What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-02-18 compared with 2021-02-19 · 78 added, 117 removed, 355 unchanged (35% of the section changed)

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(Dollars in thousands, except per share amounts)

This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read together with "Selected Financial Data,"

the Company’s consolidated financial statements and other financial information included elsewhere in this Annual Report on Form 10-K.

This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read together with the Company’s consolidated financial statements and other financial information included elsewhere in this Annual Report on Form 10-K.

This Annual Report on Form 10-K contains forward-looking statements that involve risks and uncertainties.

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● construction and infrastructure.

The Company has, through wholly-owned subsidiaries, manufacturing facilities located in the United States, Australia, Brazil, Canada, China, Colombia, France, Germany, India, Italy, Mexico, the Netherlands, Poland, Romania, Russia, Spain, Turkey and the United Kingdom.

The Company has, through wholly-owned subsidiaries, manufacturing facilities located in the United States, Australia, Austria, Brazil, Canada, China, Colombia, France, Germany, India, Italy, Mexico, Poland, Portugal, Romania, Russia, Spain, Turkey and the United Kingdom.

The principal raw materials essential to the Company’s business are steel, electronic components, engines, brass, copper, silver, aluminum alloys, robotic components and various chemicals, all of which are normally available for purchase in the open market.

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The Company ensures compliance and the continuous improvement of the environmental performance of its products and operations through its global Environmental, Health, Safety and Quality (“EHS&Q”) systems.

The Company’s systems are guided by the Corporate EHS&Q Policy, global directives and corporate standards that establish consistent guidelines for the management, measurement and reporting of environmental, health and safety activities, as well as

quality across the Company’s global platform.

The Company’s products support our customers' sustainable operations through enhanced worker safety, reduced emissions, improved energy efficiency, reduced waste and regulatory compliance.

COVID-19 Assessment

In March 2020, the World Health Organization categorized the current coronavirus disease (“COVID-19”) as a pandemic, and the President of the United States declared the COVID-19 outbreak a national emergency.

COVID-19 continues to spread throughout the United States and other countries across the world, and the ultimate duration and severity on the Company's business remains unknown.

The outbreak resulted in governments around the world implementing stringent measures to help control the spread of the virus, including quarantines, “shelter in place” and “stay at home” orders, travel restrictions, business curtailments, school closures and other measures.

In addition, governments and central banks in several parts of the world enacted fiscal and monetary stimulus measures to counteract the impacts of COVID-19.

During the COVID-19 pandemic, substantially all of the Company’s global businesses have continued to operate within a critical infrastructure sector (as established by the Cybersecurity & Infrastructure Security Agency of the U.S.

Department of Homeland Security, as well as other governments worldwide) and as a result, the Company has been able to meet the demand of its customers in the various markets it serves.

The Company has taken actions to protect the health and well-being of employees, while maintaining its workforce to serve customer requirements.

These actions did not and are not expected to have a material negative impact on the Company’s profitability.

Although the Company’s customers have re-opened and increased operating levels, such customers may be forced to close or limit operations should a resurgence of COVID-19 cases occur.

Given this continued level of economic and operational uncertainty over the impacts of COVID-19, the ultimate financial impact cannot be reasonably estimated at this time.

During March 2020, the Coronavirus Aid, Relief and Economic Security Act, the Families First Coronavirus Response Act and several other state and local legislative acts were signed and enacted into law.

A second legislative act under the Coronavirus Aid, Relief and Economic Security Act occurred on December 27, 2020.

The Company continues to evaluate the impact of the new laws on its business, and does not expect a material impact to its consolidated financial statements.

For further discussion of this matter, refer “Item 1A.

Risk Factors”.

Key Indicators

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operating cash flows;

and capital expenditures, as well as applicable ratios such as return on invested capital and

average operating working capital to sales.

and capital expenditures, as well as applicable ratios such as return on invested capital and average operating working capital to sales.

These measures are reviewed at monthly, quarterly and annual intervals and compared with historical periods, as well as objectives established by the Board of Directors of the Company.

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Net income including non-controlling interests

Non-controlling interests in subsidiaries' loss

Non-controlling interests in subsidiaries' income

Diluted earnings per share

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Lincoln Electric Holdings, Inc.

Net sales decreased primarily as a result of lower organic sales, including the impact of COVID-19 on global demand, and unfavorable foreign exchange, partially offset by acquisitions.

The increase in Net sales from acquisitions was driven by the acquisition of Baker within Americas Welding and Askaynak within International Welding.

Net sales increased primarily as a result of higher demand reflecting recovery from the impacts of the COVID-19 pandemic and increased product pricing as a result of higher input costs.

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

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

Gross Profit:

Gross profit for 2020 decreased, as a percent of sales, compared to the prior year primarily due to lower volumes, including the impact of COVID-19 on global demand.

Gross profit for 2021 increased, as a percent of sales, compared to the prior year primarily due to higher volumes and pricing actions which offset higher input costs and the benefit of cost reduction actions.

Last-in, first-out (“LIFO”) charges were $38,595 in the twelve months ended December 31, 2021 as compared with charges of $288 in the prior year.

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

The decrease in SG&A expense in 2020 as compared to 2019 was due to lower employee costs and discretionary spending, partially offset by higher expense from acquisitions.

The increase in SG&A expense in 2021 as compared to 2020 was primarily due to higher employee costs, partially offset by cost reduction actions .

Rationalization and Asset Impairment Charges:

In 2021, the Company recorded $9,827 ($9,545 after-tax) in charges primarily related to employee severance and gains or losses on the disposal of assets.

In 2020, the Company recorded $45,468 ($36,904 after-tax) in charges primarily related to employee severance, non-cash asset impairments of long-lived assets and gains or losses on the disposal of assets.

In 2019, the Company recorded $15,188 ($12,275 after-tax) in charges primarily related to employee severance, asset impairment charges and gains or losses on the disposal of assets.

Refer to Note 7 to the consolidated financial statements for additional details.

Other Income (Expense):

The decrease in 2020 as compared to 2019 was primarily due to pension settlement charges of $8,119 ($6,089 after-tax) in 2020 and the gain on change in control of $7,601 in 2019 related to the acquisition of Askaynak.

The decrease in 2021 as compared to 2020 was due to non-cash pension settlement charges of $126,502 ($80,018 after-tax) in 2021 related to the termination of a pension plan.

Refer to Note 12 to the consolidated financial statements for details.

Income Taxes:

The 2020 effective tax rate was higher than 2019 primarily due to the impact of lower income tax benefits for the settlement of tax items.

As compared to the prior year, reported Net income for 2020 decreased primarily due to lower sales volumes, including the impact of COVID-19 on global demand, higher Rationalization and asset impairment charges and higher pension settlement charges.

The 2021 effective tax rate was lower than 2020 primarily due to the impact of a pension plan termination and utilization of certain loss carryforwards previously subject to valuation allowances in the current year offset by the impact of lower income tax benefits for the settlement of tax items recorded in the prior year.

Segment Results

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The Harris Products Group

(1) Decrease for Americas Welding and International Welding due to lower demand associated with the current economic environment and the impact of COVID-19 on global demand.

Increase for The Harris Products Group driven primarily by higher retail volumes.

(2) Increase due to the acquisition of Baker within Americas Welding and Askaynak within International Welding.

(1) Increase for all segments due to higher demand reflecting recovery from the impacts of the COVID-19 pandemic.

(2) Increase due to the acquisition of Zeman within International Welding and FTP within The Harris Products Group.

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

(3) Decrease for Americas Welding due to lower tariff-related surcharges in 2020 compared to 2019.

Increase for The Harris Products Group due to increases in commodity costs.

(3) Increase for Americas Welding and International Welding due to price actions taken in response to higher input costs in 2021 compared to 2020.

Increase for The Harris Products Group due to price actions taken in response to higher commodity costs.

Adjusted Earnings Before Interest and Income Taxes (“Adjusted EBIT”):

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The following table presents Adjusted EBIT by segment:

(Unfavorable)

Favorable (Unfavorable)

Year Ended December 31,

Americas Welding:

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As a percent of sales

(1) 2020 decrease as compared to 2019 primarily driven by lower Net sales volumes from lower demand in the current economic environment, including the impact of COVID-19 on global demand, partially offset by cost reduction actions.

(2) 2020 increase as compared to 2019 driven by retail volume increases.

(3) 2020 excludes Rationalization and asset impairment charges of $26,870 as discussed in Note 7 to the consolidated financial statements and pension settlement charges of $8,119 .

2019 excludes Rationalization and asset impairment charges of $1,716 as discussed in Note 7 to the consolidated financial statements and the amortization of step up in value of acquired inventories of $1,399 related to the Baker acquisition.

(4) 2020 excludes Rationalization and asset impairment charges of $18,598, respectively, related to severance, asset impairments and gains or losses on the disposal of assets as discussed in Note 7 to the consolidated financial statements and the amortization of step up in value of acquired inventories of $806 related to an acquisition.

2019 excludes Rationalization and asset impairment charges of $11,702, respectively, related to severance, asset impairments and gains or losses on the disposal of assets as discussed in Note 7 to the consolidated financial statements, the amortization of step up in value of acquired inventories of $1,609, gains on disposals of assets of $3,554 and a gain on change in control of $7,601 related to the Askaynak acquisition.

(5) 2019 excludes Rationalization and asset impairment charges of $1,770, as discussed in Note 7 to the consolidated financial statements.

(6) 2019 excludes acquisition transaction and integration costs of $1,804, respectively, related to the Air Liquide Welding acquisition as discussed in Note 4 to the consolidated financial statements.

(1) 2021 increase as compared to 2020 primarily driven by higher volumes and pricing actions, which offset higher input costs, and cost reduction actions.

(2) 2021 decrease as compared to 2020 driven by higher input costs, product mix and acquisitions.

(3) 2021 excludes non-cash pension settlement charges of $123,091 as discussed in Note 12 to the consolidated financial statements .

2020 excludes Rationalization and asset impairment charges of $26,870 as discussed in Note 7 to the consolidated financial statements and non-cash pension settlement charges of $8,119.

(4) 2021 excludes Rationalization and asset impairment charges of $9,804 related to severance and gains or losses on the disposal of assets as discussed in Note 7 to the consolidated financial statements, the amortization of step up in value of acquired inventories of $4,984 related to an acquisition, and pension settlement charges of $446.

2020 excludes Rationalization and asset impairment charges of $18,598 related to severance, asset impairments and gains or losses on the disposal of assets as discussed in Note 7 to the consolidated financial statements and the amortization of step up in value of acquired inventories of $806 related to an acquisition.

(5) 2021 excludes the amortization of step up in value of acquired inventories of $820 related to an acquisition and non-cash pension settlement charges of $2,965 as discussed in Note 12 to the consolidated financial statements.

(6) 2021 excludes acquisition transaction and integration costs of $1,923 related to the acquisitions as discussed in Note 4 to the consolidated financial statements.

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

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Rationalization and asset impairment charges (1)

Acquisition transaction and integration costs (2)

Acquisition transaction costs (2)

Amortization of step up in value of acquired inventories (3)

Gains on asset disposals (4)

Adjusted operating income

(1) Charges primarily consist of employee severance, gains or losses on the disposal of assets and non-cash asset impairment charges.

(2) Acquisition-related costs included in Selling, general & administrative expenses related to the Air Liquide Welding acquisition.

(3) Charges represent the step up in value of acquired inventories related to the acquisitions of Baker and Askaynak and are included in Cost of goods sold.

(4) Gains related to the sale of properties and are primarily included in Cost of goods sold.

(2) Acquisition-related costs included in Selling, general & administrative expenses related to the acquisitions as discussed in Note 4 to the consolidated financial statements.

(3) Charges represent the step up in value of acquired inventories related to acquisitions and are included in Cost of goods sold.

The following table presents the reconciliations of 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:

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Rationalization and asset impairment charges (1)

Acquisition transaction and integration costs (2)

Acquisition transaction costs (2)

Pension settlement charges (3)

Amortization of step up in value of acquired inventories (4)

Gains on asset disposals (5)

Gain on change in control (6)

Tax effect of Special items (5)

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(1) Charges consist of employee severance, gains or losses on the disposal of assets and other related costs, non-cash goodwill impairment charges and non-cash asset impairment charges.

(2) Acquisition-related costs related to the Air Liquide Welding acquisition.

(3) Charges related to lump sum pension payments as discussed in Note 12 to the consolidated financial statements.

(4) Charges represent the step up in value of acquired inventories related to the acquisitions of Baker and Askaynak and are included in Cost of goods sold.

(5) Gains related to the sale of properties and are primarily included in Cost of goods sold.

(6) Gain on change in control related to the acquisition of Askaynak and is included in Other income (expense).

(7) Includes the net tax impact of Special items recorded during the respective periods, including tax benefits of $4,852 for the settlement of a tax item as well as tax deductions associated with an investment in a subsidiary in the year ended December 31, 2019.

(2) Acquisition-related costs related to the acquisitions of Zeman and FTP.

(3) Charges related to lump sum pension payments and the purchase of a group annuity contract as discussed in Note 12 to the consolidated financial statements.

(4) Charges represent the step up in value of acquired inventories related to acquisitions and are included in Cost of goods sold.

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

The tax effect of Special items impacting pre-tax income was calculated as the pre-tax amount multiplied by the applicable tax rate.

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Cash used by financing activities (3)

(Payments on) proceeds from short-term borrowings, net

Proceeds from (payments on) short-term borrowings, net

Purchase of shares for treasury

Cash dividends paid to shareholders

Increase (decrease) in Cash and cash equivalents (4)

(1) Cash provided by operating activities decreased for the twelve months ended December 31, 2020 compared with the twelve months ended December 31, 2019 primarily due to lower company earnings.

(2) Cash used by investing activities decreased for the twelve months ended December 31, 2020 compared with the twelve months ended December 31, 2019 due to cash used in the acquisition of businesses in 2019.

(Decrease) increase in Cash and cash equivalents (4)

(1) Cash provided by operating activities increased for the twelve months ended December 31, 2021 compared with the twelve months ended December 31, 2020 primarily due to higher company earnings.

(2) Cash used by investing activities increased for the twelve months ended December 31, 2021 compared with the twelve months ended December 31, 2020 due to cash used in the acquisition of businesses in 2021.

The Company currently anticipates capital expenditures of $70,000 to $80,000 in 2022.

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Management critically evaluates all proposed capital expenditures and expects each project 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 twelve months ended December 31, 2020 compared with the twelve months ended December 31, 2019 due to lower purchases of shares for treasury in 2020, partially offset by higher payments on short-term borrowings in 2020.

(4) Cash and cash equivalents increased 28.9%, or $57,716, to $257,279 during the twelve months ended December 31, 2020, from $199,563 as of December 31, 2019.

The increase was predominantly due to a decrease in cash used in the purchase of common shares for treasury and cash used for the acquisition of businesses in 2019, partially offset by lower cash provided by operating activities.

(3) Cash used by financing activities decreased in the twelve months ended December 31, 2021 compared with the twelve months ended December 31, 2020 due to higher short-term borrowings in 2021 partially offset by an increase in the purchase of shares for treasury.

(4) Cash and cash equivalents decreased 25.0%, or $64,321, to $192,958 during the twelve months ended December 31, 2021, from $257,279 as of December 31, 2020.

The decrease was predominantly due to an increase in cash used in the purchase of common shares for treasury, dividends paid to shareholders and for the acquisition of businesses in 2021, partially offset by cash provided by operating activities.

The Company paid $121,851 and $118,118 in cash dividends to its shareholders in the twelve months ended December 31, 2021 and 2020, respectively.

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Average days in Trade accounts payable

(1) Average operating working capital to Net sales is defined as the sum of Accounts receivable and Inventories less Trade accounts payable as of period end divided by annualized rolling three months of Net sales.

(2) In order to minimize potential supply chain disruptions in serving customers due to the COVID-19 pandemic, the Company increased inventories relative to expected Net sales resulting in higher Days sales in Inventories and higher Average operating working capital to Net sales.

(1) Average operating working capital to Net sales is defined as the sum of Accounts receivable, Inventories and contract assets less Trade accounts payable and contract liabilities as of period end divided by annualized rolling three months of Net sales.

(2) In order to minimize potential supply chain disruptions in serving customers due to the continued impacts of the COVID-19 pandemic, the Company increased inventories relative to expected Net sales resulting in higher Days sales in Inventories.

Rationalization and Asset Impairments

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At December 31, 2021 and 2020, the fair value of long-term debt, including the current portion, was approximately $776,655 and $793,591, respectively, which was determined using available market information and methodologies requiring judgment.

The carrying value of this debt at such dates was $717,855 and $715,567, respectively.

Since judgment is required in interpreting market information, the fair value of the debt is not necessarily the amount which could be realized in a current market exchange.

Senior Unsecured Notes

On April 1, 2015, the Company entered into a Note Purchase Agreement pursuant to which it issued senior unsecured notes (the "2015 Notes") in the aggregate principal amount of $350,000 through a private placement.

On October 20, 2016, the Company entered into a Note Purchase Agreement pursuant to which it issued senior unsecured notes (the "2016 Notes") in the aggregate principal amount of $350,000 through a private placement.

On April 1, 2015 and October 20, 2016, the Company entered into separate Note Purchase Agreements pursuant to which it issued senior unsecured notes (the "Notes") through a private placement.

The Notes each have an aggregate principal amount of $350,000.

Interest on the Notes are payable semi-annually.

The proceeds were used for general corporate purposes.

The 2015 Notes and 2016 Notes contain certain affirmative and negative covenants.

As of December 31, 2020, the Company was in compliance with all of its debt covenants.

The proceeds of the Notes were used for general corporate purposes.

The Notes contain certain affirmative and negative covenants.

As of December 31, 2021, the Company was in compliance with all of its debt covenants relating to the Notes.

The Company’s total weighted average effective interest rate and remaining weighted average term, inclusive of the 2015 Notes and 2016 Notes, is 3.3% and 12.4 years, respectively.

Revolving Credit Agreement

The Company has a line of credit totaling $400,000 through the Amended and Restated Credit Agreement (the “Credit Agreement”).

The Credit Agreement has a term of 5 years with a maturity date of June 30, 2022 and may be increased, subject to certain conditions, by an additional amount up to $100,000.

The interest rate on borrowings is based on either the London Inter-Bank Offered Rate ("LIBOR") or the prime rate, plus a spread based on the Company’s leverage ratio, at the Company’s election.

The Credit Agreement contains customary affirmative, negative and financial covenants for credit facilities of this type, including limitations on the Company and its subsidiaries with respect to liens, investments, distributions, mergers and acquisitions, dispositions of assets, transactions with affiliates and a fixed charges coverage ratio and total leverage ratio.

As of December 31, 2020, the Company was in compliance with all of its covenants and had no outstanding borrowings under the Credit Agreement.

Revolving Credit Agreements

On April 23, 2021, the Company amended and restated the agreement governing its line of credit by entering into the Second Amended and Restated Credit Agreement (“Credit Agreement”).

The Credit Agreement has a line of credit totaling $500,000, has a term of 5 years with a maturity date of April 23, 2026 and may be increased, subject to certain conditions including the consent of its lenders, by an additional amount up to $150,000.

The interest rate on borrowings is based on LIBOR plus a spread based on the Company’s net leverage ratio.

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 December 31, 2021, the Company was in compliance with all of its covenants and had $40,000 of outstanding borrowings under the Credit Agreement.

The Company has other lines of credit totaling $91,309.

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(1) See “Non-GAAP Financial Measures” section for a tabular reconciliation of Net income to Adjusted net income.

Contractual Obligations and Commercial Commitments

The Company’s contractual obligations and commercial commitments as of December 31, 2020 are as follows:

Contractual and Other Obligations

The Company’s cash requirements for contractual and other obligations as of December 31, 2021 are as follows:

Payments Due By Period

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Interest on long-term debt (Note 9)

Amounts due banks (Note 9)

Operating leases (Note 18)

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The costs associated with these claims are predominantly defense costs which are recognized in the periods incurred.

The long-term impact of product liability contingencies, in the aggregate, on operating results, operating cash flows and access to capital markets is difficult to assess, particularly since claims are in many different stages of development and

the Company benefits significantly from cost sharing with co-defendants and insurance carriers.

Moreover, the Company has been largely successful to date in its defense of these claims.

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Liabilities are settled primarily through the completion of audits within each individual tax jurisdiction or the closing of a statute of limitation.

Liabilities can be affected by changes in applicable tax law, regulations, tax rulings or such other

factors, which may cause management to believe a revision of past estimates is appropriate.

Liabilities can be affected by changes in applicable tax law, regulations, tax rulings or such other factors, which may cause management to believe a revision of past estimates is appropriate.

Management believes that an appropriate liability has been established for uncertain income tax positions;

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Deferred income taxes are recognized at currently enacted tax rates for temporary differences between the GAAP and income tax basis of assets and liabilities and operating loss and tax credit carry-forwards.

The Company determined that it would repatriate earnings for certain non-U.S.

The Company repatriates earnings for certain non-U.S.

subsidiaries, which are subject to foreign withholding taxes.

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Pension plans are funded except for a domestic non-qualified pension plan for certain key employees and certain foreign plans.

A significant element in determining the Company’s pension expense is the expected return on plan assets.

At the end of each year, the expected return on plan assets is determined based on the weighted average expected return of the various asset classes in the plan’s portfolio and the targeted allocation of plan assets.

The asset class return is developed using historical asset return performance as well as current market conditions such as inflation, interest rates and equity market performance.

The Company determined this rate to be 4.0% at December 31, 2020 and 4.9% at December 31, 2019.

The assumed long-term rate of return on assets is applied to the market value of plan assets.

This produces the expected return on plan assets included in pension expense.

The difference between this expected return and the actual return on plan assets is deferred and, for frozen plans, is amortized over the average remaining life expectancy of plan participants expected to receive benefits under the plan.

During 2020, investment returns were a gain of 11.7% compared with a gain of 18.0% in 2019.

A 25 basis point change in the expected return on plan assets would increase or decrease pension expense by approximately $1,800.

Another significant element in determining the Company’s pension expense is the discount rate for plan liabilities.

A significant element in determining the Company’s pension expense is the discount rate for plan liabilities.

To develop the discount rate assumption, the Company refers to the yield derived from matching projected pension payments with maturities of a portfolio of available non-callable bonds rated AA or an equivalent quality.

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The Company expects total 2022 expense related to retirement plans to increase by a range of approximately $1,500 to $2,500, excluding settlement charges.

is primarily due to a lower expected return on assets associated with the Lincoln Electric Retirement Annuity Program (“RAP”) plan termination described below.

Refer to Note 12 to the consolidated financial statements for additional information.

The Accumulated other comprehensive loss, excluding tax effects, recognized on the Consolidated Balance Sheet was $16,173 as of December 31, 2021 and $137,926 as of December 31, 2020.

The increase is primarily the result of increased actuarial losses resulting from a decrease in discount rates.

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.

During the year ended December 31, 2020 the asset allocation for RAP plan assets were adjusted in anticipation of the plan termination.

Upon settlement of the pension obligations in the second half of 2021, 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.

As of December 31, 2020, the Company had unrecognized losses related to the plan of $106,377.

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

The Company does not expect to make significant contributions to the defined benefit plans in 2020.

The decrease is primarily the result of a pension plan termination described below.

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

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

During 2021, pension obligations were distributed through a combination of lump sum payments to eligible plan participants and through the purchase of a group annuity contract in October 2021.

The lump sum payments and annuity purchase resulted in pre-tax settlement charges of $126,056 in the twelve months ended December 31, 2021.

The remaining surplus assets of $68,458 at December 31, 2021 were transferred to a suspense account in January 2022 and will be used to fund employer matching contributions in a qualified employee savings plan.

The surplus assets are recorded in Other current assets and Other assets in the Company’s Consolidated Balance Sheets.

Inventories are valued at the lower of cost or net realizable value.

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Long-Lived Assets

The Company periodically evaluates whether current facts or circumstances indicate that the carrying value of its depreciable long-lived assets, including leases, to be held and used may not be recoverable.

The Company periodically evaluates whether current facts or circumstances indicate that the carrying value of its depreciable long-lived assets, including leases and intangible assets that do not have indefinite lives, to be held and used may not be recoverable.

If such circumstances are determined to exist, an estimate of undiscounted future cash flows produced by the long-lived asset, or the appropriate grouping of assets, is compared to the carrying value to determine whether impairment exists.

If an asset is determined to be impaired, a loss is recognized to the extent that carrying value exceeds fair value.

Fair value is measured based on

quoted market prices in active markets, if available.

Fair value is measured based on quoted market prices in active markets, if available.

If quoted market prices are not available, the estimate of fair value is based on various valuation techniques, including the discounted value of estimated future cash flows.

Goodwill and Intangibles

The Company performs an annual impairment test of goodwill and indefinite-lived intangible assets in the fourth quarter using the same dates each year or more frequently if changes in circumstances or the occurrence of events indicate potential impairment.

The Company performs an annual impairment test of goodwill and indefinite-lived intangible assets in the fourth quarter using the same date each year or more frequently if changes in circumstances or the occurrence of events indicate potential impairment.

The fair value of each indefinite-lived intangible asset is compared to its carrying value and an impairment charge is recorded if the carrying value exceeds the fair value.

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Market participants are considered to be buyers and sellers unrelated to the Company in the principal or most advantageous market for the asset or liability.

Fair value estimates are based on a series of judgments about future events and uncertainties and rely heavily on estimates and assumptions.

Fair value estimates are based on a series of judgments about future events and uncertainties and rely on estimates and assumptions.

Management values property, plant and equipment using the cost approach supported where available by observable market data, which includes consideration of obsolescence.

Management values acquired intangible assets using the relief from royalty method or excess earnings method, forms of the income approach supported by observable market data for peer companies.

The significant assumptions used to estimate the value of the acquired intangible assets include discount rates and certain assumptions that form the basis of future cash flows (such as revenue growth rates, customer attrition rates, and royalty rates).

customer attrition rates and royalty rates).

Acquired inventories are marked to fair value.

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Revenue Recognition

On January 1, 2018, the Company adopted Accounting Standards Update ("ASU") 2014-09 (“Topic 606”) using the modified retrospective method applied to those contracts which were not completed as of January 1, 2018.

Results for reporting periods beginning after January 1, 2018 are presented under Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with the Company’s historic accounting.

Revenue is recognized when obligations under the terms of a contract are satisfied and control is transferred to the customer.

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In addition, certain customized automation performance obligations are accounted for over time.

Under this method, revenue recognition is primarily based upon

the ratio of costs incurred to date compared with estimated total costs to complete.

Under this method, revenue recognition is primarily based upon the ratio of costs incurred to date compared with estimated total costs to complete.

The cumulative impact of revisions to total estimated costs is reflected in the period of the change, including anticipated losses.

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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-K

Item 7. Management’s Discussion and Analysis