LECO Lincoln Electric Holdings Inc

- Third Quarter sales increase 20% to $495.1 million - Operating income increases 50% - Diluted Earnings Per Share (EPS) of $1.02 vs. $0.90, up 13% - Diluted Earnings Per Share (EPS) of $1.03 vs. $0.71, up 45%, excluding non-recurring items - Net income increases 15% to $43.9 million - Excluding non-recurring items, adjusted net income increases 48% to $44.5 million CLEVELAND, Oct. 25 /PRNewswire-FirstCall/ -- Lincoln Electric Holdings, Inc. (NASDAQ:LECO) today reported that 2006 third quarter net income increased 15% to $43.9 million, or $1.02 per diluted share, on sales of $495.1 million, an increase of 20%. Net income in the comparable period of 2005 was $38.2 million, or $0.90 per diluted share, on net sales of $412.0 million. Operating income for the 2006 third quarter increased 50% to $59.7 million from $39.7 million in the comparable 2005 period. Net income for the 2006 third quarter includes non-recurring charges of $0.7 million ($0.7 million after-tax, or $0.01 per diluted share) related to European rationalization actions. Net income for the 2005 third quarter includes non-recurring net favorable tax benefits of $7.2 million ($0.17 per diluted share) related to the resolution of prior years' tax liabilities, and a gain of $1.4 million ($0.9 million after-tax, or $0.02 per diluted share) related to the settlement of legal disputes. Excluding non-recurring items, adjusted net income increased 48% to $44.5 million, or $1.03 per diluted share in 2006 compared to $30.1 million, or $0.71 per diluted share in 2005. "We achieved another strong quarter with an excellent level of sales and profitability," said John M. Stropki, Chairman and Chief Executive Officer. "We experienced very significant revenue growth on top of a very strong prior year baseline with a continuation of broad-based growth around the globe. The continued investment in infrastructure and energy related projects around the world, as well as positive industrial economic conditions, provided a favorable business climate. The execution of our core strategies in this environment provided for excellent results and continuing market share gains." Sales for the Company's North American operations were $330.4 million in the quarter versus $276.8 million in the comparable quarter last year, an increase of 19%. Export sales in the quarter increased 78% to $42.3 million from $23.8 million in 2005. Sales at Lincoln subsidiaries outside North America increased to $164.7 million in the third quarter, compared with $135.2 million in the year ago quarter. In local currencies, international subsidiaries' sales increased 18%. Net income for the nine month period increased 33% to $123.2 million, or $2.87 per diluted share. This compares with net income of $92.5 million in the same period last year, or $2.20 per diluted share. Operating income for the nine month period increased 55% to $173.7 million from $111.9 million in the 2005 period. Net income for the first nine months of 2006 and 2005 includes non-recurring charges related to European rationalization actions of $3.0 million ($3.0 million after-tax, or $0.07 per diluted share) and $1.3 million ($0.8 million after-tax, or $0.02 per diluted share), respectively. In addition, net income for the 2005 comparable period includes non-recurring net favorable tax benefits of $7.2 million ($0.17 per diluted share) related to the resolution of prior years' tax liabilities and $1.8 million ($0.05 per diluted share) related to a change in Ohio tax law, and a gain of $1.4 million ($0.9 million after-tax, or $0.02 per diluted share) related to the settlement of legal disputes. Excluding non-recurring items, adjusted net income increased 51% to $126.2 million, or $2.94 per diluted share in 2006 compared to $83.5 million, or $1.98 per diluted share in 2005. Sales in the first nine months of 2006 