development debt. No
amounts were drawn on these arrangements at December 31, 2013. The Company is also required to provide cash collateral in
connection with certain arrangements. At December 31, 2013, the Company has $2.2 million of restricted cash in support of
these arrangements. At December 31, 2013, the Company also has a $4.1 million guarantee relating to voluntary retirement
payments for its unionized workers in Germany.
We expect to make net contributions of $4.5 million to our pension plans in 2014.
We have purchase commitments for materials, supplies, services and property, plant and equipment as part of our ordinary
conduct of business. In addition to these commitments, we also have contingencies related to product liability losses.
26
We categorize the product liability losses that we experience into two main categories; single incident and cumulative
trauma. Single incident product liability claims are discrete incidents that are typically known to us when they occur and
involve observable injuries and, therefore, more quantifiable damages. Therefore, we maintain a reserve for single incident
product liability claims based on expected settlement costs for pending claims and an estimate of costs for unreported claims
derived from experience, sales volumes and other relevant information. Our reserve for single incident product liability claims
at December 31, 2013 and 2012 was $4.0 million and $4.4 million, respectively. Single incident product liability expense was
negligible during the year ended December 31, 2013. During the years ended December 31, 2012 and 2011, single incident
product liability expense was $0.7 million and $1.5 million, respectively. We evaluate our single incident product liability
exposures on an ongoing basis and make adjustments to the reserve as new information becomes available.
Cumulative trauma product liability claims involve exposures to harmful substances (e.g., silica, asbestos and coal dust)
that occurred many years ago and may have developed over long periods of time into diseases such as silicosis, asbestosis or
coal worker’s pneumoconiosis. We are presently named as a defendant in 2,840 lawsuits in which plaintiffs allege to have
contracted certain cumulative trauma diseases related to exposure to silica, asbestos, and/or coal dust. These lawsuits mainly
involve respiratory protection products allegedly manufactured and sold by us. We are unable to estimate total damages sought
in these lawsuits as they generally do not specify the injuries alleged or the amount of damages sought, and potentially involve
multiple defendants.
Cumulative trauma product liability litigation is difficult to predict. In our experience, until late in a lawsuit, we cannot
reasonably determine whether it is probable that any given cumulative trauma lawsuit will ultimately result in a liability. This
uncertainty is caused by many factors, including the following: cumulative trauma complaints generally do not provide
information sufficient to determine if a loss is probable; cumulative trauma litigation is inherently unpredictable and
information is often insufficient to determine if a lawsuit will develop into an actively litigated case; and even when a case is
actively litigated, it is often difficult to determine if the lawsuit will be dismissed or otherwise resolved until late in the lawsuit.
Moreover, even once it is probable that such a lawsuit will result in a loss, it is difficult to reasonably estimate the amount of
actual loss that will be incurred. These amounts are highly variable and turn on a case-by-case analysis of the relevant facts,
which are often not learned until late in the lawsuit.
Because of these factors, we cannot reliably determine our potential liability for such claims until late in the lawsuit.
Therefore, we do not record cumulative trauma product liability losses when a lawsuit is filed, but rather, when we learn
sufficient information to determine that it is probable that we will incur a loss and the amount of loss can be reasonably
estimated. We record expenses for defense costs associated with open cumulative trauma product liability lawsuits as incurred.
We cannot estimate any amount or range of possible losses related to resolving pending and future cumulative trauma
product liability lawsuits that we may face because of the factors described above. As new information about cumulative trauma
product liability cases and future developments becomes available, we reassess our potential exposures.
A summary of cumulative trauma product liability lawsuit activity follows:
Open lawsuits, January 1
New lawsuits
Settled and dismissed lawsuits
Open lawsuits, December 31
2013
2012
2011
2,609
489
(258)
2,840
2,321
750
(462)
2,609
1,900
479
(58)
2,321
Nearly half of the open lawsuits at December 31, 2013 have had a de minimus level of activity over the last five years. It
is possible that these cases could become active again at any point due to changes in circumstances.
With some common contract exclusions, we maintain insurance for cumulative trauma product liability claims. We have
purchased insurance policies for the policy years from 1952-1986 from over 20 different insurance carriers that provide
coverage for cumulative trauma product liability losses and, in many instances, related defense costs. In the normal course of
business, we make payments to settle product liability claims and for related defense costs. We record receivables for the
amounts that are covered by insurance. The available limits of these policies are many times our recorded insurance receivable
balance.
Various factors could affect the timing and amount of recovery of our insurance receivables, including the outcome of
negotiations with insurers, legal proceedings with respect to product liability insurance coverage and the extent to which
insurers may become insolvent in the future.
Our insurance receivables at December 31, 2013 and 2012 totaled $124.8 million and $130.0 million, respectively, all of
which is reported in other non-current assets.
27
A summary of insurance receivable balances and activity related to cumulative trauma product liability losses follows:
(In millions)
Balance January 1
Additions
Collections and settlements
Balance December 31
$
2013
2012
2011
$
130.0
34.0
(39.2)
124.8
$
112.1
29.7
(11.8)
130.0
89.0
35.6
(12.5)
112.1
Additions to insurance receivables in the above table represent insured cumulative trauma product liability losses and
related defense costs. Uninsured cumulative trauma product liability losses during the years ended December 31, 2013, 2012,
and 2011 were $1.7 million, $2.1 million and $1.1 million, respectively. Collections primarily represent agreements with
insurance companies to pay amounts due that are applicable to cumulative trauma claims. In cases where the payment stream
covers multiple years, the present value of the payments is recorded as a note receivable (current and long term) in the balance
sheet within prepaid expenses and other current assets and other noncurrent assets.
Our aggregate cumulative trauma product liability losses and administrative and defense costs for the three years ended
December 31, 2013, totaled approximately $104.2 million, substantially all of which was insured.
We believe that the increase in the insurance receivable balance that we have experienced since 2005 is primarily due to
disagreements among our insurance carriers, and consequently with us, as to when their individual obligations to pay us are
triggered and the amount of each insurer’s obligation, as compared to other insurers. We believe that our insurers do not contest
that they have issued policies to us or that these policies cover certain cumulative trauma product liability claims. We believe
that our ability to successfully resolve our insurance litigation with various insurance carriers in recent years demonstrates that
we have strong legal positions concerning our rights to coverage.
We regularly evaluate the collectability of the insurance receivables and record the amounts that we conclude are
probable of collection. Our conclusions are based on our analysis of the terms of the underlying insurance policies, our
experience in successfully recovering cumulative trauma product liability claims from our insurers under other policies, the
financial ability of our insurance carriers to pay the claims, our understanding and interpretation of the relevant facts and
applicable law and the advice of legal counsel, who believe that our insurers are required to provide coverage based on the
terms of the policies.
Although the outcome of cumulative trauma product liability matters cannot be predicted with certainty and unfavorable
resolutions could materially affect our results of operations on a quarter-to-quarter basis, based on information currently
available and the amounts of insurance coverage available to us, we believe that the disposition of cumulative trauma product
liability lawsuits that are pending against us will not have a materially adverse effect on our future results of operations,
financial condition, or liquidity.
We are currently involved in insurance coverage litigations with a number of our insurance carriers.
In 2009, we sued The North River Insurance Company (North River) in the United States District Court for the Western
District of Pennsylvania, alleging that North River breached one of its insurance policies by failing to pay amounts owed to us
and that it engaged in bad-faith claims handling. We believe that North River’s refusal to indemnify us under the policy for
product liability losses and legal fees paid by us is wholly contrary to Pennsylvania law and we are vigorously pursuing the
legal actions necessary to collect all due amounts. Motions for summary judgment on certain issues will be submitted to the
court at the earliest possible date. A trial date has not yet been scheduled.
In 2010, North River sued us in the Court of Common Pleas of Allegheny County, Pennsylvania seeking a declaratory
judgment concerning their responsibilities under three additional policies. We assert claims against North River for breaches of
contract for failures to pay amounts owed to us. We also allege that North River engaged in bad-faith claims handling. We
believe that North River’s refusal to indemnify us under these policies for product liability losses and legal fees paid by us is
wholly contrary to Pennsylvania law and we are vigorously pursuing the legal actions necessary to collect all due amounts.
Summary judgment on certain issues is pending with the court. A trial date has not yet been scheduled.
In July 2010, we filed a lawsuit in the Superior Court of the State of Delaware seeking declaratory and other relief from
the majority of our excess insurance carriers concerning the future rights and obligations of MSA and our excess insurance
carriers under various insurance policies. The reason for this insurance coverage action is to secure a comprehensive resolution
of our rights under the insurance policies issued by our insurers. The case is currently in discovery. We have resolved our claims
against certain of our insurance carriers on some of their policies through negotiated settlements. When settlement is reached,
we dismiss the settling carrier from this action in Delaware.
28
During September 2013, we resolved coverage litigation with Associated International Insurance Company, through a
negotiated settlement. As part of this settlement, we dismissed all claims against Associated International Insurance Company
in the above-referenced coverage litigation in the Superior Court of the State of Delaware. The settlement did not have an
impact on our operating results.
During December 2013, we resolved coverage litigation with Allstate Insurance Company, through a negotiated
settlement. As part of this settlement, both parties dismissed all claims against one another under the above-referenced coverage
litigations in the Court of Common Pleas of Allegheny County, Pennsylvania and the Superior Court of the State of Delaware.
The settlement did not have an impact on our operating results.
During December 2013, we resolved coverage litigation with Columbia Casualty Company, through a negotiated
settlement. As part of this settlement, we dismissed all claims against Columbia Casualty Company in the above-referenced
coverage litigation in the Superior Court of the State of Delaware. The settlement did not have an impact on our operating
results.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
We prepare our consolidated financial statements in accordance with U.S. generally accepted accounting principles
(GAAP). The preparation of these financial statements requires us to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenues and expenses and the related disclosures. We evaluate these estimates and judgments on
an on-going basis based on historical experience and various assumptions that we believe to be reasonable under the
circumstances. However, different amounts could be reported if we had used different assumptions and in light of different facts
and circumstances. Actual amounts could differ from the estimates and judgments reflected in our financial statements. A
summary of the Company's significant accounting policies is included in Note 1 to the Consolidated Financial Statements in
Part II, Item 8 of this Form 10-K.
We believe that the following are the more critical judgments and estimates used in the preparation of our financial
statements.
Accounting for contingencies. We accrue for contingencies when we believe that it is probable that a liability or loss has
been incurred and the amount can be reasonably estimated. Contingencies relate to uncertainties that require our judgment both
in assessing whether or not a liability or loss has been incurred and in estimating the amount of the probable loss. Significant
contingencies affecting our financial statements include pending or threatened litigation, including product liability claims and
product warranties.
Product liability. We face an inherent business risk of exposure to product liability claims arising from the alleged failure
of our products to prevent the types of personal injury or death against which they are designed to protect. We categorize the
product liability losses that we experience into two main categories; single incident and cumulative trauma. Single incident
product liability claims are discrete incidents that are typically known to us when they occur and involve observable injuries
and, therefore, more quantifiable damages. We maintain a reserve for single incident product liability claims, based on expected
settlement costs for pending claims and an estimate of costs for unreported claims derived from experience, sales volumes and
other relevant information. We evaluate our single incident product liability exposures on an ongoing basis and make
adjustments to the reserve as new information becomes available.
Cumulative trauma product liability claims involve exposures to harmful substances that occurred many years ago and
may have developed over long periods of time into diseases such as silicosis, asbestosis, or coal worker’s pneumoconiosis. In
our experience, until late in a lawsuit, we cannot reasonably determine whether it is probable that any given cumulative trauma
lawsuit will ultimately result in a liability. This uncertainty is caused by many factors, including the following: cumulative
trauma complaints generally do not provide information sufficient to determine if a loss is probable; cumulative trauma
litigation is inherently unpredictable and information is often insufficient to determine if a lawsuit will develop into an actively
litigated case; and even when a case is actively litigated, it is often difficult to determine if the lawsuit will be dismissed or
otherwise resolved until late in the lawsuit. Moreover, even once it is probable that such a lawsuit will result in a loss, it is
difficult to reasonably estimate the amount of actual loss that will be incurred. These amounts are highly variable and turn on a
case-by-case analysis of the relevant facts, which are often not learned until late in the lawsuit. Therefore, we do not record
cumulative trauma product liability losses when a lawsuit is filed, but rather, when we learn sufficient information to determine
that it is probable that we will incur a loss and the amount of loss can be reasonably estimated.
We cannot estimate any amount or range of possible losses related to resolving pending and future cumulative trauma
product liability claims that we may face because of the factors described above. As new information about cumulative trauma
product liability claims and future developments becomes available, we reassess our potential exposures.
29
We record expenses for defense costs associated with open product liability lawsuits as incurred.
With some common contract exclusions, we maintain insurance for single incident and pre-1986 cumulative trauma
product liability claims and related defense costs. In the normal course of business, we make payments to settle product liability
claims and for related defense costs. We record receivables for the amounts that are covered by insurance.
Due to uncertainty as to the ultimate outcome of pending and threatened claims, as well as the incidence of future claims,
it is possible that future results could be materially affected by changes in our assumptions and estimates related to product
liability matters, including our estimates of amounts receivable from insurance carriers. Our product liability expense averaged
less than 1% of net sales during the three years ended December 31, 2013.
Product warranties. We accrue for the estimated probable cost of product warranties at the time that sales are recognized.
Our estimates are principally based on historical experience. We also accrue for our estimates of the probable costs of corrective
action when significant product quality issues are identified. These estimates are principally based on our assumptions
regarding the cost of corrective action and the probable number of units to be repaired or replaced. Our product warranty
obligation is affected by product failure rates, material usage and service delivery costs incurred in correcting a product failure.
Due to the uncertainty and potential volatility of these factors, it is possible that future results could be materially affected by
changes in our assumptions or the effectiveness of our strategies related to these matters. Our product warranty expense
averaged approximately 1% of net sales during the three years ended December 31, 2013.
Income taxes. We recognize deferred tax assets and liabilities using enacted tax rates to record the tax effect of temporary
differences between the book and tax basis of recorded assets and liabilities. We record valuation allowances to reduce deferred
tax assets to the amounts that we estimate are probable to be realized. When assessing the need for valuation allowances, we
consider projected future taxable income and prudent and feasible tax planning strategies. Should a change in circumstances
lead to a change in our judgments about the realizability of deferred tax assets in future years, we adjust the related valuation
allowances in the period that the change in circumstances occurs. We had valuation allowances of $4.9 million and $4.0 million
at December 31, 2013 and 2012, respectively.
We record an estimated income tax liability based on our best judgment of the amounts likely to be paid in the various tax
jurisdictions in which we operate. We record tax benefits related to uncertain tax positions taken or expected to be taken on a
tax return when such benefits meet a more likely than not threshold. We recognize interest related to unrecognized tax benefits
in interest expense and penalties in operating expenses. 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.
No deferred U.S. income taxes have been provided on undistributed earnings of non-U.S. subsidiaries, which amounted
to $290.5 million as of December 31, 2013. These earnings are considered to be reinvested for an indefinite period of time.
Because we currently do not have any plans to repatriate these funds, we cannot determine the impact of local taxes,
withholding taxes and foreign tax credits associated with the future repatriation of such earnings and, therefore, cannot
reasonably estimate the associated tax liability. In cases where we intend to repatriate a portion of the undistributed earnings of
our foreign subsidiaries, we provide U.S. income taxes on such earnings.
Pensions and other postretirement benefits. We sponsor certain pension and other postretirement benefit plans.
