LINCOLN ELECTRIC HOLDINGS INC 10-Q

ITEM 1. FINANCIAL STATEMENTS LINCOLN ELECTRIC HOLDINGS, INC. CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (In thousands, except per share amounts) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended March 31, ​ 2023 2022 Net sales (Note 2) $ 1,039,343 $ 925,448 Cost of goods sold ​ 683,986 ​ 595,671 Gross profit ​ 355,357 ​ 329,777 Selling, general & administrative expenses ​ 190,116 ​ 166,686 Rationalization and asset impairment charges (Note 6) ​ 877 ​ 1,885 Operating income ​ 164,364 ​ 161,206 Interest expense, net ​ 13,201 ​ 6,198 Other income (Note 11) ​ 4,209 ​ 4,634 Income before income taxes ​ 155,372 ​ 159,642 Income taxes (Note 12) ​ 33,413 ​ 33,611 Net income including non-controlling interests ​ 121,959 ​ 126,031 Non-controlling interests in subsidiaries’ income ​ 28 ​ 1 Net income ​ $ 121,931 ​ $ 126,030 ​ ​ ​ ​ ​ ​ ​ Basic earnings per share (Note 3) ​ $ 2.12 ​ $ 2.15 Diluted earnings per share (Note 3) ​ $ 2.09 ​ $ 2.13 Cash dividends declared per share ​ $ 0.64 ​ $ 0.56 ​ See notes to these consolidated financial statements. ​ 3 Table of Contents LINCOLN ELECTRIC HOLDINGS, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) (In thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended March 31, ​ 2023 2022 Net income including non-controlling interests $ 121,959 $ 126,031 Other comprehensive income (loss), net of tax: ​ ​ Unrealized gain on derivatives designated and qualifying as cash flow hedges, net of tax of $ 1,043 and $ 2,051 in the three months ended March 31, 2023 and 2022 ​ ​ 9,131 ​ ​ 5,355 Defined benefit pension plan activity, net of tax ​ ​ 560 ​ ​ 107 Currency translation adjustment ​ 14,772 ​ ( 7,449 ) Other comprehensive income (loss): ​ 24,463 ​ ( 1,987 ) Comprehensive income ​ 146,422 ​ 124,044 Comprehensive income attributable to non-controlling interests ​ 28 ​ 135 Comprehensive income attributable to shareholders ​ $ 146,394 ​ $ 123,909 ​ See notes to these consolidated financial statements. ​ ​ 4 Table of Contents LINCOLN ELECTRIC HOLDINGS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ March 31, 2023 ​ December 31, 2022 ​ ​ (UNAUDITED) ​ (NOTE 1) ASSETS ​ ​ Current Assets ​ ​ Cash and cash equivalents ​ $ 198,803 ​ $ 197,150 Accounts receivable (less allowance for doubtful accounts of $ 12,902 in 2023; $ 12,556 in 2022) ​ 573,467 ​ 541,529 Inventories (Note 8) ​ 664,599 ​ 665,451 Other current assets ​ 173,622 ​ 153,660 Total Current Assets ​ 1,610,491 ​ 1,557,790 Property, plant and equipment (less accumulated depreciation of $ 911,957 in 2023; $ 890,543 in 2022) ​ ​ 553,409 ​ ​ 544,871 Goodwill ​ 679,385 ​ 665,257 Other assets ​ 409,916 ​ 412,628 TOTAL ASSETS ​ $ 3,253,201 ​ $ 3,180,546 LIABILITIES AND EQUITY ​ ​ ​ Current Liabilities ​ ​ ​ Short-term debt (Note 10) ​ $ 49,340 ​ $ 93,483 Trade accounts payable ​ 361,236 ​ 352,079 Accrued employee compensation and benefits ​ 109,525 ​ 109,369 Other current liabilities ​ 315,838 ​ 297,966 Total Current Liabilities ​ 835,939 ​ 852,897 Long-term debt, less current portion (Note 10) ​ 1,110,626 ​ 1,110,396 Other liabilities ​ 181,400 ​ 183,212 Total Liabilities ​ 2,127,965 ​ 2,146,505 Shareholders' Equity ​ ​ ​ Common Shares ​ 9,858 ​ 9,858 Additional paid-in capital ​ 498,023 ​ 481,857 Retained earnings ​ 3,387,543 ​ 3,306,500 Accumulated other comprehensive loss ​ ( 250,836 ) ​ ( 275,299 ) Treasury Shares ​ ( 2,519,299 ) ​ ( 2,488,776 ) Total Shareholders' Equity ​ 1,125,289 ​ 1,034,140 Non-controlling interests ​ ( 53 ) ​ ( 99 ) Total Equity ​ 1,125,236 ​ 1,034,041 TOTAL LIABILITIES AND TOTAL EQUITY ​ $ 3,253,201 ​ $ 3,180,546 ​ See notes to these consolidated financial statements. ​ ​ ​ 5 Table of Contents LINCOLN ELECTRIC HOLDINGS, INC. CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED) (In thousands, except per share amounts) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ ​ ​ ​ ​ ​ ​ ​ Common ​ ​ ​ ​ Additional ​ ​ ​ ​ Other ​ ​ ​ ​ Non- ​ ​ ​ ​ ​ Shares ​ Common ​ Paid-In ​ Retained ​ Comprehensive ​ Treasury ​ Controlling ​ ​ ​ ​ Outstanding Shares Capital Earnings Income (Loss) Shares Interests Total Balance at December 31, 2022 57,624 ​ $ 9,858 ​ $ 481,857 ​ $ 3,306,500 ​ $ ( 275,299 ) ​ $ ( 2,488,776 ) ​ $ ( 99 ) ​ $ 1,034,041 Net income ​ ​ ​ ​ ​ ​ ​ ​ ​ 121,931 ​ ​ ​ ​ ​ ​ ​ ​ 28 ​ 121,959 Unrecognized amounts from defined benefit pension plans, net of tax ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 560 ​ ​ ​ ​ ​ ​ ​ 560 Unrealized gain on derivatives designated and qualifying as cash flow hedges, net of tax ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 9,131 ​ ​ ​ ​ ​ ​ ​ 9,131 Currency translation adjustment ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 14,772 ​ ​ ​ ​ ​ ​ ​ 14,772 Cash dividends declared - $ 0.64 per share ​ ​ ​ ​ ​ ​ ​ ​ ​ ( 36,971 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ( 36,971 ) Stock-based compensation activity 143 ​ ​ ​ ​ ​ 12,475 ​ ​ ​ ​ ​ ​ ​ ​ 1,635 ​ ​ ​ ​ 14,110 Purchase of shares for treasury ( 194 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ( 32,158 ) ​ ​ ​ ​ ( 32,158 ) Other ​ ​ ​ ​ ​ ​ 3,691 ​ ​ ( 3,917 ) ​ ​ ​ ​ ​ ​ ​ ​ 18 ​ ( 208 ) Balance at March 31, 2023 57,573 ​ $ 9,858 ​ $ 498,023 ​ $ 3,387,543 ​ $ ( 250,836 ) ​ $ ( 2,519,299 ) ​ $ ( 53 ) ​ $ 1,125,236 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ ​ ​ ​ ​ ​ ​ ​ Common ​ ​ ​ ​ Additional ​ ​ ​ ​ Other ​ ​ ​ ​ Non- ​ ​ ​ ​ ​ Shares ​ Common ​ Paid-In ​ Retained ​ Comprehensive ​ Treasury ​ Controlling ​ ​ ​ ​ Outstanding Shares Capital Earnings Income (Loss) Shares Interests Total Balance at December 31, 2021 58,787 ​ $ 9,858 ​ $ 451,268 ​ $ 2,970,303 ​ $ ( 257,386 ) ​ $ ( 2,309,941 ) ​ $ ( 193 ) ​ $ 863,909 Net income ​ ​ ​ ​ ​ ​ ​ ​ ​ 126,030 ​ ​ ​ ​ ​ ​ ​ ​ 1 ​ 126,031 Unrecognized amounts from defined benefit pension plans, net of tax ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 107 ​ ​ ​ ​ ​ ​ ​ 107 Unrealized gain on derivatives designated and qualifying as cash flow hedges, net of tax ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 5,355 ​ ​ ​ ​ ​ ​ ​ 5,355 Currency translation adjustment ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ( 7,583 ) ​ ​ ​ ​ ​ 134 ​ ( 7,449 ) Cash dividends declared – $ 0.56 per share ​ ​ ​ ​ ​ ​ ​ ​ ​ ( 32,505 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ( 32,505 ) Stock-based compensation activity 116 ​ ​ ​ ​ ​ 10,834 ​ ​ ​ ​ ​ ​ ​ ​ 1,349 ​ ​ ​ ​ 12,183 Purchase of shares for treasury ( 805 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ( 104,579 ) ​ ​ ​ ​ ( 104,579 ) Other ​ ​ ​ ​ ​ ​ 115 ​ ​ ( 107 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 8 Balance at March 31, 2022 58,098 ​ $ 9,858 ​ $ 462,217 ​ $ 3,063,721 ​ $ ( 259,507 ) ​ $ ( 2,413,171 ) ​ $ ( 58 ) ​ $ 863,060 ​ ​ 6 Table of Contents LINCOLN ELECTRIC HOLDINGS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (In thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended March 31, 2023 2022 CASH FLOWS FROM OPERATING ACTIVITIES ​ ​ ​ Net income ​ $ 121,931 ​ $ 126,030 Non-controlling interests in subsidiaries' income ​ 28 ​ 1 Net income including non-controlling interests ​ 121,959 ​ 126,031 Adjustments to reconcile Net income including non-controlling interests to Net cash provided by operating activities: ​ ​ ​ Rationalization and asset impairment net charges (Note 6) ​ — ​ 1,188 Depreciation and amortization ​ 21,295 ​ 19,891 Equity earnings in affiliates, net ​ ( 188 ) ​ ( 113 ) Deferred income taxes ​ ( 7,019 ) ​ ( 18,207 ) Stock-based compensation ​ 11,634 ​ 11,148 Other, net ​ ( 1,957 ) ​ ( 162 ) Changes in operating assets and liabilities, net of effects from acquisitions: ​ ​ ​ Increase in accounts receivable ​ ( 27,664 ) ​ ( 86,120 ) Decrease (increase) in inventories ​ 5,881 ​ ( 55,407 ) Increase in other current assets ​ ( 16,587 ) ​ ( 25,152 ) Increase in trade accounts payable ​ 6,841 ​ 39,284 Increase in other current liabilities ​ 10,505 ​ 32,116 Net change in other assets and liabilities ​ ( 769 ) ​ ( 1,407 ) NET CASH PROVIDED BY OPERATING ACTIVITIES ​ 123,931 ​ 43,090 CASH FLOWS FROM INVESTING ACTIVITIES ​ ​ ​ Capital expenditures ​ ( 18,787 ) ​ ( 18,672 ) Acquisition of businesses, net of cash acquired ​ — ​ ( 22,013 ) Proceeds from sale of property, plant and equipment ​ 3,314 ​ 569 Purchase of marketable securities ​ ( 576 ) ​ — NET CASH USED BY INVESTING ACTIVITIES ​ ( 16,049 ) ​ ( 40,116 ) CASH FLOWS FROM FINANCING ACTIVITIES ​ ​ ​ (Payments on) proceeds from short-term borrowings ​ ​ ( 43,940 ) ​ ​ 98,408 Payments on long-term borrowings ​ ( 111 ) ​ ( 2,100 ) Proceeds from exercise of stock options ​ 2,476 ​ 1,035 Purchase of shares for treasury ​ ( 32,158 ) ​ ( 104,579 ) Cash dividends paid to shareholders ​ ( 37,583 ) ​ ( 33,361 ) NET CASH USED BY FINANCING ACTIVITIES ​ ( 111,316 ) ​ ( 40,597 ) Effect of exchange rate changes on Cash and cash equivalents ​ 5,087 ​ ( 962 ) INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ​ 1,653 ​ ( 38,585 ) ​ ​ ​ ​ ​ ​ ​ Cash and cash equivalents at beginning of period ​ 197,150 ​ 192,958 CASH AND CASH EQUIVALENTS AT END OF PERIOD ​ $ 198,803 ​ $ 154,373 ​ See notes to these consolidated financial statements. ​ ​ 7 Table of Contents LINCOLN ELECTRIC HOLDINGS, INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Dollars in thousands, except per share amounts NOTE 1 — SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation The consolidated financial statements include the accounts of Lincoln Electric Holdings, Inc. and its wholly-owned and majority-owned subsidiaries for which it has a controlling interest (the “Company”) after elimination of all inter-company accounts, transactions and profits. The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, these unaudited consolidated financial statements do not include all of the information and notes required by GAAP for complete financial statements. 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 three months ended March 31, 2023 are not necessarily indicative of the results to be expected for the year ending December 31, 2023. The accompanying Consolidated Balance Sheet at December 31, 2022 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, 2022. Turkey – Highly Inflationary Economy Effective April 1, 2022, the financial statements of the Company’s Turkish operation are reported under highly inflationary accounting rules. As a result, the financial statements of the Company’s Turkish operation have been remeasured into the Company’s reporting currency (U.S. dollar) and 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 March 31, 2023, 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 April 27, 2023, the filing date of this Quarterly Report on Form 10-Q. ​ New Accounting Pronouncements: This section provides a description of new accounting pronouncements (“Accounting Standards Update” or “ASU”) issued by the Financial Accounting Standards Board (“FASB”) that are applicable to the Company. ​ 8 Table of Contents LINCOLN ELECTRIC HOLDINGS, INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued) Dollars in thousands, except per share amounts The following ASUs were adopted as of January 1, 2023: Standard Description ASU No. 