Lincoln Electric Reports First Quarter 2014 Results

• Operating income decreased 9% to $80 million, or 11.7% of sales, on lower sales and Venezuelan remeasurement loss

• Adjusted operating income steady at $98 million and up 50 bps to 14.3% of sales

• Net income decreased 16% to $56 million; Adjusted net income $74 million, including $11 million from Venezuela

• Returned $70 million to shareholders through share repurchases and dividends

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

2014

% of Sales

% of Sales

$

%

Net sales

$

685,062

100.0

%

$

718,573

100.0

%

$

(33,511)

(4.7%)

Cost of goods sold

458,726

67.0

%

492,001

68.5

%

33,275

6.8

%

Gross profit

226,336

33.0

%

226,572

31.5

%

(236)

(0.1%)

Selling, general & administrative expenses

145,915

21.3

%

136,891

19.1

%

(9,024)

(6.6%)

Rationalization and asset impairment (gains) charges

(17)

—

1,051

0.1

%

1,068

101.6

%

Operating income

80,438

11.7

%

88,630

12.3

%

(8,192)

(9.2%)

Interest income

914

0.1

%

1,026

0.1

%

(112)

(10.9%)

Equity earnings in affiliates

1,561

0.2

%

1,259

0.2

%

302

24.0

%

Other income

1,083

0.2

%

714

0.1

%

369

51.7

%

Interest expense

(1,570)

(0.2%)

(950)

(0.1%)

(620)

(65.3%)

Income before income taxes

82,426

12.0

%

90,679

12.6

%

(8,253)

(9.1%)

Income taxes

26,002

3.8

%

23,836

3.3

%

(2,166)

(9.1%)

Effective tax rate

31.5

%

26.3

%

(5.2%)

Net income including non-controlling interests

56,424

8.2

%

66,843

9.3

%

(10,419)

(15.6%)

Non-controlling interests in subsidiaries' (loss) earnings

(29)

—

37

—

(66)

(178.4%)

Net income

$

56,453

8.2

%

$

66,806

9.3

%

$

(10,353)

(15.5%)

Basic earnings per share

$

0.70

$

0.81

$

(0.11)

(13.6%)

Diluted earnings per share

$

0.69

$

0.80

$

(0.11)

(13.8%)

Weighted average shares (basic)

80,648

82,719

Weighted average shares (diluted)

81,616

83,786

Lincoln Electric Holdings, Inc.

Financial Highlights

(In thousands, except per share amounts)

(Unaudited)

Non-GAAP Financial Measures

Three months ended March 31,

2014

2013

Operating income as reported

$

80,438

$

88,630

Special items (pre-tax):

Rationalization and asset impairment (gains) charges (1)

(17)

1,051

Venezuela foreign exchange losses (2)

17,665

9,660

Adjusted operating income (3)

$

98,086

$

99,341

Net income as reported

$

56,453

$

66,806

Special items (after-tax):

Rationalization and asset impairment (gains) charges (1)

(7)

673

Venezuela foreign exchange losses (2)

17,665

9,660

Adjusted net income (3)

$

74,111

$

77,139

Diluted earnings per share as reported

$

0.69

$

0.80

Special items

0.22

0.12

Adjusted diluted earnings per share (3)

$

0.91

$

0.92

Weighted average shares (diluted)

81,616

83,786

(1) The three months ended March 31, 2014 include net gains primarily related to the sale of assets at rationalized

     operations. The three months ended March 31, 2013 include net charges associated with severance and other related

     costs from the consolidation of manufacturing operations partially offset by gains related to the sale of assets at

     rationalized operations.

(2) The three months ended March 31, 2014 represents the impact of the Venezuelan remeasurement loss. The three months

     ended March 31, 2013 represents the impact of the devaluation of the Venezuelan currency.

(3) 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

March 31, 2014

December 31, 2013

Cash and cash equivalents

$

205,387

$

299,825

Total current assets

1,084,945

1,130,775

Property, plant and equipment, net

479,287

484,005

Total assets

2,113,976

2,151,867

Total current liabilities

431,912

456,917

Short-term debt (1)

7,303

15,296

Long-term debt

2,678

3,791

Total equity

1,512,113

1,530,688

Net Operating Working Capital

March 31, 2014

December 31, 2013

Accounts receivable

$

405,675

$

367,134

Inventory

363,554

349,963

Trade accounts payable

199,739

212,799

Net operating working capital

$

569,490

$

504,298

Net operating working capital to net sales (2)

20.8

%

17.6

%

Invested Capital

March 31, 2014

December 31, 2013

Short-term debt (1)

$

7,303

$

15,296

Long-term debt

2,678

3,791

Total debt

9,981

19,087

Total equity

1,512,113

1,530,688

Invested capital

$

1,522,094

$

1,549,775

Total debt / invested capital

0.7

%

1.2

%

Return on invested capital (3)

18.6

%

18.9

%

(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 March 31,

2014

2013

OPERATING ACTIVITIES:

Net income

$

56,453

$

66,806

Non-controlling interests in subsidiaries' (loss) earnings

(29)

37

Net income including non-controlling interests

56,424

66,843

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

Rationalization and asset impairment (gains) charges

(35)

114

Depreciation and amortization

17,931

17,397

Equity earnings in affiliates, net

(796)

(436)

Pension expense

2,800

7,615

Pension contributions and payments

(22,081)

