Dailystocks.com - Ticker-based level links to all the information for the Stocks you own. Portal for Daytrading and Finance and Investing Web Sites
DailyStocks.com
What's New
Site Map
Help
FAQ
Log In
Home Quotes/Data/Chart Warren Buffett Fund Letters Ticker-based Links Education/Tips Insider Buying Index Quotes Forums Finance Site Directory
OTCBB Investors Daily Glossary News/Edtrl Company Overviews PowerRatings China Stocks Buy/Sell Indicators Company Profiles About Us
Nanotech List Videos Magic Formula Value Investing Daytrading/TA Analysis Activist Stocks Wi-fi List FOREX Quote ETF Quotes Commodities
Make DailyStocks Your Home Page AAII Ranked this System #1 Since 1998 Bookmark and Share


Welcome!
Welcome to the investing community at DailyStocks where we believe we have some of the most intelligent investors around. While we have had an online presence since 1997 as a portal, we are just beginning the forums section now. Our moderators are serious investors with MBA and CFAs with practical experience wwell-versed in fundamental, value, or technical investing. We look forward to your contribution to this community.

Recent Topics
Article by DailyStocks_admin    (08-12-08 09:07 AM)

Mine Safety Appliances Company. CEO WILLIAM M LAMBERT bought 7300 shares on 8-04-2008 at $34.21

BUSINESS OVERVIEW

Overview — Mine Safety Appliances Company was incorporated in Pennsylvania in 1914. We are a global leader in the development, manufacture and supply of sophisticated products that protect people’s health and safety. Sophisticated safety products typically integrate any 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 around the world in the fire service, homeland security, construction, and other industries, as well as the military. Our broad product offering includes self-contained breathing apparatus, or SCBAs, gas masks, gas detection instruments, head protection, respirators, thermal imaging cameras, fall protection, and ballistic helmets and body armor. 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, sophisticated 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 functional 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, 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. We believe that we best serve these customer preferences by organizing our business into three 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, 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 sophisticated safety products to protect workers around the world in the fire service, homeland security, 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:

Respiratory protection. Respiratory protection 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. We offer a broad and comprehensive line of respiratory protection products.




Self Contained Breathing Apparatus. SCBAs are used by first responders, petrochemical plant workers, and anyone entering an environment deemed immediately dangerous to life and health. SCBAs are also used by first responders to protect against exposure to chemical, biological, radiological, and nuclear, or CBRN, agents. In September 2007, our latest generation SCBA, the FireHawk M7, was certified as meeting new rigorous performance requirements adopted by the NFPA. The FireHawk M7 Air Mask was the first device of its kind to be certified by the Safety Equipment Institute, or SEI, as NFPA compliant for both its breathing apparatus and Personal Alert Safety System, or PASS. The PASS device is an SCBA component that sounds a loud, piercing alarm when a firefighter becomes disabled or lies motionless for 30 seconds. The new NFPA standards also established higher benchmarks for electronics durability.



Air-purifying respirators. Air-purifying respirators range from the simple, filtering types to powered full-facepiece versions for many hazardous applications, including:




full face gas masks for military personnel and first responders exposed to known and unknown concentrations of hazardous gases, chemicals, vapors, and particulates;




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.




Gas masks. We have supplied gas masks to the U.S. military for several decades. The latest versions of these masks are currently in use by the U.S. military in Iraq, Afghanistan, and other parts of the world. Our commercial version of this gas mask, the Millennium, was developed based on the MCU-2/P, the gas mask currently used by the U.S. Air Force, and U.S. Navy.




Escape hoods . Our Response Escape Hood is 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. The hood gives users head and upper neck coverage and respiratory protection to help them escape from threatening situations quickly and easily.

Portable and permanent gas detection instruments. Our hand-held and permanent 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 the lack of oxygen in confined spaces or the presence of combustible or toxic gases.




Single- and multi-gas hand-held detectors. Our single- and multi-gas detectors provide portable solutions for detecting the presence of oxygen, hydrogen sulfide, carbon monoxide, and combustible gas, either singularly or all four gases at once. Our hand-held portable instruments are used by chemical workers, oil and gas workers, utility workers entering confined spaces, or anywhere a user needs protection to continuously monitor the quality of the atmosphere they are working in and around.







Multi-point permanently installed gas detection systems. Our comprehensive line of gas monitoring systems is used to continuously monitor for combustible and toxic gases and oxygen deficiency in virtually any gas detection application where continuous monitoring is required. Our systems are used for gas detection in pulp and paper, refrigerant monitoring, petrochemical, and general industrial applications. One of our newest lines, the SafeSite ® Multi-Threat Wireless Detection System, designed and developed for homeland security applications, combines the technologies and features from our line of permanent and portable gas detection offerings. The SafeSite System detects and communicates the presence of toxic industrial chemicals and chemical warfare agents. With up to 16 monitoring stations, wirelessly connected to a base station, the SafeSite System allows law enforcement officials to rapidly deploy and set up perimeter gas sensing sentinels that continuously monitor the air for toxic gases at large public events, in subways or at federal facilities, and continuously report their status to incident command.




Flame detectors and open-path infrared gas detectors. Our line of flame and combustible gas detectors is used for plant-wide monitoring of toxic gas concentrations and for detecting the presence of flames. These systems use infrared optics to detect potentially hazardous conditions across distances as far as 120 meters, making them suitable for use in such places 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 identify “hot spots.” Our Evolution ® 5200 and Evolution 5200 HD2 Thermal Imaging Cameras, combine the functionality and durability required by the fire service with features and performance capabilities not found in other small format TICs. The recently-introduced Evolution 5600 Thermal Imaging Camera provides high resolution and an extended high sensitivity operating range in a rugged, user-friendly and affordable design.

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.




Industrial hard hats. Our broad line of hard hats include full-brim hats and traditional hard hats, available in custom colors and with custom logos. These hard hats are used by plant, steel and construction workers, miners and welders.




Fire helmets. Our fire service products include leather, traditional, modern, and specialty helmets designed to satisfy the preferences of firefighters across geographic regions. Our CairnsHELMET is the number one helmet in the North American fire service market based on 2007 sales. Similarly, our Gallet firefighting helmet has a number one market position in Europe based on 2007 sales.




Military helmets and communication systems. The Advanced Combat Helmet, or ACH, is used by the military for ballistic head protection. The ACH was originally designed for the Special Forces of the U.S. military and has now been designated as the “basis of issue” by the U.S. Army. In recent years military forces in Iraq and Afghanistan have trusted MSA’s battle-tested ACH and related Modular Integrated Communication Headset, or MICH™. MICH is a light weight and comfortable communication system that provides superior hearing protection as well as clear radio/intercom communications.




Eye, face, and hearing protection. We manufacture and sell a broad line of hearing protection products, non-prescription protective eyewear, and face shields, used in a variety of industries.

Body protection.




Fall protection . Our broad line of fall protection equipment includes confined space equipment, harnesses/fall arrest equipment, lanyards, and lifelines.




Ballistic body armor. Our MSA Paraclete Releasable Assault Vest and Releasable Modular Vest are used primarily by the U.S. military, including Special Forces Units . Our ForceField™ Body Armor line features concealable ballistic vests and over-the-uniform tactical vests designed primarily for law enforcement applications.

Customers — Our customers generally fall into three categories: industrial and military end-users, distributors, and retail consumers. In North America, we make nearly all of our non-military sales through our distributors . In our European and International segments, we make our sales through both indirect and direct sales channels. Our U.S. military customers, which are comprised of multiple U.S. government entities, including the Department of Defense, accounted for approximately 8% of our 2007 sales. The year-end backlog of orders under contracts with U.S. government agencies was $35.1 million in 2007, $33.1 million in 2006, and $57.9 million in 2005.

Sales and Distribution — Our sales and distribution team consists of distinct marketing, field sales and customer service organizations for our three geographic segments: North America, Europe, and International. We believe our sales and distribution team, totaling over 400 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, educating them about hazards, exposure limits, safety requirements, and product applications, as well as specific performance requirements of our products. In our International segment and Eastern Europe where distributors are not well established, our sales associates work with and sell directly to end-users. Our development of relationships with end-users is critical to increasing the overall demand for our products.

The in-depth customer training and education provided by our sales associates to our customers are critical to ensure proper use of many of our products, such as SCBAs and gas detection instruments. As a result of our sales associates working closely with end-users, they gain valuable insight into customers’ 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 with respect to product application, industry standards and regulations, sales skills and sales force automation.

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 select authorized national, regional, and local distributors. Some of our key distributors include Airgas, W.W. Grainger Inc., Fisher Safety, 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.

We market consumer products under the MSA Safety Works brand through a dedicated sales and marketing force. We serve the retail consumer through various channels, including distributors, such as Orgill Bros., hardware and equipment rental outlets, such as United Rentals, and retail chains, such as The Home Depot and TrueValue.

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 $13 billion. The industry supplying this market is broad and highly fragmented with few participants able to offer a comprehensive line of safety products. Generally, global demand for safety products has been stable or growing because purchases of these products are non-discretionary since they protect workers in hazardous and life-threatening work environments and because their use is often mandated by government and industry regulations. 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 which 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 service.

We believe we compete favorably within each of our operating segments as a result of our high quality and cost-efficient product offering and strong brand trust and recognition.

Research and Development — To maintain our position at the forefront of safety equipment technology, we operate three sophisticated research and development facilities. We believe our dedication and commitment to innovation and research and development allow us to produce innovative sophisticated safety products that are often first to market and exceed industry standards. In 2007, 2006, and 2005, on a global basis, we spent approximately $30.2 million, $26.0 million, and $21.9 million, respectively, on research and development. Our engineering groups operate primarily in the United States and Germany, and to a lesser extent in France and Sweden. 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 the markets and the technologies, 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 three geographic 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, such as the National Institute for Occupational Safety and Health, or NIOSH, and the National Fire Protection Association, or NFPA, to develop industry product requirements and standards and anticipate their impact on our product lines. For example, nearly every consensus standard-setting body around the world that impacts our product lines has one of our key managers as a voting member. Key members of our management team understand the impact that these standard-setting organizations have on our new product development pipeline and devote time and attention to anticipating a new standard’s impact on our net sales and operating results. Because of our technological sophistication, commitment to and membership on global standard-setting bodies, resource dedication to research and development and unique approach to the new product development process, we believe we are well-positioned to anticipate and adapt to the needs of changing product standards and gain the approvals and certifications necessary to meet new government and multinational product regulations.

Patents and Intellectual Property — We own and have obtained licenses to 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 — Nearly all 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, we have not experienced any significant problems in obtaining adequate raw materials.

Associates — At December 31, 2007, we had approximately 5,100 associates, approximately 2,800 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 work stoppage in over 10 years and believe our relations with our associates are good.

CEO BACKGROUND

Mr. Cederna was Chairman, President and Chief Executive Officer of Calgon Carbon Corporation until February 2003. Mr. Shaw was Executive Vice President and General Counsel of Aetna, Inc., a health care and group benefits insurer, until his retirement in December 2003. From January 2004 to September 2004, Mr. Shaw was an attorney in private practice, and from September 2004 to January 2006, he was of counsel to Gibson, Dunn & Crutcher LLP, a full service law firm. Mr. Shaw is the brother-in-law of Mr. Ryan. Mr. Bruggeworth has been Chief Executive Officer of RF Micro Devices, Inc. since January 2003. Mr. Lambert has been President and Chief Operating Officer of the Company since May 2007 and prior thereto he was a Vice President of the Company and President of MSA North America. Each other director has engaged in the principal occupation indicated in the above table for at least the past five years.

MANAGEMENT DISCUSSION FROM LATEST 10K

BUSINESS OVERVIEW

We are a global leader in the development, manufacture and supply of sophisticated products that protect people’s health and safety. Sophisticated 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 fire service, homeland security, construction, and other industries, as well as the military.

In recent years, we have concentrated on specific initiatives intended to help improve our competitive position and profitability, including:




identifying and developing promising new markets;




focusing on innovation and new product introductions;




further strengthening relationships with major distributors;




optimizing factory performance and driving operational excellence;




positioning international business to capture significant growth opportunities; and




pursuing strategic acquisitions.

We tailor our product offerings and distribution strategy to satisfy distinct customer preferences that vary across geographic regions. We believe that we best serve these customer preferences by organizing our business into three geographic segments: North America, Europe, and International. Each segment includes a number of operating companies. In 2007, approximately 52%, 24%, 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 well-established companies in most Western European countries and more recently established operations in a number of Eastern European locations. Our largest European companies, based in Germany and France, develop, manufacture, and sell a wide variety of products. Operations in other European 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, and the U.S., or are purchased from third party vendors.

International . Our International segment includes operating entities located in Abu Dhabi, Argentina, Australia, Brazil, Chile, China, Hong Kong, India, Indonesia, Japan, Malaysia, Peru, Singapore, South Africa, and Thailand, some of which are in developing regions of the world. Principal manufacturing operations are located in Australia, Brazil, South Africa, and China. These companies develop and 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 the U.S., Germany, and France, or are purchased from third party vendors.

We believe that our financial performance in recent years is the result of initiatives that have allowed us to anticipate and respond quickly to market requirements, particularly in the North American fire service, homeland security, construction and industrial markets, as well as the military, and reflects our ability to quickly bring to market products that comply with changing industry standards and to create new market demand with innovative products.

ACQUISITIONS

In December 2007, we acquired TecBOS GmbH of Halstenbek, Germany. TecBOS is a leading developer of software solutions for the fire service and other emergency planning organizations. We believe that this acquisition will strengthen our presence in the European fire service and emergency responder market by adding complementary software solutions used for on-site management and reporting of major incidents such as fires, traffic accidents, industrial plant emergencies and public events.

In March 2007, we acquired Acceleron Technologies, LLC, a San Francisco-based developer of advanced technology suitable for personal locator devices. Acceleron has key patents and know-how in the area of compensated inertial navigation sensing as applied to personnel tracking. We believe that this technology is particularly well-suited for personal locator applications inside buildings where GPS is denied. The patented technology and know-how significantly increases data accuracy and minimizes the drift that can occur in conventional systems. We believe that the acquisition of this technology expedites the development of much needed and more reliable systems for use in first responder and soldier location applications.

In March 2007, we acquired the outstanding shares of MSA (India) Limited that were previously held by our joint venture partner. As a wholly-owned subsidiary under MSA management, we believe that we are better positioned to take advantage of opportunities in the large and growing Indian market.

In September 2006, we acquired Paraclete Armor and Equipment, Inc. of St. Pauls, North Carolina. Paraclete is an innovator and developer of advanced ballistic body armor used by military personnel, including Special Forces units of the U.S. military. We believe that the acquisition of Paraclete strategically positions us to provide a broad range of ballistic protective equipment to both the military and law enforcement markets.

In January 2006, we took steps to ensure our compliance with South African Black Economic Empowerment (BEE) requirements by forming a new South African holding company in which Mineworkers Investment Company of Johannesburg, South Africa holds a 25.1% ownership interest. Compliance with BEE, a South African government program similar to Affirmative Action in the United States, is key to achieving meaningful growth in South Africa, particularly in the mining industry. At the same time, we acquired Select Personal Protective Equipment (Select PPE) of South Africa, an established supplier of multi-brand safety equipment and solutions to the South African mining industry. Our existing South African company, MSA Africa, and Select PPE are operating independently under the newly-established South African holding company. We believe that our new South African operating structure significantly improves our market presence and expertise in serving the mining industry and provides significant growth opportunities in the region.

In September 2005, we acquired Microsensor Systems, Inc. of Bowling Green, Kentucky. Microsensor Systems is a world leader in surface acoustic wave-based chemical sensing technology used to detect chemical warfare agents. We believe the acquisition of Microsensor Systems significantly strengthens our position as a premier provider of leading edge detection technology, while expanding our product offerings in the homeland security, emergency responder, law enforcement, military and industrial markets.

RESULTS OF OPERATIONS

Year Ended December 31, 2007 Compared to Year Ended December 31, 2006

Net sales. Net sales for the year ended December 31, 2007 were $990.3 million, an increase of $76.6 million, or 8%, from $913.7 million for the year ended December 31, 2006.

Net sales of our North American segment were $515.1 million for the year ended December 31, 2007, an increase of $11.7 million, or 2%, compared to $503.4 million for the year ended December 31, 2006. North American sales of ballistic vests, including those made by Paraclete, improved $7.1 million in 2007. Shipments of Advanced Combat Helmets and gas masks to the military were up $6.8 million and $6.1 million, respectively. Our sales of fall protection and head protection improved approximately $4.3 million and $6.5 million, respectively, on increased demand in construction and industrial markets. These sales improvements were partially offset by a $4.5 million decrease in instrument shipments, primarily due to lower sales of the SAFESITE monitoring system for the homeland security market, and a $15.7 million decrease in SCBA shipments, primarily due to lower demand from the U.S. fire service market as customers waited for the implementation of the new NFPA standards that all manufacturers had to meet by August 31, 2007. In early September, our next-generation breathing apparatus for firefighters, the FireHawk ® M7 Air Mask, was the first device to be certified by the Safety Equipment Institute as compliant to both the new NFPA standards covering breathing apparatus performance and Personal Alert Systems (PASS) performance.

Net sales by European operations were $238.3 million for the year ended December 31, 2007, an increase of $19.1 million, or 9%, from $219.2 million for the year ended December 31, 2006. The increase in European sales, when stated in U.S. dollars, includes favorable currency translation effects of $20.7 million, primarily due to a stronger euro in the current year. Local currency sales in Europe for the year ended December 31, 2007 were $1.6 million lower than in the prior year, primarily due to lower fourth quarter shipments in Eastern Europe. In 2006, European segment sales benefited from $8.8 million in shipments of chemical suits to the Slovakian Army and strong shipments of gas masks and self-rescuer canisters to the German Army. The absence of similar orders in 2007 was largely offset by sales improvements in most Western European markets.

Net sales by International operations were $236.8 million for the year ended December 31, 2007, an increase of $45.7 million, or 24%, compared to $191.1 million for the year ended December 31, 2006. The increase reflects local currency sales growth in nearly all International segment markets. In South Africa, local currency sales were up $11.4 million, primarily due to growth in business with the mining industry. Local currency sales in China were up $5.9 million, including a large shipment of breathing apparatus to the Beijing Fire Bureau. Local currency sales in Latin America improved $8.5 million, with strong growth in all markets. The International segment sales increase includes a $4.8 million shipment of ballistic vests to the Iraq Joint Contracting Command. The increase in International segment sales, when stated in U.S. dollars, includes favorable currency translation effects of $7.5 million, primarily due to a stronger Australian dollar and Brazilian real, partially offset by a weaker South African rand.

Cost of products sold. Cost of products sold was $616.2 million for the year ended December 31, 2007, an increase of $47.8 million, or 8%, from $568.4 million for the year ended December 31, 2006.

Cost of products sold and operating expenses include net periodic pension benefit costs and credits. Pension credits, combined with pension costs, resulted in net pension credits for the year ended December 31, 2007 of $4.5 million, of which credits of approximately $5.4 million and $0.8 million were included in cost of products sold and research and development expenses, respectively, and charges of $1.7 million in selling, general and administrative expenses. Excluding $4.8 million in special termination benefits, which were reported in restructuring and other charges, net pension credits for the year ended December 31, 2006 were $4.1 million, of which credits of approximately $4.6 million and $0.7 million were included in cost of products sold and research and development expenses, respectively, and charges of $1.2 million in selling, general and administrative expenses. The recognition of pension income in the years ended December 31, 2007 and 2006 is primarily the result of the exceptional investment performance of the MSA Non-Contributory Pension Plan for the Employees, or the MSA Pension Plan, over the past ten years. During that period, the investment performance of the MSA Pension Plan has ranked among the top 5% of all U.S. pension funds according to a comparison of fund performance as computed by Yanni Partners, an independent investment consulting firm. Future net pension credits can be volatile depending on the future performance of plan assets, changes in actuarial assumptions regarding such factors as the selection of discount rates and rates of return on plan assets, changes in the amortization levels of actuarial gains and losses, plan amendments affecting benefit pay-out levels, and profile changes in the participant populations being valued. Changes in any of these factors could cause net pension credits to change. To the extent net pension credits decline in the future, our net income would be adversely affected.

