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Lincoln Electric Reports 2008 Full Year and Fourth Quarter Financial Results

Posted on: Monday, 23 February 2009, 07:14 CST

CLEVELAND, Feb. 23 /PRNewswire-FirstCall/ --

Three Months Ended December 31, 2008

• Sales decreased 9.3% to $526.2 million
• Rationalization and asset impairment charges totaling $19.4 million were recorded in the quarter
• Net income decreased 60.7% to $19.5 million; excluding rationalization and asset impairment charges, net income decreased 22.9% to $37.8 million or $0.88 per diluted share

Twelve Months Ended December 31, 2008

• Sales increased 8.7% to $2.5 billion
• Operating income increased 6.4% to $295.4 million
• Net income increased 4.7% to $212.3 million; excluding rationalization and asset impairment charges, net income increased 13.8% to $230.6 million or $5.36 per diluted share
• Net cash provided by operating activities was $257.4 million

Lincoln Electric Holdings, Inc. (the "Company") (Nasdaq: LECO) today reported 2008 sales increased 8.7% to $2.5 billion from $2.3 billion in 2007. Operating income for 2008 increased 6.4% to $295.4 million from $277.6 million in 2007 or increased 13.5% excluding rationalization and asset impairment charges. Sales for the Company's North American operations were $1.45 billion in 2008 versus $1.40 billion in 2007, an increase of 3.6%. U.S. export sales in 2008 increased 24.6% to $242.3 million from $194.5 million in 2007.

Sales at Lincoln subsidiaries outside North America increased 16.9% to $1.03 billion in 2008, compared with $879.4 million in 2007. Excluding acquisitions and the effect of changes in foreign currency exchange rates, sales outside North America increased 5.4% in 2008 compared with 2007.

Net income for 2008 increased 4.7% to $212.3 million, or $4.93 per diluted share, from $202.7 million, or $4.67 per diluted share, in 2007. Included in net income was a $19.4 million charge ($18.3 million after-tax), or $0.43 per diluted share, associated with rationalization and non-cash asset impairment charges. The rationalization charges totaled $2.4 million ($1.7 million after-tax) related to fourth quarter actions to align the business to current market conditions. Asset impairment charges included $13.2 million of goodwill and $2.4 million of long-lived assets related to Chinese businesses and intangible assets totaling $1.3 million ($1.0 million after-tax) related to North American and European businesses.

"Financial results for 2008 were the best in Lincoln's history," said John M. Stropki, Chairman and Chief Executive Officer. "Sales of nearly $2.5 billion and net income of $4.93 per diluted share were both records. Results in the fourth quarter, however, started to reflect the significant challenges in this very difficult economic environment.

"During the fourth quarter, our sales around the world suffered from the weakened global economy, and we expect the lower sales volumes experienced in the quarter to continue. The impact of liquidating high cost inventory combined with declining volumes will continue to pressure margins into 2009."

Sales for the fourth quarter decreased 9.3% to $526.2 million from $580.3 million in the comparable 2007 period. Sales for the Company's North American operations were $309.0 million in the quarter versus $345.1 million in the comparable quarter last year, a decrease of 10.5%. U.S. export sales in the quarter increased 16.4% to $53.8 million from $46.3 million in 2007.

Sales at Lincoln subsidiaries outside North America decreased to $217.2 million in the fourth quarter compared with $235.2 million in the year-ago quarter, a decrease of 7.7%. Excluding acquisitions and the effect of changes in foreign currency exchange rates, sales outside North America decreased 3.5% in the quarter.

Net income for the fourth quarter decreased 60.7% to $19.5 million, or $0.46 per diluted share, from $49.5 million in 2007. Excluding rationalization and asset impairment charges, net income decreased 22.9% to $37.8 million, or $0.88 per diluted share. The 2008 fourth quarter effective tax rate increased to 40.7% compared with 28.8% in 2007, primarily as a result of asset impairment charges with no tax benefit.

"As announced on February 2, 2009, we have taken aggressive measures to align our business with current market conditions. These actions plus additional cost cutting measures will result in a first quarter 2009 pre-tax rationalization charge between $10 million and $12 million and will generate annualized savings of approximately $80 million. We are monitoring these initiatives closely to ensure we achieve the expected financial results. Our strong financial position will allow us to continue making strategic investments to enhance our global presence and develop new products and services for the future," said Mr. Stropki.

