What changed in this filing

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Item 1A. Risk Factors

2023-02-16 compared with 2022-02-18 · 66 added, 60 removed, 178 unchanged (41% of the section changed)

RISKS RELATED TO LEGAL AND REGULATORY CHALLENGES

Claims of injuries or potential safety issues related to alleged product defects, or quality concerns against our various subsidiaries could have a material adverse effect on our business, operating results, financial condition and liquidity.

Our mission, reputation and business success rely on our ability to design and provide safe, high quality and reliable products that earn and maintain customer trust.

Our products are often used in high-risk and unpredictable environments, and MSA and its subsidiaries face an inherent business risk of exposure to product liability claims.

In the event the parties using our products are injured or any of our products are alleged to be defective, we could be subject to claims.

In addition, we may be required to or may voluntarily recall or redesign certain products or components due to concern about product safety, quality, or reliability.

Claims of injuries or potential safety issues or quality concerns could be made against our various subsidiaries.

Our products and solutions are often used in high-risk and unpredictable environments and our mission, reputation and business success rely on our ability to design and provide safe, high quality and reliable products that earn and maintain customer trust.

In the event the parties using our products are injured, or if any of our products are alleged to have contributed, we could be subject to claims or suffer reputational harm.

In addition, we may be required to or may voluntarily recall or redesign certain products or components due to concern about product safety, quality, ease of use or customer confidence.

Any significant claims, recalls or field actions that result in significant expense or negative publicity against us could have a material adverse effect on our business, operating results, financial condition and liquidity, including any successful claim brought against us in excess or outside of available insurance coverage.

Our subsidiaries, including Mine Safety Appliances Company, LLC, may experience losses from product liability claims.

Losses from product liability claims could have a material adverse effect on our business, operating results, financial condition and liquidity, which could introduce volatility from period-to-period in our financial results.

From time to time, product liability claims are made against our various subsidiaries.

In most instances the products at issue were manufactured many years ago and are not currently offered for sale, but in some instances, product liability claims may relate to current products.

One subsidiary, Mine Safety Appliances Company, LLC (“MSA LLC”) was named as a defendant in 1,675 cumulative trauma lawsuits comprised of 4,554 claims at December 31, 2021.

Cumulative trauma product liability claims involve exposures to harmful substances (e.g., silica, asbestos and coal dust) that occurred years ago and may have developed over long periods of time into diseases such as silicosis, asbestosis, mesothelioma or coal worker’s pneumoconiosis.

A reserve has been established with respect to estimated amounts for cumulative trauma product liability claims currently asserted, as well as, incurred but not reported (“IBNR”) cumulative trauma product liability claims.

Because our cumulative trauma product liability risk is subject to inherent uncertainties, and since MSA LLC is largely self-insured, there can be no certainty that MSA LLC may not ultimately incur losses in excess of presently recorded liabilities.

Many factors affecting cumulative trauma product liability claims may change over time or as a result of sudden unfavorable events within a single reporting period.

Associated losses could have a material adverse effect on our business, operating results, financial condition and liquidity, or could result in volatility from period to period.

We will adjust the reserve from time to time based on developments in MSA LLC's actual claims experience, the claims environment or other significant changes in the factors underlying the assumptions used in establishing the reserve.

Each of these factors may increase or decrease significantly within an individual period depending on, among other things, the timing of claims filings, settlements, or litigation outcomes during a particular period that are especially favorable or unfavorable to MSA LLC.

We accordingly consider MSA LLC’s claims experience over multiple periods or whether there are changes in MSA LLC’s claims experience and trends that are likely to continue for a significant time into the future in determining whether to make an adjustment to the reserve, rather than evaluating such factors solely in the short term.

Any future adjustments to the reserve may be material and could materially impact future periods in which the reserve is adjusted.

In the normal course of business, MSA LLC makes payments to settle these types of cumulative trauma product liability claims and for related defense costs, and records receivables for the amounts believed to be recoverable under insurance.

MSA LLC has recorded insurance receivables totaling $130.2 million and notes receivables of $48.5 million at December 31, 2021.

Since MSA LLC is now largely self-insured for cumulative trauma claims, additional amounts recorded as insurance receivables will be limited.

