Improved Operating Leverage as a Result of Cost Savings
Initiatives; Operating Cash Flow of $97M in 3Q and $231M YTD
CLEVELAND, Oct. 30 /PRNewswire-FirstCall/ -- Third Quarter 2009
Highlights -- Sales were $441.8 million, an increase of 6.9% from
the Second Quarter 2009 -- Operating income was $33.2 million, an
improvement from $19.4 million in the Second Quarter 2009 --
Operating income was $40.4 million, excluding special items, an
improvement from $24.7 million in the Second Quarter 2009 -- Net
income was $12.8 million, or $0.30 per diluted share; excluding
special items, net income was $27.0 million, or $0.63 per diluted
share -- Net cash provided by operating activities was $97.1
million -- Total cash balance of $406 million as of September 30,
2009 Lincoln Electric Holdings, Inc. (the "Company") (NASDAQ:LECO)
today reported 2009 third quarter net income of $12.8 million, or
$0.30 per diluted share, on sales of $441.8 million. Operating
income for the third quarter increased sequentially to $33.2
million, or 7.5% of sales, from $19.4 million, or 4.7% of sales, in
the second quarter of 2009. Excluding special items, operating
income in the quarter was $40.4 million or 9.1% of sales. Sales
were $441.8 million in the third quarter versus $632.9 million in
the comparable 2008 period, a decrease of 30.2%. Sales for the
Company's North American operations were $240.5 million in the
quarter versus $370.5 million in the comparable quarter last year,
a decrease of 35.1%. U.S. export sales in the quarter were $37.9
million versus $62.5 million in the comparable prior year period, a
decrease of 39.3%. Sales at Lincoln subsidiaries outside North
America were $201.3 million in the third quarter versus $262.4
million in the comparable quarter last year, a decrease of 23.3%.
Excluding acquisitions and the effect of changes in foreign
currency exchange rates, sales outside North America decreased
27.5% in the quarter. During the third quarter, the Company
completed the acquisition of Jinzhou Jin Tai Welding and Metal Co.,
Ltd., ("Jin Tai"). This acquisition greatly expanded the Company's
customer base and added significant cost-competitive consumable
solid wire manufacturing capacity in China. The Company acquired
Jin Tai by exchanging its 35% ownership in Taiwan-based Kuang Tai
Metal Industrial Co., Ltd. ("Kuang Tai"), paying cash of $40
million and assuming net debt of approximately $13 million. This
transaction resulted in a non-cash loss of $7.9 million due to the
difference in the appraised values of the non-controlling interests
in Kuang Tai and Jin Tai when compared with the carrying value of
the related equity investments. The Company expects this
transaction to be accretive to earnings by approximately $0.08 -
$0.12 per diluted share over the next twelve months. Operating
income for the third quarter included a pre-tax rationalization
charge of $7.1 million. Special items which impacted net income
included after-tax rationalization charges of $6.3 million and a
loss of $7.9 million on the acquisition of Jin Tai. Rationalization
charges during the 2009 third quarter related primarily to a
facility closure in Europe and the consolidation of certain
manufacturing operations in the Europe and Other Countries
segments. Net income for the third quarter was $12.8 million, or
$0.30 per diluted share, compared with net income of $69.2 million
in the third quarter of 2008. Excluding special items, net income
was $27.0 million, or $0.63 per diluted share. The effective tax
rate for the third quarter of 2009 was 47.4% compared with 25.5% in
2008. The higher effective tax rate in 2009 is primarily due to
losses at certain non-U.S. entities, including the loss on the Jin
Tai transaction, for which no tax benefit has been provided. "I am
pleased that our third quarter results reflect good sequential
improvements in profitability," said John M. Stropki, Chairman and
Chief Executive Officer. "Despite the continued softness of the
overall global markets, we saw a slight improvement in our sales
level during the third quarter which has carried over to the start
of the fourth quarter. The sales improvement, coupled with the
introduction of over 100 new products during the third quarter,
give us reason to be cautiously optimistic about the near term."
"We continue to aggressively challenge our overall cost structure,
and we are pleased that related actions have contributed to
improved profitability from the first half of 2009. We are
confident that as the global recovery strengthens we are
strategically positioned with a more efficient and highly
competitive business model. In addition, our ongoing focus in
managing the balance sheet and reducing working capital to current
business levels generated $231.3 million in operating cash flows
for the first nine months of 2009. Our strong financial position
and our ongoing rationalization efforts will allow us the
flexibility to make the necessary investments to achieve our
long-term strategic objectives." Net cash provided by operating
activities increased to $97.1 million in the third quarter compared
with $96.1 million for the comparable period in 2008. During the
third quarter 2009, the Company paid $11.5 million in dividends.
