Add
LECO to Portfolio
Set Alert
Email to a
Friend
| |||
|
|
Quotes & Info
|
| LECO > SEC Filings for LECO > Form 10-Q on 4-Nov-2009 | All Recent SEC Filings |
4-Nov-2009
Quarterly Report
Results of Operations
Three Months Ended September 30, 2009 Compared with Three Months Ended
September 30, 2008
Three Months Ended September 30,
2009 2008 Change
Amount % of Sales Amount % of Sales Amount %
Net sales $ 441,802 100.0% $ 632,892 100.0% $ (191,090) (30.2%)
Cost of goods sold 316,671 71.7% 436,014 68.9% (119,343) (27.4%)
Gross profit 125,131 28.3% 196,878 31.1% (71,747) (36.4%)
Selling, general &
administrative expenses 84,778 19.2% 107,097 16.9% (22,319) (20.8%)
Rationalization charges 7,144 1.6% - 0.0% 7,144 NA
Operating income 33,209 7.5% 89,781 14.2% (56,572) (63.0%)
Interest income 716 0.2% 2,317 0.4% (1,601) (69.1%)
Equity (loss) earnings in
affiliates (8,692) (2.0%) 3,739 0.6% (12,431) (332.5%)
Other income 1,030 0.2% 201 0.0% 829 412.4%
Interest expense (2,032) (0.5%) (3,156) (0.5%) 1,124 (35.6%)
Income before income taxes 24,231 5.5% 92,882 14.7% (68,651) (73.9%)
Income taxes 11,474 2.6% 23,671 3.7% (12,197) (51.5%)
Net income $ 12,757 2.9% $ 69,211 10.9% $ (56,454) (81.6%)
|
Net Sales: Net sales for the third quarter of 2009 decreased 30.2% to $441,802 from $632,892 in the third quarter of 2008. The decrease in Net sales reflects a $178,138 (28.1%) decrease due to volume, a $23,082 (3.6%) decrease due to price, a $26,987 (4.3%) increase from acquisitions and a $16,857 (2.7%) unfavorable impact as a result of changes in foreign currency exchange rates. Net sales for the North American segment decreased 35.1% to $240,505 in the third quarter of 2009 compared with $370,474 in the third quarter of 2008. This decrease reflects a decrease of $117,592 (31.7%) due to volume, an $11,520 (3.1%) decrease due to price and an $857 (0.2%) decrease as a result of changes in foreign currency exchange rates. Net sales for the European segment decreased 36.9% to $89,435 in the third quarter of 2009 compared with $141,693 in the third quarter of 2008. This decrease reflects a decrease of $32,086 (22.6%) due to volume, a $9,549 (6.7%) decrease due to price and a $10,623 (7.5%) unfavorable impact as a result of changes in foreign currency exchange rates. Net sales for the Other Countries segment decreased 7.3% to $111,862 in the third quarter of 2009 compared with $120,725 in the third quarter of 2008. This decrease reflects a decrease of $28,460 (23.6%) due to volume, a $2,013 (1.7%) decrease due to price, a $26,987 (22.4%) increase from acquisitions and a $5,377 (4.5%) unfavorable impact as a result of changes in foreign currency exchange rates.
Gross Profit: Gross profit decreased 36.4% to $125,131 for the third quarter of 2009 compared with $196,878 in the third quarter of 2008. As a percentage of Net sales, Gross profit decreased to 28.3% in the third quarter of 2009 from 31.1% in the third quarter of 2008. The decrease was primarily a result of lower volumes and higher retirement costs in the U.S. of $4,061. Foreign currency exchange rates had a $3,229 unfavorable translation impact in the third quarter of 2009. In addition, the Company has reduced the LIFO reserve by $7,650. The decrease in the LIFO reserve was principally a result of decreases in commodity prices in 2009, primarily steel, and a reduction in inventory levels. The reduction in inventory levels is estimated to have impacted the decrease in the LIFO reserve by $3,825.
Selling, General & Administrative (SG&A) Expenses: SG&A expenses decreased $22,319 (20.8%) in the third quarter of 2009 compared with the third quarter of 2008. The decrease was primarily due to lower bonus expense of $16,230, lower selling, administrative and research and development expense of $5,897, the favorable translation impact of foreign currency exchange rates of $2,601 and incremental foreign currency transaction gains of $4,106 partially offset by higher retirement costs in the U.S. of $3,007 and incremental SG&A from acquisitions of $2,737.
Rationalization Charges: In the third quarter of 2009, the Company recorded $7,144 ($6,340 after-tax) in charges related to rationalization activities at facilities around the world as the Company adjusts its cost base to current market conditions. The charges include the closure of a manufacturing facility in Europe and the consolidation of certain manufacturing operations in the Europe and Other Countries segments and are primarily employee severance costs.
Interest Income: Interest income decreased to $716 in the third quarter of 2009 from $2,317 in the third quarter of 2008. The decrease was due to lower interest rates on cash and cash equivalents in 2009 when compared with 2008.
Equity (Loss) Earnings in Affiliates: Equity loss in affiliates was $8,692 in the third quarter of 2009 compared with earnings of $3,739 in the third quarter of 2008. Equity earnings were down primarily as a result of a loss of $7,943 recorded on the acquisition of Jinzhou Jin Tai Welding and Metal Co., Ltd. ("Jin Tai") and the related disposal of an interest in Kuang Tai Metal Industrial Co., Ltd. ("Kuang Tai"), the Company's Taiwanese joint venture.
Interest Expense: Interest expense decreased to $2,032 in the third quarter of 2009 from $3,156 in the third quarter of 2008 primarily as a result of a lower average debt balance from the payment of $30,000 on the Senior Unsecured Note that matured in March 2009 and the impact of a lower effective interest rate as a result of interest rate swaps.
Income Taxes: The Company recorded $11,474 of tax expense on pre-tax income of $24,231, resulting in an effective tax rate of 47.4% for the three months ended September 30, 2009. The effective tax rate exceeds the Company's statutory rate due to losses at certain non-U.S. entities, including the loss on the acquisition of Jin Tai and related disposal of Kuang Tai of $7,943, for which no tax benefit has been provided, partially offset by a benefit for the utilization of foreign tax credits.
The effective income tax rate of 25.5% for the three months ended September 30, 2008 was lower than the Company's statutory rate primarily because of the utilization of foreign tax credits, lower taxes on non-U.S. earnings and the utilization of foreign tax loss carryforwards.
Net Income: Net income for the third quarter of 2009 was $12,757 compared with $69,211 in the third quarter of 2008. Diluted earnings per share for the third quarter of 2009 was $0.30 compared with earnings of $1.60 per share in the third quarter of 2008. Foreign currency exchange rate movements had an unfavorable translation effect of $284 and a favorable translation effect of $887 on net income for the third quarter of 2009 and 2008, respectively.
Nine Months Ended September 30, 2009 Compared with Nine Months Ended
September 30, 2008
Nine Months Ended September 30,
2009 2008 Change
Amount % of Sales Amount % of Sales Amount %
Net sales $ 1,266,836 100.0% $ 1,952,945 100.0% $ (686,109 ) (35.1%)
Cost of goods sold 945,066 74.6% 1,373,902 70.4% (428,836 ) (31.2%)
Gross profit 321,770 25.4% 579,043 29.6% (257,273 ) (44.4%)
Selling, general &
administrative expenses 242,415 19.1% 319,176 16.3% (76,761 ) (24.0%)
Rationalization charges 25,720 2.0% - 0.0% 25,720 NA
Operating income 53,635 4.2% 259,867 13.3% (206,232 ) (79.4%)
Interest income 2,780 0.2% 6,616 0.3% (3,836 ) (58.0%)
Equity (loss) earnings in
affiliates (6,123 ) (0.5%) 8,102 0.4% (14,225 ) (175.6%)
Other income 2,341 0.2% 1,327 0.1% 1,014 76.4%
Interest expense (6,547 ) (0.5%) (8,939 ) (0.5%) 2,392 (26.8%)
Income before income taxes 46,086 3.6% 266,973 13.7% (220,887 ) (82.7%)
Income taxes 21,855 1.7% 74,157 3.8% (52,302 ) (70.5%)
Net income $ 24,231 1.9% $ 192,816 9.9% $ (168,585 ) (87.4%)
|
Net Sales: Net sales for the first nine months of 2009 decreased 35.1% to $1,266,836 from $1,952,945 in the first nine months of 2008. The decrease in Net sales reflects a $643,096 (32.9%) decrease due to volume, a $4,621 (0.2%) increase due to price, a $40,637 (2.1%) increase from acquisitions and an $88,271 (4.5%) unfavorable impact as a result of changes in foreign currency exchange rates. Net sales for the North American segment decreased 36.4% to $726,877 in the first nine months of 2009 compared with $1,142,322 in the first nine months of 2008. This decrease reflects a decrease of $410,355 (35.9%) due to volume, a $4,129 (0.4%) increase due to price and a $9,219 (0.8%) decrease as a result of changes in foreign currency exchange rates. Net sales for the European segment decreased 39.9% to $276,734 in the first nine months of 2009 compared with $460,116 in the first nine months of 2008. This decrease reflects a decrease of $120,702 (26.2%) due to volume, a $13,271 (2.9%) decrease due to price, a $5,242 (1.1%) increase from acquisitions and a $54,651 (11.9%) unfavorable impact as a result of changes in foreign currency exchange rates. Net sales for the Other Countries segment decreased 24.9% to $263,225 in the first nine months of 2009 compared with $350,507 in the first nine months of 2008. This
decrease reflects a decrease of $112,039 (32.0%) due to volume, a $13,763 (3.9%) increase due to price, a $35,395 (10.1%) increase from acquisitions and a $24,401 (7.0%) unfavorable impact as a result of changes in foreign currency exchange rates.
Gross Profit: Gross profit decreased 44.4% to $321,770 during the first nine months of 2009 compared with $579,043 in the first nine months of 2008. As a percentage of Net sales, Gross profit decreased to 25.4% in the first nine months of 2009 from 29.6% in the first nine months of 2008. This decrease was primarily a result of lower volumes, the liquidation of higher cost inventories and higher retirement costs in the U.S. of $10,415 offset by lower product liability costs of $4,432 primarily due to a gain on an insurance settlement. Foreign currency exchange rates had a $15,260 unfavorable translation impact in the first nine months of 2009. In addition, the Company has reduced the LIFO reserve by $13,595. The decrease in the LIFO reserve was principally a result of decreases in commodity prices in 2009, primarily steel, and a reduction in inventory levels. The reduction in inventory levels is estimated to have impacted the decrease in the LIFO reserve by $6,798.
Selling, General & Administrative (SG&A) Expenses: SG&A expenses decreased $76,761 (24.0%) in the first nine months of 2009 compared with the first nine months of 2008. The decrease was primarily due to lower bonus expense of $55,965, lower selling, administrative and research and development expenses of $11,059, favorable translation impact of foreign currency exchange rates of $15,813 and incremental foreign currency transaction gains of $6,273 partially offset by higher retirement costs in the U.S. of $9,085 and incremental SG&A from acquisitions of $3,904. The Company realized a gain of $1,543 on the settlement of a pension obligation during 2009 that was recorded as a reduction to SG&A expenses.
Rationalization Charges: In the first nine months of 2009, the Company recorded $25,720 ($20,407 after-tax) in charges related to rationalization activities at facilities around the world as the Company adjusts its cost base to current market conditions. The charges include the closure of two manufacturing facilities and are primarily employee severance costs.
Interest Income: Interest income decreased to $2,780 in the first nine months of 2009 from $6,616 in the first nine months of 2008. The decrease was due to lower interest rates on cash and cash equivalents in 2009 when compared with 2008.
Equity (Loss) Earnings in Affiliates: Equity loss in affiliates was $6,123 in the first nine months of 2009 compared with earnings of $8,102 in the first nine months of 2008. Results for the first nine months include a loss of $7,943 recorded on the acquisition of Jin Tai and the related disposal of an interest in Kuang Tai, the Company's Taiwanese joint venture, and income of $5,667 as the Company's share of the gain realized on the sale of a property by the Company's joint venture in Turkey. Excluding these items, equity earnings were down primarily as a result of lower earnings at the Company's joint venture in Taiwan prior to the acquisition of Jin Tai.
Interest Expense: Interest expense decreased to $6,547 in the first nine months of 2009 from $8,939 in the first nine months of 2008 primarily as a result of a lower average debt balance from the payment of $30,000 on the Senior Unsecured Note that matured in March 2009 and the impact of a lower effective interest rate as a result of interest rate swaps.
Income Taxes: The Company recorded $21,855 of tax expense on pre-tax income of $46,086, resulting in an effective tax rate of 47.4% for the nine months ended September 30, 2009. The effective tax rate exceeds the Company's statutory rate due to losses at certain non-U.S. entities, including the loss on the acquisition of the Jin Tai and related disposal of Kuang Tai of $7,943, for which no tax benefit has been provided, partially offset by a benefit for the utilization of foreign tax credits.
The effective income tax rate of 27.8% for the nine months ended September 30, 2008 was lower than the Company's statutory rate primarily because of the utilization of foreign tax credits, lower taxes on non-U.S. earnings and the utilization of foreign tax loss carryforwards.
Net Income: Net income for the first nine months of 2009 was $24,231 compared with $192,816 in the first nine months of 2008. Diluted earnings per share for the first nine months of 2009 was $0.57 compared with earnings of $4.47 per share in the first nine months of 2008. Foreign currency exchange rate movements had a favorable translation effect of $387 and $5,171 on net income for the first nine months of 2009 and 2008, respectively.
Liquidity and Capital Resources
The Company's cash flow from operations, while cyclical, has been reliable and strong. Operational cash flow is a key driver of liquidity, providing cash and access to capital markets. In assessing liquidity, the Company reviews working capital measurements to define areas for improvement. Management anticipates the Company will be able to satisfy cash requirements for its ongoing businesses for the foreseeable future primarily with cash generated by operations, existing cash balances and, if necessary, borrowings under its existing credit facilities.
The following table reflects changes in key cash flow measures:
Nine Months Ended September 30,
2009 2008 Change
Cash provided by operating activities: $ 231,313 $ 216,743 $ 14,570
Cash used by investing activities: (43,693 ) (80,911 ) 37,218
Capital expenditures (26,285 ) (53,479 ) 27,194
Acquisition of businesses, net of cash acquired (17,558 ) (28,021 ) 10,463
Cash used by financing activities: (71,632 ) (38,012 ) (33,620 )
(Payments on) proceeds from short-term borrowings, net (6,900 ) 6,098 (12,998 )
(Payments on) proceeds from long-term borrowings, net (30,452 ) 546 (30,998 )
Purchase of shares for treasury (343 ) (23,121 ) 22,778
Cash dividends paid to shareholders (34,347 ) (32,071 ) (2,276 )
Increase in Cash and cash equivalents 121,635 95,208 26,427
|
Cash and cash equivalents increased 42.8% or $121,635 during the first nine months of 2009 to $405,967 as of September 30, 2009 from $284,332 as of December 31, 2008. This compares to an increase of 43.8% or $95,208 to $312,590 during the first nine months of 2008.
Cash provided by operating activities increased by $14,570 for the first nine months of 2009 compared with 2008. The increase was primarily related to lower accounts receivable and inventory as the Company reduced working capital commensurate with the decline in demand levels when compared with 2008. Average operating working capital to sales was 24.4% at September 30, 2009 compared with 26.1% at December 31, 2008 and 24.5% at September 30, 2008. Days sales in inventory increased to 117.2 days at September 30, 2009 from 115.8 days at December 31, 2008 and decreased from 121.8 days at September 30, 2008. Accounts receivable days increased to 60.0 days at September 30, 2009 from to 55.0 days at December 31, 2008 and 57.2 days at September 30, 2008. Average days in accounts payable increased to 36.0 days at September 30, 2009 from 32.1 days at December 31, 2008 and decreased from 43.6 days at September 30, 2008.
Cash used by investing activities for the first nine months of 2009 compared with 2008 decreased by $37,218. This reflects a decrease in cash used in the acquisition of businesses of $10,463 and a decrease in capital expenditures of $27,194 to $26,285 from $53,479 in 2008. The Company anticipates capital expenditures in 2009 in the range of $35,000 - $40,000. Anticipated capital expenditures reflect investments to improve operational effectiveness and the Company's continuing international expansion. Management critically evaluates all proposed capital expenditures and requires each project to increase efficiency, reduce costs, promote business growth, or to improve the overall safety and environmental conditions of the Company's facilities. Management does not currently anticipate any unusual future cash outlays relating to capital expenditures.
Cash used by financing activities increased $33,620 to $71,632 in the first nine months of 2009 compared with the first nine months of 2008. The increase was primarily due to the repayment of the Company's $30,000 Series B Senior Unsecured Note on maturity, a reduction in short-term borrowings of $6,900 in the current period versus an increase of $6,098 in the comparable period of the prior year and a decrease in proceeds from the exercise of stock options and related tax benefits of $10,126 partially offset by lower purchases of shares for treasury of $22,778.
The Company has investments in Venezuela, which currently require the approval of a government agency to convert local currency to U.S. dollars at official government rates. Government approval for currency conversion to satisfy U.S. dollar liabilities to foreign suppliers, including payables to Lincoln affiliates, has lagged payment due dates from time to time in the past, resulting in higher cash balances and higher past due U.S. dollar payables within our Venezuelan subsidiary. The Company had essentially eliminated its Venezuelan subsidiary's U.S. dollar net liability position as of September 30, 2009.
The Company's debt levels decreased from $142,230 at December 31, 2008, to $130,721 at September 30, 2009 primarily due to the repayment of the Company's $30,000 Series B Senior Unsecured Note on maturity during March of 2009 partially offset by short-term debt assumed in the acquisition of Jin Tai of $22,340 at September 30, 2009. Debt to total invested capital decreased to 11.0% at September 30, 2009 from 12.3% at December 31, 2008.
The Company's Board of Directors has authorized share repurchase programs for up to 15 million shares of the Company's common stock. Total shares purchased through the share repurchase programs were 11,215,390 shares at a cost of $274,531 through September 30, 2009.
In October 2009, the Company paid a cash dividend of $0.27 per share, or $11,454, to shareholders of record on September 30, 2009.
Rationalization
The Company recorded rationalization charges of $25,720 during the nine months ended September 30, 2009. During the third quarter of 2009, the Company initiated various actions including the closure of a manufacturing facility in Europe and the consolidation of certain manufacturing operations in the Europe and Other Countries segments. These actions are expected to affect 78 and 77 employees in the Europe and Other Countries segments, respectively, and are expected to cost approximately $12,000, of which the Company recorded rationalization charges of $7,325 in the three months ended September 30, 2009. At September 30, 2009, a liability related to these actions of $5,218 was recorded in "Other current liabilities." Costs related to these actions relate primarily to employee severance actions that are expected to be substantially completed and paid over the next year.
During the second quarter of 2009, the Company initiated various actions including the closure of a manufacturing facility in the Europe segment. These actions affected 119 and 112 employees in the Europe and Other Countries segments, respectively. The Company recorded rationalization charges of $6,649 in the nine months ended September 30, 2009 related to these actions. A liability related to these actions of $2,717 was recorded in "Other current liabilities" at September 30, 2009. These costs relate primarily to employee severance actions that are essentially complete and are expected to be paid over the next year.
Actions taken during the first quarter of 2009 included a voluntary separation incentive program covering certain U.S.-based employees. These actions affected 350, 48 and 170 employees in the North America, Europe and Other Countries segments, respectively. The Company recorded rationalization charges of $11,898 in the nine months ended September 30, 2009 related to these actions. A liability related to these actions of $621was recorded in "Other current liabilities" at September 30, 2009. These costs relate primarily to employee severance actions that are essentially complete and are expected to be paid by the end of 2009.
Actions taken during the fourth quarter of 2008 affected 65 and 67 employees in the North America and Europe segments, respectively. The Company recorded rationalization charges of $2,447 at December 31, 2008 and $33 in the nine months ended September 30, 2009 related to these actions. At September 30, 2009, a liability related to these actions of $40 was recorded in "Other current liabilities." These costs relate primarily to employee severance actions that are essentially complete and are expected to be paid by the end of 2009.
The Company is in the process of terminating the Harris Calorific Limited ("Harris Ireland") Pension Plan. During the nine months ended September 30, 2009, the Company received cash of $1,740 and recorded a gain of $185 in connection with the termination.
The Company continues evaluating its cost structure and additional rationalization actions may result in charges in subsequent quarters.
Acquisitions
On July 29, 2009, the Company completed the acquisition of 100% of Jin Tai, based in Jinzhou, China. The transaction will expand the Company's customer base and give the Company control of significant cost-competitive solid wire manufacturing capacity.
The Company previously held a 21% direct interest in Jin Tai and a further 27% indirect interest via its 35% interest in Taiwan-based Kuang Tai. Under the terms of the agreement, the Company exchanged its 35% interest in Kuang Tai with a fair value of $22,723, paid cash of $33,590 and will pay an additional $6,122 in cash over the next three years.
The fair value of the Company's previous non-controlling direct interest in Jin Tai was $8,675. The carrying values of the Company's interests in Kuang Tai and Jin Tai were $29,368 and $9,973, respectively. The excess carrying value over fair value of these interests resulted in a loss on the transaction of $7,943 recorded to "Equity (loss) earnings in affiliates."
The Company previously reported its proportional share of Jin Tai's net income under the equity method to "Equity (loss) earnings in affiliates" in the Consolidated Statements of Income. Jin Tai's sales were $186,774 in 2008 and $74,834 in 2009 prior to the acquisition. Jin Tai's sales of $21,143 after the acquisition were included in "Net sales" in the Company's Consolidated Statements of Income for the three and nine month periods ended September 30, 2009. The pro forma impact on the results of operations if the acquisition had been completed as of the beginning of both 2009 and 2008 would not have been significant.
The Company's preliminary estimate of the identifiable assets acquired and liabilities assumed upon the acquisition of Jin Tai is as follows:
July 29, 2009
Cash and cash equivalents $ 16,032
Accounts receivable 23,018
Inventory 17,037
Other current assets 18,932
Property, plant and equipment 29,581
Non-current assets 22,197
Total assets acquired 126,797
Amounts due banks 28,833
Trade accounts payable 2,306
Other current liabilities 7,839
Other long-term liabilities 15,459
Total liabilities assumed 54,437
Net assets acquired $ 72,360
|
All assets acquired and liabilities assumed were recorded at estimated fair value. The Company is finalizing the valuation of Jin Tai's uncertain tax positions. Intangible assets of $15,201 and goodwill of $1,411 were recorded to . . .
|
|