Greetings, and welcome to the Lincoln Electric Third Quarter 2011 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Vince Petrella, Chief Financial Officer from Lincoln Electric. Mr. Petrella, you may begin.

Thank you, Kevin, and good morning. Welcome to the Lincoln Electric 2011 third quarter financial results and conference call. Our results for the quarter were released this morning prior to the market's open. You can obtain additional copies on the Lincoln Electric website or by contacting our Investor Relations department at 216-383-4893. Lincoln Electric Chairman and Chief Executive Officer, John Stropki, will start the discussion today by providing commentary on the quarter and segments. A Powerpoint presentation is part of today's discussion and will be available on the Lincoln website and posted as part of the replay. But before we start the discussion today, let me remind you that certain statements made during this call and in our discussions may be forward-looking, and actual results may differ from our expectations. Actual results may differ materially from such statements due to a variety of factors that could adversely affect the company's operating results. Risks and uncertainties that may affect our results are provided in our press release and in our SEC filings on Forms 10-K and Form 10-Q. Now let me turn the call over to John Stropki.

Thank you, Vince, and good morning, everyone. We are very pleased with the financial results we are reporting for the quarter. The strong sales and operating results were achieved despite the ongoing economic and political uncertainty around the world in many of the key markets we serve. Against this challenging backdrop, we continue to focus on our growth initiatives through strategic investments and new acquisitions, our new product introductions, increasing our commercial presence around the world, and adding new engineering and professional talent. During the third quarter, we recorded our 10th consecutive quarter of revenue growth. Sales rose 35.1% to $701.6 million, making it the highest sales quarter in our company's history. Equipment and consumable sales were both strong in the quarter, up over 30%. Net income increased 71% to $55.5 million or $0.66 per diluted share compared with the same quarter last year. Vince will get deeper into the numbers in a few minutes. But first, I'd like to touch on the quarter relative to our business segments and the general global economy. First, in North America, business conditions remained strong in the wake of the overall uncertainty in the macroeconomic environment. Sales for the quarter improved 35% from the prior year to $345 million. Export sales increased 27% in the quarter, and exports to the BRIC countries were up more than 37%. Economically, industrial activity continues to run slightly ahead of last year's comparables. Total manufacturing industrial production in the U.S. was trending 3.7% ahead of 2010 as of September. Capacity utilization was running at approximately 75.2%, nearly 15% higher than it was in June of 2009. The Purchasing Manager Index also continued to indicate a growing economy, although the third quarter measures were softer than the first half of the year, indicating a potential for some softening…

And thank you very much, John. As John highlighted, our third quarter 2011 financial results reflected a significant quarter-over-quarter improvement in revenue and operating earnings from the third quarter of 2010. Consolidated sales were up 35% and our operating income improved to $74.8 million. On a consolidated basis and compared with the third quarter of 2010, volume increased reported sales by 16.3%, and foreign currency effects increased our sales by 3.7%. Pricing increased sales by 6.9% and acquisitions contributed an increase of 8.2%. The sales increase from acquisitions is the largest impact on the top line since 2005, when a 7% increase in sales was recorded for acquisitions. Second quarter gross profit margins decreased to 26.4% compared with 27.7% in the comparable prior year period. The decrease in gross margin resulted from the acquisition of lower margin businesses in Europe and North America. Acquisitions and the related initial acquisition accounting effects reduced gross margins by 130 basis points in the third quarter compared to the prior year. The prior year did include a $815,000 charge related to the devaluation of the Venezuelan currency and the change to a highly inflationary accounting policy. SG&A expense for the quarter was $110.6 million or 15.8% of sales, compared with $95.6 million or 18.4% of sales in the prior year, an improvement of 260 basis points. The decrease in SG&A expense as a percentage of sales is a result of fixed overhead leverage in the underlying business, as well as the addition of acquisition businesses with lower SG&A expense structures. The increase in SG&A dollars were primarily driven by higher bonus accruals of $8.2 million as operating profit increased substantially on a year-over-year basis. Foreign currency translations increased reported SG&A expenses by $2.6 million in the quarter. Operating income for the quarter at $74.8…

[Operator Instructions] Our first question is coming from Mark Douglass from Longbow Research.

Was there a LIFO expense in the quarter?

Yes, it was about $1.3 million, and the year-to-date LIFO expense was about $7.5 million. So we brought down our expectations of the inflationary impact of input cost, in particular, materials, so that $7.5 million should give you an idea of what our annualized run rate should be for the full year. But $1.3 million in the quarter.

Okay, and then, are you starting to see some cost relief on steel? You weren't really seeing it last quarter, but an indication that that might be coming down the pipe?

We're certainly seeing a flattening of the cost curve on the major material inputs. We've yet to see, at least on our major buys of rod and steel, a decline, but certainly a mitigation of the increases that we were seeing earlier in the year.

But certainly copper is...

Well, copper's not our biggest input, obviously. We buy hundreds of millions of dollars of steel rod a year, and copper's relatively inconsequential compared to steel.

And much more volatile, too.

Right, right. Looking at the North American EBIT. Are the acquisition expenses there -- any of them onetime, or is that mostly amortization?

Yes, there's about $1.8 million that I would categorize as onetime in the quarter. $1.8 million. That won't repeat itself. That represents a step-up with accounting and rollout of the step-up of inventories.

Okay, that's helpful. So assuming volume levels are maintained, you would see a little bit -- because the leverage was a little light, I think, relative to what maybe you would expect with an acquisition, so okay. That's helpful.

[Operator Instructions] Our next question is coming from Holden Lewis from BB&T Capital Markets. Holden Lewis - BB&T Capital Markets, Research Division: In Asia, talk a little bit about -- the operating margins held up very well, which is kind of surprising only because it looks like the pricing was somewhat negative. And so I think you made some illusions to various businesses in the Asia-Pacific region performing perhaps better than anticipated from a margin standpoint. It's just that historically, it's been usual to see sort of pricing weak and margins improving, so I want to get a little bit more feel for what's taking place in that region.

I would say first, Holden, we've focused -- and I mentioned in my comments about our central services company, we've had a lot of focus over the last 6 months on the cost base in Asia, with the idea that we were probably a bit ahead of the curve on a capacity and in investment side of things in the sales and marketing arena, and we want to pull that back and get a clearer view of what the middle-term view of the Chinese economy, in particular, was going to be. So that's had an important impact. Secondly, the type of business that has remained strong in China, the infrastructure business, mining and expansion in the mining arena in Australia, has had a big impact on our high-margin type of products that we import and sell into that region, and good profitability associated with that element of it. Holden Lewis - BB&T Capital Markets, Research Division: Okay, so mix was part of it, but you also sort of reevaluated, I guess, the spending behavior and just maybe scaled back that investment. Is that sort of what I'm hearing there?

Well, I think, Holden, we're making a steady, albeit slow progress on improving our business there, building our infrastructure, building our product portfolio, gaining competencies on our manufacturing operations. And so it's a reflection of us just slowly improving the business in China. And then, John, in John's prepared comments, he mentioned that our Australian business had a very good quarter, and one of the better quarters that we've seen out of that business in sometime. And they had a nice margin expansion, that's a very mature business in Australia. It's been around for the better part of 75 years. It can gain a leverage and good incrementals when volumes improve and sales increase. So it's a collection of improvements in the region, but in terms of China, we're making slow and steady progress.

The last element I would add to that is -- and it was also covered briefly in the remarks, is that we've had very good success on exports from China into other markets of the world at very good margins on the export side. Holden Lewis - BB&T Capital Markets, Research Division: Okay. So I guess on a broader picture, we've talked before about -- I mean, when do you sort of slow the rate of investment and begin to farm all the heavy investments that you've made? I mean, is this sort of what we're seeing, that you're sort of in that sort of farming mode? Or is this maybe reflective of just sort of some doubts about the sort of intermediate-term growth in those markets, what you're doing on the cost side?

I think it's a little of both. I think that we buildout a lot of capacity footprint, and after we get the brick and mortar side of it, we get a much better flexibility on adding the actual capacity increases that we need so we don't have the heavy investments there. We've matured in terms of our local competency and that's allowed us to redefine the cost base from a expat side of things, and focus more on our local resources. And as the economy has taken a bit of a pause, we have slowed our growth expectations for the future and the investments. But in no way would I want to leave the impression that we're not still strongly committed to that being a very important growth trajectory for the company, and we will continue to invest there as needed. Holden Lewis - BB&T Capital Markets, Research Division: And is this sort of philosophical shift, if you will, also true in the other areas where you're investing heavily? Where you're maybe sort of getting to the point where you can start farming it, like Eastern Europe and Latin America, or are those still more heavy investments and maybe earlier in the investments sort of curve?

Well from an investment standpoint, Asia will continue to lead the way and will attract the bulk of our investment, albeit that from a relative standpoint, at perhaps a little slower rate than what we've experienced over the past 2 or 3 years. The other markets we'll need to continue to mature in their development that I outlined earlier in my comments. But certainly, I would emphasize that Asia and China, in particular, will continue to attract a disproportionate amount of our investment, at least for the next couple of years.

Our next question is coming from Shivangi Tipnis from Mountain View (sic) [Barrington] Research Associates.

