What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2022-10-27 compared with 2022-07-28 · 169 added, 124 removed, 492 unchanged (37% of the section changed)

3 unchanged sentences

(In thousands, except per share amounts)

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Net sales (Note 2)

16 unchanged sentences

(In thousands)

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

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 $ 2,794 and $ 4,845 in the three and six months ended June 30, 2022;

$( 1,012 ) and $ 1,297 in the three and six months ended June 30, 2021

Defined benefit pension plan activity, net of tax of $ 382 and $ 459 in the three and six months ended June 30, 2022;

$( 569 ) and $ 246 in the three and six months ended June 30, 2021

Unrealized gain (loss) on derivatives designated and qualifying as cash flow hedges, net of tax of $ 3,234 and $ 8,079 in the three and nine months ended September 30, 2022;

$ 707 and $ 1,493 in the three and nine months ended September 30, 2021

Defined benefit pension plan activity, net of tax of $ 47 and $ 506 in the three and nine months ended September 30, 2022;

$ 18,759 and $ 19,005 in the three and nine months ended September 30, 2021

Currency translation adjustment

7 unchanged sentences

(In thousands)

June 30, 2022

September 30, 2022

December 31, 2021

53 unchanged sentences

( 2,438,144 )

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 – $ 0.56 per share

Stock-based compensation activity

Purchase of shares for treasury

Balance at September 30, 2022

( 2,464,460 )

LINCOLN ELECTRIC HOLDINGS, INC.

6 unchanged sentences

Unrecognized amounts from defined benefit pension plans, net of tax

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

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

Currency translation adjustment

12 unchanged sentences

( 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.

1 unchanged sentence

(In thousands)

Six Months Ended June 30,

Nine Months Ended September 30,

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 (Note 6)

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

Depreciation and amortization

Equity earnings in affiliates, net

Equity earnings (loss) in affiliates, net

Deferred income taxes

Stock-based compensation

Pension settlement charges

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

34 unchanged sentences

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 six months ended June 30, 2022 are not necessarily indicative of the results to be expected for the year ending December 31, 2022.

Operating results for the nine months ended September 30, 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.

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.

In March 2022, i n 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.

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

Turkey – Highly Inflationary Economy

3 unchanged sentences

Under highly inflationary accounting, the financial statements of the Company’s Turkish operation have been remeasured into the Company’s reporting currency (U.S.

For the second quarter 2022, the exchange gains and losses from the remeasurement of monetary assets and liabilities are reflected in current earnings, rather than “Accumulated other comprehensive loss” on the balance sheet.

As of June 30, 2022, this impact was not significant to the Company’s results.

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

Beginning April 1, 2022, the exchange gains and losses from the remeasurement of monetary assets and liabilities are reflected in current earnings, rather than “Accumulated other comprehensive loss” on the balance sheet.

As of September 30, 2022, this impact was not significant to the Company’s results.

Management has evaluated and disclosed all material events occurring subsequent to the date of the financial statements up to October 27, 2022, the filing date of this Quarterly Report on Form 10-Q.

New Accounting Pronouncements:

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.

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.

LINCOLN ELECTRIC HOLDINGS, INC.

1 unchanged sentence

Dollars in thousands, except per share amounts

The Company is currently evaluating the impact on its financial statements of the following ASU:

2022-04, Liabilities-Supplier Finance Programs (Subtopic 405-50) , issued September 2022.

Requires disclosure about a company’s supplier finance program, including key terms, amount outstanding, assets pledged as applicable, presentation on the balance sheet and a period-over-period balance roll forward.

Except for the roll forward requirement, the ASU is effective for interim and annual periods beginning January 1, 2023 and should be applied retrospectively.

The roll forward requirement is effective January 1, 2024 and should be applied prospectively.

Early adoption of the roll forward requirement is permitted.

NOTE 2 — REVENUE RECOGNITION

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

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

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 June 30, 2022, the Company recorded $ 62,793 related to advance customer payments and $ 32,728 related to billings in excess of revenue recognized.

At September 30, 2022, the Company recorded $ 42,552 related to advance customer payments and $ 31,772 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 June 30, 2022 and December 31, 2021, the Company recorded $ 38,651 and $ 25,300 , respectively, related to these contract assets which are included in Other current assets in the Condensed Consolidated Balance Sheets.