Accounting for the net periodic benefit costs and credits for these plans requires us to estimate the cost of benefits to be
provided well into the future and to attribute these costs over the expected work life of the employees participating in these
plans. These estimates require our judgment about discount rates used to determine these obligations, expected returns on plan
assets, rates of future compensation increases, rates of increase in future health care costs, participant withdrawal and mortality
rates and participant retirement ages. Differences between our estimates and actual results may significantly affect the cost of
our obligations under these plans and could cause net periodic benefit costs and credits to change materially from year-to-year.
The discount rate assumptions used in determining projected benefit obligations are based on published long-term bond indices
or a company-specific yield curve model.
Goodwill. In the third quarter of each year, or more frequently if indicators of impairment exist or if a decision is made to
sell a business, we evaluate goodwill for impairment. A significant amount of judgment is involved in determining if an
indicator of impairment has occurred. Such indicators may include a decline in expected cash flows, a significant adverse
change in the business climate, unanticipated competition, slower growth rates, or negative developments in equity and credit
markets, among others.
30
All goodwill is assigned to reporting units. For goodwill impairment testing purposes, we consider our operating
segments to be our reporting units. We test goodwill for impairment by either performing a qualitative evaluation or a two-step
quantitative test. The qualitative evaluation is an assessment of factors to determine whether it is more likely than not that the
fair value of a reporting unit is less than its carrying value, including goodwill. Factors considered as part of the qualitative
assessment include entity-specific industry, market and general economic conditions. In 2013 we performed a qualitative
assessment for all of our reporting units. However, in the future, we may elect to bypass this qualitative evaluation for some or
all of our reporting units and perform a two-step quantitative test. Quantitative testing involves comparing the estimated fair
value of each reporting unit to its carrying value. We estimate reporting unit fair value using discounted cash flow (DCF)
methodologies, as we believe forecasted cash flows are the best indicator of fair value. A number of significant assumptions and
estimates are involved in the application of the DCF model, including sales volumes and prices, costs to produce, tax rates,
capital spending, discount rates, and working capital changes. Cash flow forecasts are generally based on approved business
unit operating plans for the early years and historical relationships in later years. The betas used in calculating the individual
reporting units’ weighted average cost of capital (WACC) rate are estimated for each reporting unit based on peer data.
In the event the estimated fair value of a reporting unit per the DCF model is less than the carrying value, additional
analysis would be required. The additional analysis would compare the carrying amount of the reporting unit’s goodwill with
the implied fair value of that goodwill, which may involve the use of valuation experts. The implied fair value of goodwill is
the excess of the fair value of the reporting unit over the fair value amounts assigned to all of the assets and liabilities of that
unit as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit represented the
purchase price. If the carrying value of goodwill exceeds its implied fair value, an impairment loss equal to such excess would
be recognized, which could significantly and adversely impact reported results of operations and shareholders’ equity. For
2013, based on our qualitative valuation, none of our reporting units were close to an impairment.
RECENTLY ADOPTED AND RECENTLY ISSUED ACCOUNTING STANDARDS
In July, 2013, the FASB issued ASU 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss
Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. This ASU requires an unrecognized tax benefit, or a
portion of an unrecognized tax benefit, to be presented in the financial statements as a reduction to a deferred tax asset for a net
operating loss carryforward, a similar tax loss, or a tax credit carryforward. The ASU will be effective beginning in 2014. The
adoption of this ASU will not have a material effect on our consolidated statements.
In March 2013, FASB issued ASU 2013-05, Parent's Accounting for the Cumulative Translation Adjustment upon
Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity. This
ASU 2013-05 addresses the accounting for the cumulative translation adjustment when a parent either sells a part or all of its
investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets that is a
business within a foreign entity. The guidance outlines the events when cumulative translation adjustments should be released
into net income. This ASU will be effective beginning in 2014. The adoption of this ASU may have a material effect on our
consolidated financial statements, in the event that we were to divest of a foreign affiliate.
In February 2013, the FASB issued ASU 2013-02, Comprehensive Income-Reporting of Amounts Reclassified Out of
Accumulated Other Comprehensive Income. This ASU requires additional information about the amounts reclassified out of
accumulated other comprehensive income by component. The adoption of this ASU on January 1, 2013 did not have a material
effect on our consolidated financial statements.
Item 7A. Quantitative and Qualitative Disclosures About 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. We are exposed to market risks related to currency exchange rates and interest
rates.
Currency exchange rates. We are subject to the effects of fluctuations in currency exchange rates on various transactions
and on the translation of the reported financial position and operating results of our non-U.S. companies from local currencies
to U.S. dollars. A hypothetical 10% strengthening or weakening of the U.S. dollar would increase or decrease our reported sales
and net income for the year ended December 31, 2013 by approximately $57.5 million and $4.6 million, respectively.
When appropriate, we may attempt to limit our transactional exposure to changes in currency exchange rates through
contracts or other actions intended to reduce existing exposures by creating offsetting currency exposures. At December 31,
2013, we had open foreign currency forward contracts with a U.S. dollar notional value of $54.4 million. A hypothetical 10%
increase in December 31, 2013 forward exchange rates would result in a $5.4 million increase in the fair value of these
contracts.
31
Interest rates. We are 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 our revolving credit facility and industrial development debt, these financial instruments are reported at
carrying values which approximate fair values.
We have $160.0 million of fixed rate debt which matures at various dates through 2021. 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 $2.6
million. However, our sensitivity to interest rate declines and the corresponding increase in the fair value of our debt portfolio
would unfavorably affect earnings and cash flows only to the extent that we elected to repurchase or retire all or a portion of our
fixed rate debt portfolio at prices above carrying values.
Actuarial assumptions. The most significant actuarial assumptions affecting our net periodic pension credit and pension
obligations are discount rates, expected returns on plan assets and plan asset valuations. Discount rates and plan asset valuations
are point-in-time measures. Expected returns on plan assets are based on our historical returns by asset class.
The following table summarizes the impact of changes in significant actuarial assumptions on our December 31, 2013
actuarial valuations.
(In thousands)
(Decrease) increase in net
benefit cost
(Decrease) increase in
projected benefit obligation
Increase (decrease) in
funded status
Impact of Changes in Actuarial Assumptions
Change in Discount
Rate
Change in Expected
Return
Change in Market Value of
Assets
1%
(1)%
1%
(1)%
5%
(5)%
$
(5,610) $
6,742
$
(3,815) $
3,813
$
(898) $
894
—
—
21,728
(21,728)
(55,802)
64,198
55,802
(64,198)
—
—
—
—
32
Item 8. Financial Statements and Supplementary Data
Management’s Reports to Shareholders
Management’s Report on Responsibility for Financial Reporting
Management of Mine Safety Appliances Company (the Company) is responsible for the preparation of the financial
statements included in this annual report. The financial statements were prepared in accordance with accounting principles
generally accepted in the United States of America and include amounts that are based on the best estimates and judgments of
management. The other financial information contained in this annual report is consistent with the financial statements.
Management’s Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting. The
Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles.
The Company’s internal control over financial reporting includes policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets; (2) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with
authorizations of management and the directors of the Company; and (3) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on our
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31,
2013. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) in Internal Control-Integrated Framework (1992). Based on our assessment and those criteria,
management has concluded that the Company maintained effective internal control over financial reporting as of December 31,
2013.
The effectiveness of the Company’s internal control over financial reporting as of December 31, 2013 has been audited by
PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report, which is included
herein.
/s/ WILLIAM M. LAMBERT
William M. Lambert
Chief Executive Officer
/s/ STACY P. McMAHAN
Stacy P. McMahan
Senior Vice President of Finance and Chief Financial Officer
February 24, 2014
33
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of Mine Safety Appliances Company:
In our opinion, the consolidated balance sheets and related consolidated statements of income, comprehensive income, cash
flows and changes in retained earnings and accumulated other comprehensive loss present fairly, in all material respects, the
financial position of Mine Safety Appliances Company and its subsidiaries (the “Company”) at December 31, 2013 and 2012,
and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2013 in
conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the
financial statement schedule listed in the index appearing under Item 15 presents fairly, in all material respects, the information
set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company
maintained, in all material respects, effective internal control over financial reporting as of December 31, 2013, based on
criteria established in Internal Control - Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of
the Treadway Commission (COSO). The Company’s management is responsible for these financial statements and financial
statement schedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness
of internal control over financial reporting, included in Management’s Report on Internal Control over Financial Reporting
appearing under Item 8. Our responsibility is to express opinions on these financial statements, on the financial statement
schedule, and on the Company’s internal control over financial reporting based on our integrated audits. We conducted our
audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of
material misstatement and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the financial statements included 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. Our audit of internal control over financial reporting included obtaining
an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included
performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a
reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Pittsburgh, Pennsylvania
February 24, 2014
34
MINE SAFETY APPLIANCES COMPANY
CONSOLIDATED STATEMENT OF INCOME
(In thousands, except per share amounts)
Net sales
Other (loss) income, net (Note 14)
Costs and expenses
Cost of products sold
Selling, general and administrative
Research and development
Restructuring and other charges (Note 2)
Interest expense
Currency exchange losses, net
Income from continuing operations before income taxes
Provision for income taxes (Note 9)
Income from continuing operations
Income from discontinued operations (Note 19)
Net income
Year ended December 31,
2013
2012
2011
$
1,112,058
(175)
1,111,883
615,213
309,206
45,858
5,344
10,677
5,452
991,750
120,133
35,145
84,988
3,061
88,049
$
1,110,443
$
1,112,814
10,876
1,121,319
620,895
312,858
40,900
2,787
11,344
3,192
991,976
129,343
41,401
87,942
3,819
91,761
5,458
1,118,272
654,447
297,779
39,245
8,559
14,116
3,051
1,017,197
101,075
33,807
67,268
2,777
70,045
Net loss (income) attributable to noncontrolling interests
198
(1,124)
(193)
Net income attributable to Mine Safety Appliances Company
Amounts attributable to Mine Safety Appliances Company
common shareholders:
Income from continuing operations
Income from discontinued operations (Note 19)
Net income
Earnings per share attributable to Mine Safety Appliances
Company common shareholders (Note 8)
Basic
Income from continuing operations
Income from discontinued operations (Note 19)
Net income
Diluted
Income from continuing operations
Income from discontinued operations (Note 19)
Net income
88,247
90,637
69,852
85,858
2,389
88,247
87,557
3,080
90,637
67,518
2,334
69,852
$
$
$
$
$
$
2.31
0.06
2.37
2.28
0.06
2.34
$
$
$
$
$
$
2.37
0.08
2.45
2.34
0.08
2.42
$
$
$
$
$
$
1.85
0.06
1.91
1.81
0.06
1.87
The accompanying notes are an integral part of the consolidated financial statements.
35
MINE SAFETY APPLIANCES COMPANY
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(In thousands)
Net income
Foreign currency translation adjustments
Pension and post-retirement plan adjustments (Note 13)
Comprehensive income
Comprehensive loss (income) attributable to noncontrolling interests
Comprehensive income attributable to Mine Safety Appliances
Year ended December 31,
2013
2012
2011
$
88,049
(7,281)
54,951
135,719
1,331
137,050
$
91,761
$
3,846
(28,018)
67,589
(840)
66,749
70,045
(15,980)
(44,218)
9,847
1,137
10,984
The accompanying notes are an integral part of the consolidated financial statements.
36
MINE SAFETY APPLIANCES COMPANY
CONSOLIDATED BALANCE SHEET
(In thousands, except share amounts)
Assets
Cash and cash equivalents
Trade receivables, less allowance for doubtful accounts of $7,306 and $7,402
Inventories (Note 3)
Deferred tax assets (Note 9)
Income taxes receivable
Prepaid expenses and other current assets (Note 16)
Total current assets
Property, plant, and equipment (Note 4)
Prepaid pension cost (Note 13)
Deferred tax assets (Note 9)
Goodwill (Note 12)
Intangible assets (Note 12)
Other noncurrent assets
Total assets
Liabilities
Notes payable and current portion of long-term debt (Note 11)
Accounts payable
Employees’ compensation
Insurance and product liability
Taxes on income (Note 9)
Other current liabilities
Total current liabilities
Long-term debt (Note 11)
Pensions and other employee benefits (Note 13)
Deferred tax liabilities (Note 9)
Other noncurrent liabilities
Total liabilities
Commitments and Contingencies (Note 18)
Shareholders' Equity
Preferred stock, 4 1/2% cumulative, $50 par value (Note 6)
Common stock, no par value (Note 6)
Stock compensation trust (Note 10)
Treasury shares, at cost (Note 6)
Accumulated other comprehensive loss
Retained earnings
Total shareholders’ equity
Noncontrolling interests
Total shareholders’ equity
Total liabilities and shareholders’ equity
$
$
December 31,
2013
2012
$
$
96,265
200,364
136,837
22,458
9,181
35,861
500,966
152,755
121,054
14,996
260,134
35,029
149,336
1,234,270
7,500
66,902
38,164
14,251
3,662
61,085
191,564
260,667
152,084
49,621
7,987
661,923
3,569
132,055
(1,585)
(281,524)
(78,269)
792,206
566,452
5,895
572,347
1,234,270
82,718
191,289
136,300
17,727
6,342
29,172
463,548
147,465
42,818
17,018
258,400
38,648
143,849
1,111,746
6,823
59,519
41,602
15,025
4,389
61,442
188,800
272,333
151,536
17,249
11,124
641,042
3,569
112,135
(3,891)
(269,739)
(127,072)
747,953
462,955
7,749
470,704
1,111,746
The accompanying notes are an integral part of the consolidated financial statements.
37
MINE SAFETY APPLIANCES COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
Year ended December 31,
2013
2012
2011
$
(In thousands)
Operating Activities
Net income
Depreciation and amortization
Pensions (Note 13)
Net gain from investing activities—asset disposals (Note 14)
Stock-based compensation (Note 10)
Deferred income tax provision (Note 9)
Other noncurrent assets and liabilities
Currency exchange losses, net
Excess tax benefit related to stock plans (Note 6)
Other, net
Operating cash flow before changes in certain working
capital items
(Increase) decrease in trade receivables
(Increase) decrease in inventories (Note 3)
Increase (decrease) in accounts payable and accrued liabilities
(Increase) decrease in income taxes receivable, prepaid
expenses and other current assets
(Increase) decrease in certain working capital items
Cash Flow From Operating Activities
Investing Activities
Capital expenditures
Property disposals
Other investing
Cash Flow From Investing Activities
Financing Activities
Proceeds from (payments on) short-term debt, net (Note 11)
Payments on long-term debt (Note 11)
Proceeds from long-term debt (Note 11)
Restricted cash
Cash dividends paid
Distributions to noncontrolling interests
Company stock purchases (Note 6)
Exercise of stock options (Note 6)
Excess tax benefit related to stock plans (Note 6)
Cash Flow From Financing Activities
Effect of exchange rate changes on cash and cash
equivalents
Increase in cash and cash equivalents
Beginning cash and cash equivalents
Ending cash and cash equivalents
Supplemental cash flow information:
Interest payments
Income tax payments
$
88,049
30,764
12,268
(436)
10,337
(3,234)
(18,162)
5,127
(2,246)
4,386
126,853
(13,171)
(6,296)
10,732
(7,337)
(16,072)
110,781
(36,517)
1,360
—
(35,157)
662
(306,766)
295,100
(2,790)
(43,994)
(556)
(11,785)
9,643
2,246
(58,240)
(3,837)
13,547
82,718
96,265
$
91,761
31,702
3,673
(8,396)
10,010
213
(14,104)
3,151
(2,799)
1,103
116,314
2,346
2,677
17,776
11,363
34,162
150,476
(32,209)
20,193
(5,269)
(17,285)
(128)
(246,500)
183,500
—
(50,990)
—
(3,508)
4,306
2,799
(110,521)
110
22,780
59,938
82,718
70,045
32,866
(4,967)
(3,328)
7,732
8,800
(24,130)
2,511
(632)
(1,335)
87,562
(217)
(1,230)
(398)
(459)
(2,304)
85,258
(30,390)
18,687
—
(11,703)
137
(199,000)
164,000
—
(37,741)
—
(624)
1,316
632
(71,280)
(2,097)
178
59,760
59,938
13,969
21,739
$
$
10,884
36,242
$
10,772
29,807
The accompanying notes are an integral part of the consolidated financial statements.
