LECO Lincoln Electric Holdings Inc

CLEVELAND, April 28 /PRNewswire-FirstCall/ -- Three Months Ended March 31, 2009 -- Sales decreased 33.6% to $411.8 million -- Excluding rationalization charges, operating income was $12.7 million; including rationalization charges, operating income was $1.0 million -- Rationalization charges totaling $11.7 million recorded in the quarter -- Excluding rationalization charges, net income was $3.8 million, or $0.09 per diluted share; including rationalization charges, net loss was $3.6 million, or $0.08 per diluted share -- Net cash provided by operating activities increased 6.1% to $71.7 million Lincoln Electric Holdings, Inc. (the "Company") (NASDAQ:LECO) today reported 2009 first quarter sales decreased 33.6% to $411.8 million from $620.2 million in the comparable 2008 period. Operating income for the first quarter decreased to $1.0 million from $78.5 million in 2008. Excluding rationalization charges, operating income was $12.7 million. Sales for the Company's North American operations were $246.7 million in the quarter versus $371.1 million in the comparable quarter last year, a decrease of 33.5%. U.S. export sales in the quarter decreased 39.9% to $37.0 million from $61.6 million in the year-ago quarter. Sales at Lincoln subsidiaries outside North America decreased 33.7% to $165.1 million in the first quarter, compared with $249.1 million in the comparable quarter last year. Excluding acquisitions and the effect of changes in foreign currency exchange rates, sales outside North America decreased 24.4% in the quarter. The net loss for the first quarter was $3.6 million, or $0.08 per diluted share, compared with net income of $53.5 million in the first quarter of 2008. Excluding rationalization charges, net income was $3.8 million, or $0.09 per diluted share. The Company recorded tax expense of $1.6 million on a pretax loss of $2.0 million for the first quarter of 2009 as several foreign entities reported losses with no tax benefit. "Our first quarter results reflect the difficult challenges and negative impacts of the depressed global economy," said John M. Stropki, Chairman and Chief Executive Officer. "The rapid and steep deterioration in overall global demand, combined with the liquidation of our higher cost inventory, resulted in a significant reduction in profitability during the quarter. "We have been aggressively realigning our business to current market conditions. These actions resulted in a first quarter 2009 pre-tax rationalization charge of $11.7 million, the benefits of which, if annualized, we estimate will generate savings of over $80 million. During the first quarter, we began to see the positive impacts of these actions and expect to see the full benefit in the 2009 second quarter of an approximate $20 million per quarter cost savings. In addition, we are actively evaluating additional actions which will further rationalize staffing, compensation levels and manufacturing facilities around the world. We estimate these actions will generate additional annualized savings of $20 million to $25 million and result in pre-tax rationalization charges of $8 million to $10 million. During the quarter, our focus on managing our balance sheet resulted in reducing our working capital, helping us generate over $71.7 million in cash. This enabled us to increase our cash balance to over $300 million, including paying down $30 million in debt. Our strong financial position and our ongoing rationalization efforts will allow us to make the necessary investments to achieve our long-term strategic objectives. We are confident we will emerge from the global recession with a more efficient and highly competitive business model, one which will further strengthen our market leadership position, accelerate our global growth and improve our overall profitability." Net cash provided by operating activities increased 6.1% to $71.7 million in the first quarter compared with $67.5 million for the comparable period in 2008. During the first quarter 2009, the Company repaid $30 million of outstanding debt on maturity under its Senior Unsecured Notes and paid $11.4 million in dividends. The Company's Board of Directors declared a quarterly cash dividend of $0.27 