Lincoln Electric Reports Third Quarter 2019 Results
| Third Quarter 2019 Highlights |
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(1) Cash conversion is defined as Net cash provided by operating activities less Capital expenditures divided by Adjusted net income.
CLEVELAND, Oct. 30, 2019 (GLOBE NEWSWIRE) -- Lincoln Electric Holdings, Inc. (the “Company”) (Nasdaq: LECO) today reported third quarter 2019 net income of $72.5 million, or diluted earnings per share (EPS) of $1.17, which includes special item after-tax net benefits of $4.8 million, or $0.08 EPS. This compares with prior year net income of $70.5 million, or $1.07 EPS, which included special item after-tax charges of $8.9 million, or $0.14 EPS. Excluding these items, third quarter 2019 adjusted net income was $67.7 million, or $1.09 EPS, as compared with $79.4 million, or $1.21 EPS in the prior year period. The effective tax rate was 21.1% in the third quarter 2019 as compared with 26.3% in the prior year period. Excluding special items, the adjusted effective tax rate was 22.4%, which compares to 23.3% in the comparable 2018 period.
Third quarter 2019 sales decreased 0.9% to $730.8 million from a 4.7% decrease in organic sales and 1.6% unfavorable foreign exchange, partially offset by a 5.4% benefit from acquisitions. Operating income for the third quarter 2019 was $88.5 million, or 12.1% of sales. This compares with operating income of $100.8 million, or 13.7% of sales, in the prior year period. On an adjusted basis, operating income was $91.6 million, or 12.5% of sales, as compared with $104.4 million, or 14.2% of sales, in the prior year period.
“We continued to achieve solid returns, cash flow generation and cash conversion despite slowing industrial sector demand and capital spending in the quarter,” stated Christopher L. Mapes, Chairman, President & CEO. “We are addressing this challenging portion of the cycle through additional cost management actions while continuing to invest for future growth.”
Nine Months 2019 Summary
Net income for the nine months ended September 30, 2019 was $229.4 million, or $3.64 EPS. This compares with $200.2 million, or $3.03 EPS, in the comparable 2018 period. Reported EPS includes special item after-tax net benefits of $5.8 million or $0.09 EPS, as compared with special item after-tax charges of $32.9 million, or $0.50 EPS in the prior year period. Excluding these items, adjusted net income for the nine months ended September 30, 2019 was $223.6 million, or $3.55 EPS, compared with $233.1 million, or $3.53 EPS, in the comparable 2018 period. The effective tax rate was 20.4% for the nine months ended September 30, 2019 as compared with 27.0% in the prior year period. Excluding special items, the adjusted effective tax rate was 22.4%, which compares to 24.1% in the comparable 2018 period.
Sales decreased 0.8% to $2.3 billion in the nine months ended September 30, 2019 from a 2.4% decrease in organic sales, 2.1% unfavorable foreign exchange, partially offset by a 3.7% benefit from acquisitions. Operating income for the nine months ended September 30, 2019 was $288.2 million, or 12.7% of sales. This compares with operating income of $280.6 million, or 12.3% of sales, in the comparable 2018 period. On an adjusted basis, operating income was $296.3 million, or 13.1% of sales, as compared with $308.6 million, or 13.5% of sales, in the comparable 2018 period.
Dividend
The Company's Board of Directors declared a 4.3% increase in the quarterly cash dividend, from $0.47 per share to $0.49 per share, or $1.96 per share on an annual basis. The declared quarterly cash dividend of $0.49 per share is payable January 15, 2020 to shareholders of record as of December 31, 2019.
Webcast Information
A conference call to discuss third quarter 2019 financial results will be webcast live today, October 30, 2019, at 10:00 a.m., Eastern Time. This webcast is accessible at https://ir.lincolnelectric.com. Listeners should go to the web site prior to the call to register, download and install any necessary audio software. A replay of the webcast will be available on the Company's web site.
Investors who are unable to access the webcast may listen to the conference call live by telephone by dialing (877) 344-3899 (domestic) or (315) 625-3087 (international) and use confirmation code 5875799. Telephone participants are asked to dial in 10 - 15 minutes prior to the start of the conference call.
Financial results for the third quarter 2019 can also be obtained at https://ir.lincolnelectric.com.
About Lincoln Electric
Lincoln Electric is the world leader in the design, development and manufacture of arc welding products, robotic arc welding systems, plasma and oxy-fuel cutting equipment and has a leading global position in the brazing and soldering alloys market. Headquartered in Cleveland, Ohio, Lincoln has 60 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 and its products and services, visit the Company’s website at https://www.lincolnelectric.com.
Non-GAAP Information
Adjusted operating income, Adjusted net income, Adjusted EBIT, Adjusted effective tax rate, Adjusted diluted earnings per share, Organic sales and Return on invested capital are non-GAAP financial measures. Management uses non-GAAP measures to assess the Company's operating performance by excluding certain disclosed special items that management believes are not representative of the Company's core business. Management believes that excluding these special items enables them to make better period-over-period comparisons and benchmark the Company's operational performance against other companies in its industry more meaningfully. Furthermore, management believes that non-GAAP financial measures provide investors with meaningful information that provides a more complete understanding of Company operating results and enables investors to analyze financial and business trends more thoroughly. Non-GAAP financial measures should not be viewed in isolation, are not a substitute for GAAP measures and have limitations including, but not limited to, their usefulness as comparative measures as other companies may define their non-GAAP measures differently.
Forward-Looking Statements
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. Forward-looking statements generally can be identified by the use of words such as “may,” “will,” “expect,” “intend,” “estimate,” “anticipate,” “believe,” “forecast,” “guidance” or words of similar meaning. 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; completion of planned divestitures; interest rates; disruptions, uncertainty or volatility in the credit markets that may limit our access to capital; currency exchange rates and devaluations; adverse outcome of pending or potential litigation; actual costs of the Company’s rationalization plans; possible acquisitions, including the Company’s ability to successfully integrate acquisitions; market risks and price fluctuations related to the purchase of commodities and energy; global regulatory complexity; the effects of changes in tax law; tariff rates in the countries where the Company conducts business; and the possible effects of events beyond our control, such as political unrest, acts of terror and natural disasters, 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 for the year ended December 31, 2018.
Contact
Amanda ButlerVice President, Investor Relations & CommunicationsTel: 216.383.2534Email: [email protected]
Lincoln Electric Holdings, Inc.Financial Highlights(In thousands, except per share amounts)(Unaudited)
Consolidated Statements of Income
| Three Months Ended September 30, | Fav (Unfav) to Prior Year | ||||||||||||||||||||
| 2019 | % of Sales | 2018 | % of Sales | $ | % | ||||||||||||||||
| Net sales | $ | 730,783 | 100.0 | % | $ | 737,099 | 100.0 | % | $ | (6,316 | ) | (0.9 | %) | ||||||||
| Cost of goods sold | 492,432 | 67.4 | % | 485,547 | 65.9 | % | (6,885 | ) | (1.4 | %) | |||||||||||
| Gross profit | 238,351 | 32.6 | % | 251,552 | 34.1 | % | (13,201 | ) | (5.2 | %) | |||||||||||
| Selling, general & administrative expenses | 148,312 | 20.3 | % | 148,129 | 20.1 | % | (183 | ) | (0.1 | %) | |||||||||||
| Rationalization and asset impairment charges | 1,495 | 0.2 | % | 2,636 | 0.4 | % | 1,141 | 43.3 | % | ||||||||||||
| Operating income | 88,544 | 12.1 | % | 100,787 | 13.7 | % | (12,243 | ) | (12.1 | %) | |||||||||||
| Interest expense, net | 6,400 | 0.9 | % | 3,969 | 0.5 | % | (2,431 | ) | (61.2 | %) | |||||||||||
| Other income (expense) | 9,653 | 1.3 | % | (1,074 | ) | 0.1 | % | 10,727 | 998.8 | % | |||||||||||
| Income before income taxes | 91,797 | 12.6 | % | 95,744 | 13.0 | % | (3,947 | ) | (4.1 | %) | |||||||||||
| Income taxes | 19,340 | 2.6 | % | 25,209 | 3.4 | % | 5,869 | 23.3 | % | ||||||||||||
| Effective tax rate | 21.1 | % | 26.3 | % | 5.2 | % | |||||||||||||||
| Net income including non-controlling interests | 72,457 | 9.9 | % | 70,535 | 9.6 | % | 1,922 | 2.7 | % | ||||||||||||
