To Our Shareholders, Customers and Associates:

If someone had asked me at this time last year what I thought I might be writing today about MSA's performance in 2010, I would probably have said that I would expect this letter to include such phrases as "marginal improvements," "a period of investing in our future," and "continuing to stay the course toward future success."

Instead, I am here to tell you about a year that was far stronger than any of us could have anticipated at the time, one that saw both our revenues and our gross profits climb continually — often dramatically — each quarter as the year went on, leading to a fourth quarter that demonstrated 21 percent sales growth year-over-year, and a full-year 2010 in which MSA posted the third highest sales level in our 96 year history.

What got us here? We stood by our core values and we drove our strategy hard, and those actions led us to a number of good results.

They led to a re-emphasis on our core products, including an unprecedented, game-changing investment in the expansion of our fixed gas and flame detection instrument line, making us the market leader in this fast growing segment, and positioning us to seize significant new market share in the future. They led us to focus resources on key emerging markets, helping MSA operations in Brazil, Argentina, Chile, Peru and Colombia set new records in both sales and profits, and pushing revenues in China up 14 percent on the year.

They led us to a highly effective product development year, featuring the launch of one of our most exciting and successful new products in recent memory — the XCell Sensor Platform — from both a technology and profitability perspective. They led us to create an even more customer-focused organization, as we tied every North American employee's compensation directly into our goal of strengthening customer loyalty by improving customer satisfaction.

And, they drove us to remove significant cost from our business, including the successful completion of our footprint consolidation and optimization strategy in North America, and meaningful implementations of that strategy in Europe and Asia.

All in all, these efforts, and many others, left us in a healthy position to seize the day once the economy began to turn. In 2010, we saw our core industrial market begin to recover decisively throughout most of the world, and smaller pockets of strength emerge in fire service and military markets. And seize the day we did.

Pleasing customers, booking orders

As many MSA stakeholders are aware, our strategic plan focuses most strongly on four core product lines: Industrial Head Protection, Supplied-Air Respirators, Portable Gas Detection Instruments, and Fixed Gas and Flame Detection Systems, or what we often refer to as Permanent Instruments. And, with this increased focus, three of these four product groups demonstrated strong year-over-year sales growth all around the world, with industrial head protection products up 28 percent, portable instruments up 23 percent, and permanent instruments up 12 percent, which does not include revenue from our acquisition of General Monitors of Lake Forest, California, which is highlighted on the pages following this letter.

What's interesting looking at some of our 2010 order highlights is their size. Many of our "big" orders were smaller than in years past. Perhaps they represent the caution many customers exhibited in 2010 as they slowly gained confidence in the economy. In any case, although the average order for MSA products was smaller, there were obviously enough of them to allow us to reach the strong sales totals that defined 2010.

For example, in portable and permanent gas detection instruments, we saw orders such as a $1 million booking from the India Oil & Natural Gas Commission for our Suprema Detection System. We also received a $2 million order from the U.S. Navy for a customized Ultima X Detection System; and a $2 million order from QWEST Telecommunications for our new hand-held Altair 4X Multigas Detector.

And speaking of the Altair 4X Detector, it's a breakthrough portable instrument powered by our proprietary XCell Sensors. Very appropriately, we named this new family of internally developed sensors as our Product of the Year. Launched in the third quarter after a significant and focused product development effort, they are responsible for driving sales of the Altair 4X Detector beyond our expectations and are outpacing the growth of the market. The Altair 4X Detector and XCell Sensors were developed using extensive Voice-of-Customer insight from around the globe, so the benefits we are offering — such as the product's ability to respond 40 percent faster, deliver greater battery run time, provide significant lifetime cost savings and even survive a fall of 20 feet and keep working — are right in line with the most desired customer needs, leading to a premium product at a very competitive price point.

In hard hats, we captured enough orders that our market share in North America increased to almost 60 percent, making us not only the leader in the category, but truly the industry benchmark as well. And, we've opened up new geographic markets for our flagship V-Gard Hard Hat line, making inroads throughout Europe, and enormous strides in China, where in 2010 we achieved for the first time annual production and sales exceeding one million V-Gard Helmets. More impressively, we reached that milestone in late November, with more than a month to spare!

Many of our larger orders in 2010 were broader contracts specifying a variety of personal protective equipment cutting across product lines, such as a $9 million order from the New York City Police Department, and a $4 million contract from KCM Copper Mining Company in Zambia. We also won two significant, highly competitive contracts to supply and operate the on-site personal protective equipment stores for the very large South African mining companies AngloAmerican and GoldFields. These multi-year contracts total some $20 million, and represent impressive sales victories for MSA's South African affiliate, Select PPE.

Our third core product area, supplied-air respirators, which includes MSA's line of self-contained breathing apparatus, or SCBA, is driven in large part by the fiscal health of the fire service and its ability to invest in the equipment they need to help protect us. 2010 was another challenging year for those in the fire service. As we noted on many occasions throughout the year, municipal fire service budgets remain tight in the U.S. Nevertheless, data from the International Safety Equipment Association indicates that we actually increased our market share in SCBA, further solidifying our position as a market leader. Fire service orders from Western Europe were also brighter, as were SCBA orders from other markets, such as a $3.3 million order from the German armed forces.

Our fierce commitment to the fire service market, in the U.S. and around the world, remains unabated. At MSA, our product development gears keep turning on their behalf. In many SCBA products, we've introduced customer-driven improvements including enhanced controls and pressure gauges. In addition, we were most proud, in 2010, to be selected by the International Association of Fire Fighters as its exclusive development partner in the design of a next-generation of SCBA used by firefighters. Our prototype, using low-profile pressure-vessel technology, won the day, promising to make firefighting breathing apparatuses even smaller, lighter and more efficient in the years to come.

Alongside the fire service and our core industrial market, military is MSA's third key market. After a slow start, our fulfillment of the Advanced Combat Helmet (ACH) orders for the U.S. Army finally took off at full speed in the fourth quarter, generating more than $6 million in revenue. We reached full production status at our Newport, Vermont plant the last three months of the year. And we're adding ACH production at our Murrysville, Pennsylvania facility to help ensure that 2011 is a significantly stronger year for our military business. Indeed, we're on track to deliver another 150,000 Advanced Combat Helmets in 2011, and we are better positioned today, than in 2010, to handle any add-on contracts that will likely follow.

Project Magellan leads cost cutting successes

Speaking of Murrysville, that location was just one of the sites transformed by Project Magellan — a multi-year endeavor we announced in 2008 to improve the efficiency of MSA operations around the world by generating more effective use of our existing and available factory space. In 2010, we completed several footprint optimization plans that, when combined with other Magellan activities completed since the start of this initiative, will allow us to realize approximately $15 million in savings every year going forward.

In particular, we moved all gas mask assembly operations to our Murrysville facility, allowing us to vacate our Evans City, Pennsylvania site. We also closed our Englewood, Colorado site, consolidating capacity from that plant in MSA facilities in Jacksonville, North Carolina and Querétaro, Mexico. And we closed an older facility in Wuxi, China, relocating our capacity there to MSA's new, state-ofthe- art facility in Suzhou. But what I consider to be the jewel of the Magellan effort in 2010 was the successful relocation of hundreds of MSA associates from our former O'Hara Township, Pennsylvania headquarters to our corporate campus in nearby Cranberry Township. This office consolidation greatly facilitates communication and team collaboration within the organization, all in an innovative and bright open-office environment that ultimately saves the company $2.7 million annually.



As successful as our cost-reduction efforts have been, there are three areas of our company where you'll see that our expenditures have noticeably increased:

  • We incurred some one-time costs related to our acquisition of General Monitors, which I mentioned earlier. From a personal perspective, I would like to add that I consider the union of these two great companies to be one of the more significant milestones in MSA's long and storied history. And I'm confident over the months and years ahead you'll see why.
  • We also bolstered our R&D spending. Part of this increase relates to adding the impressive R&D capacity of General Monitors, also an innovation-driven company. The rest relates to investments in successful new products we've recently introduced, such as the Altair 4X Detector; the feature-rich EVOTECH Harness for fall protection; the AirXpress Breathing Apparatus, a lower cost, high quality SCBA product for developing countries; and the PrimaX Fixed Gas Detection System; as well as the many other innovations which will be emerging from our pipeline to further the industry in the future.
  • In 2009, we took unusual emergency measures to control our operating costs, reducing salaries, freezing incentive compensation, eliminating 401(k) matching contributions and delaying new hiring initiatives. I couldn't be happier that, in 2010, we lifted all of these cost reductions and that we are once again making these vital investments in our people and our future.

MSA: We keep people safe, every day

With all of the uncertainty that surrounded our business at the start of 2010, it is truly humbling to have played a small role in a drama that puts into perspective the true, real world human impact of the hard work that we do every day. I'm referring to the riveting rescue of 33 miners in San José, Chile that captured the world's attention. As each of these brave men exited the rescue capsule, our delight in seeing their safe arrival was nearly matched by our pride in seeing what each wore on his head: the MSA V-Gard Helmet. If there was ever a time to be proud of being an MSA associate, this was certainly it.

In closing I want to thank our shareholders, distributors and customers around the world for your continued trust in MSA. I also want to thank each of our 5,200 MSA associates, and our Board of Directors and our Executive Leadership Team, for the outstanding commitment and dedication they displayed in 2010 that helped us overcome the adversities of 2009 and grow stronger during the economic recovery of 2010.

With all that we accomplished over the past year — whether those improvements were in performance, or in business processes, or the gains we made in market share, or the cost reductions we achieved in operations, or the acquisition of a global leader in General Monitors — I firmly believe MSA is a company well positioned to reach new heights of success in the future.

Sincerely,

William M. Lambert
President and Chief Executive Officer


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