per share, which was paid on April 15, 2009 to holders of record as of March 31, 2009. The Company announced on March 16, 2009, that its Asian subsidiary, The Lincoln Electric Company (Asia Pacific) Pte., Ltd. ("Lincoln Asia Pacific"), had signed definitive agreements to acquire 100% of Jinzhou Jin Tai Welding and Metal Co., ("Jin Tai"), a welding wire business in Jinzhou, China. This acquisition will greatly expand the Company's customer base and bring significant cost-competitive MIG wire manufacturing capacity under the Company's control. Lincoln Asia Pacific previously owned 48% of Jin Tai, whose sales were approximately $200 million in 2008. 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. 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 42 manufacturing locations, including operations and joint ventures in 21 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 website 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: general economic and market conditions; 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 Annual Report on Form 10-K. A conference call to discuss the 2009 first quarter financial results is scheduled for today, Tuesday, April 28, 2009, at 10:00 a.m., Eastern Time. An audio webcast of the call is accessible through the investor tab on the Company's website at http://www.lincolnelectric.com/. The 2009 Annual Meeting of Shareholders of Lincoln Electric Holdings, Inc. will be held at 11:30 a.m. Eastern Time on Thursday, April 30, 2009, at the Marriott Cleveland East, 26300 Harvard Road, Warrensville Heights, Ohio. Lincoln Electric Holdings, Inc. Financial Highlights (In thousands, except per share data) (Unaudited) Consolidated Statements of Income Fav (Unfav) Three Months Ended March 31, to Prior Year --------------------------------- ------------------ % of % of 2009 Sales 2008 Sales $ % ---- ------ ---- ------ --------- ------ 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) N/A ------ ---- ------- 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% Effective tax rate (78.8%) 32.3% (111.1%) ----- ---- ------ Net (loss) income $(3,594) (0.9%) $53,477 8.6% $(57,071) (106.7%) ======= ======= ======== Reconciliation of Net (Loss) Income as Reported to Adjusted Net Income: Three Months Ended March 31, Change ------------------ ------ 2009 2008 $ % ---- ---- ------ ------ Net (loss) income as reported (1) $(3,594) $53,477 $(57,071) (106.7%) Adjustment: Rationalization charges, after-tax 7,428 - 7,428 N/A ----- ---- ----- Adjusted net income (2) $3,834 $53,477 $(49,643) (92.8%) ====== ======= ======== Basic (loss) earnings per share $(0.08) $1.25 $(1.33) (106.4%) Adjustment (1) 0.17 - 0.17 N/A ---- ---- ---- Adjusted basic earnings per share (2) $0.09 $1.25 $(1.16) (92.8%) ===== ===== ====== Diluted (loss) earnings per share $(0.08) $1.24 $(1.32) (106.5%) Adjustment (1) 0.17 - 0.17 N/A ---- ---- ---- Adjusted diluted earnings per share (2) $0.09 $1.24 $(1.15) (92.7%) ===== ===== ====== Weighted average shares (basic) 42,372 42,675 Weighted average shares (diluted) 42,568 43,090 (1) Net loss includes rationalization charges of $11,699 ($7,428 after- tax) in the first quarter of 2009. (2) Adjusted net income excluding rationalization charges and adjusted basic and diluted earnings per share excluding rationalization charges are non-GAAP financial measures that management believes 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 (In thousands) (Unaudited) Balance Sheet Highlights Selected Consolidated Balance Sheet Data March 31, December 31, 2009 2008 ---- ---- Cash and cash equivalents $300,452 $284,332 Total current assets 951,708 1,024,726 Property, plant and equipment, net 418,066 427,902 Total assets 1,628,649 1,718,805 Total current liabilities 310,409 356,642 Short-term debt 19,091 50,693 Long-term debt 89,964 91,537 Total equity 976,389 1,009,973 Net Operating Working Capital March 31, December 31, 2009 2008 ---- ---- Trade accounts receivable $260,531 $299,171 Inventory 300,645 346,932 Trade accounts payable 117,857 124,388 ------- ------- Net operating working capital $443,319 $521,715 ======== ======== Net operating working capital % to net sales (2) 28.0% 26.1% ==== ==== Invested Capital March 31, December 31, 2009 2008 ---- ---- Short-term debt $19,091 $50,693 Long-term debt 89,964 91,537 ------ ------ Total debt 109,055 142,230 Total equity 976,389 1,009,973 ------- --------- Invested capital $1,085,444 $1,152,203 ========== ========== Total debt / invested capital 10.0% 12.3% Return on invested capital (1) 14.5% 18.6% (1) Return on invested capital is defined as rolling 12 months of earnings excluding tax-effected interest divided by invested capital. (2) Net operating working capital % to net sales is defined as net operating working capital divided by annualized rolling 3 months of sales. Lincoln Electric Holdings, Inc. Financial Highlights (In thousands, except per share data) (Unaudited) Consolidated Statements of Cash Flows Three Months Ended March 31, --------------------------- 2009 2008 ---- ---- OPERATING ACTIVITIES: Net (loss) income $(3,594) $53,477 Adjustments to reconcile net (loss) income to net cash provided by operating activities: Depreciation and amortization 13,488 13,907 Equity loss of affiliates, net 3,254 4 Other non-cash items, net (6,741) 3,816 Changes in operating assets and liabilities, net of effects from acquisitions: Decrease (increase) in accounts receivable 31,417 (37,174) Decrease (increase) in inventories 37,163 (26,970) (Decrease) increase in accounts payable (4,382) 31,172 Decrease in accrued pensions (6,504) (6,640) Net change in other current assets and liabilities 4,618 31,998 Net change in other long-term assets and liabilities 2,944 3,933 ----- ----- NET CASH PROVIDED BY OPERATING ACTIVITIES 71,663 67,523 INVESTING ACTIVITIES: Capital expenditures (13,565) (12,812) Acquisition of businesses, net of cash acquired - (8,675) Proceeds from sale of property, plant and equipment 192 272 --- --- NET CASH USED BY INVESTING ACTIVITIES (13,373) (21,215) FINANCING ACTIVITIES: Net change in borrowings (28,859) (1,095) Proceeds from exercise of stock options 16 1,591 Tax benefit from exercise of stock options 2 819 Purchase of shares for treasury (343) (18,033) Cash dividends paid to shareholders (11,444) (10,720) ------- ------- NET CASH USED BY FINANCING ACTIVITIES (40,628) (27,438) Effect of exchange rate changes on cash and cash equivalents (1,542) 1,601 ------ ----- INCREASE IN CASH AND CASH EQUIVALENTS 16,120 20,471 Cash and cash equivalents at beginning of period 284,332 217,382 ------- ------- Cash and cash equivalents at end of period $300,452 $237,853 ======== ======== Cash dividends paid per share $0.27 $0.25 Lincoln Electric Holdings, Inc. Financial Highlights (In thousands) (Unaudited) Segment Highlights North Other Elimin- Consol- America Europe Countries ations idated ------- ------ --------- ------- --------- Three months ended March 31, 2009 Net sales to unaffiliated customers $246,656 $93,300 $71,795 $- $411,751 Inter-segment sales 17,608 2,502 1,963 (22,073) - ------ ----- ----- ------- ----- Total $264,264 $95,802 $73,758 $(22,073) $411,751 ======== ======= ======= ======== ======== Income (loss) before interest and income taxes $8,233 $(6,604) $(1,623) $(566) $(560) As a percent of total sales 3.1% (6.9%) (2.2%) (0.1%) Adjustments: Rationalization charges $10,526 $470 $703 $- $11,699 Adjusted income (loss) before interest and income taxes excluding rationalization charges (1) $18,759 $(6,134) $(920) $(566) $11,139 As a percent of total sales 7.1% (6.4%) (1.2%) 2.7% Three months ended March 31, 2008 Net sales to unaffiliated customers $371,113 $147,445 $101,669 $- $620,227 Inter-segment sales 27,066 6,925 1,566 (35,557) - ------ ----- ----- ------- ----- Total $398,179 $154,370 $103,235 $(35,557) $620,227 ======== ======== ======== ======== ======== Income (loss) before interest and income taxes $56,533 $18,219 $5,039 $(253) $79,538 As a percent of total sales 14.2% 11.8% 4.9% 12.8% (1) Adjusted income (loss) before interest and income taxes excluding rationalization charges is a non-GAAP financial measure that management believes is 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. DATASOURCE: Lincoln Electric Holdings, Inc. CONTACT: Media: Roy L. Morrow, +1-216-383-4893, , Investors: Joseph P. Kelley, +1-216-383-8346, , both of Lincoln Electric Holdings, Inc. Web Site: http://www.lincolnelectric.com/

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