| Non-controlling interests in subsidiaries’ loss | (4 | ) | — | (4 | ) | — | — | — | |||||||||||||
| Net income | $ | 72,461 | 9.9 | % | $ | 70,539 | 9.6 | % | $ | 1,922 | 2.7 | % | |||||||||
| Basic earnings per share | $ | 1.18 | $ | 1.09 | $ | 0.09 | 8.3 | % | |||||||||||||
| Diluted earnings per share | $ | 1.17 | $ | 1.07 | $ | 0.10 | 9.3 | % | |||||||||||||
| Weighted average shares (basic) | 61,380 | 64,821 | |||||||||||||||||||
| Weighted average shares (diluted) | 62,061 | 65,652 | |||||||||||||||||||
| Nine Months Ended September 30, | Fav (Unfav) toPrior Year | ||||||||||||||||||||
| 2019 | % of Sales | 2018 | % of Sales | $ | % | ||||||||||||||||
| Net sales | $ | 2,266,965 | 100.0 | % | $ | 2,284,847 | 100.0 | % | $ | (17,882 | ) | (0.8 | %) | ||||||||
| Cost of goods sold | 1,500,312 | 66.2 | % | 1,506,625 | 65.9 | % | 6,313 | 0.4 | % | ||||||||||||
| Gross profit | 766,653 | 33.8 | % | 778,222 | 34.1 | % | (11,569 | ) | (1.5 | %) | |||||||||||
| Selling, general & administrative expenses | 472,108 | 20.8 | % | 473,260 | 20.7 | % | 1,152 | 0.2 | % | ||||||||||||
| Rationalization and asset impairment charges | 6,337 | 0.3 | % | 24,353 | 1.1 | % | 18,016 | 74.0 | % | ||||||||||||
| Operating income | 288,208 | 12.7 | % | 280,609 | 12.3 | % | 7,599 | 2.7 | % | ||||||||||||
| Interest expense, net | 17,621 | 0.8 | % | 13,222 | 0.6 | % | (4,399 | ) | (33.3 | %) | |||||||||||
| Other income (expense) | 17,612 | 0.8 | % | 6,818 | 0.3 | % | 10,794 | 158.3 | % | ||||||||||||
| Income before income taxes | 288,199 | 12.7 | % | 274,205 | 12.0 | % | 13,994 | 5.1 | % | ||||||||||||
| Income taxes | 58,832 | 2.6 | % | 73,991 | 3.2 | % | 15,159 | 20.5 | % | ||||||||||||
| Effective tax rate | 20.4 | % | 27.0 | % | 6.6 | % | |||||||||||||||
| Net income including non-controlling interests | 229,367 | 10.1 | % | 200,214 | 8.8 | % | 29,153 | 14.6 | % | ||||||||||||
| Non-controlling interests in subsidiaries’ loss | (26 | ) | — | (13 | ) | — | (13 | ) | (100.0 | %) | |||||||||||
| Net income | $ | 229,393 | 10.1 | % | $ | 200,227 | 8.8 | % | $ | 29,166 | 14.6 | % | |||||||||
| Basic earnings per share | $ | 3.68 | $ | 3.07 | $ | 0.61 | 19.9 | % | |||||||||||||
| Diluted earnings per share | $ | 3.64 | $ | 3.03 | $ | 0.61 | 20.1 | % | |||||||||||||
| Weighted average shares (basic) | 62,282 | 65,245 | |||||||||||||||||||
| Weighted average shares (diluted) | 62,972 | 66,055 | |||||||||||||||||||
Lincoln Electric Holdings, Inc.Financial Highlights(In thousands)(Unaudited)
Balance Sheet Highlights
| Selected Consolidated Balance Sheet Data | September 30, 2019 | December 31, 2018 | ||||||
| Cash and cash equivalents | $ | 156,612 | $ | 358,849 | ||||
| Total current assets | 1,082,434 | 1,237,799 | ||||||
| Property, plant and equipment, net | 523,229 | 478,801 | ||||||
| Total assets | 2,361,160 | 2,349,825 | ||||||
| Total current liabilities | 572,437 | 538,182 | ||||||
| Short-term debt (1) | 13,293 | 111 | ||||||
| Long-term debt, less current portion | 713,884 | 702,549 | ||||||
| Total equity | 813,808 | 887,592 | ||||||
| Operating Working Capital | September 30, 2019 | December 31, 2018 | ||||||
| Accounts receivable, net | $ | 395,355 | $ | 396,885 | ||||
| Inventories | 411,120 | 361,829 | ||||||
| Trade accounts payable | 243,837 | 268,600 | ||||||
| Operating working capital | $ | 562,638 | $ | 490,114 | ||||
| Average operating working capital to Net sales (2) | 19.2 | % | 16.5 | % | ||||
| Invested Capital | September 30, 2019 | December 31, 2018 | ||||||
| Short-term debt (1) | $ | 13,293 | $ | 111 | ||||
| Long-term debt, less current portion | 713,884 | 702,549 | ||||||
| Total debt | 727,177 | 702,660 | ||||||
| Total equity | 813,808 | 887,592 | ||||||
| Invested capital | $ | 1,540,985 | $ | 1,590,252 | ||||
| Total debt / invested capital | 47.2 | % | 44.2 | % | ||||
- Includes current portion of long-term debt.
- Average operating working capital to Net sales is defined as operating working capital as of period end divided by annualized rolling three months of Net sales.
