Good morning, ladies and gentlemen, and welcome to the MSA fourth quarter earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. Please note that this conference is being recorded. I will now turn the call over to Mr. Mark Deasy. Mr. Deasy, you may begin.

Thank you, Kim, and good morning, everybody. Welcome to our fourth quarter and year end 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 Rob Canizares, Executive Vice President and President of MSA International. Our fourth quarter earnings release was issued this morning at 8:30, and we hope everyone has had an opportunity to review it. The release is posted on the homepage of the MSA website, www.msanet.com. This morning, Bill Lambert will provide commentary on our fourth quarter and year end results. He will be followed by Dennis, who will review our financials, and after Dennis's comments, we'll open up the call for questions and plan to adjourn by about 10:45. Before we begin, I need 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 October 27, 2008. We strongly urge you to review all such filings for a more detailed discussion of such risks and uncertainties. Our SEC filings can easily be obtained at no charge at www.sec.gov, MSA’s own website, and at a number of other commercial websites. That concludes our forward-looking statements. So, at this point, I will turn the call over to Bill Lambert for his comments. Bill?

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 fourth quarter and full year earnings release, and have our financial figures, with all comparisons corresponding to the equivalent periods in 2007. MSA saw 2008 begin with a strong backlog of orders, which became a major contributor for us reporting record results throughout much of the year. As we pushed through the second and third quarters, the strength of our business held up, primarily through large orders and a few significant military contracts. In our last investors conference call in October, however, it was clear that caution was in the air, because the health of the global economy was changing rapidly around us. 2008 was indeed a record year for MSA. As our press release indicated, 2008 was a breakthrough year for us in terms of sales revenue, exceeding, for the first time ever, the $1 billion threshold and reaching $1.13 billion in net sales. But it was especially gratifying to also recognize it as a record year in terms of pretax profit from operations. Profit from operations ex-items was $127 million, exceeding our previous high, reached in 2005. The growth in sales and the growth in profit from operations are both testaments to our efforts and product leadership, customer intimacy, emerging market focus and operational excellence. For the full year, sales increased $144 million or 15%, and our profit from operations ex-items increased 24% over 2007 on that 15% top line growth. Gross profit margin improved slightly in 2008 and SG&A expenses, while up in absolute dollar terms, actually declined slightly as a percent of sales. We funded many global and regional R&D…

Thank you, Bill. Good morning, everyone. I would like to give you some further insight into our fourth quarter performance. Additional information will be available later today, when we file our Form 10-K with the Securities and Exchange Commission. As Bill mentioned, sales in the fourth quarter of 2008 were a record for the quarter, at $289 million, 8% higher than the fourth quarter of 2007, and the highest fourth quarter sales ever. Sales grew $29 million in North America, were flat in Europe, and were down $8 million in International. For the full year, sales were up 15%, with growth in each segment. It is interesting to look at our sales in the fourth quarter without the impact of the significant changes in foreign currency rates from a year ago. Excluding currency effects, our global sales were up 17%, with improvements in each of our three market categories. The core industrial market, which is 54% of our total sales, is up 11% this quarter. The 24% of our sales to the fire service is up 2%, and our military business is up 66% over last year, with large shipments of SCBA to the US Air Force. For the full year, both our fire service and our industrial business were up 9%, and the military was up 47%. Due to the large shipments of military products in the fourth quarter, our gross profit rate for the quarter was 37%, 1% lower than both the fourth quarter of 2007 and the third quarter of 2008. Selling and administrative costs in the fourth quarter were a lesser percent of sales than in 2007, and actually decreased in dollar terms in the third quarter of 2008. R&D expenses were down 10%, but up 16% for the year, as we continued to invest in…

Thank you. (Operator Instructions) Our first question comes from Jack Hain from Barrington Research. Please go ahead.

Hi, thanks for taking the questions this morning. I was just wondering if you could talk generally about some of the puts and takes you expect to see from the stimulus bill. And in addition, did you see any North American municipal customers putting off orders in either the fourth quarter, or what you've seen so far in the first quarter in expectation of incoming funding from the federal government?

Jack, this is Bill Lambert. I'll answer the question, and then I'll ask Joe Bigler to respond, too, since Joe is responsible for North America, and the US stimulus plan or packages are in his area. First question: the areas where we see an impact are all the areas related to the construction portion of the stimulus plan. So, depending on how you slice and dice this $787 billion package, you get yourself down to maybe $110 billion to $120 billion of that as related to actual construction activities. Some of those activities are shovel ready, and some are perhaps longer term, and begin to take effect in late 2009 or into early 2010. So, all of those activities, all of those construction related activities, certainly have an impact on MSA. I should say that they have an impact on employment in the US, and as those workers are employed, they are going to need safety equipment, which is and can be beneficial for MSA. Have we seen certain activities by customers or distributors this year delaying orders in anticipation of the stimulus plan? Not that I am aware of, not directly related to the stimulus plan that I am aware of. I think the actions we have seen from distributors, whether they would be industrial or construction distributors, in the fourth quarter of 2008 or so far in 2009, are strictly related to the economic environment that they see around them right now and, as I indicated in my comments, their desire to slow their orders and reduce their inventories. Joe, I'll look to you to add any color on what you see with the stimulus plan.

Yeah. We're certainly excited about it. We think it will have a favorable impact. As Bill said, particularly in the construction industry where the unemployment rate in that industry is exceeding 18%. And if you take the bill apart, there is about $113 billion that will go to construction. About 10% of that will be released by September of 2009, with the bulk of the spending being released in fiscal 2010, beginning October of this year and running through September of next year. If you look at some of the data and some of the work that we have done, it really is going to focus on areas like highway construction. Just to give you an idea, highway construction is geared in bridge, infrastructure is geared for about $27 million and could create, according to the associated general contractors, as many of 145,000 jobs. If you take 145,000 jobs, then the average construction worker uses $200 to $400 worth of personal protective equipment. He can start coming up with some numbers that certainly would favorably impact the industry, as well as MSA. DoE cleanup, for example, they will be spending $6 billion in cleaning up facilities, such as Hanford site. That certainly is a market that we and other manufacturers clay in. The conference of mayors has indicated that there are apparently 15,000 jobs, representing over 600 cities, that they could really spend the money within 90 days. So, we have some real tracking tools set up. We have increased our marketing efforts and have embarked on our Rebuilding America program. We have beefed up our sales organization and have a lot of focus on it, and expect some positive things to happen over the next 12 to 18 months, as a result of the package.

Okay, thanks. That's all very helpful. One follow-up. You mentioned earlier in the call that some of your military contracts are starting roll off. I was just wondering, at present, what sort of visibility, how you feel about the visibility of having your current backlog for military?

Well, as we've said in previous conference calls, our visibility and transparency, looking out very far, is not good. So, we have commented on that in the past, and we have also commented in the past on some of the military contracts which we are pursuing, but it is impossible for us to predict whether or not those contracts will come to fruition. So, our visibility there, Jack, is not good.

All right. Well, thank you for taking the questions.

You are welcome, Jack.

Our next question comes from Ed Marshall from Sidoti & Company. Please go ahead.

Good morning, everyone.

Good morning, Ed.

Good morning, Ed.

My first question is, just clarify for me the contracts that expire with the military. I know there is the SCBA contract with the Air Force. Did that end in December, or is there some carryover into '09?

Well, as Bill reported, we had an unbelievable year in North American military in 2008, where our military sales were 58% above 2007. What really drove that, is there were three major contracts, and I'm excluding the ACH contract, the Advanced Combat Helmet contract. The three other contracts were the Air Force SCBA contract, we had an MCU gas mask contract, and we have talked previously about our Canadian ballistic helmet contract. If you take all three of those contracts, they represent about $85 million. About 90% of those contracts were completed as of December 31, and the rest will be shipped here throughout 2009. You asked about the ACH contract which expires in April. As we wait for DSCP and the military to make some decisions on additional contracts for the ACH, there's certainly going to be a delay in ACH shipments until the government awards this next contract. So, those two elements give you some insight as to the challenges that we face in North America, in terms of the North American military business for 2009.

Thank you. The ACH that you discussed with the additional contracts, is it the ACH, is it the next generation ACH, and where do you fit in kind of both programs?

What we are waiting for is, the current ACH contract takes us, as Bill indicated, through approximately April of this year. There is a contract that is for what we call an ACH3. It's an ACH, a little different specification, higher performance requirements. We are waiting for the government to award a two-year contract for 200,000 of those helmets. That is supposed to be awarded, we hear, within the next two to three weeks. Then there is the whole thermal plastic helmet, that's the next generation helmet. Special force is looking for a lightweight helmet, the marines and the army are looking for a helmet that's the same weight of the ACH, but provides more protection. It's a whole series of that. None of those contracts, none of those bids have even come out yet.

Now, as far as the IOTV, I saw that competitor of 51% of the contract. Is that contract completed, the release at this point, or are they going to release the additional 49%? I know you are still competing for that contract.

Well, you are talking about the large IOTV contract. They really have not awarded any of that yet. That is delayed until, we are told, March. That's really been in the works for the last, well, four to five months, and there have been some continual delays. So, we expect to hear an award from the government during the month of March on the IOTV contract.

I see. And then I saw the pension asset on the balance sheet about 146. Are we to expect that pension expense will increase in 2009?

This is Dennis. We actually show pension income, as you probably know, because it is overfunded. So, the pension income in 2009 will go down about $3 million pretax.

I see. Okay. And then is there a backlog number or anything that we can talk to for any of the segments here?

I don't think we have a significant backlog number. We don't discuss that number, but I can tell you it's not a significant backlog number at this point.

Okay. And we've talked, in previous conference calls, about the location of your cash balances and that impact on the P&L for the translation effect. Can you describe where the locations are at this point, where your cash is held?

Most of our cash is in Europe. A lot of affiliates other than Europe have a little bit of money of Brazil, Australia, China, but I would say 75% of it is in euros.

Euros, okay. And you mentioned the decrease in your CapEx possibly into 2009. Would you care to give any indication as to range that you are looking for CapEx for 2009?

I think you will see in the 10-K that the CapEx in 2008 was $44 million. So, we would like to see at least a third or more decrease in that.

Okay. Thank you, guys.

Thank you.

(Operator Instructions) Our next question comes from Brian Ruttenbur from Morgan, Keegan. Please go ahead.

Okay, thank you very much. I have questions on currency impact going forward. Can we play some games then, and say that currency is where it is right now, it doesn't change. How will that impact you guys?

I play it exactly that game, Brian and, if you look at the average exchange rate for 2008 versus where exchange rates are today, we would report about $75 million less in sales in 2009 than we did in 2008.

Let's talk about tax rates going forward. In 2009, what kind of tax rates should we be using?

I would not cut it much from what we had, 37% in 2008, maybe 36% in 2009, something like that, not a significant decrease.

Okay. And then gross margins, military business is lower margin, as I recall, and there could be less military business. Does that mean that we're going to have a bit higher gross margins?

Yeah. I think, Brian, the way we're looking at the business, you're absolutely right. The military contracts are generally at lower margins, being bid much more price competitively. But I will also say that, in this kind of an economic environment, we are seeing pressures on pricing, and so I would be hesitant to say that we would see or that you should see any dramatic improvements in gross margin.

Okay. Now, the currency impact would flow through on the gross margin line, right? Some of it?

Not much of it. You've got to remember that the current, most of what we sell outside the US is manufactured outside the US.

Okay.

Whenever you cut sales by $75 million, if you did the same calculation as I did for the currency effect in 2009 versus 2008, our net income would only go down $3 million, okay? So, you don't just take that $75 million like it is a loss of sales and calculate everything based on that.

Okay. That's helpful. Your plans for your cash generation in 2009, you are going to buyback stock. I know you're going to continue to pay dividends. Anything else? The question is, are you going to buyback stock?

We'll discuss stock repurchase plans at the Board meeting in May. But you are right, other than that, we're generating as much cash as we can.

Okay. Thank you very much.

Brian, let me add to that. I know you're just hanging up, but let me add for the rest of the callers that we do have a stock repurchase program authorized by the Board of Directors, and we are probably 60% of the way through that. That was something we announced few years ago. But in this environment, we have not been purchasing our stock, and I think it is safe to say that we would like not be repurchasing our stock in this environment right now. That could change in future quarters, but, at this point in time, we do not have plans to do repurchasing our stock.

Hey, thank you.

Our next question comes from Jason Rodgers from Great Lakes Review. Please go ahead.

Hello.

Hi, Jason.

Looking in Europe at the backlog there, I was just wondering if you would work through most of that backlog, or if there is still some potential on the top line from there?

We made some progress in the fourth quarter, but not quite as much as we have anticipated, and we still came into this quarter with a fairly strong backlog, mostly in breathing apparatus. We are working through that during this quarter.

Okay. And in the last call, you talked about, I think, the first months of the quarter, just how the order trends were going. I was wondering if you could possibly do that this quarter?

Sure we can, and let me just provide some greater clarity. I think I was just passed a note here on what our backlog is. And the backlog that we have, at least coming into this year is not insignificant, I don't believe. We have got about $105 million in backlog coming into this year, with about 41 of that in North America, 37 in Europe and 28 in the rest of the organization. And that backlog will be worked off. That's probably up a little from normal range for us, and related to some of the contracts that we have in Europe and also here in North America for government agencies. But back to your question on how do we see the order intake so far this year, as I indicated in my comments to you, we are certainly not immune to the recession and the markets that I talked about. Whether they be construction or broad industrial, we are seeing sales declining from a year ago comparables, and I think that's directly related to what we see in the way of construction projects, unemployment in some of the industries that use personal protective equipment, and tighter municipal fiscal spending policies within our cities and states.

Okay, that's helpful. And do you have a figure for cash flow from operations for 2008?

We do. Hold on just a second. Cash flow from operations is $85 million in 2008.

Okay. And looking at the last Q, there was an insurance receivable of about $64 million. I was wondering if that is up or down from then, what the status is on that and what you are doing with the suit?

It is down to $61 million at the end of the year, Jason. And we continue to work through the legal process with the insurance companies, and hope to resolve most of them during the calendar year 2009.

Okay. And finally, looking at the AFG funding, I don't know if there is any indication out there what the fiscal '09 funding might be, if it is going to be up or down, or any idea there?

Yeah, as you know, that has not passed as of yet. We are waiting to see the publication, hopefully, here within the next couple of weeks, within the federal register. What we are hearing is that the funding will be around $502 million, which compares to the 2008 funding, which was about $547 million.

Okay. All right, thank you.

Thanks, Jason.

(Operator Instructions) Our next question comes from Richard Eastman from Robert W. Baird. Please go ahead.

Hi, Dennis, Bill.

Hi. Good morning, Rick.

Hi, Rick.

Just a question. I noticed tucked in the stimulus package, there was a $210 million piece for firefighter assistance grants. And did you identify that, I mean, it may just be for facilities construction.

That is what it is. There are really two areas in the stimulus package, really three areas in the stimulus package, that would affect the fire service market. Obviously, as you know, there is about $10 billion in there to retain state and municipal workers, which would certainly help to retain police officers and firefighters, and the IAFF is working very hard on that. So that is one benefit of the program. The second benefit is, I believe the $210 million you were referring to, goes directly to firehouse construction.

Okay. So, that ends up in the safer program for added people, you know.

That's correct. The only other element that's in the stimulus package is the 200, they do make reference, just by coincidence, to the very same number of $210 million, that under the safer program and the staffing, the municipalities have to pay a certain percentage of their share. And then in the stimulus package, they are actually limiting the amount that municipalities might have to contribute.

I see. Okay. And then, Bill, when you look at some of the cost actions that you had mentioned, some of them would be variable, but is there a hard dollar cost savings number that you feel you'll be able to achieve year-over-year for '09?

In all operating expenses areas, Rick?

Yeah. We're just looking at the operating income line, is there, you'd mentioned the retirements that would be presumably, that's a net savings.

That's right.

Is there a number here that …

Yeah, the net savings on our retirement program for this year, 2009, about $4.3 million is our expectation. Adding the salary freeze, savings of about $1.9 million. That's an impact that we see this year. Additional cost reduction activities that we've done similarly; its not the exact same kind of a program, but it's a similar type program internationally. And our target here would be about $10 million, I say that's our target, I don't know if that's hard enough for you, but you know you are in that right range.

Okay. And then we don't talk to guidance, I totally understand that, but when I look at your top lines by customer base, is there any piece here that you would feel comfortable suggesting would be up year-over-year in local currency? I mean military will be very difficult, industrials trending down, fire service, again, with the state and local piece, presumably would be down and, obviously, retail that's too small to worry about. But is there any piece of the business here that you feel confident with or are budget hire?

Rick, I think that, these times are so uncertain right now, and the pace of change in the environment that we see happening. The ripple effect from the US around the world is such that I do not feel comfortable in giving you any kind of indication that any particular market or markets would be up on the year. I think it's just that the situation in the global environment, right now, is such that I would not feel comfortable giving you some degree of confidence in any of those markets.

Okay. And then lastly, Bill, would there be any product lines that you might exit in '09?

Rick, that's under revaluation right now. There are a couple of smaller product lines that are non-core to MSA, which we are moving away from. But the core areas of MSA, that I think you and others and our shareholders are most familiar with, those would not be areas under consideration to exit at this point in time.

All right, very good. Thank you.

Thanks, Rick.

Our next question comes from John Helmer from Caldwell Securities. Please go ahead.

Hi, this is Caldwell Securities in Danville, California. Dennis, I am trying to figure out how its possible in $70 million of retain, roughly half of that, and have the shareholder's equity declined by something in the order of $67 million. I notice in the balance sheet, we paid pension cost, there is a decline of $134 million there, any connection?

That's exactly the connection, John. There are actually two big pieces of reduced shareholders equity in this quarter, and part of that is our prepaid pension, as, of course, the pension fund went down dramatically. It does the whole 134 doesn't flow through, because there's also a decrease in deferred tax liabilities. So something in the range of $70 million of that impact is from the pension fund. And then that's a smoothing thing, that'll flow back through the P&L over time, if the market doesn't come back. And then there's another piece for all of our assets around the world that are not denominated in dollars. So there's a translation effect on your fixed assets around the world that was about $23 million. So you take those two, and then you throw in your retained earnings and subtract that to your dividends, and you should come pretty close.

Could you comment philosophically on MSA's policy, including these pension numbers in the balance sheet? It strikes me as unusual.

Well, it's only unusual because we have a very well-funded pension plan. We have no choice as to do this; this is required GAAP accounting to show these assets. Most companies have a net liability they have to show, but since our pension fund was dramatically over-funded, and the balance that you see on the balance sheet now is doing over-funded pension plan, that's required GAAP accounting.

All right. Thank you.

You're welcome.

Thank you. Our last question comes from Dick Ryan from Dougherty & Company. Please go ahead.

Hi, good morning. Bill, on the R&D front, where are you standing and what kind of product introductions could we anticipate in '09?

Hi, Dick. Good morning. On the R&D front, as you know, we have consistently put in about 3% of sales to our R&D initiatives in this area, with a strong focus in gas detection instrumentation, both portable handhelds like the Altair 4 and the Altair 5 that I mentioned in my conference call comments. That is really a global product. You will continue to see us put some emphasis in gas detection, and we think that energy markets over the long-term are, in fact, a strong growth market segment for us. And we see opportunities in both permanently installed instrumentation, as well as handheld portable instrumentation. And you continue to see us put an emphasis in some of our core product areas. Core product areas being SCBA, not just for the fire service market, but for the industrial market as well, and there again, into the energy sector, as we put SCBA into refineries and offshore platforms. Ballistics protection is another area for us, and continues to be an area of focus. We think that it's a meaningful growth market on a global basis. We had some terrific success last year with ballistic protection products into France and other parts of the world, as well as having some accomplishments in the North American market, and so we continue put and fund emphasis in that area as well.

Okay. With the downturn here, what's your strategy on the acquisition front, is it moving higher as a priority, or stepping back from those efforts?

Well, I think it's best characterized as one of monitoring. We have M&A as part of our strategy, albeit a smaller part of our growth strategy. All of our growth in 2008, as I indicated in my comments, came from organic growth. An organic growth continues in area, which we continue to look at most closely. We do make acquisitions, have made acquisitions, in order to gain access to a particular channel or geographic market segment. You will continue to see us evaluating that and making decisions and moves in that area. We've also made acquisitions to acquire technologies, key technologies that will fit or enhance our core product offerings. And in some cases, and we'd have to go back a few years for this, we have acquired product lines. We continue to assess the market. We continue to assess the opportunities. But that guy will tell you that it is no higher priority for us at this point in time. But then again, it's no lower priority either.

Okay. Good. What percent of global military sales did the US represent? Roughly.

US was 75% of the global number.

Okay. Great, thank you.

You're welcome.

We have no further questions at this time.

Okay. Well, thanks, Kim. I would like to conclude and thank everybody for joining us today. We really do appreciate your interest in MSA. I want to remind everybody that an audio replay of today's call will be available on the MSA website for the next 30 days. So, if there is anything you missed or want a replay, please feel free to visit our site. On behalf of Bill, Dennis, Joe and Rob, we look forward to talking with you again soon, when we review our first quarter results for 2009. We hope everybody has great day. Thanks again.

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may all disconnect.