Net cash provided by operating activities was $40.7 million in the fourth quarter and $257.4 million for the full year of 2008. During 2008, the Company paid $42.8 million in dividends and spent $42.3 million on share repurchases. The Company's Board of Directors declared a quarterly cash dividend of $0.27 per share, which was paid on January 15, 2009 to holders of record as of December 31, 2008.

Lincoln Electric is the world leader in the design, development and manufacture of arc welding products, robotic arc-welding systems, plasma and oxyfuel cutting equipment and has a leading global position in the brazing and soldering alloys market. Headquartered in Cleveland, Ohio, Lincoln has 38 manufacturing locations, including operations and joint ventures in 20 countries and a worldwide network of distributors and sales offices covering more than 160 countries. For more information about Lincoln Electric, its products and services, visit the Company's website at http://www.lincolnelectric.com.

The Company's expectations and beliefs concerning the future contained in this news release are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements reflect management's current expectations and involve a number of risks and uncertainties. Actual results may differ materially from such statements due to a variety of factors that could adversely affect the Company's operating results. The factors include, but are not limited to: general economic and market conditions; the effectiveness of operating initiatives; currency exchange and interest rates; adverse outcome of pending or potential litigation; possible acquisitions; market risks and price fluctuations related to the purchase of commodities and energy; global regulatory complexity; and the possible effects of international terrorism and hostilities on the Company or its customers, suppliers and the economy in general. For additional discussion, see "Item 1A. Risk Factors" in the Company's Annual Report on Form 10-K.

A conference call to discuss financial results for the 2008 fourth quarter and full year is scheduled for today, Monday, February 23, 2009, at 10:00 a.m., Eastern Time. An audio webcast of the call is accessible through the investor tab on the Company's website at http://www.lincolnelectric.com.

Lincoln Electric Holdings, Inc. Financial Highlights (In thousands, except per share data) (Unaudited) Consolidated Statements of Income Three Months Ended Fav (Unfav) to December 31, Prior Year ------------------ -------------- % of % of 2008 Sales 2007 Sales $ % ---- ----- ---- ----- - - Net sales $526,186 100.0% $580,279 100.0% $(54,093) (9.3%) Cost of goods sold 385,078 73.2% 419,338 72.3% 34,260 8.2% ------- ------- ------ Gross profit 141,108 26.8% 160,941 27.7% (19,833) (12.3%) Selling, general & administrative expenses 86,200 16.4% 95,145 16.4% 8,945 9.4% Rationalization and asset impairment charges (gain) 19,371 3.7% (584) (0.1%) (19,955) N/A ------ ---- ------- Operating income 35,537 6.8% 66,380 11.4% (30,843) (46.5%) Interest income 2,229 0.4% 2,855 0.5% (626) (21.9%) Equity (loss) earnings in affiliates (2,068) (0.4%) 2,420 0.4% (4,488)(185.5%) Other income 354 0.1% 960 0.2% (606) (63.1%) Interest expense (3,216) (0.6%) (3,051) (0.5%) (165) (5.4%) ------ ------ ---- Income before income taxes 32,836 6.2% 69,564 12.0% (36,728) (52.8%) Income taxes 13,366 2.5% 20,055 3.5% 6,689 33.4% ------ ------ ----- Effective tax rate 40.7% 28.8% (11.9%) ---- ---- ----- Net income $19,470 3.7% $49,509 8.5% $(30,039) (60.7%) ======= ======= ========

Reconciliation of Net Income as Reported to Adjusted Net Income: Three Months Ended December 31, Change ---------------- ------ 2008 2007 $ % ---- ---- - - Net income as reported (1) $19,470 $49,509 $(30,039) (60.7%) Adjustments: Rationalization and asset impairment charges (gain) after-tax 18,313 (503) 18,816 N/A ------- ------- -------- Adjusted net income (2) $37,783 $49,006 $(11,223) (22.9%) ======= ======= ======== Basic earnings per share $0.46 $1.15 $(0.69) (60.0%) Adjustments (1) 0.43 (0.01) 0.44 N/A ---- ----- ---- Adjusted basic earnings per share (2) $0.89 $1.14 $(0.25) (21.9%) ===== ===== ====== Diluted earnings per share $0.46 $1.14 $(0.68) (59.6%) Adjustments (1) 0.42 (0.01) 0.43 N/A ---- ----- ---- Adjusted diluted earnings per share (2) $0.88 $1.13 $(0.25) (22.1%) ===== ===== ====== Weighted average shares (basic) 42,430 42,969 Weighted average shares (diluted) 42,695 43,447 (1) Net income includes a rationalization charge of $2,447 ($1,698 after- tax) and asset impairment charges of $16,924 ($16,615 after-tax) in the fourth quarter of 2008 and a gain of $584 ($503 after-tax) in the fourth quarter of 2007 related to rationalization actions. (2) Adjusted net income excluding rationalization and asset impairment charges and adjusted basic and diluted earnings per share excluding rationalization and asset impairment charges 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, except per share data) (Unaudited) Consolidated Statements of Income Fav (Unfav) to Twelve Months Ended December 31, Prior Year -------------------------------- -------------- % of % of 2008 Sales 2007 Sales $ % ---- ----- ---- ----- - - Net sales $2,479,131 100.0% $2,280,784 100.0% $198,347 8.7% Cost of goods sold 1,758,980 71.0% 1,633,218 71.6% (125,762) (7.7%) --------- --------- -------- Gross profit 720,151 29.0% 647,566 28.4% 72,585 11.2% Selling, general & administrative expenses 405,376 16.4% 370,122 16.2% (35,254) (9.5%) Rationalization and asset impairment charges (gain) 19,371 0.8% (188) (0.0%) (19,559) N/A ------ ---- ------- Operating income 295,404 11.9% 277,632 12.2% 17,772 6.4% Interest income 8,845 0.4% 8,294 0.4% 551 6.6% Equity earnings in affiliates 6,034 0.2% 9,838 0.4% (3,804) (38.7%) Other income 1,681 0.1% 2,823 0.1% (1,142) (40.5%) Interest expense (12,155) (0.5%) (11,430) (0.5%) (725) (6.3%) ------- ------- ---- Income before income taxes 299,809 12.1% 287,157 12.6% 12,652 4.4% Income taxes 87,523 3.5% 84,421 3.7% (3,102) (3.7%) ------ ------ ------ Effective tax rate 29.2% 29.4% 0.2% ---- ---- --- Net income $212,286 8.6% $202,736 8.9% $9,550 4.7% ======== ======== ====== Reconciliation of Net Income as Reported to Adjusted Net Income: Twelve Months Ended December 31, Change ----------------- ------ 2008 2007 $ % ---- ---- - - Net income as reported (1) $212,286 $202,736 $9,550 4.7% Adjustments: Rationalization and asset impairment charges (gain) after-tax 18,313 (107) 18,420 N/A -------- -------- ------- Adjusted net income (2) $230,599 $202,629 $27,970 13.8% ======== ======== ======= Basic earnings per share $4.98 $4.73 $0.25 5.3% Adjustments (1) 0.43 - 0.43 N/A ---- ---- ---- Adjusted basic earnings per share (2) $5.41 $4.73 $0.68 14.4% ===== ===== ===== Diluted earnings per share $4.93 $4.67 $0.26 5.6% Adjustments (1) 0.43 - 0.43 N/A ---- ---- ---- Adjusted diluted earnings per share (2) $5.36 $4.67 $0.69 14.8% ===== ===== ===== Weighted average shares (basic) 42,648 42,899 Weighted average shares (diluted) 43,054 43,392 (1) Net income includes a rationalization charge of $2,447 ($1,698 after- tax) and asset impairment charges of $16,924 ($16,615 after-tax) in 2008 and a gain of $188 ($107 after-tax) in 2007 related to rationalization actions. (2) Adjusted net income excluding rationalization and asset impairment charges and adjusted basic and diluted earnings per share excluding rationalization and asset impairment charges 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 December 31, December 31, 2008 2007 ---- ---- Cash and cash equivalents $284,332 $217,382 Total current assets 1,024,726 969,648 Property, plant and equipment, net 427,902 429,944 Total assets 1,718,805 1,645,296 Total current liabilities 356,642 311,921 Short-term debt 50,693 12,486 Long-term debt 91,537 117,329 Total shareholders' equity 995,312 1,087,220 Net Operating Working Capital December 31, December 31, 2008 2007 ---- ---- Trade accounts receivable $299,171 $344,058 Inventory 346,932 343,849 Trade accounts payable 124,388 152,301 ------- ------- Net operating working capital $521,715 $535,606 ======== ======== Net operating working capital % to net sales 21.0% 23.5% ==== ==== Invested Capital December 31, December 31, 2008 2007 ---- ---- Short-term debt $50,693 $12,486 Long-term debt 91,537 117,329 ------ ------- Total debt 142,230 129,815 Total shareholders' equity 995,312 1,087,220 ------- --------- Invested capital $1,137,542 $1,217,035 ========== ========== Total debt / invested capital 12.5% 10.7% Return on invested capital (1) 18.8% 16.8% (1) 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 December 31, ------------------------------- 2008 2007 ---- ---- OPERATING ACTIVITIES: Net income $19,470 $49,509 Adjustments to reconcile net income to net cash provided by operating activities: Rationalization and asset impairment charges (gain) 19,371 (584) Depreciation and amortization 14,024 13,514 Equity loss (earnings) of affiliates, net 2,595 (1,677) Other non-cash items, net 13,037 9,667 Changes in operating assets and liabilities net of effects from acquisitions: Decrease in accounts receivable 63,084 14,462 Decrease in inventories 52,048 18,170 (Decrease) increase in accounts payable (55,205) 9,999 (Decrease) increase in accrued pensions (8,403) 1,583 Net change in other current assets and liabilities (76,455) (69,116) Net change in other long-term assets and liabilities (2,860) 198 ------ --- NET CASH PROVIDED BY OPERATING ACTIVITIES 40,706 45,725 INVESTING ACTIVITIES: Capital expenditures (18,947) (15,856) Acquisition of businesses, net of cash acquired (16,015) (12,671) Proceeds from sale of property, plant and equipment 73 94 -- -- NET CASH USED BY INVESTING ACTIVITIES (34,889) (28,433) FINANCING ACTIVITIES: Net change in borrowings (221) 123 Proceeds from exercise of stock options 81 1,055 Tax benefit from exercise of stock options 312 (712) Purchase of shares for treasury (19,216) (15,459) Cash dividends paid to shareholders (10,685) (9,473) ------- ------ NET CASH USED BY FINANCING ACTIVITIES (29,729) (24,466) Effect of exchange rate changes on cash and cash equivalents (4,346) 1,336 ------ ----- DECREASE IN CASH AND CASH EQUIVALENTS (28,258) (5,838) Cash and cash equivalents at beginning of period 312,590 223,220 ------- ------- Cash and cash equivalents at end of period $284,332 $217,382 ======== ======== Cash dividends paid per share $0.25 $0.22 Lincoln Electric Holdings, Inc. Financial Highlights (In thousands, except per share data) (Unaudited) Consolidated Statements of Cash Flows Twelve Months Ended December 31, -------------------------------- 2008 2007 ---- ---- OPERATING ACTIVITIES: Net income $212,286 $202,736 Adjustments to reconcile net income to net cash provided by operating activities: Rationalization and asset impairment charges (gain) 19,371 (188) Depreciation and amortization 56,925 52,610 Equity earnings of affiliates, net (3,235) (7,208) Other non-cash items, net 17,611 (609) Changes in operating assets and liabilities net of effects from acquisitions: Decrease (increase) in accounts receivable 30,130 (20,723) (Increase) decrease in inventories (27,845) 36,011 Decrease in accounts payable (26,768) (3,333) Decrease in accrued pensions (25,975) (9,794) Net change in other current assets and liabilities 9,590 556 Net change in other long-term assets and liabilities (4,641) (226) ------ ---- NET CASH PROVIDED BY OPERATING ACTIVITIES 257,449 249,832 INVESTING ACTIVITIES: Capital expenditures (72,426) (61,633) Acquisition of businesses, net of cash acquired (44,036) (18,773) Proceeds from sale of property, plant and equipment 662 701 --- --- NET CASH USED BY INVESTING ACTIVITIES (115,800) (79,705) FINANCING ACTIVITIES: Net change in borrowings 6,423 (37,316) Proceeds from exercise of stock options 7,201 8,644 Tax benefit from exercise of stock options 3,728 4,289 Purchase of shares for treasury (42,337) (15,459) Cash dividends paid to shareholders (42,756) (37,744) ------- ------- NET CASH USED BY FINANCING ACTIVITIES (67,741) (77,586) Effect of exchange rate changes on cash and cash equivalents (6,958) 4,629 ------ ----- INCREASE IN CASH AND CASH EQUIVALENTS 66,950 97,170 Cash and cash equivalents at beginning of period 217,382 120,212 ------- ------- Cash and cash equivalents at end of period $284,332 $217,382 ======== ======== Cash dividends paid per share $1.00 $0.88