Lincoln Electric Holdings, Inc.Financial Highlights(In thousands, except per share amounts)(Unaudited)
Non-GAAP Financial Measures
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2019 | 2018 | 2019 | 2018 | |||||||||||||
| Operating income as reported | $ | 88,544 | $ | 100,787 | $ | 288,208 | $ | 280,609 | ||||||||
| Special items (pre-tax): | ||||||||||||||||
| Rationalization and asset impairment charges (2) | 1,495 | 2,636 | 6,337 | 24,353 | ||||||||||||
| Acquisition transaction and integration costs (3) | — | 970 | 1,804 | 3,665 | ||||||||||||
| Amortization of step up in value of acquired inventories (4) | 1,609 | — | 3,008 | — | ||||||||||||
| Gains on asset disposals (5) | — | — | (3,045 | ) | — | |||||||||||
| Adjusted operating income (1) | $ | 91,648 | $ | 104,393 | $ | 296,312 | $ | 308,627 | ||||||||
| As a percent of total sales | 12.5 | % | 14.2 | % | 13.1 | % | 13.5 | % | ||||||||
| Net income as reported | $ | 72,461 | $ | 70,539 | $ | 229,393 | $ | 200,227 | ||||||||
| Special items: | ||||||||||||||||
| Rationalization and asset impairment charges (2) | 1,495 | 2,636 | 6,337 | 24,353 | ||||||||||||
| Acquisition transaction and integration costs (3) | — | 970 | 1,804 | 3,665 | ||||||||||||
| Pension settlement charges (6) | — | 4,232 | — | 4,990 | ||||||||||||
| Amortization of step up in value of acquired inventories (4) | 1,609 | — | 3,008 | — | ||||||||||||
| Gains on asset disposals (5) | — | — | (3,554 | ) | — | |||||||||||
| Gain on change in control (7) | (7,601 | ) | — | (7,601 | ) | — | ||||||||||
| Tax effect of Special items (8) | (255 | ) | 1,033 | (5,819 | ) | (132 | ) | |||||||||
| Adjusted net income (1) | 67,709 | 79,410 | 223,568 | 233,103 | ||||||||||||
| Non-controlling interests in subsidiaries’ loss | (4 | ) | (4 | ) | (26 | ) | (13 | ) | ||||||||
| Interest expense, net | 6,400 | 3,969 | 17,621 | 13,222 | ||||||||||||
| Income taxes as reported | 19,340 | 25,209 | 58,832 | 73,991 | ||||||||||||
| Tax effect of Special items (8) | 255 | (1,033 | ) | 5,819 | 132 | |||||||||||
| Adjusted EBIT (1) | $ | 93,700 | $ | 107,551 | $ | 305,814 | $ | 320,435 | ||||||||
| Effective tax rate as reported | 21.1 | % | 26.3 | % | 20.4 | % | 27.0 | % | ||||||||
| Net special item tax impact | 1.3 | % | (3.0 | %) | 2.0 | % | (2.9 | %) | ||||||||
| Adjusted effective tax rate (1) | 22.4 | % | 23.3 | % | 22.4 | % | 24.1 | % | ||||||||
| Diluted earnings per share as reported | $ | 1.17 | $ | 1.07 | $ | 3.64 | $ | 3.03 | ||||||||
| Special items per share | (0.08 | ) | 0.14 | (0.09 | ) | 0.50 | ||||||||||
| Adjusted diluted earnings per share (1) | $ | 1.09 | $ | 1.21 | $ | 3.55 | $ | 3.53 | ||||||||
| Weighted average shares (diluted) | 62,061 | 65,652 | 62,972 | 66,055 | ||||||||||||
- Adjusted operating income, Adjusted net income, Adjusted EBIT, Adjusted effective tax rate and Adjusted diluted earnings per share are non-GAAP financial measures. Management uses non-GAAP measures to assess the Company's operating performance by excluding certain disclosed special items that management believes are not representative of the Company's core business. Management believes that excluding these special items enables them to make better period-over-period comparisons and benchmark the Company's operational performance against other companies in its industry more meaningfully. Furthermore, management believes that non-GAAP financial measures provide investors with meaningful information that provides a more complete understanding of Company operating results and enables investors to analyze financial and business trends more thoroughly. Non-GAAP financial measures should not be viewed in isolation, are not a substitute for GAAP measures and have limitations including, but not limited to, their usefulness as comparative measures as other companies may define their non-GAAP measures differently.
- Primarily related to severance, asset impairments and gains or losses on the disposal of assets.
- Related to the acquisition of Air Liquide Welding and are included in Selling, general & administrative expenses.
- Related to the acquisitions of Baker Industries, Inc. and Kaynak Tekniği Sanayi ve Ticaret A.Ş. ("Askaynak") and are included in Cost of goods sold.
- Primarily included in Cost of goods sold.
- Related to lump sum pension payments and are included in Other income (expense).
- Related to the acquisition of Askaynak and is included in Other income (expense).
- Includes the net tax impact of Special items recorded during the respective periods, including tax benefits of $4,852 for the settlement of a tax item as well as tax deductions associated with an investment in a subsidiary in the nine months ended September 30, 2019. The prior year includes an adjustment to taxes on unremitted foreign earnings related to the U.S. Tax Act of $2,323 and $4,823 in the three and nine months ended September 30, 2018, respectively.The tax effect of Special items impacting pre-tax income was calculated as the pre-tax amount multiplied by the applicable tax rate. The applicable tax rates reflect the taxable jurisdiction and nature of each Special item.