Amounts recorded as insurance receivables are based on the amount of future losses presently recorded in the cumulative trauma product liability reserve.

These projected future losses are used to calculate contingent reimbursements deemed probable of collection under negotiated Coverage-in-Place Agreements.

Reimbursements are calculated based on modeled assumptions, including claims composition, claims characteristics, and timing (each of which are relevant to calculating reimbursement under the terms of Coverage-In-Place Agreements).

These factors, and the potential for future insurer insolvencies, could affect the timing and amount of receivables actually collected in any given period or in total.

Our subsidiaries, may experience losses from product liability claims, which could have a material adverse effect on our business, operating results, financial condition and liquidity.

Our subsidiaries face an inherent business risk of exposure to product liability or other legal claims or penalties related to the design, manufacture, marketing, or sale of any of our current or former products and solutions.

Our subsidiaries are named periodically in single incident lawsuits, or, at times, in cumulative trauma product liability lawsuits which may be numerous, and the number of claims newly asserted in any given period is difficult to predict and may aggregate or escalate suddenly.

Any type of product injury claim may result in losses in excess of available insurance coverage and have a material adverse effect on our business, operating results, financial condition and liquidity.

On January 5, 2023, the Company divested MSA LLC, a wholly owned subsidiary that holds legacy product liability claims relating to coal dust, asbestos, silica, and other exposures, to a joint venture between R&Q Insurance Holdings Ltd.

and Obra Capital, Inc.

(the "Purchaser") The transaction is subject to risks related to counterparty commercial risk as well as agreement enforcement and interpretation.

Third parties also could seek to assert claims against us for which MSA LLC is the legally responsible party, and we may be required to incur fees and expenses to enforce that wrongly asserted claims are properly redirected to MSA LLC.

The divested subsidiary MSA LLC and the Purchaser have indemnified us with respect to MSA LLC’s cumulative trauma product liability losses and other defined exposures.

The ability of MSA LLC and the Purchaser to honor their indemnity obligations is subject to commercial risk and, in addition, in the event of a dispute, the transaction, negotiated indemnities, and the extent of other legally-available protections may be subject to future judicial interpretation.

MSA and its remaining subsidiaries continue to be responsible for claims relating to any current or former products and solutions that were not transferred as part of the divestiture.

Our ability to market and sell our products is subject to existing government laws, regulations and standards.

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If more stringent environmental laws are enacted, these future laws could have a material adverse effect on our business, consolidated results of operations and financial condition.

We are subject to risks related to our environmental, social and governance activities and disclosures.

Environmental social and governance, often referred to as ESG, reporting and disclosure requirements continue to evolve, with increasing investor expectations and additional regulatory requirements anticipated.

Failure to accurately and timely meet these expectations and requirements may result in reputational damage, regulatory penalties and litigation among other consequences.

We are subject to various U.S and foreign tax laws and any changes in these laws related to the taxation of businesses and resolutions of tax disputes could adversely affect our results of operations.

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Our future results are subject to the risk that purchased components and materials are unavailable or available at excessive cost due to material shortages, excessive demand, currency fluctuation, inflationary pressure and other factors.

We depend on various components and materials from supply chain partners to manufacture our products.

It is possible that any of our supplier relationships could be terminated or otherwise disrupted.

Any sustained interruption in our receipt of adequate supplies could have a material adverse effect on our business, results of operations and financial condition.

Our inability to successfully manage price fluctuations due to market demand, currency risks or material shortages, or future price fluctuations could have a material adverse effect on our business and our consolidated results of operations and financial condition.

We depend on various components, materials and services from supply chain partners to manufacture our products.

It is possible that any of our supplier relationships could be terminated or otherwise disrupted, or that our suppliers may be unable to timely deliver to us.

Any sustained interruption in our receipt of adequate supplies or services could have a material adverse effect on our business, results of operations and financial condition.

Our inability to successfully manage price fluctuations due to market demand, currency risks or material shortages, or future price fluctuations (whether due to inflationary pressures or otherwise) could have a material adverse effect on our business and our consolidated results of operations and financial condition.

Our plans to continue to improve productivity and reduce complexity may not be successful, which could adversely affect our ability to compete.

MSA has integrated parts of its European operating segment that have historically been individually managed entities, into a centrally managed organization model.