(55,321)

Other non-cash items, net

23,984

14,345

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

Increase in accounts receivable

(43,885)

(66,585)

Increase in inventories

(15,157)

(16,334)

(Decrease) increase in trade accounts payable

(12,108)

8,268

Net change in other current assets and liabilities

5,547

4,182

Net change in other long-term assets and liabilities

1,007

(236)

NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES

13,631

(20,148)

INVESTING ACTIVITIES:

Capital expenditures

(14,506)

(15,138)

Acquisition of businesses, net of cash acquired

(892)

(549)

Proceeds from sale of property, plant and equipment

1,066

105

Other investing activities

573

—

NET CASH USED BY INVESTING ACTIVITIES

(13,759)

(15,582)

FINANCING ACTIVITIES:

Net change in borrowings

(8,056)

(1,492)

Proceeds from exercise of stock options

2,956

9,658

Excess tax benefits from stock-based compensation

1,652

3,989

Purchase of shares for treasury

(51,021)

(12,780)

Cash dividends paid to shareholders

(18,623)

—

Transactions with non-controlling interests

(2,330)

—

NET CASH USED BY FINANCING ACTIVITIES

(75,422)

(625)

Effect of exchange rate changes on Cash and cash equivalents

(18,888)

(1,654)

DECREASE IN CASH AND CASH EQUIVALENTS

(94,438)

(38,009)

Cash and cash equivalents at beginning of period

299,825

286,464

Cash and cash equivalents at end of period

$

205,387

$

248,455

Cash dividends paid per share

$

0.23

$

—

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

   March 31, 2014

Net sales

$

401,906

$

105,406

$

61,286

$

43,993

$

72,471

$

—

$

685,062

Inter-segment sales

32,943

5,860

4,449

29

2,118

(45,399)

—

Total

$

434,849

$

111,266

$

65,735

$

44,022

$

74,589

$

(45,399)

$

685,062

EBIT ⁽¹⁾

$

71,411

$

9,253

$

(631)

$

(5,900)

$

6,058

$

2,891

$

83,082

As a percent of total sales

16.4

%

8.3

%

(1.0%)

(13.4%)

8.1

%

12.1

%

Special items (gain) charge ⁽²⁾

$

(47)

$

39

$

(9)

$

17,665

$

—

$

—

$

17,648

EBIT, as adjusted ⁽⁴⁾

$

71,364

$

9,292

$

(640)

$

11,765

$

6,058

$

2,891

$

100,730

As a percent of total sales

16.4

%

8.4

%

(1.0%)

26.7

%

8.1

%

14.7

%

Three months ended

   March 31, 2013

Net sales

$

419,554

$

110,491

$

70,039

$

36,374

$

82,115

$

—

$

718,573

Inter-segment sales

28,985

4,279

4,384

20

2,224

(39,892)

—

Total

$

448,539

$

114,770

$

74,423

$

36,394

$

84,339

$

(39,892)

$

718,573

EBIT ⁽¹⁾

$

75,800

$

10,707

$

2,096

$

(4,548)

$

7,151

$

(603)

$

90,603

As a percent of total sales

16.9

%

9.3

%

2.8

%

(12.5%)

8.5

%

12.6

%

Special items (gain) charge ⁽³⁾

$

860

$

(6)

$

197

$

9,660

$

—

$

—

$

10,711

EBIT, as adjusted ⁽⁴⁾

$

76,660

$

10,701

$

2,293

$

5,112

$

7,151

$

(603)

$

101,314

As a percent of total sales

17.1

%

9.3

%

3.1

%

14.0

%

8.5

%

14.1

%

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

(2) Special items in the three months ended March 31, 2014 include net gains primarily related to the sale of assets at rationalized operations and the

     impact of the Venezuelan remeasurement loss.

(3) Special items in the three months ended March 31, 2013 include net rationalization and asset impairment charges (gains) and the impact of the

     devaluation of the Venezuelan currency.

(4) 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.

Lincoln Electric Holdings, Inc.

Change in Net Sales by Segment

(In thousands)

(Unaudited)

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

Change in Net Sales due to:

Net Sales

2013

Volume

Acquisitions

Price

Foreign

Exchange

Net Sales

2014

Operating Segments

North America Welding

$

419,554

$

(23,410)

$

7,869

$

1,240

$

(3,347)

$

401,906

Europe Welding

110,491

(5,487)

—

(1,550)

1,952

105,406

Asia Pacific Welding

70,039

(5,386)

—

(325)

(3,042)

61,286

South America Welding

36,374

(2,026)

—

12,807

(3,162)

43,993

The Harris Products Group

82,115

400

—

(9,204)

(840)

72,471

Consolidated

$

718,573

$

(35,909)

$

7,869

$

2,968

$

(8,439)

$

685,062

% Change

North America Welding

(5.6%)

1.9

%

0.3

%

(0.8%)

(4.2%)

Europe Welding

(5.0%)

—

(1.4%)

1.8

%

(4.6%)

Asia Pacific Welding

(7.7%)

—

(0.5%)

(4.3%)

(12.5%)

South America Welding

(5.6%)

—

35.2

%

(8.7%)

20.9

%

The Harris Products Group

0.5

%

—

(11.2%)

(1.0%)

(11.7%)

Consolidated

(5.0%)

1.1

%

0.4

%

(1.2%)

(4.7%)