Sales for the first nine months were $1.27 billion versus $1.95
billion in the comparable 2008 period, a decrease of 35.1%.
Operating income for the first nine months was $53.6 million
compared with $259.9 million in 2008. Excluding special items,
operating income was $77.8 million or 6.1% of sales. Sales for the
Company's North American operations were $726.9 million in the
first nine months versus $1.14 billion in the comparable period
last year, a decrease of 36.4%. U.S. export sales in the first nine
months were $112.7 million versus $188.5 million in the prior year
period, a decrease of 40.2%. Sales at Lincoln subsidiaries outside
North America were $540.0 million in the first nine months compared
with $810.6 million in the comparable period last year, a decrease
of 33.4%. Excluding acquisitions and the effect of changes in
foreign currency exchange rates, sales outside North America
decreased 28.7% in the first nine months of 2009. Special items for
the first nine months of 2009, which impacted operating income,
included pre-tax rationalization charges of $25.7 million and a
pension settlement gain of $1.5 million included in selling,
general and administrative expenses. Special items which impacted
net income included after-tax rationalization charges of $20.4
million, a pension settlement gain of $1.5 million, a gain on the
sale of a property by the Company's joint venture in Turkey of $5.7
million and a loss on the acquisition of Jin Tai of $7.9 million.
Net income for the first nine months was $24.2 million, or $0.57
per diluted share, compared with net income of $192.8 million in
the first nine months of 2008. Excluding special items, net income
was $45.4 million, or $1.07 per diluted share. The effective tax
rate for the first nine months of 2009 was 47.4% compared with
27.8% in 2008. The higher effective tax rate in 2009 is primarily
due to losses at certain non-U.S. entities, including the loss on
the Jin Tai transaction, for which no tax benefit has been
provided. Net cash provided by operating activities increased to
$231.3 million in the first nine months of 2009 compared with
$216.7 million for the comparable period in 2008. During the first
nine months of 2009, the Company repaid $30.0 million of
outstanding debt on maturity under its Senior Unsecured Notes and
paid $34.3 million in dividends. The Company's Board of Directors
declared a quarterly cash dividend of $0.27 per share, which was
paid on October 15, 2009 to holders of record as of September 30,
2009. 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 39 manufacturing
locations, including operations 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 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 third quarter financial results is
scheduled for today, Friday, October 30, 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/. Lincoln Electric Holdings, Inc.
Financial Highlights (In thousands, except per share data)
(Unaudited) Consolidated Statements of Income Fav (Unfav) Three
Months Ended September 30, to Prior Year
----------------------------------- ------------------ % of % of $
% 2009 Sales 2008 Sales -------- ------ -------- ------ ---------
------- Net sales $441,802 100.0% $632,892 100.0% $(191,090)
(30.2%) Cost of goods sold 316,671 71.7% 436,014 68.9% 119,343
27.4% ------- ------- -------- Gross profit 125,131 28.3% 196,878
31.1% (71,747) (36.4%) Selling, general & administrative
expenses 84,778 19.2% 107,097 16.9% 22,319 20.8% Rationalization
charges 7,144 1.6% - 0.0% (7,144) N/A ------- ------- --------
Operating income 33,209 7.5% 89,781 14.2% (56,572) (63.0%) Interest
income 716 0.2% 2,317 0.4% (1,601) (69.1%) Equity (loss) earnings
in affiliates (8,692) (2.0%) 3,739 0.6% (12,431)(332.5%) Other
income 1,030 0.2% 201 0.0% 829 412.4% Interest expense (2,032)
(0.5%) (3,156) (0.5%) 1,124 35.6% ------- ------- -------- Income
before income taxes 24,231 5.5% 92,882 14.7% (68,651) (73.9%)
Income taxes 11,474 2.6% 23,671 3.7% 12,197 51.5% Effective tax
rate 47.4% 25.5% (21.9%) ------- ------- ------- Net income $