We have begun to and plan to continue 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 in additional locations across the International Segment.

We plan to continue 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 in additional locations across the International Segment.

MSA 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 result in the efficiencies or cost savings anticipated.

In addition, these various initiatives require MSA 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 our day-to-day operations and have a negative impact on MSA's financial results.

In addition, if not properly managed, these initiatives could cause disruptions in our day-to-day operations and have a negative impact on MSA's financial results.

It is also possible that other major productivity and streamlining programs may be required in the future.

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Another 5% - 10% of consolidated revenue, primarily in FGFD is more exposed to a pullback in capital equipment spending within the energy market.

It is possible that the volatility in the oil, gas and petrochemical industry, whether related to economic, climate-related energy policy, or other conditions, could negatively impact our business and could result in declines in our consolidated results of operations and cash flow.

It is possible that volatility in the oil, gas and petrochemical industry, whether related to economic, climate-related energy policy, or other conditions, could negatively impact our business and could result in declines in our consolidated results of operations and cash flow.

Pandemics or disease outbreaks, such as COVID-19, may cause unfavorable economic or market conditions which could impact demand patterns and/or disrupt global supply chains and manufacturing operations.

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The spread of pandemics or disease outbreaks may also disrupt the Company’s manufacturing operations, supply chain, or logistics necessary to import, export and deliver products to our customers.

During a pandemic or crisis, applicable laws and response directives such as U.S.

federal vaccine mandates for federal contractors or OSHA requirements, could, in some circumstances, result in skilled labor impacts including voluntary attrition or difficulty finding labor, or otherwise adversely affect our ability to operate our plants, obtain inputs from suppliers, or to deliver our products in a timely manner.

Additional vaccine mandates may be announced in other countries in which we operate or source inputs.

During a pandemic or crisis, applicable laws and response directives such as vaccine mandates or occupational safety and health requirements, could, in some circumstances, result in skilled labor impacts including voluntary attrition or difficulty finding labor, or otherwise adversely affect our ability to operate our plants, obtain inputs from suppliers, or to deliver our products in a timely manner.

Some laws and directives may also hinder our ability to move certain products across borders.

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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 that government funding will be sustained at the same level in the future.

Government budgets are set annually, and we cannot assure that government funding will be sustained at similar levels in the future.

A significant reduction in available government funding could result in declines in our consolidated results of operations and cash flow.

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Our inability to successfully identify, consummate and integrate current and future acquisitions or to realize anticipated cost savings and other benefits could adversely affect our business.

Additionally, divestitures may expose us to alleged potential liabilities which could adversely affect our business.

One of our operating strategies is to selectively pursue acquisitions.

For example, on July 1, 2021, we completed the acquisition of Bacharach, Inc., which is a leader in gas detection technologies used in the HVAC-R markets.

Please refer to Note 14 of the consolidated financial statements in Part II Item 8 of this Form 10-K for further details.

Any future acquisitions will depend on our ability to identify suitable acquisition candidates and successfully consummate such acquisitions.

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• customer dissatisfaction or performance problems at the acquired businesses.

If we are unable to integrate or successfully manage businesses that we have recently acquired, including Bacharach, or may acquire in the future, we may not realize anticipated cost savings, improved manufacturing efficiencies and increased revenue, which may result in material adverse short and long-term effects on our consolidated operating results, financial condition and liquidity.

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 material adverse short and long-term effects on our consolidated 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.

We have also divested businesses and may consider divesting businesses in the future.

Divestiture risks relate to our ability to find appropriate purchasers, execute transactions on favorable terms, separate divested business operations with minimal impact to our remaining operations, and effectively manage any transitional service arrangements.

Any of these factors could materially and adversely affect our consolidated results of operations and financial condition.

If we fail to introduce successful new products or extend our existing product line, we could lose our market position and our financial performance could be materially and adversely affected.

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If we are unable to identify emerging customer 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 material 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.

We continue to invest significant resources in research and development and market research, which includes the development of software platforms for our connected products.

However, continued product and/or service 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.

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A failure of our information systems or a cybersecurity breach could materially and adversely affect our business, results of operations and financial condition.

