Lincoln Electric Reports 1Q'10 EPS of $0.58, Excluding Special Items; Continued Improvements in Operating Leverage as a Result of Improved Demand

Lincoln Electric Holdings, Inc.

Financial Highlights

(In thousands, except per share data)

(Unaudited)

Consolidated Statements of Income

Three Months Ended March 31,

Fav (Unfav) to Prior Year

2010

% of Sales

2009

% of Sales

$

%

Net sales

$ 470,958

100.0%

$ 411,751

100.0%

$ 59,207

14.4%

Cost of goods sold

347,625

73.8%

321,503

78.1%

(26,122)

(8.1%)

Gross profit

123,333

26.2%

90,248

21.9%

33,085

36.7%

Selling, general &    administrative expenses

87,813

18.6%

77,516

18.8%

(10,297)

(13.3%)

Rationalization charges

801

0.2%

11,699

2.8%

10,898

93.2%

Operating income

34,719

7.4%

1,033

0.3%

33,686

3,261.0%

Interest income

635

0.1%

1,112

0.3%

(477)

(42.9%)

Equity earnings (loss) in

 affiliates

430

0.1%

(1,986)

(0.5%)

2,416

121.7%

Other income

433

0.1%

393

0.1%

40

10.2%

Interest expense

(1,514)

(0.3%)

(2,562)

(0.6%)

1,048

40.9%

Income (loss) before  income taxes

34,703

7.4%

(2,010)

(0.5%)

36,713

1,826.5%

Income taxes

10,975

2.3%

1,584

0.4%

(9,391)

(592.9%)

Effective tax rate

31.6%

(78.8%)

110.4%

Net income (loss)

$   23,728

5.0%

$   (3,594)

(0.9%)

$ 27,322

760.2%

Basic earnings (loss)

 per share

$       0.56

$     (0.08)

$     0.64

800.0%

Diluted earnings (loss)

 per share

$       0.55

$     (0.08)

$     0.63

787.5%

Reconciliation of Net Income (Loss) as Reported to Adjusted Net Income

Three Months Ended March 31,

Fav (Unfav) to Prior Year

2010

2009

$

%

Net income (loss) as  reported ⁽¹⁾

$   23,728

$   (3,594)

$ 27,322

760.2%

Special items ⁽¹⁾

1,038

7,428

6,390

86.0%

Adjusted net income  ⁽²⁾

$   24,766

$     3,834

$ 20,932

546.0%

Diluted earnings (loss)  per  share

$       0.55

$     (0.08)

$     0.63

787.5%

Special items ⁽¹⁾

0.03

0.17

0.14

82.4%

Adjusted diluted  earnings  per share ⁽²⁾

$       0.58

$       0.09

$     0.49

544.4%

Weighted average shares  (basic)

42,404

42,372

Weighted average shares  (diluted)

42,764

42,372

⁽¹⁾ Net income in the first quarter of 2010 includes special items of $612, or $801 pre-tax, for rationalization charges and a charge of $426, or a gain of $11 pre-tax, for certain impacts to the Company's operation in Venezuela of the change in functional currency to the U.S. dollar and the devaluaton of the Venezuelan currency.  Net loss in the first quarter of 2009 includes special items consisting of rationalization charges of $7,428, or $11,699 pre-tax.

⁽²⁾ Adjusted net income excluding special items and adjusted 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

March 31,

December 31,

2010

2009

Cash and cash equivalents

$    376,608

$      388,136

Total current assets

1,068,552

1,023,546

Property, plant and equipment, net

454,703

460,061

Total assets

1,757,263

1,705,292

Total current liabilities

346,723

297,971

Short-term debt

29,159

35,867

Long-term debt

87,001

87,850

Total equity

1,093,744

1,085,675

Net Operating Working Capital

March 31,

December 31,

2010

2009

Trade accounts receivable

$    307,841

$      273,700

Inventory

276,483

255,743

Trade accounts payable

136,185

100,052

Net operating working capital

$    448,139

$      429,391

Net operating working capital to net sales ⁽¹⁾

23.8%

23.2%

Invested Capital

March 31,

December 31,

2010

2009

Short-term debt

$      29,159

$        35,867

Long-term debt

87,001

87,850

Total debt

116,160

123,717

Total equity

1,093,744

1,085,675

Invested capital

$ 1,209,904

$   1,209,392

Total debt / invested capital

9.6%

10.2%

Return on invested capital ⁽²⁾

6.5%

4.3%

⁽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 March 31,

2010

2009

OPERATING ACTIVITIES:

Net income (loss)

$   23,728

$   (3,594)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Depreciation and amortization

14,237

13,488

Equity (earnings) loss in affiliates, net

(168)

3,254

Other non-cash items, net

(3,587)

(6,741)

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

(Increase) decrease in accounts receivable

(40,279)

31,417

(Increase) decrease in inventories

(23,017)

37,163

Increase (decrease) in accounts payable

38,316

(4,382)

Decrease in accrued pensions

(7,582)

(6,504)

Net change in other current assets and liabilities

13,428

4,618

Net change in other long-term assets and liabilities

520

2,944

NET CASH PROVIDED BY OPERATING ACTIVITIES

15,596

71,663

INVESTING ACTIVITIES:

Capital expenditures

(9,771)

(13,565)

Proceeds from sale of property, plant and equipment

42

192

NET CASH USED BY INVESTING ACTIVITIES

(9,729)

(13,373)

FINANCING ACTIVITIES:

Net change in borrowings

(2,000)

(28,859)

Proceeds from exercise of stock options

196

16

Tax benefit from exercise of stock options

78

2

Purchase of shares for treasury

(2,869)

(343)

Cash dividends paid to shareholders

(11,885)

(11,444)

NET CASH USED BY FINANCING ACTIVITIES

(16,480)

(40,628)

Effect of exchange rate changes on cash and cash equivalents

(915)

(1,542)

(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS

(11,528)

16,120

Cash and cash equivalents at beginning of period

388,136

284,332

Cash and cash equivalents at end of period

$ 376,608

$ 300,452

Cash dividends paid per share

$       0.28

$       0.27

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, 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

$           745

$     1,346

$    2,679

$           (742)

$          35,582

    As a percent of total

       sales

12.1%

0.6%

1.0%

5.9%

4.3%

7.6%

Special items ⁽²⁾

$              -

$        540

$           261

$        (11)

$          -

$               -

$               790

EBIT, as adjusted ⁽³⁾

$      30,996

$     1,098

$        1,006

$     1,335

$    2,679

$           (742)

$          36,372

    As a percent of total

       sales

12.1%

1.2%

1.4%

5.8%

4.3%

7.7%

Three months ended

    March 31, 2009

Net sales

$    218,827

$   87,499

$      32,691

$   20,659

$  52,075

$               -

$        411,751

Inter-segment sales

22,264

2,022

537

-

1,864

(26,687)

-

    Total

$    241,091

$   89,521

$      33,228

$   20,659

$  53,939

$      (26,687)

$        411,751

EBIT ⁽¹⁾

$      17,373

$   (5,478)

$      (7,558)

$        107

$   (3,206)

$        (1,798)

$             (560)

    As a percent of total

       sales

7.2%

(6.1%)

(22.7%)

0.5%

(5.9%)

(0.1%)

Special items ⁽⁴⁾

$      10,174

$        468

$           397

$          57

$       603

$               -

$          11,699

EBIT, as adjusted ⁽³⁾

$      27,547

$   (5,010)

$      (7,161)

$        164

$   (2,603)

$        (1,798)

$          11,139

    As a percent of total

       sales

11.4%

(5.6%)

(21.6%)

0.8%

(4.8%)

2.7%

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

⁽²⁾  Special items include rationalization charges and the impact to the Company's operation in Venezuela of the change in functional currency to the U.S. dollar and the devaluation of the Venezuelan currency.

⁽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.

Lincoln Electric Holdings, Inc.

Change in Net Sales by Segment

(In thousands)

(Unaudited)

First Quarter Change in Net Sales by Segment

Change in Net Sales due to:

Net Sales

Foreign

Net Sales

2009

Volume

Acquisitions

Price

Exchange

2010

Operating Segments

North America Welding

$    218,827

$    16,707

$                -

$   (9,669)

$     5,470

$    231,335

Europe Welding

87,499

(1,992)

-

(6,932)

6,101

84,676

Asia Pacific Welding

32,691

3,015

33,893

(2,631)

4,977

71,945

South America Welding

20,659

3,025

-

2,059

(2,995)

22,748

The Harris Products Group

52,075

4,215

-

1,779

2,185

60,254

Consolidated

$    411,751

$    24,970

$        33,893

$ (15,394)

$   15,738

$    470,958

% Change

North America Welding

7.6%

-

(4.4%)

2.5%

5.7%

Europe Welding

(2.3%)

-

(7.9%)

7.0%

(3.2%)

Asia Pacific Welding

9.2%

103.7%

(8.0%)

15.2%

120.1%

South America Welding

14.6%

-

10.0%

(14.5%)

10.1%

The Harris Products Group

8.1%

-

3.4%

4.2%

15.7%

Consolidated

6.1%

8.2%

(3.7%)

3.8%

14.4%