12,757 2.9% $ 69,211 10.9% $(56,454) (81.6%) ======= =======
======= Reconciliation of Net Income as Reported to Adjusted Net
Income Three Months Ended September 30, Change
--------------------- -------------------- 2009 2008 $ % --------
-------- --------- ------- Net income as reported (1) $ 12,757 $
69,211 $(56,454) (81.6%) Special items (1) 14,283 - 14,283 N/A
-------- ------- -------- Adjusted net income (2) $ 27,040 $ 69,211
$(42,171) (60.9%) ======== ======= ======== Basic earnings per
share $ 0.30 $ 1.62 $ (1.32) (81.5%) Special items (1) 0.34 - 0.34
N/A -------- ------- -------- Adjusted basic earnings per share (2)
$ 0.64 $ 1.62 $ (0.98) (60.5%) ======== ======= ======== Diluted
earnings per share $ 0.30 $ 1.60 $ (1.30) (81.3%) Special items (1)
0.33 - 0.33 N/A -------- ------- -------- Adjusted diluted earnings
per share (2) $ 0.63 $ 1.60 $ (0.97) (60.6%) ======== =======
======== Weighted average shares (basic) 42,396 42,779 Weighted
average shares (diluted) 42,642 43,209 (1) Net income in the third
quarter of 2009 includes rationalization charges of $7,144 ($6,340
after-tax) and a loss of $7,943 ($7,943 after-tax) on the
acquisition of Jin Tai included in Equity (loss) earnings in
affiliates. (2) Adjusted net income excluding special items and
adjusted basic and diluted earnings per share excluding special
items 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, except per share data) (Unaudited)
Consolidated Statements of Income Fav (Unfav) Nine Months Ended
September 30, to Prior Year --------------------------------------
------------------ % of % of $ % 2009 Sales 2008 Sales ----------
------ ---------- ------ ---------- ------- Net sales $1,266,836
100.0% $1,952,945 100.0% $(686,109) (35.1%) Cost of goods sold
945,066 74.6% 1,373,902 70.4% 428,836 31.2% ---------- ----------
--------- ------- Gross profit 321,770 25.4% 579,043 29.6%
(257,273) (44.4%) Selling, general & administrative expenses
242,415 19.1% 319,176 16.3% 76,761 24.0% Rationalization charges
25,720 2.0% - 0.0% (25,720) N/A ---------- ---------- ---------
-------- Operating income 53,635 4.2% 259,867 13.3% (206,232)
(79.4%) Interest income 2,780 0.2% 6,616 0.3% (3,836) (58.0%)
Equity (loss) earnings in affiliates (6,123) (0.5%) 8,102 0.4%
(14,225)(175.6%) Other income 2,341 0.2% 1,327 0.1% 1,014 76.4%
Interest expense (6,547) (0.5%) (8,939) (0.5%) 2,392 26.8%
---------- ---------- --------- ------- Income before income taxes
46,086 3.6% 266,973 13.7% (220,887) (82.7%) Income taxes 21,855
1.7% 74,157 3.8% 52,302 70.5% Effective tax rate 47.4% 27.8%
(19.6%) ---------- ---------- --------- ------- Net income $24,231
1.9% $192,816 9.9% $(168,585) (87.4%) ========== ==========
========= ======= Reconciliation of Net Income as Reported to
Adjusted Net Income Nine Months Ended September 30, Change
--------------------- --------------------- 2009 2008 $ % --------
-------- ---------- ------- Net income as reported (1) $24,231
$192,816 $(168,585) (87.4%) Special items (1) 21,140 - 21,140 N/A
-------- -------- --------- Adjusted net income (2) $45,371
$192,816 $(147,445) (76.5%) ======== ======== ========= Basic
earnings per share $0.57 $4.51 $(3.94) (87.4%) Special items (1)
0.50 - 0.50 N/A -------- -------- --------- Adjusted basic earnings
per share (2) $1.07 $4.51 $(3.44) (76.3%) ======== ========
========= Diluted earnings per share $0.57 $4.47 $(3.90) (87.2%)
Special items (1) 0.50 - 0.50 N/A -------- -------- ----------
Adjusted diluted earnings per share (2) $1.07 $4.47 $(3.40) (76.1%)
======== ======== ========== Weighted average shares (basic) 42,385
42,721 Weighted average shares (diluted) 42,602 43,170 (1) Net
income in the first nine months of 2009 includes rationalization
charges of $25,720 ($20,407 after-tax), a pension settlement gain
of $1,543 ($1,543 after-tax) included in Selling, general &
administrative expenses, a gain on the sale of a property by the
Company's joint venture in Turkey of $5,667 ($5,667 after-tax)
included in Equity (loss) earnings in affiliates and a loss of
$7,943 ($7,943 after-tax) on the acquisition of Jin Tai included in
