What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-10-27 compared with 2023-07-27 · 69 added, 62 removed, 267 unchanged (33% of the section changed)

16 unchanged sentences

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

The Fori acquisition extended 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.

5 unchanged sentences

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.

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

Hedlund will succeed Mr.

2 unchanged sentences

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

Three Months Ended June 30,

Three Months Ended September 30,

Favorable (Unfavorable)

4 unchanged sentences

Interest expense, net

Other income (expense)

Income before income taxes

1 unchanged sentence

Diluted earnings per share

Six Months Ended June 30,

Nine Months Ended September 30,

Favorable (Unfavorable)

8 unchanged sentences

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

Three Months Ended June 30,

Three Months Ended September 30,

Change in Net Sales due to:

1 unchanged sentence

Lincoln Electric Holdings, Inc.

Six Months Ended June 30,

Nine Months Ended September 30,

Change in Net Sales due to:

1 unchanged sentence

Lincoln Electric Holdings, Inc.

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

Net sales increased for the three months ended September 30, 2023 primarily due to the benefit of acquisitions.

Net sales increased for the nine months ended September 30, 2023 primarily due to the benefit of acquisitions, higher demand levels and increased product pricing as a result of higher input costs.

Gross Profit:

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.

Gross profit increased for the three months ended September 30, 2023 driven by favorable mix, effective cost management and benefits of prior pricing actions.

Gross profit increased for the nine months ended September 30, 2023 driven by pricing actions taken to offset higher inputs costs.

The three and nine months ended September 30, 2023 includes a last-in, first-out (“LIFO”) benefit of $1,323 and a charge of $1,179, respectively, as compared with charges of $3,108 and $20,420, respectively, in the same 2022 periods.

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

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.

SG&A expenses increased for the three and nine months ended September 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 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.

The effective tax rate was slightly lower for the three months and slightly higher for the nine months ended September 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 June 30,

Three Months Ended September 30,

Change in Net Sales due to:

7 unchanged sentences

The Harris Products Group

Six Months Ended June 30,

Nine Months Ended September 30,

Change in Net Sales due to:

7 unchanged sentences

The Harris Products Group

(1) 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) 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.

(1) Modest growth for the three months ended September 30, 2023 for Americas Welding and International Welding offset by challenging prior year comparisons for The Harris Products Group.

Increase for the nine months ended September 30, 2023 for Americas Welding and International Welding due to higher volumes in all product groups.

Decrease for the nine months ended September 30, 2023 for The Harris Products group due to challenging prior year comparisons.

(2) Increase for the three and nine months ended September 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 months ended September 30, 2023 in The Harris Product Group due to increases in commodity costs.

Increase for the nine months ended September 30, 2023 for all segments reflects increased product pricing to offset higher input costs.

(4) Increase for the three months ended September 30, 2023 in International Welding primarily due to appreciation of the Euro.

Adjusted Earnings Before Interest and Income Taxes:

4 unchanged sentences

Favorable (Unfavorable)

Three Months Ended June 30,

Three Months Ended September 30,

Americas Welding:

17 unchanged sentences

As a percent of sales

(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.

(1) Increase for the three months ended September 30, 2023 as compared to September 30, 2022 primarily driven by effective cost management.

(2) Increase for the three months ended September 30, 2023 as compared to September 30, 2022 primarily driven by higher volumes and effective cost management.

(3) Increase for the three months ended September 30, 2023 as compared to September 30, 2022 primarily reflects effective cost management and operational improvements.

(4) The three months ended September 30, 2023 exclude Rationalization and asset impairment net charges of $408 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 $3,648 as discussed in Note 4 to the consolidated financial statements.

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

(5) The three months ended September 30, 2023 exclude Rationalization and asset impairment net charges of $6,666 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 $1,204 as discussed in Note 4 to the consolidated financial statements.

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

(6) The three months ended September 30, 2022 exclude acquisition transaction costs of $3,068 related to an acquisition as discussed in Note 4 to the consolidated financial statements.

