Lincoln Electric reports 1Q'11 Sales increase of 27.2%; 1Q Operating income increase of 71.1%; 1Q EPS of $1.11 or $1.00, as adjusted

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

2011

% of Sales

2010

% of Sales

$

%

Net sales

$ 599,179

100.0%

$ 470,958

100.0%

$ 128,221

27.2%

Cost of goods sold

437,741

73.1%

347,625

73.8%

(90,116)

(25.9%)

Gross profit

161,438

26.9%

123,333

26.2%

38,105

30.9%

Selling, general & administrative expenses

101,619

17.0%

87,775

18.6%

(13,844)

(15.8%)

Rationalization and asset impairment charges

357

0.1%

801

0.2%

444

55.4%

Operating income

59,462

9.9%

34,757

7.4%

24,705

71.1%

Interest income

608

0.1%

635

0.1%

(27)

(4.3%)

Equity earnings in affiliates

830

0.1%

430

0.1%

400

93.0%

Other income

1,295

0.2%

433

0.1%

862

199.1%

Interest expense

(1,658)

(0.3%)

(1,514)

(0.3%)

(144)

(9.5%)

Income before income taxes

60,537

10.1%

34,741

7.4%

25,796

74.3%

Income taxes

13,595

2.3%

10,975

2.3%

(2,620)

(23.9%)

Effective tax rate

22.5%

31.6%

9.1%

Net income including noncontrolling interests

46,942

7.8%

23,766

5.0%

23,176

97.5%

Noncontrolling interests in subsidiaries' earnings

32

-

38

-

6

15.8%

Net income

$   46,910

7.8%

$   23,728

5.0%

$   23,182

97.7%

Basic earnings per share

$       1.12

$       0.56

$       0.56

100.0%

Diluted earnings per share

$       1.11

$       0.55

$       0.56

101.8%

Weighted average shares (basic)

41,895

42,404

Weighted average shares (diluted)

42,439

42,764

 Lincoln Electric Holdings, Inc.

Financial Highlights

(In thousands, except per share amounts)

(Unaudited)

Non-GAAP Financial Measures

Three Months Ended March 31,

2011

2010

Operating income as reported

$ 59,462

$ 34,757

  Special items (pre-tax):

     Rationalization and asset impairment charges ⁽¹⁾

357

801

     Venezuela - functional currency change and devaluation ⁽²⁾

-

(11)

Adjusted operating income ⁽⁴⁾

$ 59,819

$ 35,547

Net income as reported

$ 46,910

$ 23,728

  Special items (after-tax):

     Rationalization and asset impairment charges ⁽¹⁾

281

612

     Venezuela - functional currency change and devaluation ⁽²⁾

-

426

     Adjustment for tax audit settlements ⁽³⁾

(4,844)

-

Adjusted net income ⁽⁴⁾

$ 42,347

$ 24,766

Diluted earnings per share as reported

$     1.11

$     0.55

Special items

(0.11)

0.03

Adjusted diluted earnings per share ⁽⁴⁾

$     1.00

$     0.58

Weighted average shares (diluted)

42,439

42,764

(1)  The three months ended March 31, 2011 and 2010 includes charges associated with the severance and other costs associated with the consolidation of manufacturing operations initiated in 2009.

(2)  Represents the impact of the change in the functional currency of the Company's Venezuelan operation to the U.S. dollar and the devaluation of the Venezuelan currency.  

(3)  Represents a favorable adjustment for tax audit settlements.

(4)  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

March 31,

December 31,

Selected Consolidated Balance Sheet Data

2011

2010

Cash and cash equivalents

$  341,415

$  366,193

Total current assets

1,195,205

1,082,512

Property, plant and equipment, net

489,820

478,566

Total assets

1,913,570

1,783,788

Total current liabilities

494,869

335,592

Short-term debt

95,373

13,078

Long-term debt

1,818

84,627

Total equity

1,211,991

1,149,478

March 31,

December 31,

Net Operating Working Capital

2011

2010

Accounts receivable

$  376,857

$  321,948

Inventory

368,954

291,730

Trade accounts payable

215,495

147,111

Net operating working capital

$  530,316

$  466,567

Net operating working capital to net sales ⁽¹⁾

22.1%

20.7%

March 31,

December 31,

Invested Capital

2011

2010

Short-term debt

$      95,373

$       13,078

Long-term debt

1,818

84,627

Total debt

97,191

97,705

Total equity

1,211,991

1,149,478

Invested capital

$ 1,309,182

$  1,247,183

Total debt / invested capital

7.4%

7.8%

Return on invested capital ⁽²⁾

11.9%

10.7%

(1) Net operating working capital to net sales is defined as net operating working capital divided by annualized rolling three 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 amounts)

(Unaudited)

Consolidated Statements of Cash Flows

Three Months Ended March 31,

2011

2010

OPERATING ACTIVITIES:

Net income

$   46,910

$   23,728

Noncontrolling interests in subsidiaries' earnings

32

38

Net income including noncontrolling interests

46,942

23,766

Adjustments to reconcile Net income including noncontrolling interests to Net

 cash provided by operating activities:

Rationalization and asset impairment charges

227

-

Depreciation and amortization

15,206

14,237

Equity earnings in affiliates, net

(362)

(168)

Other non-cash items, net

18,840

(3,625)

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

Increase in accounts receivable

(43,324)

(40,279)

Increase in inventories

(62,064)

(23,017)

Increase in trade accounts payable

55,553

38,316

Decrease in accrued pensions

(7,404)

(7,582)

Net change in other current assets and liabilities

(4,430)

13,428

Net change in other long-term assets and liabilities

(2,446)

520

NET CASH PROVIDED BY OPERATING ACTIVITIES

16,738

15,596

INVESTING ACTIVITIES:

Capital expenditures

(15,503)

(9,771)

Acquisition of businesses, net of cash acquired

(17,881)

-

Proceeds from sale of property, plant and equipment

142

42

NET CASH USED BY INVESTING ACTIVITIES

(33,242)

(9,729)

FINANCING ACTIVITIES:

Net change in borrowings

(1,319)

(2,000)

Proceeds from exercise of stock options

2,864

196

Tax benefit from exercise of stock options

715

78

Purchase of shares for treasury

(905)

(2,869)

Cash dividends paid to shareholders

(12,987)

(11,885)

NET CASH USED BY FINANCING ACTIVITIES

(11,632)

(16,480)

Effect of exchange rate changes on Cash and cash equivalents

3,358

(915)

DECREASE IN CASH AND CASH EQUIVALENTS

(24,778)

(11,528)

Cash and cash equivalents at beginning of period

366,193

388,136

Cash and cash equivalents at end of period

$ 341,415

$ 376,608

Cash dividends paid per share

$       0.31

$       0.28

Lincoln Electric Holdings, Inc.

Segment Highlights

(In thousands)

(Unaudited)

North

South

The Harris

America

Europe

Asia Pacific

America

Products

Corporate /

Welding

Welding

Welding

Welding

Group

Eliminations

Consolidated

Three months ended
    March 31, 2011

Net sales

$ 280,757

$ 114,208

$      87,560

$ 34,073

$    82,581

$                 -

$        599,179

Inter-segment sales

35,127

3,835

3,213

-

2,233

(44,408)

-

    Total

$ 315,884

$ 118,043

$      90,773

$ 34,073

$    84,814

$      (44,408)

$        599,179

EBIT ⁽¹⁾

$   46,636

$     5,554

$           127

$   2,048

$      6,543

$             679

$          61,587

    As a percent of total
       sales

14.8%

4.7%

0.1%

6.0%

7.7%

10.3%

Special items charge
   (gain) ⁽²⁾

$             -

$        358

$             (1)

$         -

$             -

$                 -

$               357

EBIT, as adjusted ⁽³⁾

$   46,636

$     5,912

$           126

$   2,048

$      6,543

$             679

$          61,944

    As a percent of total
       sales

14.8%

5.0%

0.1%

6.0%

7.7%

10.3%

Three months ended
    March 31, 2010

Net sales

$ 231,335

$   84,676

$      71,945

$ 22,748

$    60,254

$                 -

$        470,958

Inter-segment sales

24,908

3,558

2,501

194

1,731

(32,892)

-

    Total

$ 256,243

$   88,234

$      74,446

$ 22,942

$    61,985

$      (32,892)

$        470,958

EBIT ⁽¹⁾

$   30,996

$        558

$           721

$   1,346

$      2,741

$           (742)

$          35,620

    As a percent of total
        sales

12.1%

0.6%

1.0%

5.9%

4.4%

7.6%

Special items charge
   (gain) ⁽⁴⁾

$             -

$        540

$           261

$      (11)

$             -

$                 -

$               790

EBIT, as adjusted ⁽³⁾

$   30,996

$     1,098

$           982

$   1,335

$      2,741

$           (742)

$          36,410

    As a percent of total
        sales

12.1%

1.2%

1.3%

5.8%

4.4%

7.7%

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

(2)  Special items include rationalization and asset impairment charges.  

(3)  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.    

(4)  Special items include rationalization charges and the impact of the change in the functional currency of the Company's Venezuelan operation to the U.S. dollar and the devaluation of the Venezuelan currency.  

Lincoln Electric Holdings, Inc.

Change in Net Sales by Segment

(In thousands)

(Unaudited)

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

Change in Net Sales due to:

Net Sales

Foreign

Net Sales

2010

Volume

Acquisitions

Price

Exchange

2011

Operating Segments

North America Welding

$ 231,335

$ 40,386

$             448

$   6,124

$     2,464

$ 280,757

Europe Welding

84,676

14,750

8,022

5,150

1,610

114,208

Asia Pacific Welding

71,945

9,258

-

1,775

4,582

87,560

South America Welding

22,748

7,711

-

2,387

1,227

34,073

The Harris Products Group

60,254

6,526

-

14,943

858

82,581

Consolidated

$ 470,958

$ 78,631

$          8,470

$ 30,379

$   10,741

$ 599,179

% Change

North America Welding

17.5%

0.2%

2.6%

1.1%

21.4%

Europe Welding

17.4%

9.5%

6.1%

1.9%

34.9%

Asia Pacific Welding

12.9%

-

2.5%

6.4%

21.7%

South America Welding

33.9%

-

10.5%

5.4%

49.8%

The Harris Products Group

10.8%

-

24.8%

1.4%

37.1%

Consolidated

16.7%

1.8%

6.5%

2.3%

27.2%