Item 9A. Controls and Procedures
ITEM 9A. CONTROLS AND PROCEDURES
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
Under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, the Company conducted an evaluation of disclosure controls and procedures, as such term is defined in Rule 13a-15(e) of the Exchange Act. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this Annual Report on Form 10-K.
Management’s Report on Internal Control Over Financial Reporting
The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, the Company conducted an evaluation of the effectiveness of internal control over financial reporting as of December 31, 2023 based on the 2013 framework in "Internal Control – Integrated Framework" issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on the Company’s evaluation under such framework, management concluded that the Company’s internal control over financial reporting was effective as of December 31, 2023.
The effectiveness of the Company’s internal control over financial reporting as of December 31, 2023 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their report, which is included elsewhere in this Annual Report on Form 10-K.
Changes in Internal Control Over Financial Reporting
There have been no changes in the Company’s internal control over financial reporting that occurred during the fourth quarter of 2023 that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
During the quarter ended December 31, 2023, none of the Company’s directors or officers adopted , modified, or terminated a “Rule 10b5-1 trading arrangement” or a “non-Rule 10b5-1 trading arrangement,” as those terms are defined in Item 408(a) of Regulation S-K.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
None.
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PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The Company is expected to file its 2024 proxy statement pursuant to Regulation 14A of the Exchange Act within 120 days after December 31, 2023.
Except for the information set forth within Part I, Item 1D section of this Annual Report on Form 10-K concerning our Executive Officers, the information required by this item is incorporated by reference from the 2024 proxy statement.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference from the 2024 proxy statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information required by this item is incorporated by reference from the 2024 proxy statement.
For further information on the Company’s equity compensation plans, see Note 1 and Note 10 to the Company’s consolidated financial statements.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this item is incorporated by reference from the 2024 proxy statement.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this item is incorporated by reference from the 2024 proxy statement.
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)(1) Financial Statements
The following reports and consolidated financial statements of the Company are included in a separate section of this report following the signature page and certifications:
Report of Independent Registered Public Accounting Firm (PCAOB ID 42 )
Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting
Consolidated Statements of Income – Years ended December 31, 2023, 2022 and 2021
Consolidated Statements of Comprehensive Income – Years ended December 31, 2023, 2022 and 2021
Consolidated Balance Sheets – December 31, 2023 and 2022
Consolidated Statements of Equity – Years ended December 31, 2023, 2022 and 2021
Consolidated Statements of Cash Flows – Years ended December 31, 2023, 2022 and 2021
35
Table of Contents
Notes to Consolidated Financial Statements
(a)(2) Financial Statement Schedules
The following consolidated financial statement schedule of the Company is included in a separate section of this report following the signature page:
Schedule II – Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange.
Commission are not required under the related instructions or are inapplicable, and therefore, have been omitted.
(a)(3) Exhibits
Exhibit No.
Description
3.1
Amended and Restated Articles of Incorporation of Lincoln Electric Holdings, Inc. (filed as Exhibit 3.1 to Form 8-K of Lincoln Electric Holdings, Inc. filed on September 27, 2011, SEC File No. 0-1402, and incorporated herein by reference and made a part hereof).
3.2
Amended and Restated Code of Regulations of Lincoln Electric Holdings, Inc., as amended on February 15, 2023 (filed as Exhibit 3.1 to Form 8-K of Lincoln Electric Holdings, Inc. filed on February 17, 2023, SEC File No.-0-1402, and incorporated herein by reference and made a part hereof).
4.1
Description of Securities Registered Under Section 12 of the Securities Exchange Act of 1934 (filed as Exhibit 4.1 to Form 10-K of Lincoln Electric Holdings, Inc. for the year ended December 31, 2019, SEC File No. 0-1402, and incorporated herein by reference and made a part hereof).
10.1
Second Amended and Restated Credit Agreement, dated as of April 23, 2021, by and among Lincoln Electric Holdings, Inc., The Lincoln Electric Company, Lincoln Electric International Holding Company, J.W. Harris Co., Inc., Lincoln Electric Automation, Inc., Lincoln Global, Inc., the Lenders and KeyBank National Association (filed as Exhibit 10.4 to Form 10-Q of Lincoln Electric Holdings, Inc. for the quarter ended March 31, 2021, SEC File No. 0-1402, and incorporated herein by reference and made a part hereof).
10.2
First Amendment to Second Amendment and Restated Credit Agreement, dated as of March 8, 2023, by and among Lincoln Electric Holdings, Inc., The Lincoln Electric Company, Lincoln Electric International Holding Company, J.W. Harris Co., Inc., Lincoln Electric Automation, Inc., Lincoln Global, Inc., the Lenders and KeyBank National Association (filed as Exhibit 10.1 to Form 10-Q of Lincoln Electric Holdings, Inc. for the quarter ended March 31, 2023, SEC File No. 0-1402, and incorporated herein by reference and made a part hereof).
10.3
Credit Agreement, dated as of November 29, 2022, by and among Lincoln Electric Holdings, Inc., The Lincoln Electric Company, Lincoln Electric International Holding Company, J.W. Harris Co., Inc., Lincoln Electric Automation, Inc., Lincoln Global, Inc., the Lenders and PNC Bank, National Association (filed as Exhibit 10.1 to form 8-K of Lincoln Electric Holdings, Inc. filed on December 1, 2022, SEC File No. 0-1402 and incorporated herein by reference and made a part hereof).
10.4
Note Purchase Agreement, dated as of April 1, 2015, by and among Lincoln Electric Holdings, Inc., The Lincoln Electric Company, Lincoln Electric International Holding Company, J.W. Harris Co., Inc., Lincoln Global, Inc., Techalloy, Inc., Wayne Trail Technologies, Inc. and the purchasers party thereto (filed as Exhibit 10.1 to Form 8-K of Lincoln Electric Holdings, Inc. filed on April 2, 2015, SEC File No. 0-1402, and incorporated herein by reference and made a part hereof).
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Table of Contents
10.5
Amendment No. 1 to Note Purchase Agreement, dated as of April 1, 2015, by and among Lincoln Electric Holdings, Inc., The Lincoln Electric Company, Lincoln Electric International Holding Company, J.W. Harris Co., Inc., Lincoln Global, Inc., Techalloy, Inc., Wayne Trail Technologies, Inc. and the purchasers party thereto, dated July 30, 2019 (filed as Exhibit 10.1 to Form 10-Q of Lincoln Electric Holdings, Inc. for the quarter ended September 30, 2019, SEC File No. 0- 1402, and incorporated herein by reference and made a part hereof).
10.6
Note Purchase Agreement, dated as of October 20, 2016, by and among Lincoln Electric Holdings, Inc., The Lincoln Electric Company, Lincoln Electric International Holding Company, J.W. Harris Co., Inc., Techalloy, Inc. and Wayne Trail Technologies, Inc. and the purchaser party thereto (filed as Exhibit 10.4 to Form 10-K of Lincoln Electric Holdings, Inc. for the year ended December 31, 2016, SEC File No. 0-1402, and incorporated herein by reference and made a part hereof).
10.7*
Non-Employee Directors’ Deferred Compensation Plan (Amended and Restated as of January 1, 2021) (filed as Exhibit 10.18 to Form 10-K of Lincoln Electric Holdings, Inc. for the year ended December 31, 2020, SEC File No. 0-1402, and incorporated herein by reference and made a part hereof).
10.8*
2005 Deferred Compensation Plan for Executives (Amended and Restated as of January 1, 2021) (filed as Exhibit 10.21 to Form 10-K of Lincoln Electric Holdings, Inc. for the year ended December 31, 2020, SEC File No. 0-1402, and incorporated herein by reference and made a part hereof).
10.9*
The Lincoln Electric Company Restoration Plan (filed as Exhibit 4.3 to Form S-8 of Lincoln Electric Holdings, Inc. filed on December 19, 2016, SEC File No. 333-215168, and incorporated herein by reference and made a part hereof).
10.10*
Amendment No. 1 to The Lincoln Electric Company Restoration Plan (filed as Exhibit 10.3 to Form 10-Q of Lincoln Electric Holdings, Inc. for the quarter ended September 30, 2020, SEC File No. 0-1402, and incorporated herein by reference and made a part hereof).
10.11*
The Lincoln Electric Company Employee Savings Plan As Amended and Restated Effective April 25, 2022 (filed herewith).
10.12*
Amendment No. 1 to The Lincoln Electric Company Employee Savings Plan As Amended and Restated Effective April 25, 2022 (filed herewith).
10.13*
Amendment No. 2 to The Lincoln Electric Company Employee Savings Plan As Amended and Restated Effective April 25, 2022 (filed herewith).
10.14*
Form of Change in Control Severance Agreement (as entered into by the Company and its executive officers) (filed as Exhibit 10.1 to Form 8-K of Lincoln Electric Holdings, Inc. filed on November 21, 2017, SEC File No. 0-1402, and incorporated herein by reference and made a part hereof).
10.15*
Amendment No. 1 to Form of Change in Control Severance Agreement (as entered into by the Company and its executive officers) (filed as Exhibit 10.5 to Form 10-Q of Lincoln Electric Holdings, Inc. for the quarter ended September 30, 2020, SEC File No. 0-1402, and incorporated herein by reference and made a part hereof).
10.16*
2006 Equity and Performance Incentive Plan (Restated as of March 3, 2011) (filed as Annex A to Lincoln Electric Holdings, Inc. proxy statement filed on March 18, 2011, SEC File No. 0-1402 and incorporated herein by reference and made a part hereof).
10.17*
2015 Equity and Incentive Compensation Plan (filed as Appendix B to Lincoln Electric Holdings, Inc. definitive proxy statement filed on March 18, 2015, SEC File No. 0-1402, and incorporated herein by reference and made a part hereof) .
10.18*
2015 Stock Plan for Non-Employee Directors (filed as Appendix C to Lincoln Electric Holdings, Inc. definitive proxy statement filed on March 18, 2015, SEC File No. 0-1402, and incorporated herein by reference and made a part hereof).
10.19*
Amendment No. 1 to the 2015 Stock Plan for Non-Employee Directors (filed as Appendix C to Lincoln Electric Holdings, Inc. proxy statement dated March 20, 2017, SEC File No. 0-1402, and incorporated by reference and made a part hereof).
37
Table of Contents
10.20*
2023 Equity and Incentive Compensation Plan (filed as Exhibit 10.1 to Form 8-K of Lincoln Electric Holdings, Inc. filed on April 21, 2023, SEC File No. 0-1402, and incorporated herein by reference and made a part hereof).
10.21*
2023 Stock Plan for Non-Employee Directors (filed as Exhibit 10.2 to Form 8-K of Lincoln Electric Holdings, Inc. filed on April 21, 2023, SEC File No. 0-1402, and incorporated herein by reference and made a part hereof).
10.22*
Form of Restricted Stock Unit Agreement for Non-Employee Directors (filed as Exhibit 10.31 to Form 10-K of Lincoln Electric Holdings, Inc. for the year ended December 31, 2022, SEC File No. 0-1402, and incorporated herein by reference and made a part hereof).
10.23*
Form of Restricted Stock Unit Agreement for Non-Employee Directors under 2023 Stock Plan for Non-Employee Directors (filed as Exhibit 10.1 to Form 10-Q of Lincoln Electric Holdings, Inc. for the quarter ended June 30, 2023, SEC File No. 0-1402, and incorporated herein by reference and made a part hereof).
10.24*
Form of Restricted Stock Unit Agreement for Non-Employee Directors under 2023 Stock Plan for Non-Employee Directors (filed herewith).
10.25*
Form of Stock Option Agreement for Executive Officers (filed as Exhibit 10.27 to Form 10-K of Lincoln Electric Holdings, Inc. for the year ended December 31, 2017, SEC File No. 0-1402, and incorporated herein by reference and made a part hereof).
10.26*
Form of Stock Option Agreement for Executive Officers (filed as Exhibit 10.28 to Form 10-K of Lincoln Electric Holdings, Inc. for the year ended December 31, 2017, SEC File No. 0-1402, and incorporated herein by reference and made a part hereof).
10.27*
Form of Stock Option Agreement for Executive Officers (filed as Exhibit 10.37 to Form 10-K of Lincoln Electric Holdings, Inc. for the year ended December 31, 2018, SEC File No. 0-1402, and incorporated herein by reference and made a part hereof).
10.28*
Form of Stock Option Agreement for Executive Officers (filed as Exhibit 10.38 to Form 10-K of Lincoln Electric Holdings, Inc. for the year ended December 31, 2019, SEC File No. 0-1402, and incorporated herein by reference and made a part hereof).
10.29*
Form of Stock Option Agreement for Executive Officers (filed as Exhibit 10.1 to Form 10-Q of Lincoln Electric Holdings, Inc. for the quarter ended March 31, 2021, SEC File No. 0-1402, and incorporated herein by reference and made a part hereof).
10.30*
Form of Stock Option Agreement for Executive Officers (filed as Exhibit 10.1 to Form 10-Q of Lincoln Electric Holdings, Inc. for the quarter ended March 31, 2022, SEC File No. 0-1402, and incorporated herein by reference and made a part hereof).
10.31*
Form of Stock Option Agreement for Executive Officers (filed as Exhibit 10.2 to Form 10-Q of Lincoln Electric Holdings, Inc. for the quarter ended March 31, 2023, SEC File No. 0-1402, and incorporated herein by reference and made a part hereof).
10.32*
Form of Stock Option Agreement for Executive Officers under 2023 Equity and Incentive Compensation Plan (filed as Exhibit 10.2 to Form 10-Q of Lincoln Electric Holdings, Inc. for the quarter ended June 30, 2023, SEC File No. 0-1402, and incorporated herein by reference and made a part hereof).
10.33*
Form of Restricted Stock Unit Agreement for Executive Officers (filed as Exhibit 10.33 to Form 10-K of Lincoln Electric Holdings, Inc. for the year ended December 31, 2013, SEC File No. 0-1402, and incorporated herein by reference and made a part hereof).
10.34*
Form of Restricted Stock Unit Agreement for Executive Officers (filed as Exhibit 10.2 to Form 10-Q of Lincoln Electric Holdings, Inc. for the quarter ended March 31, 2021, SEC File No. 0-1402, and incorporated herein by reference and made a part hereof).
10.35*
Form of Restricted Stock Unit Agreement for Executive Officers (filed as Exhibit 10.2 to Form 10-Q of Lincoln Electric Holdings, Inc. for the quarter ended March 31, 2022, SEC File No. 0-1402, and incorporated herein by reference and made a part hereof).
10.36*
Form of Restricted Stock Unit Agreement for Executive Officers (filed as Exhibit 10.3 to Form 10-Q of Lincoln Electric Holdings, Inc. for the quarter ended March 31, 2023, SEC File No. 0-1402, and incorporated herein by reference and made a part hereof).
38
Table of Contents
10.37*
Form of Restricted Stock Unit Agreement for Executive Officers under 2023 Equity and Incentive Compensation Plan (filed as Exhibit 10.3 to Form 10-Q of Lincoln Electric Holdings, Inc. for the quarter ended June 30, 2023, SEC File No. 0-1402, and incorporated herein by reference and made a part hereof).
10.38*
Form of Performance Share Award Agreement for Executive Officers (filed as Exhibit 10.3 to Form 10-Q of Lincoln Electric Holdings, Inc., for the quarter ended March 31, 2021, SEC File No. 0-1402, and incorporated herein by reference and made a part hereof).
10.39*
Form of Performance Share Award Agreement for Executive Officers (filed as Exhibit 10.3 to Form 10-Q of Lincoln Electric Holdings, Inc., for the quarter ended March 31, 2022, SEC File No. 0-1402, and incorporated herein by reference and made a part hereof).
10.40*
Form of Performance Share Award Agreement for Executive Officers (filed as Exhibit 10.4 to Form 10-Q of Lincoln Electric Holdings, Inc., for the quarter ended March 31, 2023, SEC File No. 0-1402, and incorporated herein by reference and made a part hereof).
10.41*
Form of Performance Share Award Agreement for Executive Officers under 2023 Equity and Incentive Compensation Plan (filed as Exhibit 10.4 to Form 10-Q of Lincoln Electric Holdings, Inc., for the quarter ended June 30, 2023, SEC File No. 0-1402, and incorporated herein by reference and made a part hereof).
10.42*
Form of Officer Indemnification Agreement (effective February 23, 2012) (filed as Exhibit 10.1 to Form 8-K of Lincoln Electric Holdings, Inc. filed on February 29, 2012, SEC File No. 0-1402, and incorporated herein by reference and made a part hereof).
10.43*
Form of Director Indemnification Agreement (effective February 23, 2012) (filed as Exhibit 10.2 to Form 8-K of Lincoln Electric Holdings, Inc. filed on February 29, 2012, SEC File No. 0-1402, and incorporated herein by reference and made a part hereof) .
21
Subsidiaries of the Registrant (filed herewith).
23
Consent of Independent Registered Public Accounting Firm (filed herewith).
24
Powers of Attorney (filed herewith).
31.1
Certification by the Chairman, President and Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934 (filed herewith).
31.2
Certification by the Executive Vice President, Chief Financial Officer and Treasurer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934 (filed herewith).
32.1
Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).
97
Lincoln Electric Holdings, Inc. Clawback Policy (Effective October 2, 2023) (filed herewith).
101.INS
Inline XBRL Instance Document
101.SCH
Inline XBRL Taxonomy Extension Schema Document
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document
104
Cover page Interactive Data File (embedded within the Inline XBRL document)
*
Reflects management contract or other compensatory arrangement required to be filed as an exhibit pursuant to Item 15(b) of this report.
ITEM 16. FORM 10-K SUMMARY
None.
39
Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
LINCOLN ELECTRIC HOLDINGS, INC.
By:
/s/ Gabriel Bruno
Gabriel Bruno
Executive Vice President, Chief Financial Officer and Treasurer
(principal financial and accounting officer)
February 27, 2024
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
/s/ Steven B. Hedlund
/s/ Gabriel Bruno
Steven B. Hedlund,
Gabriel Bruno,
President and Chief Executive Officer
Executive Vice President, Chief Financial Officer and
(principal executive officer)
Treasurer
February 27, 2024
(principal financial and accounting officer)
February 27, 2024
/s/ Gabriel Bruno
/s/ Gabriel Bruno
Gabriel Bruno as
Gabriel Bruno as
Attorney-in-Fact for
Attorney-in-Fact for
Brian D. Chambers, Director
Curtis E. Espeland, Director
February 27, 2024
February 27, 2024
/s/ Gabriel Bruno
/s/ Gabriel Bruno
Gabriel Bruno as
Gabriel Bruno as
Attorney-in-Fact for
Attorney-in-Fact for
Bonnie J. Fetch, Director
Patrick P. Goris, Director
February 27, 2024
February 27, 2024
/s/ Gabriel Bruno
/s/ Gabriel Bruno
Gabriel Bruno as
Gabriel Bruno as
Attorney-in-Fact for
Attorney-in-Fact for
Michael F. Hilton, Director
Marc A. Howze, Director
February 27, 2024
February 27, 2024
/s/ Gabriel Bruno
/s/ Gabriel Bruno
Gabriel Bruno as
Gabriel Bruno as
Attorney-in-Fact for
Attorney-in-Fact for
Kathryn Jo Lincoln, Director
Christopher L. Mapes, Executive Chairman of the Board
February 27, 2024
February 27, 2024
/s/ Gabriel Bruno
/s/ Gabriel Bruno
Gabriel Bruno as
Gabriel Bruno as
Attorney-in-Fact for
Attorney-in-Fact for
Phillip J. Mason, Director
Ben P. Patel, Director
February 27, 2024
February 27, 2024
/s/ Gabriel Bruno
/s/ Gabriel Bruno
Gabriel Bruno as
Gabriel Bruno as
Attorney-in-Fact for
Attorney-in-Fact for
Hellene S. Runtagh, Director
Kellye L. Walker, Director
February 27, 2024
February 27, 2024
40
Table of Contents
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Lincoln Electric Holdings, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Lincoln Electric Holdings, Inc. (the Company) as of December 31, 2023 and 2022, the related consolidated statements of income, comprehensive income, equity and cash flows for each of the three years in the period ended December 31, 2023, and the related notes and financial statement schedule listed in the Index at Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 27, 2024 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosures to which it relates.
F-1
Table of Contents
Goodwill impairment evaluation – Reporting Unit within Americas Welding Segment
Description of the Matter
As disclosed in Note 5 to the consolidated financial statements, at December 31, 2023, the Company’s total goodwill was $694.5 million, of that, $497.6 million relates to the Americas Welding segment. As disclosed in Note 1 to the consolidated financial statements, goodwill is tested for impairment in the fourth quarter using the same date each year or more frequently if changes in circumstances or the occurrence of events indicate potential impairment. The Company first assesses qualitative factors to determine whether it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount and whether it is necessary to perform a quantitative goodwill impairment test. The Company may perform a quantitative test in instances where the more-likely-than-not threshold has not been met, including when general macroeconomic conditions or changes to the reporting unit warrant a refresh of the baseline used in a qualitative test. The Company performed a quantitative assessment for a reporting unit within the Americas Welding segment and determined that the fair value of the reporting unit was in excess of the carrying value.
Auditing the annual goodwill impairment test for the aforementioned reporting unit under the quantitative assessment was complex and judgmental due to the significant estimation required in determining the fair value of the reporting unit. In particular, the fair value estimate using the income approach was sensitive to significant assumptions such as the weighted average cost of capital and the terminal period revenue growth rate. Elements of these significant assumptions are forward-looking and could be affected by future economic conditions.
How We Addressed the Matter in Our Audit
We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s goodwill impairment evaluation, including controls over the significant assumptions mentioned above.
To test the estimated fair value used in the Company’s annual goodwill impairment test for the reporting unit within the Americas Welding segment, our audit procedures included, among others, assessing the valuation methodology, testing the significant assumptions discussed above, and testing the completeness and accuracy of the underlying data used by the Company in its analysis. As it pertains to the terminal period revenue growth rate, we compared the significant assumptions used by management to third party industry data and economic trends, changes to the Company’s business model, customer base or product mix, as applicable. We involved valuation specialists to assist with our evaluation of the methodology applied and the reasonableness of certain assumptions selected by management, including, the weighted average cost of capital. Specifically, we evaluated the components of the weighted average cost of capital assumptions used by performing an independent corroborative analysis with involvement of valuation specialists. We performed sensitivity analyses of assumptions to evaluate the changes in the fair value of the reporting unit that would result from changes in the significant assumptions.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since at least 1923, but we are unable to determine the specific year.
Cleveland, OH
February 27, 2024
F-2
Table of Contents
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Lincoln Electric Holdings, Inc.
Opinion on Internal Control Over Financial Reporting
We have audited Lincoln Electric Holdings, Inc.’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Lincoln Electric Holdings, Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the 2023 consolidated financial statements of the Company and our report dated February 27, 2024 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
F-3
Table of Contents
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Cleveland, Ohio
February 27, 2024
F-4
Table of Contents
LINCOLN ELECTRIC HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
Year Ended December 31,
2023
2022
2021
Net sales (Note 2)
$
4,191,636
$
3,761,211
$
3,234,180
Cost of goods sold
2,726,191
2,480,451
2,165,575
Gross profit
1,465,445
1,280,760
1,068,605
Selling, general & administrative expenses
758,910
656,636
597,109
Rationalization and asset impairment charges (Note 7)
( 11,314 )
11,788
9,827
Operating income
717,849
612,336
461,669
Interest expense, net
44,371
29,500
22,214
Other income (expense) (Note 12)
13,388
9,991
( 114,457 )
Income before income taxes
686,866
592,827
324,998
Income taxes (Note 13)
141,618
120,603
48,418
Net income
$
545,248
$
472,224
$
276,580
Basic earnings per share (Note 3)
$
9.50
$
8.14
$
4.66
Diluted earnings per share (Note 3)
$
9.37
$
8.04
$
4.60
Cash dividends declared per share
$
2.63
$
2.32
$
2.09
See notes to these consolidated financial statements.
F-5
Table of Contents
LINCOLN ELECTRIC HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
Year Ended December 31,
2023
2022
2021
Net income
$
545,248
$
472,224
$
276,580
Other comprehensive income (loss), net of tax:
Unrealized gain on derivatives designated and qualifying as cash flow hedges
2,627
5,815
5,607
Defined pension plan activity
( 215 )
11,450
88,539
Currency translation adjustment
43,139
( 35,084 )
( 50,514 )
Other comprehensive income (loss):
45,551
( 17,819 )
43,632
Comprehensive income
$
590,799
$
454,405
$
320,212
See notes to these consolidated financial statements.
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LINCOLN ELECTRIC HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
December 31,
2023
2022
ASSETS
Current Assets
Cash and cash equivalents
$
393,787
$
197,150
Accounts receivable (less allowance for doubtful accounts of $ 11,464 in 2023; $ 12,556 in 2022)
538,830
541,529
Inventories (Note 16)
562,864
665,451
Other current assets
197,630
153,660
Total Current Assets
1,693,111
1,557,790
Property, plant and equipment, net (Note 1)
575,316
544,871
Intangibles, net (Note 5)
186,667
202,706
Goodwill (Note 5)
694,452
665,257
Deferred income taxes (Note 13)
45,176
22,811
Other assets
182,575
187,111
TOTAL ASSETS
$
3,377,297
$
3,180,546
LIABILITIES AND EQUITY
Current Liabilities
Amounts due banks (Note 9)
$
2,435
$
82,444
Trade accounts payable
325,435
352,079
Accrued employee compensation and benefits
112,373
109,369
Dividends payable
40,453
36,879
Other current liabilities
273,910
261,087
Current portion of long-term debt (Note 9)
4
11,039
Total Current Liabilities
754,610
852,897
Long-term debt, less current portion (Note 9)
1,102,771
1,110,396
Deferred income taxes (Note 13)
13,146
17,022
Other liabilities
197,918
166,190
Total Liabilities
2,068,445
2,146,505
Shareholders' Equity
Preferred shares, without par value - at stated capital amount; authorized - 5,000,000 shares; issued and outstanding - none
—
—
Common shares, without par value - at stated capital amount; authorized - 240,000,000 shares; issued - 98,581,434 shares in 2023 and 2022; outstanding - 56,975,815 shares in 2023 and 57,623,539 shares in 2022
9,858
9,858
Additional paid-in capital
523,357
481,857
Retained earnings
3,688,038
3,306,500
Accumulated other comprehensive loss (Note 8)
( 229,847 )
( 275,398 )
Treasury shares, at cost - 41,605,619 shares in 2023 and 40,957,895 shares in 2022
( 2,682,554 )
( 2,488,776 )
Total Equity
1,308,852
1,034,041
TOTAL LIABILITIES AND TOTAL EQUITY
$
3,377,297
$
3,180,546
See notes to these consolidated financial statements.
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LINCOLN ELECTRIC HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF EQUITY
(In thousands, except per share amounts)
Accumulated
Common
Additional
Other
Shares
Common
Paid-In
Retained
Comprehensive
Treasury
Outstanding
Shares
Capital
Earnings
Income (Loss)
Shares
Total
Balance at December 31, 2020
59,641
$
9,858
$
409,958
$
2,821,359
$
( 301,211 )
$
( 2,149,714 )
$
790,250
Net income
276,580
276,580
Unrecognized amounts from defined benefit pension plans, net of tax
88,539
88,539
Unrealized gain on derivatives designated and qualifying as cash flow hedges, net of tax
5,607
5,607
Currency translation adjustment
( 50,514 )
( 50,514 )
Cash dividends declared – $ 2.09 per share
( 124,669 )
( 124,669 )
Stock-based compensation activity
393
38,720
4,299
43,019
Purchase of shares for treasury
( 1,247 )
( 164,526 )
( 164,526 )
Other
2,590
( 2,967 )
( 377 )
Balance at December 31, 2021
58,787
9,858
451,268
2,970,303
( 257,579 )
( 2,309,941 )
863,909
Net income
472,224
472,224
Unrecognized amounts from defined benefit pension plans, net of tax
11,450
11,450
Unrealized gain on derivatives designated and qualifying as cash flow hedges, net of tax
5,815
5,815
Currency translation adjustment
( 35,084 )
( 35,084 )
Cash dividends declared – $ 2.32 per share
( 134,931 )
( 134,931 )
Stock-based compensation activity
211
29,194
2,458
31,652
Purchase of shares for treasury
( 1,374 )
( 181,293 )
( 181,293 )
Other
1,395
( 1,096 )
299
Balance at December 31, 2022
57,624
9,858
481,857
3,306,500
( 275,398 )
( 2,488,776 )
1,034,041
Net income
545,248
545,248
Unrecognized amounts from defined benefit pension plans, net of tax
( 215 )
( 215 )
Unrealized gain on derivatives designated and qualifying as cash flow hedges, net of tax
2,627
2,627
Currency translation adjustment
43,139
43,139
Cash dividends declared – $ 2.63 per share
( 151,513 )
( 151,513 )
Stock-based compensation activity
451
43,609
4,987
48,596
Purchase of shares for treasury
( 1,098 )
( 198,765 )
( 198,765 )
Other
( 2,109 )
( 12,197 )
( 14,306 )
Balance at December 31, 2023
56,977
$
9,858
$
523,357
$
3,688,038
$
( 229,847 )
$
( 2,682,554 )
$
1,308,852
See notes to these consolidated financial statements.
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LINCOLN ELECTRIC HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended December 31,
2023
2022
2021
CASH FLOWS FROM OPERATING ACTIVITIES
Net income
$
545,248
$
472,224
$
276,580
Adjustments to reconcile Net income to Net cash provided by operating activities:
Rationalization and asset impairment net charges (Note 7)
4,779
8,100
( 1,054 )
Depreciation and amortization
86,670
78,059
81,146
Gain on sale of property
( 36,187 )
—
—
Deferred income taxes (Note 13)
( 20,926 )
( 48,207 )
( 28,556 )
Stock-based compensation
26,231
25,267
23,787
Pension settlement net charges
—
—
126,502
Other, net
( 17,464 )
11,982
( 17,474 )
Changes in operating assets and liabilities, net of effects from acquisitions:
Decrease (increase) in accounts receivable
14,980
( 65,010 )
( 65,844 )
Decrease (increase) in inventories
122,094
( 81,188 )
( 154,347 )
(Increase) in other current assets
( 35,608 )
( 18,297 )
( 23,913 )
(Decrease) increase in trade accounts payable
( 32,028 )
16,852
82,394
Increase (decrease) in other current liabilities
10,056
( 8,199 )
68,292
Net change in other assets and liabilities
( 303 )
( 8,197 )
( 2,450 )
NET CASH PROVIDED BY OPERATING ACTIVITIES
667,542
383,386
365,063
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures
( 90,987 )
( 71,883 )
( 62,531 )
Acquisition of businesses, net of cash acquired (Note 4)
( 32,685 )
( 436,298 )
( 156,106 )
Proceeds from sale of property, plant and equipment
49,494
3,331
6,781
Other investing activities
( 551 )
159
6,500
NET CASH USED BY INVESTING ACTIVITIES
( 74,729 )
( 504,691 )
( 205,356 )
CASH FLOWS FROM FINANCING ACTIVITIES
(Payments on) proceeds from short-term borrowings
( 79,873 )
34,351
46,476
(Payments on) proceeds from long-term borrowings
( 8,109 )
405,444
( 508 )
Proceeds from exercise of stock options
22,365
6,385
19,232
Purchase of shares for treasury
( 198,765 )
( 181,293 )
( 164,526 )
Cash dividends paid to shareholders
( 148,010 )
( 130,724 )
( 121,851 )
Other financing activities
—
( 438 )
( 763 )
NET CASH (USED BY) PROVIDED BY FINANCING ACTIVITIES
( 412,392 )
133,725
( 221,940 )
Effect of exchange rate changes on Cash and cash equivalents
16,216
( 8,228 )
( 2,088 )
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
196,637
4,192
( 64,321 )
Cash and cash equivalents at beginning of period
197,150
192,958
257,279
CASH AND CASH EQUIVALENTS AT END OF PERIOD
$
393,787
$
197,150
$
192,958
See notes to these consolidated financial statements.
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LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Lincoln Electric Holdings, Inc. and its wholly-owned and majority-owned subsidiaries for which it has a controlling interest (the "Company") after elimination of all inter-company accounts, transactions and profits.
Certain reclassifications have been made to the prior period amounts to conform to the current period presentation, none of which are material.
General Information
The Company is the world leader in the design, development and manufacture of arc welding products, automated joining, assembly and cutting systems, plasma and oxy-fuel cutting equipment. The Company also has a leading global position in brazing and soldering alloys.
The Company’s products include arc welding, brazing and soldering filler metals (consumables), arc welding equipment, plasma and oxyfuel cutting systems, wire feeding systems, fume control equipment, welding accessories, specialty gas regulators, and education solutions; as well as a comprehensive portfolio of automated solutions for joining, cutting, material handling, module assembly, and end of line testing.
In March 2022, in response to Russia’s invasion of Ukraine, the Company announced it was ceasing operations in Russia and implementing plans to support its Russian employees. Although the Company’s Net sales and Total assets in Russia are less than 1 % of consolidated Net sales and Total assets as of December 31, 2023 and 2022, the Russia-Ukraine conflict and sanctions imposed globally may result in economic and supply chain disruptions, the ultimate financial impact of which cannot be reasonably estimated at this time. The Company continues to monitor the Russia-Ukraine conflict and its potential impacts.
Translation of Foreign Currencies
Asset and liability accounts are translated into U.S. dollars using exchange rates in effect at the dates of the Consolidated Balance Sheets; revenue and expense accounts are translated at average monthly exchange rates. Translation adjustments are reflected as a component of Total equity. For subsidiaries operating in highly inflationary economies, both historical and current exchange rates are used in translating balance sheet accounts and translation adjustments are included in Net income. An economy is considered highly inflationary under GAAP if the cumulative inflation rate for a three-year period meets or exceeds 100 percent. The Turkish economy exceeded the three-year cumulative inflation rate of 100 percent during the second quarter of 2022. As a result, the financial statements of the Company’s Turkish operation are reported under highly inflationary accounting rules as of April 1, 2022. Under highly inflationary accounting, the financial statements of the Company’s Turkish operation have been remeasured into the Company’s reporting currency (U.S. dollar). Beginning April 1, 2022, 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. For the years ended December 31, 2023 and 2022, this impact was not significant to the Company’s results.
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The translation of assets and liabilities originally denominated in foreign currencies into U.S. dollars is for consolidation purposes, and does not necessarily indicate that the Company could realize or settle the reported value of those assets and liabilities in U.S. dollars. Additionally, such a translation does not necessarily indicate that the Company could return or distribute the reported U.S. dollar value of the net equity of its foreign operations to shareholders.
Foreign currency transaction gains and losses are included in Selling, general & administrative expenses and were losses of $ 1,744 in 2023 and gains of $ 3,633 and $ 1,332 in 2022 and 2021, respectively.
Cash Equivalents
The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.
Inventories
Inventories are valued at the lower of cost or net realizable value. Fixed manufacturing overhead costs are allocated to inventory based on normal production capacity and abnormal manufacturing costs are recognized as period costs. Cost for a substantial portion of U.S. inventories is determined on a last-in, first-out (“LIFO”) basis. At December 31, 2023 and 2022, approximately 37 % and 38 % of total inventories, respectively, were valued using the LIFO method. Cost of other inventories is determined by costing methods that approximate a first-in, first-out (“FIFO”) basis. Refer to Note 16 for additional details.
Reserves are maintained for estimated obsolescence or excess inventory equal to the difference between the cost of inventory and the estimated net realizable value based upon assumptions about future demand and market conditions. The reserve for excess and obsolete inventory was $ 31,881 and $ 30,164 at December 31, 2023 and 2022, respectively.
Long-lived Assets
Property, Plant and Equipment
Property, plant and equipment are stated at cost and include improvements which significantly increase capacities or extend the useful lives of existing plant and equipment. Depreciation and amortization are computed using a straight-line method over useful lives ranging from 3 years to 20 years for machinery, tools and equipment, and up to 40 years for buildings. Net gains or losses related to asset dispositions are recognized in earnings in the period in which dispositions occur.
Routine maintenance, repairs and replacements are expensed as incurred. The Company capitalizes interest costs associated with long-term construction in progress.
Property, plant and equipment, net in the Consolidated Balance Sheet is comprised of the following components:
December 31,
2023
2022
Land
$
67,949
$
71,446
Buildings
445,041
447,098
Machinery and equipment
939,316
916,870
1,452,306
1,435,414
Less accumulated depreciation
876,990
890,543
Total
$
575,316
$
544,871
Leases
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The Company determines if an agreement is a lease at inception. The Company records a right-of-use asset on its Consolidated Balance Sheets to represent its right to use an underlying asset for the lease term. The Company records a lease liability on its Consolidated Balance Sheets to represent its obligation to make lease payments arising from the lease. Operating lease right-of-use assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. As most of the Company’s operating leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on information available at commencement date to present value the lease payments.
The Company has operating leases for sales offices, manufacturing facilities, warehouses and distribution centers, transportation equipment, office equipment and information technology equipment. Some of these leases are noncancelable. Variable or short-term lease costs contained within the Company’s operating leases are not material. Most leases include one or more options to renew , which can extend the lease term from 1 to 11 years or more. The exercise of lease renewal options is at the Company’s sole discretion. Certain leases also include options to purchase the leased property. Leases with an initial term of 12 months or less are not recorded on the Company’s Consolidated Balance sheets. The Company recognizes lease expense for these leases on a straight-line basis over the lease term.
The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.
Impairments
The Company periodically evaluates whether current facts or circumstances indicate that the carrying value of its depreciable long-lived assets, including right-of-use assets and finite-lived intangible assets, to be held and used may not be recoverable. If such circumstances are determined to exist, an estimate of undiscounted future cash flows produced by the long-lived asset, or the appropriate grouping of assets, is compared to the carrying value to determine whether impairment exists. If an asset is determined to be impaired, a loss is recognized to the extent that carrying value exceeds fair value. Fair value is measured based on quoted market prices in active markets, if available. If quoted market prices are not available, the estimate of fair value is based on various valuation techniques, including the discounted value of estimated future cash flows. Refer to Notes 5, 7 and 17 for additional details.
Goodwill and Intangibles
Goodwill is recorded when the cost of acquired businesses exceeds the fair value of the identifiable net assets acquired. Intangible assets other than goodwill are recorded at fair value at the time acquired or at cost, if applicable. Intangible assets that do not have indefinite lives are amortized in line with the pattern in which the economic benefits of the intangible asset are consumed. If the pattern of economic benefit cannot be reliably determined, the intangible assets are amortized on a straight-line basis over the shorter of the legal or estimated life. These types of assets are assessed for impairment in a manner consistent with long-lived assets described above. Goodwill and indefinite-lived intangible assets are not amortized, but are tested for impairment in the fourth quarter using the same date each year or more frequently if changes in circumstances or the occurrence of events indicate potential impairment.
In performing the annual impairment test, the fair value of each indefinite-lived intangible asset is compared to its carrying value and an impairment charge is recorded if the carrying value exceeds the fair value. For goodwill, the Company first assesses qualitative factors to determine whether it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, and whether it is necessary to perform the quantitative goodwill impairment test. The quantitative test is only required if the Company concludes that it is more-likely-than-not that a reporting unit’s fair value is less than its carrying amount. The Company may also perform a quantitative test in instances where the more-likely-than-not threshold has not been met, including when general macroeconomic conditions or changes to the reporting unit warrant a refresh of the baseline used in a qualitative test. For quantitative testing, the Company compares the fair value of each reporting unit with its carrying amount. If the carrying amount exceeds the fair value, an impairment charge is recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value, not to exceed the total amount of goodwill allocated to that reporting unit.
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Fair values are determined using established business valuation techniques and models developed by the Company, estimates of market participant assumptions of future cash flows, future growth rates and discount rates to value estimated cash flows. Changes in economic and operating conditions, actual growth below the assumed market participant assumptions or an increase in the discount rate could result in an impairment charge in a future period. Refer to Note 5 for additional details.
Fair Value Measurements
Financial assets and liabilities, such as the Company’s defined benefit pension plan assets and derivative contracts, are valued at fair value using the market and income valuation approaches. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The following hierarchy is used to classify the inputs that measure fair value:
Level 1
Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets.
Level 2
Inputs to the valuation methodology include:
· Quoted prices for similar assets or liabilities in active markets;
· Quoted prices for identical or similar assets or liabilities in inactive markets;
· Inputs other than quoted prices that are observable for the asset or liability; and
· Inputs that are derived principally from or corroborated by observable market data by correlation or other means.
If the asset or liability has a specific (contractual) term, the Level 2 input must be observable for substantially the full term of the asset or liability.
Level 3
Inputs to the valuation methodology are unobservable and significant to the fair value measurement.
Refer to Notes 11 and 15 for additional details.
Revenue Recognition
Revenue is recognized when obligations under the terms of a contract are satisfied and control is transferred to the customer. Revenue is measured as the amount of consideration the Company expects to be entitled to in exchange for goods or services. Substantially all of the Company’s sales arrangements are short-term in nature involving a single performance obligation. The Company recognizes revenue when the performance obligation is satisfied and control of the product is transferred to the customer generally based upon shipping terms. In addition, certain customized automation performance obligations are accounted for over time. Under this method, revenue recognition is primarily based upon the ratio of costs incurred to date compared with estimated total costs to complete. The cumulative impact of revisions to total estimated costs is reflected in the period of the change, including anticipated losses. Less than 10 % of the Company’s Net sales are recognized over time.
The Company recognizes any discounts, credits, returns, rebates and incentive programs based on reasonable estimates as a reduction of sales to arrive at Net sales at the same time the related revenue is recorded. Taxes collected by the Company, including sales tax and value added tax, are excluded from Net sales. The Company recognizes freight billed as a component of Net sales and shipping costs as a component of Cost of goods sold when control transfers to the customer. Sales commissions are expensed when incurred because the amortization period is generally one year or less. These costs are recorded within Selling, general and administrative expenses in the Company’s Consolidated Statements of Income.
The Company’s payment terms vary by the type and location of the customer and the products or services offered. The Company does not offer any payment terms that would meet the requirements for consideration as a financing component under Topic 606.
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Refer to Note 2 for additional details.
Distribution Costs
Distribution costs, including warehousing and freight related to product shipments, are included in Cost of goods sold.
Stock-Based Compensation
Expense is recognized for all awards of stock-based compensation by allocating the aggregate grant date fair value over the vesting period. No expense is recognized for any stock options, restricted or deferred shares or restricted stock units ultimately forfeited because the recipients fail to meet vesting requirements.
Common stock issuable upon the exercise of employee stock options is excluded from the calculation of diluted earnings per share when the calculation of option equivalent shares is anti-dilutive. Refer to Note 10 to the consolidated financial statements for additional details.
Financial Instruments
The Company uses derivative instruments to manage exposures to interest rates, commodity prices and currency exchange rate fluctuations on certain purchase and sales transactions, balance sheet and net investment exposures. Derivative contracts to hedge currency and commodity exposures are generally written on a short-term basis, but may cover exposures for up to 3 years while interest rate contracts may cover longer periods consistent with the terms of the underlying debt. The Company does not enter into derivatives for trading or speculative purposes.
All derivatives are recognized at fair value on the Company’s Consolidated Balance Sheets. The accounting for gains and losses resulting from changes in fair value depends on the use of the derivative and whether it is designated and qualifies for hedge accounting. The Company formally documents the relationship of the hedge with the hedged item as well as the risk-management strategy for all designated hedges. Both at inception and on an ongoing basis, the hedging instrument is assessed as to its effectiveness, when applicable. If and when a derivative is determined not to be highly effective as a hedge, the underlying hedged transaction is no longer likely to occur, or the derivative is terminated, hedge accounting is discontinued. The cash flows from settled derivative contracts are recognized in Net cash provided by operating activities in the Company’s Consolidated Statements of Cash Flows.
The Company is subject to the credit risk of the counterparties to derivative instruments. Counterparties include a number of major banks and financial institutions. The Company manages individual counterparty exposure by monitoring the credit rating of the counterparty and the size of financial commitments and exposures between the Company and the counterparty.
Cash flow hedges
Certain foreign currency forward contracts and commodity contracts are qualified and designated as cash flow hedges. The effective portion of the fair value unrealized gain or loss on cash flow hedges are reported as a component of Accumulated other comprehensive income ("AOCI") with offsetting amounts recorded as Other current assets, Other assets, Other current liabilities or Other liabilities depending on the position and the duration of the contract. At settlement, the realized gain or loss is recorded in Cost of goods sold or Net sales for hedges of purchases and sales, respectively, in the same period or periods during which the hedged transaction affects earnings. The ineffective portion on cash flow hedges is recognized in current earnings.
In anticipation of future debt issuance associated with the Notes referenced in Note 9, the Company has interest rate forward starting swap agreements to hedge the variability of future changes in interest rates. The forward starting swap agreements were qualified and designated as a cash flow hedge. The changes in fair value are recorded as part of AOCI, and upon completion of debt issuance and termination of the swaps, are amortized to interest expense over the life of the underlying debt.
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Fair value hedges
Certain interest rate swap agreements were qualified and designated as fair value hedges. The interest rate swap agreements designated as fair value hedges meet the shortcut method requirements under accounting standards for derivatives and hedging. Accordingly, changes in the fair value of these agreements are considered to exactly offset changes in the fair value of the underlying long-term debt. Changes in fair value are recorded in Other assets or Other liabilities with offsetting amounts recorded as a fair value adjustment to the carrying value of Long-term debt, less current portion.
Net investment hedges
For derivative instruments that qualify as a net investment hedge, the effective portion of the fair value gains or losses are recognized in AOCI with offsetting amounts recorded as Other current assets, Other assets, Other current liabilities or Other liabilities depending on the position and the duration of the contract. The gains or losses are subsequently reclassified to Selling, general and administrative expenses, as the underlying hedged investment is liquidated.
Derivatives not designated as hedging instruments
The Company has certain foreign exchange forward contracts which are not designated as hedges. These derivatives are held as hedges of certain balance sheet exposures. The gains or losses on t hese contracts are recognized in Selling, general and administrative expenses, offsetting the losses or gains on the exposures being hedged.
Refer to Note 14 to the consolidated financial statements for additional details.
Research and Development
Research and development costs are charged to Selling, general & administrative expenses as incurred and totaled $ 71,235 , $ 63,207 and $ 55,969 in 2023, 2022 and 2021, respectively.
Bonus
The Company’s discretionary employee bonus programs, which for certain U.S.-based employees are net of medical costs, are included in Selling, general & administrative expenses. Bonus costs were $ 192,498 , $ 159,281 and $ 120,686 in 2023, 2022 and 2021, respectively.
Income Taxes
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. 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 maintains liabilities for unrecognized tax benefits related to uncertain income tax positions in various jurisdictions. The Company uses judgment in determining whether the technical merits of tax positions are more-likely-than-not to be sustained. Judgment is also used in measuring the related amount of tax benefit that qualifies for recognition, including the interpretation of applicable tax law, regulations and tax rulings.
The Company elects to treat any Global Intangible Low Taxed Income inclusion as a period expense in the year incurred.
Refer to Note 13 for additional details.
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Acquisitions
Upon acquisition of a business, the Company uses the income, market or cost approach (or a combination thereof) for the valuation as appropriate. The valuation inputs in these models and analyses are based on market participant assumptions. Market participants are considered to be buyers and sellers unrelated to the Company in the principal or most advantageous market for the asset or liability.
Fair value estimates are based on a series of judgments about future events and uncertainties and rely on estimates and assumptions. Management values property, plant and equipment using the cost approach supported where available by observable market data, which includes consideration of obsolescence. Management values acquired intangible assets using the relief from royalty method or excess earnings method, forms of the income approach supported by observable market data for peer companies. The significant assumptions used to estimate the value of the acquired intangible assets include discount rates and certain assumptions that form the basis of future cash flows (such as revenue growth rates, customer attrition rates, and royalty rates). Acquired inventories are marked to fair value. For certain items, the pre-acquisition carrying value is determined to be a reasonable approximation of fair value based on information available to the Company. Refer to Note 4 for additional details.
Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions in certain circumstances that affect the amounts reported in the accompanying consolidated financial statements and notes. Actual results could differ from these estimates.
New Accounting Pronouncements
The following section provides a description of new Accounting Standards Updates (“ASU”) issued by the Financial Accounting Standards Board ("FASB") that are applicable to the Company.
The following ASUs were adopted as of January 1, 2023 and did not have a significant financial impact on the Company’s consolidated financial statements unless otherwise described within the table below:
Standard
Description
ASU No. 2022-04, Liabilities-Supplier Finance Programs (Subtopic 405-50) , issued September 2022.
Requires disclosure about a company’s supplier finance program, including key terms, amount outstanding, assets pledged as applicable, and presentation on the balance sheet. Refer to Note 19 for the impacts on the Company’s consolidated financial statements.
ASU No. 2021-08, Business Combinations (Subtopic 805) , issued October 2021.
Requires the acquirer in a business combination to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606. The adoption did not have a material impact on the Company’s consolidated financial statements.
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The Company is currently evaluating the impact on its financial statements of the following ASUs:
Standard
Description
ASU No. 2023-06, Disclosure Improvements , issued October 2023
Requires amending certain disclosure and presentation requirements for a variety of topics within the ASC. The effective date for each amended topic in the ASC is either the date on which the SEC’s removal of the related disclosure requirement from Regulation S-X or S-K becomes effective, or June 30, 2027, if the SEC has not removed the requirements by that date. Early adoption is prohibited.
ASU No. 2023-01, Leases-Common Control Arrangements (Topic 842) , issued March 2023
Requires a lessee in a common-control arrangement to amortize leasehold improvements that it owns over the improvements’ useful life, regardless of the lease term. The requirement of the ASU is effective January 1, 2024.
ASU No. 2023-07, Segment Reporting (Topic 280) , issued November 2023.
Requires enhanced disclosures about significant segment expenses, including significant segment expenses that are regularly provided to the chief operating decision maker (“CODM”), the title and position of the CODM, an amount for other segment items by reportable segment, and disclosures about segment profit or loss and assets on an annual and interim basis. The amendments are effective for annual periods beginning January 1, 2024, and interim periods beginning January 1, 2025. Early adoption is permitted.
ASU No. 2023-09, Income Taxes (Topic 740) , issued December 2023.
Requires disclosure of specific categories in rate reconciliation and additional information for reconciling items that meet a quantitative threshold, additional information about income taxes paid, and disclosure of disaggregated income tax information. The amendments are effective January 1, 2025 and early adoption is permitted.
ASU No. 2022-04, Liabilities-Supplier Finance Programs (Subtopic 405-50) , issued September 2022.
Requires disclosure about a company’s supplier finance programs, including a period-over-period balance roll forward. This requirement of the ASU is effective January 1, 2024 and should be applied prospectively.
NOTE 2 — REVENUE RECOGNITION
The following table presents the Company’s Net sales disaggregated by product line:
Year Ended December 31,
2023
2022
2021
Consumables
$
2,212,314
$
2,183,019
$
1,856,880
Equipment
1,979,322
1,578,192
1,377,300
Net sales
$
4,191,636
$
3,761,211
$
3,234,180
Consumable sales consist of welding, brazing and soldering filler metals. Equipment sales consist of arc welding equipment, welding accessories, wire feeding systems, fume control equipment, plasma and oxy-fuel cutting systems, specialty gas regulators, and education solutions; as well as a comprehensive portfolio of automated solutions for joining, cutting, material handling, module assembly, and end of line testing. Consumable and Equipment products are sold within each of the Company’s operating segments.
Within the Equipment product line, there are certain customer contracts related to automation products that may include multiple performance obligations. For such arrangements, the Company allocates revenue to each performance obligation based on its relative standalone selling price. The Company generally determines the standalone selling price based on the prices charged to customers or using expected cost plus margin. Less than 10 % of the Company’s Net sales are recognized over time.
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At December 31, 2023, the Company recorded $ 40,063 related to advance customer payments and $ 52,422 related to billings in excess of revenue recognized. These contract liabilities are included in Other current liabilities in the Consolidated Balance Sheets. At December 31, 2022, the balances related to advance customer payments and billings in excess of revenue recognized were $ 78,756 and $ 34,771 , respectively. Substantially all of the Company’s contract liabilities are recognized within twelve months based on contract duration. The Company records an asset for contracts where it has recognized revenue, but has not yet invoiced the customer for goods or services. At December 31, 2023 and 2022, $ 41,816 and $ 35,252 , respectively, related to these contract assets which are included in Other current assets in the Consolidated Balance Sheets. Contract asset amounts are expected to be billed within the next twelve months.
NOTE 3 - EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per share:
Year Ended December 31,
2023
2022
2021
Numerator:
Net income
$
545,248
$
472,224
$
276,580
Denominator (shares in 000's):
Basic weighted average shares outstanding
57,364
58,030
59,309
Effect of dilutive securities - Stock options and awards
857
719
753
Diluted weighted average shares outstanding
58,221
58,749
60,062
Basic earnings per share
$
9.50
$
8.14
$
4.66
Diluted earnings per share
$
9.37
$
8.04
$
4.60
For the years ended December 31, 2023, 2022 and 2021, common shares subject to equity-based awards of 69,901 , 127,358 and 2,949 , 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, which were not material for the year ended December 31, 2023. Powermig specializes in designing and engineering industrial welding automation solutions for the heavy industry and transportation sectors. The acquisition broadened 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. In 2022, the Company recognized $ 5,196 in acquisition costs related to Fori and were expensed as incurred and included in “Selling, general, and administrative expenses” in the Consolidated Statements of Income . Fori is a leading designer and manufacturer of complex, multi-armed automated welding systems, with an extensive range of automated assembly systems, automated material handling solutions, automated large-scale, industrial guidance vehicles, and end of line testing systems. The acquisition of Fori extended the Company’s market presence within the automotive sector as well as its automation footprint in the International Welding segment. For the twelve months ended December 31, 2023, the Company’s Consolidated Statements of Income include the results of Fori, including Net Sales of $ 263,203 while net income for the year was not material.
The acquisition of Fori has been accounted for as a business combination, which requires the assets acquired and liabilities assumed be recognized at their respective fair values as of the acquisition date. The process of estimating the fair values of certain tangible assets, identifiable intangible assets and assumed liabilities requires the use of judgment in
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determining the appropriate assumptions and estimates. The table below summarizes the final fair values of the assets acquired and liabilities assumed on the acquisition date.
For the twelve months ended December 31, 2023, the adjustments to the preliminary purchase price allocation did not have a material impact on the Consolidated Balance Sheets or Consolidated Statements of Income.
Assets Acquired and Liabilities Assumed
Purchase Price Allocation
Cash and cash equivalents
$
52,330
Accounts receivable
64,439
Inventory
67,763
Property, plant and equipment (1)
36,863
Intangible assets (2)
69,350
Accounts payable
17,996
Net other assets and liabilities (3)
195,934
Total purchase price consideration
$
468,683
(1)
Property, plant and equipment acquired includes a number of manufacturing and distribution sites, including the related facilities, land and leased sites, and machinery and equipment for use in manufacturing operations.
(2)
Intangible asset balances of $ 22,000 and $ 18,200 , respectively, were assigned to trade names and customer relationships ( 15 year weighted average useful life). Of the remaining amount, $ 24,900 was assigned to technology know-how ( 10 year weighted average useful life) and $ 4,250 was assigned to restrictive covenants ( 4 year weighted average life).
(3)
Consists primarily of goodwill of $ 244,325 .
Goodwill is calculated as the excess of the consideration transferred over the net assets recognized and represents the anticipated synergies of acquiring Fori. A portion of the goodwill is deductible for tax purposes.
On March 1, 2022, the Company acquired 100 % ownership of Kestra Universal Soldas, Industria e Comercio, Imporacao e Exportacao Ltda. (“Kestra”), a privately held manufacturer headquartered in Atibaia, Sao Paulo State, Brazil. The net purchase price was $ 22,294 , net of cash acquired and accounted for as a business combination. In 2022, the Company recognized $ 365 in acquisition costs related to Kestra and were expensed as incurred and included in “Selling, general, and administrative expenses” in the Consolidated Statements of Income. Kestra manufactures and provides specialty welding consumables, wear plates and maintenance and repair services for alloy and wear-resistant products commonly used in mining, steel, agricultural and industrial mill applications. The acquisition broadened the Company’s specialty alloys portfolio and services.
On July 28, 2021, the Company acquired 100 % ownership of Overstreet-Hughes Company, Inc. and Shoals Tubular, Inc. (“FTP”). The net purchase price was $ 71,716 , net of cash acquired and accounted for as a business combination. The Company recognized $ 346 in acquisition transaction costs in 2021 which were expensed as incurred and included in “Selling, general, and administrative expenses” in the Consolidated Statements of Income. FTP manufactures copper and aluminum headers, distributor assemblies and manifolds in the United States and Mexico for the heating, ventilation, and air conditioning sector (“HVAC”). The acquisition further differentiated The Harris Products Group’s competitive position serving HVAC original equipment manufacturers with a comprehensive portfolio of solutions for the fabrication of HVAC coils and accelerates growth in this market.
On April 1, 2021, the Company acquired 100 % ownership of Zeman Bauelemente Produktionsgesellschaft m.b.H. (“Zeman"), a division of the Zeman Group. The net purchase price was $ 84,390 , net of cash acquired and accounted for as a business combination. The Company recognized $ 1,577 in acquisition transaction costs in 2021, which were expensed as incurred and included in “Selling, general, and administrative expenses” in the Consolidated Statements of Income. Zeman, based in Vienna, Austria, is a leading designer and manufacturer of robotic assembly and arc welding
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systems that automate the tacking and welding of steel beams. The acquisition expanded the Company’s international automation capabilities to serve customers in the structural steel and infrastructure sectors.
The acquired companies discussed above are not material individually, or in the aggregate, to the actual or pro forma Consolidated Statements of Income or Consolidated Statements of Cash Flows; as such, pro forma information related to these acquisitions have not been presented.
NOTE 5 – GOODWILL AND INTANGIBLES
The changes in the carrying amount of goodwill by reportable segments for the years ended December 31, 2023 and 2022 were as follows:
The Harris
Americas
International
Products
Welding
Welding
Group
Consolidated
Balance as of December 31, 2021
$
279,983
$
107,093
$
43,086
$
430,162
Additions and adjustments (1)
215,617
31,288
( 159 )
246,746
Foreign currency translation
( 3,413 )
( 8,462 )
224
( 11,651 )
Balance as of December 31, 2022
492,187
129,919
43,151
665,257
Additions and adjustments (2)
( 2,899 )
23,111
—
20,212
Foreign currency translation
8,312
449
222
8,983
Balance as of December 31, 2023
$
497,600
$
153,479
$
43,373
$
694,452
(1) Additions to Americas Welding reflect goodwill recognized in the acquisition of Fori and Kestra in 2022. International Welding reflect goodwill recognized in the acquisition of Fori in 2022.
(2) Adjustments to Americas Welding reflect goodwill recognized in the acquisition of Powermig offset by Fori purchase accounting adjustments in 2023. Ad ditions to International Welding reflect Fori purchase accounting adjustments in 2023.
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Gross carrying values and accumulated amortization of intangible assets other than goodwill by asset class were as follows:
December 31, 2023
December 31, 2022
Gross
Accumulated
Gross
Accumulated
Amount
Amortization
Amount
Amortization
Intangible assets not subject to amortization
Trademarks and trade names
$
16,038
$
15,963
Intangible assets subject to amortization
Trademarks and trade names
$
93,065
$
52,510
$
93,424
$
47,969
Customer relationships
171,338
102,643
170,231
95,385
Patents
25,150
15,879
23,603
15,113
Other
111,816
59,708
112,404
54,452
Total intangible assets subject to amortization
$
401,369
$
230,740
$
399,662
$
212,919
During 2023, the Company acquired intangible assets either individually or as part of a group of assets, with an initial purchase price allocation and weighted-average as follows:
Year Ended December 31, 2023
Purchase Price
Weighted
Allocation
Average Life
Acquired intangible assets subject to amortization
Trademarks and trade names
$
2,326
15
Customer relationships
4,050
10
Other
2,025
9
Total acquired intangible assets subject to amortization
$
8,401
Aggregate amortization expense was $ 25,983 , $ 21,908 and $ 21,155 for 2023, 2022 and 2021, respectively. During 2023 and 2022, the Company determined that for certain intangible assets, the carrying value of the assets exceeded the fair value resulting in an impairment. The Company recognized non-cash impairment charges of $ 1,564 and $ 1,018 in 2023 and 2022, respectively, which is recorded in Rationalization and asset impairment charges in the Company’s Consolidated Statements of Income. During 2023, the Company Estimated annual amortization expense for intangible assets for each of the next five years is $ 31,245 in 2024, $ 30,322 in 2025, $ 28,621 in 2026, $ 26,332 in 2027 and $ 23,550 in 2028.
NOTE 6 – SEGMENT INFORMATION
The Company’s primary business is the design, development and manufacture of arc welding products, automated joining, assembly and cutting systems, plasma and oxy-fuel cutting equipment. The Company also has a leading global position in brazing and soldering alloys.
The Company’s products include arc welding, brazing and soldering filler metals (consumables), arc welding equipment, plasma and oxyfuel cutting systems, wire feeding systems, fume control equipment, welding accessories, specialty gas regulators, and education solutions; as well as a comprehensive portfolio of automated solutions for joining, cutting, material handling, module assembly, and end of line testing.
The Company has aligned its organizational and leadership structure into three operating segments to support growth strategies and enhance the utilization of the Company’s worldwide resources and global sourcing initiatives. The operating segments consist of Americas Welding, International Welding and The Harris Products Group. The Americas Welding segment includes welding operations in North and South America. The International Welding segment includes welding operations in Europe, Africa, Asia and Australia. The Harris Products Group includes the Company’s global cutting, soldering and brazing businesses, specialty gas equipment, as well as its retail business in the United States.
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Segment performance is measured and resources are allocated based on a number of factors, the primary measure being the adjusted earnings before interest and income taxes ("Adjusted EBIT") profit measure. EBIT is defined as Operating income plus Other income. Segment EBIT is adjusted for special items as determined by management such as the impact of rationalization activities, certain asset impairment charges and gains or losses on disposals of assets. The accounting principles applied at the operating segment level are generally the same as those applied at the consolidated financial statement level with the exception of LIFO. Segment assets include inventories measured on a FIFO basis while consolidated inventories include inventories reported on a LIFO basis. Segment and consolidated income before interest and income taxes include the effect of inventories reported on a LIFO basis. At December 31, 2023, 2022 and 2021 approximately 37 %, 38 % and 36 %, respectively, of total inventories were valued using the LIFO method. LIFO is used for a substantial portion of U.S. inventories included in Americas Welding. Inter-segment sales are recorded at agreed upon prices that approximate arm’s length prices and are eliminated in consolidation. Corporate-level expenses are allocated to the operating segments.
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Financial information for the reportable segments follows:
The Harris
Americas
International
Products
Corporate /
Welding (1)
Welding (2)
Group (3)
Eliminations (4)
Consolidated
For the Year Ended December 31, 2023
Net sales
$
2,655,546
$
1,040,006
$
496,084
$
—
$
4,191,636
Inter-segment sales
127,536
31,498
10,641
( 169,675 )
—
Total
$
2,783,082
$
1,071,504
$
506,725
$
( 169,675 )
$
4,191,636
Adjusted EBIT
$
538,269
$
136,497
$
74,144
$
( 17,536 )
$
731,374
Special items charge (gain)
9,858
( 9,721 )
—
—
137
EBIT
$
528,411
$
146,218
$
74,144
$
( 17,536 )
$
731,237
Interest income
6,762
Interest expense
( 51,133 )
Income before income taxes
$
686,866
Total assets
$
2,365,737
$
1,046,369
$
340,463
$
( 375,272 )
$
3,377,297
Capital expenditures
61,752
20,568
8,550
117
90,987
Depreciation and amortization
55,821
22,023
9,611
( 785 )
86,670
For the Year Ended December 31, 2022
Net sales
$
2,288,934
$
954,281
$
517,996
$
—
$
3,761,211
Inter-segment sales
122,019
31,503
11,040
( 164,562 )
—
Total
$
2,410,953
$
985,784
$
529,036
$
( 164,562 )
$
3,761,211
Adjusted EBIT
$
462,819
$
120,157
$
64,008
$
( 10,033 )
$
636,951
Special items charge (gain)
( 3,060 )
11,681
—
6,003
14,624
EBIT
$
465,879
$
108,476
$
64,008
$
( 16,036 )
$
622,327
Interest income
1,607
Interest expense
( 31,107 )
Income before income taxes
$
592,827
Total assets
$
2,122,729
$
994,905
$
361,989
$
( 299,077 )
$
3,180,546
Capital expenditures
43,003
17,955
10,925
—
71,883
Depreciation and amortization
47,291
20,949
9,819
—
78,059
For the Year Ended December 31, 2021
Net sales
$
1,824,481
$
948,125
$
461,574
$
—
$
3,234,180
Inter-segment sales
140,650
26,331
8,096
( 175,077 )
—
Total
$
1,965,131
$
974,456
$
469,670
$
( 175,077 )
$
3,234,180
Adjusted EBIT
$
329,016
$
106,208
$
68,447
$
( 12,403 )
$
491,268
Special items charge
123,114
15,234
3,785
1,923
144,056
EBIT
$
205,902
$
90,974
$
64,662
$
( 14,326 )
$
347,212
Interest income
1,567
Interest expense
( 23,781 )
Income before income taxes
$
324,998
Total assets
$
1,521,083
$
938,061
$
330,678
$
( 197,515 )
$
2,592,307
Capital expenditures
37,717
16,916
7,898
—
62,531
Depreciation and amortization
49,510
24,998
6,795
( 157 )
81,146
(1) 2023 special items reflect Rationalization and asset impairment net charges of $ 468 and amortization of step up in value of acquired inventories of $ 9,390 .
2022 special items reflect Rationalization and asset impairment net gains of $ 431 , final settlement gains related to the termination of a pension plan of $ 3,735 and amortization of step up in value of acquired inventories of $ 1,106 .
2021 special items reflect pension settlement charges of $ 123,091 .
(2) 2023 special items reflect Rationalization and asset impairment net gains of $ 11,782 , amortization of step up in value of acquired inventories of $ 2,862 , gain on asset disposal of $ 1,646 , and pension settlement charges of $ 845 .
2022 special items reflect Rationalization and asset impairment charges of $ 11,681 .
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2021 special items reflect Rationalization and asset impairment charges of $ 9,804 , pension settlement charges of $ 446 and amortization of step up in value of acquired inventories of $ 4,984 .
(3) 2021 special items reflect pension settlement charges of $ 2,965 and amortization of step up in value of acquired inventories of $ 820 .
(4) 2022 special items reflect acquisition transaction and integration costs of $ 6,003 related acquisitions as discussed in Note 4 to the consolidated financial statements.
2021 special items reflect acquisition transaction and integration costs of $ 1,923 related acquisitions as discussed in Note 4 to the consolidated financial statements.
Export sales (excluding inter-company sales) from the United States were $ 238,704 in 2023, $ 173,033 in 2022 and $ 149,110 in 2021. No individual customer comprised more than 10% of the Company’s total revenues for any of the three years ended December 31, 2023.
The geographic split of the Company’s Net sales, based on the location of the customer, and property, plant and equipment were as follows:
Year Ended December 31,
2023
2022
2021
Net sales:
United States
$
2,398,560
$
2,128,457
$
1,726,498
Foreign countries
1,793,076
1,632,754
1,507,682
Total
$
4,191,636
$
3,761,211
$
3,234,180
December 31,
2023
2022
2021
Property, plant and equipment, net:
United States
$
293,172
$
267,654
$
262,247
Foreign countries
282,144
277,217
249,497
Total
$
575,316
$
544,871
$
511,744
NOTE 7 – RATIONALIZATION AND ASSET IMPAIRMENTS
The Company has rationalization plans primarily within the International Welding segment. The plans include headcount restructuring and the consolidation of manufacturing facilities to better align the cost structure with economic conditions and operating needs. At December 31, 2023, liabilities of $ 15,086 for International Welding were recognized in Other current liabilities in the Company's 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 gain of $ 11,314 for the year ended December 31, 2023 and net charges of $ 11,788 and $ 9,827 for the years ended December 31, 2022 and 2021, respectively, related to these plans. The charges are primarily related to employee severance, asset impairments and gains or losses on the disposal of assets.
The Company believes the rationalization actions will positively impact future results of operations and will not have a material effect on liquidity and sources and uses of capital. The Company continues to evaluate its cost structure and additional rationalization actions may result in charges in future periods.
The following table summarizes the activity related to the rationalization liabilities:
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Consolidated
Balance at December 31, 2021
$
2,990
Payments and other adjustments
( 4,471 )
Charged to expense
3,688
Balance at December 31, 2022
$
2,207
Payments and other adjustments
( 7,215 )
Charged to expense
20,094
Balance at December 31, 2023
$
15,086
NOTE 8 – ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) ("AOCI")
The following tables set forth the total changes in accumulated other comprehensive income (loss) ("AOCI") by component, net of taxes:
Unrealized gain
(loss) on derivatives
designated and
Defined benefit
Currency
qualifying as cash
pension plan
translation
flow hedges
activity
adjustment
Total
Balance at December 31, 2021
$
8,094
$
( 13,231 )
$
( 252,442 )
$
( 257,579 )
Other comprehensive income (loss) before reclassification
7,866
13,911
( 35,084 )
( 13,307 )
Amounts reclassified from AOCI
( 2,051 )
( 2,461 )
—
( 4,512 )
Net current-period other comprehensive income (loss)
5,815
11,450
( 35,084 )
( 17,819 )
Balance at December 31, 2022
$
13,909
$
( 1,781 )
$
( 287,526 )
$
( 275,398 )
Other comprehensive income (loss) before reclassification
7,049
( 5,135 )
43,139
45,053
Amounts reclassified from AOCI
( 4,422 )
4,920
—
498
Net current-period other comprehensive income (loss)
2,627
( 215 )
43,139
45,551
Balance at December 31, 2023
$
16,536
$
( 1,996 )
$
( 244,387 )
$
( 229,847 )
NOTE 9 – DEBT
At December 31, 2023 and 2022, debt consisted of the following:
December 31,
2023
2022
Long-term debt
Senior Unsecured Notes due through 2045, interest at 2.8 % to 4.0 % (net of debt issuance costs of $ 1,270 and $ 1,585 at December 31, 2023 and 2022, respectively)
$
702,766
$
703,124
Term Loan due through 2025, interest at SOFR plus a 0.85 % margin, swapped $ 150,000 to a fixed interest rate of 3.55 % plus a 0.85 % margin
400,000
400,000
Other borrowings due through 2030, interest up to 7.97 %
9
18,311
1,102,775
1,121,435
Less current portion
4
11,039
Long-term debt, less current portion
1,102,771
1,110,396
Short-term debt
Amounts due banks, weighted average interest at 47.7 % in 2023 and 4.0 % in 2022
2,435
82,444
Current portion long-term debt
4
11,039
Total short-term debt
2,439
93,483
Total debt
$
1,105,210
$
1,203,879
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At December 31, 2023 and 2022, the fair value of long-term debt, including the current portion, was approximately $ 1,013,795 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 $ 1,102,771 and $ 1,121,435 , respectively. Since judgment is required in interpreting market information, the fair value of the debt is not necessarily the amount which could be realized in a current market exchange.
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. Interest on the Notes is paid semi-annually. The proceeds of the Notes were used for general corporate purposes. The Notes contain certain affirmative and negative covenants. As of December 31, 2023, the Company was in compliance with all of its debt covenants relating to the Notes.
The maturity and interest rates of the 2015 Notes and 2016 Notes are as follows:
Amount
Maturity Date
Interest Rate
2015 Notes
Series A
$
100,000
August 20, 2025
3.15
%
Series B
100,000
August 20, 2030
3.35
%
Series C
50,000
April 1, 2035
3.61
%
Series D
100,000
April 1, 2045
4.02
%
2016 Notes
Series A
$
100,000
October 20, 2028
2.75
%
Series B
100,000
October 20, 2033
3.03
%
Series C
100,000
October 20, 2037
3.27
%
Series D
50,000
October 20, 2041
3.52
%
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.
Term Loan
On November 29, 2022, the Company entered into a term loan in the aggregate principal amount of $ 400,000 (the “Term Loan”), which was borrowed in full. The Term Loan matures on November 29, 2025. The Term Loan bears an interest at a rate based on SOFR, plus a margin ranging from 0.75 % to 1.75 % based on the Company’s consolidated net leverage ratio. The proceeds of the Term Loan were used to pay a portion of the purchase price in connection with the acquisition of Fori.
The agreement governing the Term Loan (the “Term Loan Credit Agreement”) contains representations and warranties, as well as customary affirmative, negative and financial covenants for credit facilities of this type, including limitations on the Company and its subsidiaries with respect to liens, investments, distributions, mergers and acquisitions, dispositions of assets and transactions with affiliates. The Term Loan Credit Agreement requires the Company to maintain a minimum consolidated fixed charges coverage ratio and maximum consolidated net leverage ratio. As of December 31, 2023, the Company was in compliance with all of its covenants.
Revolving Credit Agreement
On April 23, 2021, the Company amended and restated the agreement governing its line of credit by entering into the Second Amended and Restated Credit Agreement (“Credit Agreement”). The Credit Agreement has a line of credit totaling $ 500,000 , has a term of 5 years with a maturity date of April 23, 2026 and may be increased, subject to certain conditions including the consent of its lenders, by an additional amount up to $ 150,000 . On March 8, 2023, the Credit Agreement was amended to replace the LIBOR rate to a term secured overnight finance rate (“SOFR”); as such, the
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interest rate on borrowings is based on SOFR plus a spread of 0.85 % to 1.85 % based on (1) the Company’s net leverage ratio and (2) a credit spread adjustment. The Credit Agreement contains customary representations and warranties, as well as customary affirmative, negative and financial covenants for credit facilities of this type (subject to negotiated baskets and exceptions), including limitations on the Company and its subsidiaries with respect to liens, investments, distributions, mergers and acquisitions, dispositions of assets and transactions with affiliates. As of December 31, 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 $ 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.
Other
Maturities of long-term debt, including payments for amounts due banks, for the five years succeeding December 31, 2023 are $ 2,439 in 2024, $ 500,005 in 2025, $ 0 in 2026, $ 0 in 2027, $ 100,000 in 2028 and $ 500,000 thereafter. Total interest paid was $ 29,340 in 2023, $ 23,547 in 2022 and $ 23,752 in 2021. The difference between interest paid and interest expense is due to the accrual of interest associated with the Senior Unsecured Notes and interest rate derivative contracts discussed in Note 14.
NOTE 10 – STOCK PLANS
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 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.
Stock Options
The following table summarizes stock option activity for the year ended December 31, 2023 under all Plans:
Weighted
Average
Number of
Exercise
Options
Price
Balance at beginning of year
1,117,359
$
93.31
Options granted
102,292
178.15
Options exercised
( 299,682 )
118.17
Options canceled
( 350 )
63.08
Options forfeited
—
—
Balance at end of year
919,619
108.85
Exercisable at end of year
671,164
95.20
Options granted under both the 2015 and 2023 Employee Plans and its predecessor plans may be outstanding for a maximum of 10 years from the date of grant. The majority of options granted vest ratably over a period of 3 years from the grant date. The exercise prices of all options were equal to the quoted market price of the Company’s common shares at the date of grant. The Company issued shares of common stock from treasury upon all exercises of stock options in 2023. In 2023, all options issued were under the 2015 and 2023 Employee Plans.
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The Company uses the Black-Scholes option pricing model for estimating fair values of options. In estimating the fair value of options granted, the expected option life is based on the Company’s historical experience. The expected volatility is based on historical volatility. The weighted average assumptions for each of the three years ended December 31 were as follows:
2023
2022
2021
Expected volatility
27.63
%
27.14
%
28.01
%
Dividend yield
1.59
%
1.84
%
2.17
%
Risk-free interest rate
4.04
%
1.94
%
0.55
%
Expected option life (years)
4.8
4.7
4.7
Weighted average fair value per option granted during the year
$
46.94
$
27.42
$
21.70
The following table summarizes non-vested stock options for the year ended December 31, 2023:
Weighted Average
Number of
Fair Value at
Options
Grant Date
Balance at beginning of year
317,006
$
13.93
Granted
102,292
46.94
Vested
( 170,493 )
21.61
Canceled
( 350 )
18.34
Forfeited
—
—
Balance at end of year
248,455
28.36
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. The total intrinsic value of awards exercised during 2023, 2022 and 2021 was $ 35,414 , $ 7,082 and $ 20,442 , respectively. The total fair value of options that vested during 2023, 2022 and 2021 was $ 3,684 , $ 3,086 and $ 2,983 , respectively.
The following table summarizes information about awards outstanding as of December 31, 2023:
Outstanding
Exercisable
Weighted
Weighted
Weighted
Weighted
Number of
Average
Average
Number of
Average
Average
Stock
Exercise
Remaining
Stock
Exercise
Remaining
Exercise Price Range
Options
Price
Life (years)
Options
Price
Life (years)
Under $ 49.99
—
$
—
—
—
$
—
—
$ 50.00 - $ 59.99
18,371
58.17
2.11
18,371
58.17
2.11
Over $ 60.00
901,248
109.88
6.35
652,793
96.24
5.60
919,619
6.27
671,164
5.50
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Restricted Stock Units ("RSUs") and Performance Share Units ("PSUs")
The following table summarizes RSU and PSU activity for the year ended December 31, 2023 under all Plans:
Weighted
Average
Number of
Grant Date
Units
Fair Value
Balance at beginning of year
391,072
$
111.90
Units granted
130,831
180.04
Units vested
( 177,048 )
95.90
Units forfeited
( 5,414 )
139.14
Balance at end of year
339,441
140.50
RSUs are valued at the quoted market price on the grant date. The majority of RSUs vest over a period of 3 years . The Company issues shares of common stock from treasury upon the vesting of RSUs and any earned dividend equivalents. Conversion of 28,564 RSUs and PSUs to common shares in 2023 were deferred as part of the 2005 Deferred Compensation Plan for Executives (the "2005 Plan"). As of December 31, 2023, 87,604 RSUs and PSUs, including related dividend equivalents, have been deferred under the 2005 Plan. These units are reflected within dilutive shares in the calculation of earnings per share. In 2023, 85,188 RSUs were issued under the 2015 and 2023 Employee Plan and the 2015 and 2023 Director Plan. The remaining weighted average vesting period of all non-vested RSUs is 1.5 years as of December 31, 2023.
PSUs are valued at the quoted market price on the grant date. PSUs vest over a period of 3 years and are based on the Company’s performance relative to pre-established performance goals. The Company issues common stock from treasury upon the vesting of PSUs and any earned dividend equivalents. In 2023, the Company issued 45,643 PSU’s and has 82,089 PSUs outstanding under the 2015 Employee Plan at a weighted average fair value of $ 136.41 per share. The remaining weighted average vesting period of all non-vested PSUs is 1.8 years as of December 31, 2023.
Stock-Based Compensation Expense
Expense is recognized for all awards of stock-based compensation by allocating the aggregate grant date fair value over the vesting period. No expense is recognized for any stock options, restricted or deferred shares, RSUs or PSUs ultimately forfeited because recipients fail to meet vesting requirements. Total stock-based compensation expense recognized in the Consolidated Statements of Income for 2023, 2022 and 2021 was $ 26,223 $ 25,276 and $ 23,787 , respectively. The related tax benefit for 2023, 2022 and 2021 was $ 6,711 , $ 6,363 and $ 5,988 , respectively. As of December 31, 2023, total unrecognized stock-based compensation expense related to non-vested stock options, RSUs and PSUs was $ 17,254 , which is expected to be recognized over a weighted average period of approximately 1.0 years.
Lincoln Stock Purchase Plan
The 1995 Lincoln Stock Purchase Plan provides employees the ability to purchase open market shares on a commission-free basis up to a limit of ten thousand dollars annually. Under this plan, 800,000 shares have been authorized to be purchased. There were no shares purchased in 2023 or 2022, and 9,070 shares purchased in 2021.
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NOTE 11 – RETIREMENT ANNUITY AND GUARANTEED CONTINUOUS EMPLOYMENT PLANS
The Company maintains a number of defined benefit 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. The Company uses a December 31 measurement date for its plans.
The Company does not have, and does not provide for, any postretirement or postemployment benefits other than pensions and certain non-U.S. statutory termination benefits.
Defined Benefit Plans
Contributions are made in amounts sufficient to fund current service costs on a current basis and to fund past service costs, if any, over various amortization periods.
Obligations and Funded Status
December 31,
2023
2022
U.S. pension
Non-U.S.
U.S. pension
Non-U.S.
plans
pension plans
plans
pension plans
Change in benefit obligations
Benefit obligations at beginning of year
$
9,374
$
118,489
$
10,930
$
164,005
Service cost
166
955
199
1,077
Interest cost
466
4,867
262
2,644
Plan participants' contributions
—
48
—
54
Acquisitions & other adjustments
( 821 )
84
2,689
( 341 )
Actuarial (gain) loss (1)
990
5,633
( 4,706 )
( 30,229 )
Benefits paid
—
( 7,265 )
—
( 7,066 )
Settlements/curtailments
( 1,805 )
( 1,700 )
—
( 398 )
Currency translation
—
4,919
—
( 11,257 )
Benefit obligations at end of year
8,370
126,030
9,374
118,489
Change in plan assets
Fair value of plan assets at beginning of year
—
86,543
68,458
114,557
Actual return on plan assets
—
4,087
59
( 16,319 )
Employer contributions
—
2,080
—
1,634
Plan participants' contributions
—
48
—
54
Acquisitions & other adjustments
—
—
( 68,517 )
( 195 )
Benefits paid
—
( 5,120 )
—
( 4,757 )
Settlements
—
( 599 )
—
—
Currency translation
—
4,183
—
( 8,431 )
Fair value of plan assets at end of year
—
91,222
—
86,543
Funded status at end of year
( 8,370 )
( 34,808 )
( 9,374 )
( 31,946 )
Unrecognized actuarial net loss
2,387
3,070
1,734
2,073
Unrecognized prior service cost
—
( 56 )
—
( 73 )
Unrecognized transition assets, net
—
24
—
25
Net amount recognized
$
( 5,983 )
$
( 31,770 )
$
( 7,640 )
$
( 29,921 )
(1) Actuarial gains in 2022 were primarily the result of an increase in the Company’s pension plan discount rates.
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The after-tax amounts of unrecognized actuarial net loss, prior service costs and transition assets included in Accumulated other comprehensive loss at December 31, 2023 were $ 1,974 , $( 39 ) and $ 17 , respectively. The actuarial loss represents changes in the estimated obligation not yet recognized in the Consolidated Income Statement.
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 the Company’s Savings Plan. The surplus assets as of December 31, 2023 were $ 41,849 and are recorded in Other current assets and Other assets in the Company’s Consolidated Balance Sheets.
Amounts Recognized in Consolidated Balance Sheets
December 31,
2023
2022
U.S. pension
Non-U.S.
U.S. pension
Non-U.S.
plans
Pension plans
plans
pension plans
Prepaid pensions (1)
$
—
$
2,891
$
—
$
1,603
Accrued pension liability, current (2)
( 732 )
( 95 )
( 2,403 )
( 523 )
Accrued pension liability, long-term (3)
( 7,638 )
( 37,605 )
( 6,971 )
( 33,026 )
Accumulated other comprehensive loss, excluding tax effects
2,387
3,039
1,734
2,025
Net amount recognized in the balance sheets
$
( 5,983 )
$
( 31,770 )
$
( 7,640 )
$
( 29,921 )
(1) Included in Other assets.
(2) Included in Other current liabilities.
(3) Included in Other liabilities.
Components of Pension Cost for Defined Benefit Plans
Year Ended December 31,
2023
2022
2021
U.S. pension
Non-U.S.
U.S. pension
Non-U.S.
U.S. pension
Non-U.S.
plans
pension plans
plans
pension plans
plans
pension plans
Service cost
$
166
$
955
$
199
$
1,077
$
194
$
1,413
Interest cost
466
4,867
262
2,644
8,926
2,567
Expected return on plan assets
—
( 3,839 )
—
( 3,525 )
( 13,050 )
( 3,990 )
Other adjustments
—
117
—
—
—
—
Amortization of prior service cost
—
( 8 )
—
—
—
8
Amortization of net loss
80
( 374 )
132
299
1,966
882
Settlement and curtailment charges (gains) (1)
256
949
( 3,735 )
367
126,055
( 42 )
Defined benefit plans
$
968
$
2,667
$
( 3,142 )
$
862
$
124,091
$
838
(1) Pension settlement net charges resulting from lump sum pension payments and the purchase of a group annuity contract in 2021.
The components of Pension cost for defined benefit plans, other than service cost, are included in Other income (expense) in the Company’s Consolidated Statements of Income.
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Pension Plans with Accumulated Benefit Obligations in Excess of Plan Assets
December 31,
2023
2022
U.S. pension
Non-U.S.
U.S. pension
Non-U.S.
plans
pension plans
plans
pension plans
Projected benefit obligation
$
8,326
$
88,290
$
9,331
$
82,378
Accumulated benefit obligation
8,002
86,317
8,937
80,444
Fair value of plan assets
—
50,758
—
48,974
The total accumulated benefit obligation for all plans was $ 131,550 as of December 31, 2023 and $ 125,031 as of December 31, 2022.
Benefit Payments for Plans
Benefits expected to be paid for the plans are as follows:
U.S. pension
Non-U.S.
Plans
pension plans
Estimated Payments
2024
$
754
$
39,045
2025
1,077
7,421
2026
1,099
6,576
2027
1,114
5,888
2028
1,053
6,446
2029 through 2033
5,426
30,724
Assumptions
Weighted average assumptions used to measure the benefit obligation for the Company’s significant defined benefit plans as of December 31, 2023 and 2022 were as follows:
December 31,
2023
2022
U.S. pension
Non-U.S.
U.S. pension
Non-U.S.
plans
pension plans
plans
pension plans
Discount Rate
6.0
%
3.9
%
5.8
%
4.2
%
Rate of increase in compensation
3.0
%
4.8
%
3.0
%
3.7
%
Weighted average assumptions used to measure the net periodic benefit cost for the Company’s significant defined benefit plans for each of the three years ended December 31 were as follows:
December 31,
2023
2022
2021
U.S. pension
Non-U.S.
U.S. pension
Non-U.S.
U.S. pension
Non-U.S.
plans
pension plans
plans
pension plans
plans
pension plans
Discount rate
5.8
%
4.2
%
2.5
%
1.8
%
2.2
%
1.3
%
Rate of increase in compensation
3.0
%
3.7
%
3.0
%
3.1
%
2.5
%
2.7
%
Expected return on plan assets
—
4.4
%
—
%
3.4
%
3.0
%
3.3
%
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To develop the discount rate assumptions, the Company refers to the yield derived from matching projected pension payments with maturities of bonds rated AA or an equivalent quality. The expected long-term rate of return assumption is based on the weighted average expected return of the various asset classes in the plans’ portfolio and the targeted allocation of plan assets. The asset class return is developed using historical asset return performance as well as current market conditions such as inflation, interest rates and equity market performance. The rate of compensation increase is determined by the Company based upon annual reviews.
Pension Plans’ Assets
The primary objective of the pension plans’ investment policy is to ensure sufficient assets are available to provide benefit obligations when such obligations mature. Investment management practices must comply with ERISA or any other applicable regulations and rulings. The overall investment strategy for the defined benefit pension plans’ assets is to achieve a rate of return over a normal business cycle relative to an acceptable level of risk that is consistent with the long-term objectives of the portfolio. Excluding the RAP plan assets, the target allocation for plan assets is 5 % to 10 % equity securities and 90 % to 95 % debt and other securities.
The following table sets forth, by level within the fair value hierarchy, the pension plans’ assets as of December 31, 2023:
Pension Plans' Assets at Fair Value as of December 31, 2023
Quoted Prices in
Active Markets
Significant
for Identical
Significant Other
Unobservable
Assets
Observable Inputs
Inputs
(Level 1)
(Level 2)
(Level 3)
Total
Cash and cash equivalents
$
22,347
$
—
$
—
$
22,347
Fixed income securities (1)
Corporate debt and other obligations
—
5,894
—
5,894
Investments measured at NAV (2)
Common trusts and 103-12 investments (3)
—
—
—
62,981
Total investments at fair value
$
22,347
$
5,894
$
—
$
91,222
The following table sets forth, by level within the fair value hierarchy, the pension plans’ assets as of December 31, 2022:
Pension Plans' Assets at Fair Value as of December 31, 2022
Quoted Prices in
Active Markets
Significant
for Identical
Significant Other
Unobservable
Assets
Observable Inputs
Inputs
(Level 1)
(Level 2)
(Level 3)
Total
Cash and cash equivalents
$
16,694
$
—
$
—
$
16,694
Fixed income securities (1)
Corporate debt and other obligations
—
4,912
—
4,912
Investments measured at NAV (2)
Common trusts and 103-12 investments (3)
—
—
—
64,937
Total investments at fair value
$
16,694
$
4,912
$
—
$
86,543
(1) Fixed income securities are primarily comprised of governmental and corporate bonds directly held by the plans. Governmental and corporate bonds are valued using both market observable inputs for similar assets that are traded on an active market and the closing price on the active market on which the individual securities are traded.
(2) Certain assets that are measured at fair value using the net asset value ("NAV") practical expedient have not been classified in the fair value hierarchy.
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(3) Common trusts and 103-12 investments (collectively "Trusts") are comprised of a number of investment funds that invest in a diverse portfolio of assets including equity securities, corporate and governmental bonds, equity and credit indexes and money markets. Trusts are valued at the NAV as determined by their custodian. NAV represents the accumulation of the unadjusted quoted close prices on the reporting date for the underlying investments divided by the total shares outstanding at the reporting dates.
Supplemental Executive Retirement Plan
The Company maintained a domestic unfunded Supplemental Executive Retirement Plan ("SERP") under which non-qualified supplemental pension benefits are paid to certain employees in addition to amounts received under the Company’s terminated qualified retirement plan which was subject to IRS limitations on covered compensation. The annual cost of this program has been included in the determination of total net pension costs shown above and was $ 650 , $ 253 and $ 213 in 2023, 2022 and 2021, respectively. The projected benefit obligation associated with this plan is also included in the pension disclosure shown above and was $ 5,461 , $ 7,339 and $ 7,947 at December 31, 2023, 2022 and 2021, respectively.
Defined Contribution Plans
Substantially all U.S. employees are covered under defined contribution plans. In October 2016, the Company announced a plan redesign of The Lincoln Electric Company Employee Savings Plan (“Savings Plan”) that was effective January 1, 2017. The Savings Plan provides that eligible employees receive up to 6 % of employees’ annual compensation through Company matching contributions of 100 % of the first 3 % of employee compensation contributed to the plan, and automatic Company contributions equal to 3 % of annual compensation. In addition, certain employees affected by the RAP freeze in 2016 are also eligible to receive employer contributions equal to 6 % of annual compensation for a minimum period of five years or to the end of the year in which they complete thirty years of service.
Effective January 1, 2017, the Company created The Lincoln Electric Company Restoration Plan (“Restoration Plan”). The Restoration Plan is a domestic unfunded plan maintained for the purpose of providing certain employees the ability to fully participate in standard employee retirement offerings, which are limited by IRS regulations on covered compensation.
The annual costs recognized for defined contribution plans were $ 29,443 , $ 29,569 and $ 26,282 in 2023, 2022 and 2021, respectively.
Other Benefits
The Cleveland, Ohio, area operations have a Guaranteed Continuous Employment Plan covering substantially all local employees which, in general, provides that the Company will provide work for at least 75 % of every standard work week (presently 40 hours). This plan does not guarantee employment when the Company’s ability to continue normal operations is seriously restricted by events beyond the control of the Company. The Company has reserved the right to terminate this plan effective at the end of a calendar year by giving notice of such termination not less than six months prior to the end of such year.
NOTE 12 — OTHER INCOME (EXPENSE)
The components of Other income (expense) were as follows:
Year Ended December 31,
2023
2022
2021
Equity earnings in affiliates
$
556
$
( 153 )
$
499
Other components of net periodic pension (cost) income (1)
( 2,573 )
3,556
( 123,920 )
Other income (2)
15,405
6,588
8,964
Total Other income (expense)
$
13,388
$
9,991
$
( 114,457 )
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(1) Other components of net periodic pension (cost) income includes pension settlements and curtailments as discussed in Note 11.
(2) In 2023, Other income primarily relates to non-recurring items such as royalty and other non-operating gains .
NOTE 13 – INCOME TAXES
The components of income before income taxes were as follows:
Year Ended December 31,
2023
2022
2021
U.S.
$
508,316
$
359,760
$
143,290
Non-U.S.
178,550
233,067
181,708
Total
$
686,866
$
592,827
$
324,998
The components of income tax expense (benefit) were as follows:
Year Ended December 31,
2023
2022
2021
Current:
Federal
$
95,514
$
88,974
$
23,415
Non-U.S.
45,830
55,664
44,828
State and local
24,132
24,423
10,298
165,476
169,061
78,541
Deferred:
Federal
( 13,068 )
( 38,462 )
( 21,538 )
Non-U.S.
( 7,515 )
( 3,281 )
( 4,488 )
State and local
( 3,275 )
( 6,715 )
( 4,097 )
( 23,858 )
( 48,458 )
( 30,123 )
Total
$
141,618
$
120,603
$
48,418
The differences between total income tax expense and the amount computed by applying the statutory federal income tax rate to income before income taxes for the three years ended December 31, 2023 were as follows:
Year Ended December 31,
2023
2022
2021
Statutory rate applied to pre-tax income
$
144,242
$
124,492
$
68,250
State and local income taxes, net of federal tax benefit
17,979
12,904
4,005
Excess tax benefits resulting from exercises of stock-based compensation
( 10,742 )
( 2,500 )
( 4,681 )
Foreign Derived Intangible Income Deduction
( 10,411 )
( 13,356 )
( 2,197 )
Foreign rate variance
6,854
5,020
2,131
Valuation allowances
( 4,135 )
( 4,547 )
( 4,209 )
Research and development credit
( 9,600 )
( 6,800 )
( 5,300 )
Pension plan termination adjustment
—
—
( 14,711 )
U.S. tax cost of foreign source income
1,013
783
3,488
Other
6,418
4,607
1,642
Total
$
141,618
$
120,603
$
48,418
Effective tax rate
20.6
%
20.3
%
14.9
%
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Table of Contents
The effective tax rate remained consistent in 2023 and 2022.
Total income tax payments, net of refunds, were $ 180,512 in 2023, $ 151,818 in 2022 and $ 87,288 in 2021.
Deferred Taxes
Significant components of deferred tax assets and liabilities at December 31, 2023 and 2022, were as follows:
December 31,
2023
2022
Deferred tax assets:
Tax loss and credit carry-forwards
$
45,319
$
44,674
Inventory
2,941
937
Other accruals
17,984
29,601
Research and development capitalization
64,836
26,982
Employee benefits
28,639
26,674
Pension obligations
7,375
6,218
Other
5,640
7,344
Deferred tax assets, gross
172,734
142,430
Valuation allowance
( 36,876 )
( 44,627 )
Deferred tax assets, net
135,858
97,803
Deferred tax liabilities:
Property, plant and equipment
43,339
40,198
Intangible assets
26,624
23,790
Inventory
4,918
3,846
Pension and other benefit liabilities
10,545
13,787
Other
18,402
10,393
Deferred tax liabilities
103,828
92,014
Total deferred taxes
$
32,030
$
5,789
At December 31, 2023, certain subsidiaries had net operating loss carry-forwards of approximately $ 3,234 that expire in various years from 2024 through 2036, plus $ 166,063 for which there is no expiration date.
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. At December 31, 2023, a valuation allowance of $ 36,876 was recorded against certain deferred tax assets based on this assessment. 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 determined it will repatriate earnings for certain non-U.S. subsidiaries, which are subject to foreign withholding taxes. The Company has estimated the associated tax to be $ 76 . The Company considers 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.
Unrecognized Tax Benefits
Liabilities for unrecognized tax benefits related to uncertain tax positions are classified as Other liabilities unless expected to be paid in one year. Additionally, to the extent a position would not result in a cash tax liability, those amounts are generally recorded to Deferred income taxes to offset tax attributes. The Company recognizes interest and penalties related to unrecognized tax benefits in Income taxes. Current income tax expense included expense of $ 101 for the year ended December 31, 2023 and benefits of $ 486 for the year ended December 31, 2022 for interest and penalties.
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For those same years, the Company’s accrual for interest and penalties related to unrecognized tax benefits totaled $ 2,364 and $ 2,292 , respectively.
The following table summarizes the activity related to unrecognized tax benefits:
2023
2022
Balance at beginning of year
$
17,423
$
18,211
Increase related to current year tax provisions
1,983
2,263
(Decrease)/increase related to prior years' tax positions
( 1,642 )
91
Decrease related to settlements with taxing authorities
( 4,036 )
( 868 )
Resolution of and other decreases in prior years' tax liabilities
( 1,380 )
( 1,379 )
Other
244
( 895 )
Balance at end of year
$
12,592
$
17,423
The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate was $ 10,036 at December 31, 2023 and $ 14,504 at December 31, 2022.
The Company files income tax returns in the U.S. and various state, local and foreign jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal, state and local or non-U.S. income tax examinations by tax authorities for years before 2019. The Company is currently subject to various state audits and non-U.S. income tax audits. The Company is generally not able to precisely estimate the ultimate settlement amounts or timing until after the close of an audit. The Company evaluates its tax positions and establishes liabilities for unrecognized tax benefits related to uncertain tax positions that may be challenged by local authorities and may not be fully sustained.
Unrecognized tax benefits are reviewed on an ongoing basis and are adjusted for changing facts and circumstances, including management’s judgment in the interpretation of applicable tax law, regulation or tax ruling, the progress of tax audits and closing of statutes of limitations. Based on information currently available, management believes that additional audit activity could be completed and/or statutes of limitations may close relating to existing unrecognized tax benefits. It is reasonably possible there could be a further reduction of $ 1,646 in prior years’ unrecognized tax benefits in 2024.
NOTE 14 – 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 qualify for hedge accounting are assessed as to their effectiveness, when applicable. Hedge ineffectiveness was immaterial for each of the three years in the period ended December 31, 2023.
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 December 31, 2023. The Company does not expect any counterparties to fail to meet their obligations.
Cash flow hedges
Certain foreign currency forward contracts are qualified and designated as cash flow hedges. The dollar equivalent gross notional amount of these short-term contracts was $ 84,148 at December 31, 2023 and $ 66,296 at December 31, 2022.
The Company has interest rate forward starting swap agreements that are qualified and designated as cash flow hedges. The dollar equivalent gross notional amount of the long-term contracts was $ 100,000 at December 31, 2023 and 2022 and have a termination date of August 2025.
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The Company has commodity contracts that are qualified and designated as cash flow hedges. The notional amount of these contracts was 200,000 pounds at December 31, 2023 and 875,000 pounds at December 31, 2022.
In March 2023, the Company entered into interest rate swap agreements, which were qualified and designated as cash flow hedges, with an aggregate notional amount of $ 150,000 . The interest rate swaps will effectively convert the interest rate on $ 150,000 of the Term Loan discussed in Note 9 from a variable rate based on one-month SOFR to a fixed rate.
Net investment hedges
The Company has foreign currency forward contracts that qualify and are designated as net investment hedges. The dollar equivalent gross notional amount of these short-term contracts was $ 119,607 at December 31, 2023.
Derivatives not designated as hedging instruments
The Company has certain foreign exchange forward contracts which are not designated as hedges. These derivatives are held as hedges of certain balance sheet exposures. The dollar equivalent gross notional amount of these contracts was $ 492,600 at December 31, 2023 and $ 380,443 at December 31, 2022.
Fair values of derivative instruments in the Company’s Consolidated Balance Sheets follow:
December 31, 2023
December 31, 2022
Other
Other
Other
Other
Current
Current
Other
Other
Current
Current
Other
Other
Derivatives by hedge designation
Assets
Liabilities
Assets
Liabilities
Assets
Liabilities
Assets
Liabilities
Designated as hedging instruments:
Foreign exchange contracts
$
1,548
$
687
$
—
$
—
$
1,467
$
738
$
—
$
—
Interest rate swap agreements
—
—
1,460
—
—
—
—
—
Forward starting swap agreements
—
—
20,377
—
—
—
19,291
—
Net investment contracts
—
3,351
—
—
—
2,229
—
—
Commodity contracts
45
—
—
—
181
33
—
—
Not designated as hedging instruments:
Foreign exchange contracts
4,063
623
—
—
2,348
790
—
—
Total derivatives
$
5,656
$
4,661
$
21,837
$
—
$
3,996
$
3,790
$
19,291
$
—
The effects of undesignated derivative instruments on the Company’s Consolidated Statements of Income consisted of the following:
Year Ended December 31,
Derivatives by hedge designation
Classification of gain
2023
2022
Not designated as hedges:
Foreign exchange contracts
Selling, general
& administrative expenses
$
15,990
$
4,805
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The effects of designated cash flow hedges on AOCI and the Company’s Consolidated Statements of Income consisted of the following:
Total gain recognized in AOCI, net of tax
December 31, 2023
December 31, 2022
Foreign exchange contracts
$
721
$
627
Interest rate swap agreements
1,085
—
Forward starting swap agreements
14,696
13,191
Net investment contracts
7,136
9,440
Commodity contracts
34
91
The Company expects a gain of $ 755 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.
Year Ended December 31,
Gain (loss) recognized in the
Derivative type
Consolidated Statements of Income:
2023
2022
Foreign exchange contracts
Net Sales
$
5,210
$
962
Cost of goods sold
590
1,906
Commodity contracts
Cost of goods sold
193
( 169 )
NOTE 15 – FAIR VALUE
The following table provides a summary of fair value assets and liabilities as of December 31, 2023 measured at fair value on a recurring basis:
Quoted Prices in
Active Markets for
Identical Assets or
Significant Other
Significant
Balance as of
Liabilities
Observable Inputs
Unobservable
Description
December 31, 2023
(Level 1)
(Level 2)
Inputs (Level 3)
Assets:
Foreign exchange contracts
$
5,611
$
—
$
5,611
$
—
Interest rate swap agreements
1,460
—
1,460
—
Commodity contracts
45
—
45
—
Forward starting swap agreements
20,377
—
20,377
—
Pension surplus
41,849
41,849
—
—
Total assets
$
69,342
$
41,849
$
27,493
$
—
Liabilities:
Foreign exchange contracts
$
1,310
$
—
$
1,310
$
—
Net investment contracts
3,351
—
3,351
—
Deferred compensation
53,628
—
53,628
—
Total liabilities
$
58,289
$
—
$
58,289
$
—
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The following table provides a summary of fair value assets and liabilities as of December 31, 2022 measured at fair value on a recurring basis:
Quoted Prices in
Active Markets for
Identical Assets or
Significant Other
Significant
Balance as of
Liabilities
Observable Inputs
Unobservable
Description
December 31, 2022
(Level 1)
(Level 2)
Inputs (Level 3)
Assets:
Foreign exchange contracts
$
3,815
$
—
$
3,815
$
—
Commodity contracts
181
—
181
—
Forward starting swap agreements
19,291
—
19,291
—
Pension surplus
56,418
56,418
—
—
Total assets
$
79,705
$
56,418
$
23,287
$
—
Liabilities:
Foreign exchange contracts
$
1,528
$
—
$
1,528
$
—
Net investment contracts
2,229
—
2,229
—
Commodity contracts
33
—
33
—
Deferred compensation
39,090
—
39,090
—
Total liabilities
$
42,880
$
—
$
42,880
$
—
The 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 December 31, 2023.
The Company’s derivative contracts are valued at fair value using the market approach. The Company measures the fair value of foreign exchange contracts, interest rate swap agreements, forward starting swap agreements using Level 2 inputs based on observable spot and forward rates in active markets. During the year ended December 31, 2023, there were no transfers between Levels 1, 2 or 3.
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 December 31, 2023 and December 31, 2022. Refer to Note 9 to the consolidated financial statements for the fair value estimate of debt.
The Company has various financial instruments, including cash and cash equivalents, short and long-term debt and forward contracts. While these financial instruments are subject to concentrations of credit risk, the Company has minimized this risk by entering into arrangements with a number of major banks and financial institutions and investing in several high-quality instruments. The Company does not expect any counterparties to fail to meet their obligations.
NOTE 16 – INVENTORY
Inventories in the Consolidated Balance Sheet is comprised of the following components:
December 31, 2023
December 31, 2022
Raw materials
$
160,809
$
181,076
Work-in-process
125,756
164,778
Finished goods
276,299
319,597
Total
$
562,864
$
665,451
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The valuation of LIFO inventories is made at the end of each year based on inventory levels and costs at that time. Accordingly, interim LIFO calculations are based on management’s estimates of expected year-end inventory levels and costs. Actual year-end inventory levels and costs may differ from interim LIFO inventory valuations. At December 31, 2023 and 2022, approximately 37 % and 38 % of total inventories, respectively, were valued using the LIFO method. The excess of current cost over LIFO cost was $ 129,946 at December 31, 2023 and $ 133,909 at December 31, 2022, or a b enefit of $ 3,963 in 2023 as compared with charges of $ 19,733 in 2022.
NOTE 17 – LEASES
The table below summarizes the right-of-use assets and lease liabilities in the Company’s Consolidated Balance sheets:
Operating Leases
Balance Sheet Classification
December 31, 2023
December 31, 2022
Right-of-use assets
Other assets
$
53,284
$
44,810
Current liabilities
Other current liabilities
$
13,104
$
10,378
Noncurrent liabilities
Other liabilities
41,576
35,945
Total lease liabilities
$
54,680
$
46,323
Total lease expense, which is included in Cost of goods sold and Selling, general and administrative expenses in the Company’s Consolidated Statements of Income, was $ 24,408 , $ 20,548 and $ 21,630 in the years ended December 31, 2023, 2022 and 2021, respectively. Cash paid for amounts included in the measurement of lease liabilities for the years ended December 31, 2023 and 2022 was $ 13,450 and $ 12,036 , respectively, 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 during the years ended December 31, 2023 and 2022 were $ 9,249 and $ 9,332 , respectively.
The total future minimum lease payments for noncancelable operating leases were as follows:
December 31, 2023
2024
$
14,574
2025
11,786
2026
9,022
2027
6,574
2028
4,626
After 2028
14,647
Total lease payments
$
61,229
Less: Imputed interest
6,549
Operating lease liabilities
$
54,680
As of December 31, 2023 and 2022, the weighted average remaining lease term was 7.0 years and 7.8 years, respectively. As of December 31, 2023 and 2022, the weighted average discount rate used to determine the operating lease liability was 3.50 % and 2.96 %, respectively.
NOTE 18 – CONTINGENCIES
The Company, like other manufacturers, is subject from time to time to a variety of civil and administrative proceedings arising in the ordinary course of business. Such claims and litigation include, without limitation, product liability claims, regulatory claims, employment-related claims and health, safety and environmental claims, some of which relate to cases alleging asbestos induced illnesses. The claimants in the asbestos cases seek compensatory and punitive damages, in most cases for unspecified amounts. The Company believes it has meritorious defenses to these claims and intends to contest such suits vigorously.
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The Company accrues its best estimate of the probable costs, after a review of the facts with management and counsel and taking into account past experience. For claims or litigation that are material, if an unfavorable outcome is determined to be reasonably possible and the amount of loss can be reasonably estimated, or if an unfavorable outcome is determined to be probable and the amount of loss cannot be reasonably estimated, disclosure would be provided. Many of the current cases are in differing procedural stages and information on the circumstances of each claimant, which forms the basis for judgments as to the validity or ultimate disposition of such actions, varies greatly. Therefore, in many situations a range of possible losses cannot be made. Reserves are adjusted as facts and circumstances change and related management assessments of the underlying merits and the likelihood of outcomes change. Moreover, reserves only cover identified and/or asserted claims. Future claims could, therefore, give rise to increases to such reserves.
Based on the Company’s historical experience in litigating product liability claims, including a significant number of dismissals, summary judgments and defense verdicts in many cases and immaterial settlement amounts, as well as the Company’s current assessment of the underlying merits of the claims and applicable insurance, the Company believes resolution of these claims and proceedings, individually or in the aggregate, will not have a material effect on the Company’s consolidated financial statements.
NOTE 19 – SUPPLIER FINANCING PROGRAM
The Company’s suppliers, at the supplier’s sole discretion, are able to factor receivables due from the Company to a financial institution on terms directly negotiated with the financial institution without affecting the Company’s balance sheet classification of the corresponding payable. The Company pays the financial institution the stated amount of the confirmed invoices from its designated suppliers on the original maturity dates of the invoices. Invoices with suppliers have terms between 120 and 180 days . The Company does not provide secured legal assets or other forms of guarantees under the arrangement and has no involvement in establishing the terms or conditions of the arrangement between its suppliers and the financial institution. The amounts due to the financial institution for suppliers that participate in the supplier financing program are included in Trade 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 December 31, 2023 and December 31, 2022, Trade accounts payable included $ 29,111 and $ 33,475 , respectively, payable to suppliers that have elected to participate in the supplier financing program.
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SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS
LINCOLN ELECTRIC HOLDINGS, INC.
(In thousands)
Additions
Balance at
Charged to
(Credited)
Beginning
Costs and
Charged to
Balance at End
Description
Of period
Expenses
Other Accounts (1)
Deductions (2)
of Period
Allowance for doubtful accounts:
Year Ended December 31, 2023
$
12,556
$
1,195
$
( 94 )
$
2,193
$
11,464
Year Ended December 31, 2022
11,105
1,778
598
925
12,556
Year Ended December 31, 2021
14,779
718
( 2,491 )
1,901
11,105
Deferred tax asset valuation allowance:
Year Ended December 31, 2023
$
44,627
$
4,570
$
( 606 )
$
11,715
$
36,876
Year Ended December 31, 2022
55,619
2,262
( 5,197 )
8,057
44,627
Year Ended December 31, 2021
65,413
1,147
( 3,873 )
7,068
55,619
(1) Currency translation adjustment, reductions from restructuring and other adjustments.
(2) For the Allowance for doubtful accounts, deductions relate to uncollectible accounts written-off, net of recoveries. For the Deferred tax asset valuation allowance, deductions relate to the reversal of valuation allowances due to the realization of net operating loss carryforwards.
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QuickLinks
ITEM 1.
BUSINESS
1
ITEM 1A.
RISK FACTORS
5
ITEM 1B.
UNRESOLVED STAFF COMMENTS
12
ITEM 1C.
CYBERSECURITY
12
ITEM 1D.
INFORMATION ABOUT OUR EXECUTIVE OFFICERS
13
ITEM 2.
PROPERTIES
14
ITEM 3.
LEGAL PROCEEDINGS
16
ITEM 4.
MINE SAFETY DISCLOSURES
16
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
16
ITEM 6.
SELECTED FINANCIAL DATA (Dollars in thousands, except per share amounts)
17
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Dollars in thousands, except per share amounts)
17
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (Dollars in thousands, except per share amounts)
32
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
34
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
34
ITEM 9A.
CONTROLS AND PROCEDURES
34
ITEM 9B.
OTHER INFORMATION
34
ITEM 9C.
DISCLOSURE REGARDING FOREIGN JURSIDICTIONS THAT PREVENT INSPECTIONS
34
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
35
ITEM 11.
EXECUTIVE COMPENSATION
35
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
35
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
35
ITEM 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
35
ITEM 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
35
ITEM 16.
FORM 10-K SUMMARY
39
SIGNATURES
40
Report of Independent Registered Public Accounting Firm
F-1
Report of Independent Registered Public Accounting Firm
F-3
LINCOLN ELECTRIC HOLDINGS, INC. CONSOLIDATED BALANCE SHEETS (Dollars in thousands)
F-7
LINCOLN ELECTRIC HOLDINGS, INC. CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share amounts)
F-5
LINCOLN ELECTRIC HOLDINGS, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In thousands, except per share amounts)
F-6
LINCOLN ELECTRIC HOLDINGS, INC. CONSOLIDATED STATEMENTS OF EQUITY (In thousands, except per share amounts)
F-8
LINCOLN ELECTRIC HOLDINGS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
F-9
LINCOLN ELECTRIC HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except share and per share amounts)
F-10
SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS LINCOLN ELECTRIC HOLDINGS, INC. (In thousands)
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