Lincoln Electric Reports Record 2007 Third Quarter Financial Results
CLEVELAND,
Three Months Ended September 30, 2007
* Sales increased 14.1% to $564.8 million
* Operating income increased 13.3%
* Excluding non-recurring items in 2006, operating income increased
12.1%
* Net income increased 14.0% to $50.0 million
* Excluding non-recurring items in 2006, adjusted net income increased
12.3% to $50.0 million
* Diluted Earnings Per Share (EPS) were $1.15 vs. $1.02, an increase of
12.7%
* Excluding non-recurring items in 2006, Diluted EPS was $1.15 vs.
$1.03 an increase of 11.7%
* Net cash provided by operating activities was $96.7 million
Nine Months Ended September 30, 2007
* Sales increased 16.0% to $1.70 billion
* Operating income increased 21.6%
* Excluding non-recurring items, operating income increased 19.7%
* Net income increased 24.3% to $153.2 million
* Excluding non-recurring items, adjusted net income increased 21.7% to
$153.6 million
* Diluted EPS was $3.53 vs. $2.87, an increase of 23.0%
* Excluding non-recurring items, Diluted EPS was $3.54 vs. $2.94, an
increase of 20.4%
* Net cash provided by operating activities was $204.1 million
Lincoln Electric Holdings, Inc. (the "Company") (Nasdaq: LECO) today
reported that 2007 third quarter net income increased 14.0% to $50.0 million,
or $1.15 per diluted share, on sales of $564.8 million, an increase of 14.1%.
Net income in the comparable period of 2006 was $43.9 million, or $1.02 per
diluted share, on net sales of $495.1 million. Operating income for the 2007
third quarter increased 13.3% to $67.6 million from $59.7 million in the
comparable 2006 period. Net income for the 2006 third quarter includes charges
of $0.7 million ($0.7 million after-tax, or $0.01 per diluted share) related
to European rationalization actions. Excluding non-recurring items, adjusted
net income increased 12.3% to $50.0 million, or $1.15 per diluted share in
2007 compared to $44.5 million or $1.03 per diluted share in 2006. The 2007
third quarter effective tax rate was 28.7% compared with 28.9% in 2006.
"We had another strong quarter of overall sales, profits and cash flow.
These positive results have been achieved despite challenges in several key
market and geographic segments," said John M. Stropki, Chairman and Chief
Executive Officer. "We continue to focus on strategically strengthening our
broad global manufacturing platform and product line. I am very pleased with
the continued impact of supply chain improvements which resulted in record
levels of operating cash flows." Sales for the Company's North American operations were $346.7 million in
the quarter versus $330.4 million in the comparable quarter last year, an
increase of 4.9%. U.S. export sales in the quarter increased 19.6% to $50.6
million from $42.3 million in 2006. Sales at Lincoln subsidiaries outside North America increased to $218.1
million in the third quarter, compared with $164.7 million in the year ago
quarter. In local currencies, international subsidiaries' sales increased
19.2%. Net income for the first nine months of 2007 increased 24.3% to $153.2
million, or $3.53 per diluted share. This compares with net income of $123.2
million in the same period last year, or $2.87 per diluted share. Operating
income for the nine month period increased 21.6% to $211.3 million from $173.7
million in the 2006 period. Net income for the first nine months of 2007 and
2006 includes non-recurring charges related to European rationalization
actions of $0.4 million ($0.4 million after-tax, or $0.01 per diluted share)
and $3.0 million ($3.0 million after-tax, or $0.07 per diluted share),
respectively. Excluding non-recurring items, adjusted net income increased
21.7% to $153.6 million, or $3.54 per diluted share in 2007 compared to $126.2
million, or $2.94 per diluted share in 2006. Sales in the first nine months of 2007 increased 16.0%, to $1.70 billion
from $1.47 billion in the 2006 comparable period. The Company's North
American operations had sales of $1.06 billion in 2007, compared with $986.3
million for the same period in 2006, an increase of 7.1%. U.S. export sales
increased 31.7% to $148.2 million, compared with $112.5 million in the
comparable 2006 period. Lincoln operations outside of North America had sales
of $644.2 million, an increase of 34.3% over prior year sales of $479.7
million. In local currencies, sales for the Company's international
operations increased 20.6%. Net cash provided by operating activities was $96.7 million and $204.1
million for the three month and nine month periods ending September 30, 2007,
respectively, compared with $47.8 million and $105.1 million for the
comparable periods of 2006. During 2007, the Company repaid $40.0 million of
outstanding debt under its Senior Unsecured Notes and paid $28.3 million in
dividends. The Company's Board of Directors declared a quarterly cash
dividend of $0.22, which was paid on October 15, 2007 to holders of record as
of September 28, 2007. 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 35
manufacturing locations, including operations, manufacturing alliances and
joint ventures in 19 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: 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 for the year ended December 31, 2006. A conference call to discuss third quarter 2007 results is scheduled for
today, Thursday, October 25, 2007 at 9:30 a.m. Eastern Time. An audio webcast
of the call is accessible through the Investor page on the Company's Website
at http://www.lincolnelectric.com.
Lincoln Electric Holdings, Inc.
Financial Highlights
(In thousands, except per share data)
(Unaudited)
Consolidated Fav (Unfav) to
Statements of Income Three Months Ended September 30, Prior Year
% of % of
2007 Sales 2006 Sales $ %
Net sales $564,824 100.0% $495,137 100.0% $69,687 14.1%
Cost of goods sold 405,083 71.7% 353,800 71.5% (51,283) (14.5%)
Gross profit 159,741 28.3% 141,337 28.5% 18,404 13.0%
Selling, general &
administrative
expenses 92,140 16.3% 81,019 16.4% (11,121) (13.7%)
Rationalization
charges - 0.0% 665 0.1% 665 100.0%
Operating income 67,601 12.0% 59,653 12.0% 7,948 13.3%
Interest income 2,290 0.4% 1,607 0.3% 683 42.5%
Equity earnings in
affiliates 2,263 0.4% 2,450 0.5% (187) (7.6%)
Other income 819 0.1% 436 0.1% 383 87.8%
Interest expense (2,866) (0.5%) (2,504) (0.5%) (362) (14.5%)
Income before income
taxes 70,107 12.4% 61,642 12.4% 8,465 13.7%
Income taxes 20,129 3.6% 17,787 3.5% (2,342) (13.2%)
Effective tax rate 28.7% 28.9% 0.2%
Net income (1) $49,978 8.8% $43,855 8.9% $6,123 14.0%
Reconciliation of Net Income as Reported to Adjusted Net Income
Excluding Non-Recurring Items:
Three Months Ended
September 30, Change
2007 2006 $ %
Net income as reported (1) $49,978 $43,855 $6,123 14.0%
Non-recurring items:
European rationalization charges
(after-tax) - 665 (665) (100.0%)
Adjusted net income excluding non-
recurring items (2) $49,978 $44,520 $5,458 12.3%
Basic earnings per share $1.16 $1.03 $0.13 12.6%
Non-recurring items (1) - 0.01 (0.01) (100.0%)
Basic earnings per share excluding
non-recurring items (2) $1.16 $1.04 $0.12 11.5%
Diluted earnings per share $1.15 $1.02 $0.13 12.7%
Non-recurring items (1) - 0.01 (0.01) (100.0%)
Diluted earnings per share excluding
non-recurring items (2) $1.15 $1.03 $0.12 11.7%
Weighted average shares (basic) 42,969 42,608
Weighted average shares (diluted) 43,467 43,119
(1) Net income includes charges related to European rationalization
actions of $665 ($665 after-tax) for the three months ended
September 30, 2006.
(2) Adjusted net income excluding non-recurring items and basic and
diluted earnings per share excluding non-recurring items, non-GAAP
financial measures, are presented as management believes these
financial measures 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 Nine Months Ended September 30,
% of % of
2007 Sales 2006 Sales
Net sales $1,700,505 100.0% $1,466,041 100.0%
Cost of goods sold 1,213,880 71.4% 1,048,171 71.5%
Gross profit 486,625 28.6% 417,870 28.5%
Selling, general &
administrative expenses 274,977 16.2% 241,126 16.4%
Rationalization charges 396 0.0% 3,006 0.2%
Operating income 211,252 12.4% 173,738 11.9%
Interest income 5,439 0.3% 4,201 0.3%
Equity earnings in affiliates 7,418 0.4% 4,974 0.3%
Other income 1,863 0.1% 985 0.0%
Interest expense (8,379) (0.4%) (7,343) (0.5%)
Income before income taxes 217,593 12.8% 176,555 12.0%
Income taxes 64,366 3.8% 53,332 3.6%
Effective tax rate 29.6% 30.2%
Net income (1) $153,227 9.0% $123,223 8.4%
Lincoln Electric Holdings, Inc.
Financial Highlights
(In thousands, except per share data)
(Unaudited)
Consolidated Statements of Income Fav (Unfav) to Prior Year
$ %
Net sales $234,464 16.0%
Cost of goods sold (165,709) (15.8%)
Gross profit 68,755 16.5%
Selling, general & administrative
expenses (33,851) (14.0%)
Rationalization charges 2,610 86.8%
Operating income 37,514 21.6%
Interest income 1,238 29.5%
Equity earnings in affiliates 2,444 49.1%
Other income 878 89.1%
Interest expense (1,036) (14.1%)
Income before income taxes 41,038 23.2%
Income taxes (11,034) (20.7%)
Effective tax rate 0.6%
Net income (1) $30,004 24.3%
Reconciliation of Net Income as Reported to Adjusted Net Income
Excluding Non-Recurring Items:
Nine Months Ended
September 30, Change
2007 2006 $ %
Net income as reported (1) $153,227 $123,223 $30,004 24.3%
Non-recurring items:
European rationalization charges
(after-tax) 396 3,006 (2,610) (86.8%)
Adjusted net income excluding non-
recurring items (2) $153,623 $126,229 $27,394 21.7%
Basic earnings per share $3.57 $2.90 $0.67 23.1%
Non-recurring items (1) 0.01 0.07 (0.06) (85.7%)
Basic earnings per share excluding
non-recurring items (2) $3.58 $2.97 $0.61 20.5%
Diluted earnings per share $3.53 $2.87 $0.66 23.0%
Non-recurring items (1) 0.01 0.07 (0.06) (85.7%)
Diluted earnings per share
excluding non-recurring items (2) $3.54 $2.94 $0.60 20.4%
Weighted average shares (basic) 42,875 42,468
Weighted average shares (diluted) 43,373 42,960
(1) Net income includes charges related to European rationalization
actions of $396 ($396 after-tax) for the nine months ended
September 30, 2007 and $3,006 ($3,006 after-tax) for the nine months
ended September 30, 2006.
(2) Adjusted net income excluding non-recurring items and basic and
diluted earnings per share excluding non-recurring items, non-GAAP
financial measures, are presented as management believes these
financial measures 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
September 30, December 31,
2007 2006
Cash and cash equivalents $223,220 $120,212
Total current assets 997,867 829,410
Net property, plant and
equipment 420,563 389,518
Total assets 1,626,432 1,394,579
Total current liabilities 356,610 338,288
Short-term debt 12,053 47,134
Long-term debt 114,586 113,965
Total shareholders' equity 1,033,519 852,976
Net Operating Working Capital
September 30, December 31,
2007 2006
Trade accounts receivable $353,316 $298,993
Inventory 355,977 351,144
Trade accounts payable 140,203 142,264
Net operating working capital $569,090 $507,873
Net operating working capital
% to net sales 25.8% 25.8%
Total Debt
September 30, December 31,
2007 2006
Short-term debt $12,053 $47,134
Long-term debt 114,586 113,965
Total debt 126,639 161,099
Equity 1,033,519 852,976
Total $1,160,158 $1,014,075
Total debt/capitalization 10.9% 15.9%
Return on invested capital 22.1% 19.9%
Lincoln Electric Holdings, Inc.
Financial Highlights
(In thousands, except per share data)
(Unaudited)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended September 30,
2007 2006
OPERATING ACTIVITIES:
Net income $49,978 $43,855
Adjustments to reconcile net income
to net cash provided by operating
activities:
Rationalization charges - 665
Depreciation and amortization 13,263 12,832
Equity earnings of affiliates, net (1,544) (1,950)
Other non-cash items, net 414 3,273
Changes in operating assets and
liabilities net of effects from
acquisitions:
Decrease in accounts receivable 18,574 7,378
Decrease (increase) in inventories 30,077 (5,554)
(Decrease) in accounts payable (27,861) (20,981)
Contributions to pension plans (1,897) (3,259)
(Decrease) increase in accrued
pensions (110) 3,758
Net change in other current assets
and liabilities 17,161 9,616
Net change in other long-term
assets and liabilities (1,400) (1,872)
NET CASH PROVIDED BY OPERATING
ACTIVITIES 96,655 47,761
INVESTING ACTIVITIES:
Capital expenditures (16,137) (21,057)
Acquisition of businesses, net of
cash acquired (1,688) (407)
Proceeds from sale of property,
plant and equipment 406 218
NET CASH USED BY INVESTING
ACTIVITIES (17,419) (21,246)
FINANCING ACTIVITIES:
Net change in borrowings (1,467) (110)
Proceeds from exercise of stock
options 2,527 1,330
Tax benefit from the exercise of
stock options 2,265 796
Purchase of treasury shares - (126)
Cash dividends paid to shareholders (9,446) (8,101)
NET CASH USED BY FINANCING
ACTIVITIES (6,121) (6,211)
Effect of exchange rate changes on
cash and cash equivalents 2,124 180
INCREASE IN CASH AND CASH
EQUIVALENTS 75,239 20,484
Cash and cash equivalents at
beginning of the period 147,981 125,427
Cash and cash equivalents at end of
period $223,220 $145,911
Cash dividends paid per share $0.22 $0.19
Lincoln Electric Holdings, Inc.
Financial Highlights
(In thousands, except per share data)
(Unaudited)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30,
2007 2006
OPERATING ACTIVITIES:
Net income $153,227 $123,223
Adjustments to reconcile net income
to net cash provided by operating
activities:
Rationalization charges 396 3,006
Depreciation and amortization 39,096 35,817
Equity earnings of affiliates, net (5,531) (3,541)
Other non-cash items, net (10,276) 5,751
Changes in operating assets and
liabilities net of effects from
acquisitions:
(Increase) in accounts
receivable (35,185) (48,422)
Decrease (increase) in
inventories 17,841 (54,982)
(Decrease) increase in
accounts payable (13,332) 6,843
Contributions to pension
plans (12,292) (19,656)
Increase in accrued pensions 915 12,395
Net change in other current assets
and liabilities 69,672 48,356
Net change in other long-term
assets and liabilities (424) (3,699)
NET CASH PROVIDED BY OPERATING
ACTIVITIES 204,107 105,091
INVESTING ACTIVITIES:
Capital expenditures (45,777) (53,318)
Acquisition of businesses, net of
cash acquired (6,102) (502)
Proceeds from sale of property,
plant and equipment 607 859
NET CASH USED BY INVESTING
ACTIVITIES (51,272) (52,961)
FINANCING ACTIVITIES:
Net change in borrowings (37,439) (5,083)
Proceeds from exercise of stock
options 7,589 10,282
Tax benefit from the exercise of
stock options 5,001 3,847
Purchase of treasury shares - (126)
Cash dividends paid to shareholders (28,271) (24,178)
NET CASH USED BY FINANCING
ACTIVITIES (53,120) (15,258)
Effect of exchange rate changes on
cash and cash equivalents 3,293 1,032
INCREASE IN CASH AND CASH
EQUIVALENTS 103,008 37,904
Cash and cash equivalents at
beginning of period 120,212 108,007
Cash and cash equivalents at end of
period $223,220 $145,911
Cash dividends paid per share $0.66 $0.57
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