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

Favorable (Unfavorable)

Six Months Ended June 30,

Nine Months Ended September 30,

Americas Welding:

17 unchanged sentences

As a percent of sales

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

(1) Increase for the nine months ended September 30, 2023 as compared to September 30, 2022 primarily driven by higher volumes and pricing actions taken to offset higher inputs costs, offset by the impact of acquisitions.

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

(3) Increase for the nine months ended September 30, 2023 as compared to September 30, 2022 primarily reflects effective cost management and operational improvements.

(4) The nine months ended September 30, 2023 exclude Rationalization and asset impairment net charges of $408 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 $9,390 as discussed in Note 4 to the consolidated financial statements.

The nine months ended September 30, 2022 exclude a favorable adjustment related to the termination of a pension plan of $3,735, the amortization of step up in value of acquired inventories of $1,106 as discussed in Note 4 to the consolidated financial statements and Rationalization and asset impairment net gains of $998 as discussed in Note 6 to the consolidated financial statements.

(5) The nine months ended September 30, 2023 exclude Rationalization and asset impairment net charges of $10,210 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 $2,862 as discussed in Note 4 to the consolidated financial statements and a gain on asset disposal of $1,646.

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

(6) The nine months ended September 30, 2022 exclude acquisition transaction costs of $3,068 related to an acquisition as discussed in Note 4 to the consolidated financial statements.

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

4 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 June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Operating income as reported

1 unchanged sentence

Rationalization and asset impairment charges (1)

Acquisition transaction costs (2)

Amortization of step up in value of acquired inventories (3)

3 unchanged sentences

Rationalization and asset impairment charges (1)

Acquisition transaction costs (2)

Pension settlement net gains (4)

14 unchanged sentences

(1) Primarily related to restructuring activities as discussed in Note 6 to the consolidated financial statements.

(2) Costs related to the acquisition and are included in Cost of goods sold.

(3) Pension net gains primarily due to the final settlement associated with the termination of a pension plan and are included in Other income (expense).

(4) Gain on asset disposal and included in Other income (expense).

(2) Costs related to acquisitions and are included in Selling, general & administrative.

(3) Costs related to acquisitions and are included in Cost of goods sold.

(4) Pension net gains primarily due to the final settlement associated with the termination of a pension plan and are included in Other income.

(5) Gain on asset disposal and included in Other income.

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

12 unchanged sentences

The following table reflects changes in key cash flow measures:

Six Months Ended June 30,

Nine Months Ended September 30,

Cash provided by operating activities (1)

8 unchanged sentences

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

(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.

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

(2) Cash used by investing activities increased for the nine months ended September 30, 2023 , compared with the nine months ended September 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 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.

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

(4) Cash and cash equivalents increased 73.8%, or $145,517, to $342,667 during the nine months ended September 30, 2023 , from $197,150 as of December 31, 2022.

At September 30, 2023, $169,202 of Cash and cash equivalents was held by international subsidiaries.

In October 2023, the Company paid a cash dividend of $0.64 per share, or $36,608, to shareholders of record as of September 30, 2023.

Working Capital Ratios

June 30, 2023

September 30, 2023

December 31, 2022

June 30, 2022

September 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 June 30,

Twelve Months Ended September 30,

Net income as reported

11 unchanged sentences

Invested Capital

June 30, 2023

June 30, 2022

September 30, 2023

September 30, 2022

Short-term debt

3 unchanged sentences

Adjusted return on invested capital

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

(1) 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 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.

At September 30, 2023 and December 31, 2022, the fair value of long-term debt, including the current portion, was approximately $974,061 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 $1,103,076 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 June 30, 2023, the Company was in compliance with all of its covenants and had no outstanding borrowings under the Credit Agreement.

As of September 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 $84,876.

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.

As of September 30, 2023, the Company was in compliance with all of its covenants and had outstanding debt under short-term lines of credit of $7,482.

Senior Unsecured Notes

5 unchanged sentences

The Notes contain certain affirmative and negative covenants.

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

As of September 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 June 30, 2023, the Company was in compliance with all of its covenants.

As of September 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.

1 unchanged sentence

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

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

Forward-looking Statements

25 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