38
MINE SAFETY APPLIANCES COMPANY
CONSOLIDATED STATEMENT OF CHANGES IN RETAINED EARNINGS AND
ACCUMULATED OTHER COMPREHENSIVE LOSS
(In thousands)
Balances January 1, 2011
Net income
Foreign currency translation adjustments
Pension and post-retirement plan adjustments, net of tax of $28,636
(Income) loss attributable to noncontrolling interests
Common dividends
Preferred dividends
Balances December 31, 2011
Net income
Foreign currency translation adjustments
Pension and post-retirement plan adjustments, net of tax of $11,364
(Income) loss attributable to noncontrolling interests
Common dividends
Preferred dividends
Balances December 31, 2012
Net income
Foreign currency translation adjustments
Pension and post-retirement plan adjustments, net of tax of $30,849
Loss attributable to noncontrolling interests
Common dividends
Preferred dividends
Balances December 31, 2013
Retained
Earnings
$
676,195
$
70,045
—
—
(193)
(37,699)
(42)
708,306
91,761
—
—
(1,124)
(50,948)
(42)
747,953
88,049
—
—
198
(43,952)
(42)
792,206
Accumulated
Other
Comprehensive
(Loss)
(44,316)
—
(15,980)
(44,218)
1,330
—
—
(103,184)
—
3,846
(28,018)
284
—
—
(127,072)
—
(7,281)
54,951
1,133
—
—
(78,269)
Components of accumulated other comprehensive loss are as follows:
(In thousands)
Cumulative translation adjustments
Pension and post-retirement plan adjustments (Note 13)
Accumulated other comprehensive loss
$
2013
(1,189) $
(77,080)
(78,269)
December 31,
2012
$
4,959
(132,031)
(127,072)
2011
829
(104,013)
(103,184)
The accompanying notes are an integral part of the consolidated financial statements.
39
MINE SAFETY APPLIANCES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1—Significant Accounting Policies
Basis of Presentation—The Consolidated Financial Statements of Mine Safety Appliances Company are prepared in
conformity with accounting principles generally accepted in the United States of America (GAAP) and require management to
make certain judgments, estimates, and assumptions. These may affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial statements. They also may affect the reported amounts
of revenues and expenses during the reporting period. Actual results could differ from those estimates upon subsequent
resolution of identified matters. Certain amounts in previously issued financial statements were reclassified to conform to the
2013 presentation. See Note 19 for further information regarding Discontinued Operations.
Principles of Consolidation—The consolidated financial statements include the accounts of the company and all
subsidiaries. Intercompany accounts and transactions are eliminated.
Noncontrolling Interests—Noncontrolling interests reflect noncontrolling shareholders’ investments in certain
consolidated subsidiaries and their proportionate share of the income and accumulated other comprehensive income of those
subsidiaries.
Currency Translation—The functional currency of all significant non-U.S. subsidiaries is the local currency. Assets and
liabilities of these operations are translated at year-end exchange rates. Income statement accounts are translated using the
average exchange rates for the reporting period. 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 reporting period.
Cash Equivalents—Cash equivalents include temporary deposits with financial institutions and highly liquid investments
with original maturities of 90 days or less.
Restricted Cash—Restricted cash, which is designated for use other than current operations is included in the Prepaid
Expenses and Other Current Assets in the Consolidated Balance Sheet. Restricted cash balances were $2.8 million at December
31, 2013 and were used to support letter of credit balances. The Company did not have restricted cash at December 31, 2012 or
2011.
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, generally as follows: buildings 20 to 40 years and machinery and
equipment 3 to 10 years. 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 other income and the cost and
related depreciation are removed from the accounts. Depreciation expense for the years ended December 31, 2013, 2012 and
2011 was $27.1 million, $27.5 million and $27.1 million, respectively. Properties, plants, and equipment are reviewed for
impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be
recoverable. Recoverability of assets is determined by comparing the estimated undiscounted net cash flows of the operations
related to the assets to their carrying amount. An impairment loss would be recognized when the carrying amount of the assets
exceeds the estimated undiscounted net cash flows. The amount of the impairment loss to be recorded is calculated as the
excess of the carrying value of the assets over their fair value, with fair value determined using the best information available,
which generally is a discounted cash flow model.
Goodwill and Other Intangible Assets—Intangible assets are amortized on a straight-line basis over their useful lives.
Intangible assets are reviewed for possible impairment whenever circumstances change such that the recorded value of the asset
may not be recoverable. Goodwill is not amortized, but is subject to impairment write-down tests. We test the goodwill of each
of our reporting units for impairment at least annually. The annual goodwill impairment tests are performed as of September 30
each year. All goodwill is assigned to reporting units. For this purpose, we consider our operating segments to be our reporting
units. We test goodwill for impairment by either performing a qualitative evaluation or a two-step quantitative test. The
qualitative evaluation is an assessment of various factors to determine whether it is more likely than not that the fair value of a
reporting unit is less than its carrying value, including goodwill.
40
Factors considered as part of the qualitative assessment include entity-specific industry, market and general economic
conditions. We may elect to bypass the qualitative assessment for some or all of our reporting units and perform a two-step
quantitative test. Quantitative testing involves estimating a reporting unit’s fair value. We estimate reporting unit fair value
using discounted cash flow methodologies. There has been no impairment of our goodwill as of December 31, 2013.
Revenue Recognition—Revenue from the sale of products is recognized when title, ownership and the risk of loss have
transferred to the customer, which generally occurs either when product is shipped to the customer or, in the case of most U.S.
distributor customers, when product is delivered to the customer’s delivery site. We establish our shipping terms according to
local practice and market characteristics. We do not ship product unless we have an order or other documentation authorizing
shipment to our customers. We make appropriate provisions for uncollectible accounts receivable and product returns, both of
which have historically been insignificant in relation to our net sales. Certain distributor customers receive price rebates based
on their level of purchases and other performance criteria that are documented in established distributor programs. These
rebates are accrued as a reduction of net sales as they are earned by 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.
Product Warranties—Estimated expenses related to product warranties and additional service actions are charged to cost
of products sold in the period in which the related revenue is recognized or when significant product quality issues are
identified.
Research and Development—Research and development costs are expensed 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. We record tax benefits related to uncertain tax positions taken or
expected to be taken on a tax return when such benefits meet a more likely than not threshold. We recognize interest related to
unrecognized tax benefits in interest expense and penalties in operating expenses. No provision is made for possible U.S. taxes
on the undistributed earnings of foreign subsidiaries that are considered to be reinvested indefinitely.
Stock-Based Compensation—We account for stock-based compensation in accordance with the FASB guidance on
share-based payment, which requires that we recognize compensation expense for employee and non-employee director stock-
based compensation based on the grant date fair value. Except for retirement-eligible participants, for whom there is no
requisite service period, this expense is recognized ratably over the requisite service periods following the date of grant. For
retirement-eligible participants, this expense is recognized at the grant date.
Derivative Instruments—We may use derivative instruments to minimize the effects of changes in currency exchange
rates. We do not enter into derivative transactions for speculative purposes and do not hold derivative instruments for trading
purposes. Changes in the fair value of derivative instruments designated as fair value hedges are recorded in the balance sheet
as adjustments to the underlying hedged asset or liability. Changes in the fair value of derivative instruments that do not qualify
for hedge accounting treatment are recognized in the income statement as currency exchange (income) loss in the current
period.
Commitments and Contingencies—For asserted claims and assessments, liabilities are recorded when an unfavorable
outcome of a matter is deemed to be probable and the loss is reasonably estimable. Management determines the likelihood of an
unfavorable outcome based on many factors such as the nature of the matter, available defenses and case strategy, progress of
the matter, views and opinions of legal counsel and other advisors, applicability and success of appeals processes, and the
outcome of similar historical matters, among others. Once an unfavorable outcome is deemed probable, management weighs
the probability of estimated losses, and the most reasonable loss estimate is recorded. If an unfavorable outcome of a matter is
deemed to be reasonably possible, then the matter is disclosed and no liability is recorded. With respect to unasserted claims or
assessments, management must first determine that the probability that an assertion will be made is likely, then, a determination
as to the likelihood of an unfavorable outcome and the ability to reasonably estimate the potential loss is made. Legal matters
are reviewed on a continuous basis to determine if there has been a change in management’s judgment regarding the likelihood
of an unfavorable outcome or the estimate of a potential loss.
41
Discontinued Operations and Assets Held For Sale—For those businesses where management has committed to a plan
to divest, each business is valued at the lower of its carrying amount or estimated fair value less cost to sell. If the carrying
amount of the business exceeds its estimated fair value, an impairment loss is recognized. Fair value is estimated using accepted
valuation techniques such as a DCF model, valuations performed by third parties, earnings multiples, or indicative bids, when
available. A number of significant estimates and assumptions are involved in the application of these techniques, including the
forecasting of markets and market share, sales volumes and prices, costs and expenses, and multiple other factors. Management
considers historical experience and all available information at the time the estimates are made; however, the fair value that is
ultimately realized upon the divestiture of a business may differ from the estimated fair value reflected in the Consolidated
Financial Statements. Depreciation and amortization expense is not recorded on assets of a business to be divested once they
are classified as held for sale.
For businesses classified as discontinued operations, the results of operations are reclassified from their historical
presentation to discontinued operations on the Consolidated Statement of Income, for all periods presented. The gains or losses
associated with these divested businesses are recorded in discontinued operations on the Consolidated Statement of Income.
Additionally, segment information does not include the operating results of businesses classified as discontinued operations for
all periods presented. Management does not expect any continuing involvement with these businesses following their
divestiture, and these businesses are expected to be disposed of within one year.
Recently Adopted and Recently Issued Accounting Standards—In July, 2013, the FASB issued ASU 2013-11,
Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit
Carryforward Exists. This ASU requires an unrecognized tax benefit, or a portion of an unrecognized tax benefit, to be
presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax
loss, or a tax credit carryforward. The ASU will be effective beginning in 2014. The adoption of this ASU will not have a
material effect on our consolidated statements.
In March 2013, FASB issued ASU 2013-05, Parent's Accounting for the Cumulative Translation Adjustment upon
Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity. This
ASU 2013-05 addresses the accounting for the cumulative translation adjustment when a parent either sells a part or all of its
investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets that is a
business within a foreign entity. The guidance outlines the events when cumulative translation adjustments should be released
into net income. This ASU will be effective beginning in 2014. The adoption of this ASU may have a material effect on our
consolidated financial statements, in the event that we were to divest of a foreign affiliate.
In February 2013, the FASB issued ASU 2013-02, Comprehensive Income-Reporting of Amounts Reclassified Out of
Accumulated Other Comprehensive Income. This ASU requires additional information about the amounts reclassified out of
accumulated other comprehensive income by component. The adoption of this ASU on January 1, 2013 did not have a material
effect on our consolidated financial statements.
Note 2—Restructuring and Other Charges
During the years ended December 31, 2013, 2012 and 2011, we recorded restructuring charges of $5.3 million, $2.8
million and $8.6 million, respectively. These charges were primarily related to reorganization activities.
For the year ended December 31, 2013, European segment charges of $3.0 million were primarily related to staff
reductions in Germany and the Netherlands. $1.7 million of the European restructuring charges are accrued at December 31,
2013 and are expected to be paid in the next year. International segment charges of $2.3 million for the year ended December
31, 2013 were primarily related to staff reductions in Australia and South Africa and were paid out in cash in 2013.
For the year ended December 31, 2012, North American, European and International segment charges of $1.5 million,
$1.1 million and $0.2 million, respectively, were primarily related to severance costs associated with staff reductions. At
December 31, 2012, the North American, European and International segments each had accrued restructuring charges of $0.3
million, $2.5 million and $0.2 million, respectively.
For the year ended December 31, 2011, European segment charges of $5.8 million related primarily to staff reductions
and the transfer of certain production activities to China. $4.3 million of the European restructuring charges were accrued at
December 31, 2011. North American segment charges for the year ended December 31, 2011 of $1.7 million included costs
associated with the relocation of certain administrative and production activities. International segment charges for the year
ended December 31, 2011 of $1.1 million were primarily related to severance costs associated with the relocation of our Wuxi,
China operations to Suzhou, China.
42
Note 3—Inventories
(In thousands)
Finished products
Work in process
Raw materials and supplies
Total inventories
Excess of FIFO costs over LIFO costs
Total FIFO inventories
$
December 31,
2013
2012
$
74,466
8,108
54,263
136,837
44,670
181,507
72,658
13,473
50,169
136,300
46,519
182,819
Inventories stated on the LIFO basis represent 15% and 16% of total inventories at December 31, 2013 and 2012,
respectively.
Reductions in certain inventory quantities during the years ended December 31, 2013 and 2012 resulted in liquidations of
LIFO inventories carried at lower costs prevailing in prior years. The effect of LIFO liquidations during 2013 reduced cost of
sales by $2.1 million and increased net income by $1.4 million. The effect of LIFO liquidations during 2012 reduced cost of
sales by $0.8 million and increased net income by $0.5 million.
Note 4—Property, Plant, and Equipment
(In thousands)
Land
Buildings
Machinery and equipment
Construction in progress
Total
Less accumulated depreciation
Net property
Note 5—Reclassifications Out of Accumulated Other Comprehensive Loss
$
December 31,
2013
2012
$
3,835
110,534
349,667
16,364
480,400
(327,645)
152,755
5,267
107,082
334,951
10,444
457,744
(310,279)
147,465
(In thousands)
Amortization of prior service cost
Recognized net actuarial losses
Total reclassifications
Tax benefit
Total reclassifications, net of tax
Note 6—Capital Stock
Year ended December 31,
2013
2012
2011
$
(322) $
13,875
13,553
5,066
8,487
(353) $
6,764
6,411
2,469
3,942
(351)
1,503
1,152
411
741
Preferred Stock - The Company has authorized 100,000 shares of $50 par value 4.5% cumulative preferred nonvoting
stock which is callable at $52.50. There are 71,373 shares issued and 52,878 shares held in treasury at December 31, 2013.
There were no treasury purchases of preferred stock during the three years ended December 31, 2013. The Company has also
authorized 1,000,000 shares of $10 par value second cumulative preferred voting stock. No shares have been issued as of
December 31, 2013.
Common Stock - The Company has authorized 180,000,000 shares of no par value common stock. There were
37,202,099 and 37,007,799 shares outstanding at December 31, 2013 and December 31, 2012, respectively. Common stock
activity is summarized as follows:
43
(Dollars in thousands)
Balances January 1, 2011
Restricted stock awards
Restricted stock expense
Restricted stock forfeitures
Stock options exercised
Stock option expense
Performance stock expense
Tax benefit related to stock plans
Treasury shares purchased
Balances December 31, 2011
Restricted stock awards
Restricted stock expense
Restricted stock forfeitures
Stock options exercised
Stock option expense
Performance stock issued
Performance stock expense
Tax benefit related to stock plans
Treasury shares purchased
Other, net
Balances December 31, 2012
Restricted stock awards
Restricted stock expense
Restricted stock forfeitures
Stock options exercised
Stock option expense
Performance stock issued
Performance stock expense
Tax benefit related to stock plans
Treasury shares purchased
Issued
62,081,391
—
—
—
—
—
—
—
—
62,081,391
—
—
—
—
—
—
—
—
—
—
62,081,391
—
—
—
—
—
—
—
—
—
Balances December 31, 2013
62,081,391
Shares
Stock
Compensation
Trust
(1,360,714)
103,815
—
—
94,115
—
—
—
—
(1,162,784)
136,295
—
—
223,022
—
58,037
—
—
—
—
(745,430)
96,686
—
—
277,687
—
67,389
—
—
—
(303,668)
Treasury
Common
Stock
(24,200,951) $ 88,629
(542)
—
4,376
(6)
825
—
(7,469)
—
—
—
—
(17,597)
(24,226,017)
—
—
(10,815)
—
—
—
—
—
(91,330)
—
(24,328,162)
—
—
(7,365)
—
—
—
—
(240,097)
(24,575,624)
2,343
1,019
632
—
97,276
(711)
4,891
(147)
3,141
2,435
(303)
2,831
2,799
—
(77)
112,135
(505)
4,244
(115)
8,194
2,825
(352)
3,383
2,246
—
132,055
Dollars
Stock
Compensation
Trust
Treasury
Cost
$
(7,103) $ (263,855)
—
542
—
—
491
—
—
—
—
(6,070)
711
—
—
1,165
—
303
—
—
—
—
(3,891)
505
—
—
1,449
—
352
—
—
—
(1,585)
—
—
—
—
—
—
(624)
(264,479)
—
—
—
—
—
—
—
—
(3,508)
—
(267,987)
—
—
—
—
—
—
—
—
(11,785)
(279,772)
The Mine Safety Appliances Company Stock Compensation Trust was established to provide shares for certain benefit
plans, including the management and non-employee directors’ equity incentive plans. 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 common stock issued.
In November 2005, the Board of Directors authorized the purchase of up to $100 million of MSA common stock either
through private transactions or open market transactions. The share purchase program has no expiration date. The maximum
shares that may yet be purchased is calculated based on the dollars remaining under the program and the respective month-end
closing share price. We do not have any other share purchase programs. The above treasury share purchases are related to
stock compensation transactions.
44
Note 7—Segment Information
We are organized into eleven geographic operating segments based on management responsibilities. The operating
segments have been aggregated (based on economic similarities, the nature of their products, end-user markets and methods of
distribution) into three reportable segments: North America, Europe and International.
Reportable segment information is presented in the following table:
(In thousands)
2013
Sales to external customers
Intercompany sales
Net income:
Continuing operations
Discontinued operations
Total assets
Interest income
Interest expense
Noncash items:
Depreciation and amortization
Pension expense
Income tax provision
Capital expenditures
Net Property
2012
Sales to external customers
Intercompany sales
Net income:
Continuing operations
Discontinued operations
Total assets
Interest income
Interest expense
Noncash items:
Depreciation and amortization
Pension income (expense)
Income tax provision
Capital expenditures
Net Property
2011
Sales to external customers
Intercompany sales
Net income:
Continuing operations
Discontinued operations
Total assets
Interest income
Interest expense
Noncash items:
Depreciation and amortization
Pension income (expense)
Income tax provision
Capital expenditures
Net property
North
America
Europe
International
Reconciling
Items
Consolidated
Totals
$
559,193
122,013
$
289,760
98,491
$
263,105
21,075
$
— $
(241,579)
1,112,058
—
70,577
—
836,418
243
52
19,732
(4,765)
35,602
17,963
85,087
551,927
114,354
64,270
—
726,476
364
106
21,446
2,138
39,125
20,129
85,923
561,140
100,094
53,674
—
742,707
78
29
22,036
10,800
31,821
20,035
85,643
18,398
—
394,463
90
175
5,357
(6,328)
6,133
11,833
33,162
289,549
98,096
20,424
—
352,601
147
350
5,354
(4,700)
7,362
5,106
25,460
286,753
116,471
11,689
—
340,305
192
253
6,239
(5,638)
6,187
4,384
25,273
20,373
2,389
222,427
809
2
5,675
(1,268)
6,182
6,721
34,505
268,967
18,641
19,238
3,080
205,959
886
78
4,902
(1,111)
8,085
6,974
36,081
264,921
18,305
24,818
2,334
194,127
1,215
137
4,591
(195)
5,726
5,971
34,846
(23,490)
—
(219,038)
—
10,448
—
—
(12,772)
—
1
85,858
2,389
1,234,270
1,142
10,677
30,764
(12,361)
35,145
36,517
152,755
—
(231,091)
1,110,443
—
(16,375)
—
(173,290)
14
10,810
—
—
(13,171)
—
1
87,557
3,080
1,111,746
1,411
11,344
31,702
(3,673)
41,401
32,209
147,465
—
(234,870)
1,112,814
—
(22,663)
—
(162,087)
324
13,697
—
—
(9,927)
—
1
67,518
2,334
1,115,052
1,809
14,116
32,866
4,967
33,807
30,390
145,763
Reconciling items consist primarily of intercompany eliminations and items reported at the corporate level.
45
Geographic information on sales to external customers, based on country of origin:
(In thousands)
United States
Germany
Other
Total
2013
2012
2011
$
528,178
$
527,550
$
71,139
512,741
1,112,058
74,557
508,336
1,110,443
538,257
75,536
499,021
1,112,814
Geographic information on net property, based on country of origin:
(In thousands)
United States
Germany
China
Other
Total
$
2013
2012
2011
$
82,274
16,882
16,010
37,589
152,755
$
82,820
8,781
14,780
41,084
147,465
82,318
9,303
14,817
39,325
145,763
Sales are allocated to each country based on the destination of the end-customer. Core product sales represented 73% of
total sales for the year ended December 31, 2013, up from 70% for the year ended December 31, 2012. The percentage of total
sales by core product group were as follows: fixed gas & flame detection instruments, 22%; breathing apparatus, 20%; portable
gas detection instruments, 14%; industrial head protection, 13%; and fall protection at 4% of total sales. The remaining 27% of
total sales represented non-core product sales for the year ended December 31, 2013, an improvement from 30% of total sales
for the year ended December 31, 2012.
Note 8—Earnings per Share
Basic earnings per share is computed by dividing net income, after the deduction of preferred stock dividends and
undistributed earnings allocated to participating securities, by the weighted average number of common shares outstanding
during the period. Diluted earnings per share assumes the issuance of common stock for all potentially dilutive share
equivalents outstanding not classified as participating securities. Participating securities are defined as unvested stock-based
payment awards that contain nonforfeitable rights to dividends.
(In thousands, except per share amounts)
Net income attributable to continuing operations
Preferred stock dividends
Income from continuing operations available to common equity
Dividends and undistributed earnings allocated to participating
securities
Income from continuing operations available to common shareholders
Net income attributable to discontinued operations
Preferred stock dividends
Income from discontinued operations available to common equity
Dividends and undistributed earnings allocated to participating
securities
Income from discontinued operations available to common
shareholders
$
$
Basic weighted-average shares outstanding
Stock options and other stock compensation
Diluted weighted-average shares outstanding
Antidilutive stock options
Earnings per share attributable to continuing operations:
Basic
Diluted
Earnings per share attributable to discontinued operations:
Basic
Diluted
46
2013
2012
2011
$
$
85,858
(41)
85,817
(643)
85,174
2,389
(1)
2,388
(18)
2,370
36,868
582
37,450
15
$2.31
$2.28
$0.06
$0.06
$
$
87,557
(41)
87,516
(836)
86,680
3,080
(1)
3,079
(29)
3,050
36,564
478
37,042
744
$2.37
$2.34
$0.08
$0.08
67,518
(41)
67,477
(730)
66,747
2,334
(1)
2,333
(25)
2,308
36,221
610
36,831
894
$1.85
$1.81
$0.06
$0.06
Note 9—Income Taxes
(In thousands)
Components of income before income taxes*
U.S. income
Non-U.S. income
Income before income taxes
Provision for income taxes*
Current
Federal
State
Non-U.S.
Total current provision
Deferred
Federal
State
Non-U.S.
Total deferred provision
Provision for income taxes
$
$
2013
2012
2011
$
$
48,621
71,512
120,133
18,656
1,492
18,453
38,601
(3,582)
(483)
609
(3,456)
35,145
$
$
67,043
62,300
129,343
18,774
2,556
19,438
40,768
(518)
(125)
1,276
633
41,401
58,817
42,258
101,075
6,829
872
17,449
25,150
10,853
772
(2,968)
8,657
33,807
*The components of income before income taxes and the provision for income taxes relate to continuing operations.
Included in discontinued operations is tax expense of $1.4 million in 2013, $1.1 million in 2012 and $1.0 million in 2011.
Cash flows from operations in the Consolidated Statement of Cash Flows include a deferred income tax provision
(benefit) from discontinued operations of $0.2 million, $(0.4) million and $0.1 million in 2013, 2012 and 2011, respectively.
Reconciliation of the U.S. federal income tax rates to our effective tax rate:
U.S. federal income tax rate
State income taxes—U.S.
Taxes on non-U.S. income
Research and development credit
Manufacturing deduction credit
Valuation allowances
Other
Effective income tax rate
2013
2012
2011
35.0%
0.6
(4.5)
(1.5)
(1.1)
0.5
0.3
29.3%
35.0%
1.2
(1.0)
—
(2.0)
(0.2)
(1.0)
32.0%
35.0%
1.0
(2.0)
(1.3)
(0.3)
0.1
0.9
33.4%
47
Components of deferred tax assets and liabilities:
(In thousands)
Deferred tax assets
December 31,
2013
2012
Book expenses capitalized for tax
$
7,204
$
Postretirement benefits
Inventory reserves
Vacation allowances
Net operating losses and tax credit carryforwards
Post employment benefits
Foreign tax credit carryforwards (expiring in 2019)
Stock options
Liability insurance
Basis of capital assets
Warranties
Reserve for doubtful accounts
Other
Total deferred tax assets
Valuation allowances
Net deferred tax assets
Deferred tax liabilities
Property, plant and equipment
Pension
Intangibles
Other
Total deferred tax liabilities
Net deferred taxes
18,027
5,550
1,036
6,711
757
2,227
10,185
3,686
891
3,049
1,569
9,313
70,205
(4,938)
65,267
(8,935)
(40,833)
(25,212)
(2,455)
(77,435)
(12,168)
8,213
19,282
4,780
1,240
7,558
1,006
212
9,672
2,754
1,013
3,078
1,547
5,063
65,418
(3,961)
61,457
(10,547)
(10,915)
(21,492)
(1,110)
(44,064)
17,393
At December 31, 2013, we had net operating loss carryforwards of approximately $28.0 million, all of which are in non-
U.S. tax jurisdictions. Net operating loss carryforwards of $0.2 million and $0.9 million will expire in 2014 and 2015
respectively. The remainder either have a valuation allowance or may be carried forward indefinitely.
No deferred U.S. income taxes have been provided on undistributed earnings of non-U.S. subsidiaries, which amounted
to $290.5 million as of December 31, 2013. These earnings are considered to be reinvested for an indefinite period of time.
Because we currently do not have any plans to repatriate these funds, we cannot determine the impact of local taxes,
withholding taxes and foreign tax credits associated with the future repatriation of such earnings and, therefore, cannot
reasonably estimate the associated tax liability. In cases where we intend to repatriate a portion of the undistributed earnings of
our foreign subsidiaries, we provide U.S. income taxes on such earnings.
A reconciliation of the change in the tax liability for unrecognized tax benefits for the years ended December 31, 2013
and 2012 is as follows:
(In thousands)
Beginning balance
Adjustments for tax positions related to the current year
Adjustments for tax positions related to prior years
Statute expiration
Ending balance
48
$
2013
2012
$
9,520
(3,628)
97
(101)
5,888
12,827
(2,672)
(367)
(268)
9,520
The total amount of unrecognized tax benefits, if recognized, would reduce our future effective tax rate. We have
recognized tax benefits associated with these liabilities in the amount of $5.1 million and $8.6 million at December 31, 2013
and 2012, respectively.
We recognize interest related to unrecognized tax benefits in interest expense and penalties in operating expenses. Our
liability for accrued interest and penalties related to uncertain tax positions was $0.7 million at December 31, 2012. During
2013, we reduced interest related to uncertain tax positions by $0.2 million. Our liability for accrued interest and penalties
related to uncertain tax positions was $0.5 million at December 31, 2013.
We file a U.S. federal income tax return along with various state and foreign income tax returns. Examinations of our
U.S. federal returns have been completed through 2010, with the 2009 tax year closed by statute. Various state and foreign
income tax returns may be subject to tax audits for periods after 2007.
Note 10—Stock Plans
The 2008 Management Equity Incentive Plan provides for various forms of stock-based compensation for eligible key
employees through May 2018. Management stock-based compensation includes stock options, restricted stock and performance
stock units. The 2008 Non-Employee Directors’ Equity Incentive Plan provides for grants of stock options and restricted stock
to non-employee directors through May 2018. Stock options are granted at market prices and expire after 10 years. Stock
options are exercisable beginning three years after the grant date. Restricted stock is granted without payment to the company
and generally vests three years after the grant date. In general, unvested stock options, restricted stock and performance stock
units are forfeited if the participant’s employment with the company terminates for any reason other than retirement, death or
disability. Restricted stock is valued at the market price on the grant date. The final number of shares to be issued for
performance stock units may range from zero to 200% of the target award based on achieving the specified performance targets
over the performance period. Performance stock units with a market condition are valued at an estimated fair value using a
Monte Carlo model. We issue Stock Compensation Trust shares or Treasury shares for stock option exercises and grants of
restricted stock and performance stock. As of December 31, 2013, there were 1,752,369 and 183,702 shares, respectively,
reserved for future grants under the management and non-employee directors’ equity incentive plans.
Stock-based compensation expense was as follows:
(In thousands)
Restricted stock
Stock options
Performance stock
Total compensation expense before income taxes
Income tax benefit
Total compensation expense, net of income tax benefit
2013
2012
2011
$
$
4,129
2,825
3,383
10,337
3,810
6,527
$
4,744
2,435
2,831
10,010
3,700
6,310
4,370
2,343
1,019
7,732
2,825
4,907
We did not capitalize any stock-based compensation expense in 2013, 2012, or 2011.
Stock option expense is based on the fair value of stock option grants estimated on the grant dates using the Black-
Scholes option pricing model and the following weighted average assumptions for options granted in 2013, 2012 and 2011.
Fair value per option
Risk-free interest rate
Expected dividend yield
Expected volatility
Expected life (years)
2013
2012
2011
$
14.17
$
10.77
$
1.2%
2.8%
39%
6.1
1.2%
3.1%
41%
6.1
9.94
2.6%
3.6%
40%
6.1
The risk-free interest rate is based on the U.S. Treasury Constant Maturity rates as of the grant date converted into an
implied spot rate yield curve. Expected dividend yield is based on the most recent annualized dividend divided by the 1 year
average closing share price. Expected volatility is based on the ten year historical volatility using daily stock prices. Expected
life is based on historical stock option exercise data.
