Welcome to the MSA Second Quarter Earnings Conference Call. My name is Christine, and I will be your operator for today's conference. [Operator Instructions] Please note today’s conference is being recorded. I will now turn the call over to Mark Deasy, you may begin.

Thank you, Christine, and good morning, everybody. I too would like to welcome you to our second quarter earnings conference call for 2012. With me on our call this morning are Bill Lambert, President and Chief Executive Officer, Dennis Zeitler, Senior Vice President and Chief Financial Officer, Joe Bigler, President of MSA North America, Ron Herring, President of MSA International who is responsible for Europe, Northern Africa, Russia, the Middle East, and India and lastly Kerry Bove, President of MSA International who is responsible for our business in Asia, Australia, Sub-Saharan Africa, and Latin America. Our quarterly press release was issued this morning at 8:30, and we hope everybody has had an opportunity to review it. The release is available on the homepage of our website at www.msasafety.com. This morning, Bill Lambert will provide his commentary on our second quarter performance and then Dennis will review our financials in more detail. After Dennis’s comments, we will open the call up for your questions. Before we begin, I want to remind everybody that the matters discussed on this call, excluding 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 April 25th of this year. You are strongly urged 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 website, and a number of other commercial sites. That concludes our forward looking statement. So at this point, I’d like to turn the call over to Bill Lambert for his comments. Bill.

Thanks, Mark, and good morning, everyone. Let me begin by saying thank you to all of 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 press release and have our financial figures with all comparisons corresponding to the equivalent period in 2011. Our second quarter results reflect continued demand and preference for the MSA brand around the globe and the focus that our team is placing on successfully executing our corporate strategy, which as I’ve talked to you in the past about, our strategy is aimed at: one, growing MSA’s core business in both developed and emerging growth markets throughout the world; two, focusing on developing innovative new products that help keep our customers safe in the workplace; and three, Diligent management of our operating costs and improving business efficiency under initiatives like Project Magellan and recently announced Europe 2.0 which is the next step we have taken in our European transformation, focused on the integration of common processes across Europe enabled by our common SAP platform. When completed, Europe 2.0 will further simplify our business model there, result in sustainable efficiency gains and help us generate more robust financial performance with higher levels of customer satisfaction. Approximately 55% of MSA Europe is currently operating under SAP, so this is an expansion of that and this effort will over time get that percentage to 100%. Our Q2 incoming order book of activity benefited from large orders during the second quarter and was up 8% compared to a year ago. However, the underlined base business was somewhat uneven during the second quarter. Additionally, a strengthening dollar and economic uncertainty throughout Europe and Asia are tempering our optimism as we head into the second half of…

Thanks, Bill. Good morning. 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 2012 were a record $295 million, only a slight increase over the second quarter of 2011, but still a record second quarter. In local currencies, our sales actually increased 6% over last year, but currency translation decreased this quarter’s sales by over $16 million. In U.S. dollars, North American sales were up 6%. International sales were flat and European sales were down 10%. By markets, the fire service was up 9%, military was down 26% and our industrial business which was 69% of our total sales was flat compared to last year. However, in local currency terms, our industrial sales were actually up 6%. Our North American segment sales in the second quarter were up 6% compared to 2011, comprised of a 2% increase in the fire service, a 34% decrease in military sales and a 12% increase in industrial sales, which was 69% of our total North American sales. In our industrial business, head protection was up 10%, portable gas detection up 14%, and fixed gas and flame detection was up 30%, with a strong contribution from General Motors. In North America, our sales of ballistic helmets and ballistic body armor decreased to $5 million this quarter compared to $10 million in 2011 and will be 0 in future quarters, as we have exited both of those businesses. Our reported international segment sales were flat this quarter in U.S. dollars, but were up 10% in local currency terms. Fire service was up 54%,…

[Operator Instructions] Richard Eastman from Robert W. Baird is online.

Dennis, could you just repeat your local currency growth rates for fire service and military? I am not sure if…

On a global basis, the fire service increased 14% this quarter and the military was down 22%.

So, 14%, that’s the LC number and down 22% is the LC number, right?

Right, correct.

Okay. And then also, I had a question for Bill. One of the new product areas that you mentioned was teed up here for introduction. These 8 new gas detection sensors, is that benefitting the gross margin on your portable and fixed instruments or are those products, those sensors being sold to third parties?

Those sensors, Rick, are benefitting our portable instrument line. They are not yet benefitting our fixed gas and flame detection product line. That’s an effort that we will likely see in years to come, but right now, those were designed specifically for low-power consumption, increased durability, lower cost of manufacturer, lower cost to total cost of ownership for customers for the portable instrument product line only.

And we do not sell those to third parties at all. These are totally proprietary to MSA in our portable instrument line.

Okay. So, this again, you had sourced those before, correct?

That’s right, Rick. We did source those before. We always manufactured a small number of those, a certain percentage of those, but we also sourced them and we have moved entirely away from external sourcing to internal sourcing.

Okay. And then, I think a somewhat related question, but when you were talking about the gross margin, Bill, on the core products being up 180 bps year-to-date, I assume when you say core products, that’s on the 63% of sales that you defined as core products, is that right?

That’s exactly correct.

Okay. Understand. So, some real benefits are pretty visible there from the value engineering side of the story.

That’s right.

Yes. And then, Dennis, just one question. I think you grouped these together, but the 2 other income items, the sale of the land and a gain on the ACH sale, can you just, are those both -- those combined to be $8 million, and in the P&L, those are both in that other income line?

Yes, those are both in the other income line. So, the other income line is, what, $8,259,000. Most of that is those 2 transactions. It’s an interesting comment, a few other things, but most of that is those 2 transactions.

Okay. And then, that again combines to be $5 million net income?

Exactly.

[Operator Instructions] The next question comes from Walt Liptak from Barrington Research.

Wanted to ask, first about the gross margin improvement, which looked nice, you called that volume and pricing, I wonder if there is a way that you can quantify and talk about either of those.

We hope to be able to do that next quarter, Walt. We have our new Pricing Director here, actually one year ago, today. We hired him July 25 of last year. And he’s working on that report for the second quarter, but it’s not ready yet, but I am hoping that by third quarter, we will have a nice report that shows gross margin improvement is attributed to price, to cost, to product mix.

Okay. All right, got it. All right, then if I can switch gears and just ask about the Europe. You mentioned the industrial part in local currencies declining, can you talk about just what you saw during the quarter? Is it kind of consistently down or are you seeing the trend improving? Obviously we are all focused on what’s happening in Europe and any color that you can provide would be helpful.

Yes, when we take a look, if I were to compare what was reported in Dennis’s comments, where Dennis reported our European industrial core part of the business, down about 6% in local currencies, what that does not reflect is the incoming order book that we saw out of Europe during that same time period. So we actually saw nice sales growth in Europe in our incoming order books. So we are pleased by that. Most of that is coming out of Eastern Europe and into Russia in the oil and gas region, supporting the oil and gas region. So, we are seeing -- I would say more difficult conditions in the established regions of western and southern Europe. There is no question about that. We are offsetting quite a bit of that through our industrial distribution strategy. But just as we have reported here, in local currency sales we feel if we can just hold ground even move sideways in western and southern Europe, I think that’s a bit of a win and I see that happening with our industrial distribution strategy success that we are having over there in those areas. And then we are looking to Eastern Europe and into Russia, the Caspian Sea region or even down into the more Middle East area for real growth markets, and that’s exactly what we are seeing and we are seeing nice improvement in those regions of the world to offset some of that which is in western and southern Europe clearly those areas have headwinds.

Okay. So it sounds like this down 6% for industrial core local currencies, it’s not getting worse as we get into the third quarter? Maybe it’s getting better?

It’s very early in the third quarter, so I would hesitate to comment on just exactly what we will see in the third quarter, Walt. But there are some successes that we hope and that we anticipate will offset some of the declines that we are seeing in the more established parts of Europe.

Okay. And then I wonder you mentioned the industrial distribution strategy, I wondered if you could talk at all, I think last quarter we thought maybe there was a little bit of an inventory build, is that still happening and are you still adding distributors or did you add more distributors during the quarter?

We did add more distributors during the quarter but these are not huge numbers. And I know that a number of analysts had asked questions regarding filling the pipeline, industrial distribution, and I think we played that down on our commentary because you just don’t see that happening over there. So, did we continue to add distributors? Yes. In Europe, I think so far this year, Dennis help me with the numbers, is it 80 distributors that we have added?

We were about 280 distributors at the end of the first quarter and our expectation is to add about 10 per quarter, I don’t have an exact number, Ron might know the exact number for the second quarter, but our target is to get to about 400 total. So, we still have a couple of years to go in this distribution process.

I think in total through 6 months, if I remember correctly, we have added about 80 distributors in our strategy. So the 10-month that you are talking about, 10 per month -- Ron, you are on the line, if you would like to provide Walt with any more input there?

Yes, Bill. I think that’s directionally correct. We have also taken distributors out at the same time, but I think the net number is some place in that 80 distributor range.

Okay. And then if I could just switch again to the fire service being up 14%, is that largely due to the new products or you think that you are starting to see better demand trends out of some of the municipal customers?

Well, I think principally that’s due to some of the success we are having in the international markets. I mentioned $3 million shipment in the second quarter to the Chilean National Fire Brigades and we are seeing our local currency sales in the fire service internationally up 59% in the second quarter and a lot of that has to do with the success we saw in Chile. But even in Europe, we have seen nice improvement there selling fire helmets that’s primarily fire brigades in Europe where local currency sales were up 14% in the quarter. And even in North America, we have talked on this call a number of times about North America and I think on our last call we talked about, or I talked about, how we felt the North American fire service market had really bottomed. I didn’t see it getting all of that much worse, even though municipalities have tight budgets. And in fact, I think when we look at our second quarter results in the fire service for North America, sales were up 7%. So, I see some strength, it’s not coming from a whole lot of new products in North America, Walt, to answer your question kind of directly. I think that business conditions are just not getting any worse in North America, just as we had thought they would not and we are having success outside of North America.

The next question comes from Holden Lewis from BB&T Capital Markets.

This is John Cooper on for Holden. Just a quick question, looking at gross margin, I know it’s good, 140 basis points improvement annually. But if we look at some of the puts and takes versus the very good 43.3% gross margin you did in Q1, what are some of the puts and takes there that saw the gross margin dropped down to 41% because it looks like sequentially sales are roughly in the same level, I believe there is a $2 million delta to the negative side that hurt gross margin in Q1 and you still put up really good number. So, what are some of the kind of differences to look at between those 2?

John, I think there are 3 things that -- I put into 3 buckets. Well, first of all, let me say that Q1 was a great quarter. We had a lot of things going our way in the first quarter, so the 43.3% that you mentioned in the first quarter that was terrific performance, maybe just slightly above what I think is something we can consistently do, but not by much. But when I look at the difference then, the delta between Q1 and Q2, I look at it and I put them into 3 buckets. About 1/3 of it was related to some large Fixed Gas & Flame Detection orders that we shipped during the quarter. And those were some large orders tightly competitively bid and so we took a little bit of that there. The second impact had to do with a large gas mask order for New York City that we shipped providing them with the best protection for the police officers there and also that Chilean fire service order that I talked about, we had a $3 million order there that was tightly competitively bid. So, a couple of large orders there in that bucket. And then the third area is more internally focused where we took some charges for some tooling asset write-offs and so that’s about the third bucket, and they are all about in the same range from one another. If you take out each of those, that takes us into that 140 basis point range just for those 3, each of those about 1/3 each. So, I don’t see anything going on that makes me overall worried in looking to the future quarters and I think that our gross margin improvement while 140 basis point improvement is great year-over-year, I think we can do a little bit better than that. Dennis, any further comment?

I think Bill did all the major items. We had a little bit of extra warranty expense this quarter compared to the first quarter. Our production variances weren’t quite as good this quarter as the first quarter. I think we are trying to say that first quarter just went very smoothly, didn’t have any big orders and didn’t have anything unusually good, but it had absolutely nothing bad. This quarter we had a few little bad things.

Right. So taking all that into account, it’s something like a high 42% is somewhat of a consistent level borrowing some abnormal larger orders or is there some other noise I guess?

I can’t disagree with that.

Okay. And then I guess, just secondly, just a little bit different here. Looking at Europe, you had talked about some flattish kind of demand in that type of stuff kind of being offset by some of your distribution, and I guess, is the way to look at that even if we do get some flattish demand in that region and some declining, given the steps that you are taking with your restructuring efforts, with the SAP efforts and all these other items, I mean should we still be looking at that region as something that improves profitability even if sales do remain flat?

That is exactly our game plan.

The next question comes from Dick Ryan from Dougherty.

So, Bill, given good color on Europe, can you talk about what you might be seeing in the order book? You have also mentioned Asia, Australia kind of tempered views there, can you kind of give us a sense of what you are seeing there as Q3 has started?

Sure. I will give some commentary and color and then I will ask Kerry Bove to chime in on that as well. In China, and China is the largest part of Asia for us, but also I will include Japan, we saw orders in the second quarter weakened quite a bit. So far in the third quarter we have seen that come back nicely. So we did see a slowdown in parts of Asia, and the 2 most important parts for us really are China and Japan. Australia, we saw some weakening in Australia, we think primarily due to some of the new taxes that government has put in place which has really impacted the coal industry, the mining industry I should say in general, for Australia. I don’t see Australia making strong improvements or rebounding. I do see some strengthening, we are see some strengthening coming out of Asia and I’ll include in addition to Japan and China, South East Asia we are seeing some strengthening in our order book out of those areas. Kerry, is there anything you would like to add on that?

Yes, the only thing I might add from an economic standpoint that allows you to remain a little more optimistic in China is that we have not seen the employment rates at all slip and there is the pending or expected RMB 4 trillion stimulus from China that was yet to defined, we believe that it will keep the economy stronger in the second half.

Great. Dennis, didn’t have anything on the restructuring side, but is there anything going on in Europe that you might anticipate any restructuring going forward there?

At this point we do not anticipate any restructuring charges in Europe for the remainder of this year.

Okay. And is there any additional land sales, any other acreage up there that can be sold or does that complete the land holding?

We still have one parcel to be sold. Right now, it may get sold. In the fourth quarter, it may not.

At this time there are no additional questions. Please go ahead with any final remarks.

Okay. Thank you, Christine. Well, seeing that we have no more questions that will conclude today’s call. I want to thank everybody for joining us this morning. If you had missed a portion of this morning’s conference, I want to remind everybody that an audio replay will be available on our website for the next 30 days. So, on behalf of Bill, Dennis, Joe, Ron and Kerry, thank you for your interest and participation. We look forward to talking with you again soon. Hope everybody has a great day.

Thank you for participating in the MSA Second Quarter Earnings Conference Call. This concludes the conference for today. You may all disconnect at this time.