What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-07-27 compared with 2023-04-27 · 112 added, 51 removed, 217 unchanged (43% of the section changed)

17 unchanged sentences

The Fori acquisition will extend the Company’s market presence within the automotive sector as well as its automation footprint in the International Welding segment.

On July 21, 2023, Christopher L.

Mapes, the Company’s President and Chief Executive Officer and Chairman of the Board of Directors, notified the Company of his intention to retire from his position as President and Chief Executive Officer effective as of the close of business on December 31, 2023.

After December 31, 2023, Mr.

Mapes will be designated Executive Chairman of the Board.

In connection with Mr.

Mapes’ notification of his retirement, the Board elected Steven B.

Hedlund, as President and Chief Executive Officer of the Company, effective as of January 1, 2024 (the “Transition Date”).

Mapes will remain principal executive officer until the close of business on December 31, 2023, and Mr.

Hedlund will succeed Mr.

Mapes as principal executive officer as of the Transition Date.

Results of Operations

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

Three Months Ended March 31,

Three Months Ended June 30,

Favorable (Unfavorable)

Net sales (Note 2)

Cost of goods sold

Selling, general & administrative expenses

Rationalization and asset impairment charges (Note 6)

Rationalization and asset impairment charges

Operating income

Interest expense, net

Other income (Note 11)

Other income (expense)

Income before income taxes

Income taxes (Note 12)

Effective tax rate (Note 12)

Net income including non-controlling interests

Non-controlling interests in subsidiaries' income

Diluted earnings per share (Note 3)

Effective tax rate

Diluted earnings per share

Six Months Ended June 30,

Favorable (Unfavorable)

Cost of goods sold

Selling, general & administrative expenses

Rationalization and asset impairment charges

Operating income

Interest expense, net

Income before income taxes

Effective tax rate

Diluted earnings per share

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

Three Months Ended March 31,

Three Months Ended June 30,

Change in Net Sales due to:

1 unchanged sentence

Lincoln Electric Holdings, Inc.

Net sales increased in the three months ended March 31, 2023 driven by higher demand levels, increased product pricing as a result of higher input costs and the impact of acquisitions, partially offset by unfavorable foreign exchange.

Six Months Ended June 30,

Change in Net Sales due to:

Lincoln Electric Holdings, Inc.

Net sales increased in the three and six months ended June 30, 2023 driven by higher demand levels, increased product pricing as a result of higher input costs, and the impact of acquisitions, partially offset by unfavorable foreign exchange.

Gross Profit:

Gross profit for the three months ended March 31, 2023 increased 7.8% driven by higher volumes offset by acquisitions and challenging prior year comparisons.

Last-in, first-out (“LIFO”) charges were $2,191 in the three months ended March 31, 2023, as compared with charges of $6,888 in the same 2022 period.

Gross profit increased for the three and six months ended June 30, 2023 driven by higher volumes and pricing actions taken to offset higher inputs costs.

Last-in, first-out (“LIFO”) charges were $310 and $2,502 in the three and six months ended June 30, 2023, respectively, as compared with charges of $10,424 and $17,312, respectively, in the same 2022 periods.

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

SG&A expenses increased for the three months ended March 31, 2023 as compared to the same 2022 period, primarily due to acquisitions and higher employee-related costs.

SG&A expenses increased for the three and six months ended June 30, 2023 as compared to the same 2022 periods, primarily due to acquisitions and higher employee-related costs.

Income Taxes:

The effective tax rate was slightly higher for the three months ended March 31, 2023 as compared to the same period in 2022, primarily due to a change in the mix of earnings and discrete tax items.

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

Segment Results

Three Months Ended March 31,

Three Months Ended June 30,

Change in Net Sales due to:

7 unchanged sentences

The Harris Products Group

(1) Increase for the three months ended March 31, 2023 for Americas Welding due to higher volumes in all product groups.

Decrease in International Welding due to challenging prior year comparisons.

Six Months Ended June 30,

Change in Net Sales due to:

Acquisitions (2)

Operating Segments

Americas Welding

International Welding

The Harris Products Group

Americas Welding

International Welding

The Harris Products Group

(1) Increase for the three and six months ended June 30, 2023 for Americas Welding due to higher volumes in all product groups.