At September 30, 2022 and December 31, 2021, the Company recorded $ 37,488 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.

LINCOLN ELECTRIC HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Dollars in thousands, except per share amounts

NOTE 3 — EARNINGS PER SHARE

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

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Denominator (shares in 000's):

4 unchanged sentences

Diluted earnings per share

For the three months ended June 30, 2022 and 2021, common shares subject to equity-based awards of 62,987 and 179,861 , respectively, were excluded from the computation of diluted earnings per share because the

LINCOLN ELECTRIC HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Dollars in thousands, except per share amounts

effect of their exercise would be anti-dilutive.

For the six months ended June 30, 2022 and 2021, common shares subject to equity-based awards of 108,497 and 134,388 , 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 September 30, 2022 and 2021, common shares subject to equity-based awards of 52,495 and 2,126 , respectively, were excluded from the computation of diluted earnings per share because the effect of their exercise would be anti-dilutive.

For the nine months ended September 30, 2022 and 2021, common shares subject to equity-based awards of 120,106 and 150,254 , 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.

On March 1, 2022, the Company acquired 100 % ownership of Kestra Universal Soldas, Industria e Comercio, Imporacao e Exportacao Ltda.

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

The net purchase price was $ 22,294 , net of cash acquired and accounted for as a business combination.

In 2021, Kestra generated sales of approximately $ 15,000 .

Beginning March 1, 2022, the Company’s Consolidated Statements of Income include the results of Kestra, including Net sales of $ 11,906 through September 30, 2022 and the impact on net income for the three and nine months ended September 30, 2022 was not material.

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.

The acquisition broadens the Company’s specialty alloys portfolio and services.

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

On July 28, 2021, the Company acquired 100 % ownership of Overstreet-Hughes Company, Inc.

and Shoals Tubular, Inc.

The net purchase price was $ 71,716 , net of cash acquired and accounted for as a business combination.

The Company recognized $ 346 in acquisition transaction costs in 2021 which were expensed as incurred and are included in “Selling, general, and administrative expenses” in the Consolidated Statements of Income.

In 2020, FTP generated sales of approximately $ 50,000 .

Beginning July 28, 2021, the Company’s Consolidated Statements of Income include the results of FTP, including Net sales of $ 24,953 through December 31, 2021 and the impact on net income for the year ended December 31, 2021 was not material.

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.

On April 1, 2021, the Company acquired 100 % ownership of Zeman Bauelemente Produktionsgesellschaft m.b.H.

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

The net purchase price was $ 84,390 , net of cash acquired and accounted for as a business combination.

The Company recognized $ 1,577 in acquisition transaction costs in 2021 which were expensed as incurred and are included in “Selling, general, and administrative expenses” in the Consolidated Statements of Income.

In 2020, Zeman generated sales of approximately $ 40,000 .

Beginning April 1, 2021, the Company’s

LINCOLN ELECTRIC HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Dollars in thousands, except per share amounts

Consolidated Statements of Income include the results of Zeman, including Net sales of $ 24,473 through December 31, 2021 and the impact on net income for the year ended December 31, 2021 was not material.

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.

The acquired companies discussed above are not material individually, or in the aggregate, to the actual or pro forma Consolidated Statements of Income or Consolidated Statements of Cash Flows;

as such, pro forma information related to these acquisitions have not been presented.

The preliminary purchase price allocations are expected to be finalized within the allowable measurement period.

The acquired companies are included in the Company's consolidated financial statements as of the date of acquisition.

NOTE 5 — SEGMENT INFORMATION

12 unchanged sentences

International

Three Months Ended June 30, 2022

Three Months Ended September 30, 2022

Inter-segment sales

4 unchanged sentences

Income before income taxes

Three Months Ended June 30, 2021

Three Months Ended September 30, 2021

Inter-segment sales

4 unchanged sentences

Income before income taxes

Six Months Ended June 30, 2022

Nine Months Ended September 30, 2022

Inter-segment sales

4 unchanged sentences

Income before income taxes

Six Months Ended June 30, 2021

Nine Months Ended September 30, 2021

Inter-segment sales

4 unchanged sentences

Income before income taxes

(1) In the three and six months ended June 30, 2022, special items reflect Rationalization and asset impairment net gains of $ 998 in Americas Welding and net charges of $ 154 and $ 2,039 , respectively, in International Welding and amortization of step up in value of acquired inventories of $ 1,459 in Americas Welding.

