Many interesting things were done within the company in 2007, some of which I would like to review with you here. There were significant sales achievements in 2007. MSA International grew its business by 24 percent. A clear majority of this growth was in actual sales in local currencies, while just a smaller part of it was the effect of the strengthening of some currencies against the U.S. dollar. Particularly noteworthy was the growth of our business in South America, in the Southeast Asia region, in China, and in the Middle East. Our “Order of the Year” was gaining the self contained breathing apparatus (SCBA) business of the Beijing Fire Bureau, a noteworthy achievement in the capital of a country of importance to us.

In North America, areas of significant growth were industrial helmets, fall protection, Homeland Security respirators, thermal imaging cameras (despite some funding issues with the U.S. Fire Service), the Advanced Combat Helmet and our business in Mexico. The ubiquitous V-Gard protective helmet, the largest selling “hardhat” in the U.S. and in many other countries of the world, continued chugging along with fine growth. We are pleased by the major improvement in our North American fall protection business lead by our Workman line of harnesses and related fall protection devices. MSA was also able to get a larger amount of business for the Advanced Combat Helmet while we continued to work on projects to develop a new generation of ballistic head protection for our troops. A major transaction, outside of our traditional business, was the sale of a significant amount of land at our Cranberry Woods real estate site for the headquarters of the Westinghouse Electric Company, which was recorded and announced in the third quarter. We still own a meaningful amount of land at Cranberry Woods.

MSA Europe’s strongest product area was self-contained breathing apparatus for the fire service and others who need a reliable source of air in dangerous atmospheres. MSA Auer gained a major order for breathing apparatus from the German Military that will be a multi-year project. Additionally, our sales were strong and at goal in Italy, Netherlands, Spain, and at MSA Sordin, our specialists in hearing protection.

In new product development our most noteworthy accomplishment was that MSA, in September 2007, was once again the first producer to have its self contained breathing apparatus certified to meet new versions of two critically important National Fire Protection Association (NFPA) standards. This continues MSA’s unbroken record of being number one with each new NFPA standard since the process began in 1987. We were also pleased by a new power-assisted respirator, the OptimAir TL, and the Evolution 5600 Thermal Imaging Camera, that were introduced during the year. Overall our “Process of the Year” was the globalization of MSA’s new product development process to make our R&D more effective on a global basis.

Our manufacturing operation’s Project Magellan made major strides in 2007. This is an activity to enhance the productivity of MSA manufacturing in North America, particularly by improving the efficiency of our use of factory capacity. We could see, by year end, the contribution that Project Magellan is making in improving our product costs. MSA’s fire helmet operations were moved to Jacksonville, North Carolina. Bill Lambert and I helped inaugurate the opening of a new modern MSA manufacturing facility in Querétaro, Mexico. There we will consolidate all of our current Mexican manufacturing activities and will have cost effective production of certain parts of our line to supply MSA globally. In addition, ground was broken for a new manufacturing and R&D center in Suzhou, China, which will be opening this coming fall. Safety is our middle name, and we were pleased that our factory in Cranberry, Pa. joined its sister facility in Murrysville, Pa. in attaining the prestigious “VPP Star Award” from the U.S. Occupational Safety and Health Administration for our safety program at Cranberry.

I was particularly pleased by the number of significant awards won by the company throughout the year. MSA was named “2007 Manufacturer of the Year” by the Pittsburgh Business Times as the most outstanding manufacturing organization in Western Pennsylvania. We shared, with FedEx Corporation, a national award for the “2007 Outstanding Corporate Innovator,” given by the Product Development and Management Association (PDMA), for demonstrating a company-wide commitment to innovation and the continuous development of new products. Recently, MSA was honored with the “Pittsburgh Business Ethics Award” in the large company category by the Pittsburgh Chapter of the Society of Financial Service Professionals and the University of Pittsburgh’s David Berg Center for Ethics and Leadership. I commend all MSA associates who played a role in winning these awards.

John T. Ryan III (center) shown with members of MSA’s executive leadership team, including, from left, Dennis Zeitler, Joseph Bigler, Rob Cañizares, William Lambert, Steve Plut, Paul Uhler, Ron Herring, Douglas McClaine and Kerry Bove.

This was a year of major transition in the management of the company. As reported this time last year, Bill Lambert was elected President and Chief Operating Officer, assuming responsibility for all of MSA’s operating units. Under his leadership, and with my full agreement, the organization of management responsibilities was changed to achieve a more global outlook. Bill and I, and others, had felt that while we had gone a long way in optimizing the company’s performance in each of our three main geographic regions, we needed to make these changes in order to optimize company performance on a global basis, particularly, to take the next steps that were necessary in global manufacturing, global product development and other key processes.