Increase for the three months ended June 30, 2023 for International Welding due to higher volumes in all product groups.

Decrease for the six months ended June 30, 2023 for International Welding due to challenging prior year comparisons.

Decreases in The Harris Products Group due to lower retail volumes.

(2) Increases for the three months ended March 31, 2023 were due to the acquisitions discussed in Note 4 to the consolidated financial statements.

(3) Increase for the three months ended March 31, 2023 for all segments reflects increased product pricing to offset higher input costs.

(4) Decrease for the three months ended March 31, 2023 in International Welding primarily due to the Turkish Lira and Euro.

(2) Increase for the three and six months ended June 30, 2023 for Americas Welding and International Welding due to the acquisitions discussed in Note 4 to the consolidated financial statements.

(3) Increase for the three and six months ended June 30, 2023 for all segments reflects increased product pricing to offset higher input costs.

(4) Decrease for the six months ended June 30, 2023 in International Welding primarily due to the Turkish Lira and the Euro.

Adjusted Earnings Before Interest and Income Taxes:

4 unchanged sentences

Favorable (Unfavorable)

Three Months Ended March 31,

Three Months Ended June 30,

Americas Welding:

17 unchanged sentences

As a percent of sales

(1) Decrease for the three months ended March 31, 2023 as compared to March 31, 2022 primarily driven by acquisition impacts.

(2) Decrease for the three months ended March 31, 2023 as compared to March 31, 2022 primarily driven by challenging prior year comparisons.

(3) The three months ended March 31, 2023 exclude the amortization of the step up in value of acquired inventories of $2,785 as discussed in Note 4 to the consolidated financial statements.

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

(4) The three months ended March 31, 2023 exclude Rationalization and asset impairment net charges of $877 primarily due to restructuring activities as discussed in Note 6 to the consolidated financial statements, the amortization of the step up in value of acquired inventories of $1,071 as discussed in Note 4 to the consolidated financial statements and a gain on asset disposal of $1,646.

The three months ended March 31, 2022 exclude Rationalization and asset impairment charges of $1,885 related to severance and gains or losses on the disposal of assets as disclosed in Note 6 to the consolidated financial statements.

(1) Increase for the three months ended June 30, 2023 as compared to June 30, 2022 primarily driven by higher volumes and pricing actions taken to offset higher inputs costs, offset by acquisition impacts.

(2) Decrease for the three months ended June 30, 2023 as compared to June 30, 2022 primarily driven by challenging prior year comparisons.

(3) Increase for the three months ended June 30, 2023 as compared to June 30, 2022 primarily reflects effective cost management and operational efficiency from integration activities.

(4) The three months ended June 30, 2023 exclude the amortization of the step up in value of acquired inventories of $2,957 as discussed in Note 4 to the consolidated financial statements.

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.

(5) The three months ended June 30, 2023 exclude Rationalization and asset impairment net charges of $2,667 primarily due to restructuring activities as discussed in Note 6 to the consolidated financial statements and the amortization of the step up in value of acquired inventories of $588 as discussed in Note 4 to the consolidated financial statements.

The three months ended June 30, 2022 exclude Rationalization and asset impairment charges of $154 as discussed in Note 6 to the consolidated financial statements.

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

Favorable (Unfavorable)

Six Months Ended June 30,

Americas Welding:

Inter-segment sales

Adjusted EBIT (4)

As a percent of total sales (1)

International Welding:

Inter-segment sales

Adjusted EBIT (5)

As a percent of total sales (2)

The Harris Products Group:

Inter-segment sales

Adjusted EBIT

As a percent of total sales (3)

Corporate / Eliminations:

Inter-segment sales

Adjusted EBIT

Consolidated:

As a percent of total sales

Adjusted EBIT (6)

As a percent of sales

(1) Increase for the six months ended June 30, 2023 as compared to June 30, 2022 primarily driven by higher volumes and pricing actions taken to offset higher inputs costs, offset by acquisition impacts.

(2) Decrease for the six months ended June 30, 2023 as compared to June 30, 2022 primarily driven by challenging prior year comparisons.

(3) Increase for the six months ended June 30, 2023 as compared to June 30, 2022 primarily reflects effective cost management and operational efficiency from integration activities.

(4) The six months ended June 30, 2023 exclude the amortization of the step up in value of acquired inventories of $5,742 as discussed in Note 4 to the consolidated financial statements.

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 $998 as discussed in Note 6 to the consolidated financial statements.

(5) The six months ended June 30, 2023 exclude Rationalization and asset impairment net charges of $3,544 primarily due to restructuring activities as discussed in Note 6 to the consolidated financial statements, the amortization of the step up in value of acquired inventories of $1,659 as discussed in Note 4 to the consolidated financial statements and a gain on asset disposal of $1,646.

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

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

Non-GAAP Financial Measures

3 unchanged sentences

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

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Operating income as reported

11 unchanged sentences

Adjusted net income

Non-controlling interests in subsidiaries’ income (loss)

Interest expense, net

26 unchanged sentences

The following table reflects changes in key cash flow measures:

Three Months Ended March 31,

Six Months Ended June 30,

Cash provided by operating activities (1)

4 unchanged sentences

(Payments on) proceeds from short-term borrowings

Payments on long-term borrowings

(Payments on) proceeds from long-term borrowings

Purchase of shares for treasury

1 unchanged sentence

Increase (decrease) in Cash and cash equivalents (4)

(1) Cash provided by operating activities increased for the three months ended March 31, 2023 , compared with the three months ended March 31, 2022 primarily due to improved working capital position.

(2) Cash used by investing activities decreased for the three months ended March 31, 2023 , compared with the three months ended March 31, 2022 primarily due to cash used in the acquisition of businesses in 2022.

(1) Cash provided by operating activities increased for the six months ended June 30, 2023 , compared with the six months ended June 30, 2022 primarily due to improved working capital position.

(2) Cash used by investing activities increased for the six months ended June 30, 2023 , compared with the six months ended June 30, 2022 primarily due to capital expenditures and cash used in the acquisition of businesses in 2023.

The Company currently anticipates capital expenditures of $80,000 to $100,000 in 2023.

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 three months ended March 31, 2023 , compared with the three months ended March 31, 2022 due to increased payments on short and long-term borrowings in 2023.

(4) Cash and cash equivalents increased 0.8%, or $1,653, to $198,803 during the three months ended March 31, 2023 , from $197,150 as of December 31, 2022.

At March 31, 2023, $173,624 of Cash and cash equivalents was held by international subsidiaries.

In April 2023, the Company paid a cash dividend of $0.64 per share, or $36,847, to shareholders of record as of March 31, 2023.

(3) Cash used by financing activities increased in the six months ended June 30, 2023 , compared with the six months ended June 30, 2022 due to increased payments on short- and long-term borrowings in 2023.

(4) Cash and cash equivalents increased 11.8%, or $23,333, to $220,483 during the six months ended June 30, 2023 , from $197,150 as of December 31, 2022.

At June 30, 2023, $163,326 of Cash and cash equivalents was held by international subsidiaries.

In July 2023, the Company paid a cash dividend of $0.64 per share, or $36,744, to shareholders of record as of June 30, 2023.

Working Capital Ratios

March 31, 2023

June 30, 2023

December 31, 2022

March 31, 2022

June 30, 2022

Average operating working capital to Net sales (1)

10 unchanged sentences

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

Twelve Months Ended March 31,

Twelve Months Ended June 30,

Net income as reported

11 unchanged sentences

Invested Capital

March 31, 2023

March 31, 2022

June 30, 2023

June 30, 2022

Short-term debt

3 unchanged sentences

Adjusted return on invested capital

(1) Related to acquisitions and are included in Selling, general & administrative expenses.

(1) Related to acquisitions and are included in SG&A expenses.

(2) Related to lump sum pension payments due to the final settlement associated with the termination of a pension plan.

6 unchanged sentences

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.

6 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.

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.

3 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.

Forward-looking Statements

17 unchanged sentences

tariff rates in the countries where the Company conducts business;

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

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

For additional discussion, see “Item 1A.

5 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