What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-10-31 compared with 2024-07-31 · 74 added, 60 removed, 248 unchanged (35% of the section changed)

15 unchanged sentences

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

Three Months Ended June 30,

Three Months Ended September 30,

Favorable (Unfavorable)

4 unchanged sentences

Interest expense, net

Other income (expense)

Other (expense) income

Income before income taxes

1 unchanged sentence

Diluted earnings per share

Six Months Ended June 30,

Nine Months Ended September 30,

Favorable (Unfavorable)

4 unchanged sentences

Interest expense, net

Other (expense) income

Income before income taxes

2 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 June 30,

Three Months Ended September 30,

Change in Net Sales due to:

1 unchanged sentence

Lincoln Electric Holdings, Inc.

Six Months Ended June 30,

Nine Months Ended September 30,

Change in Net Sales due to:

1 unchanged sentence

Lincoln Electric Holdings, Inc.

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

Net sales decreased for the three and nine months ended September 30, 2024 primarily due to softer demand across all 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.

Gross profit as a percentage of sales increased 0.4% and 2.1%, respectively, for the three and nine months ended September 30, 2024 as compared to the same 2023 periods, driven by the benefit of effective cost management and operational improvements.

The three and nine months ended September 30, 2024 includes a last-in, first-out (“LIFO”) benefit of $1,196 and $3,971, respectively, as compared with a benefit of $1,323 and a charge of $1,179 in each of 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.

SG&A expenses decreased in the three months ended September 30, 2024 as compared to the same 2023 period, primarily due to reductions in employee costs partially offset by acquisitions.

SG&A expenses increased for the nine months ended September 30, 2024 as compared to the same 2023 period, primarily due to acquisitions.

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.

Rationalization and asset impairment charges increased for the three and nine months ended September 30, 2024 as compared to the same 2023 periods, primarily due to the rationalization plans initiated during the third quarter of 2024 and the disposal of the Company’s Russian entity in the second quarter of 2024.

Refer to Note 6 to the consolidated financial statements for further information on the Company’s rationalization plans.

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.

Operating income as a percentage of sales was 14.8% for the three months ended September 30, 2024 as compared to 16.6% in the prior year period.

Excluding special items, Operating income as a percentage of sales was 17.3% for the three months ended September 30, 2024 as compared to 17.7% in the prior year period.

Operating income as a percentage of sales was 15.4% for the nine months ended September 30, 2024 as compared to 16.4% in the prior year period.

Excluding special items, Operating income as a percentage of sales was 17.4% for the nine months ended September 30, 2024 as compared to 17.1% in the prior year period.

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.

Other (Expense) Income:

Other (expense) income for the three months ended September 30, 2024 primarily relates to the pension settlement charges.

Other (expense) income for the nine months ended September 30, 2024 also includes 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.

The effective tax rate was higher for the three and nine months ended September 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 June 30,

Three Months Ended September 30,

Change in Net Sales due to:

6 unchanged sentences

The Harris Products Group

Six Months Ended June 30,

Nine Months Ended September 30,

Change in Net Sales due to:

6 unchanged sentences

The Harris Products Group

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

(1) Decrease for the three and nine months ended September 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 defined as Operating income plus Other (expense) income.

EBIT is adjusted for special items as determined by management such as the impact of rationalization activities, certain asset impairment charges and gains or losses on disposals of assets.

1 unchanged sentence

Favorable (Unfavorable)

Three Months Ended June 30,

Three Months Ended September 30,

Americas Welding:

17 unchanged sentences

As a percent of sales

(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.

(1) Decrease for the three months ended September 30, 2024 as compared to September 30, 2023 primarily driven by the unfavorable impact of lower volumes and the impact of acquisitions.

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

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

(4) The three months ended September 30, 2024 exclude Rationalization and asset impairment net charges of $16,282 primarily due to restructuring activities as discussed in Note 6, the amortization of the step up in value of acquired inventories of $3,109 as discussed in Note 4 and pension settlement charges of $3,966.

The three months ended September 30, 2023 exclude Rationalization and asset impairment net charges of $408 and the amortization of the step up in value of acquired inventories of $3,648.

(5) The three months ended September 30, 2024 exclude Rationalization and asset impairment net charges of $2,676 primarily due to restructuring activities as discussed in Note 6 and the amortization of the step up in value of acquired inventories of $250 as discussed in Note 4.

The three months ended September 30, 2023 exclude Rationalization and asset impairment net charges of $6,666 and the amortization of the step up in value of acquired inventories of $1,204.

(6) The three months ended September 30, 2024 exclude Rationalization and asset impairment net charges of $1,269 primarily due to restructuring activities as discussed in Note 6.

(7) The three months ended September 30, 2024 exclude acquisition transaction costs of $610 as discussed in Note 4.

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

Favorable (Unfavorable)

Six Months Ended June 30,

Nine Months Ended September 30,

Americas Welding:

17 unchanged sentences

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.

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

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

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

(4) The nine months ended September 30, 2024 exclude Rationalization and asset impairment net charges of $16,521 primarily due to restructuring activities as discussed in Note 6, the amortization of the step up in value of acquired inventories of $3,224 and pension settlement charges of $3,966.

The nine months ended September 30, 2023 exclude Rationalization and asset impairment net charges of $408 and the amortization of the step up in value of acquired inventories of $9,390 .

(5) The nine months ended September 30, 2024 exclude Rationalization and asset impairment net charges of $32,030 primarily due to restructuring activities, including the impact of the Company’s disposition of its Russian entity as discussed in Note 6, a loss on asset disposal of $4,950 and the amortization of the step up in value of acquired inventories of $250.

The nine months ended September 30, 2023 exclude Rationalization and asset impairment net charges of $10,210, the amortization of the step up in value of acquired inventories of $2,862 and a gain on asset disposal of $1,646.

(6) The nine months ended September 30, 2024 exclude Rationalization and asset impairment net charges of $2,666 primarily due to restructuring activities as discussed in Note 6.

(7) The nine months ended September 30, 2024 exclude acquisition transaction costs of $4,551 as discussed in Note 4.

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

4 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 June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Operating income as reported

9 unchanged sentences

Acquisition transaction costs (2)

Pension settlement net gains (3)

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

12 unchanged sentences

Adjusted diluted earnings per share

(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.

(1) Items in 2024 primarily relate to rationalization plans initiated during the third quarter of 2024 in all three segments, as well as previously initiated plans and the disposition of the Company’s Russian entity in International Welding.

Items in 2023 primarily relate to plans previously initiated within International Welding.

(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.

(3) Pension settlement charges are included in Other (expense) income.

(4) Related to acquisitions and are included in Cost of goods sold.

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

(6) 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.

11 unchanged sentences

The following table reflects changes in key cash flow measures:

Six Months Ended June 30,

Nine Months Ended September 30,

Cash provided by operating activities

3 unchanged sentences

Cash used by financing activities (2)

Payments on short-term borrowings

Proceeds from (payments on) short-term borrowings

Proceeds from long-term borrowings

2 unchanged sentences

Cash dividends paid to shareholders

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

(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.

Increase in Cash and cash equivalents (3)

(1) Cash used by investing activities increased for the nine months ended September 30, 2024 , compared with the nine months ended September 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.

(2) Cash used by financing activities decreased for the nine months ended September 30, 2024, compared with the nine months ended September 30, 2023 primarily due to the proceeds from the 2024 Notes issuances, partially offset by the repayment of the Term Loan as described in Note 10.

(3) Cash and cash equivalents increased 2.6%, or $10,431, to $404,218 during the nine months ended September 30, 2024 , from $393,787 as of December 31, 2023.

At September 30, 2024, $265,575 of Cash and cash equivalents was held by international subsidiaries.

In October 2024, the Company paid a cash dividend of $0.71 per share, or $40,062, to shareholders of record as of September 30, 2024.

Working Capital Ratios

June 30, 2024

September 30, 2024

December 31, 2023

June 30, 2023

September 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 June 30,

Twelve Months Ended September 30,

Net income as reported

11 unchanged sentences

Invested Capital

June 30, 2024

June 30, 2023

September 30, 2024

September 30, 2023

Short-term debt

3 unchanged sentences

Adjusted return on invested capital (1)

(1) The decrease in Adjusted ROIC is primarily related to the increase in long-term debt as discussed in Note 10.

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

5 unchanged sentences

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.

At September 30, 2024 and December 31, 2023, the fair value of long-term debt, including the current portion, was approximately $1,235,998 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 $1,250,620 and $1,102,771, respectively.

6 unchanged sentences

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.

As of September 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 $39,993.

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.

As of September 30, 2024, the Company was in compliance with all of its covenants and had outstanding debt under short-term lines of credit of $11,993.

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.

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 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.

3 unchanged sentences

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.

As of September 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.

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).

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 (expense) income.

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