What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2023-07-27 compared with 2023-04-27 · 179 added, 114 removed, 434 unchanged (40% of the section changed)

3 unchanged sentences

(In thousands, except per share amounts)

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Net sales (Note 2)

4 unchanged sentences

Interest expense, net

Other income (Note 11)

Other income (expense) (Note 11)

Income before income taxes

Income taxes (Note 12)

Net income including non-controlling interests

Non-controlling interests in subsidiaries’ income

Basic earnings per share (Note 3)

5 unchanged sentences

(In thousands)

Three Months Ended March 31,

Net income including non-controlling interests

Three Months Ended June 30,

Six Months Ended June 30,

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

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

Defined benefit pension plan activity, net of tax

2 unchanged sentences

Comprehensive income

Comprehensive income attributable to non-controlling interests

Comprehensive income attributable to shareholders

See notes to these consolidated financial statements.

2 unchanged sentences

(In thousands)

March 31, 2023

June 30, 2023

December 31, 2022

26 unchanged sentences

( 2,488,776 )

Total Shareholders' Equity

Non-controlling interests

TOTAL LIABILITIES AND TOTAL EQUITY

15 unchanged sentences

( 2,519,299 )

Unrecognized amounts from defined benefit pension plans, net of tax

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

Currency translation adjustment

Cash dividends declared – $ 0.64 per share

Stock-based compensation activity

Purchase of shares for treasury

Balance at June 30, 2023

( 2,570,678 )

LINCOLN ELECTRIC HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF EQUITY

(In thousands, except per share amounts)

Comprehensive

10 unchanged sentences

( 2,413,171 )

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 June 30, 2022

( 2,438,144 )

LINCOLN ELECTRIC HOLDINGS, INC.

1 unchanged sentence

(In thousands)

Three Months Ended March 31,

Six Months Ended June 30,

CASH FLOWS FROM OPERATING ACTIVITIES

Non-controlling interests in subsidiaries' income

Net income including non-controlling interests

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

Adjustments to reconcile Net income to Net cash provided by operating activities:

Rationalization and asset impairment net charges (Note 6)

19 unchanged sentences

(Payments on) proceeds from short-term borrowings

Payments on long-term borrowings

(Payments on) proceeds from long-term borrowings

Proceeds from exercise of stock options

17 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 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.

Operating results for the six months ended June 30, 2023 are not necessarily indicative of the results to be expected for the year ending December 31, 2023.

The accompanying Condensed 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.

Certain reclassifications have been made to the prior period amounts to conform to the current period presentation, none of which are material.

Turkey – Highly Inflationary Economy

2 unchanged sentences

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.

For the six months ended June 30, 2023, this impact was not significant to the Company’s results.

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.

This section provides a description of new accounting pronouncements (“Accounting Standards Updates” or “ASUs”) issued by the Financial Accounting Standards Board (“FASB”) that are applicable to the Company.

LINCOLN ELECTRIC HOLDINGS, INC.

14 unchanged sentences

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

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Consumable sales consist of welding, brazing and soldering filler metals.

6 unchanged sentences

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.

At June 30, 2023, the Company recorded $ 85,321 related to advance customer payments and $ 48,235 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 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.

At June 30, 2023 and December 31, 2022, the Company recorded $ 49,310 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.

4 unchanged sentences

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

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Denominator (shares in 000's):

4 unchanged sentences

Diluted earnings per share

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.

For the three months ended June 30, 2023 and 2022, common shares subject to equity-based awards of 76 and 62,987 , respectively, were excluded from the computation of diluted earnings per share because the effect of their exercise would be anti-dilutive.

For the six months ended June 30, 2023 and 2022, common shares subject to equity-based awards of 115 and 108,497 , 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 May 3, 2023, the Company acquired 100 % ownership of Powermig Automação e Soldagem Ltda.

(“Powermig”), a privately held automation engineering firm headquartered in Caxias do Sul, Rio Grande do Sul, in Brazil.

The net purchase price was $ 29,572 , net of cash acquired and it was accounted for as a business combination.

In 2022, Powermig generated sales of approximately $ 15,000 (unaudited).

Beginning May 3, 2023, the Company’s Consolidated Statement of Income includes the results of Powermig and was not material for the three months ended June 30, 2023.

Powermig specializes in designing and engineering industrial welding automation solutions for the heavy industry and transportation sectors.

The acquisition broadens the Company’s automation portfolio and capabilities.

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.

2 unchanged sentences

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.

For the three and six months ended June 30, 2023, the Company’s Consolidated Statements of Income include the results of Fori, including Net Sales of $ 47,787 and $ 97,002 , respectively, 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.

1 unchanged sentence

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.

LINCOLN ELECTRIC HOLDINGS, INC.

1 unchanged sentence

Dollars in thousands, except per share amounts

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 and six months ended June 30, 2023, these revisions did not have a material impact on the Condensed Consolidated Balance Sheets or Consolidated Statement of Income.

Assets acquired and liabilities assumed

15 unchanged sentences

(“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.

The net purchase price was $ 22,294 , net of cash acquired and it was 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.

14 unchanged sentences

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.

LINCOLN ELECTRIC HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Dollars in thousands, except per share amounts

The following table presents Adjusted EBIT by segment:

International

Three Months Ended March 31, 2023

Three Months Ended June 30, 2023

Inter-segment sales

4 unchanged sentences

Income before income taxes

Three Months Ended March 31, 2022

Three Months Ended June 30, 2022

Inter-segment sales

4 unchanged sentences

Income before income taxes

(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.

Six Months Ended June 30, 2023

Inter-segment sales

Adjusted EBIT

Special items charge (gain) (1)

Interest income

Interest expense

Income before income taxes

Six Months Ended June 30, 2022

Inter-segment sales

Adjusted EBIT

Special items charge (gain) (2)

Interest income

Interest expense

Income before income taxes

(1) In the three and six months ended June 30, 2023, special items include amortization of step up in value of acquired inventories of $ 2,957 and $ 5,742 in Americas Welding and $ 588 and $ 1,659 in International Welding, respectively, and Rationalization and asset impairment net charges of $ 2,667 and $ 3,544 in International Welding.

In the six months ended, special items reflect a gain on asset disposal of $ 1,646 in International Welding.

(2) 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, special items reflect the final settl ement related to the termination of a pension plan of $ 3,735 in Americas Welding.

LINCOLN ELECTRIC HOLDINGS, INC.

4 unchanged sentences

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.

At June 30, 2023, liabilities of $ 660 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 Company recorded Rationalization and asset impairment net charges of $ 3,544 and $ 1,041 in the six months ended June 30, 2023 and 2022, respectively.

The charges are primarily related to restructuring activities.

1 unchanged sentence

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:

The following table summarizes the activity related to rationalization liabilities for the six months ended June 30, 2023:

Balance at December 31, 2022

1 unchanged sentence

Charged to expense

Balance at March 31, 2023

Balance at June 30, 2023

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

Three Months Ended June 30, 2023

Unrealized gain

3 unchanged sentences

qualifying as cash

Balance at December 31, 2022

Other comprehensive income before reclassification

Balance at March 31, 2023

Other comprehensive income (loss) before reclassification

Amounts reclassified from AOCI

Net current-period other comprehensive income

Net current-period other comprehensive income (loss)

Balance at June 30, 2023

Three Months Ended June 30, 2022

Unrealized gain

(loss) on derivatives

designated and

Defined benefit

qualifying as cash

Balance at March 31, 2022

Other comprehensive income (loss) before reclassification

Amounts reclassified from AOCI

Net current-period other comprehensive income (loss)

Balance at June 30, 2022

LINCOLN ELECTRIC HOLDINGS, INC.

1 unchanged sentence

Dollars in thousands, except per share amounts

Three Months Ended March 31, 2022

(1) During the three months ended June 30, 2023, the AOCI reclassification is a component of Net sales of $ 1,404 (net of tax of $ 480 ) and Cost of goods sold of $( 25 ) (net of tax of $( 18 ) );

during the three months ended June 30, 2022, the 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 ) ).

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

Six Months Ended June 30, 2023

Unrealized gain

4 unchanged sentences

Balance at December 31, 2022

Other comprehensive income before reclassification

Amounts reclassified from AOCI

Net current-period other comprehensive income (loss)

Balance at June 30, 2023

Six Months Ended June 30, 2022

Unrealized gain

(loss) on derivatives

designated and

Defined benefit

qualifying as cash

Balance at December 31, 2021

Other comprehensive income (loss) before reclassification

1 unchanged sentence

Net current-period other comprehensive income (loss)

Balance at March 31, 2022

(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 ) ).

Balance at June 30, 2022

(1) During the six months ended June 30, 2023, the AOCI reclassification is a component of Net sales of $ 2,269 (net of tax of $ 821 ) and Cost of goods sold of $( 163 ) (net of tax of $( 61 ) );

during the six months ended June 30, 2022, the 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 ) ).

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.

LINCOLN ELECTRIC HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Dollars in thousands, except per share amounts

NOTE 8 — INVENTORIES

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

March 31, 2023

June 30, 2023

December 31, 2022

2 unchanged sentences

Finished goods

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.

LINCOLN ELECTRIC HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Dollars in thousands, except per share amounts

At June 30, 2023 and December 31, 2022, approximately 35 % 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 $ 136,411 and $ 133,909 at June 30, 2023 and December 31, 2022, respectively.

NOTE 9 — LEASES

2 unchanged sentences

Balance Sheet Classification

March 31, 2023

June 30, 2023

December 31, 2022

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 $ 5,851 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.

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 $ 5,322 and $ 11,173 in the three and six months ended June 30, 2023 and $ 5,862 and $ 11,061 in the three and six months ended June 30, 2022, respectively.

Cash paid for amounts included in the measurement of lease liabilities for the three and six months ended June 30, 2023, respectively, were $ 3,077 and $ 6,222 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, 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.

Right-of-use assets obtained in exchange for operating lease liabilities were $ 1,438 and $ 5,334 during the three and six months ended June 30, 2023 and $ 742 and $ 3,479 for the three and six months ended June 30, 2022, respectively.

LINCOLN ELECTRIC HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Dollars in thousands, except per share amounts

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

March 31, 2023

June 30, 2023

Total lease payments

1 unchanged sentence

Operating lease liabilities

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 %.

LINCOLN ELECTRIC HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Dollars in thousands, except per share amounts

As of June 30, 2023, the weighted average remaining lease term is 7.5 years and the weighted average discount rate used to determine the operating lease liability is 3.3 %.

NOTE 10 — DEBT

5 unchanged sentences

The Credit Agreement contains customary representations and warranties, as well as customary affirmative, negative and financial covenants for credit facilities of this type (subject to negotiated baskets and exceptions), including limitations on the Company and its subsidiaries with respect to liens, investments, distributions, mergers and acquisitions, dispositions of assets and transactions with affiliates.

As of March 31, 2023, the Company was in compliance with all of its covenants and had $ 25,000 of outstanding borrowings under the Credit Agreement.

As of June 30, 2023, the Company was in compliance with all of its covenants and had no outstanding borrowings under the Credit Agreement.

The Company has other lines of credit and debt agreements totaling $ 85,242 .

As of March 31, 2023, the Company was in compliance with all of its covenants and had $ 13,408 outstanding.

As of June 30, 2023, the Company was in compliance with all of its covenants and had outstanding debt under short-term lines of credit of $ 10,406 .

Senior Unsecured Notes

5 unchanged sentences

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.

As of June 30, 2023, the Company was in compliance with all of its debt covenants relating to the Notes.

LINCOLN ELECTRIC HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Dollars in thousands, except per share amounts

Shelf Agreements

2 unchanged sentences

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.

As of June 30, 2023, the Company was in compliance with all of its covenants and had no outstanding borrowings under the Shelf Agreements.

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.

2 unchanged sentences

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.

As of June 30, 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.

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.

At June 30, 2023 and December 31, 2022, the fair value of long-term debt, including the current portion, was approximately $ 1,006,609 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 $ 1,104,223 and $ 1,121,435 , respectively.

2 unchanged sentences

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

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Equity earnings in affiliates

3 unchanged sentences

(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 .

(2) In 2023, Other income (expense) primarily relates to non-recurring items such as royalty and other non-operating gains.

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.

The Company recognized $ 69,142 of tax expense on pretax income of $ 328,404 , resulting in an effective income tax rate of 21.1 % for the six months ended June 30, 2023.

The effective income tax rate was 20.6 % for the six months ended June 30, 2022.

LINCOLN ELECTRIC HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Dollars in thousands, except per share amounts

The effective tax rate was slightly higher for the six months ended June 30, 2023, as compared with the same period in 2022, primarily due to mix of earnings and discrete tax items.

As of June 30, 2023, the Company had $ 13,435 of unrecognized tax benefits.

If recognized, approximately $ 10,339 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 $ 1,287 in previously unrecognized tax benefits by the end of the first quarter 2024.

It is reasonably possible there could be a reduction of $ 1,295 in previously unrecognized tax benefits by the end of the second 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

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.

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 three and six months ended June 30, 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.

None of the concentrations of risk with any individual counterparty was considered significant at June 30, 2023.

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

1 unchanged sentence

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 dollar equivalent gross notional amount of these short-term contracts was $ 67,912 at June 30, 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.

The dollar equivalent gross notional amount of the long-term contracts was $ 100,000 at June 30, 2023 and December 31, 2022 and have a termination date of August 2025.

The Company has commodity contracts with a notional amount of 225,000 pounds and 875,000 pounds at June 30, 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 .

2 unchanged sentences

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.

The dollar equivalent gross notional amount of these contracts was $ 90,561 at June 30, 2023 and $ 88,843 at December 31, 2022.

LINCOLN ELECTRIC HOLDINGS, INC.

1 unchanged sentence

Dollars in thousands, except per share amounts

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 $ 439,732 and $ 380,443 at June 30, 2023 and December 31, 2022, respectively.

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

March 31, 2023

June 30, 2023

December 31, 2022

10 unchanged sentences

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

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Derivatives by hedge designation

5 unchanged sentences

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

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

June 30, 2023

December 31, 2022

5 unchanged sentences

The Company expects a gain of $ 2,455 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

Three Months Ended June 30,

Six Months Ended June 30,

Gain recognized in the

Derivative type

8 unchanged sentences

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:

The following table provides a summary of assets and liabilities as of June 30, 2023, measured at fair value on a recurring basis:

Quoted Prices in

4 unchanged sentences

Observable Inputs

March 31, 2023

June 30, 2023

Inputs (Level 3)

Foreign exchange contracts

Net investment contracts

Commodity contracts

3 unchanged sentences

Foreign exchange contracts

Net investment contracts

Commodity contracts

Deferred compensation

19 unchanged sentences

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.

The Company measures the fair value of foreign exchange contracts, forward starting swap agreements, net investment contracts and interest rate swap agreements using Level 2 inputs based on observable spot and forward rates in active markets.

LINCOLN ELECTRIC HOLDINGS, INC.

1 unchanged sentence

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 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.

The fair value of Cash and cash equivalents, Marketable securities, 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, 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 pension surplus assets are invested in money market and short-term duration bond funds at June 30, 2023.

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

7 unchanged sentences

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.

At June 30, 2023 and December 31, 2022, Accounts payable included $ 37,022 and $ 33,475 , respectively, payable to suppliers that have elected to participate in the supplier financing program.

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