In the six months ended June 30, 2022, the final settlement related to the termination of a pension plan of $ 3,735 in Americas Welding.

(2) In the three and six months ended June 30, 2021, special items reflect Rationalization and asset impairment charges of $ 630 and $ 4,793 , respectively, in International Welding, amortization of step up in value of acquired

(1) In the three months ended September 30, 2022, special items exclude an adjustment to the amortization of the step up in value of acquired inventories of $ 353 in Americas Welding, Rationalization and asset impairment charges of $ 8,364 in International Welding as discussed in Note 6 and acquisition transaction costs of $ 3,068 in Corporate/Eliminations related to the contemplated acquisition discussed in Note 18.

(2) In the nine months ended September 30, 2022, special items exclude a favorable adjustment related to the termination of a pension plan of $ 3,735 , the amortization of the step up in value of acquired inventories of $ 1,106 and Rationalization and asset impairment net gains of $ 998 in Americas Welding, Rationalization and

LINCOLN ELECTRIC HOLDINGS, INC.

1 unchanged sentence

Dollars in thousands, except per share amounts

inventories of $ 1,841 in International Welding and pension settlement charges of $ 1,650 and $ 6,536 in Americas Welding, respectively, and $ 446 in International Welding in the six months ended June 30, 2021.

Also in the three and six months ended June 30, 2021, special items reflect acquisition transaction costs of $ 810 and $ 1,923 , respectively, in Corporate/Eliminations.

asset impairment charges of $ 10,403 in International Welding as discussed in Note 6 and acquisition costs transaction costs of $ 3,086 in Corporate/Eliminations related to the contemplated acquisition discussed in Note 18.

(3) 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 in International Welding and FTP 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 as discussed in Note 4.

NOTE 6 — RATIONALIZATION AND ASSET IMPAIRMENTS

The Company recorded Rationalization and asset impairment net charges of $ 1,041 and $ 4,793 in the six months ended June 30, 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.

The Company recorded Rationalization and asset impairment net charges of $ 9,405 and $ 8,277 in the nine months ended September 30, 2022 and 2021, respectively.

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

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 June 30, 2022, liabilities of $ 1,871 for International Welding were recognized in Other current liabilities in the Company’s Condensed Consolidated Balance Sheet.

At September 30, 2022, liabilities of $ 1,097 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 six months ended June 30, 2022:

The following table summarizes the activity related to rationalization liabilities for the nine months ended September 30, 2022:

International

2 unchanged sentences

Charged to expense

Balance at June 30, 2022

Balance at September 30, 2022

LINCOLN ELECTRIC HOLDINGS, INC.

3 unchanged sentences

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

Three Months Ended June 30, 2022

Three Months Ended September 30, 2022

Unrealized gain

3 unchanged sentences

qualifying as cash

Balance at March 31, 2022

Balance at June 30, 2022

Other comprehensive income (loss) before reclassification

1 unchanged sentence

Net current-period other comprehensive income (loss)

Balance at June 30, 2022

Three Months Ended June 30, 2021

Balance at September 30, 2022

Three Months Ended September 30, 2021

Unrealized gain

3 unchanged sentences

qualifying as cash

Balance at March 31, 2021

Balance at June 30, 2021

Other comprehensive income (loss) before reclassification

1 unchanged sentence

Net current-period other comprehensive income (loss)

Balance at June 30, 2021

(1) During the three months ended June 30, 2022, the AOCI reclassification is a component of Net sales of $ 122 (net of tax of $ 59 ) and Cost of goods sold of $( 367 ) (net of tax of $( 86 ) );

during the three months ended June 30, 2021, the reclassification is a component of Net sales of $ 70 (net of tax of $ 27 ) and Cost of goods sold of $ 405 (net of tax of $ 90 ).

Balance at September 30, 2021

(1) During the three months ended September 30, 2022, the AOCI reclassification is a component of Net sales of $ 155 (net of tax of $ 74 ) and Cost of goods sold of $( 210 ) (net of tax of $( 44 ) );

during the three months ended September 30, 2021, the 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 ).

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 $ 165 and $ 1,445 ) during the three months ended June 30, 2022 and 2021, respectively.

(2) This AOCI component is included in the computation of net periodic pension costs (net of tax of $ 30 and $ 18,677 ) during the three months ended September 30, 2022 and 2021, respectively.

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

(3) The Other comprehensive income (loss) before reclassifications excludes $( 19 ) and $( 110 ) attributable to Non-controlling interests in the three months ended June 30, 2022 and 2021, respectively.

(3) The Other comprehensive income (loss) before reclassifications excludes $( 13 ) and $( 58 ) attributable to Non-controlling interests in the three months ended September 30, 2022 and 2021, respectively.

LINCOLN ELECTRIC HOLDINGS, INC.

1 unchanged sentence

Dollars in thousands, except per share amounts

Six Months Ended June 30, 2022

Nine Months Ended September 30, 2022

Unrealized gain

7 unchanged sentences

Net current-period other comprehensive income (loss)

Balance at June 30, 2022

Six Months Ended June 30, 2021

Balance at September 30, 2022

Nine Months Ended September 30, 2021

Unrealized gain

7 unchanged sentences

Net current-period other comprehensive income (loss)

Balance at June 30, 2021

(1) During the six months ended June 30, 2022, the AOCI reclassification is a component of Net sales of $ 254 (net of tax of $ 107 ) and Cost of goods sold of $( 729 ) (net of tax of $( 179 ) );

during the six months ended June 30, 2021, the reclassification is a component of Net sales of $ 172 (net of tax of $ 69 ) and Cost of goods sold of $ 731 (net of tax of $ 243 ).

Balance at September 30, 2021

(1) During the nine months ended September 30, 2022, the AOCI reclassification is a component of Net sales of $ 409 (net of tax of $ 181 ) and Cost of goods sold of $( 939 ) (net of tax of $( 223 ) );

during the nine months ended September 30, 2021, the 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 ).

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 $ 179 and $ 2,901 ) during the six months ended June 30, 2022 and 2021, respectively.

(2) This AOCI component is included in the computation of net periodic pension costs (net of tax of $ 209 and $ 21,578 ) during the nine months ended September 30, 2022 and 2021, respectively.

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

(3) The Other comprehensive income (loss) before reclassifications excludes $ 115 and $ ( 269 ) attributable to Non-controlling interests in the six months ended June 30, 2022 and 2021, respectively.

(3) The Other comprehensive income (loss) before reclassifications excludes $ 102 and $ ( 327 ) attributable to Non-controlling interests in the nine months ended September 30, 2022 and 2021, 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.

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 June 30, 2022, the Company purchased a total of 0.2 million shares at an average cost per share of $ 131.68 .

During the six months ended June 30, 2022, the Company purchased a total of 1.0 million shares at an average cost per share of $ 130.31 .

As of June 30, 2022, 9.3 million common shares remained available for repurchase under these programs.

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

During the three months ended September 30, 2022, the Company purchased a total of 0.2 million shares at an average cost per share of $ 133.74 .

During the nine months ended September 30, 2022, the Company purchased a total of 1.2 million shares at an average cost per share of $ 130.90 .

As of September 30, 2022, 9.1 million common shares remained available for repurchase.

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

4 unchanged sentences

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

June 30, 2022

September 30, 2022

December 31, 2021

2 unchanged sentences

Finished goods

At June 30, 2022 and December 31, 2021, approximately 37 % and 36 %, respectively, of total inventories were valued using the last-in, first-out ("LIFO") method.

The excess of current cost over LIFO cost was $ 131,488 and $ 114,176 at June 30, 2022 and December 31, 2021, respectively.

At September 30, 2022 and December 31, 2021, approximately 40 % and 36 %, respectively, of total inventories were valued using the last-in, first-out ("LIFO") method.

The excess of current cost over LIFO cost was $ 134,597 and $ 114,176 at September 30, 2022 and December 31, 2021, respectively.

NOTE 10 — LEASES

2 unchanged sentences

Balance Sheet Classification

June 30, 2022

September 30, 2022

December 31, 2021

5 unchanged sentences

Total lease liabilities

Total lease expense, which is included in Cost of goods sold and Selling, general & administrative expenses in the Company’s Consolidated Statements of Income, was $ 5,862 and $ 11,061 in the three and six months ended June 30, 2022 and $ 5,608 and $ 10,660 in the three and six months ended June 30, 2021, respectively.

Cash paid for amounts included in the measurement of lease liabilities for the three and six months ended June 30, 2022, respectively, were $ 2,984 and $ 6,171 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 six months ended June 30, 2021, respectively, were $ 3,263 and $ 6,652 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 $ 742 and $ 3,479 during the three and six months ended June 30, 2022 and $ 9,694 for the three and six months ended June 30, 2021, respectively.

Total lease expense, which is included in Cost of goods sold and Selling, general & administrative expenses in the Company’s Consolidated Statements of Income, was $ 5,109 and $ 15,415 in the three and nine months ended September 30, 2022, respectively, and $ 5,619 and $ 16,279 in the three and nine months ended September 30, 2021, respectively.

Cash paid for amounts included in the measurement of lease liabilities for the three and nine months ended September 30, 2022 were $ 2,930 and $ 9,101 , 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, 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.

Right-of-use assets obtained in exchange for operating lease liabilities were $ 4,739 and $ 8,217 during the three and nine months ended September 30, 2022, respectively, and $ 3,218 and $ 12,912 for the three and nine months ended September 30, 2021, respectively.

LINCOLN ELECTRIC HOLDINGS, INC.

2 unchanged sentences

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

June 30, 2022

September 30, 2022

Total lease payments

1 unchanged sentence

Operating lease liabilities

As of June 30, 2022, the weighted average remaining lease term is 8.2 years and the weighted average discount rate used to determine the operating lease liability is 3.02 %.

As of September 30, 2022, the weighted average remaining lease term is 7.9 years and the weighted average discount rate used to determine the operating lease liability is 3.0 %.

NOTE 11 — PRODUCT WARRANTY COSTS

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

Six Months Ended June 30,

Nine Months Ended September 30,

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

As of September 30, 2022, the Company was in compliance with all of its covenants and had $ 37,000 of outstanding borrowings under the Credit Agreement.

The Company has other lines of credit and debt agreements totaling $ 104,293 .

As of September 30, 2022, the Company was in compliance with all of its covenants and had $ 20,338 outstanding at September 30, 2022.

Senior Unsecured Notes

9 unchanged sentences

The Notes contain certain affirmative and negative covenants.

As of June 30, 2022, the Company was in compliance with all of its debt covenants relating to the Notes.

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

As of September 30, 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 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.

At September 30, 2022 and December 31, 2021, the fair value of long-term debt, including the current portion, was approximately $ 597,972 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 $ 722,287 and $ 717,855 , respectively.

2 unchanged sentences

The components of total pension cost were as follows:

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

pension plans

11 unchanged sentences

Total pension cost

(1) Gains in the six months ended June 30, 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 and six months ended June 30, 2021.

(1) Gains in the nine months ended September 30, 2022 related to the final settlement associated with the termination of a pension plan.

Charges in the three and nine months ended September 30, 2021 primarily resulting from lump sum pension payments also related to the termination of a pension plan.

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.

4 unchanged sentences

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

Three Months Ended June 30,

Six Months Ended June 30,

Equity earnings in affiliates

Three Months Ended September 30,

Nine Months Ended September 30,

Equity earnings (loss) in affiliates

Other components of net periodic pension (cost) income (1)

3 unchanged sentences

NOTE 15 — INCOME TAXES

The Company recognized $ 65,729 of tax expense on pretax income of $ 319,582 , resulting in an effective income tax rate of 20.6 % for the six months ended June 30, 2022.

The effective income tax rate was 20.7 % for the six months ended June 30, 2021.

The effective tax rate was lower for the six months ended June 30, 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 June 30, 2022, the Company had $ 19,890 of unrecognized tax benefits.

The Company recognized $ 93,991 of tax expense on pretax income of $ 457,069 , resulting in an effective income tax rate of 20.6 % for the nine months ended September 30, 2022.

The effective income tax rate was 20.2 % for the nine months ended September 30, 2021.

The effective tax rate was higher for the nine months ended September 30, 2022, as compared with the same period in 2021, primarily due to the geographic mix of earnings and the impact of favorable discrete tax adjustments in 2021.

As of September 30, 2022, the Company had $ 18,375 of unrecognized tax benefits.

If recognized, approximately $ 15,195 would be reflected as a component of income tax expense.

8 unchanged sentences

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 $ 3,649 in previously unrecognized tax benefits by the end of the second quarter 2023.

It is reasonably possible there could be a reduction of $ 3,655 in previously unrecognized tax benefits by the end of the third quarter 2023.