Lincoln Electric Holdings, Inc.Financial Highlights(In thousands, except per share amounts)(Unaudited)
Non-GAAP Financial Measures
| Twelve Months Ended September 30, | ||||||||
| Return on Invested Capital | 2019 | 2018 | ||||||
| Net income as reported | $ | 316,232 | $ | 224,408 | ||||
| Rationalization and asset impairment charges | 7,269 | 30,943 | ||||||
| Acquisition transaction and integration costs | 2,637 | 7,281 | ||||||
| Pension settlement charges | 1,696 | 7,857 | ||||||
| Amortization of step up in value of acquired inventories | 3,008 | 2,264 | ||||||
| Gains on asset disposals | (3,554 | ) | — | |||||
| Bargain purchase adjustment | — | 1,935 | ||||||
| Gain on change in control | (7,601 | ) | — | |||||
| Tax effect of Special items (3) | (12,583 | ) | 25,925 | |||||
| Adjusted net income (1) | $ | 307,104 | $ | 300,613 | ||||
| Plus: Interest expense, net of tax of $6,410 and $6,087 in 2019 and 2018, respectively | 19,265 | 18,295 | ||||||
| Less: Interest income, net of tax of $926 and $1,676 in 2019 and 2018, respectively | 2,785 | 5,036 | ||||||
| Adjusted net income before tax-effected interest | $ | 323,584 | $ | 313,872 | ||||
| Invested Capital | September 30, 2019 | September 30, 2018 | ||||||
| Short-term debt | $ | 13,293 | $ | 794 | ||||
| Long-term debt, less current portion | 713,884 | 698,468 | ||||||
| Total debt | 727,177 | 699,262 | ||||||
| Total equity | 813,808 | 927,868 | ||||||
| Invested capital | $ | 1,540,985 | $ | 1,627,130 | ||||
| Return on invested capital (1)(2) | 21.0 | % | 19.3 | % | ||||
- Adjusted net income and Return on invested capital are non-GAAP financial measures. Management uses non-GAAP measures to assess the Company's operating performance by excluding certain disclosed special items that management believes are not representative of the Company's core business. Management believes that excluding these special items enables them to make better period-over-period comparisons and benchmark the Company's operational performance against other companies in its industry more meaningfully. Furthermore, management believes that non-GAAP financial measures provide investors with meaningful information that provides a more complete understanding of Company operating results and enables investors to analyze financial and business trends more thoroughly. Non-GAAP financial measures should not be viewed in isolation, are not a substitute for GAAP measures and have limitations including, but not limited to, their usefulness as comparative measures as other companies may define their non-GAAP measures differently.
- Return on invested capital is defined as rolling 12 months of Adjusted net income before tax-effected interest income and expense divided by Invested capital.
- Includes the net tax impact of Special items recorded during the respective periods, including tax benefits of $4,852 for the settlement of a tax item as well as tax deductions associated with an investment in a subsidiary in the twelve months ended September 30, 2019 and net charges of $33,439 related to the U.S. Tax Act in the twelve months ended September 30, 2018.The tax effect of Special items impacting pre-tax income was calculated as the pre-tax amount multiplied by the applicable tax rate. The applicable tax rates reflect the taxable jurisdiction and nature of each Special item.
Lincoln Electric Holdings, Inc.Financial Highlights(In thousands, except per share amounts)(Unaudited)
Condensed Consolidated Statements of Cash Flows
| Three Months Ended September 30, | ||||||||
| 2019 | 2018 | |||||||
| OPERATING ACTIVITIES: | ||||||||
| Net income | $ | 72,461 | $ | 70,539 | ||||
| Non-controlling interests in subsidiaries’ loss | (4 | ) | (4 | ) | ||||
| Net income including non-controlling interests | 72,457 | 70,535 | ||||||
| Adjustments to reconcile Net income including non-controlling interests to Net cash provided by operating activities: | ||||||||
| Rationalization and asset impairment net gains | — | (2,034 | ) | |||||
| Depreciation and amortization | 21,148 | 17,623 | ||||||
| Equity earnings in affiliates, net | (49 | ) | (50 | ) | ||||
| Gain on change in control | (7,601 | ) | — | |||||
| Other non-cash items, net | 3,566 | 5,434 | ||||||
| Changes in operating assets and liabilities, net of effects from acquisitions: | ||||||||
| Decrease in accounts receivable | 45,374 | 14,415 | ||||||
| Increase in inventories | (8,709 | ) | (13,634 | ) | ||||
| Decrease in trade accounts payable | (18,733 | ) | (22,384 | ) | ||||
| Net change in other current assets and liabilities | 20,393 | 33,932 | ||||||
| Net change in other long-term assets and liabilities | 835 | 2,382 | ||||||
| NET CASH PROVIDED BY OPERATING ACTIVITIES | 128,681 | 106,219 | ||||||
| INVESTING ACTIVITIES: | ||||||||
| Capital expenditures | (17,038 | ) | (17,363 | ) | ||||
| Acquisition of businesses, net of cash acquired | (28,892 | ) | — | |||||
| Proceeds from sale of property, plant and equipment | 779 | 10,358 | ||||||
| Purchase of marketable securities | — | (49,668 | ) | |||||
| Proceeds from marketable securities | — | 89,445 | ||||||
| NET CASH (USED BY) PROVIDED BY INVESTING ACTIVITIES | (45,151 | ) | 32,772 | |||||
| FINANCING ACTIVITIES: | ||||||||
| Net change in borrowings | (27,544 | ) | (856 | ) | ||||
| Proceeds from exercise of stock options | 5,250 | 1,849 | ||||||
| Purchase of shares for treasury | (61,028 | ) | (71,245 | ) | ||||
| Cash dividends paid to shareholders | (29,061 | ) | (25,424 | ) | ||||
| Other financing activities | — | (2,170 | ) | |||||
| NET CASH USED BY FINANCING ACTIVITIES | (112,383 | ) | (97,846 | ) | ||||
| Effect of exchange rate changes on Cash and cash equivalents | (4,396 | ) | (39 | ) | ||||
| (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS | (33,249 | ) | 41,106 | |||||
| Cash and cash equivalents at beginning of period | 189,861 | 357,094 | ||||||
| Cash and cash equivalents at end of period | $ | 156,612 | $ | 398,200 | ||||
| Cash dividends paid per share | $ | 0.47 | $ | 0.39 | ||||
Lincoln Electric Holdings, Inc.Financial Highlights(In thousands, except per share amounts)(Unaudited)
Condensed Consolidated Statements of Cash Flows
| Nine Months Ended September 30, | ||||||||
| 2019 | 2018 | |||||||
| OPERATING ACTIVITIES: | ||||||||
| Net income | $ | 229,393 | $ | 200,227 | ||||
| Non-controlling interests in subsidiaries’ loss | (26 | ) | (13 | ) | ||||
| Net income including non-controlling interests | 229,367 | 200,214 | ||||||
| Adjustments to reconcile Net income including non-controlling interests to Net cash provided by operating activities: | ||||||||
| Rationalization and asset impairment net charges (gains) | 1,069 | (1,408 | ) | |||||
| Depreciation and amortization | 60,400 | 53,946 | ||||||
| Equity earnings in affiliates, net | (1,266 | ) | (1,427 | ) | ||||
| Gain on change in control | (7,601 | ) | — | |||||
| Other non-cash items, net | 9,285 | 12,082 | ||||||
| Changes in operating assets and liabilities, net of effects from acquisitions: | ||||||||
| Decrease (increase) in accounts receivable | 24,103 | (25,492 | ) | |||||
| Increase in inventories | (36,476 | ) | (41,533 | ) | ||||
| Decrease in trade accounts payable | (34,202 | ) | (17,523 | ) | ||||
| Net change in other current assets and liabilities | 34,340 | 46,316 | ||||||
| Net change in other long-term assets and liabilities | 1,647 | 4,602 | ||||||
| NET CASH PROVIDED BY OPERATING ACTIVITIES | 280,666 | 229,777 | ||||||
| INVESTING ACTIVITIES: | ||||||||
| Capital expenditures | (53,551 | ) | (48,746 | ) | ||||
| Acquisition of businesses, net of cash acquired | (136,735 | ) | 6,591 | |||||
| Proceeds from sale of property, plant and equipment | 9,491 | 10,585 | ||||||
| Purchase of marketable securities | — | (268,335 | ) | |||||
| Proceeds from marketable securities | — | 348,178 | ||||||
| Other investing activities | 2,000 | — | ||||||
| NET CASH (USED BY) PROVIDED BY INVESTING ACTIVITIES | (178,795 | ) | 48,273 | |||||
| FINANCING ACTIVITIES: | ||||||||
| Net change in borrowings | 2,433 | (646 | ) | |||||
| Proceeds from exercise of stock options | 6,210 | 4,448 | ||||||
| Purchase of shares for treasury | (221,942 | ) | (121,477 | ) | ||||
| Cash dividends paid to shareholders | (89,162 | ) | (76,674 | ) | ||||
| Other financing activities | — | (2,170 | ) | |||||
| NET CASH USED BY FINANCING ACTIVITIES | (302,461 | ) | (196,519 | ) | ||||
| Effect of exchange rate changes on Cash and cash equivalents | (1,647 | ) | (10,032 | ) | ||||
| (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS | (202,237 | ) | 71,499 | |||||
| Cash and cash equivalents at beginning of period | 358,849 | 326,701 | ||||||
| Cash and cash equivalents at end of period | $ | 156,612 | $ | 398,200 | ||||
| Cash dividends paid per share | $ | 1.41 | $ | 1.17 | ||||
Lincoln Electric Holdings, Inc.Segment Highlights (1)(In thousands)(Unaudited)
| Americas Welding | International Welding | The HarrisProducts Group | Corporate /Eliminations | Consolidated | ||||||||||||||||
| Three months ended September 30, 2019 | ||||||||||||||||||||
| Net sales | $ | 443,521 | $ | 205,378 | $ | 81,884 | $ | — | $ | 730,783 | ||||||||||
| Inter-segment sales | 31,101 | 4,441 | 1,857 | (37,399 | ) | — | ||||||||||||||
| Total | $ | 474,622 | $ | 209,819 | $ | 83,741 | $ | (37,399 | ) | $ | 730,783 | |||||||||
| Net income | $ | 72,461 | ||||||||||||||||||
| As a percent of total sales | 9.9 | % | ||||||||||||||||||
| EBIT (1) | $ | 74,110 | $ | 14,681 | $ | 11,038 | $ | (1,632 | ) | $ | 98,197 | |||||||||
| As a percent of total sales | 15.6 | % | 7.0 | % | 13.2 | % | 13.4 | % | ||||||||||||
| Special items charges (gains) (3) | — | (4,497 | ) | — | — | (4,497 | ) | |||||||||||||
| Adjusted EBIT (2) | $ | 74,110 | $ | 10,184 | $ | 11,038 | $ | (1,632 | ) | $ | 93,700 | |||||||||
| As a percent of total sales | 15.6 | % | 4.9 | % | 13.2 | % | 12.8 | % | ||||||||||||
| Three months ended September 30, 2018 | ||||||||||||||||||||
| Net sales | $ | 454,010 | $ | 209,622 | $ | 73,467 | $ | — | $ | 737,099 | ||||||||||
| Inter-segment sales | 31,845 | 3,663 | 1,537 | (37,045 | ) | — | ||||||||||||||
| Total | $ | 485,855 | $ | 213,285 | $ | 75,004 | $ | (37,045 | ) | $ | 737,099 | |||||||||
| Net income | $ | 70,539 | ||||||||||||||||||
| As a percent of total sales | 9.6 | % | ||||||||||||||||||
| EBIT (1) | $ | 85,021 | $ | 8,085 | $ | 8,676 | $ | (2,069 | ) | $ | 99,713 | |||||||||
| As a percent of total sales | 17.5 | % | 3.8 | % | 11.6 | % | 13.5 | % | ||||||||||||
| Special items charges (gains) (4) | 4,232 | 2,636 | — | 970 | 7,838 | |||||||||||||||
| Adjusted EBIT (2) | $ | 89,253 | $ | 10,721 | $ | 8,676 | $ | (1,099 | ) | $ | 107,551 | |||||||||
| As a percent of total sales | 18.4 | % | 5.0 | % | 11.6 | % | 14.6 | % | ||||||||||||
- EBIT is defined as Operating income plus Other income (expense).
- The primary profit measure used by management to assess segment performance is Adjusted EBIT. EBIT for each operating segment is adjusted for special items to derive Adjusted EBIT.
- Special items in 2019 reflect Rationalization and asset impairment charges of $1,495, amortization of step up in value of acquired inventories of $1,609 and a gain on change in control of $7,601 related to the acquisition of Askaynak in International Welding.
- Special items in 2018 reflect pension settlement charges of $4,232 in Americas Welding, rationalization and asset impairment charges of $2,636 in International Welding and acquisition transaction and integration costs of $970 in Corporate/Eliminations related to the acquisition of Air Liquide Welding.
Lincoln Electric Holdings, Inc.Segment Highlights(In thousands)(Unaudited)
| Americas Welding | International Welding | The HarrisProducts Group | Corporate /Eliminations | Consolidated | ||||||||||||||||
| Nine months ended September 30, 2019 | ||||||||||||||||||||
| Net sales | $ | 1,377,847 | $ | 635,770 | $ | 253,348 | $ | — | $ | 2,266,965 | ||||||||||
| Inter-segment sales | 95,300 | 12,838 | 5,837 | (113,975 | ) | — | ||||||||||||||
| Total | $ | 1,473,147 | $ | 648,608 | $ | 259,185 | $ | (113,975 | ) | $ | 2,266,965 | |||||||||
| Net income | $ | 229,393 | ||||||||||||||||||
| As a percent of total sales | 10.1 | % | ||||||||||||||||||
| EBIT (1) | $ | 237,598 | $ | 43,624 | $ | 35,045 | $ | (10,447 | ) | $ | 305,820 | |||||||||
| As a percent of total sales | 16.1 | % | 6.7 | % | 13.5 | % | 13.5 | % | ||||||||||||
| Special items charges (gains) (3) | 3,115 | (4,925 | ) | — | 1,804 | (6 | ) | |||||||||||||
| Adjusted EBIT (2) | $ | 240,713 | $ | 38,699 | $ | 35,045 | $ | (8,643 | ) | $ | 305,814 | |||||||||
| As a percent of total sales | 16.3 | % | 6.0 | % | 13.5 | % | 13.5 | % | ||||||||||||
| Nine months ended September 30, 2018 | ||||||||||||||||||||
| Net sales | $ | 1,351,297 | $ | 700,315 | $ | 233,235 | $ | — | $ | 2,284,847 | ||||||||||
| Inter-segment sales | 89,671 | 13,669 | 5,447 | (108,787 | ) | — | ||||||||||||||
| Total | $ | 1,440,968 | $ | 713,984 | $ | 238,682 | $ | (108,787 | ) | $ | 2,284,847 | |||||||||
| Net income | $ | 200,227 | ||||||||||||||||||
| As a percent of total sales | 8.8 | % | ||||||||||||||||||
| EBIT (1) | $ | 249,860 | $ | 17,617 | $ | 28,058 | $ | (8,108 | ) | $ | 287,427 | |||||||||
| As a percent of total sales | 17.3 | % | 2.5 | % | 11.8 | % | 12.6 | % | ||||||||||||
| Special items charges (gains) (4) | 4,990 | 24,353 | — | 3,665 | 33,008 | |||||||||||||||
| Adjusted EBIT (2) | $ | 254,850 | $ | 41,970 | $ | 28,058 | $ | (4,443 | ) | $ | 320,435 | |||||||||
| As a percent of total sales | 17.7 | % | 5.9 | % | 11.8 | % | 14.0 | % | ||||||||||||
- EBIT is defined as Operating income plus Other income (expense).
- The primary profit measure used by management to assess segment performance is Adjusted EBIT. EBIT for each operating segment is adjusted for special items to derive Adjusted EBIT.
- Special items in 2019 reflect Rationalization and asset impairment charges of $1,716 in Americas Welding and $4,621 in International Welding, amortization of step up in value of acquired inventories of $1,399 in Americas Welding and $1,609 in International Welding, gains on disposals of assets of $3,554 in International Welding, a gain on change in control of $7,601 related to the acquisition of Askaynak and acquisition transaction and integration costs of $1,804 in Corporate/Eliminations related to the acquisition of Air Liquide Welding.
- Special items in 2018 reflect pension settlement charges of $4,990 in Americas Welding, rationalization and asset impairment charges of $24,353 in International Welding and acquisition transaction and integration costs of $3,665 in Corporate/Eliminations related to the acquisition of Air Liquide Welding.
Lincoln Electric Holdings, Inc.Change in Net Sales by Segment(In thousands)(Unaudited)
| Three Months Ended September 30th Change in Net Sales by Segment | ||||||||||||||||||||||||
| Change in Net Sales due to: | ||||||||||||||||||||||||
| Net Sales 2018 | Volume | Acquisitions | Price | ForeignExchange | Net Sales 2019 | |||||||||||||||||||
| Operating Segments | ||||||||||||||||||||||||
| Americas Welding | $ | 454,010 | $ | (20,605 | ) | $ | 17,380 | $ | (5,603 | ) | $ | (1,661 | ) | $ | 443,521 | |||||||||
| International Welding | 209,622 | (12,966 | ) | 17,413 | 607 | (9,298 | ) | 205,378 | ||||||||||||||||
| The Harris Products Group | 73,467 | 3,429 | 4,766 | 761 | (539 | ) | 81,884 | |||||||||||||||||
| Consolidated | $ | 737,099 | $ | (30,142 | ) | $ | 39,559 | $ | (4,235 | ) | $ | (11,498 | ) | $ | 730,783 | |||||||||
| % Change | ||||||||||||||||||||||||
| Americas Welding | (4.5 | %) | 3.8 | % | (1.2 | %) | (0.4 | %) | (2.3 | %) | ||||||||||||||
| International Welding | (6.2 | %) | 8.3 | % | 0.3 | % | (4.4 | %) | (2.0 | %) | ||||||||||||||
| The Harris Products Group | 4.7 | % | 6.5 | % | 1.0 | % | (0.7 | %) | 11.5 | % | ||||||||||||||
| Consolidated | (4.1 | %) | 5.4 | % | (0.6 | %) | (1.6 | %) | (0.9 | %) | ||||||||||||||
| Nine Months Ended September 30th Change in Net Sales by Segment | ||||||||||||||||||||||||
| Change in Net Sales due to: | ||||||||||||||||||||||||
| Net Sales 2018 | Volume | Acquisitions | Price | Foreign Exchange | Net Sales 2019 | |||||||||||||||||||
| Operating Segments | ||||||||||||||||||||||||
| Americas Welding | $ | 1,351,297 | $ | (49,756 | ) | $ | 51,612 | $ | 33,424 | $ | (8,730 | ) | $ | 1,377,847 | ||||||||||
| International Welding | 700,315 | (54,433 | ) | 17,413 | 9,919 | (37,444 | ) | 635,770 | ||||||||||||||||
| The Harris Products Group | 233,235 | 5,973 | 16,196 | 576 | (2,632 | ) | 253,348 | |||||||||||||||||
| Consolidated | $ | 2,284,847 | $ | (98,216 | ) | $ | 85,221 | $ | 43,919 | $ | (48,806 | ) | $ | 2,266,965 | ||||||||||
| % Change | ||||||||||||||||||||||||
| Americas Welding | (3.7 | %) | 3.8 | % | 2.5 | % | (0.6 | %) | 2.0 | % | ||||||||||||||
| International Welding | (7.8 | %) | 2.5 | % | 1.4 | % | (5.3 | %) | (9.2 | %) | ||||||||||||||
| The Harris Products Group | 2.6 | % | 6.9 | % | 0.2 | % | (1.1 | %) | 8.6 | % | ||||||||||||||
| Consolidated | (4.3 | %) | 3.7 | % | 1.9 | % | (2.1 | %) | (0.8 | %) | ||||||||||||||
