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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