49
A summary of option activity follows:
Outstanding January 1, 2011
Granted
Exercised
Expired
Outstanding December 31, 2011
Granted
Exercised
Expired
Forfeited
Outstanding December 31, 2012
Granted
Exercised
Outstanding December 31, 2013
Shares
1,749,003
$
166,247
(94,115)
(2,495)
1,818,640
196,469
(223,022)
(5,093)
(2,334)
1,784,660
188,407
(277,687)
1,695,380
Weighted
Average
Exercise Price
Exercisable at
Year-end
29.74
34.09
13.99
44.08
30.94
37.33
18.93
43.33
36.69
33.05
49.03
34.72
34.55
907,598
1,100,300
1,178,657
For various exercise price ranges, characteristics of outstanding and exercisable stock options at December 31, 2013
were as follows:
Range of Exercise Prices
$17.83 – $29.33
$33.55 – $40.88
$41.26 – $49.92
$17.83 – $49.92
Range of Exercise Prices
$17.83 – $29.33
$33.55 – $40.88
$41.26 – $48.95
$17.83 – $48.95
Stock Options Outstanding
Weighted-Average
Shares
Exercise Price
Remaining Life
609,820
$
560,795
524,765
1,695,380
21.76
37.34
46.42
34.55
5.5 years
5.6
5.4
5.5
Stock Options Exercisable
Weighted-Average
Shares
Exercise Price
Remaining Life
$
609,820
246,903
321,934
1,178,657
21.76
39.80
45.10
31.91
5.5 years
2.9
3.1
4.3
Cash received from the exercise of stock options was $9.6 million, $4.3 million and $1.3 million for the years ended
December 31, 2013, 2012 and 2011, respectively. The tax benefit we realized from these exercises was $0.5 million, $1.6
million and $0.7 million for the years ended December 31, 2013, 2012 and 2011, respectively.
The aggregate intrinsic value of stock options exercisable at December 31, 2013 was $22.7 million. The aggregate
intrinsic value of all stock options outstanding at December 31, 2013 was $28.2 million.
50
A summary of restricted stock activity follows:
Unvested at January 1, 2011
Granted
Vested
Forfeited
Unvested at December 31, 2011
Granted
Vested
Forfeited
Unvested at December 31, 2012
Granted
Vested
Forfeited
Unvested at December 31, 2013
A summary of performance stock unit activity follows:
Unvested at January 1, 2011
Granted
Performance adjustments
Forfeited
Unvested at December 31, 2011
Granted
Vested
Performance adjustments
Forfeited
Unvested at December 31, 2012
Granted
Vested
Performance adjustments
Unvested at December 31, 2013
Shares
Weighted Average
Grant Date
Fair Value
$
473,637
125,603
(76,505)
(10,481)
512,254
130,985
(209,897)
(15,499)
417,843
92,448
(197,465)
(9,407)
303,419
Shares
85,629
$
48,820
(7,506)
(1,500)
125,443
54,928
(47,706)
5,679
(672)
137,672
53,357
(45,809)
4,169
149,389
26.56
33.61
44.39
24.87
25.66
37.61
20.44
28.37
31.92
48.98
27.42
40.23
39.79
Weighted Average
Grant Date
Fair Value
20.53
33.09
21.14
30.53
25.27
41.33
18.23
26.39
41.45
35.85
57.58
26.08
25.84
46.32
During the years ended December 31, 2013, 2012 and 2011, the total intrinsic value of stock options exercised (the
difference between the market price on the date of exercise and the option price paid to exercise the option) was $4.0 million,
$4.4 million and $1.8 million, respectively. The fair values of restricted stock vested during the years ended December 31,
2013, 2012 and 2011 were $9.7 million, $8.0 million and $2.6 million, respectively. The fair value of performance stock units
vested during the year ended December 31, 2013 was $2.3 million.
On December 31, 2013, there was $5.4 million of unrecognized stock-based compensation expense. The weighted
average period over which this expense is expected to be recognized was approximately one year.
51
Note 11—Short and Long-Term Debt
Short-Term Debt
Short-term borrowings with banks, which excludes the current portion of long-term debt, was $0.8 million and $0.2
million at December 31, 2013 and 2012, respectively. The average month-end balance of total short-term borrowings during
2013 was $0.4 million. The maximum month-end balance of $1.3 million occurred at March 31, 2013. The weighted average
interest rates on short-term borrowings at both December 31, 2013 and 2012 was 7%.
Long-Term Debt
(In thousands)
Industrial development debt issues payable through 2022, 0.30%
2006 Senior Notes payable through 2021, 5.41%
2010 Senior Notes payable through 2021, 4.00%
Senior revolving credit facility maturing in 2016
Total
Amounts due within one year
Long-term debt
$
December 31,
2013
2012
$
4,000
53,334
100,000
110,000
267,334
6,667
260,667
4,000
60,000
100,000
115,000
279,000
6,667
272,333
Our unsecured senior revolving credit facility provides for borrowings of up to $300.0 million through November 2016
and is subject to certain commitment fees. Loans made under the senior revolving credit facility bear interest at a variable rate,
which ranged from 1.42% to 1.71% in 2013. Loan proceeds may be used for general corporate purposes, including working
capital, permitted acquisitions, capital expenditures and repayment of existing indebtedness. The credit agreement also provides
for an uncommitted incremental facility that permits us, subject to certain conditions, to request an increase in the senior credit
facility of up to $50.0 million. At December 31, 2013, $184.0 million of the $300.0 million senior revolving credit facility was
unused including letters of credit.
The Company had outstanding bank guarantees and standby letters of credit with banks as of December 31, 2013 totaling
$9.0 million, of which $6.0 million relate to the senior revolving credit facility. These letters of credit serve to cover customer
requirements in connection with certain sales orders, insurance companies and the Company's industrial development debt. No
amounts were drawn on these arrangements at December 31, 2013. The Company is also required to provide cash collateral in
connection with certain arrangements. At December 31, 2013, the Company has $2.2 million of restricted cash in support of
these arrangements. At December 31, 2013, the Company also has a $4.1 million guarantee relating to voluntary retirement
payments for its unionized workers in Germany.
Approximate maturities on our long-term debt over the next five years are $6.7 million in 2014, $6.7 million in 2015,
$116.7 million in 2016, $26.7 million in 2017, $26.7 million in 2018, and $83.8 million thereafter. Some debt agreements
require us to maintain certain financial ratios and minimum net worth and also contain restrictions on the total amount of debt.
We were in compliance with all but one of our debt covenants at December 31, 2013.
In January 2014 the Company determined that it was in technical violation of one loan covenant related to the threshold
for priority indebtedness in its 2006 Senior Note Purchase Agreement dated December 20, 2006 which resulted in cross default
violations in two other loan agreements. The Company obtained the appropriate waivers from its lenders which were fully
executed on February 12, 2014. The underlying financial covenants of the Note Purchase Agreement were amended at the
same time. We are currently in compliance with all of our debt covenants.
Management has filed to redeem the $4.0 million of Industrial development debt on February 28, 2014.
52
Note 12—Goodwill and Intangible Assets
Changes in goodwill during the years ended December 31, 2013 and 2012 were as follows:
(In thousands)
Net balance at January 1
Disposals
Currency translation
Net balance at December 31
$
2013
2012
$
258,400
—
1,734
260,134
259,084
(1,800)
1,116
258,400
At December 31, 2013, goodwill of $196.5 million, $61.3 million and $2.3 million related to the North American,
European and International reporting segments, respectively.
Changes in intangible assets, net of accumulated amortization, during the years ended December 31, 2013 and 2012 were
as follows:
(In thousands)
Net balance at January 1
Amortization expense
Impairment losses
Currency translation
Net balance at December 31
$
2013
2012
$
38,648
(3,708)
—
89
35,029
47,119
(4,181)
(4,272)
(18)
38,648
At December 31, 2013, gross intangible assets totaled $67.0 million, while impairment reserves and accumulated
amortization of intangibles was $32.0 million. Gross intangible assets include $27.6 million of distribution agreements; $14.3
million of patents, trademarks and copyrights; $11.0 million of technology related assets; $7.1 million of license agreements;
and $7.0 million of other intangible assets. Accumulated amortization on these intangible assets was $5.5 million, $8.8 million,
$4.7 million, $7.0 million, and $6.0 million, respectively. Intangible asset amortization expense over the next five years is
expected to be approximately $3.5 million in 2014, $3.5 million in 2015, $3.3 million in 2016, $2.9 million in 2017, and $1.9
million in 2018.
In December 2012, we discontinued our firefighter location development project and commenced an active program to
sell the related intangible assets. As a result of this decision, we recognized an impairment loss $4.3 million to write-off the
carrying value of these intangibles, consisting primarily of patents and trade secrets. The impairment loss is reported in other
income in the income statement and included in Reconciling Items in segment information.
During 2012, we sold certain assets related to our North American ballistic helmet business, resulting in the disposal of
$1.8 million of goodwill. The impact of this transaction and the operating results of the North American ballistic helmet
businesses was not material to net income or earnings per share for all periods presented and are not expected to be significant
to future results.
Note 13—Pensions and Other Postretirement Benefits
We maintain various defined benefit and defined contribution plans covering the majority of our employees. Our principal
U.S. plan is funded in compliance with the Employee Retirement Income Security Act (ERISA). It is our 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.
We provide health care benefits and limited life insurance for certain retired employees who are covered by our principal
U.S. defined benefit pension plan until they become Medicare-eligible.
53
Information pertaining to defined benefit pension plans and other postretirement benefits plans is provided in the
following table:
(In thousands)
Change in Benefit Obligations
Benefit obligations at January 1
Pension Benefits
Other Benefits
2013
2012
2013
2012
$
463,806
$
394,269
$
30,551
$
30,425
Service cost
Interest cost
Participant contributions
Plan Amendments
Actuarial (gains) losses
Benefits paid
Settlements
Termination benefits
Currency translation
Benefit obligations at December 31
Change in Plan Assets
Fair value of plan assets at January 1
Actual return on plan assets
Employer contributions
Participant contributions
Settlements
Benefits paid
Reimbursement of German benefits
Currency translation
Fair value of plan assets at December 31
Funded Status
Funded status at December 31
Unrecognized transition losses
Unrecognized prior service cost
Unrecognized net actuarial losses
Net amount recognized
Amounts Recognized in the Balance Sheet
Noncurrent assets
Current liabilities
Noncurrent liabilities
Net amount recognized
Amounts Recognized in Accumulated Other
Comprehensive Income
Net actuarial losses
Prior service cost (credit)
Unrecognized net initial obligation
Total (before tax effects)
Accumulated Benefit Obligations for all Defined
Benefit Plans
687
1,050
—
144
(4,107)
(1,593)
—
—
—
694
1,265
—
—
(191)
(1,642)
—
—
—
26,732
30,551
—
—
1,449
143
—
(1,592)
—
—
—
(26,732)
—
(2,193)
6,832
(22,093)
—
(1,695)
(25,037)
(26,732)
6,832
(2,193)
—
4,639
—
—
—
1,642
222
—
(1,864)
—
—
—
(30,551)
—
(2,618)
11,492
(21,677)
—
(1,882)
(28,669)
(30,551)
11,492
(2,618)
—
8,874
—
11,132
17,934
136
(239)
(34,248)
(19,232)
(1,474)
—
2,544
440,359
384,452
67,391
4,053
136
(1,474)
(16,316)
(2,916)
(757)
434,569
(5,790)
21
374
116,945
111,550
9,511
19,018
137
—
58,102
(17,804)
(2,542)
387
2,728
463,806
357,967
41,478
4,448
137
(2,542)
(15,198)
(2,606)
768
384,452
(79,354)
24
712
198,169
119,551
121,054
(5,518)
(121,326)
(5,790)
42,818
(5,021)
(117,151)
(79,354)
116,945
198,169
374
21
712
24
117,340
198,905
403,682
414,957
54
(In thousands)
Components of Net Periodic Benefit
Cost (Credit)
Service cost
Interest cost
Expected return on plan assets
Amortization of transition amounts
Amortization of prior service cost
Recognized net actuarial losses
Curtailment loss
Termination benefits
Net periodic benefit cost (credit)
Pension Benefits
Other Benefits
2013
2012
2011
2013
2012
2011
$
11,132
$
9,511
$
8,674
$
687
$
694
$
17,934
(30,884)
3
102
13,323
658
—
12,268
19,018
(32,328)
2
101
6,235
747
387
3,673
19,531
(34,125)
4
104
793
52
—
(4,967)
1,050
1,265
—
—
(424)
552
—
—
—
—
(454)
529
—
—
785
1,501
—
—
(455)
710
—
—
1,865
2,034
2,541
Amounts included in accumulated other comprehensive income expected to be recognized in 2014 net periodic benefit
costs.
(In thousands)
Loss recognition
Prior service cost (credit) recognition
Transition obligation recognition
Pension Benefits
Other Benefits
$
9,039
$
84
2
Pension Benefits
Other Benefits
2013
2012
2013
2012
Assumptions used to determine benefit obligations
Average discount rate
Rate of compensation increase
Assumptions used to determine net periodic benefit cost
Average discount rate
Expected return on plan assets
Rate of compensation increases
4.5%
3.1%
4.0%
8.2%
3.8%
4.0%
3.8%
5.0%
8.2%
3.9%
4.6%
—
3.8%
—
—
332
(335)
—
3.8%
—
4.8%
—
—
Discount rates were determined using various corporate bond indexes as indicators of interest rate levels and movements
and by matching our projected benefit obligation payment stream to current yields on high quality bonds.
The expected return on assets for the 2013 net periodic pension cost was determined by multiplying the expected returns
of each asset class (based on historical returns) by the expected percentage of the total portfolio invested in that asset class. A
total return was determined by summing the expected returns over all asset classes.
Equity securities
Fixed income securities
Pooled investment funds
Insurance contracts
Cash and cash equivalents
Total
55
Pension Plan Assets at
December 31,
2013
2012
71%
19
5
3
2
100%
64%
25
6
3
2
100%
The overall objective of our pension investment strategy is to earn a rate of return over time to satisfy the benefit
obligations of the pension plans and to maintain sufficient liquidity to pay benefits and meet other cash requirements of our
pension funds. Investment policies for our primary U.S. pension plan are determined by the plan’s Investment Committee and
set forth in the plan’s investment policy. Asset managers are granted discretion for determining sector mix, selecting securities
and timing transactions, subject to the guidelines of the investment policy. An aggressive, flexible management of the portfolio
is permitted and encouraged, with shifts of emphasis among equities, fixed income securities and cash equivalents at the
discretion of each manager. No target asset allocations are set forth in the investment policy. For our non-U.S. pension plans,
our investment objective is generally met through the use of pooled investment funds and insurance contracts.
The following table summarizes our pension plan assets measured at fair value on a recurring basis by fair value
hierarchy level (See Note 17):
(In thousands)
Equity securities
Fixed income securities
Pooled investment funds
Insurance contracts
Cash and cash equivalents
Total
(In thousands)
Equity securities
Fixed income securities
Pooled investment funds
Insurance contracts
Cash and cash equivalents
Total
$
$
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
307,486
36,749
—
—
6,067
350,302
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
245,840
43,600
—
—
7,966
297,406
December 31, 2013
Significant
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
$
— $
47,545
22,430
—
—
69,975
$
428
—
—
13,512
352
14,292
December 31, 2012
Significant
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
$
— $
52,762
22,030
—
—
74,792
— $
—
—
12,254
—
12,254
Total
Fair
Value
307,914
84,294
22,430
13,512
6,419
434,569
Total
Fair
Value
245,840
96,362
22,030
12,254
7,966
384,452
Equity securities consist primarily of publicly traded U.S. and non-U.S. common stocks. Equities are valued at closing
prices reported on the listing stock exchange.
Fixed income securities consist primarily of U.S. government and agency bonds and U.S. corporate bonds. Fixed income
securities are valued at closing prices reported in active markets or based on yields currently available on comparable securities
of issuers with similar credit ratings. When quoted prices are not available for identical or similar bonds, the bond is valued
under a discounted cash flow approach that maximizes observable inputs, such as current yields of similar instruments, and may
include adjustments, for certain risks that may not be observable, such as credit and liquidity risks.
Pooled investment funds consist of mutual and collective investment funds that invest primarily in publicly traded non-
U.S. equity and fixed income securities. Pooled investment funds are valued at net asset values calculated by the fund manager
based on fair value of the underlying securities. The underlying securities are generally valued at closing prices reported in
active markets, quoted prices of similar securities, or discounted cash flows approach that maximizes observable inputs such as
current value measurement at the reporting date.
Insurance contracts are valued in accordance with the terms of the applicable collective pension contract.
Cash equivalents consist primarily of money market and similar temporary investment funds. Cash equivalents are valued
at closing prices reported in active markets.
56
The preceding methods may produce fair value measurements that are not indicative of net realizable value or reflective
of future fair values. Although we believe the valuation methods are appropriate and consistent with other market participants,
the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a
different fair value measurement at the reporting date.
The following table presents a reconciliation of Level 3 assets:
(In thousands)
Balance January 1, 2012
Net realized and unrealized gains included in earnings
Net purchases, issuances and settlements
Balance December 31, 2012
Net realized and unrealized gains included in earnings
Net purchases, issuances and settlements
Transfers into Level 3
Balance December 31, 2013
Insurance
Contracts
Other
$
11,562 $
1,933
(1,241)
12,254
1,074
173
11
13,512
—
—
—
—
780
—
—
780
We expect to make net contributions of $4.5 million to our pension plans in 2014.
For measurement purposes, 7.5% increase in the costs of covered health care benefits was assumed for the year 2013,
decreasing by 0.5% for each successive year to 4.5% in 2019 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 $1.5 million and $1.7 million, respectively.
Expense for defined contribution pension plans was $5.8 million in 2013, $5.9 million in 2012 and $5.7 million in 2011.
Estimated pension benefits to be paid under our defined benefit pension plans during the next five years are $20.4 million
in 2014, $20.6 million in 2015, $21.2 million in 2016, $22.3 million in 2017, $23.2 million in 2018, and are expected to
aggregate $133.3 million for the five years thereafter. Estimated other postretirement benefits to be paid during the next 5 years
are $1.7 million in 2014, $1.8 million in 2015, $1.9 million in 2016, $2.0 million in 2017, $2.1 million in 2018, and are
expected to aggregate $11 million for the five years thereafter.
Note 14—Other (Loss) Income, Net
(In thousands)
Interest income
Land impairment loss
Gain on asset dispositions, net
Escrow settlement
Intangible asset impairment loss (See Note 10)
Other, net
Total
2013
2012
2011
$
1,142
(1,557)
436
—
—
(196)
(175)
$
1,411
$
—
8,396
4,790
(4,272)
551
10,876
1,809
—
3,328
—
—
321
5,458
During the year ended December 31, 2013, impairment charges were taken on land not used in operations.
During the year ended December 31, 2012, we settled an escrow claim for indemnification with the sellers of General
Monitors. Under the terms of the settlement, we received $4.8 million in December 2012. The settlement proceeds have been
recognized in other income because the settlement occurred after the business combination measurement period ended. The
escrow agreement has now expired and the remaining escrow account balance was released to the sellers. In addition, we
recognized gains on the sale of assets totaling $8.4 million in 2012 compared to gains of $3.3 million in 2011. These gains were
primarily related to property sales in our Cranberry Woods office park.
57
Note 15—Leases
We lease office space, manufacturing and warehouse facilities, automobiles and other equipment under operating lease
arrangements. Rent expense was $12.9 million in 2013, $12.5 million in 2012 and $12.2 million in 2011. Minimum rent
commitments under noncancellable leases are $11.9 million in 2014, $9.8 million in 2015, $4.2 million in 2016, $2.4 million in
2017, $1.8 million in 2018 and $2.8 million thereafter.
Note 16—Derivative Financial Instruments
As part of our currency exchange rate risk management strategy, we enter into certain derivative foreign currency forward
contracts that do not meet the GAAP criteria for hedge accounting, but which have the impact of partially offsetting certain
foreign currency exposures. We account for these forward contracts on a full mark-to-market basis and report the related gains
or losses in currency exchange losses (gains) in the consolidated statement of income. At December 31, 2013, the notional
amount of open forward contracts was $54.4 million and the unrealized gain on these contracts was $1.3 million. All open
forward contracts will mature during the first quarter of 2014.
The following table presents the balance sheet location and fair value of assets and liabilities associated with derivative
financial instruments.
(In thousands)
Derivatives not designated as hedging instruments:
December 31,
2013
2012
Foreign exchange contracts - Prepaid expenses and other current assets
$
1,308
$
801
The following table presents the income statement location and impact of derivative financial instruments:
(In thousands)
Derivatives not designated as hedging instruments:
Foreign exchange contracts
Note 17—Fair Value Measurements
Income Statement
Location
(Gain)
Recognized in Income
Year ended
December 31,
2013
2012
Currency exchange
(gains), net
$
(755) $
(1,139)
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. The fair value hierarchy consists of three broad levels, which
gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest
priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are:
Level 1—Observable inputs that reflect unadjusted quoted prices for identical assets or liabilities in active markets.
Level 2—Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either
directly or indirectly.
Level 3—Unobservable inputs for the asset or liability.
The valuation methodologies we used to measure financial assets and liabilities were limited to the pension plan assets
described in Note 13 and the derivative financial instruments described in Note 16. See Note 13 for the fair value hierarchy
classification of pension plan assets. We estimate the fair value of the derivative financial instruments, consisting of foreign
currency forward contracts, based upon valuation models with inputs that generally can be verified by observable market
conditions and do not involve significant management judgment. Accordingly, the fair values of the derivative financial
instruments are classified within Level 2 of the fair value hierarchy.
With the exception of fixed rate long-term debt, we believe that the reported carrying amounts of our financial assets and
liabilities approximate their fair values. At December 31, 2013, the reported carrying amount of our fixed rate long-term debt
(including the current portion) was $153.3 million and the fair value was $160.3 million. The fair value of our long-term debt
was determined using cash flow valuation models to estimate the market value of similar transactions as of December 31, 2013.
The fair value of this debt was determined using Level 2 inputs as described above.
58
Note 18—Contingencies
We categorize the product liability losses that we experience into two main categories; single incident and cumulative
trauma. Single incident product liability claims are discrete incidents that are typically known to us when they occur and
involve observable injuries and, therefore, more quantifiable damages. Therefore, we maintain a reserve for single incident
product liability claims based on expected settlement costs for pending claims and an estimate of costs for unreported claims
derived from experience, sales volumes and other relevant information. Our reserve for single incident product liability claims
at December 31, 2013 and 2012 was $4.0 million and $4.4 million, respectively. Single incident product liability expense was
negligible during year ended December 31, 2013. During the years ended December 31, 2012 and 2011, single incident product
liability expense was $0.7 million and $1.5 million, respectively. We evaluate our single incident product liability exposures on
an ongoing basis and make adjustments to the reserve as new information becomes available.
Cumulative trauma product liability claims involve exposures to harmful substances (e.g., silica, asbestos and coal dust)
that occurred many years ago and may have developed over long periods of time into diseases such as silicosis, asbestosis or
coal worker’s pneumoconiosis. We are presently named as a defendant in 2,840 lawsuits in which plaintiffs allege to have
contracted certain cumulative trauma diseases related to exposure to silica, asbestos, and/or coal dust. These lawsuits mainly
involve respiratory protection products allegedly manufactured and sold by us. We are unable to estimate total damages sought
in these lawsuits as they generally do not specify the injuries alleged or the amount of damages sought, and potentially involve
multiple defendants.
Cumulative trauma product liability litigation is difficult to predict. In our experience, until late in a lawsuit, we cannot
reasonably determine whether it is probable that any given cumulative trauma lawsuit will ultimately result in a liability. This
uncertainty is caused by many factors, including the following: cumulative trauma complaints generally do not provide
information sufficient to determine if a loss is probable; cumulative trauma litigation is inherently unpredictable and
information is often insufficient to determine if a lawsuit will develop into an actively litigated case; and even when a case is
actively litigated, it is often difficult to determine if the lawsuit will be dismissed or otherwise resolved until late in the lawsuit.
Moreover, even once it is probable that such a lawsuit will result in a loss, it is difficult to reasonably estimate the amount of
actual loss that will be incurred. These amounts are highly variable and turn on a case-by-case analysis of the relevant facts,
which are often not learned until late in the lawsuit.
Because of these factors, we cannot reliably determine our potential liability for such claims until late in the lawsuit. We,
therefore, do not record cumulative trauma product liability losses when a lawsuit is filed, but rather, when we learn sufficient
information to determine that it is probable that we will incur a loss and the amount of loss can be reasonably estimated. We
record expenses for defense costs associated with open cumulative trauma product liability lawsuits as incurred.
We cannot estimate any amount or range of possible losses related to resolving pending and future cumulative trauma
product liability lawsuits that we may face because of the factors described above. As new information about cumulative trauma
product liability cases and future developments becomes available, we reassess our potential exposures.
A summary of cumulative trauma product liability lawsuit activity follows:
Open lawsuits, January 1
New lawsuits
Settled and dismissed lawsuits
Open lawsuits, December 31
2013
2012
2011
2,609
489
(258)
2,840
2,321
750
(462)
2,609
1,900
479
(58)
2,321
Nearly half of the open lawsuits at December 31, 2013 have had a de minimus level of activity over the last 5 years. It is
possible that these cases could become active again at any point due to changes in circumstances.
With some common contract exclusions, we maintain insurance for cumulative trauma product liability claims. We have
purchased insurance policies for the policy years from 1952-1986 from over 20 different insurance carriers that provide
coverage for cumulative trauma product liability losses and, in many instances, related defense costs. In the normal course of
business, we make payments to settle product liability claims and for related defense costs. We record receivables for the
amounts that are covered by insurance. The available limits of these policies are many times our recorded insurance receivable
balance.
59
Various factors could affect the timing and amount of recovery of our insurance receivables, including the outcome of
negotiations with insurers, legal proceedings with respect to product liability insurance coverage and the extent to which
insurers may become insolvent in the future.
Our insurance receivables at December 31, 2013 and 2012 totaled $124.8 million and $130.0 million, respectively, all of
which is reported in other non-current assets.
A summary of insurance receivable balances and activity related to cumulative trauma product liability losses follows:
(In millions)
Balance January 1
Additions
Collections and settlements
Balance December 31
2013
2012
2011
$
130.0
$
112.1
$
34.0
(39.2)
124.8
29.7
(11.8)
130.0
89.0
35.6
(12.5)
112.1
Additions to insurance receivables in the above table represent insured cumulative trauma product liability losses and
related defense costs. Uninsured cumulative trauma product liability losses during the years ended December 31, 2013, 2012,
and 2011 were $1.7 million, $2.1 million and $1.1 million, respectively. Collections primarily represent agreements with
insurance companies to pay amounts due that are applicable to cumulative trauma claims. In cases where the payment stream
covers multiple years, the present value of the payments is recorded as a note receivable (current and long term) in the balance
sheet within prepaid expenses and other current assets and other noncurrent assets.
Our aggregate cumulative trauma product liability losses and administrative and defense costs for the three years ended
December 31, 2013, totaled approximately $104.2 million, substantially all of which was insured.
We believe that the increase in the insurance receivable balance that we have experienced since 2005 is primarily due to
disagreements among our insurance carriers, and consequently with us, as to when their individual obligations to pay us are
triggered and the amount of each insurer’s obligation, as compared to other insurers. We believe that our insurers do not contest
that they have issued policies to us or that these policies cover certain cumulative trauma product liability claims. We believe
that our ability to successfully resolve our insurance litigation with various insurance carriers in recent years demonstrates that
we have strong legal positions concerning our rights to coverage.
We regularly evaluate the collectability of the insurance receivables and record the amounts that we conclude are
probable of collection. Our conclusions are based on our analysis of the terms of the underlying insurance policies, our
experience in successfully recovering cumulative trauma product liability claims from our insurers under other policies, the
financial ability of our insurance carriers to pay the claims, our understanding and interpretation of the relevant facts and
applicable law and the advice of legal counsel, who believe that our insurers are required to provide coverage based on the
terms of the policies.
Although the outcome of cumulative trauma product liability matters cannot be predicted with certainty and unfavorable
resolutions could materially affect our results of operations on a quarter-to-quarter basis, based on information currently
available and the amounts of insurance coverage available to us, we believe that the disposition of cumulative trauma product
liability lawsuits that are pending against us will not have a materially adverse effect on our future results of operations,
financial condition, or liquidity.
We are currently involved in insurance coverage litigations with a number of our insurance carriers.
In 2009, we sued The North River Insurance Company (North River) in the United States District Court for the Western
District of Pennsylvania, alleging that North River breached one of its insurance policies by failing to pay amounts owed to us
and that it engaged in bad-faith claims handling. We believe that North River’s refusal to indemnify us under the policy for
product liability losses and legal fees paid by us is wholly contrary to Pennsylvania law and we are vigorously pursuing the
legal actions necessary to collect all due amounts. Motions for summary judgment on certain issues will be submitted to the
court at the earliest possible date. A trial date has not yet been scheduled.
In 2010, North River sued us in the Court of Common Pleas of Allegheny County, Pennsylvania seeking a declaratory
judgment concerning their responsibilities under three additional policies. We assert claims against North River for breaches of
contract for failures to pay amounts owed to us. We also allege that North River engaged in bad-faith claims handling. We
believe that North River’s refusal to indemnify us under these policies for product liability losses and legal fees paid by us is
wholly contrary to Pennsylvania law and we are vigorously pursuing the legal actions necessary to collect all due amounts.
Summary judgment on certain issues is pending with the court. A trial date has not yet been scheduled.
60
In July 2010, we filed a lawsuit in the Superior Court of the State of Delaware seeking declaratory and other relief from
the majority of our excess insurance carriers concerning the future rights and obligations of MSA and our excess insurance
carriers under various insurance policies. The reason for this insurance coverage action is to secure a comprehensive resolution
of our rights under the insurance policies issued by our insurers. The case is currently in discovery. We have resolved our claims
against certain of our insurance carriers on some of their policies through negotiated settlements. When settlement is reached,
we dismiss the settling carrier from this action in Delaware.
During September 2013, we resolved coverage litigation with Associated International Insurance Company, through a
negotiated settlement. As part of this settlement, we dismissed all claims against Associated International Insurance Company
in the above-referenced coverage litigation in the Superior Court of the State of Delaware. The settlement did not have an
impact on our operating results.
During December 2013, we resolved coverage litigation with Allstate Insurance Company, through a negotiated
settlement. As part of this settlement, both parties dismissed all claims against one another under the above-referenced coverage
litigations in the Court of Common Pleas of Allegheny County, Pennsylvania and the Superior Court of the State of Delaware.
The settlement did not have an impact on our operating results.
During December 2013, we resolved coverage litigation with Columbia Casualty Company, through a negotiated
settlement. As part of this settlement, we dismissed all claims against Columbia Casualty Company in the above-referenced
coverage litigation in the Superior Court of the State of Delaware. The settlement did not have an impact on our operating
results.
Note 19—Assets Held for Sale and Discontinued Operations
Assets Held for Sale - In September 2013, we entered into an agreement to sell the detector tube assets. The transaction
closed in January, 2014. In addition to the asset sale agreement, we entered into transitional manufacturing and sales
agreements with the buyer. Under the terms of the transitional agreements, we will continue to manufacture and sell detector
tubes on behalf of the buyer until mid-2014. The gain on the transaction will be recognized in 2014, at the conclusion of the
transitional manufacturing period and will not be material to net income or earnings per share.
Certain assets related to detector tube manufacturing are classified as held for sale at December 31, 2013. These assets are
reported in the following balance sheet lines:
(In millions)
Inventory
Property, net of depreciation
Total assets
$
December 31, 2013
1.4
0.2
1.6
Discontinued Operations - The Company is actively negotiating the sale of substantially all of the assets and liabilities of
its South African personal protective equipment distribution business and its Zambian operations. Management has deemed it
probable that the sale of these assets and liabilities will close in 2014. The operations of this business qualify as a component
of an entity under FASB ASC 205-20 "Presentation of Financial Statements - Discontinued Operations", and thus the operations
have been reclassified as discontinued operations and prior periods have been reclassified to conform to this presentation.
