What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-02-27 compared with 2023-02-21 · 86 added, 120 removed, 334 unchanged (38% of the section changed)

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Actual results may differ materially from those indicated in the forward-looking statements.

See "Item 1A.

Risk Factors"

for more information regarding forward-looking statements.

See "Item 1A.

Risk Factors" for more information regarding forward-looking statements.

The Company is the world’s largest designer and manufacturer of arc welding and cutting products, manufacturing a broad line of arc welding equipment, consumable welding products and other welding and cutting products.

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as well as a comprehensive portfolio of automated solutions for joining, cutting, material handling, module assembly, and end of line testing.

The Company invests in the research and development of arc welding products in order to continue its market leading product offering.

The Company continues to invest in technologies that improve the quality and productivity of welding products.

In addition, the Company actively protects its innovations as research and development has progressed in both the United States and other major international jurisdictions.

The Company believes its significant investment in research and development and its highly trained technical sales force coupled with its extensive distributor network provide a competitive advantage in the marketplace.

The Company’s products are sold in both domestic and international markets.

The Company invests in the research and development of arc welding products in order to continue its market leading product offering and improve the quality and productivity of welding applications.

In addition, the Company actively protects its innovations with patents and trade secrets globally.

The Company believes its significant investment in research and development, its highly trained technical sales force and its extensive distributor network provide a competitive advantage in the marketplace.

The Company’s products are sold globally.

In the Americas, products are sold principally through industrial distributors, retailers and also directly to users of welding products.

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The Company ensures compliance and the continuous improvement of the environmental performance of its products and operations through its global Environmental, Health, Safety and Quality (“EHS&Q”) systems.

The Company’s systems are guided by the Corporate EHS&Q Policy, global directives and corporate standards that establish consistent guidelines for the management, measurement and reporting of environmental, health and safety activities, as well as quality across the Company’s global platform.

The Company’s systems are guided by Corporate EHS&Q Policy, global directives and corporate standards that establish consistent guidelines for the management, measurement and reporting of environmental, health and safety activities, as well as quality across the Company’s global platform.

The Company’s products support our customers' sustainable operations through enhanced worker safety, reduced emissions, improved energy efficiency, reduced waste and regulatory compliance.

On December 1, 2022, the Company acquired Fori Automation, LLC (“Fori”) for a cash purchase price of $427,000, subject to customary working capital adjustments.

The Company funded the transaction with available cash on hand and a $400,000 senior unsecured term loan.

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.

Fori’s balance sheet is included in the Company’s Consolidated Balance Sheet as of December 31, 2022.

Key Indicators

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operating cash flows;

and capital expenditures, as well as applicable ratios such as return on invested capital and average operating working capital to sales.

These measures are reviewed at monthly, quarterly and annual intervals and compared with historical periods, as well as objectives established by the Board of Directors of the Company.

and capital expenditures, as well as applicable ratios such as return on invested capital, adjusted return on invested capital and average operating working capital to sales.

These measures are reviewed at monthly, quarterly and annual intervals and are compared with historical periods, as well as objectives established by the Board of Directors of the Company.

The discussion that follows includes a comparison of our results of operations, liquidity and capital resources for fiscal years ended December 31, 2023 and 2022.

For a comparison of the Company’s results of operations, liquidity and capital resources for the fiscal years ended December 31, 2021 and 2020, see Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, which was filed with the SEC on February 18, 2022.

For a comparison of the Company’s results of operations, liquidity and capital resources for the fiscal years ended December 31, 2022 and 2021, see “Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, which was filed with the SEC on February 21, 2023.

Results of Operations

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Favorable (Unfavorable)

Net sales (Note 2)

Cost of goods sold

Selling, general & administrative expenses

Rationalization and asset impairment charges (Note 7)

Rationalization and asset impairment charges

Operating income

Interest expense, net

Other income (expense) (Note 12)

Income before income taxes

Income taxes (Note 13)

Effective tax rate (Note 13)

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

T he following table summarizes the impacts of volume, acquisitions, price and foreign currency exchange rates on Net sales for the twelve months ended December 31, 2023 on a consolidated basis:

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Lincoln Electric Holdings, Inc.