Gross profit. Gross profit for the year ended December 31, 2007 was $374.0 million, an increase of $28.7 million, or 8%, from $345.3 million for the year ended December 31, 2006. The ratio of gross profit to sales was steady at 37.8% in both 2007 and 2006.

Selling, general and administrative expenses. Selling, general and administrative expenses for the year ended December 31, 2007 were $241.1 million, an increase of $25.4 million, or 12%, from $215.7 million for the year ended December 31, 2006. Selling, general and administrative expenses were 24.4% of sales in 2007 compared to 23.6% of sales in 2006. Local currency selling, general and administrative expenses in the European and International segments were up $2.5 million and $9.9 million, respectively. These increases reflect our ongoing efforts to increase sales in European markets, as well as our continued expansion in China, Southeast Asia, and South Africa. North American segment selling, general and administrative expenses increased $3.8 million, including an increase of $2.4 million in insurance and product liability expense, which was based on the results of our annual actuarial study. Currency exchange effects increased selling, general and administrative expenses, when stated in U.S. dollars, by $7.5 million, primarily due to a stronger euro.

Research and development expenses. Research and development expenses were $30.2 million for the year ended December 31, 2007, an increase of $4.2 million, or 16%, from $26.0 million for the year ended December 31, 2006. Research and development expenses were up $3.3 million in North America, reflecting our continued focus on developing innovative new products. The remainder of the increase occurred in the European segment and was primarily related to the translation effects of a stronger euro.

Depreciation and amortization expense. Depreciation and amortization expense, which is reported in cost of sales, selling, general and administrative expenses, and research and development expenses, was $24.4 million for the year ended December 31, 2007, an increase of $2.3 million, or 10%, from $22.1 million for the year ended December 31, 2006. Amortization of intangible assets increased $0.9 million in the current year. Currency exchange effects increased depreciation and amortization expense, when stated in U.S. dollars, by $0.6 million, primarily due to a stronger euro.

Restructuring and other charges . Restructuring and other charges were $4.1 million for the year ended December 31, 2007, compared to $7.0 million for the year ended December 31, 2006.

For the year ended December 31, 2007, these charges were primarily related to reorganization activities. North American segment charges of $2.5 million were primarily severance costs and moving expenses associated with our Project Magellan initiative to move fire helmet manufacturing from Clifton, New Jersey to Jacksonville,

North Carolina and to move our Mexican manufacturing operations to a new factory in Queretaro, Mexico. The Clifton plant, which employed about 60 associates, was closed during the fourth quarter of 2007. We expect to complete the move to the new factory in Mexico during 2008. European segment charges of $1.1 million were primarily severance costs associated with the reorganization of our management team. International segment charges of $0.5 million relate to severance costs associated with the workforce reductions in Brazil and Australia.

Charges during the year ended December 31, 2006 were primarily related to the North American segment Project Outlook reorganization plan that was completed that year. A significant portion of the charges were for a focused voluntary retirement incentive program (VRIP). In 2006 approximately 60 associates retired under the terms of the VRIP. Project Outlook charges for the year ended December 31, 2006, included $5.3 million for VRIP retirees, primarily non-cash special termination benefits, $0.7 million in severance costs related to other staff reductions, and $0.5 million to relocate various employee work groups within the new organizational structure. The remaining $0.5 million of charges in 2006 were for severance costs related to discontinuing manufacturing operations in Britain.

Interest expense. Interest expense for the year ended December 31, 2007 was $9.9 million, an increase of $3.7 million, or 59%, from $6.2 million for the year ended December 31, 2006. The increase was primarily due to higher short-term debt during the current year.

Currency exchange adjustments. During the year ended December 31, 2007, we recorded currency exchange gains of $0.1 million compared to losses of $3.1 million for the year ended December 31, 2006. Currency exchange losses during 2006 were primarily due to the weakening of the South African rand.

Other income. Other income for the year ended December 31, 2007 was $17.4 million, an increase of $12.0 million, from $5.4 million in 2006. The increase was primarily due to the gains on two property sales that we made in 2007. In July 2007, we sold 83 acres of land in our Cranberry Woods office park to Wells Real Estate Investment Trust II—Cranberry Woods Development, Inc. for $14.6 million. This sale resulted in a pretax gain of $10.6 million ($6.5 million after-tax). In December 2007, we sold property in Clifton, New Jersey for a pretax gain of $1.9 million. We vacated the Clifton property during the fourth quarter as a result of the previously-discussed Project Magellan initiative that moved fire helmet manufacturing to Jacksonville, North Carolina.

Income tax provision. Our effective tax rate for the year ended December 31, 2007 was 36.4% compared to 31.0% for the year end December 31, 2006. The provision for income taxes for the year ended December 31, 2007 includes one-time charges of $1.6 million to adjust our net deferred tax assets in Germany due to a reduction in the German statutory income tax rate and $1.3 million for valuation allowances on net operating loss carry-forward deferred tax assets recorded in prior years. In August 2007, the German statutory tax rate was reduced by approximately 9%. The lower rate became effective January 1, 2008. Our European segment results in 2008 and future years should benefit from this rate reduction. The provision for income taxes for the year ended December 31, 2006 included one-time benefits $1.2 million and of $0.8 million related to adjustments to prior year extra-territorial income exclusions and research and development credits, respectively. Excluding these one-time adjustments, the effective tax rate for the year ended December 31, 2007 was 33.6% compared to 33.2% for 2006. The effective tax rate, excluding the one-time adjustments discussed above, was lower than the statutory rate primarily due to the manufacturing deduction, research and development credits, and non-US income.

We have not provided deferred U.S. income taxes on undistributed earnings of non-U.S. subsidiaries, which amounted to $156.4 million as of December 31, 2007. These earnings are considered to be reinvested for an indefinite period of time. It is not practicable to determine the deferred tax liability on these undistributed earnings.

On January 1, 2007, we adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109 (FIN48). As a result of the adoption of the FIN 48, we recognized a gross increase in the tax liability for unrecognized tax benefits of $5.7 million. Prior to the adoption of FIN 48, we had recognized $1.4 million in unrecognized tax benefits. The gross increase in the tax liability upon the adoption of FIN 48 created additional tax benefits of $1.8 million, resulting in a net increase in the liability for unrecognized tax benefits of $3.9 million, which was accounted for as a reduction in retained earnings at January 1, 2007. These adjustments, if recognized in the provision for income taxes, would have increased our effective income tax rate.

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 $2.2 million and $1.8 million at December 31, 2007 and January 1, 2007, respectively.

We recognize interest related to unrecognized tax benefits in interest expense and penalties in operating expenses. As a result of the adoption of FIN 48, we recognized a $0.9 million increase in the liability for accrued interest and penalties related to uncertain tax positions which were also accounted for as a reduction of retained earnings at January 1, 2007. As a result of the settlements in the table above, we reversed $0.5 million of accrued interest and penalties related to uncertain tax positions during 2007. Our liability for accrued interest and penalties related to uncertain tax positions was $0.4 million at December 31, 2007.

We do not expect that the total amount of the unrecognized tax benefit will significantly increase or decrease within 12 months of the reporting date.

We file a U.S. federal income tax return along with various state and foreign income tax returns. Examinations of our federal returns have been completed through 2002. The Internal Revenue Service has notified us that an examination of our U.S. federal income tax returns for the years 2003 through 2006 will be conducted during 2008. We also file in various state and foreign jurisdictions that may be subject to tax audits after 2002.

Net income. Net income for the year ended December 31, 2007 was $67.6 million, an increase of $3.7 million, or 6%, from net income for the year ended December 31, 2006 of $63.9 million. Basic earnings per share of common stock was $1.89 in 2007 compared to $1.76 in 2006.

North American segment net income for the year ended December 31, 2007 was $48.1 million, an increase of $5.4 million, or 13%, from $42.7 million for the year ended December 31, 2006. The increase was primarily related to the previously-discussed gain on the sale of Cranberry Woods property.

European segment net income for the year ended December 31, 2007 was $6.8 million, a decrease of $2.1 million, or 23%, from $8.9 million for the year ended December 31, 2006. The decrease was primarily related to the previously-discussed one-time charge of $1.6 million to adjust our net deferred tax assets in Germany due to a reduction in the German statutory income tax rate and severance costs of $0.8 million after-tax associated with the reorganization of our European management team.

International segment net income for the year ended December 31, 2007 was $14.4 million, an increase of $1.3 million, or 10%, from $13.1 million for the year ended December 31, 2006. The improvement in International segment net income was primarily related to the previously-discussed sales growth, partially offset by $1.3 million in income tax valuation allowances.

MANAGEMENT DISCUSSION FOR LATEST QUARTER

RESULTS OF OPERATIONS

Three Months Ended June 30, 2008 Compared to Three Months Ended June 30, 2007

Net sales. Net sales for the three months ended June 30, 2008 were $293.2 million, an increase of $44.1 million, or 18%, compared with $249.1 million for the three months ended June 30, 2007.

Net sales by the North American segment were $148.7 million for the second quarter of 2008, an increase of $16.9 million, or 13%, compared to $131.8 million for the second quarter of 2007. During the second quarter of 2008, our sales of self-contained breathing apparatus (SCBA) improved $9.6 million. Higher SCBA sales reflect $12.6 million in shipments of our Firehawk ® M7 Responder to the U.S. Air Force. Instrument sales were $3.4 million higher in the current quarter, primarily due to strong shipments of our new Altair ® multigas detectors to the oil and gas industry. Sales of head protection, primarily to the construction industry, improved $2.0 million in the current quarter. Higher sales of Advanced Combat Helmets to the U.S. Army and CG634 helmets to the Canadian Forces, up $3.9 million and $4.9 million, respectively, in the current quarter, were somewhat offset by a $2.9 million decrease in shipments of other ballistic protection.

Net sales for the European segment were $76.9 million for the second quarter of 2008, an increase of $20.9 million, or 37%, compared to $56.0 million for the second quarter of 2007. Local currency sales in Europe were $8.6 million higher than in the same quarter last year. The increase reflects strong sales of SCBAs and air purifying respirators in Eastern Europe and higher shipments of helmets to the fire service and law enforcement agencies in France. Currency translation effects increased European segment sales, when stated in U.S. dollars, by $12.3 million, reflecting the stronger euro.

Net sales for the International segment were $67.6 million in the second quarter of 2008, an increase of $6.3 million, or 10%, compared to $61.3 million for the second quarter of 2007. The sales increase was primarily in Africa and Latin America, where local currency sales were up $3.9 million and $4.1 million, respectively. The improvement in Africa was primarily due to strong growth in sales to the mining industry. These increases were partially offset by lower sales in the Middle East, where second quarter 2007 sales included a $4.8 million shipment of ballistic vests to the Iraq Joint Contracting Command. Currency translation effects increased International segment sales, when stated in U.S. dollars, by $3.6 million, primarily related to a strengthening of the Australian dollar and the Brazilian real.

Cost of products sold . Cost of products sold was $181.6 million in the second quarter of 2008, compared to $155.3 million in the second quarter of 2007. Cost of products sold, selling, general and administrative expenses, and research and development expenses include net periodic pension credits during the second quarters of 2008 and 2007 of $2.3 million and $1.1 million, respectively.

Gross profit . Gross profit for the second quarter of 2008 was $111.6 million, which was $17.8 million, or 19%, higher than gross profit of $93.8 million in the second quarter of 2007. The ratio of gross profit to net sales was 38.1% in the second quarter of 2008 compared to 37.7% in the same quarter last year. The higher gross profit ratio in the second quarter of 2008 was primarily related to sales mix and our ongoing efforts to reduce costs.

Selling, general and administrative expenses . Selling, general and administrative expenses were $68.9 million during the second quarter of 2008, an increase of $10.1 million, or 17%, compared to $58.8 million in the second quarter of 2007. Selling, general and administrative expenses were 23.5% of net sales in the second quarter of 2008 compared to 23.6% of net sales in the second quarter of 2007. Local currency selling, general and administrative expenses in the European and International segments were up $3.4 million, reflecting our increased focus on global initiatives and the higher selling and marketing expenses required to sustain sales growth in these markets. North American segment selling, general and administrative expenses were up $3.3 million quarter-to-quarter, primarily due to the increased selling and marketing expenses required to support higher sales levels. Currency exchange effects increased second quarter 2008 administrative expense, when stated in U.S. dollars, by $3.7 million, primarily related to a stronger euro, Australian dollar, and Brazilian real.

