Lincoln Electric Reports Second Quarter 2018 Results Jul 23 2018 Lincoln Electric Holdings Inc - LECO- Q2 results.pdf 1.4 MB Second Quarter 2018 Highlights Sales increase 26.0% with 9.3% higher organic sales EPS increases 13.0% to $1.04, Adjusted EPS increases 25.8% to $1.22 ROIC increases 200 basis points to 18.0% CLEVELAND, July 23, 2018 (GLOBE NEWSWIRE) -- Lincoln Electric Holdings, Inc. (the “Company”) (Nasdaq:LECO) today reported second quarter 2018 net income of $68.9 million, or diluted earnings per share (EPS) of $1.04. This compares with $61.4 million, or $0.92 EPS in the prior year period. Reported EPS includes special item after-tax charges of $11.5 million, or $0.18 EPS. Excluding these items, second quarter 2018 adjusted net income increased 24.0% to $80.4 million, or $1.22 EPS, as compared with $64.8 million, or $0.97 EPS in the prior year period. The second quarter 2018 effective tax rate was 27.0% due to special items. Excluding special items, the effective tax rate was 24.6%, which compares to 26.7% in the comparable 2017 period. Second quarter 2018 sales increased 26.0% to $790.1 million from a 16.0% benefit from acquisitions, a 4.9% increase in price, 4.4% higher volumes and 0.7% from favorable foreign exchange. Operating income for the second quarter 2018 was $94.6 million, or 12.0% of sales. This compares with operating income of $85.6 million, or 13.7% of sales, in the comparable 2017 period. On an adjusted basis, operating income increased 18.8% to $107.0 million, or 13.5% of sales, as compared with $90.1 million, or 14.4% of sales, in the prior year period. The Air Liquide Welding acquisition had an unfavorable impact of approximately 120 basis points to the adjusted operating income margin. "Our second quarter results demonstrate solid execution of our core initiatives focused on organic growth and rapid integration of our European welding business,” stated Christopher L. Mapes, Chairman, President and Chief Executive Officer. “We are well-positioned in this portion of the cycle and we will continue to focus on mitigating inflation, richening our portfolio of solutions and generating exceptional value for our customers and shareholders.” Six Months 2018 Summary Net income for the six months ended June 30, 2018 was $129.7 million, or $1.96 EPS. This compares with $117.2 million, or $1.76 EPS, in the comparable 2017 period. Reported EPS includes special item after-tax net charges of $24.0 million or $0.36 EPS. Excluding these items, adjusted net income for the six months ended June 30, 2018 increased 24.5% to $153.7 million, or $2.32 EPS, compared with $123.4 million, or $1.85 EPS, in the comparable 2017 period. The effective tax rate for the six months ended June 30, 2018 was 27.3% due to special items. Excluding special items, the effective tax rate was 24.5%, which compares to 27.4% in the comparable 2017 period. Sales increased 28.2% to $1.5 billion in the six months ended June 30, 2018 from a 17.1% benefit from acquisitions, 4.8% higher volumes, a 4.6% increase in price and 1.7% from favorable foreign exchange. Operating income for the six months ended June 30, 2018 was $179.8 million, or 11.6% of sales. This compares with operating income of $165.0 million, or 13.7% of sales, in the comparable 2017 period. On an adjusted basis, operating income increased 18.0% to $204.2 million, or 13.2% of sales, as compared with $173.1 million, or 14.3% of sales, in the comparable 2017 period. For the first half of 2018, the Air Liquide Welding acquisition had an unfavorable impact of approximately 120 basis points to the adjusted operating income margin. Webcast Information A conference call to discuss second quarter 2018 financial results will be webcast live today, July 23, 2018, at 11:00 a.m., Eastern Time. This webcast is accessible at http://ir.lincolnelectric.com. Listeners should go to the web site prior to the call to register, download and install any necessary audio software. A replay of the webcast will be available on the Company's web site. Investors who are unable to access the webcast may listen to the conference call live by telephone by dialing (877) 344-3899 (domestic) or (315) 625-3087 (international) and use confirmation code 2576158. Telephone participants are asked to dial in 10 - 15 minutes prior to the start of the conference call. Financial results for the second quarter 2018 can also be obtained at http://ir.lincolnelectric.com. About Lincoln Electric Lincoln Electric is the world leader in the design, development and manufacture of arc welding products, robotic arc welding systems, plasma and oxy-fuel cutting equipment and has a leading global position in the brazing and soldering alloys market. Headquartered in Cleveland, Ohio, Lincoln has 63 manufacturing locations, including operations and joint ventures in 23 countries and a worldwide network of distributors and sales offices covering more than 160 countries. For more information about Lincoln Electric and its products and services, visit the Company’s website at http://www.lincolnelectric.com. Non-GAAP Information Adjusted operating income, Adjusted EBIT, Adjusted net income, Adjusted diluted earnings per share and Return on invested capital are non-GAAP financial measures. Management uses non-GAAP measures to assess the Company's operating performance by excluding certain disclosed special items that management believes are not representative of the Company's core business. Management believes that excluding these special items enables them to make better period-over-period comparisons and benchmark the Company's operational performance against other companies in its industry more meaningfully. Furthermore, management believes that non-GAAP financial measures provide investors with meaningful information that provides a more complete understanding of Company operating results and enables investors to analyze financial and business trends more thoroughly. Non-GAAP financial measures should not be viewed in isolation, are not a substitute for GAAP measures and have limitations including, but not limited to, their usefulness as comparative measures as other companies may define their non-GAAP measures differently. Forward-Looking Statements 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. Forward-looking statements generally can be identified by the use of words such as “may,” “will,” “expect,” “intend,” “estimate,” “anticipate,” “believe,” “forecast,” “guidance” or words of similar meaning. 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; completion of planned divestitures; interest rates; disruptions, uncertainty or volatility in the credit markets that may limit our access to capital; currency exchange rates and devaluations; adverse outcome of pending or potential litigation; actual costs of the Company’s rationalization plans; possible acquisitions, including the Company’s ability to successfully integrate the Air Liquide Welding business acquisition; market risks and price fluctuations related to the purchase of commodities and energy; global regulatory complexity; the effects of changes in tax law; tariff rates in the countries where the Company conducts business; and the possible effects of events beyond our control, such as political unrest, acts of terror and natural disasters, 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, 2017. Contact Amanda Butler Vice President, Investor Relations & Communications Tel: 216.383.2534 Email: Amanda_Butler@lincolnelectric.com Lincoln Electric Holdings, Inc.Financial Highlights(In thousands, except per share amounts)(Unaudited) Consolidated Statements of Income Three Months Ended June 30, Fav (Unfav) to Prior Year 2018 % of Sales 2017 % of Sales $ % Net sales $ 790,052 100.0 % $ 626,858 100.0 % $ 163,194 26.0 % Cost of goods sold 519,936 65.8 % 410,547 65.5 % (109,389 ) (26.6 %) Gross profit 270,116 34.2 % 216,311 34.5 % 53,805 24.9 % Selling, general & administrative expenses 163,940 20.8 % 130,738 20.9 % (33,202 ) (25.4 %) Rationalization and asset impairment charges 11,542 1.5 % — — (11,542 ) (100.0 %) Operating income 94,634 12.0 % 85,573 13.7 % 9,061 10.6 % Interest expense, net 4,812 0.6 % 5,052 0.8 % 240 4.8 % Other income (expense) 4,441 0.6 % 3,445 0.5 % 996 28.9 % Income before income taxes 94,263 11.9 % 83,966 13.4 % 10,297 12.3 % Income taxes 25,404 3.2 % 22,635 3.6 % (2,769 ) (12.2 %) Effective tax rate 27.0 % 27.0 % — Net income including non-controlling interests 68,859 8.7 % 61,331 9.8 % 7,528 12.3 % Non-controlling interests in subsidiaries’ earnings (loss) (5 ) — (21 ) — 16 76.2 % Net income $ 68,864 8.7 % $ 61,352 9.8 % $ 7,512 12.2 % Basic earnings per share $ 1.05 $ 0.93 $ 0.12 12.9 % Diluted earnings per share $ 1.04 $ 0.92 $ 0.12 13.0 % Weighted average shares (basic) 65,337 65,811 Weighted average shares (diluted) 66,121 66,743 Six Months Ended June 30, Fav (Unfav) toPrior Year 2018 % of Sales 2017 % of Sales $ % Net sales $ 1,547,748 100.0 % $ 1,207,755 100.0 % $ 339,993 28.2 % Cost of goods sold 1,021,078 66.0 % 788,781 65.3 % (232,297 ) (29.5 %) Gross profit 526,670 34.0 % 418,974 34.7 % 107,696 25.7 % Selling, general & administrative expenses 325,131 21.0 % 253,994 21.0 % (71,137 ) (28.0 %) Rationalization and asset impairment charges 21,717 1.4 % — — (21,717 ) (100.0 %) Operating income 179,822 11.6 % 164,980 13.7 % 14,842 9.0 % Interest expense, net 9,253 0.6 % 10,389 0.9 % 1,136 10.9 % Other income (expense) 7,892 0.5 % 7,275 0.6 % 617 8.5 % Income before income taxes 178,461 11.5 % 161,866 13.4 % 16,595 10.3 % Income taxes 48,782 3.2 % 44,687 3.7 % (4,095 ) (9.2 %) Effective tax rate 27.3 % 27.6 % 0.3 % Net income including non-controlling interests 129,679 8.4 % 117,179 9.7 % 12,500 10.7 % Non-controlling interests in subsidiaries’ earnings (loss) (9 ) — (17 ) — 8 47.1 % Net income $ 129,688 8.4 % $ 117,196 9.7 % $ 12,492 10.7 % Basic earnings per share $ 1.98 $ 1.78 $ 0.20 11.2 % Diluted earnings per share $ 1.96 $ 1.76 $ 0.20 11.4 % Weighted average shares (basic) 65,458 65,750 Weighted average shares (diluted) 66,257 66,666 Lincoln Electric Holdings, Inc.Financial Highlights(In thousands)(Unaudited) Balance Sheet Highlights Selected Consolidated Balance Sheet Data June 30, 2018 December 31, 2017 Cash and cash equivalents $ 357,094 $ 326,701 Marketable securities 139,059 179,125 Total current assets 1,411,567 1,373,608 Property, plant and equipment, net 468,205 477,031 Total assets 2,433,731 2,406,547 Total current liabilities 539,758 528,742 Short-term debt (1) 1,889 2,131 Long-term debt, less current portion 700,194 704,136 Total equity 943,508 932,453 Operating Working Capital June 30, 2018 December 31, 2017 Accounts receivable, net $ 425,806 $ 395,279 Inventories 365,634 348,667 Trade accounts payable 269,824 269,763 Operating working capital $ 521,616 $ 474,183 Average operating working capital to Net sales (2) (3) 16.5 % 15.9 % Invested Capital June 30, 2018 December 31, 2017 Short-term debt (1) $ 1,889 $ 2,131 Long-term debt, less current portion 700,194 704,136 Total debt 702,083 706,267 Total equity 943,508 932,453 Invested capital $ 1,645,591 $ 1,638,720 Total debt / invested capital 42.7 % 43.1 % Includes current portion of long-term debt. Average operating working capital to Net sales is defined as operating working capital as of period end divided by annualized rolling three months of Net sales. Average operating working capital to Net sales excluding the acquisition of Air Liquide Welding was 15.2% and 14.2% in the 2018 and 2017 periods, respectively. Lincoln Electric Holdings, Inc.Financial Highlights(In thousands, except per share amounts)(Unaudited) Non-GAAP Financial Measures Three Months Ended June 30, Six Months Ended June 30, 2018 2017 2018 2017 Operating income as reported $ 94,634 $ 85,573 $ 179,822 $ 164,980 Special items (pre-tax): Rationalization and asset impairment charges (2) 11,542 — 21,717 — Acquisition transaction and integration costs (3) 788 4,498 2,695 8,113 Adjusted operating income (1) $ 106,964 $ 90,071 $ 204,234 $ 173,093 As a percent of total sales 13.5 % 14.4 % 13.2 % 14.3 % Net income as reported $ 68,864 $ 61,352 $ 129,688 $ 117,196 Special items: Rationalization and asset impairment charges (2) 11,542 — 21,717 — Acquisition transaction and integration costs (3) 788 4,498 2,695 8,113 Pension settlement charges (4) — — 758 — Tax effect of Special items (5) (784 ) (1,004 ) (1,165 ) (1,885 ) Adjusted net income (1) 80,410 64,846 153,693 123,424 Non-controlling interests in subsidiaries’ earnings (loss) (5 ) (21 ) (9 ) (17 ) Interest expense, net 4,812 5,052 9,253 10,389 Income taxes as reported 25,404 22,635 48,782 44,687 Tax effect of Special items (5) 784 1,004 1,165 1,885 Adjusted EBIT (1) $ 111,405 $ 93,516 $ 212,884 $ 180,368 Diluted earnings per share as reported $ 1.04 $ 0.92 $ 1.96 $ 1.76 Special items per share 0.18 0.05 0.36 0.09 Adjusted diluted earnings per share (1) $ 1.22 $ 0.97 $ 2.32 $ 1.85 Weighted average shares (diluted) 66,121 66,743 66,257 66,666 Adjusted operating income, Adjusted EBIT, Adjusted net income and Adjusted diluted earnings per share are non-GAAP financial measures. Management uses non-GAAP measures to assess the Company's operating performance by excluding certain disclosed special items that management believes are not representative of the Company's core business. Management believes that excluding these special items enables them to make better period-over-period comparisons and benchmark the Company's operational performance against other companies in its industry more meaningfully. Furthermore, management believes that non-GAAP financial measures provide investors with meaningful information that provides a more complete understanding of Company operating results and enables investors to analyze financial and business trends more thoroughly. Non-GAAP financial measures should not be viewed in isolation, are not a substitute for GAAP measures and have limitations including, but not limited to, their usefulness as comparative measures as other companies may define their non-GAAP measures differently. Primarily related to severance and asset impairments. Related to the acquisition of Air Liquide Welding. Related to a lump sum pension payment. Includes the net tax impact of Special items recorded during the respective periods, including an adjustment to taxes on unremitted foreign earnings related to the U.S. Tax Act of $2,500 in the six months ended June 30, 2018. The tax effect of Special items impacting pre-tax income was calculated as the pre-tax amount multiplied by the applicable tax rate. The applicable tax rates reflect the taxable jurisdiction and nature of each Special item. Lincoln Electric Holdings, Inc.Financial Highlights(In thousands, except per share amounts)(Unaudited) Non-GAAP Financial Measures Twelve Months Ended June 30, Return on Invested Capital 2018 2017 Net income as reported $ 259,995 $ 230,640 Rationalization and asset impairment charges 28,307 — Pension settlement charges 8,908 — Acquisition transaction and integration costs 9,584 8,113 Amortization of step up in value of acquired inventories 4,578 — Bargain purchase gain (49,650 ) — Tax effect of Special items (3) 21,256 (1,885 ) Adjusted net income (1) $ 282,978 $ 236,868 Plus: Interest expense, net of tax of $6,077 and $8,988 in 2018 and 2017, respectively 18,265 14,489 Less: Interest income, net of tax of $1,509 and $1,244 in 2018 and 2017, respectively 4,537 2,005 Adjusted net income before tax effected interest $ 296,706 $ 249,352 Invested Capital June 30, 2018 June 30, 2017 Short-term debt $ 1,889 $ 1,953 Long-term debt, less current portion 700,194 704,732 Total debt 702,083 706,685 Total equity 943,508 851,776 Invested capital $ 1,645,591 $ 1,558,461 Return on invested capital (1)(2) 18.0 % 16.0 % Adjusted net income and Return on invested capital are non-GAAP financial measures. Management uses non-GAAP measures to assess the Company's operating performance by excluding certain disclosed special items that management believes are not representative of the Company's core business. Management believes that excluding these special items enables them to make better period-over-period comparisons and benchmark the Company's operational performance against other companies in its industry more meaningfully. Furthermore, management believes that non-GAAP financial measures provide investors with meaningful information that provides a more complete understanding of Company operating results and enables investors to analyze financial and business trends more thoroughly. Non-GAAP financial measures should not be viewed in isolation, are not a substitute for GAAP measures and have limitations including, but not limited to, their usefulness as comparative measures as other companies may define their non-GAAP measures differently. Return on invested capital is defined as rolling 12 months of Adjusted net income before tax-effected interest income and expense divided by invested capital. Includes the net tax impact of Special items recorded during the respective periods, including the net impact of the U.S. Tax Act of $31,116 in the twelve months ended June 30, 2018. The tax effect of Special items impacting pre-tax income was calculated as the pre-tax amount multiplied by the applicable tax rate. The applicable tax rates reflect the taxable jurisdiction and nature of each Special item. Lincoln Electric Holdings, Inc.Financial Highlights(In thousands, except per share amounts)(Unaudited) Condensed Consolidated Statements of Cash Flows Three Months Ended June 30, 2018 2017 OPERATING ACTIVITIES: Net income $ 68,864 $ 61,352 Non-controlling interests in subsidiaries’ loss (5 ) (21 ) Net income including non-controlling interests 68,859 61,331 Adjustments to reconcile Net income including non-controlling interests to Net cash provided by operating activities: Rationalization and asset impairment net gains (50 ) — Depreciation and amortization 18,189 15,840 Equity (earnings) loss in affiliates, net (839 ) 195 Pension income (945 ) (1,334 ) Other non-cash items, net 291 8,473 Changes in operating assets and liabilities, net of effects from acquisitions: Decrease (increase) in accounts receivable 561 (15,811 ) Decrease (increase) in inventories 153 (3,811 ) Increase in trade accounts payable 1,670 5,455 Net change in other current assets and liabilities (9,124 ) 3,536 Net change in other long-term assets and liabilities 1,016 1,573 NET CASH PROVIDED BY OPERATING ACTIVITIES 79,781 75,447 INVESTING ACTIVITIES: Capital expenditures (16,726 ) (16,094 ) Proceeds from sale of property, plant and equipment 109 899 Purchase of marketable securities (129,122 ) (35,009 ) Proceeds from marketable securities 126,767 1,190 Other investing activities 356 — NET CASH USED BY INVESTING ACTIVITIES (18,616 ) (49,014 ) FINANCING ACTIVITIES: Net change in borrowings 273 (321 ) Proceeds from exercise of stock options 637 7,754 Purchase of shares for treasury (35,508 ) (7,345 ) Cash dividends paid to shareholders (25,589 ) (23,030 ) Other financing activities — (15,182 ) NET CASH USED BY FINANCING ACTIVITIES (60,187 ) (38,124 ) Effect of exchange rate changes on Cash and cash equivalents (12,940 ) 5,986 DECREASE IN CASH AND CASH EQUIVALENTS (11,962 ) (5,705 ) Cash and cash equivalents at beginning of period 369,056 401,440 Cash and cash equivalents at end of period $ 357,094 $ 395,735 Cash dividends paid per share $ 0.39 $ 0.35 Lincoln Electric Holdings, Inc.Financial Highlights(In thousands, except per share amounts)(Unaudited) Condensed Consolidated Statements of Cash Flows Six Months Ended June 30, 2018 2017 OPERATING ACTIVITIES: Net income $ 129,688 $ 117,196 Non-controlling interests in subsidiaries’ loss (9 ) (17 ) Net income including non-controlling interests 129,679 117,179 Adjustments to reconcile Net income including non-controlling interests to Net cash provided by operating activities: Rationalization and asset impairment net charges 626 — Depreciation and amortization 36,323 32,006 Equity earnings in affiliates, net (1,377 ) (75 ) Pension income and settlement charges (1,067 ) (2,679 ) Other non-cash items, net 7,715 14,464 Changes in operating assets and liabilities, net of effects from acquisitions: Increase in accounts receivable (39,907 ) (40,006 ) Increase in inventories (27,899 ) (24,757 ) Increase in trade accounts payable 4,861 12,619 Net change in other current assets and liabilities 12,384 38,869 Net change in other long-term assets and liabilities 2,220 4,067 NET CASH PROVIDED BY OPERATING ACTIVITIES 123,558 151,687 INVESTING ACTIVITIES: Capital expenditures (31,383 ) (28,131 ) Acquisition of businesses, net of cash acquired 6,235 — Proceeds from sale of property, plant and equipment 227 1,102 Purchase of marketable securities (218,667 ) (69,934 ) Proceeds from marketable securities 258,733 4,990 Other investing activities 356 — NET CASH PROVIDED BY (USED BY) INVESTING ACTIVITIES 15,501 (91,973 ) FINANCING ACTIVITIES: Net change in borrowings 210 (211 ) Proceeds from exercise of stock options 2,599 13,397 Purchase of shares for treasury (50,232 ) (7,748 ) Cash dividends paid to shareholders (51,250 ) (46,016 ) Other financing activities — (15,189 ) NET CASH USED BY FINANCING ACTIVITIES (98,673 ) (55,767 ) Effect of exchange rate changes on Cash and cash equivalents (9,993 ) 12,609 INCREASE IN CASH AND CASH EQUIVALENTS 30,393 16,556 Cash and cash equivalents at beginning of period 326,701 379,179 Cash and cash equivalents at end of period $ 357,094 $ 395,735 Cash dividends paid per share $ 0.78 $ 0.70 Lincoln Electric Holdings, Inc.Segment Highlights (1)(In thousands)(Unaudited) Americas Welding International Welding The HarrisProducts Group Corporate /Eliminations Consolidated Three months ended June 30, 2018 Net sales $ 462,515 $ 243,373 $ 84,164 $ — $ 790,052 Inter-segment sales 31,240 5,497 2,003 (38,740 ) — Total $ 493,755 $ 248,870 $ 86,167 $ (38,740 ) $ 790,052 Net income $ 68,864 As a percent of total sales 8.7 % EBIT (1) $ 88,158 $ 4,734 $ 10,157 $ (3,974 ) $ 99,075 As a percent of total sales 17.9 % 1.9 % 11.8 % 12.5 % Special items charges (gains) (3) — 11,542 — 788 12,330 Adjusted EBIT (2) $ 88,158 $ 16,276 $ 10,157 $ (3,186 ) $ 111,405 As a percent of total sales 17.9 % 6.5 % 11.8 % 14.1 % Three months ended June 30, 2017 Net sales $ 405,147 $ 141,498 $ 80,213 $ — $ 626,858 Inter-segment sales 27,374 5,478 2,399 (35,251 ) — Total $ 432,521 $ 146,976 $ 82,612 $ (35,251 ) $ 626,858 Net income $ 61,352 As a percent of total sales 9.8 % EBIT (1) $ 74,498 $ 9,496 $ 9,787 $ (4,763 ) $ 89,018 As a percent of total sales 17.2 % 6.5 % 11.8 % 14.2 % Special items charges (gains) (3) — — — 4,498 4,498 Adjusted EBIT (2) $ 74,498 $ 9,496 $ 9,787 $ (265 ) $ 93,516 As a percent of total sales 17.2 % 6.5 % 11.8 % 14.9 % EBIT is defined as Operating income plus Other income (expense). The primary profit measure used by management to assess segment performance is Adjusted EBIT. EBIT for each operating segment is adjusted for special items to derive Adjusted EBIT. Special items in 2018 reflect rationalization and asset impairment charges of $11,542 in International Welding. Special items in 2018 and 2017 also reflect acquisition transaction and integration costs of $788 and $4,498, respectively, in Corporate / Eliminations related to the acquisition of Air Liquide Welding. Lincoln Electric Holdings, Inc.Segment Highlights(In thousands)(Unaudited) Americas Welding International Welding The HarrisProducts Group Corporate /Eliminations Consolidated Six months ended June 30, 2018 Net sales $ 897,287 $ 490,693 $ 159,768 $ — $ 1,547,748 Inter-segment sales 57,826 10,006 3,910 (71,742 ) — Total $ 955,113 $ 500,699 $ 163,678 $ (71,742 ) $ 1,547,748 Net income $ 129,688 As a percent of total sales 8.4 % EBIT (1) $ 164,839 $ 9,532 $ 19,382 $ (6,039 ) $ 187,714 As a percent of total sales 17.3 % 1.9 % 11.8 % 12.1 % Special items charges (gains) (3) 758 21,717 — 2,695 25,170 Adjusted EBIT (2) $ 165,597 $ 31,249 $ 19,382 $ (3,344 ) $ 212,884 As a percent of total sales 17.3 % 6.2 % 11.8 % 13.8 % Six months ended June 30, 2017 Net sales $ 788,471 $ 270,386 $ 148,898 $ — $ 1,207,755 Inter-segment sales 49,834 9,763 4,699 (64,296 ) — Total $ 838,305 $ 280,149 $ 153,597 $ (64,296 ) $ 1,207,755 Net income $ 117,196 As a percent of total sales 9.7 % EBIT (1) $ 143,221 $ 19,101 $ 18,247 $ (8,314 ) $ 172,255 As a percent of total sales 17.1 % 6.8 % 11.9 % 14.3 % Special items charges (gains) (3) — — — 8,113 8,113 Adjusted EBIT (2) $ 143,221 $ 19,101 $ 18,247 $ (201 ) $ 180,368 As a percent of total sales 17.1 % 6.8 % 11.9 % 14.9 % EBIT is defined as Operating income plus Other income (expense). The primary profit measure used by management to assess segment performance is Adjusted EBIT. EBIT for each operating segment is adjusted for special items to derive Adjusted EBIT. Special items in 2018 reflect rationalization and asset impairment charges of $21,717 in International Welding and pension settlement charges of $758 in Americas Welding. Special items in 2018 and 2017 also reflect acquisition transaction and integration costs of $2,695 and $8,113, respectively, in Corporate / Eliminations related to the acquisition of Air Liquide Welding. Lincoln Electric Holdings, Inc.Change in Net Sales by Segment(In thousands)(Unaudited) Three Months Ended June 30th Change in Net Sales by Segment Change in Net Sales due to: Net Sales 2017 Volume Acquisitions Price ForeignExchange Net Sales 2018 Operating Segments Americas Welding $ 405,147 $ 31,023 $ 4,059 $ 21,958 $ 328 $ 462,515 International Welding 141,498 (6,369 ) 96,318 7,772 4,154 243,373 The Harris Products Group 80,213 2,823 — 1,174 (46 ) 84,164 Consolidated $ 626,858 $ 27,477 $ 100,377 $ 30,904 $ 4,436 $ 790,052 % Change Americas Welding 7.7 % 1.0 % 5.4 % 0.1 % 14.2 % International Welding (4.5 %) 68.1 % 5.5 % 2.9 % 72.0 % The Harris Products Group 3.5 % — 1.5 % (0.1 %) 4.9 % Consolidated 4.4 % 16.0 % 4.9 % 0.7 % 26.0 % Six Months Ended June 30th Change in Net Sales by Segment Change in Net Sales due to: Net Sales 2017 Volume Acquisitions Price Foreign Exchange Net Sales 2018 Operating Segments Americas Welding $ 788,471 $ 59,585 $ 7,665 $ 39,640 $ 1,926 $ 897,287 International Welding 270,386 (11,106 ) 199,264 14,791 17,358 490,693 The Harris Products Group 148,898 9,203 — 678 989 159,768 Consolidated $ 1,207,755 $ 57,682 $ 206,929 $ 55,109 $ 20,273 $ 1,547,748 % Change Americas Welding — % 7.6 % 1.0 % 5.0 % 0.2 % 13.8 % International Welding (4.1 %) 73.7 % 5.5 % 6.4 % 81.5 % The Harris Products Group 6.2 % — 0.5 % 0.7 % 7.3 % Consolidated 4.8 % 17.1 % 4.6 % 1.7 % 28.2 % Source: Lincoln Electric Holdings, Inc.