MSA Safety Incorporated

Thank you, John and good morning, everybody. As John said, I’d like to welcome everybody to our first quarter earnings conference call for 2012.

As John said, I’m Mark Deasy, Corporate Communications Director. And joining us on our call this morning are Bill Lambert, President and Chief Executive Officer, Dennis Zeitler, our Senior Vice President and Chief Financial Officer, Joe Bigler, President of MSA North America, Ron Herring, President of MSA International responsible for Europe, Northern Africa, Russia, the Middle East and India, and Kerry Bove, President of MSA International responsible for Asia, Australia, Sub-Saharan Africa and Latin America.

30 and we hope everyone has had an opportunity to review it. The release is posted on the homepage of MSA’s website at www.msasafety.com.

This morning, Bill Lambert will provide his commentary on our first quarter performance and then Dennis will review our financials in more detail. And after Dennis’ comments, we will open up the call for your questions.

Before we begin, I want to remind everybody 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 and 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-K, which was filed on February 22, 2012. You are strongly urged to review all such findings 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 statements. So at this point, I would 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 for joining us today on this conference call and for your continued interest in MSA.

Presumably, all of you have seen our first quarter earnings release and have our financial figures with all comparisons corresponding to the equivalent period in 2011. To begin, I want to say at the outset that we are pleased to report today’s quarterly results, which demonstrate another quarter of solid performance by the MSA team.

Above all, these 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 aimed at, one, growing MSA’s core business in both developed and emerging 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 business efficiency under initiatives like Project Magellan and our European transformation efforts.

As you saw on our press release, our consolidated sales in the quarter were $293 million, an increase of $17 million or 6% compared to the same period a year ago. Our comparative earnings per share were $0.65 versus $0.36 per share for the same period in 2011, an increase of 80%.

When analyzing our EPS, I think it’s worthwhile to note that during the quarter, we recognized pre-tax non-cash foreign currency losses of $2.4 million or roughly $0.05 per basic share after tax. So excluding these charges, our earnings per share were $0.70 per basic share in the quarter.

The increase in sales volume across most of our product lines combined with our efforts to improve margins and expand MSA’s presence in emerging markets continue to positively impact our results.

Our record first quarter was driven by the focus our team is placing on driving demand for our core product lines, which are fixed gas and flame detection systems, industrial head protection products, supplied air respirators, portable gas detection instruments and fall protection products.

These 5 product areas, which comprise 63% of total sales in the quarter, had revenue growth of 16% when compared to the first quarter of 2011. What I think is especially encouraging is that sales across these same product groups in emerging markets grew 21%.

As we have stated previously, driving demand for core product groups is a critical element of our long-term corporate strategy and we remain focused on executing this initiative in both developed and emerging markets.

Another critical element of our strategy that contributed to our strong quarter was the continued progress we’re making in managing manufacturing costs and improving gross profits as a part of our overall operational excellence initiatives.

Our multi-year efforts to optimize our manufacturing footprint and to improve our supply chain processes globally are yielding some solid results. The focus on these initiatives helped contribute to the 340 basis point improvement in gross profit margins during the quarter.

And our ability to control selling, general and administrative expenses resulted in an operating margin of 13.8% for the quarter, an improvement of 410 basis points over the same period a year ago.

As always, Dennis will provide more detail about this progress in his comments. I want you to know that we remain committed to developing innovative new core products that enhance the MSA brand and advance the level of worker safety in the industries that we serve.

Quarterly R&D expense was $9.3 million, down about $1 million from the same period a year ago, but I want you to know this is not a trend. It’s more reflective of heavy spending on particular projects in the R&D pipeline during the first quarter of last year.

I want to assure you that we continue to invest in developing innovative new core products like the portable and fixed gas and flame detection instruments that I’ve mentioned to you in earlier calls.

To give you a sense of the impact these investments and product introductions are having, portable gas detection instrument sales are up 14% and fixed gas and flame detection instrument sales are up 32% from a year ago. Looked at another way, for the quarter, 37% of our portable gas detection sales and 26% of our fixed gas and flame detection sales were related to new products developed and introduced in just the last 3 years.

You will see our commitment to R&D continue over the coming quarters as we think we have a pretty exciting pipeline of new core products that emphasize innovation, durability and improved profitability.

Cash flow, which is an area of focus at MSA was strong in the quarter. Quarterly operating cash flow increased to $33 million compared to $11 million in the first quarter of 2011.

We use this cash to continue to invest in CapEx, fund our dividend and to pay down $21 million of debt. Dennis again will provide more details on cash flow in his commentary.

Now, I would like to turn your attention to the results in each of our geographic segments and let me start with MSA North America. Sales grew 18% over the same quarter a year ago in the North American industrial market.

And it’s equally encouraging to see strong growth in multiple core MSA product lines. More specifically, sales of gas detection products increased $11 million.

Accompanying the solid growth in core products groups, profitability in North America also improved with gross profit margins increasing almost 620 basis points due to the combined effects of strategic pricing and lower costs of recently-introduced products.

In the North American military market, we saw a $2 million decrease in shipments of advanced combat helmets during the quarter. As we’ve indicated in previous calls, we are nearing the completion of this contract with the U.S.

Army and as we announced earlier during the first quarter, we have signed a non-binding letter of intent to sell the North American ballistic helmet business. That’s the North American ballistic helmet business only that we are selling.

We expect the transaction to divest of this non-core business to close sometime in the second quarter of 2012.

In the North American fire service market, municipalities continue to deal with lower AFG funding levels and municipal budget pressures. For the quarter, sales in the North American fire service business were down 12% from a year ago.

We don’t believe that’s an indication that the North American fire service market is getting worse. We believe that this market has leveled off, as we’ve indicated to you in earlier investor calls and a decrease in the first quarter is more related to a difficult comp to the first quarter of last year, which had strong shipments of SCBA into Canada.

Looking at Europe, while ongoing economic uncertainty and austerity measures continue to provide headwinds for us there, especially in our government-related business, I was encouraged by the 12% increase in sales that we saw during the quarter. Gross profit margins increased 440 basis points in Europe with solid improvements coming from the European industrial market.

For the quarter, sales grew 23% in the European industrial market, 28%, if we exclude the impact of weakening currencies. Our growing industrial sales are reflective of our strategic efforts to transition our focus from government spending to industrial channels of distribution in Europe.

Industrial sales now represent 57% of total sales in our European segment. And we think that has plenty of room to grow.

The industrial channel is better aligned with our core product line strategy and is more profitable than government related sectors. Although the current quarter, European results provide me with a sense of optimism, it merits repeating that business and economic conditions remain very challenging across much of Europe.

As I have indicated on past calls, we are committed to executing our strategic initiatives across our pan-European business. These strategic initiatives, which are focused on increasing revenues, while targeting new channels of industrial distribution, all the while lowering our cost of operations, are yielding solid results.

But as I’ve said before, the transformation of MSA Europe involves long-term initiatives. I’m certainly encouraged by the accomplishments our team is making and the improved performance that we’re seeing from our European segment.

But we still have much to accomplish.

In a highly uncertain environment, with a forecasted and perhaps even optimistic flat GDP growth rate for much of Western Europe in 2012, a key focus of ours continues to be lowering our overall cost of doing business in this segment.

Shifting attention now to our international segment, I’m pleased to report solid profitability improvements in the international segment, which includes the geographies of Asia, Sub-Sahara Africa, Australia and Latin America. Our focus on emerging markets and the efforts we’re putting forth in this segment are very much reflected in the positive results we’re seeing.

Growing our business in international emerging markets as I’ve noted earlier is another key element of our corporate strategy. We continue to grow our business in areas like Brazil, where local currency core product group revenues increased 32% during the quarter.

It’s clear from this performance that our team remains highly committed to advancing our strategy and the results in industrial markets with any emerging international regions are gaining traction and are certainly very encouraging to see.

The revenue, earnings and cash flow improvements we have reported over the past several quarters demonstrate success in how our global team is effectively executing our corporate strategy. While we continue to closely monitor uncertain economic conditions, especially in Europe, I assure you that we remain focused on those areas of our business that will help us to accelerate growth, increase market share and ensure the company’s long-term success.

While we are seeing strength in the U.S. industrial market and continued strength in emerging markets around the world, we expect uncertain economic conditions to remain in much of Central and Western Europe for the remainder of 2012.

Overall however, I remain optimistic and I believe our business and our position in the marketplace for life-saving personal protective equipment and instruments affords us many opportunities for profitable growth. I continue to feel our strategy is appropriate and provides us with sustainable competitive advantage for the future.

Now, I’d like to turn the conference call over to Dennis Zeitler, our CFO, who will provide you with more insights into our financial results. Dennis?

Thanks, Bill. Good morning.

I would like to give you some further insight into our first 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 first quarter of 2012 were a record $293 million, an increase of 6% over the first quarter of 2011 and our highest first quarter sales ever. Compared to last year, European sales were up 12%, North American sales were up 5% and international sales were up 3%.

By markets, the fire service was down 4% and military was down 22%. But our industrial business, which has grown to 70% of our total sales, was up 13% over last year.

In local currency terms, our industrial sales were actually up 16% with strength in each of our geographic areas. Our North American segment sales in the first quarter were up 5% compared to 2011, comprised of a 12% decrease in the fire service and a 33% decrease of military sales, both of which were more than offset by an 18% increase in industrial sales, which were 70% of our total North American sales.

In our industrial business, head protection was up 15%, portable gas detection was up 15%. And fixed gas and flame detection was up 31% with a strong contribution from general monitors.

Our sales of gas masks and ballistic body armor decreased this quarter in North America compared to 2011. Our international segment sales were up 3% this quarter in U.S.

dollars. But were up 7% in local currency terms.

Fire service was up 16%, military was down 35% on a very small base and industrial sales which were at 81% of our international sales were up 2% in U.S. dollar terms, but actually up 7% in local currencies.

In Europe, our reported sales were up 12% in U.S. dollars and up 17% in local currency terms.

European Fire service sales decreased 1% and military was up 5%. But industrial sales comprising 57% of our total European sales were up 23% in U.S.

dollars and up 28% in local currency terms.

Our ongoing efforts to expand our industrial sales in Europe plus the addition of general monitors have shown real benefits for us in the face of uncertain economic times in Europe. The other view of our sales performance is to separate the 2 portions of our business that historically have been the most volatile, The U.S.

Fire service and the U.S. military from everything else.

Our U.S. Fire service sales of $30 million was a decrease of 8% and our U.S.

military sales of $7 million was a decrease of 33%. Then when we look at all of our other globally diversified sales which has risen to 87% of our total sales this quarter, these sales were up 10% in U.S.

dollars and up 13% in local currencies.

Our gross profit rate for this quarter is 43.3% up 340 basis points from 39.9% last year. Our global efforts to reduce manufacturing costs, the increased production volume in our factories and more effective pricing all contributed to this gross profit improvement.

It’s our expectation that we will continue to improve our gross profit margin by higher volumes, cost discipline, product mix and value-based pricing.

We are pleased to be reporting to our investors that these efforts are being -- are bearing very real and meaningful results. Selling and marketing costs in this quarter were up $4 million primarily due to the higher level of sales.

Administrative costs were up only slightly on a comparable basis as we strive to control and to reduce the numerous aspects of administrative expenses. I’m most pleased to report that there were no restructuring charges in this quarter and I do not anticipate any such expense for the remainder of this year.

We did record a non-cash foreign currency loss due to intercompany transactions of $2.4 million pre-tax.

Our investment in new product development this quarter was $9 million, down from an unusually high number in the first quarter of last year of $10.5 million. I do expect this expense to increase as the year progresses as we are able to attract the additional engineering talent we are looking for around the world.

We continue to invest in exciting new products that will be coming to market in 2012 such as our all new Galaxy GX2 [ph] instrument management system, more of our V-Gard branded Hard Hat accessories, more of our best in class XCell sensors and cross-branded MSA and General Monitors’ fixed gas and flame detection products.

The resulting operating income, excluding those foreign currency expenses, is $41 million, an increase of 52% over the first quarter of 2011. That is just under 14% of sales this quarter and an increase of 400 basis points over our comparable performance in the first quarter of 2011.

This quarter is obviously a very good start to the year and we have real optimism that we will exceed the 12% target for our operating margin for the full-year that we communicated at our last investor call.

Our consolidated tax rate this quarter was 31%, down 300 basis points from last year due to the increase in the proportion of our profits earned outside the United States, even though the R&D tax credit has yet to be extended, which would reduce our effective tax rate by roughly another 1%. The bottom line is record first quarter net income of $24 million or $0.65 per basic share, compared to $0.36 last year, an increase of 81%.

On a pro forma basis, excluding the non-cash currency expense, our net income will be $26 million, which is $0.70 per share and 43% over the comparable 2011 calculation. As for the cash flow statement, we had a good quarter and we plan to carry our successes forward into the remainder of 2012.

You’ll be glad to see that we have now begun to include the cash flow statement in our quarterly earnings press release.

Our cash position is down $3 million and is composed almost entirely of cash outside the United States. Our total debt at the end of the quarter was $321 million, down $21 million in 3 months and down nearly $70 million in 12 months.

As you know, it is our plan over the next several years to continue to significantly reduce our outstanding debt. Although our working capital did increase by $1 million in the first quarter, our cash from operations was $33 million.

We invested $8 million in capital equipment, paid dividends of $9 million and still had $21 million to reduce our debt.

Those are my comments. At this point Bill, Joe Bigler, Ron Herring, Kerry Bove and I will be more than glad to answer whatever question you may have.

Please remember that MSA does not give what is referred to as guidance and that precludes most discussions related to our expectations for future sales and earnings. Having said that we’ll now open the call to your questions.

What’s the encore. Well that’s promising.

I thought you guys don’t give guidance, I’m kidding. Anything unusual on the gross margin that I should be aware of?

I mean it was exceptionally strong in the quarter. Any one time items or any discreet items?

The first quarter was reasonably clean, Ed. Actually we had a -- we had more -- we had only negative things in the first quarter.

Actually it was about 2 million of bad things that happened that we didn’t plan on, but there’s always bad things that happen.

So there was nothing -- there was no particular good thing that happened that improved gross profit other than everything we’ve talked about.

So you look like you’ve hit another level for this year as we go forward. I’m assuming this is somewhat -- and I know you’re not going to give guidance, but you would be surprised if this is not sustainable or at least that’s your goal, I’m assuming.

Yes, you’re right, we’re not going to give that guidance.

It was a very good quarter, Ed, there is no question about it and I think we hit on a lot of cylinders that we’ve been talking about in this earning call and in other investor meetings for quite a few years and you’re starting to see some of the fruits of that effort. I think that there’s -- there’s still some uncertainty out there, Europe had a very good quarter and whether or not we’re not able to really continue that kind of performance in Europe, I think is -- that’s probably where I have the lowest confidence, but the things that are happening within the North American market, the General Monitors acquisition, the introduction of some exciting new products that’s all -- it’s all helping us in a very strong way.

Let’s talk about Europe if we can, for a second and you said it’s the lowest confidence market, but I think there is a few things going on there with distribution markets and point of contact with the customer, et cetera. And then of course the gas -- the gas products that you’re selling into, is that really -- are those the 2 key points as to why that performance was so much better I think than what we would have expected given the GDP growth there?

Yes. That’s exactly right.

At the top line, those are the key reasons. It’s the expansion of our industrial distribution.

As we change our focus over the last few years, we have really tried to transition that organization more towards industrial, commercial accounts and less on government spending and that’s bearing fruit. The oil and gas market in that particular region, in that segment, as we report is doing very well and then the only other area to improve upon in profitability on the bottom line for Europe has to do with reflective - reflection of the cost reduction efforts and restructuring efforts that we’ve had going on there in 2010 and 2011.

And just remind me, as you switch to the distribution model in Europe, there is movements on the gross margin and the operating margin, how does that play out? I mean is there a little bit of more compression as you give a little bit on price, on the gross margin and you get it back as your selling expense goes down, how do I think about that?

Yes. There’s a little bit of that.

But again, we went through that in North America about a little more than a decade ago as we used to have a strong commitment to direct selling. And then at the -- about as I said a little more than a decade ago, we transition from direct selling to 100% indirect selling through distribution channels.

And so there is a little bit that you give up on margin in doing that. But when we’re really comparing ourselves to selling principally to government agencies, government-related entities in Europe, there it was highly competitive and the pricing in those situations, it was always tight.

There wasn’t, the margins there were relatively tight. We actually feel and based on some of the results we’re seeing, we actually think that we can pick up a few margin points as we shift from government-related spending to commercial and industrial, even though we will be going through industrial distribution.

So we don’t see that as a hit, the way it was here in North America. But we reacted, responded in North America and over time, you have lower selling expenses as a result of that, lower commission expenses as a result of that.

And so there is increased profitability and I think we’ve lived through some tough times in North America. But we’ve made that transition fully and I think some of the strong performance that you see out of our MSA North American operation is because of that.

In North America, any traction in non-residential construction at all? We’re hearing hints of that through this earnings release, earnings season so far from other competitors there or other players there?

Are you seeing that?

Yes, I’ll ask Joe to address that, Joe Bigler.

Yes. The real spark in the first quarter has really come from general manufacturing and obviously the energy sector.

But we are seeing especially with some of our major distributors such as Grainger that the commercial construction sector is starting to show some signs of life as well as government spending in some areas. So although it’s not strong, it does seem to be somewhat on the uptick, both of those segments which have really been a drag on the economy over the last 12 months.

And both of those businesses are legacy businesses for you. So I’m assuming that the cost bleed has really been bled out of that system and so any incremental improvement there should be a benefit to margin.

Is that the right way to think about those businesses?

Yes.

Okay. Any chance you can give, given the quarter and the performance and you’d look at that 15% goal that you have in 2015 and would like to hike it up a little bit?

Or maybe bring it forward a year or so? How do you -- or should I just leave that alone?

Why don’t we think about that when we get this year over with?

Okay. I am taking a guess.

Ballistic helmets business went for about $10 million or so, is that. .

. ?

That’s a pretty fair guess.

So I wanted to ask a few more about the industrial sales up 28% and the channel strategy. How long has the change to the channel strategy been going on.

I don’t want to be sour grapes or ask questions like that. But what about channel fill, is part of it that your inventory is going up at distributors?

Well, let me -- are you talking specifically about Europe and our industrial channel strategy in Europe?

Yes exactly.

Yes. That effort has been going on for at least the last 2 years.

2010 -- 2008 is when we developed the corporate strategy as we’ve talked to our investors many times in the past. 2009 was a difficult year for everybody and 2010.

But we remained true to our strategy and implementing that strategy and begin making the shift back in 2010. 2011 had a lot of change management activities going on within our organization and Europe.

And we didn’t see a lot of the traction that we had hoped to see in 2011. But we continued to make progress.

And now at the end of 2011 and into 2012, we’re seeing more traction. We’re seeing additional channels of distribution being added in Europe.

So this also as a part of our European transformation effort is a multi-year effort. And so now, we’re just pleased to be able to report that, some of that effort whether it would be the cost reduction efforts and restructuring efforts or the increase in channels of distribution to grow our core product areas in that segment that they are starting to bear fruit.

Okay. So, in the quarter there were new distributors, that were added and presumably there would be initial sales where that the distributors would build up inventories, is that part of what’s going on with a 28% organic growth?

Yes, I’m sure that’s a piece of that. I don’t have the details on how that might break down.

But also we’ve added distributors and channels of distribution throughout 2011 as well. But that continues, that effort continues and we pare out the non-performers and further emphasis those partners -- those channel partners to who are really able to penetrate markets and bring MSA products to those markets where previously we didn’t have a strong presence.

It’s just such a big number and when you compared to the backdrop that we read in the paper every day about what’s going on in Europe, it almost doesn’t make sense, so it’s good to hear your comments on it.

Well, and the other piece that we really haven’t talked about -- and it’s difficult for us to really quantify, we can very much qualify with qualitative data point to evidence and that is, that we’re gaining market share through some of those channels of distribution in Western and Central Europe. And as we look even more broadly into Eastern Europe.

So there is the market share opportunities that we see and the industrial -- and just the industrial channel. Our presence, MSA’s presence in the industrial market within Europe is not what we would like it to be.

We think this great opportunity and like I said, I am pleased that we’re making progress on that front.

Okay. The other question I want to ask was related to the gross margins.

I wonder if it’s possible to look at maybe different components. The price increase and I guess it’s related to new products, volume leverage and cost out, just to get an idea of how sustainable the gross margin is?

We don’t have the detail on what the components in the increasing gross margin are. However, I think it’s a reasonable statement that we think a current rate of -- our current gross margin rate is sustainable.

As we mentioned in one of the other questions there is nothing unusual in the first-quarter gross margin that would make it an exception going forward.

Okay. Can you maybe walk me through the price increases so far this year?

Have you done a global price increase or has it been North America only?

No. We do them regionally and maybe we can let Joe and Ken and Ron or Kerry and Ron answer that.

Yes. In North America, we had a selective price increase that went into effect January 1 and on a selective basis.

It wasn’t across the board on all products, it averaged somewhere around 2.5%.

And what about last year, Joe, we had…

Last year, we actually had 2 price increases. We had one in January 1, 2011 and another one in July.

Kerry, why don’t you comment on the international areas, what you saw in labor price increases.

Our price increases were not done universally. Our price increases were not done universally across the regions, but we are in the process of continuing to refine that.

So we have put some in and we are continuing to put more in.

And Ron, what about in Europe?

Yes. Across Europe, we had price increases that were pretty much targeted for each particular region, but the effective price increase was in the 2% to 3% price increase and it was spread out.

The implementation of it really started in December and the last one I think was in February.

I just want to make sure I had some of the numbers correct. Did you say that -- how much in revenue did you do in U.S.

fire safety in total?

U.S. fire service total was just under $30 million.

Okay. Didn’t you say at some point, that U.S.

fire safety was down 12%? I mean that would be quite a bit higher than Q1 last year, wasn’t it?

That was overall North America. I said overall North America, Holden, was down 12%.

We had a big order to Halifax in the first quarter of last year for the fire service. So North America, which is Canada and Mexico with the U.S.

was down 12%, but U.S. only was down 8%.

A little over $32 million, down to a little under $30 million.

Down little under -- so in Q1, the U.S. fire safety was a little under 30?

Yes, correct.

Okay. And U.S.

Military was how much?

$7.4 million

$7.4 million. And there was no acquired revenues in here, correct?

Correct.

Okay. And then the foreign exchange bit was about a negative $5 million for the quarter?

The negative foreign -- for what line?

This foreign exchange impact for the quarter was about a negative $5 million.

On the P&L or the balance sheet?

The P&L expense was $2.4 million.

Minus $2.4 million [ph]. Ok.

Pre-tax.

So I guess, what I’m kind of curious about is in every respect, Q1 was better than Q4, whether it would be related to the margins, whether it would be related to the sort of the growth rate once you strip out those U.S. Fire Safety and military bits.

It feels like such a light switch event. I mean, last year you were sort of decelerating from end of the year and all of a sudden you accelerate in Q1.

I mean, could you give some insight as to why Q -- why the beginning of ‘12 looks and feels so much different from the end of ‘11 and maybe give some insight because when you give 12% sort of margin expectation for the year, I’m guessing that you didn’t envision that starting with a 14%. Can you give a sense of where the beeps are coming from or where you’ve been surprised?

Well, I think we’ve talked -- we’ve talked a lot about where the strength is coming from and what the efforts have been to get us there. I don’t think there is a light switch event to use your words, Holden.

We are seeing some strength in some of our more profitable areas of the business. As I indicated in my comments, our portable instruments and the new products that we brought to market there with increased gross margin performance and our fixed gas and flame detection instruments, that’s among our highest profitability segments, total fixed gas and flame detection up 32% quarter-to-quarter.

Now that’s quarter -- first quarter of last year versus first quarter this year, I don’t have it in my fingertips what it would be in consecutive quarters. But we’ve just got -- I think that the fruits of the efforts and where we’re putting our focus have been in the right areas.

And there isn’t really anything that would -- other than the efforts we’ve already talked about that would indicate that there is some light switch event that has gone on to improve our gross profit by what it done [ph] say 300 to 400 basis points improvement.

And I guess, in looking back at the second quarter, yes -- excuse me, looking back at the fourth quarter of last year, it’s still not a 300 to 400 basis points improvement in gross margins. And there’s no one-off big items that are doing that other than strength in the core areas where we’re providing a lot of focus.

We did have, as I said, just some really strong performance out of our fixed gas and flame detection instruments area, portable instruments area and those are 2 of our most profitable product lines.

Okay. So you talked about how your 5 focus areas about 63% of revenues, how was the -- in aggregate, what’s the profitability of those 5 areas?

I mean are those also your more profitable areas, so that as they grow relative in the mix, that you’d just get a mix kicker?

Sure. Absolutely correct, that’s exactly right.

Okay. And can you comment on the role of sort of this new product offering and strategic pricing component?

Are you really starting to see traction coming from the hires you made and maybe new products becoming a bigger part of the mix? Is that part of it or is that still sort of on the come?

I think it’s still on the come because the strategic pricing initiative, value-based pricing as we refer to it here. That’s an initiative that really started to get traction in early 2011.

We began it in 2010, really started to get traction in 2011. So, we’re now starting to see some of the full effect of that.

But we’ve got a lot of new products in the pipeline that will come out, that will also have this value-based pricing attached to it and so I think that there is -- we believe there is more upside there from a pricing perspective than -- and increased improved margins, due to the product mix and due to the value-based pricing initiatives that we’ve got going forward.

Okay. You sort of did call out the strategic pricing as one of the pieces pushing the gross margin up.

Are you doing the strategic pricing outside of new products at this point, like are you sort of re-pricing existing products in the market or is the goal really still to sort of introduce the strategic price as you put out new products and refresh the lines?

Yes, that’s really not -- it’s not this change. We are doing that, but it’s not a matter of changing the price of existing products.

It’s more a matter of controlling the discounts that we give on existing products. So we’ve established a matrix of who, at what level and at what time.

Who is allowed to give an incremental discount on the specific order.

Okay. And then lastly, I know you don’t like to give forecasts and projections.

But last call you did in fact project kind of a 12% operating margin for the year. And again I am assuming that you didn’t envision the year starting with a 14% in front of it.

Do you have any sense of, should we assume that that 14% operating margin is kind of -- 13.5%, 14% is kind of the right level for the year now or is there some seasonality we should be considering or anything of that sort?

I can’t give you a lot of help there, Holden. I would say, we have a lot more confidence on our 12% number now than I did 3 months ago.

The only other comment that I want to make, we came into this year very cautiously. Cost wise, we told everybody to hold back on spending money.

So we had a lot of cost controls in place and they are still in place. So that’s part of it, that’s not just the volume of sales and everything there.

We did a pretty good job in controlling costs so far and hope we can keep that up.

And we really expect to have normal seasonality to play out this year. It’s kind of the way to think about that.

At this point…

Yes.

Just if you wouldn’t mind, Bill, would it be possible -- you talk about these 5 core product lines that’s 63% and obviously, the impact that it had on the gross margin. Could you just give us in local currency, the growth rate of those 5 product categories.

Well, how about if I ask Dennis. I think Dennis has some of that data handy.

Okay. So for the quarter.

Just industrial head, fall protection?

Yes. Let me make sure I get these numbers right here.

Current year -- okay so we go by our product group numbers. So the first one I got here is breathing apparatus was up 1%.

You looking for gross margins? Or just…

No, no I just -- I can kind of relate that to the gross margin impact, but given that these products are such a big percent in kind of the focus area, just LC growth rate would be great.

Yes. Head protection was up 17%.

Portable instruments were up 14%. Fixed gas and flame detection was up 31%.

And fall production was up 12%. Average of all those together comes out to 16%.

And then again I just, I’m not going to look for any more color on the gross margin, but the incremental there was inversely 100%. So all the incremental revenue growth turned into profit growth and again I guess that’s the higher margin products growing so dramatically here.

And then I guess it was a decline in fire service. Is that -- was there a LC decline in fire service?

No. I don’t have a -- I don’t have, --well yes, I do.

Hold on here for a second. Fire service on a consolidated basis, local currency, was down 3%.

Okay. And what was military in LC?

Minus 21%.

Minus 21%, okay. Okay.

And then, just -- can I ask the question, you go -- just double back to Europe for a second. If I think about Europe Industrial for the products that you have in the marketplace there, what would you guess was maybe the market growth rate, I mean you guys -- you guys delivered 28% growth in the local currency, I mean there is no way the market grew at anywhere near that level, not with the PMI numbers we have been seeing and -- and so you had share gain, you had expansion of distribution, I mean do you think the market growth was positive number?

Well, I think that you need to keep in mind Rick, as we report Europe and some of the 28% growth you see in Europe is not what we’re reading above in the papers not just Western and Central Europe. But Europe MSA’s a segment reporting basis also includes the Middle East and Russia and Eastern Europe.

So it’s this much larger area.

The oil and gas segment in particular has provided a lot of that -- a lot of that growth we’ve got -- we had some terrific performance in our fixed gas and flame detections systems and sales into that area. So, and I don’t have the breakout of that but I would say well, I won’t even guess, but it was a significant improvement that 32% that Dennis talked about overall consolidated fixed gas and flame detections sales, I’m willing to bet that it would -- that a nice piece of that is coming from that part of the world, Eastern Europe, Russia and Middle East and India and some of the those projects.

So getting back to your question what do we think the market may have grown, did it grow during the first quarter, I mean the numbers that we put on it are low single digits. And I think that based on what I am reading more recently, I think that might even be on the optimistic side.

Yes, because I recall coming out of the fourth quarter you had some real caution around Europe, in fact you went so far the suggest and a low single digits, if we don’t grow at least of that pace, we might have to take some more cost out of Europe and that’s why I’m just kind of starting out with a growth rate of 28% is polar opposite of maybe the caution that you’re tossing out back in February -- early February?

The 28% is industrial sales same currency, I mean the actual reported increase in our international European segment sales was 12%.

Yes, no I understand, but industrial is the driver there. So we just got off to a really fast start, though, is that fair enough?

And I really, as I said in my comments early on in this call, I’m really still very hesitant and very concerned about Europe, and I think that’s very uncertain environment for us and so our focus there continues to be on cost control, cost management and while finding those opportunities to grow and we think there are opportunities to grow and we are actually seeing good success in growing our channels of distribution on the industrial side but that doesn’t give me a lot of room for celebration, we’re watching it -- continue to watch it very, very closely.

Okay. And did you guys -- when I look at a net income out of Europe, you pay taxes there, right?

There was a tax rate?

Yes.

Okay. So I’ve got to give you kudos because the growth, at least the improvement in profit in Europe since I seemed to bang you on that every quarter, at least it’s better.

And then just lastly, when I think of MSA’s business for the full year and just leaving military aside here with the puts and takes going on there, is it still reasonable to assume that fire service has a growth rate, say mid-single digit but industrial then would double that up, being high single digits or maybe low doubles? I mean that’s -- is that still a reasonable way to think about how the segment plays out for the year?

Yes. We wouldn’t give that specific kind of guidance.

I think the last time we talked about global fire service for this year, we thought it would be about flat for the year. Yes, I think that’s a better way to look at the global fire services is that we would continue to think that it’s flat even though we feel like we -- we’ve had a down quarter in the first quarter in North America for the fire service, we really believe that’s because of a difficult comp versus last year.

But overall I don’t see great improvement in the fire service but I don’t see it degrading it all and we think it’s going to be about flat.

And then last thing PARACLETE sales in the first quarter of ‘11 kind of $3 million-ish or something?

$2.4 million.

Say, Dennis on the closing of the sale of the helmet business, assuming it does happen. Will there be charges in Q2?

No, there will be a slight income in Q2.

Bill, on the fixed gas and portable side, are you seeing any cross selling coming in as the both product lines have come together?

You mean from -- okay, between the portable instrument line and the fixed gas. Not a lot, Dick.

Those tend to be -- those tend to be different channels of distribution and fixed gas and flame is going through ECPs and large project managers, that sort of thing. Whereas portable instruments is more through our industrial channels of distribution.

The Graingers, the Airgases, those that are very tightly connected to the turnarounds in our refinery, onshore that sort of thing. So there’s not a lot -- we’ve tried it over many years to look for and to build some synergies between our portable instrument sales and our fixed gas and flame.

We had some success but it’s not all that great. They are really 2 distinct markets if you will, not markets but rather sales channels and they have their individual successes.

Okay. And on the new safety standards, fire service standards for SCBAs, is the timing still the end of this year, is that still what we’re looking for?

That’s correct.

Two quick follow-ups. There’s a shift right now in rig count going from gas to oil.

And knowing General Monitors and the big exposure in the Middle East et cetera, I mean looking at kind of your fixed gas instrumentation being up 31%, can you talk about maybe the mix and I think this question has been asked in prior conference calls, and I don’t know that you had it. But I’m curious if you have the mix between gas and oil and the rig count, any exposure that you have to individual markets and whether maybe some of that conversion from gas to oil is helping drive your results here?

I don’t have that data here.

We tried to -- we’re putting some reports together this week and I tried to get some rig counts split between oil and gas and our guys at General Monitors couldn’t come up with it. So we’re not sure…

How our instrument sales are affected by that.

We actually didn’t have -- we couldn’t find a source to track how many rigs have been converted from gas back to oil or either way. So we know how many total rigs there are drilling at any given time, but whatever the sources of the data are, they don’t really tell you how many are gas and how many are oil.

What’s your exposure maybe to Middle East versus Eastern Europe? Can you give us like a sales breakdown between the 2 regions?

I don’t know.

No. We don’t have that, we wouldn’t breakout out -- we don’t have fixed gas and flame by region because we sell it as a global product, but General Monitors’ products are very well accepted in the Middle East, very strong market for them.

And again that’s the much higher margin business too looking back to the results on when that hit and the impact it had on your overall performance.

That’s right.

Okay. Lastly, the military business and looking at the $7 million in sales versus what was a run rate of between say $12 million to $20 million in sales last year.

How much of that cost have you bled out of the system as it’s preparing for sale anyway, knowing that it was what I think a 200 basis point drag on operating margins last year anyway as it was a breakeven business. As you transition that business to get ready for sale, could that be also a result for some of the margin improvement in the quarter?

We didn’t do anything in this quarter to impact that.

Well, it was a lower sales line, right? So presumably, you have lower head counts, et cetera and I’m assuming it’s a heavy head count intensive -- heavily intensive head count business.

We certainly had less people in the factory than we had, simply because of lower volumes. But the -- I guess the flip side is, in the second quarter, we will be able to reduce cost in line with our sales.

We will be able to eliminate the cost to go with the sales.

Is there a large fixed cost component for that business?

Well, the factory, but it’s -- the factory is going to the seller. So -- or the buyer, sorry.

Yes. Just an easy one.

In light of what could be sustainable improvement in Europe, I mean, should we be thinking about, what should we be thinking about in terms of tax rate? Is that 30.7% kind of the best guess for the full year?

And I’m guessing even going forward, we would expect the tax rate to be lower than what you’ve had in the past, given you’re resurgent [ph], right?

Yes, given the mix of geographies we had in the first quarter and the fact that the R&D tax credit is not in there, I guess my best guess for the full-year tax rate would be somewhere around 30%.

John, is that it for the queue?

Okay. Well, given that we have no more questions, that will conclude today’s call.

I want to thank everybody for joining us again today and I want to remind you, if you missed a portion of this morning’s conference, an audio replay will be available on the MSA website for the next 30 days. So on behalf of Bill, Dennis, Joe, Ron and Kerry, we thank you for your interest again.

We look forward to talking with you again soon and hope everybody has a great day. Good bye.