increased 24%, 20% excluding the 2005 acquisition of J.W. Harris, to $1.47 billion from $1.18 billion in the 2005 comparable period. The Company's North American operations had sales of $986.3 million in 2006, compared with $773.7 million for the same period in 2005, an increase of 28%, 21% excluding the 2005 acquisition of J.W. Harris. Export sales increased 60% to $112.5 million, compared with $70.5 million in the comparable 2005 period. Lincoln operations outside of North America had sales of $479.7 million, an 18% increase over prior year sales of $407.1 million. In local currencies, sales for the Company's non-U.S. operations increased 17%. Net cash provided by operating activities was $105.1 million for the first nine months of 2006, compared with $99.5 million in 2005. Through September 30, 2006 the Company paid $24.2 million in dividends. The Board of Directors declared a quarterly cash dividend of $0.19, which was paid on October 13, 2006 to holders of record as of September 30, 2006. Lincoln Electric is the world leader in the design, development and manufacture of arc welding products, robotic arc-welding systems, plasma and oxyfuel cutting equipment and has a leading global position in the brazing and soldering alloys market. Headquartered in Cleveland, Ohio, Lincoln has 33 manufacturing locations, including operations, manufacturing alliances and joint ventures in 19 countries and a worldwide network of distributors and sales offices covering more than 160 countries. For more information about Lincoln Electric, its products and services, visit the Company's Web site at http://www.lincolnelectric.com/. The Company's expectations and beliefs concerning the future contained in this news release are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements reflect management's current expectations and involve a number of risks and uncertainties. Actual results may differ materially from such statements due to a variety of factors that could adversely affect the Company's operating results. The factors include, but are not limited to: the effectiveness of operating initiatives; currency exchange and interest rates; adverse outcome of pending or potential litigation; possible acquisitions; market risks and price fluctuations related to the purchase of commodities and energy; global regulatory complexity; and the possible effects of international terrorism and hostilities on the Company or its customers, suppliers and the economy in general. For additional discussion, see "Item 1A. Risk Factors" in the Company's Quarterly Report on Form 10-Q for the three months ended September 30, 2006. A conference call to discuss 2006 third quarter financial results is scheduled for today, Wednesday, October 25, 2006, at 11:00 a.m. EDT. An audio webcast of the call is accessible through the Investor page on the Company's Web site at http://www.lincolnelectric.com/. Lincoln Electric Holdings, Inc. Financial Highlights (amounts in thousands, except per share data) (Unaudited) Consolidated Three Months Ended September 30, Statements of % of % of Change Income 2006 Sales 2005 Sales $ % Net Sales $495,137 100.0% $412,013 100.0% $83,124 20.2% Cost of Goods Sold 353,800 71.5% 300,821 73.0% 52,979 17.6% Gross Profit 141,337 28.5% 111,192 27.0% 30,145 27.1% SG&A Expenses 81,019 16.4% 71,471 17.4% 9,548 13.4% Rationalization Charges 665 0.1% - - 665 N/A Operating Income 59,653 12.0% 39,721 9.6% 19,932 50.2% Interest Income 1,607 0.3% 1,153 0.3% 454 39.4% Equity Earnings in Affiliates 2,450 0.5% 1,675 0.4% 775 46.3% Other Income 436 0.1% 2,415 0.6% (1,979) (81.9%) Interest Expense (2,504) (0.5%) (2,114) (0.5%) (390) (18.4%) Income Before Income Taxes 61,642 12.4% 42,850 10.4% 18,792 43.9% Income Taxes 17,787 3.5% 4,662 1.1% 13,125 281.5% Net Income (1) $43,855 8.9% $38,188 9.3% $5,667 14.8% Reconciliation of Net Income as Reported to Adjusted Net Income Excluding Non- recurring Items: Three Months Ended September 30, Change 2006 2005 $ % Net Income as Reported (1) $43,855 $38,188 $5,667 14.8% Non-recurring Items: European Rationalization Charges (after- tax) 665 - 665 N/A Tax Benefits Related to the Resolution of Prior Years' Tax Liabilities - (7,201) 7,201 N/A Gain from Settlement of Legal Disputes (after-tax) - (876) 876 N/A Adjusted Net Income Excluding Non- recurring Items (2) $44,520 $30,111 $14,409 47.9% Basic Earnings Per Share $1.03 $0.91 $0.12 13.2% Non-recurring Items (1) 0.01 (0.19) 0.20 105.3% Basic Earnings Per Share Excluding Non-recurring Items (2) $1.04 $0.72 $0.32 44.4% Diluted Earnings Per Share $1.02 $0.90 $0.12 13.3% Non-recurring Items (1) 0.01 (0.19) 0.20 105.3% Diluted Earnings Per Share Excluding Non-recurring Items (2) $1.03 $0.71 $0.32 45.1% Weighted Average Shares (Basic) 42,608 41,932 Weighted Average Shares (Diluted) 43,119 42,336 (1) 2006 net income includes non-recurring charges related to European rationalization actions of $665 ($665 after-tax). 2005 net income includes non-recurring net favorable tax benefits of $7,201 related to the resolution of prior years' tax liabilities and a gain of $1,418 ($876 after-tax) related to the favorable settlement of legal disputes. (2) Adjusted net income excluding non-recurring items and basic and diluted earnings per share excluding non-recurring items, non-GAAP financial measures, are presented as management believes these financial measures are important to investors to evaluate and compare the Company's financial performance from period to period. Management uses this information in assessing and evaluating the Company's underlying operating performance. Lincoln Electric Holdings, Inc. Financial Highlights (amounts in thousands, except per share data) (Unaudited) Consolidated Nine Months Ended September 30, Statements of % of % of Change Income 2006 Sales 2005 Sales $ % Net Sales $1,466,041 100.0% $1,180,817 100.0% $285,224 24.2% Cost of Goods Sold 1,048,171 71.5% 857,397 72.6% 190,774 22.3% Gross Profit 417,870 28.5% 323,420 27.4% 94,450 29.2% SG&A Expenses 241,126 16.4% 210,291 17.8% 30,835 14.7% Rationalization Charges 3,006 0.2% 1,250 0.1% 1,756 140.5% Operating Income 173,738 11.9% 111,879 9.5% 61,859 55.3% Interest Income 4,201 0.3% 2,813 0.2% 1,388 49.3% Equity Earnings in Affiliates 4,974 0.3% 3,239 0.3% 1,735 53.6% Other Income 985 0.0% 3,881 0.3% (2,896) (74.6%) Interest Expense (7,343) (0.5%) (5,982) (0.5%) (1,361) (22.8%) Income Before Income Taxes 176,555 12.0% 115,830 9.8% 60,725 52.4% Income Taxes 53,332 3.6% 23,289 2.0% 30,043 129.0% Net Income (1) $ 123,223 8.4% $92,541 7.8% $30,682 33.2% Reconciliation of Net Income as Reported to Adjusted Net Income Excluding Non-recurring Items: Nine Months Ended September 30, Change 2006 2005 $ % Net Income as Reported (1) $123,223 $92,541 $30,682 33.2% Non-recurring Items: European Rationalization Charges (after-tax) 3,006 848 2,158 254.5% Tax Benefits Related to a Change in Ohio Tax Law - (1,807) 1,807 N/A Tax Benefits Related to the Resolution of Prior Years' Tax Liabilities - (7,201) 7,201 N/A Gain from Settlement of Legal Disputes (after-tax) - (876) 876 N/A Adjusted Net Income Excluding Non-recurring Items (2) $126,229 $83,505 $42,724 51.2% Basic Earnings Per Share $2.90 $2.22 $0.68 30.6% Non-recurring Items (1) 0.07 (0.22) 0.29 131.8% Basic Earnings Per Share Excluding Non-recurring Items (2) $2.97 $2.00 $0.97 48.5% Diluted Earnings Per Share $2.87 $2.20 $0.67 30.5% Non-recurring Items (1) 0.07 (0.22) 0.29 131.8% Diluted Earnings Per Share Excluding Non-recurring Items (2) $2.94 $1.98 $0.96 48.5% Weighted Average Shares (Basic) 42,468 41,695 Weighted Average Shares (Diluted) 42,960 42,103 (1) 2006 net income includes non-recurring charges related to European rationalization actions of $3,006 ($3,006 after-tax). 