Research and development expense . Research and development expense was $9.2 million during the second quarter of 2008, an increase of $2.4 million, or 36%, compared to $6.8 million during the second quarter of 2007. The increase occurred in the United States and Germany and reflects our continued focus on developing innovative new products.

Depreciation and amortization expense . Depreciation and amortization expense, which is reported in cost of sales, selling, general and administrative expenses, and research and development expenses, was $7.1 million for the second quarter of 2008, an increase of $1.0 million, or 16%, compared to $6.1 million for the second quarter of 2007. The increase in depreciation expense was primarily on production and computer equipment in North America.

Restructuring and other charges . During the second quarter 2008, we recorded charges of $1.1 million. These charges were primarily related to stay bonuses and other costs associated with our Project Magellan initiative to outsource or transfer certain production activities from our Evans City, Pennsylvania plant.

During the second quarter of 2007, we recorded charges of $2.3 million, primarily related to reorganization activities. In Europe, charges of $1.0 million related to the reorganization of our management team. North American charges of $0.8 million were primarily stay bonuses related to moving fire helmet manufacturing from Clifton, New Jersey to Jacksonville, North Carolina and moving our Mexican manufacturing operations to a new factory in Queretaro, Mexico. The Clifton plant, which employed about 70 associates, was closed during 2007. International charges of $0.5 million related to severance costs associated with workforce reductions in Brazil and Australia.

Currency exchange (gains) losses . Currency exchange gains were insignificant in the second quarter of 2008. Currency exchange gains of $1.5 million in the second quarter of 2007 were primarily related to the Canadian dollar and the Australian dollar.

Income taxes. The effective tax rate for the second quarter of 2008 was 36.9% compared to 34.0% for the same quarter last year. The higher effective tax rate in the current quarter reflects a less favorable non-U.S. tax profile and the expiration of the research and development tax credit in the U.S.

We file a U.S. federal income tax return and various state and foreign income tax returns. Examinations of our U.S. federal returns have been completed through 2002. The Internal Revenue Service is currently examining our U.S. federal tax returns for the years 2003 through 2006. We also file in various state and foreign jurisdictions that may be subject to tax audits after 2002.

Net income . Net income for the three months ended June 30, 2008 was $20.0 million, an increase of $2.7 million, or 15%, compared to $17.3 million for the same quarter last year. Basic earnings per share of common stock was $0.56 for the second quarter of 2008, compared to $0.49 for the second quarter of 2007.

North American segment net income for the second quarter of 2008 was $11.5 million, an increase of $1.0 million, or 9%, compared to $10.5 million in the second quarter of 2007. Higher net income in North America was primarily related to the previously-discussed increase in sales.

European segment net income for the second quarter of 2008 was $4.1 million, an increase of $2.3 million, or 125%, compared to net income of $1.8 million during the second quarter of 2007. Current quarter net income for the European segment includes a $0.5 million after-tax gain on the sale of property in France. Currency translation effects increased European segment net income, when stated in U.S. dollars, by approximately $0.5 million, reflecting the stronger euro. The remainder of the increase in European segment net income was primarily related to the previously-discussed increase in local currency sales.

International segment net income for the second quarter of 2008 was $4.3 million, compared to $4.4 million in the same quarter last year. Currency translation effects were not significant.
CONF CALL

Mark Deasy

Thank you, Kim. Good morning everybody, and welcome to our second quarter earnings conference call for 2008. As Kim said, I am Mark Deasy, Communications Director, and with me today are Bill Lambert, President and Chief Executive Officer; Dennis Zeitler, Senior Vice President and Chief Financial Officer; Joe Bigler, President of MSA North America; and joining us from Berlin is Rob Canizares, Executive Vice President and President of MSA International.

Our second quarter earnings release was issued this morning at 8:30 and we hope everyone has had an opportunity to review it. The release is also posted on the homepage of MSA's website.

This morning we will begin with Bill Lambert, who will provide commentary on our second quarter. Bill will be followed by Dennis, who will review our financials. After that Dennis, we will open up the call for questions and plan to adjourn by about 10:45 AM.

Having said that, I would like to remind everyone that the matters discussed on this call, with the exception of historical information, are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended.

Forward-looking statements, including without limitation all projections and anticipated levels of future performance, involve risks, uncertainties and other factors that may cause our actual results to differ materially from those discussed here. These risks, uncertainties and other factors are detailed from time to time in our filings with the Securities and Exchange Commission, including our most recent Form 10-Q, which was filed on May 1st, 2008. We strongly urge you to review all such filings for a more detailed discussion of such risks and uncertainties. Our SEC filings can be easily obtained at no charge at www.SEC.gov, our own web site and a number of other commercial web sites. That concludes our forward-looking statements.

So at this point I will turn the call over to Bill for his comments on our second quarter. Bill?

Bill Lambert

Thank you, Mark, and good morning, everyone. Let me begin by saying thank you for joining us today on this conference call and for your continued interest in MSA. Presumably, all of you have seen our second-quarter earnings release and have our financial figures with all the comparisons being with the equivalent period in 2007.

Overall, I am pleased with our second quarter performance. We saw meaningful sales growth in each of our three geographic segments, and we saw improvements in the operational areas we have been focusing on and discussing with you over the past several quarters.

Consolidated sales in the quarter increased $44 million over the second quarter 2007, or 18%, with strong sales gains shown in Europe, which was up 37%; and North America, which was up 13%.

We saw more moderate sales gains in our international area, which was up 10%, but which also has a difficult comparison because the second quarter 2007 was so strong for MSA International.

Operating income, prior to restructuring expense, interest expense and foreign currency exchange gains shows pretax profit from operations, increasing 19% from a year ago and reached an operating margin of 11.9%. This is down slightly from the first quarter but continues to show directional improvements from a year ago.

Year-to-date operating income ex-items is running at 12.3% of sales versus 11.9% a year ago, a 40 basis point improvement, and continuing evidence, I believe, that our initiatives to improve operating margins have taken hold.

Reported net income increased 15% and our diluted earnings per share also increased 15%, as the number of shares outstanding stayed relatively flat to the number of outstanding shares a year ago.

Gross profit increased 41 basis points from a year ago, as many of our factories saw strong over-absorption in a quarter with strong shipments.

I am additionally pleased by the improvement in gross margins, considering that we and others have felt downward pressures on margins due to rising raw material costs and increasing freight expenses due to increases in oil and fuel prices. I am pleased with our success in being able to hold down other production costs and to effectively manage our pricing strategy and see the gross profit increases that we see.

Let me now move my discussion to each of our geographic segments with which we report. First up, I will talk about North America, which accounted for 51% of our total sales during the quarter. As I stated earlier, North American sales for the second quarter showed a $16.9 million increase and we are 13% ahead of a year ago. This sales growth was fueled primarily by increases in SCBA shipments, which improved to $9.6 million on strong shipments to the US. Air Force.

North American sales were also fueled by strong gas detection instruments sales, which improved $3.4 million, or 14%, on strong sales of our new ALTAIR 4 multigas detector to the oil and gas industry. We also saw increased hard hat sales, which were up $2 million or 12% on strong sales to various segments of the construction market.

Overall, military sales in North America showed a very strong gain, up 28% from a year ago on strong shipments of SCBA, under our multi-year US Air Force contract and stronger sales of Advanced Combat Helmets and CG 634 ballistic helmets to the US Army and Canada National Defense Forces, respectively.

In the US Fire Service, it was gratifying to see nearly 100% of the fiscal year 2007 Federal Assistance to Firefighter Grants released to the fire departments, just as we had expected. We were also pleased to see fiscal year 2008 AFG grants begin to flow during the first week of July, which is a little earlier than we expected, but was very encouraging to see.

The federal AFG program continues to be a very meaningful driver of protective equipment sales, like our SCBA, as fire departments across the country look to the AFG award program to fund their purchases. Further encouragement on this program is provided by the fact that the AFG program saw an increase in funding for fiscal year 2008 versus last year and that the current program has been approved by the US Congress until 2010 with the 2010 program probably running from July 2010 to May 2011.

So the AFG program is something we look to for the future to continue to fund the sales of protective equipment to fire departments. We anticipate that the next presidential administration will continue to budget and support this very popular federal grant program for fire departments across the country.

However, outside of the AFG program it appears that challenges on municipal budgets associated with municipal tax revenue declines, due to the housing crisis and rising operating costs within the fire department, due to escalating fuel prices are combining to provide a fiscal pinch to many municipalities and fire departments.

We and others predicted the inevitability of this happening, but it became very apparent in the second quarter as SCBA, purchase decision after purchase decision was announced as being either delayed into the next fiscal year or canceled entirely because the fire department did not receive AFG funding and the municipal budgets were getting pinched. This developing trend raises some level of concern for us in the US Fire Service since, by our internal estimates, roughly 30% of equipment purchases are funded by municipal budgets.

While we estimate 70% of purchases are funded by the AFG program, and that seems to be working just fine, we are seeing a tightening on the balance. These estimates are only a rough estimate on our part and can certainly vary from year-to-year.

Now, I do not want to overemphasize this developing trend because, keep in mind, in many cases lifesaving and mission-critical equipment like a firefighter's self-contained breathing apparatus achieve high priority for purchase, so the impact of municipal fiscal tightening is somewhat lessened.

The point is, we are seeing some headwinds develop on the US Fire Service front, and it is coming from the impact municipal budgets are feeling from reduced tax revenues associated with the housing crisis and rising operating costs associated with rising fuel costs.

One last point on SCBA sales comparisons. When we review SCBA purchases by the fire service versus last year, it is worth considering that the quarter comparable from a year ago is, in fact, a demanding comparison. Second quarter 2007 was our best quarter all year for fire service SCBA sales, because last May we had strong shipments under our last call program for older edition SCBA. As you probably recall, our last call marketing program was a focused initiative, which laid the groundwork for introduction of our new FireHawk NFPA SCBA in the third quarter 2007.

Now, early on, I stated SCBA sales were up $9.6 million versus a year ago in North America. You might be asking, how can that be if we experienced a reduction in the US Fire Service? Overall, SCBA sales in North American increased almost 30% over a year ago, due to strong shipments against the US Air Force contract for our FireHawk responder SCBA. Therefore, though we were comparatively down quarter to quarter in SCBA shipments to the US Fire Service for the reasons noted earlier, we more than made up for in strong shipments to the Air Force for our newest generation SCBA, which supports the US Air Force airbases across the country.

So, in summary for North America, considering the overall business environment, I am pleased with our second-quarter performance in North America, where sales showed an increase of 13%. Specifically noteworthy is the 10% increase in sales from our core commercial business. That is, let us exclude North America military and the US Fire Service. All the other parts of our business in North America were up a combined 10%, and the bright spots moving forward continue to be the energy market, like the oil, gas and utility sectors, and various segments of the construction market, like infrastructure and industrial, medical and educational, building construction, which are all experiencing signs of growth.

Certainly, there are signs emerging that the second half of this year and into 2009 may present business challenges for North America, but I am confident we can successfully weather the storm with a keen focus on growth opportunities and overall expense discipline.

Let us turn our attention to Europe now. In Europe we saw current-quarter sales increase about $21 million, showing a 37% increase versus a year ago. While the stronger euro was a significant factor, taking out the currency translation effect yields, still, a 13% increase in European sales for the second quarter. This was exceptional performance and showed good progress in our European factory's ability to address certain supply chain issues and address a strong backlog of orders, which I discussed with you in our last conference call.

I was very pleased by our European team's ability to address these issues and the progress that they continued to show. As we indicated in the press release, the stronger European performance reflects strong sales of SCBA and air purifying respirators in Germany and higher shipments of fire helmets to the European fire service and ballistic helmets to law-enforcement agencies in France. The initiatives we have going on in Europe to improve its contribution to MSA profitability are having an affect.

Net income in Europe, as a percent of sales, improved nicely in the current quarter, improving 210 basis points over a year ago, and was related primarily to the strong increase in shipments as we address supply chain issues, but also to the incremental improvements we are making across a broad range of issues throughout the European organization.

I am pleased by the progress we are making and the directional improvements we are beginning to see, and I am confident in our team's ability to achieve the goals we have set for ourselves. However, we must be mindful that we are also early into this complex and multi-year transformational effort in Europe, and this will continue to require management focus in the quarters and years ahead.

Now let me turn my attention to MSA International. In our International segment, current quarter sales increased $6 million or 10% over a year ago, due to stronger sales in South Africa and Latin America, particularly the mining industries that we serve there. I am pleased with this 10% increase, and I do not believe this is any indication of moderating sales growth internationally, because, as I indicated earlier, the comparison to quarter two last year is a challenging comparison because last year we had a $4.8 million ballistic vest shipment to the Iraqi Joint Contracting Command.

Taking that single large order out, current-quarter international sales would have shown a 20% increase. Current-quarter net income in International was about the same as a year ago and did not reflect improvement consistent with the sales growth we saw. This was primarily due to a warranty-related charge on earnings in South Africa.

I am pleased, during the quarter, with the completion of our plant expansion effort and facilities modernization project in Sao Paulo, Brazil, as we invest in that area to serve the growing needs of Latin America. Additionally, during the quarter we continued to make good progress in bringing our newest plant and our Asian engineering center online in Suzhou, China. This new 130,000 square feet plant and office facility will become our headquarters for Asian operations, and is due to be completed during the third quarter of this year. We will begin ramp-up of production activities at this site by the end of this year and into next year.

