The Company's major end user markets include:
• general metal fabrication,

• power generation and process industry,

• structural steel construction (buildings and bridges),

• heavy equipment fabrication (farming, mining and rail),

• shipbuilding,

• automotive,

• pipe mills and pipelines, and

• offshore oil and gas exploration and extraction.

The Company has, through wholly-owned subsidiaries or joint ventures, manufacturing facilities located in the United States, Australia, Brazil, Canada, Colombia, France, Germany, India, Indonesia, Italy, Mexico, the Netherlands, People's Republic of China, Poland, Portugal, Spain, Taiwan, Turkey, United Kingdom, Venezuela and Vietnam.
The Company's sales and distribution network, coupled with its manufacturing facilities, are reported as two separate reportable segments, North America and Europe, with all other operating segments combined and reported as Other Countries.
The principal raw materials essential to the Company's business are various chemicals, electronics, steel, engines, brass, copper and aluminum alloys, all of which are normally available for purchase in the open market. The Company's facilities are subject to environmental regulations. To date, compliance with these environmental regulations has not had a material effect on the Company's earnings. The Company is ISO 9001 certified at nearly all facilities worldwide. In addition, the Company is ISO 14001 certified at all significant manufacturing facilities in the United States and is working to gain certification at its remaining United States facilities, as well as the remainder of its facilities worldwide.
Key Indicators
Key economic measures relevant to the Company include industrial production trends, steel production, purchasing manager indices, capacity utilization within durable goods manufacturers and consumer confidence indicators. Key industries which provide a relative indication of demand drivers to the Company include steel, farm machinery and equipment, construction and transportation, fabricated metals, electrical equipment, ship and boat building, defense, truck manufacturing, energy and railroad equipment. Although these measures provide key information on trends relevant to the Company, the Company does not have available a more direct correlation of leading indicators which can provide a forward-looking view of demand levels in the markets which ultimately use the Company's welding products.
Key operating measures utilized by the operating units to manage the Company include orders, sales, inventory and fill-rates, all of which provide key indicators of business trends. These measures are reported on various cycles including daily, weekly and monthly depending on the needs established by operating management.
Key financial measures utilized by the Company's executive management and operating units in order to evaluate the results of its business and in understanding key variables impacting the current and future results of the Company include: sales; gross profit; selling, general and administrative expenses; earnings before interest and taxes; earnings before interest, taxes and bonus; operating cash flows; and capital expenditures, including applicable ratios such as return on invested capital and average operating working capital to sales. These measures are reviewed at monthly, quarterly and annual intervals and compared with historical periods, as well as objectives established by the Board of Directors of the Company.

Results of Operations
The following table presents the Company's results of operations:

                                                                  Three Months Ended March 31,
                                         2009                                  2008                                Change
                              Amount           % of Sales           Amount           % of Sales            Amount             %
Net sales                    $ 411,751               100.0 %       $ 620,227               100.0 %       $ (208,476 )         (33.6 %)
Cost of goods sold             321,503                78.1 %         442,776                71.4 %         (121,273 )         (27.4 %)

Gross profit                    90,248                21.9 %         177,451                28.6 %          (87,203 )         (49.1 %)
Selling, general &
administrative expenses         77,516                18.8 %          98,961                16.0 %          (21,445 )         (21.7 %)
Rationalization charges         11,699                 2.8 %               -                 0.0 %           11,699            NA

Operating income                 1,033                 0.3 %          78,490                12.7 %          (77,457 )         (98.7 %)
Interest income                  1,112                 0.3 %           2,434                 0.4 %           (1,322 )         (54.3 %)
Equity (loss) earnings
in affiliates                   (1,986 )              (0.5 %)            549                 0.1 %           (2,535 )        (461.7 %)
Other income                       393                 0.1 %             499                 0.1 %             (106 )         (21.2 %)
Interest expense                (2,562 )              (0.6 %)         (2,981 )              (0.5 %)             419           (14.1 %)

(Loss) income before
income taxes                    (2,010 )              (0.5 %)         78,991                12.7 %          (81,001 )        (102.5 %)
Income taxes                     1,584                 0.4 %          25,514                 4.1 %          (23,930 )         (93.8 %)

Net (loss) income            $  (3,594 )              (0.9 %)      $  53,477                 8.6 %       $  (57,071 )        (106.7 %)

Three Months Ended March 31, 2009 Compared to Three Months Ended March 31, 2008 Net Sales: Net sales for the first quarter of 2009 decreased 33.6% to $411,751 from $620,227 in the first quarter of 2008. The decrease in Net sales reflects a $208,223 (33.6%) decrease due to volume, a $28,510 (4.6%) increase due to price, a $9,385 (1.5%) increase from acquisitions and a $38,148 (6.2%) unfavorable impact as a result of changes in foreign currency exchange rates. Net sales for the North American operations decreased 33.5% to $246,656 in the first quarter of 2009 compared to $371,113 in the first quarter of 2008. This decrease reflects a decrease of $135,143 (36.4%) due to volume, a $16,136 (4.3%) increase due to price and a $5,450 (1.5%) decrease as a result of changes in foreign currency exchange rates. Net sales for the European operations decreased 36.7% to $93,300 in the first quarter of 2009 compared to $147,445 in the first quarter of 2008. This decrease reflects a decrease of $37,772 (25.6%) due to volume, an $893 (0.6%) increase due to price, a $5,242 (3.6%) increase from acquisitions and a $22,508 (15.3%) unfavorable impact as a result of changes in foreign currency exchange rates. Net sales for Other Countries decreased 29.4% to $71,795 in the first quarter of 2009 compared to $101,669 in the first quarter of 2008. This decrease reflects a decrease of $35,308 (34.7%) due to volume, an $11,481 (11.3%) increase due to price, a $4,143 (4.1%) increase from acquisitions and a $10,190 (10.0%) unfavorable impact as a result of changes in foreign currency exchange rates.
Gross Profit: Gross profit decreased 49.1% to $90,248 during the first quarter of 2009 compared to $177,451 in the first quarter of 2008. As a percentage of Net sales, Gross profit decreased to 21.9% in the first quarter of 2009 from 28.6% in the first quarter of 2008. This decrease was primarily a result of declining volumes, the liquidation of higher cost inventories and higher retirement costs in the U.S. of $2,376 offset by lower product liability costs of $3,835 primarily due to an insurance settlement. Foreign currency exchange rates had a $7,281 unfavorable translation impact in the first quarter of 2009. Selling, General & Administrative (SG&A) Expenses: SG&A expenses decreased $21,445 (21.7%) in the first quarter of 2009 compared to the first quarter of 2008. The decrease was primarily due to lower bonus expense of $23,121 and the favorable translation impact of foreign currency exchange rates of $7,856 partially offset by higher retirement costs in the U.S. of $3,336. Rationalization Charges: In the first quarter of 2009, the Company recorded $11,699 ($7,428 after-tax) in charges related to rationalization activities at facilities around the world. The charges are primarily employee severance as the Company adjusts its cost base to current market conditions.
Interest Income: Interest income decreased to $1,112 in the first quarter of 2009 from $2,434 in the first quarter of 2008. The decrease was due to lower interest rate investments in 2009 when compared to 2008.
Equity (Loss) Earnings in Affiliates: Equity earnings in affiliates was a loss of $1,986 in the first quarter of 2009 compared to earnings of $549 in the first quarter of 2008 primarily as a result of decreased earnings at the Company's joint venture investment in Taiwan.

Interest Expense: Interest expense decreased to $2,562 in the first quarter of 2009 from $2,981 in the first quarter of 2008 primarily as a result of interest rate swaps lowering the effective interest rate on the Company's Senior Unsecured Notes partially offset by higher debt levels at foreign subsidiaries in the first quarter of 2009. See Note M to the Company's consolidated financial statements for further discussion.
Income Taxes: The Company recorded $1,584 of tax expense on a pre-tax loss of $2,010, resulting in an effective tax rate of (78.8)% for the three months ended March 31, 2009. The effective tax rate is lower than the expected benefit at the Company's statutory rate primarily because of losses at certain non-U.S. entities for which no tax benefit has been provided. The rate also includes a benefit for the utilization of foreign tax credits.
The effective income tax rate of 32.3% for the three months ended March 31, 2008 is lower than the Company's statutory rate primarily because of the utilization of foreign tax credits, lower taxes on non-U.S. earnings and the utilization of foreign tax loss carryforwards.
Net (Loss) Income: The net loss for the first quarter of 2009 was $3,594 compared to net income of $53,477 in the first quarter of 2008. Diluted loss per share for the first quarter of 2009 was $(0.08) compared to earnings of $1.24 per share in the first quarter of 2008. Foreign currency exchange rate movements had a favorable translation effect of $1,320 and $1,865 on net income for the first quarter of 2009 and 2008, respectively. Liquidity and Capital Resources
The Company's cash flow from operations, while cyclical, has been reliable and strong. Operational cash flow is a key driver of liquidity, providing cash and access to capital markets. In assessing liquidity, the Company reviews working capital measurements to define areas of improvement. Management anticipates the Company will be able to satisfy cash requirements for its ongoing businesses for the foreseeable future primarily with cash generated by operations, existing cash balances and, if necessary, borrowings under its existing credit facilities.
The following table reflects changes in key cash flow measures:

                                                                       Three Months Ended March 31,
                                                                2009               2008              Change
Cash provided by operating activities:                       $  71,663          $  67,523          $   4,140
Cash used by investing activities:                             (13,373 )          (21,215 )            7,842
Capital expenditures                                           (13,565 )          (12,812 )             (753 )
Acquisition of businesses, net of cash acquired                      -             (8,675 )            8,675
Cash used by financing activities:                             (40,628 )          (27,438 )          (13,190 )
Proceeds from (payments on) short-term borrowings, net           1,368               (955 )            2,323
Payments on long-term borrowings                               (30,227 )             (140 )          (30,087 )
Purchase of shares for treasury                                   (343 )          (18,033 )           17,690
Cash dividends paid to shareholders                            (11,444 )          (10,720 )             (724 )
Increase in Cash and cash equivalents                           16,120             20,471             (4,351 )

Cash and cash equivalents increased 5.7% or $16,120 during the first three months of 2009, to $300,452 as of March 31, 2009 from $284,332 as of December 31, 2008. This compares to an increase of 9.4% or $20,471 to $237,853 during the first three months of 2008.
Cash provided by operating activities increased by $4,140 for the first three months of 2009 compared to 2008. The increase was primarily related to lower accounts receivable and inventory as the Company liquidated working capital commensurate with the decline in demand levels when compared to 2008. Average operating working capital to sales was 28.0% at March 31, 2009 compared with 26.1% at December 31, 2008 and 22.4% at March 31, 2008. Days sales in inventory increased to 126.1 days at March 31, 2009 from 115.8 days at December 31, 2008 and 108.4 days at March 31, 2008. Accounts receivable days increased to 61.0 at March 31, 2009 from to 55.0 days at December 31, 2008 and 59.6 days at March 31, 2008. Average days in accounts payable increased to 36.9 days at March 31, 2009 from 32.1 days at December 31, 2008 and decreased from 44.5 days at March 31, 2008.
Cash used by investing activities for the first three months of 2009 compared with 2008 decreased by $7,842. This reflects a decrease in cash used in the acquisition of businesses of $8,675 partially offset by an increase in capital expenditures of $753 to $13,565 from $12,812 in 2008. The Company anticipates capital expenditures in 2009 in the range of $45,000 - $55,000.

