Lincoln Electric Reports First Quarter 2015 Results

Lincoln Electric Holdings, Inc.

Financial Highlights

(In thousands, except per share amounts)

(Unaudited)

Consolidated Statements of Income

Three months ended March 31,

Fav (Unfav) to Prior Year

2015

% of Sales

% of Sales

$

%

Net sales

$

657,900

100.0

%

$

685,062

100.0

%

$

(27,162)

(4.0%)

Cost of goods sold

437,510

66.5

%

458,726

67.0

%

21,216

4.6

%

Gross profit

220,390

33.5

%

226,336

33.0

%

(5,946)

(2.6%)

Selling, general & administrative expenses

129,891

19.7

%

145,915

21.3

%

16,024

11.0

%

Rationalization and asset impairment charges (gains)

—

—

(17)

—

(17)

(100.0%)

Operating income

90,499

13.8

%

80,438

11.7

%

10,061

12.5

%

Interest income

593

0.1

%

914

0.1

%

(321)

(35.1%)

Equity earnings in affiliates

849

0.1

%

1,561

0.2

%

(712)

(45.6%)

Other income

2,610

0.4

%

1,083

0.2

%

1,527

141.0

%

Interest expense

(1,844)

(0.3%)

(1,570)

(0.2%)

(274)

(17.5%)

Income before income taxes

92,707

14.1

%

82,426

12.0

%

10,281

12.5

%

Income taxes

24,389

3.7

%

26,002

3.8

%

1,613

6.2

%

Effective tax rate

26.3

%

31.5

%

5.2

%

Net income including non-controlling interests

68,318

10.4

%

56,424

8.2

%

11,894

21.1

%

Non-controlling interests in subsidiaries' loss

(36)

—

(29)

—

(7)

(24.1%)

Net income

$

68,354

10.4

%

$

56,453

8.2

%

$

11,901

21.1

%

Basic earnings per share

$

0.90

$

0.70

$

0.20

28.6

%

Diluted earnings per share

$

0.89

$

0.69

$

0.20

29.0

%

Weighted average shares (basic)

76,242

80,648

Weighted average shares (diluted)

77,059

81,616

Lincoln Electric Holdings, Inc.

Financial Highlights

(In thousands, except per share amounts)

(Unaudited)

Three months ended March 31,

2015

2014

Operating income as reported

$

90,499

$

80,438

Special items (pre-tax):

Rationalization and asset impairment charges (gains) (1)

—

(17)

Venezuela foreign exchange losses (2)

—

17,665

Adjusted operating income (3)

$

90,499

$

98,086

Net income as reported

$

68,354

$

56,453

Special items (after-tax):

Rationalization and asset impairment charges (gains) (1)

—

(7)

Venezuela foreign exchange losses (2)

—

17,665

Adjusted net income (3)

$

68,354

$

74,111

Diluted earnings per share as reported

$

0.89

$

0.69

Special items

—

0.22

Adjusted diluted earnings per share (3)

$

0.89

$

0.91

Weighted average shares (diluted)

77,059

81,616

(1) The three months ended March 31, 2014 include net credits primarily related to the sale of assets at rationalized operations.

(2) The three months ended March 31, 2014 include the impact of the Venezuelan remeasurement loss related to the adoption of a new foreign exchange mechanism. This remeasurement loss was classified in Selling, general and administrative expenses.

(3) Adjusted operating income, Adjusted net income and Adjusted diluted earnings per share 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. Non-GAAP financial measures should be read in conjunction with the GAAP financial measures, as non-GAAP measures are a supplement to, and not a replacement for, GAAP financial measures.

Lincoln Electric Holdings, Inc.

Financial Highlights

(In thousands)

(Unaudited)

Balance Sheet Highlights

Selected Consolidated Balance Sheet Data

March 31, 2015

December 31, 2014

Cash and cash equivalents

$

289,017

$

278,379

Total current assets

1,095,002

1,098,677

Property, plant and equipment, net

423,020

437,209

Total assets

1,921,508

1,939,215

Total current liabilities

608,425

492,419

Short-term debt (1)

167,985

68,166

Long-term debt

3,882

2,488

Total equity

1,179,955

1,285,781

Net Operating Working Capital

March 31, 2015

December 31, 2014

Accounts receivable

$

334,928

$

321,862

Inventory

332,892

330,840

Trade accounts payable

185,944

202,482

Net operating working capital

$

481,876

$

450,220

Net operating working capital to net sales (2)

18.3

%

16.5

%

Invested Capital

March 31, 2015

December 31, 2014

Short-term debt (1)

$

167,985

$

68,166

Long-term debt

3,882

2,488

Total debt

171,867

70,654

Total equity

1,179,955

1,285,781

Invested capital

$

1,351,822

$

1,356,435

Total debt / invested capital

12.7

%

5.2

%

Return on invested capital (3)

20.1

%

19.1

%

(1) Includes current portion of long-term debt.

(2) Net operating working capital to net sales is defined as net operating working capital divided by annualized rolling three months of sales.

