What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-10-28 compared with 2021-07-27 · 70 added, 64 removed, 256 unchanged (34% of the section changed)

20 unchanged sentences

The following table shows the Company’s results of operations:

Three Months Ended June 30,

Three Months Ended September 30,

Favorable (Unfavorable)

10 unchanged sentences

Diluted earnings per share

Six Months Ended June 30,

Nine Months Ended September 30,

Favorable (Unfavorable)

11 unchanged sentences

The following table summarizes the impact of volume, acquisitions, price and foreign currency exchange rates on Net sales on a consolidated basis:

Three Months Ended June 30,

Three Months Ended September 30,

Change in Net Sales due to:

1 unchanged sentence

Lincoln Electric Holdings, Inc.

Six Months Ended June 30,

Nine Months Ended September 30,

Change in Net Sales due to:

1 unchanged sentence

Lincoln Electric Holdings, Inc.

Net sales increased in the three and six months ended June 30, 2021 driven by higher demand reflecting recovery from the impacts of the pandemic, increased product pricing as a result of higher input costs and favorable foreign exchange.

Net sales increased in the three and nine months ended September 30, 2021 driven by higher demand reflecting recovery from the impacts of the pandemic, increased product pricing as a result of higher input costs and favorable foreign exchange.

The increase in Net sales from acquisitions was driven by the acquisitions of Zeman Bauelemente within International Welding and FTP and Shoals within The Harris Products Group.

Refer to Note 4 to the consolidated financial statements for details.

Gross Profit:

Gross profit for the three and six months ended June 30, 2021 increased 44.7% and 23.7%, respectively, driven by higher Net sales volumes reflecting recovery from the impacts of the COVID-19 pandemic.

As a percent of sales, Gross profit increased compared to the prior year periods primarily due to higher Net sales volumes and the related operating leverage, partially offset by higher last-in, first-out (“LIFO”) charges of $9,474 and $13,328 in the three and six months ended June 30, 2021, respectively, as compared with charges of $(76) and $135 in the same 2020 periods, respectively.

Gross profit for the three and nine months ended September 30, 2021 increased 24.5% and 24.0%, respectively, and to 33.3% as a percent of sales, driven by higher volumes and pricing actions which offset higher input costs.

Last-in, first-out (“LIFO”) charges were $10,908 and $24,236 in the three and nine months ended September 30, 2021, respectively, as compared with charges of $597 and $732 in the same 2020 periods, respectively.

Selling, General & Administrative ("SG&A") Expenses:

SG&A expenses increased for the three and six months ended June 30, 2021 as compared to the same 2020 periods, primarily due to higher employee costs.

SG&A expenses increased for the three and nine months ended September 30, 2021 as compared to the same 2020 periods, primarily due to higher employee costs.

Rationalization and Asset Impairment Charges:

The Company recorded charges of $630 ($819 after-tax) and $4,793 ($4,650 after-tax) in the three and six months ended June 30, 2021, respectively, primarily related to severance charges and gains or losses on the disposal of assets.

The Company recorded charges of $23,238 ($18,494 after-tax) and $29,759 ($23,039 after-tax) in the three and six months ended June 30, 2020, respectively, primarily related to severance charges, non-cash asset impairments of long-lived assets, and gains or losses on the disposal of assets.

The Company recorded charges of $3,484 ($3,383 after-tax) and $8,277 ($8,033 after-tax) in the three and nine months ended September 30, 2021, respectively, primarily related to severance charges and gains or losses on the disposal of assets.

The Company recorded charges of $6,257 ($5,142 after-tax) and $36,016 ($28,181 after-tax) in the three and nine months ended September 30, 2020, respectively, primarily related to severance charges, non-cash asset impairments of long-lived assets, and gains or losses on the disposal of assets.

Other Income (Expense):

The decrease in Other income (expense) for the three and nine months ended September 30, 2021 as compared to September 30, 2020 was primarily due to non-cash pension settlement charges resulting from lump sum pension payments related to the termination of the Lincoln Electric Company Retirement Annuity Program (“RAP”) plan.

Refer to Note 13 to the consolidated financial statements for details.

Income Taxes:

The effective tax rate was lower for the three and six months ended June 30, 2021 as compared to the same 2020 periods, primarily due to favorable discrete tax adjustments in 2021, as well as higher tax expense associated with a valuation allowance recorded in the six months ended June 30, 2020.

The increase in Net income for the three and six months ended June 30, 2021 as compared to the same 2020 periods, was primarily due to higher Net sales volumes reflecting recovery from the impacts of the COVID-19 pandemic and the related operating leverage.

The effective tax rate was lower for the three and nine months ended September 30, 2021 as compared to the same 2020 periods, primarily due to favorable discrete tax adjustments in 2021, as well as higher tax expense associated with a valuation allowance recorded in the nine months ended September 30, 2020.

Segment Results

Three Months Ended June 30,

Three Months Ended September 30,

Change in Net Sales due to:

7 unchanged sentences

The Harris Products Group

Six Months Ended June 30,

Nine Months Ended September 30,

Change in Net Sales due to:

7 unchanged sentences

The Harris Products Group

(1) Increases for three and six months ended June 30, 2021 for all segments was primarily due to higher demand reflecting recovery from the impacts of the COVID-19 pandemic.

The Harris Products Group volumes also reflect increases due to higher retail volumes.

(2) Increase for the three and six months ended June 30, 2021 for International Welding were due to the acquisition of Zeman Bauelemente as discussed in Note 4 to the consolidated financial statements.

(3) Increase for Americas Welding and International Welding in the three and six months ended June 30, 2021 reflects increased product pricing as a result of higher input costs.

Increase for The Harris Products Group in the three and six months ended June 30, 2021 was due to increased commodity costs.

(1) Increases for three and nine months ended September 30, 2021 for Americas Welding and International Welding was primarily due to higher demand reflecting recovery from the impacts of the COVID-19 pandemic.

(2) Increase for the three and nine months ended September 30, 2021 were due to the acquisition of Zeman Bauelemente in International Welding and FTP and Shoals in The Harris Products Group, as discussed in Note 4 to the consolidated financial statements.

(3) Increase for the three and nine months ended September 30, 2021 in Americas Welding and International Welding reflects increased product pricing as a result of higher input costs.

Increase for The Harris Products Group in the three and nine months ended September 30, 2021 was due to increased commodity costs.

Adjusted Earnings Before Interest and Income Taxes:

4 unchanged sentences

Favorable (Unfavorable)

Three Months Ended June 30,

Three Months Ended September 30,

Americas Welding:

17 unchanged sentences

As a percent of sales

(1) Increase for the three months ended June 30, 2021 as compared to June 30, 2020 primarily driven by higher Net sales volumes reflecting recovery from the impacts of the COVID-19 pandemic and related operating leverage.

(2) Increase for the three months ended June 30, 2021 as compared to June 30, 2020 driven primarily by retail and brazing volume increases, as well as the recovery from the impacts of the COVID-19 pandemic.

(3) The three months ended June 30, 2021 and 2020 exclude pension settlement charges of $1,650 and $3,334, respectively.

The three months ended June 30, 2020 excludes Rationalization and asset impairment charges of $22,673 related to severance and asset impairments as discussed in Note 6 to the consolidated financial statements.

(4) The three months ended June 30, 2021 and 2020 exclude Rationalization and asset impairment charges of $630 and $565, respectively, related to severance and gains or losses on the disposal of assets as discussed in Note 6

to the consolidated financial statements.

The three months ended June 30, 2021 also exclude the amortization of step up in value of acquired inventories related to the acquisition of Zeman Bauelemente as discussed in Note 4 to the consolidated financial statements.

(5) The three months ended June 30, 2021 exclude acquisition transaction costs of $810 related to an acquisition.

(1) Increase for the three months ended September 30, 2021 as compared to September 30, 2020 primarily driven by higher volumes and pricing actions offsetting higher input and employee costs.

The increase for International Welding was also driven by cost reduction actions.

(2) Decrease for the three months ended September 30, 2021 as compared to September 30, 2020 driven primarily by higher input costs, product mix and integration activities.

(3) The three months ended September 30, 2021 and 2020 exclude pension settlement charges of $73,562 and $3,188, respectively.

The three months ended September 30, 2020 also excludes Rationalization and asset impairment charges of $3,856 related to severance charges as discussed in Note 6 to the consolidated financial statements.

(4) The three months ended September 30, 2021 and 2020 exclude Rationalization and asset impairment charges of $3,472 and $2,401, respectively, related to severance and gains or losses on the disposal of assets as discussed in Note 6 to the consolidated financial statements.

The three months ended September 30, 2021 also exclude amortization of the step up in value of acquired inventories of $3,143 related to the acquisition of Zeman Bauelemente as discussed in Note 4 to the consolidated financial statements.

(5) The three months ended September 30, 2021 exclude amortization of the step up in value of acquired inventories of $547 related to the acquisition of FTP and Shoals as discussed in Note 4 to the consolidated financial statements.

(6) See non-GAAP Financial Measures for a reconciliation of Net income as reported and Adjusted EBIT.

Favorable (Unfavorable)

Six Months Ended June 30,

Nine Months Ended September 30,

Americas Welding:

17 unchanged sentences

As a percent of sales

(1) Increase for the six months ended June 30, 2021 as compared to June 30, 2020 primarily driven higher Net sales volumes reflecting recovery from the impacts of the COVID-19 pandemic and related operating leverage, as well as cost reduction actions.

(2) Increase for the six months ended June 30, 2021 as compared to June 30, 2020 driven by retail and brazing volume increases, as well as the recovery from the impacts of the COVID-19 pandemic.

(3) The six months ended June 30, 2021 and 2020 exclude pension settlement charges of $6,536 and $3,334, respectively.

The six months ended June 30, 2020 also exclude Rationalization and asset impairment charges of $23,863 related to severance charges and non-cash asset impairments of long-lived assets as discussed in Note 6 to the consolidated financial statements.

(4) The six months ended June 30, 2021, and 2020 exclude Rationalization and asset impairment charges of $4,793 and $5,896, respectively, related to severance, asset impairments and gains or losses on the disposal of assets discussed in Note 6 to the consolidated financial statements.

The six months ended June 30, 2021 and 2020 also

excludes the amortization of step up in value of acquired inventories of $1,841 and $806, respectively, related to acquisitions as discussed in Note 4 to the consolidated financial statements .

(5) The six months ended June 30, 2021 exclude acquisition transaction costs of $1,923 related to an acquisition.

(1) Increase for the nine months ended September 30, 2021 as compared to September 30, 2020 primarily driven higher volumes and pricing actions, which offset higher input costs, and cost reduction actions.

(2) Decrease for the nine months ended September 30, 2021 as compared to September 30, 2020 primarily driven by higher input costs and product mix.

(3) The nine months ended September 30, 2021 and 2020 exclude pension settlement charges of $79,652 and $6,522, respectively.

The nine months ended September 30, 2020 also exclude Rationalization and asset impairment charges of $27,719 related to severance charges and non-cash asset impairments of long-lived assets as discussed in Note 6 to the consolidated financial statements.

(4) The nine months ended September 30, 2021, and 2020 exclude Rationalization and asset impairment charges of $8,265 and $8,297, respectively, related to severance, asset impairments and gains or losses on the disposal of assets discussed in Note 6 to the consolidated financial statements.

