What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-10-27 compared with 2022-07-28 · 77 added, 75 removed, 243 unchanged (38% of the section changed)

13 unchanged sentences

The Harris Products Group includes the Company’s global oxy-fuel cutting, soldering and brazing businesses as well as its retail business in the United States.

Russia Operations

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.

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

Results of Operations

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

Three Months Ended June 30,

Three Months Ended September 30,

Favorable (Unfavorable)

7 unchanged sentences

Effective tax rate

Net income including non-controlling interests

Non-controlling interests in subsidiaries' loss

Diluted earnings per share

Six Months Ended June 30,

Nine Months Ended September 30,

Favorable (Unfavorable)

11 unchanged sentences

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

Three Months Ended June 30,

Three Months Ended September 30,

Change in Net Sales due to:

1 unchanged sentence

Lincoln Electric Holdings, Inc.

Six Months Ended June 30,

Nine Months Ended September 30,

Change in Net Sales due to:

1 unchanged sentence

Lincoln Electric Holdings, Inc.

Net sales increased in the three and six months ended June 30, 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.

Net sales increased in the three and nine months ended September 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 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.

Gross profit for the three and nine months ended September 30, 2022 increased 15.4% and 22.2%, 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 $3,108 and $20,420 in three and nine months ended September 30, 2022, respectively, as compared with charges of $10,908 and $24,236 in the same 2021 periods.

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

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.

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

Other Income (Expense):

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

The increase in Other income (expense) for the three and nine months ended September 30, 2022 as compared to the same period in 2021 was primarily due to non-cash pension settlement charges resulting from the termination of a pension plan in 2021.

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

Income Taxes:

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.

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

Segment Results

Three Months Ended June 30,

Three Months Ended September 30,

Change in Net Sales due to:

7 unchanged sentences

The Harris Products Group

Six Months Ended June 30,

Nine Months Ended September 30,

Change in Net Sales due to:

7 unchanged sentences

The Harris Products Group

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

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

(2) Increase for the three and nine months ended September 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 in the nine months ended September 30, 2022 was primarily due to increased product pricing.

(3) Decrease for the three and nine months ended September 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 June 30,

Three Months Ended September 30,

Americas Welding:

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As a percent of sales

(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.

(1) Increase for the three months ended September 30, 2022 as compared to September 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) Decrease for the three months ended September 30, 2022 as compared to September 30, 2021 was impacted by the timing of pricing actions and product mix.

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

(4) The three months ended September 30, 2022 exclude an adjustment to the amortization of the step up in value of acquired inventories of $353 related to an acquisition as discussed in Note 4 to the consolidated financial statements.

The three months ended September 30, 2021 exclude pension settlement charges of $73,562.

(5) The three months ended September 30, 2022 exclude Rationalization and asset impairment charges of $8,364 primarily due to impairment charges as discussed in Note 6 to the consolidated financial statements.

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

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

(7) The three months ended September 30, 2022 exclude acquisition transaction costs of $3,068 related to the contemplated acquisition as defined in Note 18 to the consolidated financial statements.

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

Favorable (Unfavorable)

Six Months Ended June 30,

Nine Months Ended September 30,

Americas Welding:

17 unchanged sentences

As a percent of sales

(1) Increase for the six months ended June 30, 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.

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

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

(4) The nine months ended September 30, 2022 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 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 nine months ended September 30, 2021 exclude pension settlement charges of $79,652.

(5) The nine months ended September 30, 2022 exclude Rationalization and asset impairment charges of $10,403 primarily due to impairment charges as discussed in Note 6 to the consolidated financial statements.

The nine months ended September 30, 2021 excludes the amortization of the step up in value of acquired inventories of $4,984, as discussed in Note 4 to the consolidated financial statements and pension settlement charges of $446.

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

(7) The nine months ended September 30, 2022 exclude acquisition transaction costs of $3,068 related to the contemplated acquisition as defined in Note 18 to the consolidated financial statements.

The nine months ended September 30, 2021 exclude acquisition transaction costs of $1,923 related to the acquisition as discussed in Note 4 to the consolidated financial statements.

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

Non-GAAP Financial Measures

The Company reviews Adjusted operating income, Adjusted net income, Adjusted EBIT, Adjusted effective tax rate, Adjusted diluted earnings per share, Return on invested capital, Cash conversion and Organic sales, all non-GAAP financial measures, in assessing and evaluating the Company’s underlying operating performance.

The Company reviews Adjusted operating income, Adjusted net income, Adjusted EBIT, Adjusted effective tax rate, Adjusted diluted earnings per share (“EPS”), Adjusted return on invested capital (“ROIC”), Adjusted net operating profit after taxes, Cash conversion and Organic sales, all non-GAAP financial measures, in assessing and evaluating the Company’s underlying operating performance.

These non-GAAP financial measures exclude the impact of special items on the Company’s reported financial results.

1 unchanged sentence

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

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Operating income as reported

23 unchanged sentences

Adjusted diluted earnings per share

(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.

(1) Primarily related to non-cash asset impairment charges as discussed in Note 6 to the consolidated financial statements.

(2) Costs related to the contemplated acquisition and are included in SG&A expenses.

(3) Costs related to acquisitions and are included in Cost of Goods Sold.

7 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 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.

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:

Six Months Ended June 30,

Nine Months Ended September 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 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.

(1) Cash provided by operating activities increased for the nine months ended September 30, 2022 , compared with the nine months ended September 30, 2021 primarily due to higher company earnings.

(2) Cash used by investing activities decreased for the nine months ended September 30, 2022 , compared with the nine months ended September 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 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.

(3) Cash used by financing activities increased in the nine months ended September 30, 2022 , compared with the nine months ended September 30, 2021 due to increased purchase of shares for treasury and lower borrowings in 2022.

(4) Cash and cash equivalents decreased 26.8%, or $51,651, to $141,307 during the nine months ended September 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.

At September 30, 2022, $72,920 of Cash and cash equivalents was held by international subsidiaries.

In October 2022, the Company paid a cash dividend of $0.56 per share, or $32,334, to shareholders of record as of September 30, 2022.

Working Capital Ratios

June 30, 2022

September 30, 2022

December 31, 2021

June 30, 2021

September 30, 2021

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

5 unchanged sentences

Return on Invested Capital

The Company reviews return on invested capital ("ROIC") in assessing and evaluating the Company’s underlying operating performance.

ROIC is a non-GAAP financial measure that the Company believes is a meaningful metric to investors in evaluating the Company’s financial performance and may be different than the method used by other companies to calculate ROIC.

ROIC is defined as rolling 12 months of Adjusted net income excluding tax-effected interest income and expense divided by invested capital.

The Company reviews ROIC in assessing and evaluating the Company’s underlying operating performance.

As discussed in the Non-GAAP Financial Measures section above, Adjusted ROIC is a non-GAAP financial measure that the Company believes is a meaningful metric to investors in evaluating the Company’s financial performance.

The calculation may be different than the method used by other companies to calculate ROIC.

Adjusted ROIC is defined as rolling 12 months of Adjusted net income excluding tax-effected interest income and expense divided by invested capital.

Invested capital is defined as total debt, which includes Short-term debt and Long-term debt, less current portions, plus Total equity.

The following table presents ROIC:

Twelve Months Ended June 30,

The following table presents the reconciliations of ROIC and Adjusted ROIC to net income:

Twelve Months Ended September 30,

Net income as reported

Interest expense (after-tax)

Interest income (after-tax)

Net operating profit after taxes

Special items:

Rationalization and asset impairment charges

3 unchanged sentences

Tax effect of Special items (1)

Adjusted net income

Interest expense, net of tax of $6,336 and $5,843 in 2022 and 2021, respectively

Interest income, net of tax of $333 and $389 in 2022 and 2021, respectively

Adjusted net income before tax effected interest

Adjusted net operating profit after taxes

Invested Capital

June 30, 2022

June 30, 2021

September 30, 2022

September 30, 2021

Short-term debt

1 unchanged sentence

Invested capital

Return on invested capital

Return on invested capital as reported

Adjusted return on invested capital

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

5 unchanged sentences

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.

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 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

5 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.

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.

21 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