What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-07-28 compared with 2022-04-28 · 111 added, 48 removed, 207 unchanged (43% of the section changed)

18 unchanged sentences

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

Three Months Ended March 31,

Three Months Ended June 30,

Favorable (Unfavorable)

10 unchanged sentences

Diluted earnings per share

Six Months Ended June 30,

Favorable (Unfavorable)

Cost of goods sold

Selling, general & administrative expenses

Rationalization and asset impairment charges

Operating income

Interest expense, net

Other income (expense)

Income before income taxes

Effective tax rate

Net income including non-controlling interests

Non-controlling interests in subsidiaries' loss

Diluted earnings per share

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 March 31,

Three Months Ended June 30,

Change in Net Sales due to:

1 unchanged sentence

Lincoln Electric Holdings, Inc.

Net sales increased in the three months ended March 31, 2022 driven by higher demand levels, increased product pricing as a result of higher input costs and the impact of acquisitions, partially offset by unfavorable foreign exchange

Six Months Ended June 30,

Change in Net Sales due to:

Lincoln Electric Holdings, Inc.

Net sales increased in the three and six months ended June 30, 2022 driven by higher demand levels, increased product pricing as a result of higher input costs and the impact of acquisitions, partially offset by unfavorable foreign exchange.

Gross Profit:

Gross profit for the three months ended March 31, 2022 increased 30.0% driven by higher volumes, the impact of cost reduction initiatives and pricing actions taken to offset higher input costs.

Last-in, first-out (“LIFO”) charges were $6,888 in the three months ended March 31, 2022, as compared with charges of $3,854 in 2021.

Gross profit for the three and six months ended June 30, 2022 increased 21.7% and 25.7%, respectively, driven by higher volumes, the impact of cost reduction initiatives and pricing actions taken to offset higher input costs.

Last-in, first-out (“LIFO”) charges were $10,424 and $17,312 in three and six months ended June 30, 2022, respectively, as compared with charges of $9,474 and $13,328 in the same 2021 periods.

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

SG&A expenses increased for the three months ended March 31, 2022 as compared to the same 2021 period, primarily due to higher employee costs.

Rationalization and Asset Impairment Charges:

The Company recorded charges of $1,885 ($1,836 after-tax) and $4,163 ($3,831 after-tax) in the three months ended March 31, 2022 and 2021, respectively, primarily related to severance charges and gains or losses on the disposal of assets.

SG&A expenses increased for the three and six months ended June 30, 2022 as compared to the same 2021 period, primarily due to higher employee costs.

Other Income (Expense):

The increase in Other income (expense) for the three months ended March 31, 2022 as compared to March 31, 2021 was primarily due to the final settlement associated with the termination of a pension plan in the current year and non-cash pension settlement charges resulting from lump sum pension payments in 2021.

Other income (expense) includes non-operating income and expense, primarily including other components of net periodic pension costs.

Refer to Note 14 to the consolidated financial statements for details.

Income Taxes:

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

The effective tax rate was higher for the three months ended June 30, 2022 as compared to the same period in 2021, primarily due to geographic mix of earnings.

The effective tax rate was lower for the six months ended June 30, 2022 as compared to the same period in 2021, primarily due to favorable discrete tax adjustments in 2022 and geographic mix of earnings.

Segment Results

Three Months Ended March 31,

Three Months Ended June 30,

Change in Net Sales due to:

7 unchanged sentences

The Harris Products Group

(1) Increase for the three months ended March 31, 2022 were due to the acquisitions discussed in Note 4 to the consolidated financial statements.

(2) Increase for the three months ended March 31, 2022 in Americas Welding and International Welding reflects increased product pricing as a result of higher input costs.

Six Months Ended June 30,

Change in Net Sales due to:

Acquisitions (1)

Operating Segments

Americas Welding

International Welding

The Harris Products Group

Americas Welding

International Welding

The Harris Products Group

(1) Increases for the three and six months ended June 30, 2022 were due to the acquisitions discussed in Note 4 to the consolidated financial statements.

(2) Increase for the three and six months ended June 30, 2022 in Americas Welding and International Welding reflects increased product pricing as a result of higher input costs.

Increase for The Harris Products Group was also due to increased commodity costs.

(3) Decrease for the three months ended March 31, 2022 in International Welding primarily due to the devaluation of the Turkish Lira.

(3) Decrease for the three and six months ended June 30, 2022 in International Welding primarily due to the devaluation of the Turkish Lira and Euro.

Adjusted Earnings Before Interest and Income Taxes:

4 unchanged sentences

Favorable (Unfavorable)

Three Months Ended March 31,

Three Months Ended June 30,

Americas Welding:

17 unchanged sentences

As a percent of sales

(1) Increase for the three months ended March 31, 2022 as compared to March 31, 2021 primarily driven by higher volumes, the impact of profit improvement initiatives and pricing actions taken to offset higher input costs, partially offset by higher employee costs.

(2) Increase for the three months ended March 31, 2022 as compared to March 31, 2021 primarily driven by pricing actions taken to offset higher input costs and cost reduction initiatives.

(3) Decrease for the three months ended March 31, 2022 as compared to March 31, 2021 driven primarily by higher input costs, product mix and integration activities.

(4) The three months ended March 31, 2022 exclude a favorable adjustment related to the termination of a pension plan of $3,735.

The three months ended March 31, 2021 exclude pension settlement charges of $4,440.

(5) The three months ended March 31, 2022 and 2021 exclude Rationalization and asset impairment charges of $1,885 and $4,163, 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 March 31, 2021 also excludes pension settlement charges of $446.

(1) Increase for the three months ended June 30, 2022 as compared to June 30, 2021 primarily driven by higher volumes, the impact of profit improvement initiatives and pricing actions taken to offset higher input costs, partially offset by higher employee costs.

(2) Increase for the three months ended June 30, 2022 as compared to June 30, 2021 primarily driven by pricing actions taken to offset higher input costs and cost reduction initiatives.

(3) Decrease for the three months ended June 30, 2022 as compared to June 30, 2021 primarily driven by acquisition integration activities, unfavorable mix and declining commodity pricing in certain metal offerings.

(4) The three months ended June 30, 2022 exclude the amortization of step up in value of acquired inventories of $1,459 related to an acquisition as discussed in Note 4 to the consolidated financial statements and

Rationalization and asset impairment net gains of $998 as discussed in Note 6 to the consolidated financial statements.

The three months ended June 30, 2021 exclude pension settlement charges of $1,650.

(5) The three months ended June 30, 2022 and June 30, 2021 exclude Rationalization and asset impairment charges of $154 and $630, respectively, 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 of $1,841, related to an acquisition as discussed in Note 4 to the consolidated financial statements.

(6) The three months ended June 30, 2021 exclude acquisition transaction costs of $810.

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

Favorable (Unfavorable)

Six Months Ended June 30,

Americas Welding:

Inter-segment sales

Adjusted EBIT (4)

As a percent of total sales (1)

International Welding:

Inter-segment sales

Adjusted EBIT (5)

As a percent of total sales (2)

The Harris Products Group:

Inter-segment sales

Adjusted EBIT

As a percent of total sales (3)

Corporate / Eliminations:

Inter-segment sales

Adjusted EBIT (6)

Consolidated:

As a percent of total sales

Adjusted EBIT (7)

As a percent of sales

(1) Increase for the six months ended June 30, 2022 as compared to June 30, 2021 primarily driven by higher volumes, the impact of profit improvement initiatives and pricing actions taken to offset higher input costs, partially offset by higher employee costs.

(2) Increase for the six months ended June 30, 2022 as compared to June 30, 2021 primarily driven by pricing actions taken to offset higher input costs and cost reduction initiatives.

(3) Decrease for the six months ended June 30, 2022 as compared to June 30, 2021 driven primarily by acquisition integration activities, unfavorable mix and declining commodity pricing in certain metal offerings.

(4) The six months ended June 30, 2022 exclude a favorable adjustment related to the termination of a pension plan of $3,735, the amortization of step up in value of acquired inventories of $1,459 as discussed in Note 4 to the consolidated financial statements and Rationalization and asset impairment net gains of $988 as discussed in Note 6 to the consolidated financial statements.

The three months ended June 30, 2021 exclude pension settlement charges of $6,536.

(5) The six months ended June 30, 2022 and 2021 exclude Rationalization and asset impairment charges of $2,039 and $4,793, respectively, as discussed in Note 6 to the consolidated financial statements.

The six months ended June 30, 2021 also excludes the amortization of step up in value of acquired inventories of $1,841, as discussed in Note 4 to the consolidated financial statements.

(6) The six months ended June 30, 2021 exclude acquisition transaction costs of $1,923.

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

Non-GAAP Financial Measures

3 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 March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Operating income as reported

2 unchanged sentences

Acquisition transaction costs (2)

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

Adjusted operating income

4 unchanged sentences

Pension charges and other net gains (4)

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

Tax effect of Special items (5)

11 unchanged sentences

Adjusted diluted earnings per share

(1) Charges primarily related to severance and gains or losses on the disposal of assets as discussed in Note 6 to the consolidated financial statements.

(1) Charges primarily related to severance, gains or losses on the disposal of assets.

(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 includes the final settlement associated with the termination of a pension plan and settlement charges due to lump sum pension payments and are included in Other income (expense).

6 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 at least the next twelve months and the foreseeable future thereafter 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:

Three Months Ended March 31,

Six Months Ended June 30,

Cash provided by operating activities (1)

7 unchanged sentences

Decrease in Cash and cash equivalents (4)

(1) Cash provided by operating activities decreased for the three months ended March 31, 2022 , compared with the three months ended March 31, 2021 primarily due to increased investment in working capital.

(2) Cash used by investing activities increased for the three months ended March 31, 2022 , compared with the three months ended March 31, 2021 primarily due to cash used in the acquisition of businesses.

(1) Cash provided by operating activities decreased for the six months ended June 30, 2022 , compared with the six months ended June 30, 2021 primarily due to increased investment in working capital.

(2) Cash used by investing activities decreased for the six months ended June 30, 2022 , compared with the six months ended June 30, 2021 primarily due to higher cash used in the acquisition of businesses in 2021.

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

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 three months ended March 31, 2022 , compared with the three months ended March 31, 2021 due to higher proceeds from borrowings, partially offset by the increased purchase of shares for treasury.

(4) Cash and cash equivalents decreased 20.0%, or $38,585, to $154,373 during the three months ended March 31, 2022 , from $192,958 as of December 31, 2021.

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 higher proceeds from short-term borrowings.

At March 31, 2022, $150,256 of Cash and cash equivalents was held by international subsidiaries.

In April 2022, the Company paid a cash dividend of $0.56 per share, or $32,535, to shareholders of record as of March 31, 2022.

(3) Cash used by financing activities increased in the six months ended June 30, 2022 , compared with the six months ended June 30, 2021 due to increased purchase of shares for treasury, partially offset by higher borrowings in 2022.

(4) Cash and cash equivalents decreased 20.8%, or $40,162 to $152,796 during the six months ended June 30, 2022 , from $192,958 as of December 31, 2021.

This decrease was predominantly due to cash used for the purchase of common shares for treasury, dividends paid to shareholders and capital expenditures, partially offset by cash from operations and proceeds from borrowings.

At June 30, 2022, $146,705 of Cash and cash equivalents was held by international subsidiaries.

In July 2022, the Company paid a cash dividend of $0.56 per share, or $32,435, to shareholders of record as of June 30, 2022.

Working Capital Ratios

March 31, 2022

June 30, 2022

December 31, 2021

March 31, 2021

June 30, 2021

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

3 unchanged sentences

(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 COVID-19 pandemic and increased global demand, the Company increased inventories relative to expected Net sales resulting in higher Days sales in Inventories and had an unfavorable impact on Average operating working capital to Net sales.

(2) In order to minimize potential supply chain disruptions in serving customers in a challenging operating environment, the Company increased inventories relative to expected Net sales resulting in higher Days sales in Inventories and had an unfavorable impact on Average operating working capital to Net sales.

Return on Invested Capital

4 unchanged sentences

The following table presents ROIC:

Twelve Months Ended March 31,

Twelve Months Ended June 30,

Rationalization and asset impairment charges

8 unchanged sentences

Invested Capital

March 31, 2022

March 31, 2021

June 30, 2022

June 30, 2021

Short-term debt

9 unchanged sentences

Fair Value of Debt

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.

At June 30, 2022 and December 31, 2021, the fair value of long-term debt, including the current portion, was approximately $639,863 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 $723,945 and $717,855, respectively.

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

As of June 30, 2022, the Company was in compliance with all of its covenants and had $85,000 of outstanding borrowings under the Credit Agreement.

The Company has other lines of credit totaling $103,956.

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

As of June 30, 2022, the Company was in compliance with all of its covenants and had $29,421 outstanding at June 30, 2022.

Senior Unsecured Notes

5 unchanged sentences

The Notes contain certain affirmative and negative covenants.

As of March 31, 2022, the Company was in compliance with all of its debt covenants relating to the Notes.

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

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

Forward-looking Statements

1 unchanged sentence

These statements reflect management’s current expectations and involve a number of risks and uncertainties.

Forward-looking statements generally can be identified by the use of words such as “may,” “will,” “expect,” “intend,” “estimate,” “anticipate,” “believe,” “forecast,” “guidance” or words of similar meaning.

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.

13 unchanged sentences

tariff rates in the countries where the Company conducts business;

and the possible effects of events beyond our control, such as the impact of the Russia-Ukraine conflict, political unrest, acts of terror, natural disasters and pandemics, including the COVID- 19 pandemic, on the Company or its customers, suppliers and the economy in general.

and the possible effects of events beyond our control, such as the impact of the Russia-Ukraine conflict, political unrest, acts of terror, natural disasters and pandemics, including the current coronavirus disease (“COVID- 19”) pandemic, on the Company or its customers, suppliers and the economy in general.

For additional discussion, see “Item 1A.

Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 and on Form 10-Q for the quarter ended March 31, 2022.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

3 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