Management does not believe the assets associated with the South African distribution business or the Zambian operations are
impaired at December 31, 2013.
61
Summarized financial information for discontinued operations is as follows:
(In thousands)
Discontinued Operations
Net Sales
Other income (loss), net
Cost and expenses:
Cost of products sold
Selling, general and administrative
Interest expense
Currency exchange losses, net
Income from discontinued operations before income taxes
Provision for income taxes
Income from discontinued operations, net of tax
(In thousands)
Discontinued Operations assets and liabilities
Cash and Cash Equivalents
Trade receivables, less allowance for doubtful accounts
Inventories
Net property
Other assets
Total assets
Accounts Payable
Accrued and other liabilities
Total liabilities
Net assets
Year ended December 31,
2013
2012
2011
$
52,692 $
40
58,461 $
115
41,181
7,389
—
(325)
4,487
1,426
3,061
45,277
8,376
17
(41)
4,947
1,128
3,819
December 31,
2013
2012
$
2,980 $
7,452
11,359
317
1,326
23,434
5,447
930
6,377
17,057
60,414
(78)
48,544
8,588
1
(540)
3,743
966
2,777
2,465
8,870
11,875
286
2,252
25,748
3,356
1,685
5,041
20,707
The assets and liabilities reported above are included in the International Segment detail in Note 7.
The following summary provides financial information for discontinued operations related to net loss (income) related
to noncontrolling interests:
(In thousands)
Net loss (income) attributable to noncontrolling interests
Loss (income) from continuing operations
(Income) from discontinued operations
Net loss (income)
Year ended December 31,
2013
2012
2,011
$
$
870
(672)
198
(385) $
(739)
(1,124)
250
(443)
(193)
62
Note 20—Quarterly Financial Information (Unaudited)
(In thousands, except earnings per share)
Continuing Operations:
Net sales
Gross profit
Net income attributable to Mine Safety
Appliances Company
Earnings per share*
Basic
Diluted
Discontinued Operations:
Net sales
Gross profit
Net income attributable to Mine Safety
Appliances Company
Earnings per share*
Basic
Diluted
(In thousands, except earnings per share)
Continuing Operations:
Net sales
Gross profit
Net income attributable to Mine Safety
Appliances Company
Earnings per share*
Basic
Diluted
Discontinued Operations:
Net sales
Gross profit
Net income attributable to Mine Safety
Appliances Company
Earnings per share*
Basic
Diluted
1st
2nd
Quarters
2013
3rd
4th
Year
$
269,886
121,704
$
285,859
129,665
$
264,884
115,426
$
291,429
130,050
$
1,112,058
496,845
18,627
23,315
18,987
24,929
85,858
0.50
0.49
0.63
0.62
0.51
0.51
0.67
0.66
2.31
2.28
13,353
3,078
13,836
3,215
13,361
2,790
12,142
2,428
52,692
11,511
659
734
514
482
2,389
0.02
0.02
0.02
0.02
0.01
0.01
0.01
0.01
0.06
0.06
1st
2nd
Quarters
2012
3rd
4th
Year
$
278,255
123,377
$
279,367
119,538
$
270,480
118,391
$
282,341
128,242
$
1,110,443
489,548
23,090
27,078
18,173
19,216
87,557
0.63
0.62
0.74
0.73
0.49
0.48
0.52
0.51
2.37
2.34
15,230
3,614
15,371
3,588
16,087
3,863
11,773
2,119
58,461
13,184
832
917
1,060
271
3,080
0.02
0.02
0.02
0.02
0.03
0.03
0.01
0.01
0.08
0.08
* Per share amounts are calculated independently for each period presented; therefore, the sum of the quarterly per share
amounts may not equal the per share amounts for the year.
63
Note 21—Subsequent Event
Subsequent to December 31, 2013, our Safety Works joint venture was informed of a significant unfavorable change to
the terms of a contract with its largest customer. The future impact of this change is not estimable at February 24, 2014.
64
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
(a) Evaluation of disclosure controls and procedures. Based on their evaluation as of the end of the period covered by this
Form 10-K, the Company’s principal executive officer and principal financial officer have concluded that the Company’s
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the
“Exchange Act”)) are effective to ensure that information required to be disclosed by the Company in reports that it files or
submits under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in
Securities and Exchange Commission rules and forms and (ii) accumulated and communicated to our management, including
the principal executive officer and principle financial officer, as appropriate to allow timely decisions regarding required
disclosure.
(b) Changes in internal control. There were no changes in the Company’s internal control over financial reporting that
occurred during the Company’s most recent fiscal quarter that have materially affected, or are reasonably likely to materially
affect, the Company’s internal control over financial reporting.
See Item 8. Financial Statements and Supplementary Data—“Management’s Report on Internal Control Over Financial
Reporting” and “Report of Independent Registered Public Accounting Firm.”
Item 9B. Other Information
None.
65
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
PART III
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accountant Fees and Services
With respect to this Part III, incorporated by reference herein pursuant to Rule 12b—23 are (1) “Election of
Directors,” (2) “Executive Compensation,” (3) “Other Information Concerning the Board of Directors,” (4) “Stock Ownership,”
and (5) “Selection of Independent Registered Public Accounting Firm,” appearing in the Proxy Statement filed pursuant to
Regulation 14A in connection with the registrant’s Annual Meeting of Shareholders to be held on May 6, 2014. The information
appearing in such Proxy Statement under the caption “Audit Committee Report” and the other information appearing in such
Proxy Statement and not specifically incorporated by reference herein is not incorporated herein. As to Item 10 above, also see
the information reported in Part I of this Form 10-K, under the caption “Executive Officers of the Registrant,” which is
incorporated herein by reference. As to Item 10 above, the Company has adopted a Code of Ethics applicable to its principal
executive officer, principal financial officer and principal accounting officer and other Company officials. The text of the Code
of Ethics is available on the Company’s website at www.MSAsafety.com. Any amendment to, or waiver of, a required provision
of the Code of Ethics that applies to the Company’s principal executive, financial or accounting officer will also be posted on
the Company’s Internet site at that address.
As to Item 12 above, the following table sets forth information as of December 31, 2013 concerning common stock
issuable under the Company’s equity compensation plans.
Plan Category
Equity compensation plans approved by security holders
Equity compensation plans not approved by security
holders
Total
Number of securities
to be issued upon
exercise of
outstanding
options,
warrants and rights
(a)
Weighted average
exercise price of
outstanding options,
warrants and rights
(b)
1,695,380
$
None
1,695,380
34.55
—
34.55
Number of securities
remaining available
for future issuance
under equity
compensation plans
(excluding securities
reflected in column (a))
(c)
1,936,071*
None
1,936,071
Includes 1,752,369 shares available for issuance under the 2008 Management Equity Incentive Plan and 183,702
*
shares available for issuance under the 2008 Non-Employee Directors’ Equity Incentive Plan.
66
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a) 1. Financial Statements and Report of Independent Registered Public Accounting Firm (see Part II, Item 8 of this
Form 10-K).
The following information is filed as part of this Form 10-K.
Management’s Report on Responsibility for Financial Reporting and Management’s Report on Internal
Control Over Financial Reporting
Report of Independent Registered Public Accounting Firm
Consolidated Statement of Income—three years ended December 31, 2013
Consolidated Statement of Comprehensive Income—three years ended December 31, 2013
Consolidated Balance Sheet—December 31, 2013 and 2012
Consolidated Statement of Cash Flows—three years ended December 31, 2013
Consolidated Statement of Changes in Retained Earnings and Accumulated Other Comprehensive
Income—three years ended December 31, 2013
Notes to Consolidated Financial Statements
Page
33
34
35
36
37
38
39
40
(a) 2. The following additional financial information for the three years ended December 31, 2013 is filed with the report
and should be read in conjunction with the above financial statements:
Schedule II—Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable, not material or the required information is shown in the
consolidated financial statements and consolidated notes to the financial statements listed above.
(a) 3. Exhibits
3(i)
3(ii)
10(a)*
10(b)*
10(c)*
10(d)*
Restated Articles of Incorporation as amended and restated May 23, 1986 and as further amended through May 2007,
filed as Exhibit 3.1 to Form 8-K on May 15, 2007, is incorporated herein by reference.
By-laws of the registrant, as amended to February 17, 2012, filed as Exhibit 3.1 to Form 8-K on February 24, 2012, is
incorporated herein by reference.
2008 Management Equity Incentive Plan, as amended and restated through February 25, 2011, filed as Exhibit 10.1 to
Form 10-Q on July 28, 2011, is incorporated herein by reference.
Retirement Plan for Directors, as amended effective April 1, 2001, filed as Exhibit 10(a) to Form 10-Q on May 10,
2006, is incorporated herein by reference.
Supplemental Pension Plan as of May 5, 1998, filed as Exhibit 10(d) to Form 10-Q on August 12, 2003, is
incorporated herein by reference.
Supplemental Pension Plan as amended and restated effective January 1, 2005, filed as Exhibit 10.3 to Form 10-Q on
November 27, 2013, is incorporated herein by reference.
10(e)*
2008 Non-Employee Directors’ Equity Incentive Plan, as amended through November 27, 2013, filed herewith.
10(f)*
10(g)*
10(h)*
Executive Insurance Program as Amended and Restated as of January 1, 2006, filed as Exhibit 10(a) to Form 10-Q on
August 7, 2007, is incorporated herein by reference.
Annual Incentive Bonus Plan as of May 5, 1998, filed as Exhibit 10(g) to Form 10-Q on August 12, 2003, is
incorporated herein by reference.
Supplemental Executive Retirement Plan, effective January 1, 2008, filed as Exhibit 10.2 to Form 10-Q on April 30,
2009, is incorporated herein by reference.
67
10(i)*
10(j)
Form of Change-in-Control Severance Agreement between the registrant and its executive officers, filed as
Exhibit 10.1 to Form 10-Q on April 30, 2009, is incorporated herein by reference.
Trust Agreement, effective June 1, 1996, as amended through May 15, 2010, between the registrant and PNC Bank,
N.A. re the Mine Safety Appliances Company Stock Compensation Trust filed as Exhibit 10.1 to Form 10-Q on
July 28, 2010, is incorporated herein by reference.
10(k)*
2003 Supplemental Savings Plan, effective January 1, 2003, filed herewith.
10(l)*
2005 Supplemental Savings Plan, effective January 1, 2005, filed as Exhibit 10.4 to Form 10-Q on April 30, 2009, is
incorporated herein by reference.
10(m)*
CEO Annual Incentive Award Plan filed as Appendix A to the registrant’s definitive proxy statement dated March 29,
2005, is incorporated herein by reference.
10(n)
10(o)
10(p)
10(q)
10(r)
10(s)
10(t)
10(u)
10(v)
10(w)
10(x)
10(y)
10(z)
10(aa)
Credit Agreement dated October 13, 2010 by and among Mine Safety Appliances Company, each of the guarantors
party thereto, each of the lenders party thereto, PNC Bank, National Association, as administrative agent for the
lenders, and J.P. Morgan Chase Bank, N.A., as syndication agent for the Lenders, filed as Exhibit 10.1 to Form 8-K
on October 19, 2010, is incorporated herein by reference.
Guaranty and Suretyship Agreement dated October 13, 2010 from General Monitors Transnational, LLC in favor of
PNC Bank, National Association, and the other lenders party to the Credit Agreement, filed as Exhibit 10.2 to Form
8-K on October 19, 2010, is incorporated herein by reference.
Guaranty and Suretyship Agreement dated October 13, 2010 from Fifty Acquisition Corp. in favor of PNC Bank,
National Association, and the other lenders party to the Credit Agreement, filed as Exhibit 10.3 to Form 8-K on
October 19, 2010, is incorporated herein by reference.
Note Purchase Agreement and Private Shelf Agreement dated October 13, 2010 by and among Mine Safety
Appliances Company, Prudential Investment Management, Inc. and the Series A Purchasers thereto, filed as Exhibit
10.4 to Form 8-K on October 19, 2010, is incorporated herein by reference.
Guarantee Agreement dated as of October 13, 2010 made by General Monitors Transnational, LLC in favor of the
Note Purchasers, filed as Exhibit 10.5 to Form 8-K on October 19, 2010, is incorporated herein by reference.
Guarantee Agreement dated as of October 13, 2010 made by Fifty Acquisition Corp. in favor of the Note Purchasers,
filed as Exhibit 10.6 to Form 8-K on October 19, 2010, is incorporated herein by reference.
First Amendment to Credit Agreement dated November 16, 2011 by and among Mine Safety Appliances Company,
each of the guarantors party thereto, each of the lenders party thereto, PNC Bank, National Association, as
administrative agent for the lenders, and J. P. Morgan Chase Bank N.A., as syndication agent for the Lenders, filed as
Exhibit 10.1 to Form 8-K on November 21, 2011, is incorporated herein by reference.
Guaranty and Suretyship Agreement effective November 18, 2011 from MSA International, Inc. in favor of PNC
Bank, National Association, and other lenders party to the Credit Agreement, filed as Exhibit 10.2 to Form 8-K on
November 21, 2011, is incorporated herein by reference.
Amendment No. 1 to 2010 Note Purchase Agreement and Private Shelf Agreement dated April 5, 2012 by and among
Mine Safety Appliances Company, Prudential Investment Management, Inc. and the Series A Purchasers thereto, filed
herewith.
Guarantee Agreement dated April 5, 2012 from MSA International, Inc. in favor of the note holders under the 2010
Note Purchase Agreement and Private Shelf Agreement, filed herewith.
Amendment No. 3 and Waiver to 2010 Note Purchase Agreement and Private Shelf Agreement dated February 12,
2014 by and among Mine Safety Appliances Company, Prudential Investment Management, Inc. and the Series A
Purchasers thereto, filed herewith.
Note Purchase Agreement dated December 20, 2006, by and among Mine Safety Appliances Company and each of
the holders of the Notes, filed herewith.
Amendment No. 1 and Waiver to 2006 Note Purchase Agreement dated February 12, 2014 by and among Mine Safety
Appliances Company and each of the holders of the Notes, filed herewith.
Guarantee Agreement dated February 12, 2014 from General Monitors Transnational, LLC in favor of the note
holders under the 2006 Note Purchase Agreement, filed herewith.
68
10(bb)
10(cc)
21
23
31.1
31.2
32
Guarantee Agreement dated February 12, 2014 from General Monitors, Inc. in favor of the note holders under the
2006 Note Purchase Agreement, filed herewith.
Guarantee Agreement dated February 12, 2014 from MSA International, Inc. in favor of the note holders under the
2006 Note Purchase Agreement, filed herewith.
Affiliates of the registrant is filed herewith.
Consent of PricewaterhouseCoopers LLP, independent registered public accounting firm is filed herewith.
Certification of W. M. Lambert pursuant to Rule 13a-14(a) is filed herewith.
Certification of Stacy P. McMahan pursuant to Rule 13a-14(a) is filed herewith.
Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C.(S)1350 is filed herewith.
101.INS XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF XBRL Taxonomy Extension Definition Linkbase Document
101.LAB XBRL Taxonomy Extension Label Linkbase Document
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document
*
The exhibits marked by an asterisk are management contracts or compensatory plans or arrangements.
The registrant agrees to furnish to the Commission upon request copies of all instruments with respect to long-term debt
referred to in Note 11 of the Notes to Consolidated Financial Statements filed as part of Item 8 of this annual report which have
not been previously filed or are not filed herewith.
69
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
MINE SAFETY APPLIANCES COMPANY
SIGNATURES
February 24, 2014
(Date)
By
/S/ WILLIAM M. LAMBERT
William M. Lambert
President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/S/ JOHN T. RYAN III
John T. Ryan III
Director, Chairman of the Board
February 24, 2014
/S/ WILLIAM M. LAMBERT
William M. Lambert
Director; President and Chief Executive
Officer
February 24, 2014
/S/ STACY P. MCMAHAN
Stacy P. McMahan
Senior Vice President Finance; Principal
Financial and Accounting Officer
February 24, 2014
/S/ ROBERT A. BRUGGEWORTH
Director
Robert A. Bruggeworth
/S/ ALVARO GARCIA-TUNON
Director
Alvaro Garcia-Tunon
/S/ THOMAS B. HOTOPP
Director
Thomas B. Hotopp
/S/ DIANE M. PEARSE
Director
Diane M. Pearse
/S/ REBECCA B. ROBERTS
Director
Rebecca B. Roberts
/S/ L. EDWARD SHAW, JR.
Director
L. Edward Shaw, Jr.
/S/ THOMAS H. WITMER
Director
Thomas H. Witmer
February 24, 2014
February 24, 2014
February 24, 2014
February 24, 2014
February 24, 2014
February 24, 2014
February 24, 2014
70
MINE SAFETY APPLIANCES COMPANY AND AFFILIATES
VALUATION AND QUALIFYING ACCOUNTS
THREE YEARS ENDED DECEMBER 31, 2013
SCHEDULE II
Allowance for doubtful accounts:
Balance at beginning of year
Additions—
Charged to costs and expenses
Deductions—
Deductions from reserves, net (1)(2)
Balance at end of year
Income tax valuation allowance:
Balance at beginning of year
Additions—
Charged to costs and expenses (3)
Deductions—
Deductions from reserves (3)
Balance at end of year
(1) Bad debts written off, net of recoveries.
2013
2012
(In thousands)
2011
$
7,402
$
7,043
$
9,391
763
859
7,306
1,289
930
7,402
1,148
3,496
7,043
$
3,961
$
2,777
$
4,323
977
—
4,938
1,184
—
3,961
—
1,546
2,777
(2) Activity for 2013, 2012 and 2011 includes currency translation gains (losses) of $(121), $428 and $(387), respectively.
(3) Activity for 2013, 2012 and 2011 includes currency translation gains (losses) of $242, $97 and $(123), respectively.
71
MINE SAFETY APPLIANCES COMPANY
SUBSIDIARIES OF THE REGISTRANT
DECEMBER 31, 2013
EXHIBIT 21
Name
General Monitors, Inc.
General Monitors Transnational, LLC.
Compañia MSA de Argentina S.A.
MSA (Aust.) Pty. Limited
MSA-Auer Sicherheitstechnik Vertriebs GmbH
MSA Belgium NV
MSA do Brasil Ltda.
MSA Canada
MSA de Chile Ltda.
MSA (China) Safety Equipment Co., Ltd.
MSA (Suzhou) Safety Equipment Research and Development Co., Ltd.
MSA International, Inc.
MSA Gallet
MSA Auer
MSA Europe
MSA-Auer Hungaria Safety Technology
General Monitors Ireland Limited
MSA Italiana S.p.A.
MSA Japan Ltd.
MSA Safety Malaysia Snd Bhd
MSA de Mexico, S.A. de C.V.
MSA Nederland, B.V.
MSA del Peru S.A.C.
MSA-Auer Polska Sp. z o.o.
MSA (Britain) Limited
MSA S.E. Asia Pte. Ltd.
Samsac Holding (Pty.) Limited
MSA Española S.A.
MSA Nordic
Sordin AB
State or Other
Jurisdiction of
Incorporation
California
Nevada
Argentina
Australia
Austria
Belgium
Brazil
Canada
Chile
China
China
Delaware
France
Germany
Germany
Hungary
Ireland
Italy
Japan
Malaysia
Mexico
Netherlands
Peru
Poland
Scotland
Singapore
South Africa
Spain
Sweden
Sweden
The above-mentioned subsidiary companies are included in the consolidated financial statements of the registrant filed as
part of this annual report. The names of certain other subsidiaries, which considered in the aggregate as a single affiliate would
not constitute a significant subsidiary, have been omitted.
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (Nos. 33-43696,
333-51983, 333-121196, 333-157681, 333-157682, 333-157683 and 333-174601) of Mine Safety Appliances Company of our
report dated February 24, 2014 relating to the financial statements, financial statement schedule and the effectiveness of
internal control over financial reporting, which appears in this Form 10-K.
EXHIBIT 23
/s/ PricewaterhouseCoopers LLP
Pittsburgh, Pennsylvania
February 24, 2014
EXHIBIT 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO RULE 13a-14(a)
I, William M. Lambert, certify that:
1. I have reviewed this annual report on Form 10-K of Mine Safety Appliances Company;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being
prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting
to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons
performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report
financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role
in the registrant’s internal control over financial reporting.
February 24, 2014
/s/ WILLIAM M. LAMBERT
William M. Lambert
Chief Executive Officer
EXHIBIT 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO RULE 13a-14(a)
I, Stacy P. McMahan, certify that:
1. I have reviewed this annual report on Form 10-K of Mine Safety Appliances Company;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being
prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting
to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons
performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report
financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role
in the registrant’s internal control over financial reporting.
February 24, 2014
/s/ Stacy P. McMahan
Stacy P. McMahan
Chief Financial Officer
CERTIFICATION
EXHIBIT 32
Pursuant to 18 U.S.C. (S) 1350, the undersigned officers of Mine Safety Appliances Company (the “Company”), hereby
certify, to the best of their knowledge, that the Company’s Annual Report on Form 10-K for the year ended December 31, 2013
(the “Report”) fully complies with the requirements of Section 13 (a) or 15 (d), as applicable, of the Securities Exchange Act of
1934 and that the information contained in the Report fairly presents, in all material respects, the financial condition and results
of operations of the Company.
February 24, 2014
/s/ WILLIAM M. LAMBERT
William M. Lambert
Chief Executive Officer
/s/ STACY P. McMAHAN
Stacy P. McMahan
Chief Financial Officer
PRINCIPAL OPERATIONS
North America
Corporate Headquarters – Cranberry Township, Pa.
International
Compañia MSA de Argentina S.A., Buenos Aires
U.S. Manufacturing – Cranberry Township, Pa.;
MSA (Aust.) Pty. Ltd., Sydney
Jacksonville, N.C.; Murrysville, Pa.
Research – John T. Ryan Memorial Laboratory,
Cranberry Township, Pa.
MSA Canada Inc., Toronto; Edmonton
MSA de Mexico, S.A. de C.V., Querétaro
Safety Works, LLC, Wexford, Pa.
Europe
Mine Safety Romania S.R.L., Bucharest, Romania
Mine Safety Sp. z o.o., Raszyn, Poland
MSA Auer GmbH, Berlin, Germany
MSA Auer Schweiz GmbH, Oberglatt, Switzerland
MSA Auer Vertriebs GmbH, Absdorf, Austria
MSA Belgium, N.V., Lier
MSA (Britain) Limited, Glasgow
MSA Safety Czech, s.r.o., Ostrava
MSA Española S.A.U., Barcelona
MSA Gallet, Chatillon sur Chalaronne, France; Mohammedia, Morocco
MSA Italiana S.p.A., Milan
MSA Nederland B.V., Hoorn
MSA Nordic AB, Malmo, Sweden
MSA Safety, LLC, Moscow, Russia
MSA Safety Hungary Ltd., Budapest
MSA Sordin AB, Varnamo, Sweden
MSA (Australia), Auckland, New Zealand (Branch Office)
MSA do Brasil Ltda., São Paulo
MSA de Chile Ltda., Santiago
MSA de Colombia S.A.S., Bogota
MSA (China) Safety Equipment Co., Ltd., Suzhou
MSA Egypt LLC, Cairo
MSA Hong Kong Ltd., Hong Kong
MSA (India) Limited, Calcutta
MSA Japan Ltd., Tokyo
MSA Safety Malaysia Sdn. Bhd., Kuala Lumpur
MSA Middle East, Abu Dhabi, U.A.E. (Office)
MSA Middle East FZE, Dubai, U.A.E.
MSA del Peru S.A.C., Lima
MSA S.E. Asia Pte. Ltd., Singapore
MSA Select Ltd., Kitwe, Zambia
MSA (Suzhou) Safety Equipment Research and
Development Co., Ltd., Suzhou, China
MSA (Thailand) Limited, Bangkok
PT MSA Indonesia Ltd., Jakarta
Samsac Africa (Proprietary) Ltd., Johannesburg
Select Personal Protective Equipment (PTY) Ltd., Johannesburg
General Monitors
Electrasem, LLC, Corona, Calif.
Gassonic A/S, Ballerup, Denmark
General Monitors Inc., Lake Forest, Calif.
General Monitors Ireland Ltd., Galway, Ireland
General Monitors Pacifica, Pte. Ltd., Singapore
General Monitors Systems, LLC, Lake Forest, Calif.
General Monitors Systems Asia, Pte., Ltd., Singapore
DIRECTORS AND CORPORATE OffICERS
Board of Directors
John T. Ryan III (3) (4) (5) (6)
Officers
William M. Lambert
Chairman of the Board; Retired (2008); formerly Chief Executive
President and Chief Executive Officer
Officer of the Company
Robert A. Bruggeworth (1) (2)
President and Chief Executive Officer, RF Micro Devices, Inc. (high-
performance RF components and compound semiconductors
manufacturer); Director, RF Micro Devices, Inc.
Alvaro Garcia-Tunon (1) (4) (6)
Retired (2012); formerly Executive Vice President and
Chief Financial Officer, Wabtec Corporation (supplier of technology-
based products and services for rail, transit and other global
industries); Director and Chairman of the Audit Committee of
Matthews International Corp.
Thomas B. Hotopp (2) (5)
Retired (2003); formerly President of the Company
William M. Lambert (3)
President and Chief Executive Officer of the Company
Diane M. Pearse (1) (4) (6)
Senior Vice President, Operations and Merchandising, Redbox
Automated Retail, LLC (a fully automated DVD rental company)
Rebecca B. Roberts (2)
Retired (2011); formerly President of Chevron Pipe Line Company;
Director, Black Hills Corporation and Enbridge Energy Partners L.P.
L. Edward Shaw, Jr. (4) (5) (6)
Retired (2010); formerly Senior Managing Director, Breeden
Stacy P. McMahan
Senior Vice President and Chief Financial Officer
Joseph A. Bigler
Vice President and Chief Customer Officer
Steven C. Blanco
Vice President, Global Operational Excellence
Kerry M. Bove
Vice President; President, MSA Asia, Australia, Africa,
and Latin America
Ronald N. Herring, Jr.
Vice President; President, MSA Europe, Russia, Middle East,
and India
Douglas K. McClaine
Vice President; Secretary and General Counsel
Dr. Thomas Muschter
Vice President, Global Product Leadership
Paul R. Uhler
Vice President, Global Human Resources
Nishan J. Vartanian
Vice President; President, MSA North America
Markus H. Weber
Vice President; Chief Information Officer
Capital Management LLC (investment management and multidisciplinary
professional services firm); Director and Chairman of the
Compensation Committee of HealthSouth Corporation
Thomas H. Witmer (1) (2) (3) (5)
Lead Director; Retired (1998); formerly President and Chief Executive Officer,
Medrad, Inc. (manufacturer of medical devices)
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
(3) Member of the Executive Committee
(4) Member of the Finance Committee
(5) Member of the Nominating and Corporate Governance Committee
(6) Member of the Law Committee
OrganizatiOn
MSA made a number of key organizational changes in 2013 to further enhance the company’s position
as the world’s leading provider of advanced safety equipment and to ensure continuity of strong and
experienced leadership going forward.
Stacy P. McMahan
Dennis L. Zeitler
Joseph A. Bigler
Nishan J. Vartanian
Rebecca B. Roberts
Stacy P. McMahan was elected Senior Vice President and Chief Financial Officer, completing a planned management succession
process that began in 2012. Ms. McMahan came to MSA in 2012 with more than 23 years of finance leadership experience, most
recently serving as Vice President of Finance, Customer Channels Group, for Thermo Fisher Scientific, Inc. Prior to that she spent six
years with Johnson & Johnson as Vice President of Finance, and 16 years with Eli Lilly, where she served in a treasury-oriented position
in Brussels, Belgium; as Finance Manager in Basingstoke Hampshire, UK; and in a CFO role in Sydney, Australia.
As Chief Financial Officer, Stacy succeeds Dennis L. Zeitler, who retired from the company at the end of 2013. With nearly four decades
of service to the company, Dennis helped to expertly guide the financial health of MSA with an unwavering commitment to honesty,
transparency and integrity. In addition to his financial management expertise, Dennis provided the vision and served as the “architect”
for the world class office park known today as Cranberry Woods, home to the company’s corporate headquarters and John T. Ryan
Memorial Lab. His straightforward style, professionalism and dedication to MSA’s mission have, without question, served MSA very well,
and we are grateful for his many contributions.
With a focus on creating a truly customer-centric culture across the MSA organization, in 2013 Joseph A. Bigler was named Vice
President and Chief Customer Officer, a newly created position for the company. In this role Mr. Bigler is responsible for developing and
implementing a global customer experience framework that identifies and improves a broad range of critical customer touch points.
A 41-year veteran of MSA, Mr. Bigler most recently served as President of the company’s North American operations.
Ensuring continuity of experienced leadership for the company’s North American business segment, Nishan J. Vartanian was elected
Vice President and President of MSA North America. A 28-year veteran of the company, Mr. Vartanian played the lead role in guiding
the integration of MSA’s acquisition of California-based General Monitors in 2010. In 2011, he was appointed to MSA’s Executive
Leadership Team and, in 2012, was elected Vice President of MSA’s Fixed Gas and Flame Detection business.
In anticipation of future retirements among the Company’s Board of Directors, in 2013 MSA elected Rebecca B. Roberts to its Board
of Directors. Ms. Roberts retired in 2011 as President of Chevron Pipe Line Company, a wholly owned subsidiary of Chevron Corp,
where she was responsible for a network of more than 10,000 miles of pipelines transporting crude oil, petroleum products, chemicals,
natural gas and natural gas liquids in North America. In addition to her MSA responsibilities, Ms. Roberts currently serves as a director
for Black Hills Corporation and Enbridge Energy Partners L.P.
SectiOn 302 certificatiOnS and nYSe
ceO certificatiOn
SharehOlderS’ inquirieS
In June 2013, the Company’s Chief Executive Officer submitted
to the New York Stock Exchange the annual certification as to
compliance with the Exchange’s Corporate Governance Listing
Standards required by Section 303A.12(a) of the Exchange’s Listed
Company Manual. The certification was unqualified.
Additional copies of the company’s 2013 Annual Report, including
Form 10-K, as filed with the Securities and Exchange Commission,
may be obtained by shareholders after April 2, 2014. Printed and
electronic versions are available. Requests should be directed to the
Chief Financial Officer, who can be reached at one of the following:
The Company’s reports filed with the Securities and Exchange
Commission during the past year, including the Annual Report on
Form 10-K for the year ended December 31, 2013, have contained
the certifications of the Company’s Chief Executive Officer and Chief
Financial Officer regarding the quality of the Company’s public
disclosure required by Section 302 of the Sarbanes-Oxley Act.
Phone:
Fax:
Internet:
U.S. Mail:
724-741-8270
866-538-7488
www.MSAsafety.com
MSA
Chief Financial Officer
1000 Cranberry Woods Drive
Cranberry Township, PA 16066
1000 Cranberry Woods Drive
Cranberry Township, PA 16066
724-776-8600
www.MSAsafety.com