Lincoln Electric Reports Third Quarter 2015 Results

· Adjusted operating income margin increased 40 basis points to 15.1%

· Reported results include $181 million of pre-tax special charges, $127 million after-tax, or $1.71 per diluted share

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

2015

% of Sales

2014

% of Sales

$

%

Net sales

$

645,166

100.0

%

$

715,777

100.0

%

$

(70,611)

(9.9%)

Cost of goods sold

446,272

69.2

%

474,168

66.2

%

27,896

5.9

%

Gross profit

198,894

30.8

%

241,609

33.8

%

(42,715)

(17.7%)

Selling, general & administrative expenses

128,299

19.9

%

136,424

19.1

%

8,125

6.0

%

Rationalization and asset impairment charges

18,285

2.8

%

29,068

4.1

%

10,783

37.1

%

Pension settlement charges

136,331

21.1

%

—

—

(136,331)

(100.0%)

Operating income (loss)

(84,021)

(13.0%)

76,117

10.6

%

(160,138)

(210.4%)

Interest income

692

0.1

%

627

0.1

%

65

10.4

%

Equity earnings in affiliates

310

—

1,172

0.2

%

(862)

(73.5%)

Other income

296

—

1,043

0.1

%

(747)

(71.6%)

Interest expense

(5,803)

(0.9%)

(1,174)

(0.2%)

(4,629)

(394.3%)

Income (loss) before income taxes

(88,526)

(13.7%)

77,785

10.9

%

(166,311)

(213.8%)

Income taxes

(28,045)

(4.3%)

32,953

4.6

%

60,998

185.1

%

Effective tax rate

31.7

%

42.4

%

10.7

%

Net income (loss) including non-controlling interests

(60,481)

(9.4%)

44,832

6.3

%

(105,313)

(234.9%)

Non-controlling interests in subsidiaries' loss

(15)

—

(857)

(0.1%)

842

98.2

%

Net income (loss)

$

(60,466)

(9.4%)

$

45,689

6.4

%

$

(106,155)

(232.3%)

Basic earnings (loss) per share

$

(0.82)

$

0.58

$

(1.40)

(241.4%)

Diluted earnings (loss) per share

$

(0.82)

$

0.57

$

(1.39)

(243.9%)

Weighted average shares (basic)

73,754

78,817

Weighted average shares (diluted)

73,754

79,725

Nine months ended September 30,

Fav (Unfav) to Prior Year

2015

% of Sales

2014

% of Sales

$

%

Net sales

$

1,967,806

100.0

%

$

2,129,370

100.0

%

$

(161,564)

(7.6%)

Cost of goods sold

1,322,741

67.2

%

1,411,158

66.3

%

88,417

6.3

%

Gross profit

645,065

32.8

%

718,212

33.7

%

(73,147)

(10.2%)

Selling, general & administrative expenses

385,945

19.6

%

419,495

19.7

%

33,550

8.0

%

Rationalization and asset impairment charges

19,524

1.0

%

29,887

1.4

%

10,363

(34.7%)

Pension Settlement Charges

136,331

6.9

%

—

—

(136,331)

(100.0%)

Operating income (loss)

103,265

5.2

%

268,830

12.6

%

(165,565)

(61.6%)

Interest income

2,023

0.1

%

2,465

0.1

%

(442)

(17.9%)

Equity earnings in affiliates

2,138

0.1

%

4,308

0.2

%

(2,170)

(50.4%)

Other income

3,223

0.2

%

3,204

0.2

%

19

0.6

%

Interest expense

(12,034)

(0.6%)

(3,730)

(0.2%)

(8,304)

(222.6%)

Income (loss)  before income taxes

98,615

5.0

%

275,077

12.9

%

(176,462)

(64.2%)

Income taxes

19,902

1.0

%

96,532

4.5

%

76,630

79.4

%

Effective tax rate

20.2

%

35.1

%

14.9

%

Net income (loss) including non-controlling interests

78,713

4.0

%

178,545

8.4

%

(99,832)

(55.9%)

Non-controlling interests in subsidiaries' loss

(73)

—

(929)

—

856

92.1

%

Net income (loss)

$

78,786

4.0

%

$

179,474

8.4

%

$

(100,688)

(56.1%)

Basic earnings (loss) per share

$

1.05

$

2.25

$

(1.20)

(53.3%)

Diluted earnings (loss) per share

$

1.04

$

2.22

$

(1.18)

(53.2%)

Weighted average shares (basic)

74,999

79,779

Weighted average shares (diluted)

75,764

80,702

Three months ended September 30,

Nine months ended September 30,

2015

2014

2015

2014

Operating income (loss) as reported

(84,021)

76,117

103,265

268,830

Special items (pre-tax):

