What changed in this filing

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Item 1. Financial Statements

2022-04-28 compared with 2021-10-28 · 118 added, 232 removed, 398 unchanged (47% of the section changed)

3 unchanged sentences

(In thousands, except per share amounts)

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Net sales (Note 2)

16 unchanged sentences

(In thousands)

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Net income including non-controlling interests

Other comprehensive income (loss), net of tax:

Unrealized gain (loss) on derivatives designated and qualifying as cash flow hedges, net of tax of $ 707 and $ 1,493 in the three and nine months ended September 30, 2021;

$ 337 and $( 62 ) in the three and nine months ended September 30, 2020

Defined benefit pension plan activity, net of tax of $ 18,759 and $ 19,005 in the three and nine months ended September 30, 2021;

$( 776 ) and $( 8,303 ) in the three and nine months ended September 30, 2020

Unrealized gain (loss) on derivatives designated and qualifying as cash flow hedges, net of tax of $ 2,051 and $ 2,309 in the three months ended March 31, 2022 and 2021

Defined benefit pension plan activity, net of tax of $ 14 and $ 815 in the three months ended March 31, 2022 and 2021

Currency translation adjustment

Other comprehensive income (loss):

Other comprehensive loss:

Comprehensive income

Comprehensive income (loss) attributable to non-controlling interests

Comprehensive income (loss) attributable to shareholders

Comprehensive income attributable to shareholders

See notes to these consolidated financial statements.

2 unchanged sentences

(In thousands)

September 30, 2021

March 31, 2022

December 31, 2021

45 unchanged sentences

( 2,413,171 )

Unrecognized amounts from defined benefit pension plans, net of tax

Unrealized loss on derivatives designated and qualifying as cash flow hedges, net of tax

Currency translation adjustment

Cash dividends declared – $ 0.51 per share

Stock-based compensation activity

Purchase of shares for treasury

Balance at June 30, 2021

( 2,201,397 )

Unrecognized amounts from defined benefit pension plans, net of tax

Unrealized gain on derivatives designated and qualifying as cash flow hedges, net of tax

Currency translation adjustment

Cash dividends declared – $ 0.51 per share

Stock-based compensation activity

Purchase of shares for treasury

Balance at September 30, 2021

( 2,251,193 )

LINCOLN ELECTRIC HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF EQUITY

(In thousands, except per share amounts)

Comprehensive

10 unchanged sentences

( 2,176,671 )

Unrecognized amounts from defined benefit pension plans, net of tax

Unrealized gain on derivatives designated and qualifying as cash flow hedges, net of tax

Currency translation adjustment

Cash dividends declared – $ 0.49 per share

Stock-based compensation activity

Purchase of shares for treasury

Balance at June 30, 2020

( 2,152,509 )

Unrecognized amounts from defined benefit pension plans, net of tax

Unrealized gain on derivatives designated and qualifying as cash flow hedges, net of tax

Currency translation adjustment

Cash dividends declared – $ 0.49 per share

Stock-based compensation activity

Purchase of shares for treasury

Balance at September 30, 2020

( 2,151,417 )

LINCOLN ELECTRIC HOLDINGS, INC.

1 unchanged sentence

(In thousands)

Nine Months Ended September 30,

Three Months Ended March 31,

CASH FLOWS FROM OPERATING ACTIVITIES

2 unchanged sentences

Adjustments to reconcile Net income including non-controlling interests to Net cash provided by operating activities:

Rationalization and asset impairment net (gains) charges (Note 6)

Rationalization and asset impairment net charges (Note 6)

Depreciation and amortization

2 unchanged sentences

Stock-based compensation

Pension settlement charges

Changes in operating assets and liabilities, net of effects from acquisitions:

1 unchanged sentence

Increase in inventories

(Increase) decrease in other current assets

Increase (decrease) in trade accounts payable

Increase in other current assets

Increase in trade accounts payable

Increase in other current liabilities

8 unchanged sentences

CASH FLOWS FROM FINANCING ACTIVITIES

Amounts due banks, net

Net change in borrowings

Proceeds from exercise of stock options

1 unchanged sentence

Cash dividends paid to shareholders

Other financing activities

NET CASH USED BY FINANCING ACTIVITIES

9 unchanged sentences

Principles of Consolidation

As used in this report, the term “Company,” except as otherwise indicated by the context, means Lincoln Electric Holdings, Inc.

and its wholly-owned and majority-owned subsidiaries for which it has a controlling interest.