(3) 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 amounts)

(Unaudited)

Condensed Consolidated Statements of Cash Flows

Three months ended March 31,

2015

2014

OPERATING ACTIVITIES:

Net income

$

68,354

$

56,453

Non-controlling interests in subsidiaries' loss

(36)

(29)

Net income including non-controlling interests

68,318

56,424

Adjustments to reconcile Net income including non- controlling interests to Net cash provided by operating activities:

Rationalization and asset impairment charges (gains)

30

(35)

Depreciation and amortization

16,032

17,931

Equity earnings in affiliates, net

(216)

(796)

Pension expense

5,679

2,800

Pension contributions and payments

(21,234)

(22,081)

Other non-cash items, net

(18,562)

23,984

Changes in operating assets and liabilities, net of effects from acquisitions:

Increase in accounts receivable

(25,377)

(43,885)

Increase in inventories

(16,233)

(15,157)

Decrease in trade accounts payable

(12,916)

(12,108)

Net change in other current assets and liabilities

55,069

5,547

Net change in other long-term assets and liabilities

2,194

1,007

NET CASH PROVIDED BY OPERATING ACTIVITIES

52,784

13,631

INVESTING ACTIVITIES:

Capital expenditures

(12,456)

(14,506)

Acquisition of businesses, net of cash acquired

—

(892)

Proceeds from sale of property, plant and equipment

1,187

1,066

Other investing activities

2,024

573

NET CASH USED BY INVESTING ACTIVITIES

(9,245)

(13,759)

FINANCING ACTIVITIES:

Net change in borrowings

101,510

(8,056)

Proceeds from exercise of stock options

1,733

2,956

Excess tax benefits from stock-based compensation

537

1,652

Purchase of shares for treasury

(102,853)

(51,021)

Cash dividends paid to shareholders

(22,329)

(18,623)

Other financing activities

(20)

(2,330)

NET CASH USED BY FINANCING ACTIVITIES

(21,422)

(75,422)

Effect of exchange rate changes on Cash and cash equivalents

(11,479)

(18,888)

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

10,638

(94,438)

Cash and cash equivalents at beginning of period

278,379

299,825

Cash and cash equivalents at end of period

$

289,017

$

205,387

Cash dividends paid per share

$

0.29

$

0.23

Lincoln Electric Holdings, Inc.

Segment Highlights

(In thousands)

(Unaudited)

North

America

Welding

Europe

Welding

Asia Pacific

Welding

South

America

Welding

The Harris

Products

Group

Corporate /

Eliminations

Consolidated

Three Months Ended

   March 31, 2015

Net sales

$

412,988

$

88,416

$

49,250

$

37,430

$

69,816

$

—

$

657,900

Inter-segment sales

26,129

3,593

3,270

—

2,011

(35,003)

—

Total

$

439,117

$

92,009

$

52,520

$

37,430

$

71,827

$

(35,003)

$

657,900

EBIT (1)

$

71,184

$

8,748

$

3,128

$

3,150

$

7,549

$

199

$

93,958

As a percent of total sales

16.2

%

9.5

%

6.0

%

8.4

%

10.5

%

14.3

%

Special items charge (gain)

$

—

$

—

$

—

$

—

$

—

$

—

$

—

EBIT, as adjusted (2)(3)

$

71,184

$

8,748

$

3,128

$

3,150

$

7,549

$

199

$

93,958

As a percent of total sales

16.2

%

9.5

%

6.0

%

8.4

%

10.5

%

14.3

%

Three months ended

   March 31, 2014

Net sales

$

401,906

$

105,406

$

61,286

$

43,993

$

72,471

$

—

$

685,062

Inter-segment sales

32,943

5,860

4,449

29

2,118

(45,399)

—

Total

$

434,849

$

111,266

$

65,735

$

44,022

$

74,589

$

(45,399)

$

685,062

EBIT (1)

$

71,411

$

9,253

$

(631)

$

(5,900)

$

6,058

$

2,891

$

83,082

As a percent of total sales

16.4

%

8.3

%

(1.0%)

(13.4%)

8.1

%

12.1

%

Special items charge (gain) (4)

$

(47)

$

39

$

(9)

$

17,665

$

—

$

—

$

17,648

EBIT, as adjusted (2)

$

71,364

$

9,292

$

(640)

$

11,765

$

6,058

$

2,891

$

100,730

As a percent of total sales

16.4

%

8.4

%

(1.0%)

26.7

%

8.1

%

14.7

%

(1) EBIT is defined as Operating income plus Equity earnings in affiliates and Other income.

(2) The primary profit measure used by management to assess segment performance is EBIT, as adjusted. EBIT for each operating segment is adjusted for special items to derive EBIT, as adjusted.

(3) Asia Pacific Welding EBIT, as adjusted includes a $1,769 gain associated with the liquidation of a foreign subsidiary and the related non-controlling interest.

(4) Special items in the three months ended March 31, 2014 include net credits primarily related to the sale of assets at rationalized operations and the impact of the Venezuelan remeasurement loss related to the adoption of a new foreign exchange mechanism.

Lincoln Electric Holdings, Inc.

Change in Net Sales by Segment

(In thousands)

(Unaudited)

Three Months Ended March 31st Change in Net Sales by Segment

Change in Net Sales due to:

Net Sales

2014

Volume

Acquisitions

Price

Foreign

Exchange

Net Sales

2015

Operating Segments

North America Welding

$

401,906

$

927

$

12,471

$

4,023

$

(6,339)

$

412,988

Europe Welding

105,406

3,202

—

(301)

(19,891)

88,416

Asia Pacific Welding

61,286

(9,103)

—

(669)

(2,264)

49,250

South America Welding

43,993

(4,693)

—

21,474

(23,344)

37,430

The Harris Products Group

72,471

4,474

—

(4,589)

(2,540)

69,816

Consolidated

$

685,062

$

(5,193)

$

12,471

$

19,938

$

(54,378)

$

657,900

% Change

North America Welding

0.2

%

3.1

%

1.0

%

(1.6%)

2.8

%

Europe Welding

3.0

%

—

(0.3%)

(18.9%)

(16.1%)

Asia Pacific Welding

(14.9%)

—

(1.1%)

(3.7%)

(19.6%)

South America Welding

(10.7%)

—

48.8

%

(53.1%)

(14.9%)

The Harris Products Group

6.2

%

—

(6.3%)

(3.5%)

(3.7%)

Consolidated

(0.8%)

1.8

%

2.9

%

(7.9%)

(4.0%)