The nine months ended September 30, 2021 and 2020 also excludes amortization of the step up in value of acquired inventories of $4,984 and $806, respectively, related to acquisitions as discussed in Note 4 to the consolidated financial statements .

The nine months ended September 30, 2021 exclude pension settlement charges of $446.

(5) The nine months ended September 30, 2021 excludes amortization of the step up in value of acquired inventories of $547 related to the acquisition of FTP and Shoals as discussed in Note 4 to the consolidated financial statements .

(6) The nine months ended September 30, 2021 exclude acquisition transaction costs of $1,923 related to acquisitions.

(7) See non-GAAP Financial Measures for a reconciliation of Net Income as reported and Adjusted EBIT.

4 unchanged sentences

The following table presents the reconciliations of Operating income as reported to Adjusted operating income, Net income as reported to Adjusted net income and Adjusted EBIT, Effective tax rate as reported to Adjusted effective tax rate and Diluted earnings per share as reported to Adjusted diluted earnings per share:

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Operating income as reported

24 unchanged sentences

(1) Charges primarily related to severance as discussed in Note 6 to the consolidated financial statements.

(2) Costs related to an acquisition and are included in SG&A.

(2) Costs related to acquisitions and are included in SG&A expenses.

(3) Costs related to acquisitions and are included in Cost of goods sold.

(4) Primarily related to lump sum pension payments and are included in Other income (expense).

(4) Settlement charges related to lump sum pension payments associated with the termination of a pension plan and are included in Other income (expense).

(5) Includes the net tax impact of Special items recorded during the respective periods.

5 unchanged sentences

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, borrowings under its existing credit facilities and raising debt in capital markets.

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, borrowings under its existing credit facilities and raising debt in capital markets.

The Company continues to expand globally and periodically looks at transactions that would involve significant investments.

4 unchanged sentences

The following table reflects changes in key cash flow measures:

Six Months Ended June 30,

Nine Months Ended September 30,

Cash provided by operating activities (1)

3 unchanged sentences

Cash used by financing activities (3)

Proceeds from short-term borrowings, net

Purchase of shares for treasury

1 unchanged sentence

Decrease in Cash and cash equivalents (4)

(1) Cash provided by operating activities increased for the six months ended June 30, 2021 , compared with the six months ended June 30, 2020 primarily due to higher company earnings.

(2) Cash used by investing activities increased for the six months ended June 30, 2021 , compared with the six months ended June 30, 2020 primarily due to cash used in the acquisition of businesses.

(1) Cash provided by operating activities increased for the nine months ended September 30, 2021 , compared with the nine months ended September 30, 2020 primarily due to higher company earnings.

(2) Cash used by investing activities increased for the nine months ended September 30, 2021 , compared with the nine months ended September 30, 2020 primarily due to cash used in the acquisition of businesses.

The Company currently anticipates capital expenditures of $65,000 to $70,000 in 2021.

Anticipated capital expenditures include investments for capital maintenance and projects to increase efficiency, reduce costs, promote business growth or improve the overall safety and environmental conditions of the Company’s facilities.

(3) Cash used by financing activities decreased in the six months ended June 30, 2021 , compared with the six months ended June 30, 2020 due to lower purchases of shares for treasury.

(4) Cash and cash equivalents decreased 25.8%, or $66,395, to $190,884 during the six months ended June 30, 2021 , from $257,279 as of December 31, 2020.

(3) Cash used by financing activities decreased in the nine months ended September 30, 2021 , compared with the nine months ended September 30, 2020 due to higher proceeds from short-term borrowings.

(4) Cash and cash equivalents decreased 37.6%, or $96,720, to $160,559 during the nine months ended September 30, 2021 , from $257,279 as of December 31, 2020.

This decrease was predominantly due to cash used in the acquisition of businesses, purchases of common shares for treasury and cash dividends paid to shareholders, partially offset by cash provided by operating activities.

At June 30, 2021, $142,522 of Cash and cash equivalents was held by international subsidiaries.

In July 2021, the Company paid a cash dividend of $0.51 per share, or $30,287, to shareholders of record as of June 30, 2021.

At September 30, 2021, $155,914 of Cash and cash equivalents was held by international subsidiaries.

In October 2021, the Company paid a cash dividend of $0.51 per share, or $30,115, to shareholders of record as of September 30, 2021.

Working Capital Ratios

June 30, 2021

September 30, 2021

December 31, 2020

June 30, 2020

September 30, 2020

Average operating working capital to Net sales (1) (2)

10 unchanged sentences

The following table presents ROIC:

Twelve Months Ended June 30,

Twelve Months Ended September 30,

Rationalization and asset impairment charges

2 unchanged sentences

Amortization of step up in value of acquired inventories

Gain on change in control

Tax effect of Special items (1)

4 unchanged sentences

Invested Capital

June 30, 2021

June 30, 2020

September 30, 2021

September 30, 2020

Short-term debt

13 unchanged sentences

The Credit Agreement contains customary representations and warranties, as well as customary affirmative, negative and financial covenants for credit facilities of this type (subject to negotiated baskets and exceptions), including limitations on the Company and its subsidiaries with respect to liens, investments, distributions, mergers and acquisitions, dispositions of assets and transactions with affiliates.

As of June 30, 2021, the Company was in compliance with all of its covenants and had no outstanding borrowings under the Credit Agreement.

As of September 30, 2021, the Company was in compliance with all of its covenants and had $20,000 of outstanding borrowings under the Credit Agreement.

The Company has other lines of credit totaling $97,848.

As of June 30, 2021, the Company was in compliance with all of its covenants and had $9,787 outstanding at June 30, 2021.

As of September 30, 2021, the Company was in compliance with all of its covenants and had $20,644 outstanding at September 30, 2021.

Senior Unsecured Notes

5 unchanged sentences

The Notes contain certain affirmative and negative covenants.

As of June 30, 2021, the Company was in compliance with all of its debt covenants relating to the Notes.

As of September 30, 2021, the Company was in compliance with all of its debt covenants relating to the Notes.

Shelf Agreements

2 unchanged sentences

The Company is required to comply with covenants similar to those contained in the Notes.

As of June 30, 2021, the Company was in compliance with all of its covenants and had no outstanding borrowings under the Shelf Agreements.

As of September 30, 2021, the Company was in compliance with all of its covenants and had no outstanding borrowings under the Shelf Agreements.

In March 2020, the Company approved an amendment to terminate the Lincoln Electric Company Retirement Annuity Program plan effective as of December 31, 2020.

The Company provided notice to participants of the intent to terminate the plan and applied for a determination letter.

Pension obligations will be distributed through a combination of lump sum payments to eligible plan participants and through the purchase of a group annuity contract.

Upon settlement of the pension obligations, the Company will reclassify unrecognized actuarial gains or losses, currently recorded in AOCI, to the Company’s Consolidated Statements of Income as settlement gains or charges in the second half of 2021.

The Company anticipates the termination process will be substantially complete by the end of 2021.

Pension obligations were distributed through lump sum payments to eligible plan participants during 2021 and resulted in pre-tax pension settlement charges of $73,562 and $79,652 in the three and nine months ended September 30, 2021, respectively.

In October 2021, the remaining pension obligations were distributed through the purchase of a group annuity contract and the Company will reclassify any remaining unrecognized actuarial gains or losses, currently recorded in AOCI, net of tax, to the Company’s Consolidated Statements of Income as settlement charges.

The Company estimates the fourth quarter 2021 pre-tax settlement charge to be approximately $35,000 - $45,000.

The Company anticipates using any remaining assets after liquidation to fund employer contributions in a different qualified plan.

The Company expects the termination process will be substantially complete by the end of 2021.

Forward-looking Statements

2 unchanged sentences

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.

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:

20 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis