This Management's Discussion and Analysis of Financial Condition and Results of Operations should be read together with the Company's unaudited consolidated financial statements and other financial information included elsewhere in this Quarterly Report on Form 10-Q.

General

The Company is the world's largest designer and manufacturer of arc welding and cutting products, manufacturing a broad line of arc welding equipment, consumable welding products and other welding and cutting products. Welding products include arc welding power sources, wire feeding systems, robotic welding packages, fume extraction equipment, consumable electrodes and fluxes. The Company's product offering also includes regulators and torches used in oxy-fuel welding and cutting. In addition, the Company has a leading global position in the brazing and soldering alloys market.

The Company's products are sold in both domestic and international markets. In North America, products are sold principally through industrial distributors, retailers and also directly to users of welding products. Outside of North America, the Company has an international sales organization comprised of Company employees and agents who sell products from the Company's various manufacturing sites to distributors and product users.

On April 29, 2011, the Company announced a two-for-one stock split of the Company's common shares effective in the form of a 100% stock dividend. The record date for the stock split was May 16, 2011 and the additional shares were distributed on May 31, 2011. Accordingly, all per share amounts, average shares outstanding, shares outstanding, shares repurchased and equity based compensation presented in this Form 10-Q have been retroactively adjusted to reflect the stock split. Shareholders' equity has been retroactively adjusted to give effect to the stock split for all periods presented by reclassifying the stated value of the additional shares issued in connection with the stock split to Common shares from Additional paid-in capital.

Results of Operations



Three Months Ended March 31, 2012 Compared with Three Months Ended March 31,
2011



                                                   Three Months Ended March 31,
                                     2012                       2011                     Change
                             Amount      % of Sales     Amount      % of Sales     Amount         %
Net sales                   $ 727,122        100.0%    $ 599,179        100.0%    $ 127,943      21.4%
Cost of goods sold            511,857         70.4%      437,741         73.1%       74,116      16.9%
Gross profit                  215,265         29.6%      161,438         26.9%       53,827      33.3%
Selling, general &
administrative expenses       123,615         17.0%      101,619         17.0%       21,996      21.6%
Rationalization and
asset impairment charges            -             -          357          0.1%         (357 )  (100.0% )
Operating income               91,650         12.6%       59,462          9.9%       32,188      54.1%
Interest income                   883          0.1%          608          0.1%          275      45.2%
Equity earnings in
affiliates                        692          0.1%          830          0.1%         (138 )   (16.6% )
Other income                      866          0.1%        1,295          0.2%         (429 )   (33.1% )
Interest expense               (1,172 )       (0.2% )     (1,658 )       (0.3% )        486      29.3%
Income before income
taxes                          92,919         12.8%       60,537         10.1%       32,382      53.5%
Income taxes                   28,770          4.0%       13,595          2.3%       15,175     111.6%
Net income including
noncontrolling interests       64,149          8.8%       46,942          7.8%       17,207      36.7%
Noncontrolling interests
in subsidiaries' (loss)
earnings                          (94 )           -           32             -         (126 )  (393.8% )
Net income                  $  64,243          8.8%    $  46,910          7.8%    $  17,333      36.9%

Net Sales: Net sales for the first quarter of 2012 increased 21.4% from the first quarter 2011. The sales increase reflects volume increases of 12.8%, price increases of 3.7%, increases from acquisitions of 5.9% and unfavorable impacts from foreign exchange of 1.0%. Sales volumes increased because of improved demand levels reflective of expanding industrial economies and modest market gains. Product pricing increased from prior year levels due to the realization of price increases implemented in response to increases in raw material costs.

Gross Profit: Gross profit increased 33.3% to $215,265 for the first quarter 2012 compared with $161,438 in the first quarter 2011. As a percentage of Net sales, Gross profit increased to 29.6% in the first quarter 2012 from 26.9% in the first quarter 2011. The increase in this percentage was the result of increased product pricing and operating leverage partially offset by rising material costs and lower margins from recent acquisitions. Foreign currency exchange rates had a $1,797 unfavorable translation impact in the first quarter 2012.

Selling, General & Administrative ("SG&A") Expenses: SG&A expenses were higher by $21,996, or 21.6%, in the first quarter 2012 compared with the first quarter of 2011. As a percentage of Net sales, SG&A expenses were 17.0% in the first quarter 2012 and 2011. The increase in SG&A expenses was predominantly due to higher bonus expense of $10,934, increased selling, administrative and research and development expense of $7,015, increased selling, general and administrative expenses from acquisitions of $2,487 and increased legal expenses of $1,557 partially offset by foreign currency translations of $1,020.

Interest Income: Interest income increased to $883 in the first quarter 2012 from $608 in the first quarter of 2011. The increase was largely due to a higher average cash balance in the current quarter earning a more favorable rate of interest.

Equity Earnings in Affiliates: Equity earnings in affiliates were $692 in the first quarter 2012 compared with earnings of $830 in the first quarter of 2011. The decrease was due to decreases in earnings of $24 in Turkey and $113 in Chile.

Interest Expense: Interest expense decreased to $1,172 in the first quarter 2012 from $1,658 in the first quarter of 2011 as a result of lower levels of debt in the current period.

Income Taxes: The Company recognized $28,770 of tax expense on pre-tax income of $92,919, resulting in an effective income tax rate of 31.0% for the three months ended March 31, 2012. The effective income tax rate is lower than the Company's statutory rate primarily due to income earned in lower tax rate jurisdictions and the utilization of foreign tax loss carryforwards for which valuation allowances had been previously provided.

The effective income tax rate of 22.5% for the three months ended March 31, 2011 was lower than the Company's statutory rate primarily due to income earned in lower tax rate jurisdictions, the utilization of foreign tax loss carryforwards for which valuation allowances had been previously provided and a $4,844 favorable adjustment for tax audit settlements.

Net Income: Net income for the first quarter 2012 was $64,243 compared with Net income of $46,910 in the first quarter of 2011. Diluted earnings per share for the first quarter 2012 was $0.76 compared with $0.55 in the first quarter of 2011. Foreign currency exchange rate movements had an unfavorable translation effect of $460 on Net income for the first quarter of 2012.

Segment Results



Net Sales:  The table below summarizes the impacts of volume, acquisitions,
price and foreign currency exchange rates on Net sales for the three months
ended March 31, 2012:



                                                Change in Net Sales due to:
                      Net Sales                                                Foreign     Net Sales
                         2011        Volume      Acquisitions      Price      Exchange        2012
Operating Segments
North America
Welding               $  280,757    $ 63,279    $       27,318    $ 10,840    $    (865 )  $  381,329
Europe Welding           114,208       3,800             8,322       5,362       (5,889 )     125,803
Asia Pacific
Welding                   87,560         382                 -       1,891        2,730        92,563
South America
Welding                   34,073       3,593                 -       3,058         (886 )      39,838
The Harris
Products Group            82,581       5,378                 -         770       (1,140 )      87,589
Consolidated          $  599,179    $ 76,432    $       35,640    $ 21,921    $  (6,050 )  $  727,122

% Change
North America
Welding                                22.5%              9.7%        3.9%        (0.3% )       35.8%
Europe Welding                          3.3%              7.3%        4.7%        (5.2% )       10.2%
Asia Pacific
Welding                                 0.4%                 -        2.2%         3.1%          5.7%
South America
Welding                                10.5%                 -        9.0%        (2.6% )       16.9%
The Harris
Products Group                          6.5%                 -        0.9%        (1.4% )        6.1%
Consolidated                           12.8%              5.9%        3.7%        (1.0% )       21.4%

Net Sales: Net sales volumes for the first quarter of 2012 increased for all operating segments because of improved demand levels reflective of expanding industrial economies. Product pricing increased for all operating segments from prior year levels due to the realization of price increases implemented in response to increases in raw material costs. Product pricing in the South America Welding segment reflects a higher inflationary environment, particularly in Venezuela. Product pricing increased in The Harris Products Group segment primarily as a result of the pass-through effect of higher commodity costs, particularly silver and copper, over the prior year period. With respect to changes in Net sales due to foreign exchange, all segments, except for the Asia Pacific Welding segment, decreased due to a stronger U.S. dollar. The Asia Pacific Welding segment increased largely due to a stronger Chinese renminbi and Australian dollar, partially offset by a weaker Indian rupee.

Earnings Before Interest and Income Taxes ("EBIT"), as Adjusted: Segment performance is measured and resources are allocated based on a number of factors, the primary profit measure being EBIT, as adjusted. The following table presents EBIT, as adjusted for the three months ended March 31, 2012 by segment compared with the comparable period in 2011:

                                Three Months Ended
                                    March 31,
                                 2012        2011      $ Change   % Change
North America Welding:
Net sales                     $  381,329   $ 280,757    100,572      35.8%
Inter-segment sales               33,542      35,127     (1,585 )    (4.5% )
Total Sales                   $  414,871   $ 315,884     98,987      31.3%

EBIT, as adjusted             $   69,519   $  46,636     22,883      49.1%
As a percent of total sales        16.8%       14.8%                  2.0%

Europe Welding:
Net sales                     $  125,803   $ 114,208     11,595      10.2%
Inter-segment sales                4,451       3,835        616      16.1%
Total Sales                   $  130,254   $ 118,043     12,211      10.3%

EBIT, as adjusted             $   12,811   $   5,912      6,899     116.7%
As a percent of total sales         9.8%        5.0%                  4.8%

Asia Pacific Welding:
Net sales                     $   92,563   $  87,560      5,003       5.7%
Inter-segment sales                3,817       3,213        604      18.8%
Total Sales                   $   96,380   $  90,773      5,607       6.2%

EBIT, as adjusted             $    2,573   $     126      2,447    1942.1%
As a percent of total sales         2.7%        0.1%                  2.6%

South America Welding:
Net sales                     $   39,838   $  34,073      5,765      16.9%
Inter-segment sales                    -           -          -          -
Total Sales                   $   39,838   $  34,073      5,765      16.9%

EBIT, as adjusted             $    2,905   $   2,048        857      41.8%
As a percent of total sales         7.3%        6.0%                  1.3%

The Harris Products Group:
Net sales                     $   87,589   $  82,581      5,008       6.1%
Inter-segment sales                2,383       2,233        150       6.7%
Total Sales                   $   89,972   $  84,814      5,158       6.1%

EBIT, as adjusted             $    7,153   $   6,543        610       9.3%
As a percent of total sales         8.0%        7.7%                  0.3%

EBIT, as adjusted, and as a percent of total sales increased for all segments in the three months ended March 31, 2012 as compared with the prior year. The North America Welding segment growth is primarily due to improved leverage on 22.5% increase in volumes. The increase at the Europe Welding segment is primarily due to improved leverage on price increases of 4.7%. The Asia Pacific Welding segment increase represents improved profitability from prior rationalization actions. The South America Welding segment increase is a result of improved leverage on volume increases of 10.5% and price increases of 9.0%. The Harris Products Group segment growth is primarily a result of operating leverage on 6.5% increase in volumes.

In the three months ended March 31, 2011, EBIT for the Europe Welding segment was adjusted for special items charges of $358. Special items in the period consists of $23 in asset impairment charges, $204 in losses on the disposal of fixed assets at rationalized operations and rationalization charges of $131, primarily related to employee severance and other costs associated with the consolidation of manufacturing operations resulting from actions initiated in 2009. EBIT for the Asia

Pacific Welding segment was adjusted for a rationalization gain of $1, primarily related to employee severance and other costs associated with the consolidation of manufacturing operations resulting from actions initiated in 2009.

Non-GAAP Financial Measures

The Company reviews Adjusted operating income, Adjusted net income and Adjusted diluted earnings per share, all non-GAAP financial measures, in assessing and evaluating the Company's underlying operating performance. These non-GAAP financial measures exclude the impact of special items on the Company's reported financial results. Non-GAAP financial measures should be read in conjunction with the GAAP financial measures, as non-GAAP measures are a supplement to, and not a replacement for, GAAP financial measures.

The following table presents a reconciliation of Operating income as reported to Adjusted operating income:

                                                  Three Months Ended March 31,
                                                    2012               2011
Operating income as reported                   $        91,650    $        59,462
Special items (pre-tax):
Rationalization and asset impairment charges                 -                357
Adjusted operating income                      $        91,650    $        59,819

Special items included in Operating income during the first quarter 2011 include net rationalization and asset impairment charges of $357, primarily related to employee severance and other costs associated with the consolidation of manufacturing operations in the Europe Welding and Asia Pacific Welding segments resulting from actions initiated in 2009.

The following table presents reconciliations of Net income and Diluted earnings per share as reported to Adjusted net income and Adjusted diluted earnings per share:

                                                  Three Months Ended March 31,
                                                    2012               2011
Net income as reported                         $        64,243    $        46,910
Special items (after-tax):
Rationalization and asset impairment charges                 -                281
Adjustment for tax audit settlements                         -             (4,844 )
Adjusted net income                            $        64,243    $        42,347

Diluted earnings per share as reported         $          0.76    $          0.55
Special items                                                -              (0.05 )
Adjusted diluted earnings per share            $          0.76    $          0.50

Special items included in Net income for the first quarter 2011 include net after-tax rationalization and asset impairment charges of $281, primarily related to employee severance and other costs associated with the consolidation of manufacturing operations in the Europe Welding and Asia Pacific Welding segments resulting from actions initiated in 2009. Special items for the first quarter of 2011 also include a gain of $4,844 related to a favorable adjustment for tax audit settlements in the North America Welding segment.

Liquidity and Capital Resources

The Company's cash flow from operations can be cyclical. 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 for 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 Company continues to expand globally and periodically looks at transactions that would involve significant investments. The Company can fund its global expansion plans with operational cash flow, but a significant acquisition may require access to capital markets, in particular, the long-term debt market, as well as the syndicated bank loan market. The Company's financing strategy is to fund itself at the lowest after-tax cost of funding. Where possible, the Company utilizes operational cash flows and raises capital in the most efficient market, usually the United States, and then lends funds to the specific subsidiary that requires funding. If additional acquisitions providing appropriate financial benefits become available, additional expenditures may be made.

The following table reflects changes in key cash flow measures:

                                                     Three Months Ended March 31,
                                                  2012            2011          Change
Cash provided by operating activities         $     79,164    $     16,738    $    62,426
Cash used by investing activities                  (34,253 )       (33,242 )       (1,011 )
Capital expenditures                               (12,567 )       (15,503 )        2,936
Acquisition of businesses, net of cash
acquired                                           (21,896 )       (17,881 )       (4,015 )
Proceeds from sale of property, plant and
equipment                                              210             142             68
Cash used by financing activities                 (107,859 )       (11,632 )      (96,227 )
Payments on short-term borrowings, net              (1,881 )          (425 )       (1,456 )
Payments on long-term borrowings, net              (82,117 )          (894 )      (81,223 )
Proceeds from exercise of stock options              7,440           2,864          4,576
Tax benefit from exercise of stock options           2,983             715          2,268
Purchase of shares for treasury                    (20,098 )          (905 )      (19,193 )
Cash dividends paid to shareholders                (14,186 )       (12,987 )       (1,199 )
Decrease in Cash and cash equivalents              (60,263 )       (24,778 )

Cash and cash equivalents decreased 16.7% or $60,263 during the three months ended March 31, 2012 to $300,838 from $361,101 as of December 31, 2011 due predominantly to the Company's repayment of the $80,000 senior unsecured note. This compares to a decrease of 6.8% or $24,778 to $341,415 during the three months ended March 31, 2011.

Cash provided by operating activities increased by $62,426 for the three months ended March 31, 2012, compared with the three months ended March 31, 2011. The increase was predominantly due to lower net operating working capital requirements and increased Net income in the three months ended March 31, 2012, compared with the three months ended March 31, 2011. Net operating working capital is defined as the sum of Accounts receivable and Total inventory less Trade accounts payable. Net operating working capital to sales, defined as net operating working capital divided by annualized rolling three months of Net sales, increased to 21.4% at March 31, 2012 compared with 21.0% at December 31, 2011 and 22.1% at March 31, 2011. Days sales in inventory increased to 95.5 days at March 31, 2012 from 92.5 days at December 31, 2011 and decreased from 105.2 days at March 31, 2011. Accounts receivable days increased to 56.5 days at March 31, 2012 from 53.5 days at December 31, 2011 and decreased from 60.6 days at March 31, 2011. Average days in accounts payable increased to 40.2 days at March 31, 2012 from 35.1 days at December 31, 2011 and decreased from 49.7 days at March 31, 2011.

Cash used by investing activities for the three months ended March 31, 2012 compared with the three months ended March 31, 2011 increased by $1,011. This reflects a decrease in capital expenditures of $2,936 in the three months ended March 31, 2012, and an increase in cash used in the acquisition of businesses of $4,015. The Company anticipates capital expenditures in 2012 to be in the range of $60,000 to $70,000. Anticipated capital expenditures reflect investments for capital maintenance 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 improve the overall safety and environmental conditions of the Company's facilities.