Equity (loss) earnings in affiliates. (2) Adjusted net income
excluding special items and adjusted basic and diluted earnings per
share excluding special items 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
September 30, December 31, 2009 2008 ------------ ----------- Cash
and cash equivalents $405,967 $284,332 Total current assets
1,059,230 1,024,726 Property, plant and equipment, net 461,406
427,902 Total assets 1,751,978 1,718,805 Total current liabilities
355,260 356,642 Short-term debt 41,853 50,693 Long-term debt 88,868
91,537 Total equity 1,059,787 1,009,973 Net Operating Working
Capital September 30, December 31, 2009 2008 ------------
----------- Trade accounts receivable $276,571 $299,171 Inventory
276,676 346,932 Trade accounts payable 114,128 124,388 ---------
--------- Net operating working capital $439,119 $521,715 =========
========= Net operating working capital to net sales (1) 24.4%
26.1% ========= ========= Invested Capital September 30, December
31, 2009 2008 ----------- ---------- Short-term debt $41,853
$50,693 Long-term debt 88,868 91,537 ----------- ---------- Total
debt 130,721 142,230 Total equity 1,059,787 1,009,973 -----------
---------- Invested capital $1,190,508 $1,152,203 ===========
========== Total debt / invested capital 11.0% 12.3% Return on
invested capital (2) 3.9% 18.6% (1) Net operating working capital
to net sales is defined as net operating working capital divided by
annualized rolling 3 months of sales. (2) Return on invested
capital is defined as rolling 12 months of earnings excluding
tax-effected interest divided by invested capital. Lincoln Electric
Holdings, Inc. Financial Highlights (In thousands, except per share
data) (Unaudited) Consolidated Statements of Cash Flows Three
Months Ended September 30, ------------------ 2009 2008 --------
-------- OPERATING ACTIVITIES: Net income $12,757 $69,211
Adjustments to reconcile net income to net cash provided by
operating activities: Depreciation and amortization 14,665 14,553
Equity loss (earnings) in affiliates, net 9,466 (2,913) Other
non-cash items, net 10,422 (448) Changes in operating assets and
liabilities, net of effects from acquisitions: Decrease in accounts
receivable 17,050 28,749 Decrease (increase) in inventories 17,628
(42,969) Increase (decrease) in accounts payable 8,554 (9,120)
Decrease in accrued pensions (11,537) (4,814) Net change in other
current assets and liabilities 16,700 49,140 Net change in other
long-term assets and liabilities 1,383 (5,331) -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 97,088 96,058 INVESTING
ACTIVITIES: Capital expenditures (5,466) (22,381) Acquisition of
businesses, net of cash acquired (17,558) (3,757) Proceeds from
sale of property, plant and equipment 378 275 -------- -------- NET
CASH USED BY INVESTING ACTIVITIES (22,646) (25,863) FINANCING
ACTIVITIES: Net change in borrowings (6,916) (7,434) Proceeds from
exercise of stock options 87 1,685 Tax benefit from exercise of
stock options 31 708 Purchase of shares for treasury - (5,088) Cash
dividends paid to shareholders (11,453) (10,691) -------- --------
NET CASH USED BY FINANCING ACTIVITIES (18,251) (20,820) Effect of
exchange rate changes on cash and cash equivalents 2,877 (5,142)
-------- -------- INCREASE IN CASH AND CASH EQUIVALENTS 59,068
44,233 Cash and cash equivalents at beginning of period 346,899
268,357 -------- -------- Cash and cash equivalents at end of
period $405,967 $312,590 ======== ======== Cash dividends paid per
share $0.27 $0.25 Lincoln Electric Holdings, Inc. Financial
Highlights (In thousands, except per share data) (Unaudited)
Consolidated Statements of Cash Flows Nine Months Ended September
30, ----------------- 2009 2008 ------- -------- OPERATING
ACTIVITIES: Net income $24,231 $192,816 Adjustments to reconcile
net income to net cash provided by operating activities:
Depreciation and amortization 42,333 42,901 Equity loss (earnings)
in affiliates, net 8,954 (5,830) Other non-cash items, net 20,065
4,574 Changes in operating assets and liabilities, net of effects
from acquisitions: Decrease (increase) in accounts receivable
57,583 (32,954) Decrease (increase) in inventories 105,876 (79,893)
(Decrease) increase in accounts payable (16,389) 28,437 Decrease in
accrued pensions (30,488) (17,572) Net change in other current
assets and liabilities 16,908 86,045 Net change in other long-term
assets and liabilities 2,240 (1,781) ------- -------- NET CASH
PROVIDED BY OPERATING ACTIVITIES 231,313 216,743 INVESTING
ACTIVITIES: Capital expenditures (26,285) (53,479) Additions to
equity investment in affiliates (488) - Acquisition of businesses,
net of cash acquired (17,558) (28,021) Proceeds from sale of
property, plant and equipment 638 589 ------- -------- NET CASH
USED BY INVESTING ACTIVITIES (43,693) (80,911) FINANCING
ACTIVITIES: Net change in borrowings (37,352) 6,644 Proceeds from
exercise of stock options 305 7,120 Tax benefit from exercise of
stock options 105 3,416 Purchase of shares for treasury (343)
(23,121) Cash dividends paid to shareholders (34,347) (32,071)
------- -------- NET CASH USED BY FINANCING ACTIVITIES (71,632)
(38,012) Effect of exchange rate changes on cash and cash
equivalents 5,647 (2,612) ------- -------- INCREASE IN CASH AND
CASH EQUIVALENTS 121,635 95,208 Cash and cash equivalents at
beginning of period 284,332 217,382 ------- -------- Cash and cash
equivalents at end of period $405,967 $312,590 ======= ========
Cash dividends paid per share $0.81 $0.75 Lincoln Electric
Holdings, Inc. Financial Highlights (In thousands) (Unaudited)
Segment Highlights North Other America Europe Countries
Eliminations Consolidated ------- ------ --------- ------------
------------ Three months ended September 30, 2009 Net sales to
unaffiliated customers $240,505 $89,435 $111,862 $- $441,802
Inter-segment sales 16,212 4,530 1,830 (22,572) - -------- -------
-------- -------- ---------- Total $256,717 $93,965 $113,692
$(22,572) $441,802 ======== ======= ======== ======== ==========
Income (loss) before interest and income taxes $31,468 $(4,331)
$(2,999) $1,409 $25,547 As a percent of total sales 12.3% (4.6%)
(2.6%) 5.8% Special items $- $6,316 $8,771 $- $15,087 Adjusted
income before interest and income taxes excluding special items (1)
$31,468 $1,985 $5,772 $1,409 $40,634 As a percent of total sales
12.3% 2.1% 5.1% 9.2% Three months ended September 30, 2008 Net
sales to unaffiliated customers $370,474 $141,693 $120,725 $-
$632,892 Inter-segment sales 27,749 7,319 2,825 (37,893) - --------
------- -------- -------- ---------- Total $398,223 $149,012
$123,550 $(37,893) $632,892 ======== ======= ======== ========
========== Income before interest and income taxes $60,806 $19,651
$13,352 $(88) $93,721 As a percent of total sales 15.3% 13.2% 10.8%
14.8% Nine months ended September 30, 2009 Net sales to
unaffiliated customers $726,877 $276,734 $263,225 $- $1,266,836
Inter-segment sales 46,561 9,804 5,131 (61,496) - -------- -------
-------- -------- ---------- Total $773,438 $286,538 $268,356
$(61,496) $1,266,836 ======== ======= ======== ======== ==========
Income (loss) before interest and income taxes $64,468 $(14,589)
$(1,290) $1,264 $49,853 As a percent of total sales 8.3% (5.1%)
(0.5%) 3.9% Special items $10,647 $7,280 $8,526 $- $26,453 Adjusted
income (loss) before interest and income taxes excluding special
items (1) $75,115 $(7,309) $7,236 $1,264 $76,306 As a percent of
total sales 9.7% (2.6%) 2.7% 6.0% Nine months ended September 30,
2008 Net sales to unaffiliated customers $1,142,322 $460,116
$350,507 $- $1,952,945 Inter-segment sales 85,960 21,583 7,122
(114,665) - -------- ------- -------- -------- ---------- Total
$1,228,282 $481,699 $357,629 $(114,665) $1,952,945 ======== =======
======== ======== ========== Income before interest and income
taxes $179,388 $58,380 $30,776 $752 $269,296 As a percent of total
sales 14.6% 12.1% 8.6% 13.8% (1) Adjusted income (loss) before
interest and income taxes excluding special items 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: Earl L. Ward,
+1-216-383-5067, Web Site: http://www.lincolnelectric.com/
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