LINCOLN ELECTRIC HOLDINGS INC 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Dollars in thousands, except per share amounts ) This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read together with the Company’s unaudited consolidated financial statements and other financial information included elsewhere in this Quarterly Report on Form 10-Q. General The Company is the world’s largest designer and manufacturer of arc welding and cutting products, manufacturing a broad line of arc welding equipment, consumable welding products and other welding and cutting products. Welding products include arc welding power sources, computer numerical control and plasma cutters, wire feeding systems, robotic welding packages, integrated automation systems, fume extraction equipment, consumable electrodes, fluxes, welding accessories and specialty welding consumables and fabrication. The Company’s product offering also includes oxy-fuel cutting systems and regulators and torches used in oxy-fuel welding, cutting and brazing. In addition, the Company has a leading global position in the brazing and soldering alloys market. The Company’s products are sold in both domestic and international markets. In the Americas, products are sold principally through industrial distributors, retailers and directly to users of welding products. Outside of the Americas, the Company has an international sales organization comprised of Company employees and agents who sell products from the Company’s various manufacturing sites to distributors and product users. The Company’s business units are aligned into three operating segments. 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 oxy-fuel cutting, soldering and brazing businesses as well as its retail business in the United States. 23 Table of Contents Results of Operations The following table shows the Company’s results of operations: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended June 30, ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Favorable (Unfavorable) ​ 2024 ​ 2023 ​ 2024 vs. 2023 ​ ​ Amount % of Sales Amount % of Sales $ % Net sales $ 1,021,683 ​ ​ ​ ​ $ 1,060,565 ​ ​ $ (38,882) (3.7) % Cost of goods sold 637,870 ​ ​ ​ 687,137 ​ ​ 49,267 7.2 % Gross profit 383,813 ​ 37.6 % 373,428 35.2 % 10,385 2.8 % Selling, general & administrative expenses 208,485 ​ 20.4 % 192,748 18.2 % (15,737) (8.2) % Rationalization and asset impairment charges 26,490 ​ 2.6 % 2,667 0.3 % (23,823) (893.3) % Operating income 148,838 ​ 14.6 % 178,013 16.8 % (29,175) (16.4) % Interest expense, net 10,661 ​ ​ ​ 11,699 ​ ​ 1,038 8.9 % Other income (expense) (1,553) ​ ​ ​ 6,746 ​ ​ (8,299) (123.0) % Income before income taxes 136,624 ​ 13.4 % 173,060 16.3 % (36,436) (21.1) % Income taxes 34,916 ​ ​ ​ 35,729 ​ ​ 813 2.3 % Effective tax rate 25.6 % ​ ​ 20.6 % ​ ​ (5.0) % ​ ​ Net income $ 101,708 ​ 10.0 % $ 137,331 12.9 % $ (35,623) (25.9) % Diluted earnings per share $ 1.77 ​ ​ ​ ​ $ 2.36 ​ $ (0.59) (25.0) % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Six Months Ended June 30, ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Favorable (Unfavorable) ​ 2024 ​ 2023 ​ 2024 vs. 2023 ​ ​ Amount % of Sales Amount % of Sales $ % Net sales $ 2,002,880 ​ ​ ​ ​ $ 2,099,908 ​ ​ $ (97,028) (4.6) % Cost of goods sold 1,250,668 ​ ​ ​ 1,371,123 ​ ​ 120,455 8.8 % Gross profit 752,212 ​ 37.6 % 728,785 34.7 % 23,427 3.2 % Selling, general & administrative expenses 407,232 ​ 20.3 % 382,864 18.2 % (24,368) (6.4) % Rationalization and asset impairment charges 31,095 ​ 1.6 % 3,544 0.2 % (27,551) (777.4) % Operating income 313,885 ​ 15.7 % 342,377 16.3 % (28,492) (8.3) % Interest expense, net 19,440 ​ ​ ​ 24,899 ​ ​ 5,459 21.9 % Other income 709 ​ ​ ​ 10,926 ​ ​ (10,217) (93.5) % Income before income taxes 295,154 ​ 14.7 % 328,404 15.6 % (33,250) (10.1) % Income taxes 70,031 ​ ​ ​ 69,142 ​ ​ (889) (1.3) % Effective tax rate 23.7 % ​ ​ 21.1 % ​ ​ (2.6) % ​ ​ Net income $ 225,123 ​ 11.2 % $ 259,262 12.3 % $ (34,139) (13.2) % Diluted earnings per share $ 3.91 ​ ​ ​ ​ $ 4.44 ​ $ (0.53) (11.9) % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net Sales: The following table summarizes the impact of volume, acquisitions, price and foreign currency exchange rates on Net sales on a consolidated basis: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended June 30, ​ ​ Change in Net Sales due to: ​ ​ ​ ​ Net Sales ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Foreign ​ Net Sales ​ ​ 2023 Volume Acquisitions Price Exchange 2024 Lincoln Electric Holdings, Inc. ​ $ 1,060,565 ​ $ (57,745) ​ $ 12,477 ​ $ 10,101 $ (3,715) ​ $ 1,021,683 ​ % Change ​ ​ ​ ​ ​ ​ ​ ​ ​ Lincoln Electric Holdings, Inc. ​ ​ ​ ​ (5.4) % 1.2 % 1.0 % ​ (0.4) % ​ (3.7) % ​ 24 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Six Months Ended June 30, ​ ​ Change in Net Sales due to: ​ ​ ​ ​ Net Sales ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Foreign ​ Net Sales ​ ​ 2023 Volume Acquisitions Price Exchange 2024 Lincoln Electric Holdings, Inc. ​ $ 2,099,908 ​ $ (121,526) ​ $ 16,641 ​ $ 9,818 $ (1,961) ​ $ 2,002,880 ​ % Change ​ ​ ​ ​ ​ ​ ​ ​ ​ Lincoln Electric Holdings, Inc. ​ ​ ​ ​ (5.8) % 0.8 % 0.5 % ​ (0.1) % ​ (4.6) % ​ Net sales decreased for the three and six months ended June 30, 2024 primarily due to softer demand across segments. Gross Profit: 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 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 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. 25 Table of Contents Segment Results ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended June 30, ​ ​ Change in Net Sales due to: ​ ​ Net Sales ​ ​ ​ ​ ​ ​ ​ Foreign ​ Net Sales ​ ​ 2023 Volume (1) Acquisitions Price Exchange 2024 ​ Operating Segments ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Americas Welding $ 676,966 ​ $ (45,665) ​ $ 12,420 ​ $ 6,522 $ (1,307) ​ $ 648,936 ​ International Welding ​ 253,403 ​ (9,557) ​ 57 ​ (3,149) ​ (1,996) ​ 238,758 ​ The Harris Products Group ​ 130,196 ​ (2,523) ​ — ​ 6,728 ​ (412) ​ 133,989 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ % Change ​ ​ ​ ​ ​ ​ ​ Americas Welding ​ ​ ​ ​ (6.7) % 1.8 % ​ 1.0 % ​ (0.2) % ​ (4.1) % International Welding ​ ​ ​ ​ (3.8) % 0.0 % ​ (1.2) % ​ (0.8) % ​ (5.8) % The Harris Products Group ​ ​ ​ ​ (1.9) % — ​ ​ 5.2 % ​ (0.3) % ​ 2.9 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Six Months Ended June 30, ​ ​ Change in Net Sales due to: ​ ​ Net Sales ​ ​ ​ ​ ​ ​ Foreign Net Sales ​ 2023 ​ Volume (1) Acquisitions Price Exchange ​ 2024 ​ Operating Segments ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Americas Welding $ 1,335,611 ​ $ (88,318) ​ $ 16,584 ​ $ 8,806 $ 352 ​ $ 1,273,035 ​ International Welding ​ 505,819 ​ (21,829) ​ 57 ​ (7,159) ​ (2,369) ​ 474,519 ​ The Harris Products Group ​ 258,478 ​ (11,379) ​ — ​ 8,171 ​ 56 ​ 255,326 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ % Change ​ ​ ​ ​ ​ ​ ​ Americas Welding ​ ​ ​ ​ (6.6) % 1.2 % ​ 0.7 % ​ 0.0 % ​ (4.7) % International Welding ​ ​ ​ ​ (4.3) % 0.0 % ​ (1.4) % ​ (0.5) % ​ (6.2) % The Harris Products Group ​ ​ ​ ​ (4.4) % — ​ ​ 3.2 % ​ 0.0 % ​ (1.2) % ​ (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. EBIT is defined as Operating income plus Other income (expense). 