Lincoln Electric reports 3Q'11 Sales increase of 35.1%; 3Q Operating income increase of 55.3%; 3Q EPS of $0.66, an increase of 73.7%

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

2011

% of Sales

2010

% of Sales

$

%

Net sales

$    701,624

100.0%

$    519,338

100.0%

$ 182,286

35.1%

Cost of goods sold

516,172

73.6%

375,267

72.3%

(140,905)

(37.5%)

Gross profit

185,452

26.4%

144,071

27.7%

41,381

28.7%

Selling, general & administrative expenses

110,629

15.8%

95,612

18.4%

(15,017)

(15.7%)

Rationalization and asset impairment charges (gains)

-

-

269

0.1%

269

100.0%

Operating income

74,823

10.7%

48,190

9.3%

26,633

55.3%

Interest income

1,167

0.2%

602

0.1%

565

93.9%

Equity earnings in affiliates

1,488

0.2%

1,070

0.2%

418

39.1%

Other income

147

-

628

0.1%

(481)

(76.6%)

Interest expense

(1,752)

(0.2%)

(1,671)

(0.3%)

(81)

(4.8%)

Income before income taxes

75,873

10.8%

48,819

9.4%

27,054

55.4%

Income taxes

20,515

2.9%

16,191

3.1%

(4,324)

(26.7%)

Effective tax rate

27.0%

33.2%

6.2%

Net income including noncontrolling interests

55,358

7.9%

32,628

6.3%

22,730

69.7%

Noncontrolling interests in subsidiaries' (loss) earnings

(172)

-

155

-

(327)

(211.0%)

Net income

$      55,530

7.9%

$      32,473

6.3%

$   23,057

71.0%

Basic earnings per share

$          0.66

$          0.39

$       0.27

69.2%

Diluted earnings per share

$          0.66

$          0.38

$       0.28

73.7%

Weighted average shares (basic)

83,613

84,268

Weighted average shares (diluted)

84,549

85,071

Nine Months Ended September 30,

Fav (Unfav) to Prior Year

2011

% of Sales

2010

% of Sales

$

%

Net sales

$ 2,000,096

100.0%

$ 1,505,880

100.0%

$ 494,216

32.8%

Cost of goods sold

1,457,702

72.9%

1,089,893

72.4%

(367,809)

(33.7%)

Gross profit

542,394

27.1%

415,987

27.6%

126,407

30.4%

Selling, general & administrative expenses

327,794

16.4%

284,452

18.9%

(43,342)

(15.2%)

Rationalization and asset impairment charges (gains)

282

-

(2,559)

(0.2%)

(2,841)

(111.0%)

Operating income

214,318

10.7%

134,094

8.9%

80,224

59.8%

Interest income

2,436

0.1%

1,781

0.1%

655

36.8%

Equity earnings in affiliates

4,033

0.2%

2,684

0.2%

1,349

50.3%

Other income

2,154

0.1%

1,324

0.1%

830

62.7%

Interest expense

(5,037)

(0.3%)

(4,751)

(0.3%)

(286)

(6.0%)

Income before income taxes

217,904

10.9%

135,132

9.0%

82,772

61.3%

Income taxes

58,582

2.9%

44,431

3.0%

(14,151)

(31.8%)

Effective tax rate

26.9%

32.9%

6.0%

Net income including noncontrolling interests

159,322

8.0%

90,701

6.0%

68,621

75.7%

Noncontrolling interests in subsidiaries' (loss) earnings

(131)

-

1,960

0.1%

(2,091)

(106.7%)

Net income

$    159,453

8.0%

$      88,741

5.9%

$   70,712

79.7%

Basic earnings per share

$          1.90

$          1.05

$       0.85

81.0%

Diluted earnings per share

$          1.88

$          1.04

$       0.84

80.8%

Weighted average shares (basic)

83,781

84,563

Weighted average shares (diluted)

84,826

85,339

Net income per common share, weighted average number of common shares outstanding and cash dividends per common share have been retroactively adjusted to give effect to the two-for-one stock split.

