Critical Accounting Policies and Estimates Our critical accounting policies are described in the notes to our consolidated financial statements for the year ended December 31, 2008 contained in our Annual Report on Form 10-K. Any new accounting policies or updates to existing accounting policies as a result of new accounting pronouncements have been included in the notes to our Condensed Consolidated Financial Statements for the period ended March 31, 2009.
Results of Operations
First Quarter of 2009 versus First Quarter of 2008 The following table sets forth the percentage relationship to net sales of certain items in our condensed consolidated statements of income for the periods presented:

                                                         Three Months Ended
                                                             March 31,
                                                         2009         2008(1)
       Net sales                                           100.0 %       100.0 %
       Cost of goods sold                                   79.8          79.8
       Selling, general and administrative expenses         15.9          14.4
       Depreciation and amortization                         0.6           0.5

       Income from operations                                3.7           5.3
       Interest expense                                      1.0           1.2
       Other income                                         (0.1 )        (0.1 )

       Income before income taxes                            2.8           4.2
       Provision for income taxes                            0.8           1.3

       Net income                                            2.0 %         2.9 %

(1) As a result of the retrospective application of FSP ABP 14-1 on January 1, 2009, interest expense, income before income taxes, provision for income taxes and net income were revised for the three months ended March 31, 2008 (see Note 3 to the consolidated financial statements).

Net sales in the first quarter of 2009 totaled $1,179.6 million versus $1,465.2 million in the comparable period for 2008, a decrease of $285.6 million, or 19.5%, over the same period last year. Sales were negatively impacted by weak market conditions, unfavorable foreign currency exchange rates, lower commodity prices and one less workday in the first quarter 2009 compared to the same period in 2008.
Cost of goods sold for the first quarter of 2009 was $941.4 million versus $1,169.6 million for the comparable period in 2008, and cost of goods sold as a percentage of net sales was 79.8% in 2009 and 2008. The cost of goods sold percentage was equivalent to the first quarter of 2008 due to effective pricing and procurement initiatives which more than offset the decrease in commodity prices and an unfavorable sales mix.
Selling, general and administrative ("SG&A") expenses in the first quarter of 2009 totaled $187.5 million versus $211.6 million in last year's comparable quarter. The decrease in SG&A expenses is due to aggressive cost reductions actions. As a percentage of net sales, SG&A expenses were 15.9% in the first quarter of 2009 compared to 14.4% in the first quarter of 2008, reflecting a decrease in sales volume.
SG&A payroll expenses for the first quarter of 2009 of $131.6 million decreased by $13.5 million compared to the same quarter in 2008. The decrease in payroll expenses was primarily due to a decrease in salaries and wages of $6.2 million, a decrease in incentive costs of $3.0 million, a decrease in benefit costs of $1.9 million and a decrease in temporary labor costs of $1.5 million. Other SG&A related payroll expenses decreased $0.9 million.
The remaining SG&A expenses for the first quarter of 2009 of $55.9 million decreased by approximately $10.6 million compared to same quarter in 2008. Included in this period's SG&A expenses was a decrease in transportation costs of $2.9 million due to the decrease in sales volume, a decrease in travel costs of $1.9 million and a decrease in bad debt expense of $1.6 million due to a specific customer default recognized in last year's comparable period. Other SG&A expenses decreased $4.2 million.
Depreciation and amortization for the first quarter of 2009 was $7.2 million versus $6.9 million in last year's comparable quarter. The increase is due to the $35.3 million of capital expenditures in the prior year.

Interest expense totaled $12.5 million for the first quarter of 2009 versus $18.1 million in last year's comparable quarter, a decrease of 30.8%. Interest expense for the first quarter of 2009 was primarily impacted by the reduction in interest rates and the decrease in debt. On January 1, 2009, we retrospectively applied the provisions of FSP APB 14- 1, Accounting for Convertible Debt Instruments That May Be Settled in Cash Upon Conversion (Including Partial Cash Settlement) ("FSP APB 14-1"), for our 2.625% Convertible Senior Debentures due 2025 (the "2025 Debentures") and 1.75% Convertible Senior Debentures due 2026 (the "2026 Debentures"). This change in accounting treatment results in an increase in non-cash interest reported in the financial statements, a decrease in long-term debt, an increase in equity and an increase in deferred income taxes Interest expense for the 2025 Debentures and 2026 Debentures totaled $6.1 million and $5.9 million for the three months ended March 31, 2009 and 2008, respectively, of which $3.8 million and $3.6 million, respectively, was non-cash interest.
Other income totaled $1.6 million for the first quarter of 2009 versus $2.7 million in the comparable period for 2008. We account for our investment in the LADD joint venture on an equity basis, and earnings are reported as other income in the consolidated statement of income. The decrease in other income is primarily due to the decrease in the joint venture's income.
Income tax expense totaled $9.4 million in the first quarter of 2009, and the effective tax rate was 28.7% compared to 30.8% in the same quarter in 2008. The decrease in the effective tax rate is primarily a result of a lower tax rate from foreign operations.
For the first quarter of 2009, net income decreased by $19.4 million to $23.3 million compared to $42.7 million in the first quarter of 2008. Diluted earnings per share was $0.55 for the first quarter of 2009 compared with $0.97 per diluted share for the first quarter of 2008. The decrease in net income was primarily due to the decline in sales attributable to the weak market conditions.
Liquidity and Capital Resources
Total assets were $2.6 billion at March 31, 2009, compared to $2.7 billion at December 31, 2008. The $147.2 million decrease in total assets was principally attributable to the decrease in accounts receivable and inventory of $103.6 million and $44.6 million, respectively. These reductions were due to the decrease in sales activity. Total liabilities at March 31, 2009 compared to December 31, 2008 decreased by $167.8 million to $1.8 billion. Contributing to the decrease in total liabilities was a decrease in short-term and long-term debt of $94.2 million; a decrease in accounts payable of $47.6 million due to reduced purchasing activity; a decrease in accrued payroll and benefit costs of $16.1 million due to the payment of the 2008 management incentive compensation; and a decrease in bank overdrafts of $11.9 million. Stockholders' equity increased 2.7% to $775.7 million at March 31, 2009, compared with $755.1 million at December 31, 2008, primarily as a result of net earnings of $23.3 million and stock-based compensation expense of $3.2 million. These increases were partially offset by foreign currency translation adjustments of $6.0 million.
A possible indicator of impairment is the relationship of a company's market capitalization to its book value. As of March 31, 2009, our market capitalization exceeded our book value. The persistence or further acceleration of the recent downturn in the global economic conditions and turbulence in financial markets could have a further negative impact on our market capitalization and/or financial performance. Our recent large acquisitions are most sensitive to a decline in financial performance. Therefore, we cannot predict whether or not there will be certain events that could adversely affect the reported value of goodwill and trademarks, which totaled $900.9 million and $900.7 million at March 31, 2009 and December 31, 2008, respectively.
Our liquidity needs arise from working capital requirements, capital expenditures, acquisitions and debt service obligations. As of March 31, 2009, we had $151.9 million in available borrowing capacity under our revolving credit facility, which combined with our $149.0 million of available borrowing capacity under our Receivables Facility and our invested cash provides us with liquidity of $364.8 million. We believe cash provided by operations and financing activities will be adequate to cover our current operational and business needs.
The worldwide financial turmoil has had significant impacts on global credit markets. We communicate on a regular basis with our lenders regarding our financial and working capital performance and liquidity position. We are in compliance with all covenants and restrictions as of March 31, 2009. On April 13, 2009, we entered into a $400 million amended and restated receivables purchase agreement. As previously mentioned, the amended and restated Receivables Facility is not subject to renewal until April 2012. In addition, in October 2008 Moody's Investor Services and Standard & Poor's affirmed our credit rating and stable outlook.
Over the next several quarters we expect to maintain working capital productivity, and it is expected that excess cash will be directed primarily at debt reduction. Our near term focus will continue to be on our cost structure, right sizing of the business and maintaining ample liquidity and credit availability. We believe our balance sheet and ability to generate ample cash flow provides us with a durable business model and should allows us to fund expansion needs and growth initiatives in this time of economic contraction while maintaining targeted levels of leverage. To the extent that operating cash flow is materially lower than current levels or external financing sources are not available on terms competitive with those currently available, including increases in interest rates, future liquidity may be adversely affected.

Cash Flow
Operating Activities. Cash provided by operating activities for the first three months of 2009 totaled $134.6 million compared with $92.0 million of cash generated for the first three months of 2008. Cash provided by operating activities in the first three months of 2009 included net income of $23.3 million and adjustments to net income totaling $18.5 million. The increased level of cash flow is primarily attributable to a decrease in trade and other receivables of $113.9 million resulting from the decrease in sales and a decrease in inventory of $42.9 million. Cash used by operating activities in the first three months of 2009 included: $45.4 million for the decrease in accounts payable, resulting from the decrease in purchasing activity; and $16.1 million for the decrease in accrued payroll and benefit costs, resulting from the payment of the 2008 management incentive compensation. In the first three months of 2008, primary sources of cash were net income of $42.7 million and adjustments to net income totaling $12.2 million; an inventory reduction of $26.9 million; and an accounts payable increase of $23.4 million, resulting from the increase in the cost of sales. Cash used by operating activities in the first three months of 2008 included $16.9 million for the increase in trade and other receivables, resulting from the increase in sales; and $14.5 million for the decrease in accrued payroll and benefit costs, resulting from the payment of the 2007 management incentive compensation.
Investing Activities. Net cash used by investing activities for the first three months of 2009 was $2.8 million, compared with $48.6 million of net cash provided during the first three months of 2008. Included in 2008 were proceeds of $60.0 million from the partial divestiture of the LADD operations. Capital expenditures were $2.9 million and $11.3 million in the first three months of 2009 and 2008, respectively. The decrease in capital expenditures in 2009 is due to cash management initiatives.
Financing Activities. Net cash used by financing activities for the first three months of 2009 and 2008 was $110.3 million and $116.1 million, respectively. During the first three months of 2009, borrowings and repayments of long-term debt of $71.0 million and $118.5 million, respectively, were made to our revolving credit facility. Borrowings and repayments of $55.0 million and $105.0 million, respectively, were applied to our Receivables Facility, and there were repayments of $0.4 million to our mortgage financing facility. During the first three months of 2008, borrowings and repayments of long-term debt of $241.5 million and $323.8 million, respectively, were made to our revolving credit facility. Borrowings and repayments of $83.0 million and $80.0 million, respectively, were applied to our Receivables Facility, and there were repayments of $0.3 million to our mortgage financing facility. In addition, during the first three months of 2008, we purchased shares of our common stock under our share repurchase plan for approximately $24.9 million. The exercise of stock-based compensation arrangements resulted in proceeds of $0.1 million and $2.2 million during the first three months of 2009 and 2008, respectively. Contractual Cash Obligations and Other Commercial Commitments There were no material changes in our contractual obligations and other commercial commitments that would require an update to the disclosure provided in our 2008 Annual Report on Form 10-K other than the subsequent events disclosure in Note 13 to the condensed consolidated financial statements.. Management believes that cash generated from operations, together with amounts available under our revolving credit facility and the Receivables Facility, will be sufficient to meet our working capital, capital expenditures and other cash requirements for the foreseeable future. There can be no assurances, however, that this will be or will continue to be the case. Inflation
The rate of inflation affects different commodities, the cost of products purchased and ultimately the pricing of our different products and product classes to our customers. As a result of the worldwide financial turmoil, we experienced price deflation during the three months ended March 31, 2009. On an overall basis, our pricing related to deflation comprised an estimated $25.0 million of our sales decline.
Seasonality
Our operating results are not significantly affected by certain seasonal factors. Sales during the first quarter are generally less than 2% below the sales of the remaining three quarters due to reduced level of activity during the winter months of January and February. Sales typically increase beginning in March with slight fluctuations per month through December.

Impact of Recently Issued Accounting Standards In September 2006, the Financial Accounting Standards Board (the "FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 157, Fair Value Measurements ("SFAS 157") which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. This statement applies whenever other accounting standards require or permit assets or liabilities to be measured at fair value but does not expand the use of fair value to new accounting transactions and does not apply to pronouncements that address share-based payment transactions. On February 12, 2008, the FASB issued FASB Staff Position ("FSP") SFAS No. 157-2, Effective Date of SFAS No. 157. The FSP amends SFAS 157 to delay the effective date of SFAS 157 for all nonfinancial assets and liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (that is, at least annually) to fiscal years beginning after November 15, 2008. Except for the delay for nonfinancial assets and liabilities, SFAS 157 was effective for fiscal years beginning after November 15, 2007. Consistent with its requirements, we adopted SFAS 157 for our financial assets and liabilities on January 1, 2008. Our financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable, bank overdrafts and debt. We believe that the recorded values of our financial instruments, except for long-term debt, approximate fair value because of their nature and respective duration. The partial adoption of SFAS 157 did not impact our financial position, results of operations, or cash flows. On January 1, 2009, we adopted SFAS 157 for our nonfinancial assets and liabilities which include those measured at fair value in goodwill and indefinite lived intangible asset impairment testing, and assets acquired and liabilities assumed in a business combination. The adoption of SFAS 157 for nonfinancial assets and liabilities did not impact our financial position, results of operations or cash flows. However, in the event that we acquire a new business or have an impairment issue related to goodwill or indefinite lived intangible assets, the determination of fair value of the assets and liabilities will be subject to SFAS 157.
In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations ("SFAS 141R") which establishes additional principles and requirements for how the acquirer in a business combination recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed and any noncontrolling interest in the acquiree at the acquisition date fair value. SFAS 141R is designed to improve the relevance, representational faithfulness, and comparability of the financial information that a reporting entity provides in its financial reports about a business combination and its effects. SFAS 141R applies prospectively to business combinations for which the acquisition date is in or after the beginning of the first annual reporting period beginning after December 15, 2008. As there were no acquisitions executed in the first quarter of 2009, the adoption of SFAS 141R did not impact our financial position, results of operations or cash flows.
In April 2008, the FASB issued FSP No. FAS 142-3, Determination of the Useful Life of Intangible Assets ("FSP FAS 142-3") which amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, Goodwill and Other Intangible Assets ("SFAS 142"), and requires additional disclosure. The objective of FSP FAS 142-3 is to improve the consistency between the useful life of a recognized intangible asset under SFAS 142 and the period of expected cash flows used to measure the fair value of the asset under SFAS 141R and other generally accepted accounting principles. FSP FAS 142-3 is effective for fiscal years beginning after December 15, 2008 and shall be applied prospectively to intangible assets acquired after the effective date. The adoption of FSP FAS 142-3 did not impact our financial position, results of operations or cash flows.
Forward-Looking Statements
From time to time in this report and in other written reports and oral statements, references are made to expectations regarding our future performance. When used in this context, the words "anticipates," "plans," "believes," "estimates," "intends," "expects," "projects," "will" and similar expressions may identify forward-looking statements, although not all forward-looking statements contain such words. Such statements including, but not limited to, our statements regarding our business strategy, growth strategy, productivity and profitability enhancement, new product and service introductions and liquidity and capital resources are based on management's beliefs, as well as on assumptions made by, and information currently available to, management, and involve various risks and uncertainties, certain of which are beyond our control. Our actual results could differ materially from those expressed in any forward-looking statement made by or on our behalf. In light of these risks and uncertainties there can be no assurance that the forward-looking information will in fact prove to be accurate. Factors that might cause actual results to differ from such forward-looking statements include, but are not limited to, an increase in competition, the amount of outstanding indebtedness, the availability of appropriate acquisition opportunities, availability of key products, functionality of information systems, international operating environments, global and national economic and market factors and other risks that are described in our Annual Report on Form 10-K for our fiscal year ended December 31, 2008, or other documents subsequently filed with the Securities and Exchange Commission. We have undertaken no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.