Welcome to the MSA Third Quarter Earnings Conference Call. My name is Kim, and I will be your operator for today's call. [Operator Instructions] I will now turn the call over to Mr. Mark Deasy. Mr. Deasy, you may begin.

I too would like to welcome you to our third quarter earnings conference call for 2012. As Kim said, I'm Mark Deasy, Corporate Communications Director and with me on the 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 our business in Europe, Northern Africa, Russia and the Middle East and India; and Kerry Bove, President of MSA International, responsible for Asia, Australia, Sub-Saharan Africa and Latin America. Our quarterly press release was issued this morning at 8:30, and we hope everybody's had an opportunity to review it. The release is available on the home page of MSA's website, at www.msasafety.com. This morning Bill will provide us commentary on our third quarter performance. And then Dennis who will review our financials in more detail, after Dennis' remarks, we'll open up the call for your questions. But 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 SEC, including our most recent Form 10-Q which was filed on July 25, 2012. You are strongly urged to review all such filings for a more detailed discussion of such risks and uncertainties. Our SEC filings can be obtained at no charge at www.sec.gov, our own website and of course many other commercial sites. That concludes our forward-looking statement. So at this point, I'll 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 third quarter press release and have our financial figures with all the comparisons corresponding to the equivalent period in 2011. In our last investor’s conference call in July, I described our underlying order activity as uneven and that economic uncertainty throughout Asia and Europe tempered my optimism as we headed into the second-half of the year. Indeed we have seen a slowdown in those markets, but North American and Latin American sales adjusted for the military business we've exited are showing good stability. Additionally the General Monitors acquisition in our fixed gas and flame detection business is strong. I think our third quarter operating results reflect many signs of solid execution of our corporate strategy by the team here at MSA. And I will review them with you in my comments today. In spite of the uncertain economic and global business conditions I want to assure you that we remain committed to our corporate strategy of growing in our 5 core product lines in both developed and emerging geographies, investing and developing innovative new products and close management of manufacturing and operating costs to improve operating margins. And we're seeing the results of our strategy execution. As you saw on our press release our consolidated sales for the quarter were $287 million. On an as reported basis sales were down $12 million from a year ago, however when analyzing our sales, it's important to consider the impact of weakening foreign currencies and the divestiture of our North American ballistic products business on the year-over-year comparison. The third quarter of 2011 included $11 million of…

I would like to give you some further insight into our third 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, reported sales in the third quarter of 2012 were $287 million, which is $12 million less than the same quarter last year. However, if we adjust for the changes in currency values over the past 12 months and the 2 ballistic protection businesses that we have divested, our sales are actually up $14 million or 5%. North American sales were down 7% with all of that decrease related to the divested ballistic businesses. European sales were down 6% in dollar terms, but up 6% in local currency. And international sales were up 2% in dollars, but up 12% in local currencies. By markets, the global fire service was up 13% in dollars, but up 18% in local currency. Military was down 50% due to the divested ballistic businesses, and our industrial business, which was 70% of our total sales was down 4% compared to last year. However, in local currency terms, our global industrial sales are actually up 2%. Our North American segment sales in the third quarter were down 7% compared to 2011, comprised of a 22% increase in the fire service, a 76% decrease in military sales and a 6% decrease in industrial sales, which were 68% of our total North American sales. In our North American industrial business, head protection and portable gas detection were each up 6%. But fixed gas and flame detection was down 6% due to the timing of some large orders. In North America, our sales of ballistic helmets and ballistic body armor decreased $11 million this…

[Operator Instructions] And at this time, we have a question from Edward Marshall from Sidoti & Company.

So I’d like to dive a little into the SG&A if I could. First, you mentioned the $2 million and the $1 million charge for the due diligence and the legal fees. Those I understand, wanted to talk more about the pension and the discount rate, which I get. But is that new to this quarter, I mean is your pension year in line with your calendar year for reporting purposes or should we have seen those costs kind of in prior quarters, can you help me out with that?

You’re exactly right, Ed. it would have been each quarter this year compared to the prior year; it’s just that it's more obvious this quarter when nothing else changed, but these 3 items.

Okay. You mentioned a tax benefit in the quarter, what was that tax benefit?

We had a parcel of land here in our Cranberry Woods Office Park that we donated to the local township and got a tax benefit?

What was the number?

Roughly $1 million.

$1 million, okay. So if I could turn to the oil and gas business and maybe you can kind of talk about this domestically and internationally. And I think Bill, you mentioned the flat fixed gas and flame detection in North America was down about 6% due to timing, can you kind of maybe, I think they’re related. Can you kind of talk about that, as this relates to the domestic oil and gas business?

Sure. we did mention that, I think it was Dennis mentioned that in his commentary, but that’s really just a timing of orders and shipments, some large orders that we have and the shipments that we see. Overall in the oil and gas market in particular and even petrochemical market, we’re seeing very strong performance, very strong incoming orders for that part of our business and those products that sell into those markets. We have not seen really a weakening there, even though the global economic conditions tend to be weakening around it. What we are starting to see are some of the new projects, which are being discussed for late 2013 or into 2014. We’re starting to hear that those might be tempered or might be pushed back a little bit, delayed somewhat, but nothing that’s really, nothing that that we see or foresee as being eminent to affect our business. We have been very successful on large projects in the Middle East, and in Asia and even here in North America this year for our fixed gas and flame detection business. So it’s one part of our business that we feel has been and we’ve continued to feel very strongly about.

And then finally if I could, you talk more about kind of some of these sales catalysts that are potentially coming down the road and I’m referring to maybe construction housings on the mend, non-residential constructions coming back a little bit. Kind of talk about maybe some of these trends you’re starting to see in that line. And then of course, the fire services, which I think, you had some good prepared remarks about.

Right. construction first, over the last few years, we’ve really been revamping up our fall protection product line and also doing a lot to augment our head protection line. So I mentioned adding face shields and other accessories that mount to our Hard Hats. All in anticipation that this construction market would in fact resurge, and it was good to hear some of the early reports that we are hearing that construction is coming back. So I think we are getting our product line in shape nicely before a resurgence in that vertical. And so what we’ve done with our Hard Hats, what we’ve done with the accessories that attach to Hard Hats, eye and face protection type products that attach to the Hard Hats as well as the complete fall protection line, I think positions us much more strongly for that particular segment. In the fire service, we’ve talked about it in past calls a number of times. And I think throughout 2011, it was our sense that the U.S. fire service market would reach its bottom in 2011. And I really believe that it has. and so far this year, we have seen a little bit of a rebound there. And I think as we indicated, as Dennis indicated, our U.S. fire service sales year-to-date are up something like 5% to 7%. I’m trying to remember what Dennis indicated in his commentary. but year-to-date, our sales are up in the U.S. fire service.

Compared to 22.

Well, the third quarter was up really strong on shipments of some large orders. So we see a new NFPA standard coming out, that really takes affect late this year. We think that’s going to begin to influence some market by the middle of 2013. And as we’ve commented to you in the past, we've got a new product portfolio that we will be introducing in the second half of next year, to address that NFPA, that new NFPA standard.

Does this surprise you at all, I mean it surprises me a little bit that the supply chain doesn't seem to be prepared for the NFPA standard, it’s coming out later this year and into next. I would have thought, we would have seen a decline in shipments and preparation for that but it doesn't appear that showing up in your numbers?

Well a part of that as I indicated, I think is a credit to the strength of the MSA brand within the U.S. Fire Service, it’s a credit to our distribution channel partners and their strength in the marketplace, and our product offering. I think we’ve got a very solid product offering, we have gained market share, we know that from the statistics that get issued, in the U.S. Fire Service market. So, I think all of those things have worked to our favor and we - you’re right we haven't seen maybe the putting off or delaying of purchase decisions in the fire service, but rather we are actually seeing some moderate strength.

Does it give you any pause that this standard may not necessarily be as a big of a driver, as you thought it was, I mean what’s the intel on the street basically saying to you.

Well I look to Joe Bigler, Joe you probably have a better sense of that than I do.

Yes. I think anytime an NFPA standard comes out, it is a key driver. I think what you'll see as Bill mentioned this year, a little bit of a surprise that we saw an uptick in demand but it’s been primarily a market share gain for us, combined with a slight uptick in demand. I think what you’ll see next year is the new standard comes into play in December, manufacturers will have to stop selling old units, as of August 1. So, I think the first half of the year will probably be, people will try to understand the standard, they will wait for the manufacturers to have product, which is going through the approval process now by most manufacturers. So I would expect the first half of the year to be somewhat slow, and then the second half of the year as people get familiar with the standard and manufacturers have products out there that things will tick up in the second half of the year and in really 2014 and 2015, with people very familiar with the standard and some new product offerings. I would expect the fire service to be a pretty good growth market for manufacturers overall particularly ourselves.

Our next question comes from Richard Eastman from Robert W. Baird.

And just a quick question on for Dennis, in the -- there was a reference to some product liability expenses in the quarter. I think it was North American net income commentary, is that measurable and did that hit the SG&A line or did that just flush into a reserve account?

No. The reference was to the legal cost of the litigation we have with our insurance carriers and that was a $3 million expense in the third quarter. And that expense will be significant for probably another couple of years, 1.5 years, 2 years, we're probably going to be spending that kind of money.

Okay, but what flush through the -- did that flush through the SG&A?

Yes. Administrative cost.

$3 million or $1 million?