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,

2011

2010

2011

2010

Operating income as reported

$ 74,823

$ 48,190

$ 214,318

$ 134,094

  Special items (pre-tax):

     Rationalization and asset impairment charges (gains) (1)

-

269

282

(2,559)

     Venezuela - functional currency change and devaluation (2)

-

815

-

3,123

Adjusted operating income (4)

$ 74,823

$ 49,274

$ 214,600

$ 134,658

Net income as reported

$ 55,530

$ 32,473

$ 159,453

$   88,741

  Special items (after-tax):

     Rationalization and asset impairment charges (gains) (1)

-

265

237

(2,896)

     Venezuela - functional currency change and devaluation (2)

-

815

-

3,560

     Noncontrolling interests (1)

-

44

-

1,890

     Adjustment for tax audit settlements (3)

-

-

(4,844)

-

Adjusted net income (4)

$ 55,530

$ 33,597

$ 154,846

$   91,295

Diluted earnings per share as reported

$     0.66

$     0.38

$       1.88

$       1.04

Special items

-

0.01

(0.05)

0.03

Adjusted diluted earnings per share (4)

$     0.66

$     0.39

$       1.83

$       1.07

Weighted average shares (diluted)

84,549

85,071

84,826

85,339

(1)  The three month period ended September 30, 2010 and the nine month periods ended September 30, 2011 and 2010 include gains related to the sale of assets at rationalized operations offset by charges associated with severance and other costs from the consolidation of manufacturing operations initiated in 2009. In 2010, the closure of certain manufacturing operations included noncontrolling interests.  

(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.

Net income per common share, weighted average number of common shares outstanding and cash dividends per common share have been retroactively adjusted to give effect to the two-for-one stock split.

Lincoln Electric Holdings, Inc.

Financial Highlights

(In thousands)

(Unaudited)

Balance Sheet Highlights

September 30,

December 31,

Selected Consolidated Balance Sheet Data

2011

2010

Cash and cash equivalents

$          321,460

$        366,193

Total current assets

1,244,591

1,082,512

Property, plant and equipment, net

476,256

478,566

Total assets

1,962,877

1,783,788

Total current liabilities

549,148

335,592

Short-term debt

92,983

13,078

Long-term debt

1,562

84,627

Total equity

1,245,070

1,149,478

September 30,

December 31,

Net Operating Working Capital

2011

2010

Accounts receivable

$          392,568

$        321,948

Inventory

421,253

291,730

Trade accounts payable

203,299

147,111

Net operating working capital

$          610,522

$        466,567

Net operating working capital to net sales (1)

21.8%

20.7%

September 30,

December 31,

Invested Capital

2011

2010

Short-term debt

$            92,983

$          13,078

Long-term debt

1,562

84,627

Total debt

94,545

97,705

Total equity

1,245,070

1,149,478

Invested capital

$       1,339,615

$     1,247,183

Total debt / invested capital

7.1%

7.8%

Return on invested capital (2)

15.2%

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 September 30,

2011

2010

OPERATING ACTIVITIES:

Net income

$   55,530

$   32,473

Noncontrolling interests in subsidiaries' (loss) earnings

(172)

155

Net income including noncontrolling interests

55,358

32,628

Adjustments to reconcile Net income including noncontrolling interests to Net

 cash provided by operating activities:

Rationalization and asset impairment charges (gains)

-

(119)

Depreciation and amortization

15,740

14,062

Equity earnings in affiliates, net

(758)

(534)

Other non-cash items, net

3,624

11,757

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

Decrease in accounts receivable

3,436

1,274

Decrease (increase) in inventories

13,000

(11,139)

(Decrease) increase in trade accounts payable

(31,049)

5,850

Decrease in accrued pensions

(13,946)

(11,101)

Net change in other current assets and liabilities

39,699

14,942

Net change in other long-term assets and liabilities

(302)

(1,649)

NET CASH PROVIDED BY OPERATING ACTIVITIES

84,802

55,971

INVESTING ACTIVITIES:

Capital expenditures

(21,380)

(19,718)

Acquisition of businesses, net of cash acquired

(44,459)

(1,000)

Proceeds from sale of property, plant and equipment

154

1,797

NET CASH USED BY INVESTING ACTIVITIES

(65,685)

(18,921)

FINANCING ACTIVITIES:

Net change in borrowings

(1,392)

(12,763)

Proceeds from exercise of stock options

1,012

311

Tax benefit from exercise of stock options

300

99

Purchase of shares for treasury

(14,321)

(10,036)

Cash dividends paid to shareholders

(12,996)

(11,829)

NET CASH USED BY FINANCING ACTIVITIES

(27,397)

(34,218)

Effect of exchange rate changes on Cash and cash equivalents

(8,175)

5,804

(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS

(16,455)

8,636

Cash and cash equivalents at beginning of period

337,915

373,901

Cash and cash equivalents at end of period

$ 321,460

$ 382,537

Cash dividends paid per share

$     0.155

$       0.14

Lincoln Electric Holdings, Inc.

Financial Highlights

(In thousands, except per share amounts)

(Unaudited)

Consolidated Statements of Cash Flows

Nine Months Ended September 30,

2011

2010

OPERATING ACTIVITIES:

Net income

$ 159,453

$   88,741

Noncontrolling interests in subsidiaries' (loss) earnings

(131)

1,960

Net income including noncontrolling interests

159,322

90,701

Adjustments to reconcile Net income including noncontrolling interests to Net

 cash provided by operating activities:

Rationalization and asset impairment charges (gains)

23

(4,834)

Depreciation and amortization

47,089

42,422

Equity earnings in affiliates, net

(1,316)

(704)

Other non-cash items, net

28,056

23,460

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

Increase in accounts receivable

(72,287)

(48,598)

Increase in inventories

(98,727)

(57,211)

Increase in trade accounts payable

34,988

54,315

Decrease in accrued pensions

(30,490)

(29,241)

Net change in other current assets and liabilities

67,084

41,266

Net change in other long-term assets and liabilities

(3,364)

(7,862)

NET CASH PROVIDED BY OPERATING ACTIVITIES

130,378

103,714

INVESTING ACTIVITIES:

Capital expenditures

(50,750)

(43,208)

Acquisition of businesses, net of cash acquired

(62,340)

(1,182)

Proceeds from sale of property, plant and equipment

1,003

9,746

NET CASH USED BY INVESTING ACTIVITIES

(112,087)

(34,644)

FINANCING ACTIVITIES:

Net change in borrowings

(2,878)

(17,605)

Proceeds from exercise of stock options

7,211

1,319

Tax benefit from exercise of stock options

2,327

469

Purchase of shares for treasury

(27,630)

(22,960)

Cash dividends paid to shareholders

(39,001)

(35,584)

NET CASH USED BY FINANCING ACTIVITIES

(59,971)

(74,361)

Effect of exchange rate changes on Cash and cash equivalents

(3,053)

(308)

DECREASE IN CASH AND CASH EQUIVALENTS

(44,733)

(5,599)

Cash and cash equivalents at beginning of period

366,193

388,136

Cash and cash equivalents at end of period

$ 321,460

$ 382,537

Cash dividends paid per share

$     0.465

$       0.42

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

    September 30, 2011

Net sales

$    345,182

$ 128,294

$      97,790

$   44,169

$    86,189

$                 -

$        701,624

Inter-segment sales

33,070

3,238

4,111

254

2,485

(43,158)

-

    Total

$    378,252

$ 131,532

$    101,901

$   44,423

$    88,674

$      (43,158)

$        701,624

EBIT (1)

$      53,436

$   10,282

$        1,899

$     4,025

$      5,010

$          1,806

$          76,458

    As a percent of total sales

14.1%

7.8%

1.9%

9.1%

5.6%

10.9%

Special items charge (gain) (2)

$               -

$            -

$               -

$            -

$              -

$                 -

$                 -

EBIT, as adjusted (3)

$      53,436

$   10,282

$        1,899

$     4,025

$      5,010

$          1,806

$          76,458

    As a percent of total sales

14.1%

7.8%

1.9%

9.1%

5.6%

10.9%

Three months ended

    September 30, 2010

Net sales

$    255,636

$   85,892

$      79,657

$   34,065

$    64,088

$                 -

$        519,338

Inter-segment sales

28,291

3,242

4,224

662

1,518

(37,937)

-

    Total

$    283,927

$   89,134

$      83,881

$   34,727

$    65,606

$      (37,937)