Both the Sao Paulo, Brazil, and Suzhou, China factory projects are part of our Project Magellan initiative to modernize and optimize our global manufacturing capabilities and to provide low-cost sourcing opportunities to meet the global demand for our products. I am pleased by our progress on Project Magellan and the milestones that we are hitting. I feel we are in the early stages of realizing all of the improvements from these initiatives, but one and a half years into this five-year effort, I believe we are right on schedule.

So, in summary for MSA, I am pleased with MSA's overall performance in the second quarter. We saw a meaningful 18% growth in sales overall. We saw a meaningful sales growth in each of our three geographic segments, and we saw a meaningful progress in the operational areas we have been focusing on and discussing with you over the past several quarters.

I was pleased with the improvements we saw in our current-quarter gross profits, which were 19% higher than a year ago, on the stronger sales, and up about 40 basis points as we made progress in battling the pressures faced by increased raw material and energy-related costs and we saw the benefits associated with the introduction of new products in our gas detection area, which have a lower cost basis.

There are challenges developing, which we are just beginning to see in the US Fire Service. However, we also continue to see above-market sales growth in the oil and gas and the construction markets, as our new products and marketing initiatives result in market share gains in these areas. Additionally, growth in sales to the US military is showing expected improvements, as we extend our product offerings to this important customer base.

While the US has certain economic challenges that we and others face, our performance and opportunities in Europe and internationally have not yet seen the effects of the macroeconomic environment, that we are seeing in the US. Though, understandably, GDP growth rates outside the US are decelerating and inflation has taken a clear upward trend, we continue to invest in these markets outside of the US, and I am cautiously optimistic we can continue to show acceptable growth in these regions over the coming quarters.

At this point I will now turn the call over to Dennis Zeitler, our CFO, who will provide a little more insight into our reported first-quarter financial results. Dennis?

Dennis Zeitler

Thank you, Bill. Good morning, everyone. I would like to give you some further insight into our second-quarter performance and comment on the balance sheet and cash flow statements. Additional information will be available later today when we file our Form 10-Q with the Securities and Exchange Commission.

As Bill mentioned, sales in the second quarter of 2008 were a record $293 million. Compared to the second quarter of 2007, sales increased 18% with strong growth in both our North American and European segments and moderate growth in International.

North American sales are up 13%, led by a 70% increase in military sales, a 10% increase in industrial sales but a decrease of 13% in fire service sales. The $15 million increase in military sales, reflects $13 million of self-contained breathing apparatus shipped to US Air Force.

The $5 million decrease in North American fire service sales compared to the second quarter of 2007 reflects a slowdown in municipal spending as well as a comparatively strong quarter in 2007 when we were shipping the last of the old edition of our SCBA product.

Our European sales grew 37% this quarter in US dollar terms, of which 24% was the impact of a stronger Euro. In terms of local currency, our European military sales are up 36%, fire service is up 22% and our European industrial sales are flat with last year. Our backlog of product to be shipped to European customers over the remainder of this year increased slightly this quarter.

International segment sales grew 10% this quarter compared to the same quarter in 2007, of which 6% is due to appreciating currencies. This is composed of strong growth in Latin America, good growth in South Africa but weaker performance in Asia and the Pacific Rim. This is a tougher comparison quarter for our International sales as we sold $5 million of ballistic vests to the Iraqi military in the second quarter of last year.

Our global sales were also higher in each of our three market segments. The core industrial market, which is approximately 60% of our total sales, is up 15% this quarter. Fire service is up 2%, and military is up 63%.

The other view of our sales performance is to separate the two most volatile segments - US fire service and US military from everything else. Our US fire service sales of $30 million is a decrease of 10%, and our US military sales of $31 million is an increase of 56%. Then, when we look at all of our other globally diversified sales they comprise 79% of our total sales this quarter, these sales grew 19%.

Our expectations for US Fire Service sales in the remainder of 2008 has been tempered, by the apparent impact of the decrease in municipal funding is having on such purchases. Our military sales do look strong for the remainder of 2008. We also expect to make significant progress in reducing our European backlog during the second half of 2008.

The balance of our business continues to be strong but is certainly subject to global economic conditions. Our gross profit rate for this quarter was 38%, up slightly from last year. Our continuing efforts to reduce manufacturing costs were mostly offset by more competitive pricing in the fire service market and the lower margins on US military sales.

Selling and administrative costs in this quarter were 23% of sales, down slightly from last year. Our R&D expenses are up $2 million this quarter as we continue to invest in new technology and products that will continue to grow our organic sales in the years to come.

The resulting operating income, excluding restructuring charges and currency gains, is $35 million, an increase over the second quarter of 2007 of 19%. As a percent of sales, this is 12% this quarter versus 12% in the second quarter of last year and 13% in the first quarter of 2008.

I am pleased to report that we had no foreign currency loss this quarter on our income statement, although I am disappointed that we did not record a gain for the period. Although the euro did weaken significantly up until mid-May, it then strengthened to the same level versus the dollar at the end of June, as it was at the end of March.

Our consolidated tax rate in the second quarter was 37% versus 34% last year. Some of the issues involved here, such as the failure of the US Congress to renew the R&D tax credit and a high effective tax rate in Europe, should resolve themselves during the remainder of the year. Others, such as our inability to tax-effect our losses in China, Japan and Ireland, will resolve themselves over time as we turn these affiliates to profitability.

The bottom line is net income of $20 million, $0.56 per basic share, an increase of 14% over last year. Adjusting our earnings per share for restructuring charges and the tax issues that should be resolved by year-end we would increase our earnings per share to $0.60 this quarter.

Some comments on the balance sheet and cash flow statement. Our cash position is unchanged this quarter at $67 million. Our net working capital adjusted for changes in exchange rates increased $40 million over the second quarter of 2007, led by a 16% increase in inventories, in anticipation of shipments to be made during the third quarter.

Our cash outflows this quarter were for manufacturing assets and dividends. Our capital expenditure plans for 2008 are higher than 2007, due to the new Chinese factory that had just been completed, as well as major improvements that are underway at our Australian and Brazilian factories.

At this point, Bill, Rob Canizares, Joe Bigler and I will be more than glad to answer whatever questions you may have. Please remember that MSA does not give what is referred to as guidance that precludes most discussions relating to our expectations of future sales and earnings.

SHARE THIS PAGE:  Add to Delicious Delicious  Share    Bookmark and Share



 
Icon Legend Permissions Topic Options
You can comment on this topic
Print Topic

Email Topic

3026 Views