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, and presentation on the balance sheet. Refer to Note 15 for the impacts on the Company’s consolidated financial statements. ASU No. 2021-08, Business Combinations (Subtopic 805) , issued October 2021. Requires the acquirer in a business combination to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606. The adoption did not have a material impact on the Company’s consolidated financial statements. ​ The Company is currently evaluating the impact on its financial statements of the following ASU: ​ Standard Description ASU No. 2022-04, Liabilities-Supplier Finance Programs (Subtopic 405-50) , issued September 2022. Requires disclosure about a company’s supplier finance program, including a period-over-period balance roll forward. This requirement of the ASU is effective January 1, 2024 and should be applied prospectively. ​ ​ NOTE 2 — REVENUE RECOGNITION The following table presents the Company’s Net sales disaggregated by product line: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended March 31, ​ 2023 2022 Consumables ​ $ 569,684 ​ $ 539,162 Equipment ​ 469,659 ​ 386,286 Net sales ​ $ 1,039,343 ​ $ 925,448 ​ Consumable sales consist of welding, brazing and soldering filler metals. Equipment sales consist of arc welding, welding accessories, arc welding equipment, wire feeding systems, fume control equipment, plasma and oxy-fuel cutting systems, specialty gas regulators, and education solutions; as well as a comprehensive portfolio of automated solutions for joining, cutting, material handling, module assembly, and end of line testing. Consumable and Equipment products are sold within each of the Company’s operating segments. Within the Equipment product line, there are certain customer contracts related to automation products that may include multiple performance obligations. For such arrangements, the Company allocates revenue to each performance obligation based on its relative standalone selling price. The Company generally determines the standalone selling price based on the prices charged to customers or using expected cost plus margin. Less than 10 % of the Company’s Net sales are recognized over time. At March 31, 2023, the Company recorded $ 72,363 related to advance customer payments and $ 34,144 related to billings in excess of revenue recognized. These contract liabilities are included in Other current liabilities in the Condensed Consolidated Balance Sheets. At December 31, 2022, the balances related to advance customer payments and billings in excess of revenue recognized were $ 78,756 and $ 34,771 , respectively. Substantially all of the Company’s contract liabilities are recognized within twelve months based on contract duration. The Company records an asset for contracts where it has recognized revenue, but has not yet invoiced the customer for goods or services. At March 31, 2023 and December 31, 2022, the Company recorded $ 43,130 and $ 35,252 , 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. 9 Table of Contents 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 March 31, ​ 2023 2022 Numerator: ​ ​ Net income ​ $ 121,931 ​ $ 126,030 Denominator (shares in 000's): ​ ​ ​ ​ Basic weighted average shares outstanding ​ 57,596 ​ 58,606 Effect of dilutive securities - Stock options and awards ​ 821 ​ 666 Diluted weighted average shares outstanding ​ 58,417 ​ 59,272 Basic earnings per share ​ $ 2.12 ​ $ 2.15 Diluted earnings per share ​ $ 2.09 ​ $ 2.13 ​ For the three months ended March 31, 2023 and 2022, common shares subject to equity-based awards of 29,112 and 69,614 , respectively, were excluded from the computation of diluted earnings per share because the effect of their exercise would be anti-dilutive. NOTE 4 — ACQUISITIONS On December 1, 2022, the Company acquired 100 % ownership of Fori Automation, LLC (“Fori”) for an agreed upon purchase price of $ 427,000 , which was adjusted for certain debt like obligations, for total purchase price consideration of $ 468,683 , or $ 416,353 net of cash acquired, before final and customary adjustments. In 2022, the Company recognized $ 5,196 in acquisition costs related to Fori and were expensed as incurred. Fori is a leading designer and manufacturer of complex, multi-armed automated welding systems, with an extensive range of automated assembly systems, automated material handling solutions, automated large-scale, industrial guidance vehicles, and end of line testing systems. The acquisition of Fori extends the Company’s market presence within the automotive sector as well as its automation footprint in the International Welding segment. In 2022, Fori generated sales of approximately $ 200,000 (unaudited). For the three months ended March 31, 2023, the Company’s Consolidated Statement of Income includes the results of Fori, including Net sales of $ 49,215 for the three months ended March 31, 2023, while net income for the period was not material. ​ The acquisition of Fori has been accounted for as a business combination which requires the assets and liabilities assumed be recognized at their respective fair values as of the acquisition date. The process of estimating the fair values of certain tangible assets, identifiable intangible assets and assumed liabilities requires the use of judgment in determining the appropriate assumptions and estimates. The table below summarizes the preliminary estimated fair values of the assets acquired and liabilities assumed on the acquisition date. These preliminary estimates are based on available information and may be revised during the measurement period, not to exceed 12 months from the acquisition date, as third-party valuations are finalized, further information becomes available and additional analyses are performed. The Company does not expect any such revisions to have a material impact on the Company's preliminary purchase price allocation. As of and for the three months ended March 31, 2023, these revisions did not have a material impact on the Consolidated Balance Sheets or Consolidated Statement of Income. ​ 10 Table of Contents LINCOLN ELECTRIC HOLDINGS, INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued) Dollars in thousands, except per share amounts ​ ​ ​ ​ ​ Assets acquired and liabilities assumed Preliminary Purchase Price Allocation Cash and cash equivalents ​ $ 52,330 Accounts receivable ​ 64,439 Inventory ​ 62,584 Property, plant and equipment (1) ​ 36,863 Intangible assets (2) ​ 69,928 Accounts payable ​ 17,996 Net other assets and liabilities (3) ​ 200,535 Total purchase price consideration ​ $ 468,683 ​ (1) Property, plant and equipment acquired includes a number of manufacturing and distribution sites, including the related facilities, land and leased sites, and machinery and equipment for use in manufacturing operations. (2) Intangible asset balances of $ 22,000 and $ 18,778 , respectively, were assigned to trade names and customer relationships ( 15 year weighted average useful life). Of the remaining amount, $ 24,900 was assigned to technology know-how ( 10 year weighted average useful life) and $ 4,250 was assigned to restrictive covenants ( 4 year weighted average life). (3) Consists primarily of goodwill of $ 245,749 . ​ Goodwill is calculated as the excess of the consideration transferred over the net assets recognized and represents the anticipated synergies of acquiring Fori. A portion of the goodwill is deductible for tax purposes. ​ 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 2022, the Company recognized $ 365 in acquisition costs related to Kestra and were expensed as incurred. In 2021, Kestra generated sales of approximately $ 15,000 (unaudited). Beginning March 1, 2022, the Company’s Consolidated Statements of Income include the results of Kestra, including Net sales of $ 17,602 through December 31, 2022 and the impact on net income for the year ended December 31, 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. ​ 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. ​ ​ 11 Table of Contents LINCOLN ELECTRIC HOLDINGS, INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued) Dollars in thousands, except per share amounts NOTE 5 — SEGMENT INFORMATION The Company’s business units are aligned into three operating segments. The operating segments consist of Americas Welding, International Welding and The Harris Products Group. The Americas Welding segment includes welding operations in North and South America. The International Welding segment includes welding operations in Europe, Africa, Asia and Australia. 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. Segment performance is measured and resources are allocated based on a number of factors, the primary measure being the adjusted earnings before interest and income taxes (“Adjusted EBIT”) profit measure. EBIT is defined as Operating income plus Other income (expense). EBIT is adjusted for special items as determined by management such as the impact of rationalization activities, certain asset impairment charges and gains or losses on disposals of assets. The following table presents Adjusted EBIT by segment: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ The Harris ​ ​ ​ ​ ​ ​ ​ ​ Americas ​ International ​ Products ​ Corporate / ​ ​ ​ ​ Welding Welding Group Eliminations Consolidated Three Months Ended March 31, 2023 ​ ​ ​ ​ ​ Net sales ​ $ 658,645 ​ $ 252,416 ​ $ 128,282 ​ $ — ​ $ 1,039,343 Inter-segment sales ​ 32,318 ​ ​ 6,753 ​ ​ 2,897 ​ ​ ( 41,968 ) ​ ​ — Total ​ $ 690,963 ​ $ 259,169 ​ $ 131,179 ​ $ ( 41,968 ) ​ $ 1,039,343 Adjusted EBIT ​ $ 132,453 ​ $ 29,598 ​ $ 18,983 ​ $ ( 9,374 ) ​ $ 171,660 Special items charge (gain) (1) ​ 2,785 ​ ​ 302 ​ ​ — ​ ​ — ​ ​ 3,087 EBIT ​ $ 129,668 ​ $ 29,296 ​ $ 18,983 ​ $ ( 9,374 ) ​ $ 168,573 Interest income ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 854 Interest expense ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ( 14,055 ) Income before income taxes ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ $ 155,372 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended March 31, 2022 ​ ​ ​ ​ ​ Net sales ​ $ 534,055 ​ $ 258,041 ​ $ 133,352 ​ $ — ​ $ 925,448 Inter-segment sales ​ 28,156 ​ 6,228 ​ 3,062 ​ ( 37,446 ) ​ ​ — Total ​ $ 562,211 ​ $ 264,269 ​ $ 136,414 ​ $ ( 37,446 ) ​ $ 925,448 Adjusted EBIT ​ $ 111,568 ​ $ 37,087 ​ $ 19,598 ​ $ ( 4,801 ) ​ $ 163,452 Special items charge (gain) (2) ​ ( 3,735 ) ​ 1,347 ​ — ​ — ​ ​ ( 2,388 ) EBIT ​ $ 115,303 ​ $ 35,740 ​ $ 19,598 ​ $ ( 4,801 ) ​ $ 165,840 Interest income ​ ​ ​ ​ ​ ​ ​ 376 Interest expense ​ ​ ​ ​ ​ ​ ​ ( 6,574 ) Income before income taxes ​ ​ ​ ​ ​ ​ ​ $ 159,642 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (1) In the three months ended March 31, 2023, special items include amortization of step up in value of acquired inventories of $ 2,785 and $ 1,071 in Americas and International Welding, respectively, Rationalization and asset impairment net charges of $ 877 in International Welding and a gain on disposal of $ 1,646 in International Welding. (2) In the three months ended March 31, 2022, special items reflect Rationalization charges of $ 1,885 in International Welding and the final settl ement related to the termination of a pension plan of $ 3,735 in Americas Welding. ​ ​ ​ 12 Table of Contents LINCOLN ELECTRIC HOLDINGS, INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued) Dollars in thousands, except per share amounts NOTE 6 — RATIONALIZATION AND ASSET IMPAIRMENTS The Company has 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 March 31, 2023, liabilities of $ 1,606 for International Welding were recognized in Other current liabilities in the Company’s Condensed Consolidated Balance Sheet. The Company does not anticipate significant additional charges related to the completion of these plans. The Company recorded Rationalization and asset impairment net charges of $ 877 and charges of $ 1,885 in the three months ended March 31, 2023 and 2022, respectively. The charges are primarily related to restructuring activities. 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 three months ended March 31, 2023: ​ ​ ​ ​ ​ ​ ​ ​ Consolidated Balance at December 31, 2022 ​ $ 2,207 Payments and other adjustments ​ ( 1,478 ) Charged to expense ​ 877 Balance at March 31, 2023 ​ $ 1,606 ​ ​ NOTE 7 – ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) ("AOCI") The following tables set forth the total changes in AOCI by component, net of taxes: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended March 31, 2023 ​ ​ Unrealized gain ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (loss) on derivatives ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ designated and ​ Defined benefit ​ Currency ​ ​ ​ ​ ​ qualifying as cash ​ pension plan ​ translation ​ ​ ​ ​ ​ flow hedges ​ activity ​ adjustment ​ Total Balance at December 31, 2022 ​ $ 13,909 ​ $ ( 1,781 ) ​ $ ( 287,427 ) ​ $ ( 275,299 ) Other comprehensive income before reclassification ​ 10,134 ​ ​ — ​ ​ 14,772 2 ​ 24,906 Amounts reclassified from AOCI ​ ( 1,003 ) 1 ​ 560 ​ ​ — ​ ​ ( 443 ) Net current-period other comprehensive income ​ 9,131 ​ 560 ​ 14,772 ​ 24,463 Balance at March 31, 2023 ​ $ 23,040 ​ $ ( 1,221 ) ​ $ ( 272,655 ) 3 $ ( 250,836 ) ​ ​ 13 Table of Contents LINCOLN ELECTRIC HOLDINGS, INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued) Dollars in thousands, except per share amounts ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended March 31, 2022 ​ ​ Unrealized gain ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (loss) on derivatives ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ designated and ​ Defined benefit ​ Currency ​ ​ ​ ​ ​ qualifying as cash ​ pension plan ​ translation ​ ​ ​ ​ ​ flow hedges ​ activity ​ adjustment ​ Total Balance at December 31, 2021 ​ $ 8,094 ​ $ ( 13,231 ) ​ $ ( 252,249 ) ​ $ ( 257,386 ) Other comprehensive income (loss) before reclassification ​ 5,849 ​ — ​ ( 7,583 ) 2 ( 1,734 ) Amounts reclassified from AOCI ​ ( 494 ) 1 107 ​ — ​ ( 387 ) Net current-period other comprehensive income (loss) ​ 5,355 ​ 107 ​ ( 7,583 ) ​ ( 2,121 ) Balance at March 31, 2022 ​ $ 13,449 ​ $ ( 13,124 ) ​ $ ( 259,832 ) ​ $ ( 259,507 ) ​ (1) During the three months ended March 31, 2023, the AOCI reclassification is a component of Net sales of $ 864 (net of tax of $ 342 ) and Cost of goods sold of $( 139 ) (net of tax of $( 43 ) ); during the three months ended March 31, 2022, the reclassification is a component of Net sales of $ 132 (net of tax of $ 48 ) and Cost of goods sold of $( 362 ) (net of tax of $( 93 ) ). See Note 13 to the consolidated financial statements for additional details. (2) The Other comprehensive income (loss) before reclassifications excludes $ 0 and $ 134 attributable to Non-controlling interests in the three months ended March 31, 2023 and 2022, respectively. (3) Includes a gain of $ 8,599 from derivatives as net investment hedges. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ NOTE 8 — INVENTORIES Inventories in the Condensed Consolidated Balance Sheets are comprised of the following components: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ March 31, 2023 December 31, 2022 Raw materials ​ $ 179,287 ​ $ 181,076 Work-in-process ​ 163,128 ​ 164,778 Finished goods ​ 322,184 ​ 319,597 Total ​ $ 664,599 ​ $ 665,451 ​ At March 31, 2023 and December 31, 2022, approximately 37 % and 38 %, respectively, of total inventories were valued using the last-in, first-out ("LIFO") method. The excess of current cost over LIFO cost was $ 136,101 and $ 133,909 at March 31, 2023 and December 31, 2022, respectively. ​ ​ 14 Table of Contents LINCOLN ELECTRIC HOLDINGS, INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued) Dollars in thousands, except per share amounts NOTE 9 — LEASES The table below summarizes the right-of-use assets and lease liabilities in the Company’s Condensed Consolidated Balance sheets: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Operating Leases Balance Sheet Classification March 31, 2023 December 31, 2022 Right-of-use assets Other assets ​ $ 46,549 ​ $ 44,810 ​ ​ ​ ​ ​ ​ ​ ​ ​ Current liabilities Other current liabilities ​ $ 11,167 ​ $ 10,378 Noncurrent liabilities Other liabilities ​ 36,615 ​ 35,945 Total lease liabilities ​ $ 47,782 ​ $ 46,323 ​ 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 $ 5,851 and $ 5,198 in the three months ended March 31, 2023 and 2022, respectively. Cash paid for amounts included in the measurement of lease liabilities for the three months ended March 31, 2023 and 2022, respectively, were $ 3,145 and $ 3,187 and are included in Net cash provided by operating activities in the Company’s Consolidated Statements of Cash Flows. Right-of-use assets obtained in exchange for operating lease liabilities were $ 3,896 and $ 2,737 during the three months ended March 31, 2023 and 2022, respectively. The total future minimum lease payments for noncancelable operating leases were as follows: ​ ​ ​ ​ ​ ​ March 31, 2023 2023 ​ $ 9,178 2024 ​ 10,910 2025 ​ 7,656 2026 ​ 6,287 2027 ​ 4,747 After 2027 ​ 14,510 Total lease payments ​ $ 53,288 Less: Imputed interest ​ 5,506 Operating lease liabilities ​ $ 47,782 ​ As of March 31, 2023, the weighted average remaining lease term is 7.6 years and the weighted average discount rate used to determine the operating lease liability is 3.0 %. ​ ​ 15 Table of Contents LINCOLN ELECTRIC HOLDINGS, INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued) Dollars in thousands, except per share amounts NOTE 10 — DEBT Revolving Credit Agreements On April 23, 2021, the Company amended and restated the agreement governing its line of credit by entering into the Second Amended and Restated Credit Agreement (“Credit Agreement”). The Credit Agreement has a line of credit totaling $ 500,000 , has a term of 5 years with a maturity date of April 23, 2026 and may be increased, subject to certain conditions including the consent of its lenders, by an additional amount up to $ 150,000 . On March 8, 2023, the Credit Agreement was amended to replace the LIBOR rate to a term secured overnight finance rate (“SOFR”); as such, the interest rate on borrowings is based on SOFR plus a spread of 0.85 % to 1.85 % based on (1) the Company’s net leverage ratio and (2) a credit spread adjustment. 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, 2023, the Company was in compliance with all of its covenants and had $ 25,000 of outstanding borrowings under the Credit Agreement. The Company has other lines of credit and debt agreements totaling $ 98,692 . As of March 31, 2023, the Company was in compliance with all of its covenants and had $ 13,408 outstanding. Senior Unsecured Notes On April 1, 2015 and October 20, 2016, the Company entered into separate Note Purchase Agreements pursuant to which it issued senior unsecured notes (the "Notes") through a private placement. The 2015 Notes and 2016 Notes each have an aggregate principal amount of $ 350,000 , comprised of four different series ranging from $ 50,000 to $ 100,000 , with maturity dates ranging from August 20, 2025 through April 1, 2045, and interest rates ranging from 2.75 % to 4.02 %. Interest on the Notes is paid semi-annually. The Company’s total weighted average effective interest rate and remaining weighted average tenure of the Notes is 3.3 % and 11.1 years, respectively. The proceeds of the Notes were used for general corporate purposes. The Notes contain certain affirmative and negative covenants. As of March 31, 2023, the Company was in compliance with all of its debt covenants relating to the Notes. Shelf Agreements On November 27, 2018, the Company entered into seven uncommitted master note facilities (the "Shelf Agreements") that allow borrowings up to $ 700,000 in the aggregate. The Shelf Agreements have a term of 5 years and the average life of borrowings cannot exceed 15 years . The Company is required to comply with covenants similar to those contained in the Notes. As of March 31, 2023, the Company was in compliance with all of its covenants and had no outstanding borrowings under the Shelf Agreements. Term Loan On November 29, 2022, the Company entered into a term loan in the aggregate principal amount of $ 400,000 (the “Term Loan”), which was borrowed in full. The Term Loan matures on November 29, 2025. The Term Loan bears an interest at a rate based on SOFR, plus a margin ranging from 0.75 % to 1.75 % based on the Company’s consolidated net leverage ratio. The proceeds of the Term Loan were used to pay a portion of the purchase price in connection with the acquisition of Fori. As of March 31, 2023, the Company was in compliance with all of its covenants. In March 2023, the Company entered into interest rate swap agreements to effectively convert the interest rate on $ 150,000 of the Term Loan from a variable rate to a fixed rate. 16 Table of Contents LINCOLN ELECTRIC HOLDINGS, INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued) Dollars in thousands, except per share amounts Fair Value of Debt At March 31, 2023 and December 31, 2022, the fair value of long-term debt, including the current portion, was approximately $ 1,033,063 and $ 1,009,020 , respectively, which was determined using available market information and methodologies requiring judgment. The carrying value of this debt at such dates was $ 1,121,558 and $ 1,121,435 , respectively. Since judgment is required in interpreting market information, the fair value of the debt is not necessarily the amount which could be realized in a current market exchange. NOTE 11 — OTHER INCOME (EXPENSE) The components of Other income (expense) were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended March 31, ​ 2023 2022 Equity earnings in affiliates ​ $ 188 ​ $ 113 Other components of net periodic pension (cost) income (1) ​ ( 333 ) ​ 3,848 Other income (expense) (2) ​ 4,354 ​ 673 Total Other income (expense) ​ $ 4,209 ​ $ 4,634 ​ (1) In 2022, Other components of net periodic pension (cost) income includes pension settlements and curtailments . (2) In 2023, Other income (expense) includes a gain on asset disposal of $ 1,646 . NOTE 12 — INCOME TAXES The Company recognized $ 33,413 of tax expense on pretax income of $ 155,372 , resulting in an effective income tax rate of 21.5 % for the three months ended March 31, 2023. The effective income tax rate was 21.1 % for the three months ended March 31, 2022. The effective tax rate was slightly higher for the three months ended March 31, 2023, as compared with the same period in 2022, primarily due to the geographic mix of earnings and discrete tax items. As of March 31, 2023, the Company had $ 16,226 of unrecognized tax benefits. If recognized, approximately $ 13,217 would be reflected as a component of income tax expense. The Company files income tax returns in the U.S. and various state, local and foreign jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal, state and local or non-U.S. income tax examinations by tax authorities for years before 2018. The Company is currently subject to U.S., various state and non-U.S. income tax audits. Unrecognized tax benefits are reviewed on an ongoing basis and are adjusted for changing facts and circumstances, including progress of tax audits and closing of statutes of limitations. 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 $ 1,287 in previously unrecognized tax benefits by the end of the first quarter 2024. NOTE 13 — DERIVATIVES The Company uses derivative instruments to manage exposures to currency exchange rates, interest rates and commodity prices arising in the normal course of business. Both at inception and on an ongoing basis, the derivative instruments that 17 Table of Contents LINCOLN ELECTRIC HOLDINGS, INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued) Dollars in thousands, except per share amounts qualify for hedge accounting are assessed as to their effectiveness, when applicable. Hedge ineffectiveness was immaterial in the three months ended March 31, 2023 and 2022. 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 March 31, 2023. The Company does not expect any counterparties to fail to meet their obligations. Cash Flow Hedges Certain foreign currency forward contracts are qualified and designated as cash flow hedges. The dollar equivalent gross notional amount of these short-term contracts was $ 65,779 at March 31, 2023 and $ 66,296 at December 31, 2022. 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 March 31, 2023 and December 31, 2022 and have a termination date of August 2025. The Company has commodity contracts with a notional amount of 300,000 pounds and 875,000 pounds at March 31, 2023 and December 31, 2022, respectively, which are qualified and designated as cash flow hedges. In March 2023, the Company entered into interest rate swap agreements, which were qualified and designated as cash flow hedges, with an aggregate notional amount of $ 150,000 . The interest rate swaps will effectively convert the interest rate on $ 150,000 of the Term Loan discussed in Note 10 from a variable rate based on one-month SOFR to a fixed rate. Net Investment Hedges 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 $ 90,105 at March 31, 2023 and $ 88,843 at December 31, 2022. Derivatives Not Designated as Hedging Instruments The Company has certain foreign exchange forward contracts that are not designated as hedges. These derivatives are held as economic hedges of certain balance sheet exposures. The dollar equivalent gross notional amount of these contracts was $ 323,519 and $ 380,443 at March 31, 2023 and December 31, 2022, respectively. 18 Table of Contents LINCOLN ELECTRIC HOLDINGS, INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued) Dollars in thousands, except per share amounts Fair values of derivative instruments in the Company’s Condensed Consolidated Balance Sheets follow: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ March 31, 2023 ​ December 31, 2022 ​ Other ​ Other ​ ​ ​ ​ ​ ​ ​ Other ​ Other ​ ​ ​ ​ ​ ​ ​ Current ​ Current ​ Other ​ Other ​ Current ​ Current ​ Other ​ Other Derivatives by hedge designation Assets Liabilities Assets Liabilities Assets Liabilities Assets Liabilities Designated as hedging instruments: ​ ​ ​ ​ ​ ​ ​ ​ Foreign exchange contracts $ 3,678 ​ $ 618 ​ $ — ​ $ — ​ $ 1,467 ​ $ 738 ​ $ — ​ $ — Interest rate swap agreements — ​ — ​ ​ 877 ​ ​ — ​ — ​ — ​ — ​ — Forward starting swap agreements ​ — ​ ​ — ​ ​ 17,651 ​ ​ — ​ ​ — ​ ​ — ​ ​ 19,291 ​ ​ — Net investment contracts ​ — ​ ​ 2,947 ​ ​ — ​ ​ — ​ ​ — ​ ​ 2,229 ​ ​ — ​ ​ — Commodity contracts ​ 155 ​ ​ — ​ ​ — ​ ​ — ​ ​ 181 ​ ​ 33 ​ ​ — ​ ​ — Not designated as hedging instruments: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Foreign exchange contracts 5,378 ​ ​ 536 ​ ​ — ​ ​ — ​ 2,348 ​ 790 ​ — ​ — Total derivatives $ 9,211 ​ $ 4,101 ​ $ 18,528 ​ $ — ​ $ 3,996 ​ $ 3,790 ​ $ 19,291 ​ $ — ​ The effects of undesignated derivative instruments on the Company’s Consolidated Statements of Income consisted of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended March 31, Derivatives by hedge designation Classification of gain (loss) 2023 2022 Not designated as hedges: ​ ​ ​ ​ Foreign exchange contracts ​ Selling, general & administrative expenses ​ $ 6,690 ​ $ 1,897 ​ The effects of designated hedges on AOCI and the Company’s Consolidated Statements of Income consisted of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total gain recognized in AOCI, net of tax March 31, 2023 December 31, 2022 Foreign exchange contracts ​ $ 1,769 ​ $ 627 ​ Interest rate swap agreements ​ ​ 656 ​ ​ — ​ Forward starting swap agreements ​ ​ 11,950 ​ ​ 13,191 ​ Net investment contracts ​ ​ 8,599 ​ 9,440 ​ Commodity Contracts ​ 66 ​ 91 ​ ​ The Company expects a gain of $ 1,835 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 March 31, ​ ​ Gain (loss) recognized in the ​ ​ ​ ​ ​ ​ Derivative type Consolidated Statements of Income: 2023 2022 Foreign exchange contracts Sales ​ $ 1,206 ​ $ 180 ​ Cost of goods sold ​ 3 ​ ( 455 ) Commodity contracts ​ Cost of goods sold ​ ​ 179 ​ ​ — ​ ​ 19 Table of Contents LINCOLN ELECTRIC HOLDINGS, INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued) Dollars in thousands, except per share amounts NOTE 14 - FAIR VALUE The following table provides a summary of assets and liabilities as of March 31, 2023, measured at fair value on a recurring basis: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Quoted Prices in ​ ​ ​ ​ ​ ​ ​ ​ ​ Active Markets for ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Identical Assets or ​ Significant Other ​ Significant ​ ​ Balance as of ​ Liabilities ​ Observable Inputs ​ Unobservable Description March 31, 2023 (Level 1) (Level 2) Inputs (Level 3) Assets: ​ ​ ​ ​ Foreign exchange contracts ​ $ 9,056 ​ $ — ​ $ 9,056 ​ $ — Commodity contracts ​ ​ 155 ​ ​ — ​ ​ 155 ​ ​ — Interest rate swap agreements ​ ​ 877 ​ ​ — ​ ​ 877 ​ ​ — Forward starting swap agreements ​ 17,651 ​ — ​ 17,651 ​ — Pension surplus ​ ​ 54,085 ​ ​ 54,085 ​ ​ — ​ ​ — Total assets ​ $ 81,824 ​ $ 54,085 ​ $ 27,739 ​ $ — Liabilities: ​ ​ ​ ​ Foreign exchange contracts ​ $ 1,154 ​ $ — ​ $ 1,154 ​ $ — Net investment contracts ​ ​ 2,947 ​ ​ — ​ ​ 2,947 ​ ​ — Deferred compensation ​ 38,547 ​ — ​ 38,547 ​ — Total liabilities ​ $ 42,648 ​ $ — ​ $ 42,648 ​ $ — ​ The following table provides a summary of assets and liabilities as of December 31, 2022, measured at fair value on a recurring basis: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Quoted Prices in ​ ​ ​ ​ ​ ​ ​ ​ ​ Active Markets for ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Identical Assets or ​ Significant Other ​ Significant ​ ​ Balance as of ​ Liabilities ​ Observable Inputs ​ Unobservable Description December 31, 2022 (Level 1) (Level 2) Inputs (Level 3) Assets: ​ ​ ​ ​ Foreign exchange contracts ​ $ 3,815 ​ $ — ​ $ 3,815 ​ $ — Commodity contracts ​ ​ 181 ​ ​ — ​ ​ 181 ​ ​ — Forward starting swap agreements ​ ​ 19,291 ​ ​ — ​ ​ 19,291 ​ ​ — Pension Surplus ​ 56,418 ​ 56,418 ​ — ​ — Total assets ​ $ 79,705 ​ $ 56,418 ​ $ 23,287 ​ $ — Liabilities: ​ ​ ​ ​ Foreign exchange contracts ​ $ 1,528 ​ $ — ​ $ 1,528 ​ $ — Net investment contracts ​ 2,229 ​ — ​ 2,229 ​ — Commodity contracts ​ 33 ​ — ​ 33 ​ — Deferred compensation ​ 39,090 ​ — ​ 39,090 ​ — Total liabilities ​ $ 42,880 ​ $ — ​ $ 42,880 ​ $ — ​ The Company’s derivative contracts are valued at fair value using the market approach. The Company measures the fair value of foreign exchange contracts, swap agreements, net investment contracts and interest rate swap agreements using Level 2 inputs based on observable spot and forward rates in active markets. The deferred compensation liability is the Company’s obligation under its executive deferred compensation plan. The Company measures the fair value of the liability using the market values of the participants’ underlying investment fund elections. 20 Table of Contents LINCOLN ELECTRIC HOLDINGS, INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued) Dollars in thousands, except per share amounts The fair value of Cash and cash equivalents, Accounts receivable, Short-term debt excluding the current portion of long-term debt and Trade accounts payable approximated book value due to the short-term nature of these instruments at both March 31, 2023 and December 31, 2022. 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 March 31, 2023. The Company has various financial instruments, including cash and cash equivalents, short and long-term debt and forward contracts. While these financial instruments are subject to concentrations of credit risk, the Company has minimized this risk by entering into arrangements with a number of major banks and financial institutions and investing in several high-quality instruments. The Company does not expect any counterparties to fail to meet their obligations. NOTE 15 – SUPPLIER FINANCING PROGRAM The Company’s suppliers, at the supplier’s sole discretion, are able to factor receivables due from the Company to a financial institution on terms directly negotiated with the financial institution without affecting the Company’s balance sheet classification of the corresponding payable. The Company pays the financial institution the stated amount of the confirmed invoices from its designated suppliers on the original maturity dates of the invoices. Invoices with suppliers have terms between 120 and 180 days . The Company does not provide secured legal assets or other forms of guarantees under the arrangement and has no involvement in establishing the terms or conditions of the arrangement between its suppliers and the financial institution. The amounts due to the financial institution for suppliers that participate in the supplier financing program are included in Accounts payable on the Company’s Consolidated Balance Sheets, and the associated payments are included in operating activities in the Consolidated Statements of Cash Flows. At March 31, 2023 and December 31, 2022, Accounts payable included $ 27,535 and $ 33,475 , respectively, payable to suppliers that have elected to participate in the supplier financing program. ​ ​ ​ ​ 21 Table of Contents