2005 net income includes non-recurring charges related to European rationalization actions of $1,250 ($848 after-tax), non-recurring net favorable tax benefits of $1,807 related to a change in Ohio tax law and $7,201 related to the resolution of prior years' tax liabilities, and a gain of $1,418 ($876 after-tax) related to the favorable settlement of legal disputes. (2) Adjusted net income excluding non-recurring items and basic and diluted earnings per share excluding non-recurring items, non-GAAP financial measures, are presented as management believes these financial measures are important to investors to evaluate and compare the Company's financial performance from period to period. Management uses this information in assessing and evaluating the Company's underlying operating performance. Lincoln Electric Holdings, Inc. Financial Highlights (amounts in thousands, except per share data) (Unaudited) Balance Sheet Highlights Selected Consolidated Balance Sheet Data September 30, December 31, 2006 2005 Cash and Cash Equivalents $145,911 $108,007 Total Current Assets 839,931 676,634 Net Property, Plant and Equipment 363,993 340,533 Total Assets 1,355,618 1,161,161 Total Current Liabilities 392,337 293,642 Short-Term Debt 44,964 8,163 Long-Term Debt 115,730 157,853 Total Shareholders' Equity 783,735 652,294 Net Operating Working Capital September 30, December 31, 2006 2005 Trade Accounts Receivable $297,125 $242,093 Inventory 336,905 275,745 Trade Accounts Payable 131,846 121,917 Net Operating Working Capital $502,184 $395,921 Net Operating Working Capital % to Net Sales (prior 4 quarters) 26.6% 24.7% Invested Capital September 30, December 31, 2006 2005 Short-Term Debt $44,964 $8,163 Long-Term Debt 115,730 157,853 Total Debt 160,694 166,016 Equity 783,735 652,294 Total $944,429 $818,310 Total Debt/Capitalization 17.0% 20.3% Return on Invested Capital 19.5% 17.7% Lincoln Electric Holdings, Inc. Financial Highlights (amounts in thousands, except per share data) (Unaudited) Consolidated Nine Months Ended September 30, Statements of Cash Flows 2006 2005 Operating Activities: Net Income $123,223 $92,541 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Rationalization Charges 3,006 1,250 Depreciation and Amortization 35,817 32,107 Equity Earnings of Affiliates, net (3,541) (3,239) Other Non-Cash Items, net 5,751 4,580 Changes in Operating Assets and Liabilities: Increase in Accounts Receivable (48,422) (27,540) Increase in Inventories (54,982) (21,609) Increase in Accounts Payable 6,843 2,546 Contributions to Pension Plans (19,656) (33,690) Increase in Accrued Pensions 12,395 14,386 Net change in Other Current Assets and Liabilities 48,356 35,658 Net change in Other Long-Term Assets and Liabilities (3,699) 2,481 Net Cash Provided by Operating Activities 105,091 99,471 Investing Activities: Capital Expenditures (53,318) (36,171) Acquisitions of businesses, net of cash acquired (502) (73,563) Proceeds from Sales of Fixed Assets 859 3,816 Sales of Marketable Securities, net - 50,500 Net Cash Used by Investing Activities (52,961) (55,418) Financing Activities: Net change in Borrowings (5,083) (13,292) Proceeds from Exercise of Stock Options 10,282 18,244 Tax Benefit from the Exercise of Stock Options 3,847 - Purchase of Shares for Treasury (126) (12,804) Cash Dividends Paid to Shareholders (24,178) (22,470) Net Cash Used by Financing Activities (15,258) (30,322) Effect of Exchange Rate Changes on Cash and Cash Equivalents 1,032 (369) Increase in Cash and Cash Equivalents 37,904 13,362 Cash and Cash Equivalents at Beginning of Year 108,007 92,819 Cash and Cash Equivalents at End of Period $145,911 $106,181 Cash Dividends Paid Per Share $0.57 $0.54 DATASOURCE: Lincoln Electric Holdings, Inc. CONTACT: Roy L. Morrow of Lincoln Electric Holdings, Inc., +1-216-383-4893, Web site: http://www.lincolnelectric.com/

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