Net sales increased primarily as a result of 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 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 for 2022 increased, as a percent of sales, compared to the prior year primarily due to higher volumes, the benefit of profit improvement and cost reduction actions, which offset higher input costs.

Last-in, first-out (“LIFO”) charges were $19,733 in the twelve months ended December 31, 2022 as compared with charges of $38,595 in the prior year.

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

SG&A expense increased in 2022 as compared to 2021 was primarily due to higher employee costs .

Other Income (Expense):

The increase in 2022 as compared to 2021 was primarily due to non-cash pension settlement charges in 2021 related to the termination of a pension plan.

Refer to Note 12 to the consolidated financial statements for details.

Income Taxes:

The 2022 effective tax rate was higher than 2021 primarily due to a change in the mix of earnings, as well as the impact of the 2021 pension plan termination.

Gross profit increased for the year ended December 31, 2023 primarily due to pricing actions taken to offset higher inputs costs and favorable segment mix, which offset the impact of acquisitions.

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

SG&A expenses increased in 2023 as compared to 2022 primarily due to acquisitions and higher employee-related costs .

Rationalization and asset impairment charges:

In 2023, the Company recorded a gain of $11,314 primarily related to the sale of a property offset by rationalization and asset impairment charges within International Welding.

Segment Results

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The Harris Products Group

(1) Increase due to the acquisitions discussed in Note 4.

(2) Increase for all segments reflects increased product pricing taken in response to higher input costs and unfavorable foreign exchange translation.

(3) Decrease for 2022 in International Welding primarily due to the devaluation of the Turkish Lira and Euro .

(1) Increase for Americas Welding due to higher volumes in all product groups.

Increase for International Welding due to higher equipment volumes.

Decrease for the Harris Products Group due to weakness in end markets.

(2) Increase for Americas Welding and International Welding due to the acquisitions discussed in Note 4 to the consolidated financial statements.

(3) Increase for all segments reflects increased product pricing to offset higher input costs.

Adjusted Earnings Before Interest and Income Taxes (“Adjusted EBIT”):

Segment performance is measured and resources are allocated based on a number of factors, the primary measure being the Adjusted EBIT profit measure.

EBIT is defined as Operating income plus Equity earnings in affiliates and Other income.

EBIT is defined as Operating income plus Other income.

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.

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As a percent of sales

(1) Increase for 2022 as compared to 2021 primarily driven by higher volumes, the impact of profit improvement initiatives and pricing actions taken to offset higher input costs, partially offset by higher employee costs.

(2) Increase for 2022 as compared to 2021 primarily driven by profit improvement initiatives including cost reduction activities.

(3) Decrease for 2022 compared to 2021 primarily driven by acquisition integration activities, unfavorable mix and declining commodity pricing in certain metal offerings .

(1) Increase for 2023 as compared to 2022 primarily driven by higher volumes and effective cost management, partially offset by the impact of acquisitions.

(2) Increase for 2023 as compared to 2022 primarily driven by higher volumes and effective cost management.

(3) Increase for 2023 compared to 2022 primarily reflects effective cost management and operational improvements .

(4) 2023 excludes the amortization of step up in value of acquired inventories of $9,390 and Rationalization and asset impairment net charges of $468 .

2022 excludes 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 and Rationalization and asset impairment gains of $431 related to severance and gains or losses on the disposal of assets as discussed in Note 7 to the consolidated financial statements .

2021 excludes non-cash pension settlement charges of $123,091 as discussed in Note 11 to the consolidated financial statements .

(5) 2022 excludes Rationalization and asset impairment gains of $11,681 related to impairment charges as discussed in Note 7 to the consolidated financial statements .

2021 excludes Rationalization and asset impairment charges of $9,804 related to severance and gains or losses on the disposal of assets as discussed in Note 7 to the consolidated financial statements, the amortization of step up in value of acquired inventories of $4,984 related to an acquisition and pension settlement charges of $446 .

(5) 2023 excludes pension settlement charges of $845, a gain on asset disposal of $1,646, the amortization of step up in value of acquired inventories of $2,862 and Rationalization and asset impairment net gains of $11,782 as discussed in Note 7 to the consolidated financial statements .

2022 excludes Rationalization and asset impairment charges of $11,681 related to impairment charges as discussed in Note 7 to the consolidated financial statements.

(6) 2022 excludes the amortization of step up in value of acquired inventories of $820 related to an acquisition and non-cash pension settlement charges of $2,965 as discussed in Note 11 to the consolidated financial statements.

(7) 2022 excludes acquisition transaction and integration costs of $6,003 related to the acquisition as discussed in Note 4 to the consolidated financial statements.

2021 excludes acquisition transaction and integration costs of $1,923 related to the acquisitions as discussed in Note 4 to the consolidated financial statements.

(7) 2022 excludes acquisition transaction and integration costs of $6,003 as discussed in Note 4 to the consolidated financial statements.

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

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

Non-GAAP financial measures should be read in conjunction with the generally accepted accounting principles in the United States ("GAAP") financial measures, as non-GAAP measures are a supplement to, and not a replacement for, GAAP financial measures.

From time to time, management evaluates and discloses to investors the following non-GAAP measures:

Free cash flow ("FCF"), defined as Net cash provided by operating activities less Capital expenditures (the Company considers FCF to be a liquidity measure that provides useful information to management and investors about how the amount of cash generated by our business, after the purchase of property and equipment, can be used for debt service, acquisitions, paying dividends and repurchasing our common shares);

Cash conversion, defined as FCF divided by Adjusted net income;

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Adjusted operating income

(1) Charges primarily consist of employee severance, gains or losses on the disposal of assets and other related costs and non-cash asset impairment charges.

(2) Costs related to acquisition and included in Selling, general & administrative expenses.

(1) 2023 reflects a gain on the sale of a property of $36,187, offset by rationalization and asset impairment charges of $24,873 within International Welding.

2022 charges are primarily related to employee severance, gains or losses on the disposal of assets and other related costs and non-cash asset impairment charges.

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

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

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Amortization of step up in value of acquired inventories (4)

Gain on asset disposal (5)

Tax effect of Special items (6)

Adjusted net income

Non-controlling interests in subsidiaries’ earnings (loss)

Interest expense, net

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Adjusted diluted earnings per share

(1) Charges primarily consist of employee severance, gains or losses on the disposal of assets and other related costs and non-cash asset impairment charges.

(2) Costs related to acquisitions as discussed in Note 4 to the consolidated financial statements.

(3) Net charges related to lump sum pension payments and the purchase of a group annuity contract as discussed in Note 11 to the consolidated financial statements.

(1) 2023 reflects a gain on the sale of a property of $36,187, offset by rationalization and asset impairment charges of $24,873 within International Welding.

2022 charges are primarily related to employee severance, gains or losses on the disposal of assets and other related costs and non-cash asset impairment charges.

(2) Costs related to acquisitions, as discussed in Note 4 to the consolidated financial statements, and are included in Selling, general & administrative.

(3) 2023 charges related to pension settlement charges.

2022 net gains primarily related to the final settlement associated with the termination of a pension plan, as discussed in Note 11 to the consolidated financial statements.

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

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

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

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In assessing liquidity, the Company reviews working capital measurements to define areas for improvement.

anticipates the Company will be able to satisfy cash requirements for its ongoing businesses for the foreseeable future primarily with cash generated by operations, existing cash balances, borrowings under its existing credit facilities and raising debt in capital markets.

The Company continues to expand globally and periodically looks at transactions that would involve significant investments.

Management anticipates the Company will be able to satisfy cash requirements for its ongoing businesses for the foreseeable future primarily with cash generated by operations, existing cash balances, borrowings under its existing credit facilities and raising debt in capital markets.

The Company continues to expand globally and periodically consider acquisitions that would involve significant investments.

The Company can fund its global expansion plans with operational cash flow, but a significant acquisition may require access to capital markets, in particular, the long-term debt market, as well as the syndicated bank loan market.

The Company’s financing strategy is to fund itself at the lowest after-tax cost of funding.

Where possible, the Company utilizes operational cash flows and raises capital in the most efficient market, usually the United States, and then lends funds to the specific subsidiary that requires funding.

If additional acquisitions providing appropriate financial benefits become available, additional expenditures may be made.