Anticipated capital expenditures reflect investments to improve operational effectiveness and the Company's continuing international expansion. Management critically evaluates all proposed capital expenditures and requires each project to increase efficiency, reduce costs, promote business growth, or to improve the overall safety and environmental conditions of the Company's facilities. Management does not currently anticipate any unusual future cash outlays relating to capital expenditures.
Cash used by financing activities increased $13,190 to $40,628 in the first three months of 2009 compared with the first three months of 2008. The increase was primarily due to the repayment of the Company's $30,000 Series B Senior Unsecured Note on maturity during the first quarter of 2009 partially offset by lower purchases of shares for treasury of $17,690.
The Company has investments in Venezuela, which currently require the approval of a government agency to convert local currency to U.S. dollars at official government rates. Government approval for currency conversion to satisfy U.S. dollar liabilities to foreign suppliers, including payables to Lincoln affiliates, has lagged payment due dates from time to time in the past, resulting in higher cash balances and higher past due U.S. dollar payables within our Venezuelan subsidiary. If the Company settled its Venezuelan subsidiary's U.S. dollar liabilities using unofficial, parallel currency exchange mechanisms as of March 31, 2009, it would result in a currency exchange loss of approximately $1,920.
The Company's debt levels decreased from $142,230 at December 31, 2008, to $109,055 at March 31, 2009. Debt to total invested capital decreased to 10.0% at March 31, 2009 from 12.3% at December 31, 2008.
The Company's Board of Directors has authorized share repurchase programs for up to 15 million shares of the Company's common stock. Total shares purchased through the share repurchase programs were 11,215,390 shares at a cost of $274,531 through March 31, 2009.
In April 2009, the Company paid a quarterly cash dividend of $0.27 per share, or $11,450, to shareholders of record on March 31, 2009. Rationalization
The Company has taken actions throughout its global operations to align resources to current market conditions that resulted in a charge of $11,699 in the first quarter of 2009. Charges by segment were $10,526, $470 and $703 in North America, Europe and Other Countries, respectively.
Actions taken in the first quarter of 2009 included a voluntary separation incentive program covering certain U.S.-based employees as announced on February 2, 2009. These actions are expected to affect 350, 48 and 170 employees in North America, Europe and Other Countries, respectively. The total cost is expected to be $11,797, of which the Company recorded rationalization charges of $11,685 in the first quarter of 2009. At March 31, 2009, the Company's liability related to these actions was $9,097 and was recorded in "Other current liabilities." These costs relate primarily to employee severance actions that are expected to be completed and paid by the end of 2009.
Actions taken during the fourth quarter of 2008 affected 65 employees in European businesses and 67 employees in North American businesses. The total cost of these actions is expected to be $2,712 of which $2,447 was recorded at December 31, 2008 and $14 was recorded in the three months ended March 31, 2009. At March 31, 2009, the liability related to these actions of $528 was recorded in "Other current liabilities." These costs relate primarily to employee severance actions that are expected to be completed and paid by the end of 2009. The Company continues evaluating its cost structure and additional rationalization actions are being contemplated that would result in charges in subsequent quarters. On April 21, 2009, the Company initiated a process to rationalize a manufacturing facility in Italy and consolidate production to an existing facility in Poland. This action would likely result in charges in the range of $2,500 to $3,000 over the next year. Acquisitions
On March 16, 2009, the Company announced that it signed definitive agreements to acquire the remaining 52% of Jinzhou Jin Tai Welding and Metal Co., Ltd. ("Jin Tai"), based in Jinzhou, China. The transaction will expand the Company's customer base and give the Company control of significant cost-competitive MIG wire manufacturing capacity. The Company currently has a 21% direct interest in Jin Tai and a further 27% indirect interest via its 35% interest in Taiwan-based Kuang Tai Metal Industrial Co., Ltd. ("Kuang Tai"). Under the terms of the agreement, the Company will exchange its 35% interest in Kuang Tai, pay cash of approximately $38,000 and assume Jin Tai's net debt of approximately $15,000. The transaction is subject to

the approval of government regulatory agencies, with closing expected in the third quarter of 2009, subject to the satisfaction or waiver of customary conditions. Annual sales for Jin Tai were approximately $200,000 in 2008. On October 1, 2008, the Company acquired a 90% interest in a leading Brazilian manufacturer of brazing products for approximately $24,000 in cash and assumed debt. The newly acquired company, based in Sao Paulo, is being operated as Harris Soldas Especiais S.A. This acquisition expands the Company's brazing product line and increases the Company's presence in the South American market. Annual sales at the time of the acquisition were approximately $30,000. On April 7, 2008, the Company acquired all of the outstanding stock of Electro-Arco S.A. ("Electro-Arco"), a privately held manufacturer of welding consumables headquartered near Lisbon, Portugal, for approximately $24,000 in cash and assumed debt. This acquisition adds to the Company's European consumables manufacturing capacity and widens the Company's commercial presence in Western Europe. Annual sales at the time of the acquisition were approximately $40,000.
Acquired companies are included in the Company's consolidated financial statements as of the date of acquisition. Debt
During March 2002, the Company issued Senior Unsecured Notes (the "Notes") totaling $150,000 through a private placement. The Notes had original maturities ranging from five to ten years with a weighted average interest rate of 6.1% and an average tenure of eight years. Interest is payable semi-annually in March and September. The proceeds are being used for general corporate purposes including acquisitions and are generally invested in short-term highly liquid investments. The Notes contain certain affirmative and negative covenants including restrictions on asset dispositions and financial covenants (interest coverage and funded debt-to-EBITDA as defined in the Notes Agreement, ratios). As of March 31, 2009, the Company was in compliance with all of its debt covenants. The Company repaid the $30,000 Series B Note on maturity in March 2009, reducing the balance outstanding of the Notes to $80,000, which is due in March 2012. During March 2002, the Company entered into floating rate interest rate swap agreements totaling $80,000 to convert a portion of the Notes outstanding from fixed to floating rates. These swaps were designated as fair value hedges and the gain or loss on the derivative instrument, as well as the offsetting gain or loss on the hedged item attributable to the hedged risk, were recognized in earnings. Net payments or receipts under these agreements were recognized as adjustments to interest expense. In May 2003, these swap agreements were terminated. The gain of $10,163 on the termination of these swaps was deferred and is being amortized as an offset to interest expense over the remaining life of the Notes. The amortization of this gain reduced interest expense by $157 and $233 in the first three months of 2009 and 2008, respectively, and is expected to reduce annual interest expense by $313 in 2009. At March 31, 2009, $598 remains to be amortized and is recorded in "Long-term debt, less current portion."
During July 2003 and April 2004, the Company entered into various floating rate interest rate swap agreements totaling $110,000 to convert a portion of the Notes outstanding from fixed to floating rates based on the London Inter-Bank Offered Rate ("LIBOR") plus a spread of between 179.75 and 226.50 basis points. During February 2009, the Company terminated swaps with a notional value of $80,000 and realized a gain of $5,079. This gain was deferred and is being amortized over the remaining life of the Notes. The amortization of this gain reduced interest expense by $178 in the first quarter of 2009 and is expected to reduce annual interest expense by $1,429 in 2009. At March 31, 2009, $4,901 remains to be amortized and is recorded in "Long-term debt, less current portion." The weighted average effective interest rate on the Notes, net of the impact of swaps, was 4.6% for the first quarter of 2009.
During March 2009, swaps designated as fair value hedges that converted the $30,000 Series B Note from fixed to floating interest rates matured with the underlying Note. The Company has no outstanding interest rate swaps at March 31, 2009. At December 31, 2008, the fair value of the swaps was an asset of $6,148 and was recorded in "Other current assets" and "Other non-current assets" with corresponding offsets in "Current portion of long-term debt" and "Long-term debt, less current portion," respectively. Revolving Credit Agreement
The Company has a $175,000 five-year revolving Credit Agreement expiring in December 2009. The Credit Agreement may be used for general corporate purposes and may be increased subject to certain conditions by an additional amount up to $75,000. The interest rate on borrowings under the Credit Agreement is based on either LIBOR plus a spread based on the Company's leverage ratio or the prime rate at the Company's election. A quarterly facility fee is payable based upon the daily aggregate amount of commitments and the Company's leverage ratio. The Credit Agreement contains affirmative and negative

covenants including limitations on the Company with respect to indebtedness, liens, investments, distributions, mergers and acquisitions, dispositions of assets, subordinated debt and transactions with affiliates. As of March 31, 2009, there are no borrowings under the Credit Agreement. The Company expects to replace the Credit Agreement prior to its expiration in December 2009. Short-term Borrowings . . .