The proper functioning and security of our information systems, including those that support and operate our Safety io and MSA+™ platforms, is critical to the operation and reputation of our business.

The proper functioning and security of our information systems is critical to the operation and reputation of our business.

This includes the systems that support and operate our Safety io and MSA+™ platforms.

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, cyber-criminals and other persons could attempt to gain unauthorized access to our information systems with the intent of harming the Company, harming our information systems 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, or if there is any compromise or breach of our security, it could result in a violation of applicable privacy and other laws, legal and financial exposure, remediation costs, negative impacts on our customers' willingness to transact business with us, or a loss of confidence in our security measures, which could have an adverse effect on our business, our reputation and our consolidated results of operations and financial condition.

To date, we have not experienced any material breaches or material losses related to cyber-attacks.

If our information systems or security fail, or if there is any compromise or breach of our security, it could disrupt our operations and/or result in a violation of applicable privacy and other laws, legal and financial exposure, remediation costs, negative impacts on our customers' willingness to transact business with us, or a loss of confidence in our security measures, which could have an adverse effect on our business, our reputation and our consolidated results of operations and financial condition.

Like many companies, from time to time, we have experienced attempts on our computer systems by unauthorized outside parties.

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Any such system failure or 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 have taken steps and incurred costs to further strengthen the security of our computer systems and continue to assess, maintain and enhance the ongoing effectiveness of our information security systems.

While we attempt to mitigate these risks by employing a number of measures, including employee training, comprehensive monitoring of our networks and systems, and maintenance of backup and protective systems, our systems, networks remain potentially vulnerable to advanced persistent threats.

We cannot assure that ongoing improvements to our infrastructure and cybersecurity programs will be sufficient to prevent or limit the damage from any future cyber-attack or disruption to our information systems.

It is therefore possible that in the future we may suffer an attack, unauthorized parties may gain access to personal information in our possession and we may not be able to identify any such incident in a timely manner.

Our continued success depends on our ability to protect our intellectual property.

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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.

If we are unable to attract, effectively integrate and retain management, engineering, sales and marketing or other key 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.

In addition, hiring, training, and successfully integrating replacement critical personnel could be time consuming, may cause additional disruptions to our operations, and may be unsuccessful, which could negatively impact future revenues.

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We may be unable to hire or retain and develop a highly skilled and diverse global workforce or effectively manage changes in our workforce and respond to shifts in labor availability.

We must hire, retain and develop a highly skilled and diverse global workforce.

We compete to hire new personnel with a variety of capabilities in the many countries in which we manufacture and market our products and then to develop and retain their skills and competencies.

It it important to our business to hire, retain and develop a highly skilled and diverse global workforce.

We compete to hire new personnel with a variety of capabilities in the many countries in which we manufacture and market our products.

We also invest resources and time to develop and retain our employees' skills and competencies.

We could experience unplanned or increased turnover of employees with key capabilities, or fail to develop adequate succession plans for leadership positions or hire and retain a workforce with the skills and in the locations we need to operate and grow our business.

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Occurrence of any of these conditions could deplete our institutional knowledge base and erode our competitiveness.

We are experiencing an increasingly tight and competitive labor market and could face unforeseen challenges in the availability of labor, particularly due to consequences associated with the outbreak of COVID-19.

A sustained labor shortage or increased turnover rates within our employee base caused by COVID-19 or related issues such as vaccine mandates, or as a result of general macroeconomic factors, have led and could lead to increased costs, such as increased overtime to meet demand and increased wages to attract and retain employees.

We are experiencing continuing a tight and competitive labor market and could face unforeseen challenges in the availability of labor.

A sustained labor shortage or increased turnover rates within our employee base have led and could lead to increased costs such as increased overtime to meet demand and increased wages to attract and retain employees.

We have also been negatively affected and could continue to be negatively affected by labor shortages or constraints experienced by our partners, including our external manufacturing partners and freight providers.

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RISKS RELATED TO DOING BUSINESS INTERNATIONALLY

We have significant international operations and are subject to the risks of doing business in foreign countries.

We have business operations in approximately 40 foreign countries.

In 2021, approximately half of our net sales were made by operations located outside the United States.

Those operations are subject to various political, economic and other risks and uncertainties, which could have a material adverse effect on our business.