The consolidated financial statements include the accounts of all legal entities in which the Company holds a controlling interest.

Investments in legal entities in which the Company does not own a majority interest but has the ability to exercise significant influence over operating and financial policies are accounted for using the equity method.

The consolidated financial statements include the accounts of Lincoln Electric Holdings, Inc.

and its wholly-owned and majority-owned subsidiaries for which it has a controlling interest (the “Company”) after elimination of all inter-company accounts, transactions and profits.

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X.

1 unchanged sentence

However, in the opinion of management, these unaudited consolidated financial statements contain all the adjustments (consisting of normal recurring accruals) considered necessary to present fairly the financial position, results of operations and cash flows for the interim periods.

Operating results for the nine months ended September 30, 2021 are not necessarily indicative of the results to be expected for the year ending December 31, 2021.

Operating results for the three months ended March 31, 2022 are not necessarily indicative of the results to be expected for the year ending December 31, 2022.

The accompanying Consolidated Balance Sheet at December 31, 2021 has been derived from the audited financial statements at that date, but does not include all of the information and notes required by GAAP for complete financial statements.

For further information, refer to the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

The current coronavirus disease (“COVID- 19”) pandemic has adversely impacted global economic conditions and has contributed to significant volatility in financial markets beginning in early calendar year 2020.

Although the Company's estimates contemplate current conditions, the inputs into certain significant and critical accounting estimates include judgments and assumptions about the economic implications of the COVID-19 pandemic and how management expects them to change in the future.

It is reasonably possible that actual results experienced may differ materially from the Company's estimates in future periods, which could affect our results of operations and financial condition.

For additional discussion, see “Item 1A.

Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

In March 2022, in response to Russia’s invasion of Ukraine, the Company announced it was ceasing operations in Russia and implementing plans to support its Russian employees.

Although the Company’s Net sales and Total assets in Russia are less than 1 % of consolidated Net sales for the year ended December 31, 2021 and less than 1% of consolidated Total assets as of December 31, 2021, the Russia-Ukraine conflict and sanctions imposed globally may result in economic and supply chain disruptions, the ultimate financial impact of which cannot be reasonably estimated at this time.

The Company will continue to monitor the Russia-Ukraine conflict and its potential impacts.

Subsequent Events

Cumulative inflation in Turkey over the preceding three-year period reached 100 % during the first quarter of 2022.

As a result, the Company changed the functional currency of its Turkish subsidiary to the U.S.

dollar as of April 1, 2022.

Management has evaluated and disclosed all material events occurring subsequent to the date of the financial statements up to April 28, 2022, the filing date of this Quarterly Report on Form 10-Q.

New Accounting Pronouncements:

This section provides a description of new accounting pronouncements ("Accounting Standard Update"

or "ASU") issued by the Financial Accounting Standards Board ("FASB") that are applicable to the Company.

The following ASU was adopted as of January 1, 2021:

2019-12, Income Taxes (Topic 740) , issued December 2019.

ASU 2019-12 simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740.

The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance.

The adoption did not have a material impact on the Company’s consolidated financial statements.

There were no new accounting pronouncements ("Accounting Standard Updates"

or "ASUs") issued by the Financial Accounting Standards Board ("FASB") that are applicable to the Company as of January 1, 2022.

LINCOLN ELECTRIC HOLDINGS, INC.

3 unchanged sentences

The following table presents the Company’s Net sales disaggregated by product line:

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Consumable sales consist of electrodes, fluxes, specialty welding consumables and brazing and soldering alloys.

5 unchanged sentences

Less than 10 % of the Company’s Net sales are recognized over time.

At September 30, 2021, the Company recorded $ 33,860 related to advance customer payments and $ 52,588 related to billings in excess of revenue recognized.

At March 31, 2022, the Company recorded $ 70,096 related to advance customer payments and $ 33,284 related to billings in excess of revenue recognized.

These contract liabilities are included in Other current liabilities in the Condensed Consolidated Balance Sheets.

2 unchanged sentences

The Company records an asset for contracts where it has recognized revenue, but has not yet invoiced the customer for goods or services.

At September 30, 2021 and December 31, 2020, the Company recorded $ 26,665 and $ 22,113 , respectively, related to these contract assets which are included in Other current assets in the Condensed Consolidated Balance Sheets.

At March 31, 2022 and December 31, 2021, the Company recorded $ 43,941 and $ 25,300 , respectively, related to these contract assets which are included in Other current assets in the Condensed Consolidated Balance Sheets.

Contract asset amounts are expected to be billed within the next twelve months.

1 unchanged sentence

The following table sets forth the computation of basic and diluted earnings per share:

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Denominator (shares in 000's):

4 unchanged sentences

Diluted earnings per share

For the three months ended September 30, 2021 and 2020, common shares subject to equity-based awards of 2,126 and 557,198 , respectively, were excluded from the computation of diluted earnings per share because the effect

LINCOLN ELECTRIC HOLDINGS, INC.

1 unchanged sentence

Dollars in thousands, except per share amounts

of their exercise would be anti-dilutive.

For the nine months ended September 30, 2021 and 2020, common shares subject to equity-based awards of 150,254 and 547,329 , respectively, were excluded from the computation of diluted earnings per share because the effect of their exercise would be anti-dilutive.

For the three months ended March 31, 2022 and 2021, common shares subject to equity-based awards of 69,614 and 89,592 , respectively, were excluded from the computation of diluted earnings per share because the effect of their exercise would be anti-dilutive.

NOTE 4 — ACQUISITIONS

During March 2022, the Company acquired Kestra Universal Soldas, Industria e Comercio, Imporacao e Exportacao Ltda.

(“Kestra”), a privately held manufacturer headquartered in Atibaia, Sao Paulo State, Brazil.

Kestra manufactures and provides specialty welding consumables, wear plates and maintenance and repair services for alloy and wear-resistant products commonly used in mining, steel, agricultural and industrial mill applications.

During July 2021, the Company acquired Overstreet-Hughes Company, Inc.

(“FTP”) and Shoals Tubular, Inc.

FTP and Shoals manufacture copper and aluminum headers, distributor assemblies and manifolds in the United States and Mexico for the heating, ventilation, and air conditioning sector (“HVAC”).

The acquisitions further differentiate The Harris Products Group’s competitive position serving HVAC original equipment manufacturers with a comprehensive portfolio of solutions for the fabrication of HVAC coils and accelerates their growth in this market.

and Shoals Tubular, Inc.

FTP manufactures copper and aluminum headers, distributor assemblies and manifolds in the United States and Mexico for the heating, ventilation, and air conditioning sector (“HVAC”).

The acquisition further differentiated The Harris Products Group’s competitive position serving HVAC original equipment manufacturers with a comprehensive portfolio of solutions for the fabrication of HVAC coils and accelerates growth in this market.

During April 2021, the Company acquired Zeman Bauelemente Produktionsgesellschaft m.b.H.

(“Zeman Bauelemente"), a division of the Zeman Group.

Zeman Bauelemente, based in Vienna, Austria, is a leading designer and manufacturer of robotic assembly and arc welding systems that automate the tacking and welding of steel beams.

The acquisition expands the Company’s international automation capabilities to serve customers in the structural steel and infrastructure sectors.

(“Zeman"), a division of the Zeman Group.

Zeman, based in Vienna, Austria, is a leading designer and manufacturer of robotic assembly and arc welding systems that automate the tacking and welding of steel beams.

The acquisition expanded the Company’s international automation capabilities to serve customers in the structural steel and infrastructure sectors.

Pro forma information related to the acquisitions discussed above has not been presented because the impact on the Company’s Consolidated Statements of Income is not material.

15 unchanged sentences

International

Three Months Ended September 30, 2021

Inter-segment sales

Adjusted EBIT

Special items charge (gain) (1)

Interest income

Interest expense

Income before income taxes

Three Months Ended September 30, 2020

Inter-segment sales

Adjusted EBIT

Special items charge (gain) (2)

Interest income

Interest expense

Income before income taxes

Nine Months Ended September 30, 2021

Three Months Ended March 31, 2022

Inter-segment sales

4 unchanged sentences

Income before income taxes

Nine Months Ended September 30, 2020

Three Months Ended March 31, 2021

Inter-segment sales

4 unchanged sentences

Income before income taxes

(1) In the three and nine months ended September 30, 2021, special items reflect Rationalization and asset impairment charges of $ 3,484 and $ 8,277 , respectively, primarily in International Welding, amortization of the step up in value of acquired inventories of $ 3,690 and $ 5,531 , respectively, related to the acquisitions of Zeman Bauelemente in International Welding and FTP and Shoals in The Harris Products Group, pension settlement charges of $ 73,562 and $ 79,652 , respectively, in Americas Welding and $ 446 in International Welding in the nine months ended September 30, 2021.

Also in the nine months ended September 30, 2021, special items reflect acquisition transaction costs of $ 1,923 in Corporate/Eliminations related to acquisitions.

LINCOLN ELECTRIC HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Dollars in thousands, except per share amounts

(2) In the three months ended September 30, 2020, special items reflect Rationalization and asset impairment charges of $ 3,856 and $ 2,401 in Americas Welding and International We lding , respectively, and pension settlement charges of $ 3,188 in Americas Welding.

In the nine months ended September 30, 2020, special items reflect Rationalization and asset impairment charges of $ 27,719 and $ 8,297 in Americas Welding and International We lding , respectively, amortization of the step up in value of acquired inventories of $ 806 related to an acquisition in International Welding and pension settlement charges of $ 6,522 in Americas Welding.

(1) In the three months ended March 31, 2022, special items reflect Rationalization charges of $ 1,885 in International Welding and the final settlement related to the termination of a pension plan of $ 3,735 in Americas Welding.

(2) In the three months ended March 31, 2021, special items reflect Rationalization and asset impairment charges of $ 4,163 in International We lding , pension settlement charges of $ 4,440 and $ 446 in Americas Welding and International Welding, respectively, and acquisition transaction costs of $ 1,113 in Corporate/Eliminations related to an acquisition.

NOTE 6 — RATIONALIZATION AND ASSET IMPAIRMENTS

The Company recorded Rationalization and asset impairment net charges of $ 8,277 and $ 36,016 in the nine months ended September 30, 2021 and 2020, respectively.

The Company recorded Rationalization and asset impairment net charges of $ 1,885 and $ 4,163 in the three months ended March 31, 2022 and 2021, respectively.

The charges are primarily related to employee severance, non-cash asset impairments of long-lived assets and gains or losses on the disposal of assets.

During 2020 and 2021, the Company initiated rationalization plans within Americas Welding and International Welding segments.

During 2021, the Company initiated rationalization plans within the International Welding segment.

The plans include headcount restructuring and the consolidation of manufacturing operations to better align the Company’s cost structure with economic conditions and operating needs.

At September 30, 2021, liabilities of $ 6,791 for International Welding were recognized in Other current liabilities in the Company’s Condensed Consolidated Balance Sheet.

At March 31, 2022, liabilities of $ 1,770 for International Welding were recognized in Other current liabilities in the Company’s Condensed Consolidated Balance Sheet.

The Company believes the rationalization actions will positively impact future results of operations and will not have a material effect on liquidity and sources and uses of capital.

The Company continues to evaluate its cost structure and additional rationalization actions may result in charges in future periods.

The following table summarizes the activity related to rationalization liabilities for the nine months ended September 30, 2021:

International

Americas Welding

Balance at December 31, 2020

Payments and other adjustments

Charged to expense

Balance at September 30, 2021

LINCOLN ELECTRIC HOLDINGS, INC.

1 unchanged sentence

Dollars in thousands, except per share amounts

The following table summarizes the activity related to rationalization liabilities for the three months ended March 31, 2022:

Balance at December 31, 2021

Payments and other adjustments

Charged to expense

Balance at March 31, 2022

NOTE 7 – ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) ("AOCI")

The following tables set forth the total changes in accumulated other comprehensive income (loss) ("AOCI") by component, net of taxes:

Three Months Ended September 30, 2021

Three Months Ended March 31, 2022

Unrealized gain

3 unchanged sentences

qualifying as cash

Balance at June 30, 2021

Balance at December 31, 2021

Other comprehensive income (loss) before reclassification

1 unchanged sentence

Net current-period other comprehensive income (loss)

Balance at September 30, 2021

Three Months Ended September 30, 2020

Balance at March 31, 2022

Three Months Ended March 31, 2021

Unrealized gain

3 unchanged sentences

qualifying as cash

Balance at June 30, 2020

Balance at December 31, 2020

Other comprehensive income (loss) before reclassification

1 unchanged sentence

Net current-period other comprehensive income (loss)

Balance at September 30, 2020

(1) During the three months ended September 30, 2021, the AOCI reclassification is a component of Net sales of $ 304 (net of tax of $ 135 ) and Cost of goods sold of $ 18 (net of tax of $ 26 );

during the three months ended September 30, 2020, the reclassification is a component of Net sales of $ ( 551 ) (net of tax of $( 205 ) ) and Cost of goods sold of $ 192 (net of tax of $ 8 ).

Balance at March 31, 2021

(1) During the three months ended March 31, 2022, the AOCI reclassification is a component of Net sales of $ 132 (net of tax of $ 48 ) and Cost of goods sold of $ 362 (net of tax of $ 93 );

during the three months ended March 31, 2021, the reclassification is a component of Net sales of $ 102 (net of tax of $ 42 ) and Cost of goods sold of $ 326 (net of tax of $ 133 ).

See Note 16 to the consolidated financial statements for additional details.

(2) This AOCI component is included in the computation of net periodic pension costs (net of tax of $ 18,677 and $ 1,023 during the three months ended September 30, 2021 and 2020, respectively.

(2) This AOCI component is included in the computation of net periodic pension costs (net of tax of $ 14 and $ 1,456 ) during the three months ended March 31, 2022 and 2021, respectively.

See Note 13 to the consolidated financial statements for additional details.

(3) The Other comprehensive income (loss) before reclassifications excludes $( 58 ) and $ 35 attributable to Non-controlling interests in the three months ended September 30, 2021 and 2020, respectively.

(3) The Other comprehensive income (loss) before reclassifications excludes $ 134 and $( 159 ) attributable to Non-controlling interests in the three months ended March 31, 2022 and 2021, respectively.

LINCOLN ELECTRIC HOLDINGS, INC.

1 unchanged sentence

Dollars in thousands, except per share amounts

Nine Months Ended September 30, 2021

Unrealized gain

(loss) on derivatives

designated and

Defined benefit

qualifying as cash

Balance at December 31, 2020

Other comprehensive income (loss) before reclassification

Amounts reclassified from AOCI

Net current-period other comprehensive income (loss)

Balance at September 30, 2021

Nine Months Ended September 30, 2020

Unrealized gain

(loss) on derivatives

designated and

Defined benefit

qualifying as cash

Balance at December 31, 2019

Other comprehensive income (loss) before reclassification

Amounts reclassified from AOCI

Net current-period other comprehensive income (loss)

Balance at September 30, 2020

(1) During the nine months ended September 30, 2021, the AOCI reclassification is a component of Net sales of $ 1,611 (net of tax of $ 692 ) and Cost of goods sold of $ 748 (net of tax of $ 270 );

during the nine months ended September 30, 2020, the reclassification is a component of Net sales of $( 1,657 ) (net of tax of $( 624 ) ) and Cost of goods sold of $ 25 (net of tax of $( 92 ) ).

See Note 16 to the consolidated financial statements for additional details.

(2) This AOCI component is included in the computation of net periodic pension costs (net of tax of $ 21,578 and $ 2,189 ) during the nine months ended September 30, 2021 and 2020, respectively.

See Note 13 to the consolidated financial statements for additional details.

(3) The Other comprehensive income (loss) before reclassifications excludes $( 327 ) and $( 23 ) attributable to Non-controlling interests in the nine months ended September 30, 2021 and 2020, respectively.

NOTE 8 — COMMON STOCK REPURCHASE PROGRAM

The Company has a share repurchase program for up to 10 million shares of the Company’s common shares.

On February 12, 2020, the Company’s Board of Director’s approved a new share repurchase program authorizing the Company to repurchase, in the aggregate, up to an additional 10 million shares of its outstanding common shares under this program.

From time to time at management’s discretion, the Company repurchases its common shares in the open market, depending on market conditions, stock price and other factors.

During the three months ended September 30, 2021, the Company purchased a total of 0.4 million shares at an average cost per share of $ 134.62 .

During the nine months ended September 30, 2021, the Company purchased a total of 0.8 million shares at an average cost per share of $ 129.11 .

As of September 30, 2021, 10.7 million common shares remained available for repurchase under these programs.

During the three months ended March 31, 2022, the Company purchased a total of 0.8 million shares at an average cost per share of $ 129.97 .

As of March 31, 2022, 9.5 million common shares remained available for repurchase under these programs.

The repurchased common shares remain in treasury and have not been retired.

LINCOLN ELECTRIC HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Dollars in thousands, except per share amounts

NOTE 9 — INVENTORIES

Inventories in the Condensed Consolidated Balance Sheets are comprised of the following components:

September 30, 2021

March 31, 2022

December 31, 2021

2 unchanged sentences

Finished goods

At September 30, 2021 and December 31, 2020, approximately 35 % of total inventories were valued using the last-in, first-out ("LIFO") method.

The excess of current cost over LIFO cost was $ 99,817 and $ 75,581 at September 30, 2021 and December 31, 2020, respectively.

At March 31, 2022 and December 31, 2021, approximately 36 % of total inventories were valued using the last-in, first-out ("LIFO") method.

The excess of current cost over LIFO cost was $ 121,064 and $ 114,176 at March 31, 2022 and December 31, 2021, respectively.

NOTE 10 — LEASES

2 unchanged sentences

Balance Sheet Classification

September 30, 2021

March 31, 2022

December 31, 2021

5 unchanged sentences

Total lease liabilities

Total lease expense, which is included in Cost of goods sold and Selling, general and administrative expenses in the Company’s Consolidated Statements of Income, was $ 5,619 and $ 16,279 in the three and nine months ended September 30, 2021, respectively, and $ 5,655 and $ 17,665 in the three and nine months ended September 30, 2020, respectively.

Cash paid for amounts included in the measurement of lease liabilities for the three and nine months ended September 30, 2021 were $ 5,896 and $ 12,548 , respectively, and are included in Net cash provided by operating activities in the Company’s Consolidated Statements of Cash Flows.

Cash paid for amounts included in the measurement of lease liabilities for the three and nine months ended September 30, 2020 were $ 3,733 and $ 11,727 , respectively, and are included in Net cash provided by operating activities in the Company’s Consolidated Statements of Cash Flows.

Right-of-use assets obtained in exchange for operating lease liabilities were $ 3,218 and $ 12,912 during the three and nine months ended September 30, 2021, respectively, and $ 214 and $ 2,249 for the three and nine months ended September 30, 2020, respectively.

Total lease expense, which is included in Cost of goods sold and Selling, general and administrative expenses in the Company’s Consolidated Statements of Income, was $ 5,198 and $ 5,051 in the three months ended March 31, 2022 and 2021, respectively.

Cash paid for amounts included in the measurement of lease liabilities at March 31, 2022 and 2021, respectively, were $ 3,187 and $ 3,389 and are included in Net cash provided by operating activities in the Company’s Consolidated Statements of Cash Flows.

Right-of-use assets obtained in exchange for operating lease liabilities during the three months ended March 31, 2022 and 2021 were $ 2,737 and $ 0 , respectively.

LINCOLN ELECTRIC HOLDINGS, INC.

2 unchanged sentences

The total future minimum lease payments for noncancelable operating leases were as follows:

September 30, 2021

March 31, 2022

Total lease payments

1 unchanged sentence

Operating lease liabilities

As of September 30, 2021, the weighted average remaining lease term is 8.6 years and the weighted average discount rate used to determine the operating lease liability is 3.1 %.

As of March 31, 2022, the weighted average remaining lease term is 8.3 years and the weighted average discount rate used to determine the operating lease liability is 3.03 %.

NOTE 11 — PRODUCT WARRANTY COSTS

The changes in the carrying amount of product warranty accruals are as follows:

Nine Months Ended September 30,

Three Months Ended March 31,

Balance at beginning of year

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

As of March 31, 2022, the Company was in compliance with all of its covenants and had $ 110,000 of outstanding borrowings under the Credit Agreement.

The Company has other lines of credit totaling $ 108,048 .

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

As of March 31, 2022, the Company was in compliance with all of its covenants and had $ 40,022 outstanding at March 31, 2022.

Senior Unsecured Notes

9 unchanged sentences

The Notes contain certain affirmative and negative covenants.

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

As of March 31, 2022, 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 September 30, 2021, the Company was in compliance with all of its covenants and had no outstanding borrowings under the Shelf Agreements.

As of March 31, 2022, the Company was in compliance with all of its covenants and had no outstanding borrowings under the Shelf Agreements.

Fair Value of Debt

At September 30, 2021 and December 31, 2020, the fair value of long-term debt, including the current portion, was approximately $ 772,551 and $ 793,591 , respectively, which was determined using available market information and methodologies requiring judgment.

At March 31, 2022 and December 31, 2021, the fair value of long-term debt, including the current portion, was approximately $ 693,298 and $ 776,655 , respectively, which was determined using available market information and methodologies requiring judgment.

The carrying value of this debt at such dates was $ 715,570 and $ 717,855 , respectively.

2 unchanged sentences

The components of total pension cost were as follows:

Three Months Ended September 30,

Nine Months Ended September 30,

pension plans

Three Months Ended March 31,

pension plans

4 unchanged sentences

Amortization of net loss

Settlement charges (1)

Settlement charges (gains) (1)

Defined benefit plans

2 unchanged sentences

Total pension cost

(1) Pension settlement charges primarily resulting from lump sum pension payments in the three and nine months ended September 30, 2021 and 2020.

(1) Gains in the three months ended March 31, 2022 related to the final settlement associated with the termination of a pension plan.

Charges primarily resulting from lump sum pension payments in the three months ended March 31, 2021.

The defined benefit plan components of Total pension cost, other than service cost, are included in Other income (expense) in the Company’s Consolidated Statements of Income.

2 unchanged sentences

Dollars in thousands, except per share amounts

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 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.

NOTE 14 — OTHER INCOME (EXPENSE)

The components of Other income (expense) were as follows:

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Equity earnings in affiliates

4 unchanged sentences

NOTE 15 — INCOME TAXES

The Company recognized $ 51,259 of tax expense on pretax income of $ 253,429 , resulting in an effective income tax rate of 20.2 % for the nine months ended September 30, 2021.

The effective income tax rate was 22.9 % for the nine months ended September 30, 2020.

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

As of September 30, 2021, the Company had $ 17,733 of unrecognized tax benefits.

The Company recognized $ 33,611 of tax expense on pretax income of $ 159,642 , resulting in an effective income tax rate of 21.1 % for the three months ended March 31, 2022.

The effective income tax rate was 23.7 % for the three months ended March 31, 2021.

The effective tax rate was lower for the three months ended March 31, 2022, as compared with the same period in 2021, primarily due to favorable discrete tax adjustments in 2022 and geographic mix of earnings.

As of March 31, 2022, the Company had $ 19,590 of unrecognized tax benefits.

If recognized, approximately $ 16,254 would be reflected as a component of income tax expense.

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Based on information currently available, management believes that additional audit activity could be completed and/or statutes of limitations may close relating to existing unrecognized tax benefits.

It is reasonably possible there could be a reduction of $ 937 in previously unrecognized tax benefits by the end of the third quarter 2022.

LINCOLN ELECTRIC HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Dollars in thousands, except per share amounts

It is reasonably possible there could be a reduction of $ 3,873 in previously unrecognized tax benefits by the end of the first quarter 2023.

NOTE 16 — DERIVATIVES

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Both at inception and on an ongoing basis, the derivative instruments that qualify for hedge accounting are assessed as to their effectiveness, when applicable.

Hedge ineffectiveness was immaterial in the nine months ended September 30, 2021 and 2020.

Hedge ineffectiveness was immaterial in the three months ended March 31, 2022 and 2021.

The Company is subject to the credit risk of the counterparties to derivative instruments.

Counterparties include a number of major banks and financial institutions.

None of the concentrations of risk with any individual counterparty was considered significant at September 30, 2021.

None of the concentrations of risk with any individual counterparty was considered significant at March 31, 2022.

The Company does not expect any counterparties to fail to meet their obligations.

LINCOLN ELECTRIC HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Dollars in thousands, except per share amounts

Cash Flow Hedges

Certain foreign currency forward contracts were qualified and designated as cash flow hedges.

The dollar equivalent gross notional amount of these short-term contracts was $ 77,691 at September 30, 2021 and $ 69,051 at December 31, 2020.

The Company has certain foreign currency forward contracts that are qualified and designated as cash flow hedges.

The dollar equivalent gross notional amount of these short-term contracts was $ 58,707 at March 31, 2022 and $ 72,630 at December 31, 2021.

The Company has interest rate forward starting swap agreements that are qualified and designated as cash flow hedges.

The dollar equivalent gross notional amount of the long-term contracts was $ 100,000 at September 30, 2021 and December 31, 2020 and have a termination date of August 2025.