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. 26 Table of Contents The following table presents Adjusted EBIT by segment: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Favorable (Unfavorable) ​ ​ Three Months Ended June 30, ​ 2024 vs. 2023 ​ 2024 2023 $ % Americas Welding: ​ ​ ​ ​ ​ Net sales ​ $ 648,936 ​ $ 676,966 ​ $ (28,030) ​ (4.1) % Inter-segment sales ​ 37,800 ​ 30,850 ​ 6,950 ​ 22.5 % Total Sales ​ $ 686,736 ​ $ 707,816 ​ ​ (21,080) ​ (3.0) % Adjusted EBIT ​ $ 136,651 ​ $ 139,870 ​ ​ (3,219) ​ (2.3) % As a percent of total sales (1) ​ 19.9 % 19.8 % ​ ​ ​ 0.1 % International Welding: ​ ​ ​ ​ ​ ​ ​ Net sales ​ $ 238,758 ​ $ 253,403 ​ ​ (14,645) ​ (5.8) % Inter-segment sales ​ 8,849 ​ 8,292 ​ ​ 557 ​ 6.7 % Total Sales ​ $ 247,607 ​ $ 261,695 ​ ​ (14,088) ​ (5.4) % Adjusted EBIT (4) ​ $ 25,709 ​ $ 33,774 ​ ​ (8,065) ​ (23.9) % As a percent of total sales (2) ​ 10.4 % 12.9 % ​ ​ ​ (2.5) % The Harris Products Group: ​ ​ ​ ​ ​ ​ ​ Net sales ​ $ 133,989 ​ $ 130,196 ​ ​ 3,793 ​ 2.9 % Inter-segment sales ​ 3,272 ​ 2,867 ​ ​ 405 ​ 14.1 % Total Sales ​ $ 137,261 ​ $ 133,063 ​ ​ 4,198 ​ 3.2 % Adjusted EBIT ​ $ 24,923 ​ $ 19,510 ​ ​ 5,413 ​ 27.7 % As a percent of total sales (3) ​ 18.2 % 14.7 % ​ ​ ​ 3.5 % Corporate / Eliminations: ​ ​ ​ ​ ​ ​ ​ Inter-segment sales ​ $ (49,921) ​ $ (42,009) ​ ​ (7,912) ​ (18.8) % Adjusted EBIT (5) ​ (6,264) ​ (2,183) ​ ​ (4,081) ​ (186.9) % Consolidated: ​ ​ ​ ​ ​ ​ ​ Net sales ​ $ 1,021,683 ​ $ 1,060,565 ​ ​ (38,882) ​ (3.7) % Net income ​ $ 101,708 ​ $ 137,331 ​ ​ (35,623) ​ (25.9) % As a percent of total sales ​ 10.0 % 12.9 % ​ ​ ​ (2.9) % Adjusted EBIT (6) ​ $ 181,019 ​ $ 190,971 ​ ​ (9,952) ​ (5.2) % As a percent of sales ​ 17.7 % 18.0 % ​ ​ (0.3) % ​ (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. 27 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Favorable (Unfavorable) ​ ​ ​ Six Months Ended June 30, ​ 2024 vs. 2023 ​ ​ 2024 2023 $ % Americas Welding: ​ ​ ​ ​ ​ Net sales ​ $ 1,273,035 ​ $ 1,335,611 ​ $ (62,576) ​ (4.7) % ​ Inter-segment sales ​ 67,778 ​ 63,168 ​ 4,610 ​ 7.3 % ​ Total Sales ​ $ 1,340,813 ​ $ 1,398,779 ​ ​ (57,966) ​ (4.1) % ​ Adjusted EBIT ​ $ 272,750 ​ $ 272,324 ​ ​ 426 ​ 0.2 % ​ As a percent of total sales (1) ​ 20.3 % 19.5 % ​ ​ ​ 0.8 % ​ International Welding: ​ ​ ​ ​ ​ ​ ​ ​ ​ Net sales ​ $ 474,519 ​ $ 505,819 ​ ​ (31,300) ​ (6.2) % ​ Inter-segment sales ​ 17,257 ​ 15,045 ​ ​ 2,212 ​ 14.7 % ​ Total Sales ​ $ 491,776 ​ $ 520,864 ​ ​ (29,088) ​ (5.6) % ​ Adjusted EBIT (4) ​ $ 53,486 ​ $ 63,371 ​ ​ (9,885) ​ (15.6) % ​ As a percent of total sales (2) ​ 10.9 % 12.2 % ​ ​ ​ (1.3) % ​ The Harris Products Group: ​ ​ ​ ​ ​ ​ ​ ​ ​ Net sales ​ $ 255,326 ​ $ 258,478 ​ ​ (3,152) ​ (1.2) % ​ Inter-segment sales ​ 6,365 ​ 5,764 ​ ​ 601 ​ 10.4 % ​ Total Sales ​ $ 261,691 ​ $ 264,242 ​ ​ (2,551) ​ (1.0) % ​ Adjusted EBIT (5) ​ $ 44,802 ​ $ 38,493 ​ ​ 6,309 ​ 16.4 % ​ As a percent of total sales (3) ​ 17.1 % 14.6 % ​ ​ ​ 2.5 % ​ Corporate / Eliminations: ​ ​ ​ ​ ​ ​ ​ ​ ​ Inter-segment sales ​ $ (91,400) ​ $ (83,977) ​ ​ (7,423) ​ (8.8) % ​ Adjusted EBIT (6) ​ (16,343) ​ (11,586) ​ ​ (4,757) ​ (41.1) % ​ Consolidated: ​ ​ ​ ​ ​ ​ ​ ​ ​ Net sales ​ $ 2,002,880 ​ $ 2,099,908 ​ ​ (97,028) ​ (4.6) % ​ Net income ​ $ 225,123 ​ $ 259,262 ​ ​ (34,139) ​ (13.2) % ​ As a percent of total sales ​ 11.2 % 12.3 % ​ ​ ​ (1.1) % ​ Adjusted EBIT (7) ​ $ 354,695 ​ $ 362,602 ​ ​ (7,907) ​ (2.2) % ​ As a percent of sales ​ 17.7 % 17.3 % ​ ​ 0.4 % ​ ​ (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. 28 Table of Contents Non-GAAP Financial Measures The Company reviews Adjusted operating income, Adjusted net income, Adjusted EBIT, Adjusted effective tax rate, Adjusted diluted earnings per share (“EPS”), Adjusted return on invested capital (“Adjusted ROIC”), Adjusted net operating profit after taxes, Cash conversion and Organic sales, all non-GAAP financial measures, in assessing and evaluating the Company’s underlying operating performance. 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 June 30, Six Months Ended June 30, ​ 2024 2023 2024 2023 Operating income as reported ​ $ 148,838 ​ $ 178,013 ​ $ 313,885 ​ $ 342,377 ​ Special items (pre-tax): ​ ​ ​ ​ ​ Rationalization and asset impairment charges (1) ​ 26,490 ​ 2,667 ​ 31,095 ​ 3,544 ​ Acquisition transaction costs (2) ​ 2,182 ​ — ​ 3,944 ​ — ​ Amortization of step up in value of acquired inventories (3) ​ 112 ​ 3,545 ​ 112 ​ 7,401 ​ Adjusted operating income ​ $ 177,622 ​ $ 184,225 ​ $ 349,036 ​ $ 353,322 ​ As a percentage of net sales ​ ​ 17.4 % ​ 17.4 % ​ 17.4 % ​ 16.8 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income as reported ​ $ 101,708 $ 137,331 ​ $ 225,123 ​ $ 259,262 ​ Special items: ​ ​ ​ ​ ​ ​ ​ ​ Rationalization and asset impairment charges (1) ​ 26,490 2,667 ​ 31,095 ​ ​ 3,544 ​ Acquisition transaction costs (2) ​ 2,182 — ​ 3,944 ​ ​ — ​ Amortization of step up in value of acquired inventories (3) ​ 112 3,545 ​ 112 ​ ​ 7,401 ​ Loss (gain) on asset disposal (4) ​ 4,950 — ​ 4,950 ​ ​ (1,646) ​ Tax effect of Special items (5) ​ (1,182) (1,311) ​ (2,308) ​ ​ (2,129) ​ Adjusted net income ​ ​ 134,260 ​ 142,232 ​ ​ 262,916 ​ ​ 266,432 ​ Interest expense, net ​ 10,661 11,699 ​ 19,440 ​ ​ 24,899 ​ Income taxes as reported ​ 34,916 35,729 ​ 70,031 ​ ​ 69,142 ​ Tax effect of Special items (5) ​ 1,182 1,311 ​ 2,308 ​ ​ 2,129 ​ Adjusted EBIT ​ $ 181,019 $ 190,971 ​ $ 354,695 ​ $ 362,602 ​ Effective tax rate as reported ​ 25.6 % 20.6 % ​ 23.7 % ​ 21.1 % Net special item tax impact ​ (4.4) % 0.1 % ​ (2.1) % ​ — % Adjusted effective tax rate ​ 21.2 % 20.7 % ​ 21.6 % ​ 21.1 % Diluted earnings per share as reported ​ $ 1.77 $ 2.36 ​ $ 3.91 ​ $ 4.44 ​ Special items per share ​ 0.57 0.08 ​ 0.66 ​ ​ 0.13 ​ Adjusted diluted earnings per share ​ $ 2.34 $ 2.44 ​ $ 4.57 ​ $ 4.57 ​ ​ (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 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. 29 Table of Contents The tax effect of Special items impacting pre-tax income was calculated as the pre-tax amount multiplied by the applicable tax rate. The applicable tax rates reflect the taxable jurisdiction and nature of each Special item. Liquidity and Capital Resources The Company’s cash flow from operations can be cyclical. Operational cash flow is a key driver of liquidity, providing cash and access to capital markets. In assessing liquidity, the Company reviews working capital measurements to define areas for improvement. Management anticipates the Company will be able to satisfy cash requirements for its ongoing businesses for at least the next twelve months and the foreseeable future thereafter primarily with cash generated by operations, existing cash balances, borrowings under its existing credit facilities and raising debt in capital markets. The Company continues to expand globally and periodically looks at transactions that would involve significant investments. The Company can fund its global expansion plans with operational cash flow, but a significant acquisition may require access to capital markets, in particular, the long-term debt market, as well as the syndicated bank loan market. The Company’s financing strategy is to fund itself at the lowest after-tax cost of funding. Where possible, the Company utilizes operational cash flows and raises capital in the most efficient market, usually the United States, and then lends funds to the specific subsidiary that requires funding. If additional acquisitions providing appropriate financial benefits become available, additional expenditures may be made. The following table reflects changes in key cash flow measures: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Six Months Ended June 30, ​ ​ 2024 2023 $ Change Cash provided by operating activities ​ $ 303,981 ​ $ 322,776 ​ $ (18,795) Cash used by investing activities (1) ​ (200,746) ​ (76,346) ​ (124,400) Capital expenditures ​ (49,395) ​ (40,552) ​ (8,843) Acquisition of businesses, net of cash acquired ​ (152,654) ​ (32,657) ​ (119,997) Cash used by financing activities ​ (218,452) ​ (226,898) ​ 8,446 Payments on short-term borrowings ​ (578) ​ (72,224) ​ 71,646 Proceeds from long-term borrowings ​ ​ 400,000 ​ ​ — ​ ​ 400,000 Payments on long-term borrowings ​ ​ (400,339) ​ ​ (6,978) ​ ​ (393,361) Purchase of shares for treasury ​ (160,820) ​ (85,234) ​ (75,586) Cash dividends paid to shareholders ​ (81,696) ​ (74,472) ​ (7,224) (Decrease) increase in Cash and cash equivalents (2) ​ (121,115) ​ 23,333 ​ (144,448) ​ (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 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. 30 Table of Contents Working Capital Ratios ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ June 30, 2024 December 31, 2023 June 30, 2023 Average operating working capital to Net sales (1) 18.0 % 17.1 % 18.9 % Days sales in Inventories 117.0 104.6 ​ 122.5 ​ Days sales in Accounts receivable 51.9 50.0 ​ 51.8 ​ Average days in Trade accounts payable 56.3 47.6 ​ 52.9 ​ ​ (1) Average operating working capital to net sales is defined as the sum of Accounts receivable, Inventories and contract assets less Trade accounts payable and contract liabilities as of period end divided by annualized rolling three months of Net sales. Return on Invested Capital The Company reviews ROIC in assessing and evaluating the Company’s underlying operating performance. As discussed in the Non-GAAP Financial Measures section above, Adjusted ROIC is a non-GAAP financial measure that the Company believes is a meaningful metric to investors in evaluating the Company’s financial performance. The calculation may be different than the method used by other companies to calculate ROIC. Adjusted ROIC is defined as rolling 12 months of Adjusted net income excluding tax-effected interest income and expense divided by invested capital. Invested capital is defined as total debt, which includes Short-term debt and Long-term debt, less current portions, plus Total equity. The following table presents the reconciliations of ROIC and Adjusted ROIC to net income: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Twelve Months Ended June 30, ​ ​ 2024 2023 Net income as reported ​ $ 511,110 $ 477,633 ​ Plus: Interest expense (after-tax) ​ ​ 36,607 ​ ​ 33,234 ​ Less: Interest income (after-tax) ​ ​ 7,654 ​ ​ 1,999 ​ Net operating profit after taxes ​ $ 540,063 ​ $ 508,868 ​ Special items: ​ ​ ​ ​ ​ ​ ​ Rationalization and asset impairment charges ​ 16,237 14,291 ​ Acquisition transaction costs ​ 3,944 6,003 Pension settlement charges ​ 845 — ​ Amortization of step up in value of acquired inventories ​ 4,964 7,048 ​ Loss (gain) on asset disposal ​ 4,950 (1,646) ​ Tax effect of Special items (1) ​ 2,357 (4,110) ​ Adjusted net operating profit after taxes ​ $ 573,360 $ 530,454 ​ ​ ​ ​ ​ ​ ​ Invested Capital June 30, 2024 June 30, 2023 ​ Short-term debt ​ $ 6,254 ​ $ 10,406 ​ Long-term debt, less current portion ​ ​ 1,098,430 ​ ​ 1,103,898 ​ Total debt ​ ​ 1,104,684 ​ ​ 1,114,304 ​ Total equity ​ 1,312,906 ​ 1,201,424 ​ Invested capital ​ $ 2,417,590 ​ $ 2,315,728 ​ ​ ​ ​ ​ ​ ​ ​ ​ Return on invested capital as reported ​ 22.3 % 22.0 % Adjusted return on invested capital ​ 23.7 % 22.9 % ​ (1) Includes the net tax impact of Special items recorded during the respective periods. The tax effect of Special items impacting pre-tax income was calculated as the pre-tax amount multiplied by the applicable tax rate. The applicable tax rates reflect the taxable jurisdiction and nature of each Special item. 31 Table of Contents New Accounting Pronouncements Refer to Note 1 to the consolidated financial statements for a discussion of new accounting pronouncements. Acquisitions Refer to Note 4 to the consolidated financial statements for a discussion of the Company’s recent acquisitions. Debt Fair Value of Debt 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. 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. Revolving 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 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% to 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 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. 32 Table of Contents 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. 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 The Company’s expectations and beliefs concerning the future contained in this report are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements reflect management’s current expectations and involve a number of risks and uncertainties. Forward-looking statements generally can be identified by the use of words such as “may,” “will,” “expect,” “intend,” “estimate,” “anticipate,” “believe,” “forecast,” “guidance” or words of similar meaning. Actual results may differ materially from such statements due to a variety of factors that could adversely affect the Company’s operating results. The factors include, but are not limited to: general economic, financial and market conditions; the effectiveness of operating initiatives; completion of planned divestitures; interest rates; disruptions, uncertainty or volatility in the credit markets that may limit our access to capital; currency exchange rates and devaluations; adverse outcome of pending or potential litigation; actual costs of the Company’s rationalization plans; possible acquisitions, including the Company’s ability to successfully integrate acquisitions; market risks and price fluctuations related to the purchase of commodities and energy; global regulatory complexity; the effects of changes in tax law; tariff rates in the countries where the Company conducts business; and the possible effects of events beyond our control, such as the impact of the Russia-Ukraine conflict, political unrest, acts of terror, natural disasters and pandemics, on the Company or its customers, suppliers and the economy in general. For additional discussion, see “Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK There have been no material changes in the Company’s exposure to market risk since December 31, 2023. See “Item 7A. Quantitative and Qualitative Disclosures About Market Risk” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.