Rationalization and asset impairment charges ⁽¹⁾

18,285

29,068

19,524

29,887

Venezuela foreign exchange losses ⁽²⁾

26,506

—

26,506

21,133

Pension settlement charges ⁽³⁾

136,331

—

136,331

—

Adjusted operating income (loss) ⁽⁵⁾

$

97,101

$

105,185

$

285,626

$

319,850

Net income (loss) as reported

$

(60,466)

$

45,689

$

78,786

$

179,474

Special items (after-tax):

Rationalization and asset impairment charges ⁽¹⁾

16,832

30,056

17,732

30,747

Venezuela foreign exchange losses ⁽²⁾

26,506

—

26,506

21,133

Pension settlement charges ⁽³⁾

83,341

—

83,341

—

Special items attributable to non-controlling

Interests

—

(805)

—

(805)

Adjusted net income (loss) ⁽⁵⁾

$

66,213

$

74,940

$

206,365

$

230,549

Diluted earnings (loss) per share as reported

$

(0.82)

$

0.57

$

1.04

$

2.22

Special items ⁽⁴⁾

1.71

0.37

1.68

0.64

Adjusted diluted earnings per share ⁽⁴⁾⁽⁵⁾

$

0.89

$

0.94

$

2.72

$

2.86

Weighted average shares (diluted) ⁽⁴⁾

74,460

79,725

75,764

80,702

(1)

The three and nine months ended September 30, 2015 and 2014 include net charges primarily related to severance and other related costs and long-lived asset impairments.  The three and nine months ended September 30, 2015 also include a goodwill asset impairment charge.  Rationalization charges in 2014 are partially offset by gains related to the sale of assets at rationalized operations.

(2)

The three and nine months ended September 30, 2015 and nine months ended September 2014 represent the impacts of Venezuelan remeasurement losses related to the adoption of new foreign exchange mechanisms.

(3)

The three and nine months ended September 30, 2015 include pension settlement charges primarily related to the purchase of a group annuity contract.

(4)

Adjusted diluted earnings per share for the three months ended September 30, 2015 include the dilutive effect of common share equivalents.  Reported diluted loss per share excludes the effect of common stock equivalents because their inclusion would be anti-dilutive.

(5)

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

September 30, 2015

December 31, 2014

Cash and cash equivalents

$

364,345

$

278,379

Total current assets

1,068,858

1,096,202

Property, plant and equipment, net

421,940

438,746

Total assets

1,928,091

1,939,215

Total current liabilities

437,429

492,395

Short-term debt ⁽¹⁾

2,453

68,166

Long-term debt

350,899

2,488

Total equity

1,011,969

1,285,781

Net Operating Working Capital

September 30, 2015

December 31, 2014

Accounts receivable

$

310,824

$

337,664

Inventory

308,625

341,057

Trade accounts payable

166,858

209,745

Net operating working capital

$

452,591

$

468,976

Net operating working capital to net sales ⁽²⁾

17.5

%

17.1

%

Invested Capital

September 30, 2015

December 31, 2014

Short-term debt ⁽¹⁾

$

2,453

$

68,166

Long-term debt

350,899

2,488

Total debt

353,352

70,654

Total equity

1,011,969

1,285,781

Invested capital

$

1,365,321

$

1,356,435

Total debt / invested capital

25.9

%

5.2

%

Return on invested capital ⁽³⁾

12.0

%

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 September 30,

2015

2014

OPERATING ACTIVITIES:

Net income (loss)

$

(60,466)

$

45,689

Non-controlling interests in subsidiaries' loss

(15)

(857)

Net income (loss) including non-controlling interests

(60,481)

44,832

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

Rationalization and asset impairment charges

6,090

28,588

Depreciation and amortization

16,179

17,117

Equity (earnings) loss in affiliates, net

236

(404)

Pension expense and settlement charges

141,244

4,158

Pension contributions and payments

(4,416)

(10,479)

Other non-cash items, net

(46,517)

9,382

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

Decrease in accounts receivable

28,343

20,953

Decrease in inventories

26,284

6,302

(Decrease) increase in trade accounts payable

(3,412)

3,915

Net change in other current assets and liabilities

3,197

25,919

Net change in other long-term assets and liabilities

(1,381)

(835)

NET CASH PROVIDED BY OPERATING ACTIVITIES

105,366

149,448

INVESTING ACTIVITIES:

Capital expenditures

(10,970)

(15,483)

Acquisition of businesses, net of cash acquired

(33,882)

—

Proceeds from sale of property, plant and equipment

752

11,537

Other investing activities

(2,103)

—

NET CASH USED BY INVESTING ACTIVITIES

(46,203)

(3,946)

FINANCING ACTIVITIES:

Net change in borrowings

170,371

81,257

Proceeds from exercise of stock options

564

1,935

Excess tax benefits from stock-based compensation

194

883

Purchase of shares for treasury

(139,337)

(130,070)

Cash dividends paid to shareholders

(21,694)

(18,276)

Other financing activities

(44)

—

NET CASH PROVIDED BY (USED BY) FINANCING ACTIVITIES

10,054

(64,271)

Effect of exchange rate changes on Cash and cash equivalents

(17,609)

(5,993)

INCREASE IN CASH AND CASH EQUIVALENTS

51,608

75,238

Cash and cash equivalents at beginning of period

312,737

204,285

Cash and cash equivalents at end of period

$

364,345

$

279,523

Cash dividends paid per share

$

0.29

$

0.23

Lincoln Electric Holdings, Inc.

Financial Highlights

(In thousands, except per share amounts)

(Unaudited)

Condensed Consolidated Statements of Cash Flows

Nine months ended September 30,

2015

2014

OPERATING ACTIVITIES:

Net income

$

78,786

$

179,474

Non-controlling interests in subsidiaries' loss

(73)

(929)

Net income including non-controlling interests

78,713

178,545

Adjustments to reconcile Net income including non-controlling interests to Net cash

   provided by operating activities:

Rationalization and asset impairment charges

6,120

29,447

Depreciation and amortization

47,897

53,017

Equity earnings in affiliates, net

(252)

(1,901)

Pension expense and settlement charges

151,848

9,634

Pension contributions and payments

(52,121)

(34,643)

Other non-cash items, net

(52,307)

30,041

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

Decrease (increase) in accounts receivable

14,661

(22,388)

Decrease (increase) in inventories

27,824

(11,153)

Decrease in trade accounts payable

(34,629)

(11,534)

Net change in other current assets and liabilities

47,032

53,299

Net change in other long-term assets and liabilities

650

(4,311)

NET CASH PROVIDED BY OPERATING ACTIVITIES

235,436

268,053

INVESTING ACTIVITIES:

Capital expenditures

(40,187)

(55,430)

Acquisition of businesses, net of cash acquired

(33,882)

(892)

Proceeds from sale of property, plant and equipment

2,173

17,046

Other investing activities

(79)

778

NET CASH USED BY INVESTING ACTIVITIES

(71,975)

(38,498)

FINANCING ACTIVITIES:

Net change in borrowings

314,420

71,114

Proceeds from exercise of stock options

4,600

5,945

Excess tax benefits from stock-based compensation

1,487

3,361

Purchase of shares for treasury

(297,804)

(249,403)

Cash dividends paid to shareholders

(65,942)

(55,395)

Other financing activities

(8,040)

(2,330)

NET CASH USED BY FINANCING ACTIVITIES

(51,279)

(226,708)

Effect of exchange rate changes on Cash and cash equivalents

(26,216)

(23,149)

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

85,966

(20,302)

Cash and cash equivalents at beginning of period

278,379

299,825

Cash and cash equivalents at end of period

$

364,345

$

279,523

Cash dividends paid per share

$

0.87

$

0.69

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 September 30, 2015

Net sales

$

408,416

$

80,596

$

45,505

$

47,727

$

62,922

$

—

$

645,166

Inter-segment sales

28,055

4,631

2,794

36

2,307

(37,823)

—

Total

$

436,471

$

85,227

$

48,299

$

47,763

$

65,229

$

(37,823)

$

645,166

EBIT (1)

$

(69,661)

$

8,069

$

(2,938)

$

(24,661)

$

6,422

$

(646)

$

(83,415)

As a percent of total sales

(16.0%)

9.5

%

(6.1%)

(51.6%)

9.8

%

(12.9%)

Special items charge (gain) (2)

$

149,404

$

268

$

4,944

$

26,506

$

—

$

—

$

181,122

EBIT, as adjusted (4)

$

79,743

$

8,337

$

2,006

$

1,845

$

6,422

$

(646)

$

97,707

As a percent of total sales

18.3

%

9.8

%

4.2

%

3.9

%

9.8

%

15.1

%

Three months ended September 30, 2014

Net sales

$

439,621

$

107,507

$

57,404

$

32,862

$

78,383

$

—

$

715,777

Inter-segment sales

30,365

4,533

3,595

9

2,009

(40,511)

—

Total

$

469,986

$

112,040

$

60,999

$

32,871

$

80,392

$

(40,511)

$

715,777

EBIT (1)

$

84,450

$

15,302

$

(28,871)

$

(1,172)

$

8,947

$

(324)

$

78,332

As a percent of total sales

18.0

%

13.7

%

(47.3%)

(3.6%)

11.1

%

10.9

%

Special items charge (gain) (3)

$

—

$

(81)

$

28,567

$

582

$

—

$

—

$

29,068

EBIT, as adjusted (4)

$

84,450

$

15,221

$

(304)

$

(590)

$

8,947

$

(324)

$

107,400

As a percent of total sales

18.0

%

13.6

%