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Acquisition of businesses, net of cash acquired

Cash provided by (used by) financing activities (3)

Proceeds from short-term borrowings

Proceeds from (payments on) long-term borrowings

Proceeds from the sale of property, plant and equipment

Cash (used by) provided by financing activities (3)

(Payments on) proceeds from short-term borrowings

(Payments on) proceeds from long-term borrowings

Purchase of shares for treasury

Cash dividends paid to shareholders

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

(1) Cash provided by operating activities increased for the twelve months ended December 31, 2022 compared with the twelve months ended December 31, 2021 primarily due to higher company earnings.

(2) Cash used by investing activities increased for the twelve months ended December 31, 2022 compared with the twelve months ended December 31, 2021 due to cash used in the acquisition of businesses in 2022.

Increase in Cash and cash equivalents (4)

(1) Cash provided by operating activities increased for the twelve months ended December 31, 2023 compared with the twelve months ended December 31, 2022 primarily due to increased earnings and improved working capital.

(2) Cash used by investing activities decreased for the twelve months ended December 31, 2023 compared with the twelve months ended December 31, 2022 primarily due to less acquisition activity in 2023.

The Company currently anticipates capital expenditures of $90,000 to $110,000 in 2024.

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Management critically evaluates all proposed capital expenditures and expects each project to increase efficiency, reduce costs, promote business growth or improve the overall safety and environmental conditions of the Company’s facilities.

(3) Cash provided by (used by) financing activities increased in the twelve months ended December 31, 2022 compared with the twelve months ended December 31, 2021 due to higher long-term borrowings in 2022 partially offset by an increase in the purchase of shares for treasury.

(3) Cash used by financing activities increased in the twelve months ended December 31, 2023 compared with the twelve months ended December 31, 2022 primarily due to increased payments on short- and long-term borrowings as compared with the prior year.

(4) Cash and cash equivalents increased 99.7%, or $196,637, to $393,787 during the twelve months ended December 31, 2023, from $197,150 as of December 31, 2022.

The increase was predominantly due to higher cash provided by operating activities and an increase in long term borrowings offset by increase in cash used in the purchase of common shares for treasury, dividends paid to shareholders and for the acquisition of businesses in 2022.

The increase was predominantly due to higher cash provided by operating activities in 2023.

The Company paid $148,010 and $130,724 in cash dividends to its shareholders in the twelve months ended December 31, 2023 and 2022, respectively.

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(1) Average operating working capital to Net sales is defined as the sum of Accounts receivable, Inventories and contract assets less Trade accounts payable and contract liabilities as of period end divided by annualized rolling three months of Net sales.

(2) In order to minimize potential supply chain disruptions in serving customers due to the continued impacts of the COVID-19 pandemic, the Company increased inventories relative to expected Net sales resulting in higher Days sales in Inventories.

(3) Average operating working capital excluding Fori would have been 18.6% as a percent of Net sales.

(2) In 2022, Average operating working capital excluding Fori would have been 18.6% as a percent of Net Sales.

(3) In order to minimize supply chain disruptions in serving customers due to the impacts of the COVID-19 pandemic, the Company increased inventories relative to expected Net sales resulting in higher Days sales in Inventories in 2022.

Rationalization and Asset Impairments

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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 Notes each have an aggregate principal amount of $350,000.

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The Company’s total weighted average effective interest rate and remaining weighted average term, inclusive of the 2015 Notes and 2016 Notes, is 3.3% and 10.4 years, respectively.

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.

The interest rate on borrowings is based on LIBOR plus a spread based on the Company’s net leverage ratio.

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 December 31, 2022, the Company was in compliance with all of its covenants and had $45,000 of outstanding borrowings under the Credit Agreement.

The Company has other lines of credit and debt agreements totaling $92,078.

As of December 31, 2022, the Company was in compliance with all of its covenants and had $37,444 outstanding at December 31, 2022.

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 Term SOFR, plus a margin ranging from 0.75% to 1.75% based on the Company’s consolidated net leverage ratio.

The Term Loan bears an interest at a rate based on Term 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.

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As of December 31, 2023, the Company was in compliance with all of its covenants.

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 five-year term and the average life of borrowings cannot exceed 15 years.

The Company is required to comply with covenants similar to those contained in the 2015 Notes and 2016 Notes.

As of December 31, 2022, the Company was in compliance with all of its covenants and had no outstanding borrowings under the Shelf Agreements.

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”).

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.

As of December 31, 2023, the Company was in compliance with all of its covenants and had no of outstanding borrowings under the Credit Agreement.

The Company has other lines of credit and debt agreements totaling $89,145.

As of December 31, 2023, the Company was in compliance with all of its covenants and had $2,435 outstanding at December 31, 2023.

Return on Invested Capital

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

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

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Amortization of step up in value of acquired inventories

Gain on asset disposal

Tax effect of Special items (1)

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The applicable tax rate reflects the taxable jurisdiction and nature of each Special item.

(2) Return on invested capital and Adjusted return on invested capital excluding Fori would have been 27.9% and 28.6%, respectively.

Contractual and Other Obligations

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Stock-Based Compensation

On April 23, 2015, the shareholders of the Company approved the 2015 Equity and Incentive Compensation Plan ("Employee Plan").

On April 19, 2023, the shareholders of the Company approved the 2023 Equity and Incentive Compensation Plan ("2023 Employee Plan"), which replaced the 2015 Equity and Incentive Compensation Plan (“2015 Employee Plan”).

The 2023 Employee Plan provides for the granting of options, appreciation rights, restricted shares, restricted stock units and performance-based awards up to an additional 2,025,000 of the Company’s common shares.

In addition, on April 23, 2015, the shareholders of the Company approved the 2015 Stock Plan for Non-Employee Directors ("2015 Director Plan").

In addition, on April 19, 2023, the shareholders of the Company approved the 2023 Stock Plan for Non-Employee Directors ("2023 Director Plan"), which replaced the 2015 Stock Plan for Non-Employee Directors (“2015 Director Plan”).

The 2023 Director Plan provides for the granting of options, restricted shares and restricted stock units up to an additional 200,000 of the Company’s common shares.

At December 31, 2023, there were 2,192,720 common shares available for future grant under all plans.

Under these plans, options, restricted shares and restricted stock units granted were 284,946 in 2022 and 313,547 in 2021.

Under these plans, the number of options, restricted shares and restricted stock units granted were 241,824 in 2023 and 284,946 in 2022.

The Company issued common shares from treasury upon all exercises of stock options, vesting of restricted stock units and the granting of restricted stock awards in 2023 and 2022.

Total stock-based compensation expense recognized in the Consolidated Statements of Income for 2023 and 2022 was $26,223 and $25,276, respectively, with a related tax benefit of $6,711 and $6,363, respectively.

As of December 31, 2022, total unrecognized stock-based compensation expense related to non-vested stock options and restricted stock units was $17,610, which is expected to be recognized over a weighted average period of approximately 1.3 years.

As of December 31, 2023, total unrecognized stock-based compensation expense related to non-vested stock options and restricted stock units was $17,254, which is expected to be recognized over a weighted average period of approximately one year.

The aggregate intrinsic value of options outstanding and exercisable, which would have been received by the optionees, had all awards been exercised at December 31, 2023 was $99,884 and $82,057, respectively.

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The Company’s consolidated financial statements are based on the selection and application of significant accounting policies, which require management to make estimates and assumptions.

These estimates and assumptions are reviewed periodically by management and compared to historical trends to determine the accuracy of estimates and assumptions used.

These estimates and assumptions are reviewed periodically by management and compared to historical trends to determine the accuracy of estimates and assumptions

If warranted, these estimates and assumptions may be changed as current trends are assessed and updated.

Historically, the Company’s estimates have been determined to be reasonable.

No material changes to the Company’s

accounting policies were made during 2022.

No material changes to the Company’s accounting policies were made during 2023.

The Company believes the following accounting policies are some of the more critical judgment areas affecting its financial condition and results of operations.

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Judgment is also used in measuring the related amount of tax benefit that qualifies for recognition, including the interpretation of applicable tax law, regulation and tax ruling.

Liabilities are settled primarily through the completion of audits within each individual tax jurisdiction or the closing of a statute of limitation.

Liabilities are settled primarily through the completion of audits within each individual tax jurisdiction or the closing of the statute of limitations.

Liabilities can be affected by changes in applicable tax law, regulations, tax rulings or such other factors, which may cause management to believe a revision of past estimates is appropriate.

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Deferred income taxes are recognized at currently enacted tax rates for temporary differences between the GAAP and income tax basis of assets and liabilities and operating loss and tax credit carry-forwards.

The Company repatriates earnings for certain non-U.S.

The Company will repatriate earnings for certain non-U.S.

subsidiaries, which are subject to foreign withholding taxes.

The Company considers remaining earnings in all other non-U.S.

The Company considers any remaining earnings and outside basis in all other non-U.S.

subsidiaries to be indefinitely reinvested and has not recorded any deferred taxes as such estimate is not practicable.

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In assessing the realizability of deferred tax assets, the Company assesses whether it is more-likely-than-not that a portion or all of the deferred tax assets will not be realized.

The Company considers the scheduled reversal of deferred tax liabilities, tax planning strategies and projected future taxable income in making this assessment.

The Company considers the scheduled reversal of deferred tax

liabilities, tax planning strategies and projected future taxable income in making this assessment.

At December 31, 2023, a valuation allowance of $36,876 was recorded against certain deferred tax assets based on this assessment.

Company believes it is more-likely-than-not that the tax benefit of the remaining net deferred tax assets will be realized.

The Company believes it is more-likely-than-not that the tax benefit of the remaining net deferred tax assets will be realized.

The amount of net deferred tax assets considered realizable could be increased or reduced in the future if the Company’s assessment of future taxable income or tax planning strategies changes.

The Company maintains a number of defined benefit ("Pension") and defined contribution plans to provide retirement benefits for employees.

These plans are maintained and contributions are made in accordance with the Employee Retirement Income Security Act of 1974 ("ERISA"), local statutory law or as determined by the Board of Directors.

The plans generally provide benefits based upon years of service and compensation.

Pension plans are funded except for a domestic non-qualified pension plan for certain key employees and certain foreign plans.

A significant element in determining the Company’s pension expense is the discount rate for plan liabilities.

To develop the discount rate assumption, the Company refers to the yield derived from matching projected pension payments with maturities of a portfolio of available non-callable bonds rated AA or an equivalent quality.

The Company determined this rate to be 4.3% at December 31, 2022 and 1.8% at December 31, 2021.

A 10 basis point change in the discount rate would not have a significant impact to pension expense.

The Company’s defined benefit plan (income) expense was $(2,280) and $124,929 in 2022 and 2021, respectively.

Pension expense includes $367 and $126,013 in settlement charges in 2022 and 2021, respectively.

The Company’s defined contribution plan expense was $29,569 and $26,281 in 2022 and 2021, respectively.

The Company expects total 2023 expense related to retirement plans to increase by a range of approximately $500 to $1,500, excluding settlement charges.

Refer to Note 11 to the consolidated financial statements for additional information.

The Accumulated other comprehensive loss, excluding tax effects, recognized on the Consolidated Balance Sheet was $3,759 as of December 31, 2022 and $16,173 as of December 31, 2021.

The decrease is primarily the result of a pension plan termination described below.

In March 2020, the Company approved an amendment to terminate the Lincoln Electric Company Retirement Annuity Program (“RAP”) plan effective as of December 31, 2020.

The Company provided notice to participants of the intent to terminate the plan and applied and received a determination letter.

During 2021, pension obligations were distributed through a combination of lump sum payments to eligible plan participants and through the purchase of a group annuity contract in October 2021.

The lump sum payments and annuity purchase resulted in pre-tax settlement charges of $126,056 in the twelve months ended December 31, 2021.

The remaining surplus assets of $68,458 at December 31, 2021 were transferred to a suspense account in January 2022 and are being used to fund employer matching contributions in a qualified employee savings plan.

The surplus assets as of December 31, 2022 were $56,418 and are recorded in Other current assets and Other assets in the Company’s Consolidated Balance Sheets.

Inventories are valued at the lower of cost or net realizable value.

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The Company reviews the net realizable value of inventory on an on-going basis with consideration given to deterioration, obsolescence and other factors.

If actual market conditions differ from those projected by management,

and the Company’s estimates prove to be inaccurate, write-downs of inventory values and adjustments to Cost of goods sold may be required.

If actual market conditions differ from those projected by management, and the Company’s estimates prove to be inaccurate, write-downs of inventory values and adjustments to Cost of goods sold may be required.

Historically, the Company’s reserves have approximated actual experience.

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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-K

Item 7. Management’s Discussion and Analysis