This is Shivangi for Walt. I actually understand the softness in China and the seasonal weakness that you spoke about with inflation index and stuff. But Asia has always been quite low and it's been like quite low for a long time. What new strategies or initiatives do you have in place to ramp up Asia in the coming future?

Well, as far as new strategies, I would say that we have a fairly long-standing strategy of building our business in Asia through 2 avenues. The first being searching for applications that make sense, that fill a geographical need, as well as a product line's need, to carry out the company's long-standing tragedy of providing a complete solution selling approach to end-users and through marketing channels in whatever geographies we participate in. And then secondly, developing on an internal basis our own capabilities in those markets. And so by way of history, at China, we've done a little bit of both. We've bought some businesses there, and we've also started up some new greenfields and those take a fair amount of time to mature and execute that strategy. India is an example of where we follow the path of greenfield. We have not acquired any businesses in India, but about 2.5 years ago now opened our first consumables plant in the Indian marketplace. And we're in the process of building that business around our manufacturing capabilities, supplementing those manufacturing capabilities with import products from around our world, and we will continue to follow that strategy of building out a complete and fulsome capabilities from a product selling, marketing and manufacturing standpoint. So that process will continue into the foreseeable future.

Okay. That's very helpful. Another one, as far as Europe, and as you know the conditions are quite uncertain, but then with the wind power technology that you spoke about in France, how do you plan to take advantage of that?

Advantage of what? I didn't catch...

The wind power technology in France, about the 600 windmills that you were talking about?

We have a very, very strong position in the wind tower segment on a global basis, both on the welding equipment and on the welding consumables side. So we're well ahead of the curve in the opportunity or the ability to take advantage of any opportunity in the wind tower segment. And as that unfolds, in whatever part of the world it unfolds, I assure you we'll be there with a very strong portfolio, again, both in equipment and consumables.

That really sounds helpful. The last question, for the tax rate, can you comment on the tax rate for the full year?

Well the tax rate for the full year should be in the high 20s.

Our next question is coming from Greg Halter from Great Lakes Review.

I wondered if you could comment on your relationship with IPG Photonics from maybe a products, revenues, application standpoint?

We're very early in the relationship and in the development of our strategy as it relates to hybrid laser and our association with IPG. I would say that the early returns from a market receptive side have been quite strong. That we've had continuous flow of customers from very different types of industries coming in and wanting and suggesting the opportunity to work with Lincoln in the development of hybrid lasers on a go-forward type strategies. From a revenue side, there's been very little at this point, and quite frankly, we wouldn't expect a lot in the short order but we do view it as being something that's got a lot of upside and a long track yet to run.

And any particular application that you can talk about?

Overlay has been a particular area. We're replacing powders with the hybrid lasers and traditional wire usages. It appears to offer some significant advantages. The welding of light gauge and nonferrous type of materials. I mean, it's a fairly expensive portfolio of things, Greg, that we're looking at. But again, it's still very early in the development side, and I wouldn't commit that any of those will be the absolute strength of the process, but we're quite optimistic that we'll find a sweet spot and be able to take advantage of it.

Okay, sounds intriguing. Relative to competition -- we're obviously all aware of the ESAB situation. Any commentary that you may have on disruptions on their end that may have had a positive impact on your business?

No, I mean, we generally don't comment on the competitive landscape other than talking about our success. There hasn't been much recent news about what the status of that transaction might be or in what part of the cycle they're in in completing or finalizing or whatever the transaction might exist with. We focus on the market regardless of the competitive activities and think that we're perfectly capable of competing with our existing portfolio of competitors or any change in the landscape of our competitive portfolio.

Okay, and I think earlier in the year, there were 120,000 miles of pipeline planned. Is that figure still accurate or has there been some bias upward or downward, or is it progressing along the way you thought it would?

I don't recall the exact number, Greg. I'd have to go back and pull up my notes. But I would say that based on what I'm seeing in terms of incoming orders for welding consumables and equipment for pipeline activities is it appears to be very robust. Now it's market-specific, but in most areas of the world it looks quite promising. Obviously, we're quite excited about the prospects of the Keystone project here in North America. We think that that would be very good for the U.S. and Canada in total, but it would be exceptionally a good opportunity for us on both the equipment and the consumables side, and we're quite hopeful that the State Department will approve that project and get on with it. That the U.S. needs to be better aligned with Canada as a source of supply for our energy and this is a great opportunity to do it.

Okay, that sounds like a very good opportunity. And obviously, there's been a lot of discussion about welder shortages and you've come out with some products on the trading side and so forth. Any update that you can provide there, whether or not it's having some impact in terms of helping the shortage, or this is going to be something that continues for years, maybe?

Well, I think that there's a lot of investment being made on the part of the trade unions and of all educational facilities, and then those training institutes that focus just on welding and the adding [ph] capacity. And I'm quite optimistic that those needs will be addressed. I commented about the WorldSkills event, which had 32 different countries competing in the welding competition. I talked to a lot of the experts that were there, and the educators that were there, and they're quite optimistic that those shortage needs will be addressed. And they're seeing that the technology in welding has shifted, that it's making a much more exciting career path for people. So there's good news on that front, and our virtual reality welder continues to be the most exciting training tool ever introduced into the welding industry.

Okay, yes, that's good. And then relative to the Fabtech that's coming up, I think I read that the attendance figures -- expected attendance figures are supposed to be up, and I think way up. Just wondering what we could possibly expect from Lincoln from that? Although I'm not sure you want to put that out there before the show.

Well, what you should expect from Lincoln will be to have the most professional booth in the show, the most dynamic display of equipment and consumables, and the most professional group of technical sales people to support those products in the face of our distributor and end-user partners.

[Operator Instructions] Our next question is coming from Holden Lewis from BB&T Capital Markets. Holden Lewis - BB&T Capital Markets, Research Division: Just unclear on the gross margin. So I mean, the gross margin declined from 28% in Q2 to 26.4% in Q3. It sounds like 30 basis points of that is from sort of a onetime -- that's $1.8 million, going up 30 basis points just from onetime. Are you saying that the rest of the decline is largely just the blending in of these transactions?

Yes. The rest of that decline that I discussed in my prepared comments are adding lower margin businesses to the mix. The acquisition businesses that we added at the end of July have lower margins than the base business at this point in time, and that was the degradation in margin and operating profit from acquisitions. So that's obviously not considered onetime. But certainly, our objective will be to integrate those businesses and work in improving their margins and profitability. Holden Lewis - BB&T Capital Markets, Research Division: Right, got it. And margins are reasonably stable versus Q2 if you make that adjustment, right?

Down slightly. Stable with the prior year, down from Q2. The other factors that affect us between Q2 and the third quarter is some seasonality factors that we've talked about in previous years. That sales can hold up, and maybe even improve, but we have a number of factories around the world that are not making products and therefore not absorbing overhead and therefore, having more period costs that depress margins. So -- but instead of seasonality, our second quarter holding, as you know, is always our best from a margin standpoint. And then third, it will tend to tick down a little bit, and then contributing to that tick down is some acquisitions that just came in in the third quarter. Onetime items and continuing lower operating profit base. Holden Lewis - BB&T Capital Markets, Research Division: Okay, but we should be thinking about it as sort of a base that's kind of in that 26.5 range with the acquisitions in there?

That's what we did in the third quarter. Holden Lewis - BB&T Capital Markets, Research Division: Okay. And with respect to pricing, you said you're sort of seeing raw materials flatten at this point. You've put in a pretty good increase in October on the machinery side, I guess it was. You're seeing flattening conditions. What's the impetus to put the price increase through, and at this point -- what was sort of the price cost relationship in Q3, and what are you anticipating in Q4 and going forward?

Well, on the equipment side, you can appreciate, Holden, there's a lot more input costs that affect what our equipment might cost other than steel. That's actually a -- and commodities are a relatively minor part of our equipment portfolio. Electronics and the like are -- can have a much bigger impact. And that's also a realization that we needed to catch up a little bit on cost increases that had occurred earlier in the year that were necessary to pass through to the market to recover the input cost escalations earlier in the year. Holden Lewis - BB&T Capital Markets, Research Division: Okay. And with regards to the consumables side, do you feel like you're caught up there? Even though I think things like rutile are still moving up, right? Do you feel like you're...

We don't look for any major changes in the consumable pricing in the fourth quarter, unless there's some major shift in the current landscape on either the steel or high-value nickel, stainless kind of products. I think that we're fairly well positioned for the rest of this year. Holden Lewis - BB&T Capital Markets, Research Division: Okay. And in terms of that price cost relationship. Does it slip [ph] positive in Q4 and beyond, based at current levels of pricing cost, or -- how do you look at that versus Q3?

We believe it will improve in the fourth quarter. The dynamics of input costs and pricing should give us some incremental improvement on price costs in the fourth quarter.

Thank you. It appears there are no further questions. I'd like to now turn the floor back over to Mr. Petrella for closing comments.

Thank you, Kevin. And thank you all for your continuing interest in Lincoln and joining the call this morning. I look forward to speaking to you after our fourth quarter, and in the New Year in 2012.

This does conclude the teleconference. You may disconnect your lines at this time, and have a wonderful day. Thank you for your participation.