Lincoln Electric Holdings, Inc. Financial Highlights (In thousands) (Unaudited) Segment Highlights North Other Elimin- Consoli- America Europe Countries ations dated ------- ------ --------- ------- -------- Three months ended December 31, 2008 Net sales to unaffiliated customers $309,011 $116,829 $100,346 $ - $526,186 Inter-segment sales 28,726 4,029 3,468 (36,223) - ------ ----- ----- ------- -------- Total $337,737 $120,858 $103,814 $(36,223) $526,186 ======== ======== ======== ======== ======== Income before interest and income taxes $45,318 $(2,973) $(8,185) $(337) $33,823 As a percent of total sales 13.4% (2.5%) (7.9%) 6.4% Adjustments: Rationalization and asset impairment charges $1,319 $2,470 $15,582 $ - $19,371 Adjusted income before interest and income taxes excluding rationalization and asset impairment charges (1) $46,637 $(503) $7,397 $(337) $53,194 As a percent of total sales 13.8% (0.4%) 7.1% 10.1% Three months ended December 31, 2007 Net sales to unaffiliated customers $345,104 $134,579 $100,596 $ - $580,279 Inter-segment sales 25,483 7,470 1,272 (34,225) - ------ ----- ----- ------- -------- Total $370,587 $142,049 $101,868 $(34,225) $580,279 ======== ======== ======== ======== ======== Income before interest and income taxes $54,809 $14,169 $1,458 $(676) $69,760 As a percent of total sales 14.8% 10.0% 1.4% 12.0% North Other Elimin- Consoli- America Europe Countries ations dated ------- ------ --------- ------- -------- Twelve months ended December 31, 2008 Net sales to unaffiliated customers $1,451,333 $576,945 $450,853 $ - $2,479,131 Inter-segment sales 114,686 25,612 10,590 (150,888) - ------- ------ ------ -------- ---------- Total $1,566,019 $602,557 $461,443 $(150,888) $2,479,131 ========== ======== ======== ========= ========== Income before interest and income taxes $224,706 $55,407 $22,591 $415 $303,119 As a percent of total sales 14.3% 9.2% 4.9% 12.2% Adjustments: Rationalization and asset impairment charges $1,319 $2,470 $15,582 $ - $19,371 Adjusted income before interest and income taxes excluding rationalization and asset impairment charges (1) $226,025 $57,877 $38,173 $415 $322,490 As a percent of total sales 14.4% 9.6% 8.3% 13.0% Twelve months ended December 31, 2007 Net sales to unaffiliated customers $1,401,393 $510,514 $368,877 $ - $2,280,784 Inter-segment sales 99,227 24,156 11,645 (135,028) - ------ ------ ------ -------- ---------- Total $1,500,620 $534,670 $380,522 $(135,028) $2,280,784 ========== ======== ======== ========= ========== Income before interest and income taxes $211,092 $63,170 $18,578 $(2,547) $290,293 As a percent of total sales 14.1% 11.8% 4.9% 12.7% (1) Adjusted income before interest and income taxes excluding rationalization and asset impairment charges is a non-GAAP financial measure that management believes is 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.

SOURCE Lincoln Electric Holdings, Inc.

Source: PR Newswire

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