What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-07-31 compared with 2024-04-25 · 119 added, 54 removed, 189 unchanged (48% of the section changed)

15 unchanged sentences

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

Three Months Ended March 31,

Three Months Ended June 30,

Favorable (Unfavorable)

4 unchanged sentences

Interest expense, net

Other income (expense)

Income before income taxes

1 unchanged sentence

Diluted earnings per share

Six Months Ended June 30,

Favorable (Unfavorable)

Cost of goods sold

Selling, general & administrative expenses

Rationalization and asset impairment charges

Operating income

Interest expense, net

Income before income taxes

Effective tax rate

Diluted earnings per share

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

Three Months Ended March 31,

Three Months Ended June 30,

Change in Net Sales due to:

1 unchanged sentence

Lincoln Electric Holdings, Inc.

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

Six Months Ended June 30,

Change in Net Sales due to:

Lincoln Electric Holdings, Inc.

Net sales decreased for the three and six months ended June 30, 2024 primarily due to softer demand across segments.

Gross Profit:

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.

Gross profit as a percentage of sales increased 2.8% and 3.2%, respectively, for the three and six months ended June 30, 2024 as compared to the same 2023 periods, driven by the benefit of effective cost management and operational improvements.

The three and six months ended June 30, 2024 includes a last-in, first-out (“LIFO”) benefit of $2,244 and $2,774, respectively, as compared with charges of $310 and $2,502 in the comparable 2023 periods.

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.

SG&A expenses increased for the three and six months ended June 30, 2024 as compared to the same 2023 periods, primarily due to acquisitions and higher employee-related costs.

Rationalization and Asset Impairment Charges:

Rationalization and asset impairment charges increased for the three and six months ended June 30, 2024 as compared to the same 2023 periods, primarily due to the disposal of the Company’s Russian entity.

Operating Income:

Operating income as a percentage of sales, was 14.6% for the three months ended June 30, 2024 as compared to 16.8% in the prior year.

Excluding special items, Operating income as a percentage of sales, was 17.4% for both comparable periods.

Operating income as a percentage of sales, was 15.7% for the six months ended June 30, 2024 as compared to 16.3% in the prior year.

Excluding special items, Operating income as a percentage of sales, was 17.4% and 16.8%, respectively, for the comparable periods.

Refer to explanations above for additional details.

Also refer to Non-GAAP Financial Measures for a reconciliation of Adjusted operating income.

Other Income (Expense):

Other income (expense) for the three and six months ended June 30, 2024 primarily relates to the loss on asset disposal partially offset by the gain on termination of interest rate swaps.

Income Taxes:

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.

The effective tax rate was higher for the three and six months ended June 30, 2024 as compared to the same periods in 2023, primarily due to mix of earnings and discrete tax items.

Segment Results

Three Months Ended March 31,

Three Months Ended June 30,

Change in Net Sales due to:

6 unchanged sentences

The Harris Products Group

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

Adjusted Earnings Before Interest and Income Taxes:

Six Months Ended June 30,

Change in Net Sales due to:

Operating Segments

Americas Welding

International Welding

The Harris Products Group

Americas Welding

International Welding

The Harris Products Group

(1) Decrease for the three and six months ended June 30, 2024 for all segments due to softer demand.

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

3 unchanged sentences

Favorable (Unfavorable)

Three Months Ended March 31,

Three Months Ended June 30,

Americas Welding:

17 unchanged sentences

As a percent of sales

(1) 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.

(1) Increase for the three months ended June 30, 2024 as compared to June 30, 2023 primarily driven by effective cost management and favorable mix.

(2) Decrease for the three months ended June 30, 2024 as compared to June 30, 2023 primarily driven by the unfavorable impact of lower volumes and operational inefficiencies.

(3) Increase for the three months ended June 30, 2024 as compared to June 30, 2023 primarily reflects effective cost management and operational improvements.

(4) The three months ended June 30, 2024 exclude Rationalization and asset impairment net charges of $26,284 primarily due to the impact of the Company’s disposition of its Russian entity as discussed in Note 6 and a loss on asset disposal of $4,950.

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

(5) The three months ended June 30, 2024 exclude acquisition transaction costs of $2,182 as discussed in Note 4.

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

Favorable (Unfavorable)

Six Months Ended June 30,

Americas Welding:

Inter-segment sales

Adjusted EBIT

As a percent of total sales (1)

International Welding:

Inter-segment sales

Adjusted EBIT (4)

As a percent of total sales (2)

The Harris Products Group:

Inter-segment sales

Adjusted EBIT (5)

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 six months ended June 30, 2024 as compared to June 30, 2023 primarily driven by effective cost management and favorable mix.

(2) Decrease for the six months ended June 30, 2024 as compared to June 30, 2023 primarily driven by the unfavorable impact of lower volumes and operational inefficiencies.

(3) Increase for the six months ended June 30, 2024 as compared to June 30, 2023 primarily reflects effective cost management and operational improvements.

(4) The six months ended June 30, 2024 exclude Rationalization and asset impairment net charges of $29,354 primarily due to restructuring activities, including the impact of the Company’s disposition of its Russian entity as discussed in Note 6 and a loss on asset disposal of $4,950.

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

(5) The six months ended June 30, 2024 exclude Rationalization and asset impairment net charges of $1,396 primarily due to restructuring activities as discussed in Note 6.

(6) The six months ended June 30, 2024 exclude acquisition transaction costs of $3,944 as discussed in Note 4.

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

Non-GAAP Financial Measures

3 unchanged sentences

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

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Operating income as reported

4 unchanged sentences

Adjusted operating income

As a percentage of net sales

Net income as reported

3 unchanged sentences

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

Gain on asset disposal (4)

Loss (gain) on asset disposal (4)

Tax effect of Special items (5)

10 unchanged sentences

Adjusted diluted earnings per share

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

(1) Primarily related to rationalization plans previously initiated within International Welding, including disposition of the Company’s Russian entity as discussed in Note 1, and The Harris Products Group.

(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) Gain on asset disposal and included in Other income

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

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

(4) Loss (gain) on asset disposal included in Other income (expense).

(5) Includes the net tax impact of Special items.

The tax effect of Special items impacting pre-tax income was calculated as the pre-tax amount multiplied by the applicable tax rate.

11 unchanged sentences

The following table reflects changes in key cash flow measures:

Three Months Ended March 31,

Six Months Ended June 30,

Cash provided by operating activities

1 unchanged sentence

Capital expenditures

Acquisition of businesses, net of cash acquired

Cash used by financing activities

Proceeds from (payments on) short-term borrowings

Payments on short-term borrowings

Proceeds from long-term borrowings

Payments on long-term borrowings

Purchase of shares for treasury

1 unchanged sentence

(Decrease) increase in Cash and cash equivalents (2)

(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.

(1) Cash used by investing activities increased for the six months ended June 30, 2024 , compared with the six months ended June 30, 2023 primarily for the acquisition of businesses in 2024.

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.

(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.

(2) Cash and cash equivalents decreased 30.8%, or $121,115, to $272,672 during the six months ended June 30, 2024 , from $393,787 as of December 31, 2023.

At June 30, 2024, $196,975 of Cash and cash equivalents was held by international subsidiaries.

In July 2024, the Company paid a cash dividend of $0.71 per share, or $40,239, to shareholders of record as of June 30, 2024.

Working Capital Ratios

March 31, 2024

June 30, 2024

December 31, 2023

March 31, 2023

June 30, 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 March 31,

Twelve Months Ended June 30,

Net income as reported

7 unchanged sentences

Amortization of step up in value of acquired inventories

Gain on asset disposal

Loss (gain) on asset disposal

Tax effect of Special items (1)

1 unchanged sentence

Invested Capital

March 31, 2024

March 31, 2023

June 30, 2024

June 30, 2023

Short-term debt

10 unchanged sentences

Fair Value of Debt

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.

At June 30, 2024 and December 31, 2023, the fair value of long-term debt, including the current portion, was approximately $1,017,606 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 $1,098,434 and $1,102,771, respectively.

1 unchanged sentence

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 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 March 31, 2024, the Company was in compliance with all of its covenants and had no outstanding borrowings under the Credit Agreement.

On June 20, 2024, the Company terminated its existing $500,000 revolving credit facility and entered into a new $1 billion revolving credit facility, which may be increased, subject to certain conditions including the consent of its lenders, by an additional amount up to $300,000.

The new revolving credit facility matures on June 20, 2029.

The new revolving credit facility will initially bear interest on outstanding borrowings at a per annum rate equal to secured overnight finance rate (“SOFR”) plus 1.10% and could fluctuate based on the Company’s total net leverage ratio at a spread ranging from SOFR plus 1.10% to SOFR plus 1.60%.

The financial covenants consist of a maximum net leverage ratio of 3.5x EBITDA and a minimum interest coverage ratio of 2.5x EBITDA.

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

As of June 30, 2024, the Company was in compliance with all of its covenants and had no outstanding borrowings under the new revolving credit facility.

The Company has other lines of credit and debt agreements totaling $37,412.

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.

As of June 30, 2024, the Company was in compliance with all of its covenants and had outstanding debt under short-term lines of credit of $6,254.

Senior Unsecured Notes

On June 20, 2024, the Company entered into a Note Purchase Agreement (the “NPA”) pursuant to which it agreed to issue new senior unsecured notes (“2024 Notes”) in an aggregate principal amount of $550,000, at par.

Pursuant to the NPA, the Company issued one series of the 2024 Notes in the aggregate principal amount of $400,000 on June 20, 2024, and will issue two series of the 2024 Notes each in the aggregate principal amount of $75,000 on August 22, 2024.

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%.

Interest on the Notes is paid semi-annually.

The Company’s total weighted average effective interest rate and remaining weighted average tenure of the Notes is 3.3% and 10.1 years, respectively.

The proceeds of the Notes were used for general corporate purposes.

The Notes contain certain affirmative and negative covenants.

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

The Company’s total weighted average effective interest rate and remaining weighted average tenure of the senior unsecured notes is 4.08%, including the impact from terminated swap agreements as discussed in Note 12, and 9.5 years, respectively.

The senior unsecured notes contain certain affirmative and negative covenants.

As of June 30, 2024, the Company was in compliance with all of its debt covenants relating to the senior unsecured 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.

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.

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.

On June 20, 2024, the Company used the net proceeds from the issuance of the initial series of 2024 Notes to repay the Term Loan in full.

In June 2024, the Company terminated the interest rate swaps that were associated with the Term Loan and realized a gain of $2,428, which is recorded in Other income (expense).

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