Well, it’s a $1 million increase.

Over what it was the third quarter of last year, but it’s a $3 million total.

Total number, okay, I understand. Okay. And then Bill, just a question when you look at Europe, and you look at your industrial growth there I think in LC, you mentioned it was 16%. Do you have a sense of what may be your same store sales, are there versus the step-up that you get from increasing the distribution side of that?

Rick, I don’t have a good sense of that. I would think that a lot of that growth in industrial business is coming from our expanded distribution channels are being able to cover more customers, more geographies, reach markets and reach customers that we had not been able to reach before.

Okay. Expanding that distribution, are you doing that in both Western and Eastern Europe or is the sales model in Eastern Europe still more of a direct?

No, it is an indirect model as well. So in Europe, it is a mix more so than it is here in the U.S. as I think we’ve talked about in the past in the U.S., it is, our sales are 100% indirect, 100% through distributors. In Europe, it’s a mix that is shifting more towards distribution. In fact, I would say that overall in Western Europe, we are probably somewhere around 60% to 70% indirect through distribution, 30% would be direct to government agencies primarily and in Eastern Europe, it’s probably closer to 50-50.

But also increasing in industrial distribution or our management of channels in Eastern Europe and into Russia and into the Middle East is also increasing distribution that is one of the initiatives that we have going on there and we have had some success with.

And let me ask you, when I - excuse me, when I translate that down to the Europe at the net income line, again, some commentary that gross margin was down in Europe and I presume that’s a function of more distribution and also is there any pricing pressure there?

There is pricing pressure in Europe that is unquestionable, especially in Western Europe. And you’re right that some of that gross margin reduction in Europe or overall for Europe is also a result of that industrial distribution. Now what goes along with that is that we have been reducing expenses over there as well. So we have been working to reduce our selling and marketing expenses in Europe as we then increase our channels of distributions. So it’s a trade-off, and it’s a transition that needs to be worked through, but we’ve done it here in North America, we’ve done it in other parts of the world and that we’re in the process of doing it in Europe. So bottom line, net income as Dennis indicated, you see it in the net income line for MSA Europe where our net income is up 77% versus 9 months, a year ago.

I guess what I’m trying to see is, some of your efforts in Europe, kind of being masked by the sales environment as it exists today, because again, I look at Europe net income and I adjust for what would appear to be FX impact and we’re still looking at a net income that’s around maybe 3% of sales. are we in a position where look our cost efforts and our mix is being offset temporarily with sales and pricing that net income should rebound fairly quickly when the sales environment stabilizes, because it’s not that apparent in the net income number that you report in LC in Europe.

Right. Well, I think that the answer to your question, the short answer is yes. Right now, Western Europe is an area where we’ve got a lot of headwinds, the economy there has a lot of headwinds, but we’re seeing good solid growth in that emerging growth part of Europe as we like to sometimes refer to it, that’s Eastern Europe, that’s Russia, Caspian Sea region and down into the Middle East where we saw 22% growth. And so we combine all of that together if we return to a point where Western Europe actually begins to see some moderate signs of growth and not as significant severe austerity programs that they’re currently in. I think that’s going to come to the bottom line; it’s going to flow to the bottom line very, very nicely in that for that part of MSA. And remember, our year-to-date net income is closer to 5% for MSA Europe. It was 3% in the third quarter, but it’s closer to 5% year-to-date. And that’s up from about 2.5% year-to-date a year ago.

Okay. And then just one last question on international from a sales perspective, is this the turmoil that we see would really escalate in some of the - in the South African mine marketplace. And we’ve seen that escalate kind of August into September. Is that disruptive in any way to Mine Safety?

Yes, it is. Sure. I mean when the mines go on strike, they don’t need, and in many cases, our workers who are also unionized in that area will support those miners who are on strike. And so it disrupts our shipments to those mines. There is no need to ship product to those mines. So it absolutely affects our business over there.

You wouldn’t want to take a swipe at a revenue number, would you?

I’ll look to Dennis on that.

I mean, our South African business is about $75 million, $80 million a year business. You're talking something around $20 million a quarter, so. A couple of million bucks, $2 million. [indiscernible] quarter.

[Operator Instructions] And at this time, I show no questions. I’ll turn the call back to Mr. Deasy.

Okay. Thank you, Kim. Well, given the fact, we do not have any more questions. That will conclude today’s call. I want to thank everybody for joining us, and that keep in mind, if you missed a portion of this morning’s conference, an audio replay will be available on our website for the next 30 days as well a written transcript. So on behalf of Bill, Dennis, Joe, Ron, and Kerry, we thank you again. And we look forward to talking with you again soon, and I hope everybody has a great day. Good-bye.

Ladies and gentlemen, this concludes today’s conference. Thank you for participating.