$        519,338

EBIT (1)

$      43,187

$     5,294

$      (1,387)

$     2,355

$      4,119

$        (3,680)

$          49,888

    As a percent of total sales

15.2%

5.9%

(1.7%)

6.8%

6.3%

9.6%

Special items charge (gain) (4)

$               -

$        370

$         (101)

$        815

$              -

$                 -

$            1,084

EBIT, as adjusted (3)

$      43,187

$     5,664

$      (1,488)

$     3,170

$      4,119

$        (3,680)

$          50,972

    As a percent of total sales

15.2%

6.4%

(1.8%)

9.1%

6.3%

9.8%

Nine months ended

    September 30, 2011

Net sales

$    947,594

$ 381,750

$    288,072

$ 116,011

$  266,669

$                 -

$     2,000,096

Inter-segment sales

105,419

13,375

10,721

374

6,735

(136,624)

-

    Total

$ 1,053,013

$ 395,125

$    298,793

$ 116,385

$  273,404

$    (136,624)

$     2,000,096

EBIT (1)

$    158,192

$   26,875

$        3,391

$     9,600

$    20,750

$          1,697

$        220,505

    As a percent of total sales

15.0%

6.8%

1.1%

8.2%

7.6%

11.0%

Special items charge (gain) (2)

$               -

$        392

$         (110)

$            -

$              -

$                 -

$               282

EBIT, as adjusted (3)

$    158,192

$   27,267

$        3,281

$     9,600

$    20,750

$          1,697

$        220,787

    As a percent of total sales

15.0%

6.9%

1.1%

8.2%

7.6%

11.0%

Nine months ended

    September 30, 2010

Net sales

$    740,780

$ 255,773

$    233,965

$   85,009

$  190,353

$                 -

$     1,505,880

Inter-segment sales

81,381

9,787

9,310

1,064

4,877

(106,419)

-

    Total

$    822,161

$ 265,560

$    243,275

$   86,073

$  195,230

$    (106,419)

$     1,505,880

EBIT (1)

$    114,484

$   12,642

$        5,273

$     2,383

$      9,794

$        (6,474)

$        138,102

    As a percent of total sales

13.9%

4.8%

2.2%

2.8%

5.0%

9.2%

Special items charge (gain) (4)

$               -

$     2,079

$      (4,222)

$     3,123

$        (416)

$                 -

$               564

EBIT, as adjusted (3)

$    114,484

$   14,721

$        1,051

$     5,506

$      9,378

$        (6,474)

$        138,666

    As a percent of total sales

13.9%

5.5%

0.4%

6.4%

4.8%

9.2%

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

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

(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, gains on the sale of assets 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 September 30th 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

$    255,636

$   55,094

$        22,403

$   10,789

$     1,260

$    345,182

Europe Welding

85,892

10,370

20,191

3,806

8,035

128,294

Asia Pacific Welding

79,657

11,322

-

(326)

7,137

97,790

South America Welding

34,065

6,585

-

2,358

1,161

44,169

The Harris Products Group

64,088

1,367

-

19,310

1,424

86,189

Consolidated

$    519,338

$   84,738

$        42,594

$   35,937

$   19,017

$    701,624

% Change

North America Welding

21.6%

8.8%

4.2%

0.5%

35.0%

Europe Welding

12.1%

23.5%

4.4%

9.4%

49.4%

Asia Pacific Welding

14.2%

-

(0.4%)

9.0%

22.8%

South America Welding

19.3%

-

6.9%

3.4%

29.7%

The Harris Products Group

2.1%

-

30.1%

2.2%

34.5%

Consolidated

16.3%

8.2%

6.9%

3.7%

35.1%

Nine Months Ended September 30th 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

$    740,780

$ 149,157

$        23,680

$   27,064

$     6,913

$    947,594

Europe Welding

255,773

37,571

51,218

14,746

22,442

381,750

Asia Pacific Welding

233,965

31,848

-

2,932

19,327

288,072

South America Welding

85,009

19,192

-

7,417

4,393

116,011

The Harris Products Group

190,353

14,338

-

57,398

4,580

266,669

Consolidated

$ 1,505,880

$ 252,106

$        74,898