Cash used by financing activities increased by $96,227 to $107,859 in the three months ended March 31, 2012 compared with the comparable period of 2011. The increase was predominantly due to higher net payments of long-term borrowings of $81,223, due primarily to the Company's repayment of the $80,000 senior unsecured note and higher purchases of common shares for treasury of $19,193.

The Company's debt levels decreased from $103,378 at December 31, 2011 to $25,041 at March 31, 2012. Debt to total invested capital decreased to 1.9% at March 31, 2012 from 8.0% at December 31, 2011. The decrease was predominantly due to the repayment of the Company's $80,000 senior unsecured note on March 12, 2012.

In January 2012, the Company paid a cash dividend of $0.17 per share, or $14,186, to shareholders of record on December 31, 2011.

Venezuela - Highly Inflationary Economy

Venezuela is a highly inflationary economy under GAAP. As a result, the financial statements of the Company's Venezuelan operation are reported under highly inflationary accounting rules as of January 1, 2010. Under highly inflationary accounting, the financial statements of the Company's Venezuelan operation have been remeasured into the Company's reporting currency and exchange gains and losses from the remeasurement of monetary assets and liabilities are reflected in current earnings. In remeasuring the financial statements the official exchange rate for non-essential goods of 4.30 is used as this is the rate expected to be applicable to dividend repatriations.

Future impacts to earnings of applying highly inflationary accounting for Venezuela on the Company's consolidated financial statements will be dependent upon movements in the applicable exchange rates between the bolivar and the U.S. dollar and the amount of monetary assets and liabilities included in the Company's Venezuelan operation's balance sheet. The bolivar-denominated monetary net asset position was $12,015 at March 31, 2012 and $6,826 at December 31, 2011. The increased exposure was due to the limited opportunities to convert bolivars into U.S. dollars.

New Accounting Pronouncements

Refer to Note 3 to the consolidated financial statements for a discussion of accounting standards recently adopted or required to be adopted in the future.

Acquisitions

On March 6, 2012, the Company completed the acquisition of Weartech International, Inc. ("Weartech") for approximately $30,286 in cash and assumed debt. The preliminary fair value of net assets acquired was $20,246, resulting in goodwill of $10,040. These values are preliminary and subject to final closing balance sheet and working capital adjustments. Weartech, based in Anaheim, California, is a producer of cobalt-based hard facing and wear-resistant welding consumables. The acquisition added to the Company's consumables portfolio. Annual sales for 2011 were approximately $40,000.

On July 29, 2011, the Company acquired substantially all of the assets of Techalloy Company, Inc. and certain assets of its parent company, Central Wire Industries Ltd. (collectively, "Techalloy"), for approximately $36,900 in cash and assumed debt. The fair value of net assets acquired was $32,814, resulting in goodwill of $4,086. Techalloy, based in Baltimore, Maryland, is a manufacturer of nickel alloy and stainless steel welding consumables. The acquisition added to the Company's consumables portfolio. Annual sales for Techalloy at the date of acquisition were approximately $70,000.

On July 29, 2011, the Company acquired substantially all of the assets of Applied Robotics, Inc. (d/b/a Torchmate) ("Torchmate") for approximately $8,280 in cash. The fair value of net assets acquired was $2,361, resulting in goodwill of $5,919. Torchmate, based in Reno, Nevada, provides a wide selection of computer numeric controlled plasma cutter and oxy-fuel cutting systems. The acquisition added to the Company's plasma and oxy-fuel cutting product offering. Annual sales for Torchmate at the date of acquisition were approximately $13,000.

On March 11, 2011, the Company completed the acquisition of OOO Severstal-metiz:
welding consumables ("Severstal") for approximately $16,861 in cash and assumed debt. The fair value of net assets acquired was $8,049, resulting in goodwill of $8,812. Severstal is a leading manufacturer of welding consumables in Russia and was a subsidiary of OAO Severstal, one of the world's leading vertically integrated steel and mining companies. This acquisition expanded the Company's capacity and distribution channels in Russia and the Commonwealth of Independent States. Sales for Severstal during 2010 were approximately $40,000.

. . .