Many officers of the company also received new responsibilities. This is reviewed in detail in the Organization page on the inside back cover. Roberto Cañizares was elected as Executive Vice President of the corporation and has sales and overall profit responsibilities for the MSA organizations in Europe and in International (defined as all of MSA activities outside of North America and Europe). This is a significant additional responsibility for Rob, building upon his five years as President of MSA International. Rob is splitting his time between Berlin, Pittsburgh, and being on the road at our International locations. Joseph A. Bigler was named President, MSA North America, and has similar responsibilities for our activities in the United States, Canada and Mexico. Joe expands upon his sales executive skills to assume broad responsibility for the company in North America. Our Chief Financial Officer, Dennis L. Zeitler, was elected Senior Vice President and leads our financial activities worldwide. Next, we restructured our global organizations in the key areas of Operations, New Product Development and Human Resources. Kerry M. Bove expanded upon his North American responsibilities to become Vice President, Global Operational Excellence. Ronald N. Herring, Jr., was assigned to be Vice President, Global Product Leadership. Paul R. Uhler expands his responsibilities as Vice President, Global Human Resources, to include the company’s HR activities worldwide, particularly concentrating on the development of our associates and using best HR practices globally. Our two other officers, Douglas K. McClaine, Vice President and General Counsel, and Stephen C. Plut, Vice President and Chief Information Officer, continue in their current global functional responsibilities as Vice Presidents. This organization marks a change from the strict geographic organization that we have employed until recently. I believe that MSA will do very well with this organization going forward. Such an organization requires optimal teamwork to enable it to function effectively, and I believe the people we have in these positions have the cooperative skills to make it work. Our initial experiences have confirmed this.

In our company performance for 2007, we attained record sales of just short of a billion dollars. Our net profit improved, but not as much as we had hoped, and we did not reach our goal of record earnings. There were two primary factors that almost entirely kept us from meeting our earnings goals: sales to the U.S. Fire Service and special tax charges in Germany and Japan. The U.S. Fire Service sales issue early in the year was related to previous delays in the Federal Government funding to the U.S. Fire Service under the Assistance to Firefighter Grant (AFG) Program, which, later in the year, was mostly resolved. A more important factor was the uncertainty in the marketplace surrounding SCBA procurement because of the transition to the new NFPA standards. While MSA was the first to obtain full certification, we did not have as long a head start in getting early approval as we did have with previous versions of the standard, due to the complexity of this project. With the delays of other producers in getting such approval and in getting samples out, and with some new AFG administrative procedures, a significant part of the market did not complete their purchasing decisions before year-end 2007, as they were waiting to see their alternatives and have a chance to test them. The tax charges were primarily the result of write-offs in deferred tax assets in Germany caused by, primarily, the reduction of the statutory tax rate (a factor which helps the company going forward) and in Japan due to a reassessment of the potential of the realization of the deferred tax assets.

In discussing our performance, I thought it useful to review the commentary that I made in this letter last year concerning our 2007 objectives, and see how the actual results compare. We wanted to keep up our growth in the large majority of our business outside of the volatile areas of the U.S. Fire Service and the North American military. We have stated that we would be disappointed if we could not generate 10 percent annual growth in this area which, in 2007, represented 80 percent of the company’s business. We were not disappointed in 2007, as our sales growth in this area over 2006 exceeded that goal, with just a little help from the exchange rate effects. This was accomplished despite the flatness of our sales in Europe after MSA Europe achieved exceptional 15 percent growth in euros the year before. We sought to increase our invoicing and reach our sales objective in military protective products in North America, and we did so, despite several supply difficulties and NFPA approval issues which held back three projects on which we will gain invoicing in 2008. We set out to carefully watch our costs. Our results in some areas were quite good and in other areas were mixed. We are grappling with the challenges of matching our strong rate of introduction of new products with an effective phase in – phase out “PIPO” process to limit our inventory risk on the products that are being replaced by new ones.

Finally, we wanted to handle the short term volatility in the U.S. Fire Service. This was an adventure. In the letter last year we said that there were six factors involved in the Fire Service in 2007, “which, for the most part, reflect the timing of business and not their ultimate achievement.” This latter commentary is one which we continue to profess today. Issues with the Fire Service identified last year were the following, to which I add my commentary on what has resulted. The first issue was the AFG funding, where we wanted it to get back on track from the serious delays in 2006. This process is catching up, with some administrative complications. AFG funding released in the 2007 calendar year was back to past levels, and we expect that the “catch up” in AFG funding will be completed by the end of the first quarter, 2008. The proportion of AFG grants allocated to personal protective equipment has returned to normal. Municipal spending on the Fire Service is a hard matter to track but we think that it is probably similar to that of recent years. MSA’s market share, of which I said last year, “I am confident,” fulfilled our confidence level. We are pleased with the proportion of orders that we received from those fire departments which have made decisions. Last year, we wondered whether the market would prefer the old or new standard of NFPA, and the clear result was that they mostly preferred the new standard, though we got some good business in the second quarter with the closeout of the older devices. Finally, the major question was the impact of the new NFPA standards. New NFPA standards have historically been very good to us in the medium term, to other producers and to, most importantly, the firefighters of America. However, the new standard can cause timing dislocations in the flow of business around the time of its introduction, particularly, if getting approval becomes a long and arduous process. In early 2007, we were hoping for a very strong closing of the year, anticipating that approvals for everyone in the market would come fairly quickly and customer decisions would soon follow. In reality, there was a strong tendency in the marketplace to wait past year-end to make buying decisions. A breathing apparatus decision is a fairly long-term decision process for individual fire departments. While we successfully delivered new product samples to the marketplace in mid-fourth quarter, and were well ahead of the field, many customers wanted to wait to see what alternatives existed. Other than from MSA, certified product and abundant samples for evaluation in the marketplace were quite limited at the time. Additionally, there was a need for customers to figure out how to handle the new AFG administrative procedures. These factors and the holiday season caused time to run out on us in Fire Service sales in 2007.

As of the time of this writing, our situation is looking up. We have seen significant improvement in the U.S. Fire Service toward making decisions on, particularly, breathing apparatus, and we have been pleased by the number of such decisions that have come our way. Incoming orders, in the first two months of the year in the Fire Service in North America, were strong – and somewhat back to the high levels of 2005 and early 2006. Each individual piece of AFG funding has a one year deadline for the recipients to both make a decision and actually receive shipment of their desired product. This deadline will help to motivate timely decision making in the marketplace. While there is a long time between now and December 31, 2008, we are currently optimistic about our prospects for the U.S. Fire Service.

Our military invoicing should be up, as we ship items that missed 2007 due to supply constraints and as we pick up new orders, including some very useful orders in Germany and France. The balance of our business, which is a vast majority of our total, continues to have a goal of 10 percent growth. It is early but we also feel that we are off to a good start in this area. However, a North American or worldwide recession would be a significant threat to growth in this business. It is not clear whether this will happen. As of the time of this writing, we, frankly, have not seen this in the markets we serve. Please keep in mind that MSA has a substantial diversity in the locations from which we get business, so localized recessions might hurt us less than if we were not so globalized. Some of our important markets, such as oil, gas and energy and non-residential construction, particularly on infrastructure, may move independently of the general economy. Our spending on internal projects will be calibrated to the extent that we see our industrial business moving. We will do our best, and time will tell how economic conditions will proceed.

As previously announced, I intend to retire as a full-time executive of the company in mid-year 2008 after turning over the CEO position at the upcoming shareholders meeting. All of my predecessors (except one of the founders) who lived to be 65, retired as CEO at that age, and that, I think, makes good sense. I have been in this position over 16 years and I think, at this point, I will have done my duty to the company. I plan to retain a great personal interest in MSA, as I have all of my life, and I expect to be very actively involved with the company at the Board and the shareholder level. However, I will not be an active manager, nor will I be in the office everyday, or even close to that. I plan to pursue non-business interests which I could not do when I had a “day job.” I see my business transition as similar to when I transitioned from being a parent to a grandparent. You still love the young ones, but it isn’t as much work and others have the day-to-day responsibility. Bill Lambert and his team will do a great job as they take over the company this year.

It has been an honor for me to serve this company, its people, its shareholders and its noble mission. I conclude with the recollection of my first management meeting at MSA more than three decades ago. A senior factory supervisor who was attending his last meeting before his retirement came up to me and said, “You know what I like the most about this company? It is that nobody ever asks you to do anything that you know is wrong in order to benefit the company or to help yourself.” This is the essence of the company’s award-winning ethics program that has been true from its foundation. One of my great satisfactions is leaving with the confidence that we have kept this up, and that anyone retiring with me in the Class of 2008, could go to their last management meeting and say the same thing today to some young associates who have just come aboard and have confidence that they, too, will understand and pass it on.



John T. Ryan III
Chairman of the Board and Chief Executive Officer