NOTE 16 — DERIVATIVES

1 unchanged sentence

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 six months ended June 30, 2022 and 2021.

Hedge ineffectiveness was immaterial in the nine months ended September 30, 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 June 30, 2022.

None of the concentrations of risk with any individual counterparty was considered significant at September 30, 2022.

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

4 unchanged sentences

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 $ 58,312 at June 30, 2022 and $ 72,630 at December 31, 2021.

The dollar equivalent gross notional amount of these short-term contracts was $ 54,600 at September 30, 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 June 30, 2022 and December 31, 2021 and have a termination date of August 2025.

The Company has commodity contracts with a notional amount of 800,000 pounds and 975,000 pounds at June 30, 2022 and December 31, 2021, respectively, 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, 2022 and December 31, 2021 and have a termination date of August 2025.

The Company has commodity contracts with a notional amount of 1,475,000 pounds and 975,000 pounds at September 30, 2022 and December 31, 2021, respectively, which 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 $ 25,000 as of June 30, 2022 and December 31, 2021, respectively.

The dollar equivalent gross notional amount of these contracts is $ 25,000 as of September 30, 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 $ 86,992 at June 30, 2022 and $ 94,479 at December 31, 2021.

The dollar equivalent gross notional amount of these short-term contracts was $ 81,398 at September 30, 2022 and $ 94,479 at December 31, 2021.

Derivatives Not Designated as Hedging Instruments

1 unchanged sentence

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

The dollar equivalent gross notional amount of these contracts was $ 223,992 and $ 301,685 at June 30, 2022 and December 31, 2021, respectively.

The dollar equivalent gross notional amount of these contracts was $ 260,594 and $ 301,685 at September 30, 2022 and December 31, 2021, respectively.

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

June 30, 2022

September 30, 2022

December 31, 2021

12 unchanged sentences

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

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Derivatives by hedge designation

4 unchanged sentences

& administrative expenses

Commodity Contracts

Cost of goods sold

The effects of designated hedges on AOCI and the Company’s Consolidated Statements of Income consisted of the following:

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

June 30, 2022

September 30, 2022

December 31, 2021

3 unchanged sentences

Commodity Contracts

The Company expects a loss of $ 732 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 June 30,

Six Months Ended June 30,

The Company expects a gain of $ 1,043 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,

Gain (loss) recognized in the

9 unchanged sentences

NOTE 17 - FAIR VALUE

The following table provides a summary of assets and liabilities as of June 30, 2022, measured at fair value on a recurring basis:

The following table provides a summary of assets and liabilities as of September 30, 2022, measured at fair value on a recurring basis:

Quoted Prices in

4 unchanged sentences

Observable Inputs

June 30, 2022

September 30, 2022

Inputs (Level 3)

1 unchanged sentence

Net investment contracts

Commodity contracts

Forward starting swap agreements

28 unchanged sentences

Dollars in thousands, except per share amounts

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 June 30, 2022 and December 31, 2021.

The fair value of the Company’s pension surplus assets are based on quoted market prices in active markets and are included in the Level 1 fair value hierarchy.

The pension surplus assets are invested in money market and short-term duration bond funds at June 30, 2022.

The pension surplus assets are invested in money market and short-term duration bond funds at September 30, 2022.

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

1 unchanged sentence

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

NOTE 18 – SUBSEQUENT EVENTS

On October 14, 2022, the Company entered into a definitive agreement to acquire Fori Automation, Inc.

(the “contemplated acquisition”).

Upon completion of the contemplated acquisition, the acquired business will extend the Company’s market presence within the automotive sector, better position it to capitalize on accelerating investments in automotive electric vehicle platforms, offer cross-selling growth opportunities to industrial customers and expand the Company’s international automation footprint.

The definitive agreement provides for a cash purchase price of $ 427,000 , subject to a customary working capital adjustment.

The Company intends to fund the transaction with cash on hand and arranged credit.

The contemplated acquisition is subject to regulatory approval and other customary closing conditions and is expected to close in the fourth quarter of 2022.

For the three and nine months ended September 30, 2022, the Company has incurred $ 3,068 , respectively, of acquisition transaction costs related to the contemplated acquisition.

These costs were expensed as incurred and are included in “Selling, general, and administrative expenses” in the Consolidated Statements of Income.

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