Fair Value Hedges

From time to time, the company will enter into certain interest rate swap agreements that are qualified and designated as fair value hedges.

At September 30, 2021, the Company had no interest rate swap agreements outstanding.

The Company terminated $ 50,000 of interest rate swaps in the nine months ended September 30, 2020, which resulted in a gain of $ 6,629 that is amortized to interest expense over the remaining life of the underlying debt.

The dollar equivalent gross notional amount of the long-term contracts was $ 100,000 at March 31, 2022 and December 31, 2021 and have a termination date of August 2025.

The Company has commodity contracts with a notional amount of 900,000 pounds and 975,000 pounds at March 31, 2022 and December 31, 2021, respectively, that are qualified and designated as cash flow hedges.

Net Investment Hedges

The Company has cross currency swap agreements that are qualified and designated as net investment hedges.

The dollar equivalent gross notional amount of these contracts is $ 50,000 as of September 30, 2021 and December 31, 2020, respectively.

The dollar equivalent gross notional amount of these contracts is $ 25,000 as of March 31, 2022 and December 31, 2021, respectively.

The Company has foreign currency forward contracts that qualify and are designated as net investment hedges.

The dollar equivalent gross notional amount of these short-term contracts was $ 96,147 at September 30, 2021.

The dollar equivalent gross notional amount of these short-term contracts was $ 91,881 at March 31, 2022 and $ 94,479 at December 31, 2021.

Derivatives Not Designated as Hedging Instruments

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These derivatives are held as economic hedges of certain balance sheet exposures.

The dollar equivalent gross notional amount of these contracts was $ 312,682 and $ 391,112 at September 30, 2021 and December 31, 2020, respectively.

LINCOLN ELECTRIC HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Dollars in thousands, except per share amounts

The dollar equivalent gross notional amount of these contracts was $ 257,585 and $ 301,685 at March 31, 2022 and December 31, 2021, respectively.

Fair values of derivative instruments in the Company’s Condensed Consolidated Balance Sheets follow:

September 30, 2021

March 31, 2022

December 31, 2021

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Net investment contracts

Commodity contracts

Not designated as hedging instruments:

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Total derivatives

LINCOLN ELECTRIC HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Dollars in thousands, except per share amounts

The effects of undesignated derivative instruments on the Company’s Consolidated Statements of Income consisted of the following:

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Derivatives by hedge designation

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Total gain (loss) recognized in AOCI, net of tax

September 30, 2021

March 31, 2022

December 31, 2021

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Net investment contracts

Commodity Contracts

The Company expects a loss of $ 925 related to existing contracts to be reclassified from AOCI, net of tax, to earnings over the next 12 months as the hedged transactions are realized.

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Gain (loss) recognized in the

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Cost of goods sold

LINCOLN ELECTRIC HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Dollars in thousands, except per share amounts

NOTE 17 - FAIR VALUE

The following table provides a summary of assets and liabilities as of September 30, 2021, measured at fair value on a recurring basis:

The following table provides a summary of assets and liabilities as of March 31, 2022, measured at fair value on a recurring basis:

Quoted Prices in

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Observable Inputs

September 30, 2021

March 31, 2022

Inputs (Level 3)

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Net investment contracts

Commodity contracts

Forward starting swap agreements

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Total liabilities

LINCOLN ELECTRIC HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Dollars in thousands, except per share amounts

The following table provides a summary of assets and liabilities as of December 31, 2021, measured at fair value on a recurring basis:

8 unchanged sentences

Foreign exchange contracts

Net investment contracts

Commodity contracts

Forward starting swap agreements

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The Company measures the fair value of the liability using the market values of the participants’ underlying investment fund elections.

The fair value of Cash and cash equivalents, Accounts receivable, Short-term debt excluding the current portion of long-term debt and Trade accounts payable approximated book value due to the short-term nature of these instruments at both September 30, 2021 and December 31, 2020.

LINCOLN ELECTRIC HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Dollars in thousands, except per share amounts

The fair value of Cash and cash equivalents, Accounts receivable, pension surplus assets, Short-term debt excluding the current portion of long-term debt and Trade accounts payable approximated book value due to the short-term nature of these instruments at both March 31, 2022 and December 31, 2021.

The Company has various financial instruments, including cash and cash equivalents, short and long-term debt and forward contracts.

2 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 1. Financial Statements