We have significant international operations and are subject to the risks of doing business in foreign countries and global supply chains.

We have business operations in more than 40 international locations.

In 2022, approximately one-half of our net sales were made by operations located outside the United States.

We also rely on global supply chains or otherwise source critical components and raw materials from suppliers based in foreign countries, which at times are used in manufacturing operations across our global footprint.

In certain cases, components could be sole sourced or otherwise not easily substituted due to the highly regulated nature of our products.

Therefore, our operations and sourcing strategies are subject to supply shortages, sourcing delays, or disruption due to various geopolitical, economic, disasters, and other risks and uncertainties, which could have a material adverse effect on our business.

These risks include the following:

• Scarcity of parts and components necessary to manufacture our products;

• unexpected changes in regulatory requirements;

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• nationalization and expropriation;

• increased international instability or potential instability of foreign governments;

• increased international instability, potential instability of foreign governments or impacts from geopolitical conflict such as supplier or transportation disruptions;

• effectiveness of worldwide compliance with MSA's anti-bribery policy, the U.S.

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• costs and difficulties in managing culturally and geographically diverse international operations;

• pandemics and similar disasters;

• pandemics, severe weather events, or other disasters;

• risks associated with the United Kingdom's decision to exit the European Union, including disruptions to trade and free movement of goods, services and people to and from the United Kingdom;

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and additional legal and economic uncertainty.

Any one or more of these risks could have a negative impact on the success of our international operations and, thereby, have a material adverse effect our business, consolidated results of operations and financial condition.

Any one or more of these risks could have a negative impact on the success of our international operations and, thereby, have a material adverse effect on our business, consolidated 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 could adversely affect our results of operations and financial condition, and could affect the comparability of our results between financial periods.

In 2021, our operations outside of the United States accounted for approximately one-half of our net sales.

Our operations outside of the United States account for a significant portion of our net sales.

The results of our foreign operations are generally reported in local currency and then translated into U.S.

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If there are indicators of impairment, our long-term cash flow forecasts for our operations deteriorate or discount rates increase, we may be required to recognize additional impairment charges in later periods.

See Note 13 of the consolidated financial statements in Part II Item 8 of this Form 10-K for the carrying amounts of goodwill in each of our reporting segments and details on indefinite-lived intangible assets that we hold.

See Note 13—Goodwill and Intangible Assets of the consolidated financial statements in Part II Item 8 of this Form 10-K for the carrying amounts of goodwill in each of our reporting segments and details on indefinite-lived intangible assets that we hold.

Risks related to our defined benefit pension and other post-retirement plans could adversely affect our results of operations and cash flow.

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However, the ultimate amounts to be contributed are dependent upon, among other things, interest rates, underlying asset returns and the impact of legislative or regulatory changes related to pension funding obligations.

For further information regarding our pension plans, refer to "Pensions and Other Post-retirement Benefits" in Note 15 of the consolidated financial statements in Part II Item 8 of this Form 10-K.

For further information regarding our pension plans, refer to Note 15—Pensions and Other Post-retirement Benefits of the consolidated financial statements in Part II Item 8 of this Form 10-K.

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.

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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 12 of the consolidated financial statements in Part II Item 8 of this Form 10-K for commentary on our compliance with the restrictive covenants.

Please refer to Note 12—Long-Term Debt of the consolidated financial statements in Part II Item 8 of this Form 10-K for commentary on our compliance with the restrictive covenants.

Any period of interest rate increases may adversely affect our ability to obtain new financing or to refinance existing debt on terms the Company deems attractive, the cost of such financing, exchange-rates, and our profitability, which in turn may have a material adverse effect on our liquidity and capital resources.

As of December 31, 2022, we had $308.6 million of variable rate borrowings under our revolving credit facility.

A 50 basis point increase or decrease in interest rates could result in $1.4 million of additional interest expense.

When the $315.0 million of variable rate debt undertaken to complete the MSA, LLC divestiture is taken into account, a 50 basis point increase or decrease in interest rates could result in $3.0 million of additional interest expense.

Please refer to Note 20—Contingencies of the consolidated financial statements in Part II Item 8 of this Form 10-K for additional information regarding the divestiture.

Unresolved Staff Comments

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors