What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-04-25 compared with 2023-10-27 · 41 added, 134 removed, 202 unchanged (46% of the section changed)

13 unchanged sentences

The Harris Products Group includes the Company’s global oxy-fuel cutting, soldering and brazing businesses as well as its retail business in the United States.

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 .

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

Fori is a leading designer and manufacturer of complex, multi-armed automated welding systems, with an extensive range of automated assembly systems, automated material handling solutions, automated large-scale, industrial guidance vehicles, and end of line testing systems.

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

On July 21, 2023, Christopher L.

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

After December 31, 2023, Mr.

Mapes will be designated Executive Chairman of the Board.

In connection with Mr.

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

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

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

Hedlund will succeed Mr.

Mapes as principal executive officer as of the Transition Date.

Results of Operations

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

Three Months Ended September 30,

Favorable (Unfavorable)

Cost of goods sold

Selling, general & administrative expenses

Rationalization and asset impairment charges

Operating income

Interest expense, net

Income before income taxes

Effective tax rate

Diluted earnings per share

Nine Months Ended September 30,

Three Months Ended March 31,

Favorable (Unfavorable)

8 unchanged sentences

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

Three Months Ended September 30,

Change in Net Sales due to:

Lincoln Electric Holdings, Inc.

Nine Months Ended September 30,

Three Months Ended March 31,

Change in Net Sales due to:

1 unchanged sentence

Lincoln Electric Holdings, Inc.

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

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

Net sales decreased for the three months ended March 31, 2024 primarily due to softer demand across segments.

Gross Profit:

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

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

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

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

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

Gross profit increased for the three months ended March 31, 2024 driven by favorable mix and effective cost management.

The three months ended March 31, 2024 includes a last-in, first-out (“LIFO”) benefit of $ 531 , as compared with charges of $ 2,191 in the comparable 2023 period.

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

SG&A expenses increased for the three months ended March 31, 2024 as compared to the same 2023 period, primarily due to higher employee-related costs.

Income Taxes:

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

The effective tax rate was higher for the three months ended March 31, 2024 as compared to the same period in 2023, primarily due to mix of earnings and discrete tax items.

Segment Results

Three Months Ended September 30,

Change in Net Sales due to:

Acquisitions (2)

Operating Segments

Americas Welding

International Welding

The Harris Products Group

Americas Welding

International Welding

The Harris Products Group

Nine Months Ended September 30,

Three Months Ended March 31,

Change in Net Sales due to:

Acquisitions (2)

Operating Segments

5 unchanged sentences

The Harris Products Group

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

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

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

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

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

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

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

(1) Decrease for the three months ended March 31, 2024 for all segments due to softer demand.

Adjusted Earnings Before Interest and Income Taxes:

4 unchanged sentences

Favorable (Unfavorable)

Three Months Ended September 30,

Americas Welding:

Inter-segment sales

Adjusted EBIT (4)

As a percent of total sales (1)

International Welding:

Inter-segment sales

Adjusted EBIT (5)

As a percent of total sales (2)

The Harris Products Group:

Inter-segment sales

Adjusted EBIT

As a percent of total sales (3)

Corporate / Eliminations:

Inter-segment sales

Adjusted EBIT (6)

Consolidated:

As a percent of total sales

Adjusted EBIT (7)

As a percent of sales

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

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

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

(4) The three months ended September 30, 2023 exclude Rationalization and asset impairment net charges of $408 primarily due to restructuring activities as discussed in Note 6 to the consolidated financial statements and the amortization of the step up in value of acquired inventories of $3,648 as discussed in Note 4 to the consolidated financial statements.

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

(5) The three months ended September 30, 2023 exclude Rationalization and asset impairment net charges of $6,666 primarily due to restructuring activities as discussed in Note 6 to the consolidated financial statements and the amortization of the step up in value of acquired inventories of $1,204 as discussed in Note 4 to the consolidated financial statements.

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

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

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

Favorable (Unfavorable)

Nine Months Ended September 30,

Three Months Ended March 31,

Americas Welding:

17 unchanged sentences

As a percent of sales

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

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

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

(4) The nine months ended September 30, 2023 exclude Rationalization and asset impairment net charges of $408 primarily due to restructuring activities as discussed in Note 6 to the consolidated financial statements and the amortization of the step up in value of acquired inventories of $9,390 as discussed in Note 4 to the consolidated financial statements.

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

(5) The nine months ended September 30, 2023 exclude Rationalization and asset impairment net charges of $10,210 primarily due to restructuring activities as discussed in Note 6 to the consolidated financial statements,

the amortization of the step up in value of acquired inventories of $2,862 as discussed in Note 4 to the consolidated financial statements and a gain on asset disposal of $1,646.

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

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

(1) Increase for the three months ended March 31, 2024 as compared to March 31, 2023 primarily driven by effective cost management.

(2) Increase for the three months ended March 31, 2024 as compared to March 31, 2023 primarily driven by effective cost management.

(3) The three months ended March 31, 2023 exclude the amortization of the step up in value of acquired inventories of $2,785.

(4) The three months ended March 31, 2024 exclude rationalization and asset impairment charges of $3,069 primarily due to restructuring activities as discussed in Note 6 of the consolidated financial statements.

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

(5) The three months ended March 31, 2024 exclude Rationalization and asset impairment net charges of $1,536 primarily due to restructuring activities as discussed in Note 6 to the consolidated financial statements.

(6) The three months ended March 31, 2024 exclude Acquisition transaction costs of $1,762 as discussed in Note 4 to the consolidated financial statements.

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

2 unchanged sentences

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

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

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

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Operating income as reported

8 unchanged sentences

Acquisition transaction costs (2)

Pension settlement net gains (4)

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

Gains on asset disposal (5)

Gain on asset disposal (4)

Tax effect of Special items (5)

11 unchanged sentences

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

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

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

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

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

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

13 unchanged sentences

The following table reflects changes in key cash flow measures:

Nine Months Ended September 30,

Three Months Ended March 31,

Cash provided by operating activities

1 unchanged sentence

Capital expenditures

Acquisition of businesses, net of cash acquired

Cash used by financing activities (2)

(Payments on) proceeds from short-term borrowings

(Payments on) proceeds from long-term borrowings

Proceeds from (payments on) short-term borrowings

Purchase of shares for treasury

Cash dividends paid to shareholders

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

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

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

(Decrease) increase in Cash and cash equivalents (3)

(1) Cash used by investing activities increased for the three months ended March 31, 2024 , compared with the three months ended March 31, 2023 primarily due to capital expenditures.

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

Anticipated capital expenditures include investments for capital maintenance and projects to increase efficiency, reduce costs, promote business growth or improve the overall safety and environmental conditions of the Company’s facilities.

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

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

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

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

(2) Cash used by financing activities increased in the three months ended March 31, 2024 , compared with the three months ended March 31, 2023 primarily due to increased purchase of treasury stock in 2024.

(3) Cash and cash equivalents decreased 4.8%, or $18,809, to $374,978 during the three months ended March 31, 2024 , from $393,787 as of December 31, 2023.

At March 31, 2024, $179,657 of Cash and cash equivalents was held by international subsidiaries.

In April 2024, the Company paid a cash dividend of $0.71 per share, or $40,405, to shareholders of record as of March 31, 2024.

Working Capital Ratios

September 30, 2023

March 31, 2024

December 31, 2023

September 30, 2022

March 31, 2023

Average operating working capital to Net sales (1)

10 unchanged sentences

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

Twelve Months Ended September 30,

Twelve Months Ended March 31,

Net income as reported

11 unchanged sentences

Invested Capital

September 30, 2023

September 30, 2022

March 31, 2024

March 31, 2023

Short-term debt

3 unchanged sentences

Adjusted return on invested capital

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

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

5 unchanged sentences

Fair Value of Debt

At September 30, 2023 and December 31, 2022, the fair value of long-term debt, including the current portion, was approximately $974,061 and $1,009,020, respectively, which was determined using available market information and methodologies requiring judgment.

At March 31, 2024 and December 31, 2023, the fair value of long-term debt, including the current portion, was approximately $981,481 and $1,013,795, respectively, which was determined using available market information and methodologies requiring judgment.

The carrying value of this debt at such dates was $1,102,677 and $1,102,771, respectively.

6 unchanged sentences

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

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

As of March 31, 2024, 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 $90,945.

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

As of March 31, 2024, the Company was in compliance with all of its covenants and had outstanding debt under short-term lines of credit of $4,720.

Senior Unsecured Notes

On April 1, 2015 and October 20, 2016, the Company entered into separate Note Purchase Agreements pursuant to which it issued senior unsecured notes (the "Notes") through a private placement.

The 2015 Notes and 2016 Notes each have an aggregate principal amount of $350,000, comprised of four different series ranging from $50,000 to $100,000, with maturity dates ranging from August 20, 2025 through April 1, 2045, and interest rates ranging from 2.75% and 4.02%.

3 unchanged sentences

The Notes contain certain affirmative and negative covenants.

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

As of March 31, 2024, the Company was in compliance with all of its debt covenants relating to the Notes.

On November 29, 2022, the Company entered into a term loan in the aggregate principal amount of $400,000 (the “Term Loan”), which was borrowed in full.

1 unchanged sentence

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.

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

As of March 31, 2024, the Company was in compliance with all of its covenants.

In March 2023, the Company entered into interest rate swap agreements to effectively convert the interest rate on $150,000 of the Term Loan from a variable rate to a fixed rate.

Shelf Agreements

On November 27, 2018, the Company entered into seven uncommitted master note facilities (the "Shelf Agreements") that allow borrowings up to $700,000 in the aggregate.

The Shelf Agreements have a term of 5 years and the average life

of borrowings cannot exceed 15 years.

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

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

Forward-looking Statements

25 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis