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 September 30, ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Favorable (Unfavorable) ​ 2024 ​ 2023 ​ 2024 vs. 2023 ​ ​ Amount % of Sales Amount % of Sales $ % Net sales $ 983,759 ​ ​ ​ ​ $ 1,033,214 ​ ​ $ (49,455) (4.8) % Cost of goods sold 631,681 ​ ​ ​ 667,584 ​ ​ 35,903 5.4 % Gross profit 352,078 ​ 35.8 % 365,630 35.4 % (13,552) (3.7) % Selling, general & administrative expenses 186,291 ​ 18.9 % 187,115 18.1 % 824 0.4 % Rationalization and asset impairment charges 20,227 ​ 2.1 % 7,074 0.7 % (13,153) (185.9) % Operating income 145,560 ​ 14.8 % 171,441 16.6 % (25,881) (15.1) % Interest expense, net 11,974 ​ ​ ​ 10,809 ​ ​ (1,165) (10.8) % Other (expense) income (1,644) ​ ​ ​ 801 ​ ​ (2,445) (305.2) % Income before income taxes 131,942 ​ 13.4 % 161,433 15.6 % (29,491) (18.3) % Income taxes 31,186 ​ ​ ​ 32,090 ​ ​ 904 2.8 % Effective tax rate 23.6 % ​ ​ 19.9 % ​ ​ (3.7) % ​ ​ Net income $ 100,756 ​ 10.2 % $ 129,343 12.5 % $ (28,587) (22.1) % Diluted earnings per share $ 1.77 ​ ​ ​ ​ $ 2.22 ​ $ (0.45) (20.3) % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Nine Months Ended September 30, ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Favorable (Unfavorable) ​ 2024 ​ 2023 ​ 2024 vs. 2023 ​ ​ Amount % of Sales Amount % of Sales $ % Net sales $ 2,986,639 ​ ​ ​ ​ $ 3,133,122 ​ ​ $ (146,483) (4.7) % Cost of goods sold 1,882,349 ​ ​ ​ 2,038,707 ​ ​ 156,358 7.7 % Gross profit 1,104,290 ​ 37.0 % 1,094,415 34.9 % 9,875 0.9 % Selling, general & administrative expenses 593,523 ​ 19.9 % 569,979 18.2 % (23,544) (4.1) % Rationalization and asset impairment charges 51,322 ​ 1.7 % 10,618 0.3 % (40,704) (383.3) % Operating income 459,445 ​ 15.4 % 513,818 16.4 % (54,373) (10.6) % Interest expense, net 31,414 ​ ​ ​ 35,708 ​ ​ 4,294 12.0 % Other (expense) income (935) ​ ​ ​ 11,727 ​ ​ (12,662) (108.0) % Income before income taxes 427,096 ​ 14.3 % 489,837 15.6 % (62,741) (12.8) % Income taxes 101,217 ​ ​ ​ 101,232 ​ ​ 15 0.0 % Effective tax rate 23.7 % ​ ​ 20.7 % ​ ​ (3.0) % ​ ​ Net income $ 325,879 ​ 10.9 % $ 388,605 12.4 % $ (62,726) (16.1) % Diluted earnings per share $ 5.68 ​ ​ ​ ​ $ 6.67 ​ $ (0.99) (14.8) % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 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 September 30, ​ ​ Change in Net Sales due to: ​ ​ ​ ​ Net Sales ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Foreign ​ Net Sales ​ ​ 2023 Volume Acquisitions Price Exchange 2024 Lincoln Electric Holdings, Inc. ​ $ 1,033,214 ​ $ (89,918) ​ $ 31,276 ​ $ 10,054 $ (867) ​ $ 983,759 ​ % Change ​ ​ ​ ​ ​ ​ ​ ​ ​ Lincoln Electric Holdings, Inc. ​ ​ ​ ​ (8.7) % 3.0 % 1.0 % ​ (0.1) % ​ (4.8) % ​ 24 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Nine Months Ended September 30, ​ ​ Change in Net Sales due to: ​ ​ ​ ​ Net Sales ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Foreign ​ Net Sales ​ ​ 2023 Volume Acquisitions Price Exchange 2024 Lincoln Electric Holdings, Inc. ​ $ 3,133,122 ​ $ (211,444) ​ $ 47,917 ​ $ 19,872 $ (2,828) ​ $ 2,986,639 ​ % Change ​ ​ ​ ​ ​ ​ ​ ​ ​ Lincoln Electric Holdings, Inc. ​ ​ ​ ​ (6.7) % 1.5 % 0.6 % ​ (0.1) % ​ (4.7) % ​ 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 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 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 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 14.8% 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 (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 nine months ended September 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 September 30, ​ ​ Change in Net Sales due to: ​ ​ Net Sales ​ ​ ​ ​ ​ ​ ​ Foreign ​ Net Sales ​ ​ 2023 Volume (1) Acquisitions Price Exchange 2024 ​ Operating Segments ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Americas Welding $ 665,228 ​ $ (57,292) ​ $ 30,212 ​ $ 2,505 $ (3,627) ​ $ 637,026 ​ International Welding ​ 242,010 ​ (28,899) ​ 1,064 ​ (1,349) ​ 3,398 ​ 216,224 ​ The Harris Products Group ​ 125,976 ​ (3,727) ​ — ​ 8,898 ​ (638) ​ 130,509 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ % Change ​ ​ ​ ​ ​ ​ ​ Americas Welding ​ ​ ​ ​ (8.6) % 4.5 % ​ 0.4 % ​ (0.5) % ​ (4.2) % International Welding ​ ​ ​ ​ (11.9) % 0.4 % ​ (0.6) % ​ 1.4 % ​ (10.7) % The Harris Products Group ​ ​ ​ ​ (3.0) % — ​ ​ 7.1 % ​ (0.5) % ​ 3.6 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Nine Months Ended September 30, ​ ​ Change in Net Sales due to: ​ ​ Net Sales ​ ​ ​ ​ ​ ​ Foreign Net Sales ​ 2023 ​ Volume (1) Acquisitions Price Exchange ​ 2024 ​ Operating Segments ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Americas Welding $ 2,000,839 ​ $ (145,610) ​ $ 46,796 ​ $ 11,311 $ (3,275) ​ $ 1,910,061 ​ International Welding ​ 747,829 ​ (50,728) ​ 1,121 ​ (8,508) ​ 1,029 ​ 690,743 ​ The Harris Products Group ​ 384,454 ​ (15,106) ​ — ​ 17,069 ​ (582) ​ 385,835 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ % Change ​ ​ ​ ​ ​ ​ ​ Americas Welding ​ ​ ​ ​ (7.3) % 2.3 % ​ 0.6 % ​ (0.2) % ​ (4.5) % International Welding ​ ​ ​ ​ (6.8) % 0.1 % ​ (1.1) % ​ 0.1 % ​ (7.6) % The Harris Products Group ​ ​ ​ ​ (3.9) % — ​ ​ 4.4 % ​ (0.2) % ​ 0.4 % ​ (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 (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. 26 Table of Contents The following table presents Adjusted EBIT by segment: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Favorable (Unfavorable) ​ ​ Three Months Ended September 30, ​ 2024 vs. 2023 ​ 2024 2023 $ % Americas Welding: ​ ​ ​ ​ ​ Net sales ​ $ 637,026 ​ $ 665,228 ​ $ (28,202) ​ (4.2) % Inter-segment sales ​ 30,845 ​ 28,875 ​ 1,970 ​ 6.8 % Total Sales ​ $ 667,871 ​ $ 694,103 ​ ​ (26,232) ​ (3.8) % Adjusted EBIT (4) ​ $ 125,515 ​ $ 136,476 ​ ​ (10,961) ​ (8.0) % As a percent of total sales (1) ​ 18.8 % 19.7 % ​ ​ ​ (0.9) % International Welding: ​ ​ ​ ​ ​ ​ ​ Net sales ​ $ 216,224 ​ $ 242,010 ​ ​ (25,786) ​ (10.7) % Inter-segment sales ​ 7,371 ​ 4,896 ​ ​ 2,475 ​ 50.6 % Total Sales ​ $ 223,595 ​ $ 246,906 ​ ​ (23,311) ​ (9.4) % Adjusted EBIT (5) ​ $ 20,101 ​ $ 30,239 ​ ​ (10,138) ​ (33.5) % As a percent of total sales (2) ​ 9.0 % 12.2 % ​ ​ ​ (3.2) % The Harris Products Group: ​ ​ ​ ​ ​ ​ ​ Net sales ​ $ 130,509 ​ $ 125,976 ​ ​ 4,533 ​ 3.6 % Inter-segment sales ​ 3,155 ​ 2,299 ​ ​ 856 ​ 37.2 % Total Sales ​ $ 133,664 ​ $ 128,275 ​ ​ 5,389 ​ 4.2 % Adjusted EBIT (6) ​ $ 21,959 ​ $ 20,405 ​ ​ 1,554 ​ 7.6 % As a percent of total sales (3) ​ 16.4 % 15.9 % ​ ​ ​ 0.5 % Corporate / Eliminations: ​ ​ ​ ​ ​ ​ ​ Inter-segment sales ​ $ (41,371) ​ $ (36,070) ​ ​ (5,301) ​ (14.7) % Adjusted EBIT (7) ​ 4,503 ​ (2,952) ​ ​ 7,455 ​ 252.5 % Consolidated: ​ ​ ​ ​ ​ ​ ​ Net sales ​ $ 983,759 ​ $ 1,033,214 ​ ​ (49,455) ​ (4.8) % Net income ​ $ 100,756 ​ $ 129,343 ​ ​ (28,587) ​ (22.1) % As a percent of total sales ​ 10.2 % 12.5 % ​ ​ ​ (2.3) % Adjusted EBIT (8) ​ $ 172,078 ​ $ 184,168 ​ ​ (12,090) ​ (6.6) % As a percent of sales ​ 17.5 % 17.8 % ​ ​ (0.3) % ​ (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. 27 Table of Contents (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) ​ ​ ​ Nine Months Ended September 30, ​ 2024 vs. 2023 ​ ​ 2024 2023 $ % Americas Welding: ​ ​ ​ ​ ​ Net sales ​ $ 1,910,061 ​ $ 2,000,839 ​ $ (90,778) ​ (4.5) % ​ Inter-segment sales ​ 98,624 ​ 92,043 ​ 6,581 ​ 7.1 % ​ Total Sales ​ $ 2,008,685 ​ $ 2,092,882 ​ ​ (84,197) ​ (4.0) % ​ Adjusted EBIT (4) ​ $ 398,265 ​ $ 408,800 ​ ​ (10,535) ​ (2.6) % ​ As a percent of total sales (1) ​ 19.8 % 19.5 % ​ ​ ​ 0.3 % ​ International Welding: ​ ​ ​ ​ ​ ​ ​ ​ ​ Net sales ​ $ 690,743 ​ $ 747,829 ​ ​ (57,086) ​ (7.6) % ​ Inter-segment sales ​ 24,628 ​ 19,941 ​ ​ 4,687 ​ 23.5 % ​ Total Sales ​ $ 715,371 ​ $ 767,770 ​ ​ (52,399) ​ (6.8) % ​ Adjusted EBIT (5) ​ $ 73,587 ​ $ 93,609 ​ ​ (20,022) ​ (21.4) % ​ As a percent of total sales (2) ​ 10.3 % 12.2 % ​ ​ ​ (1.9) % ​ The Harris Products Group: ​ ​ ​ ​ ​ ​ ​ ​ ​ Net sales ​ $ 385,835 ​ $ 384,454 ​ ​ 1,381 ​ 0.4 % ​ Inter-segment sales ​ 9,520 ​ 8,063 ​ ​ 1,457 ​ 18.1 % ​ Total Sales ​ $ 395,355 ​ $ 392,517 ​ ​ 2,838 ​ 0.7 % ​ Adjusted EBIT (6) ​ $ 66,761 ​ $ 58,898 ​ ​ 7,863 ​ 13.4 % ​ As a percent of total sales (3) ​ 16.9 % 15.0 % ​ ​ ​ 1.9 % ​ Corporate / Eliminations: ​ ​ ​ ​ ​ ​ ​ ​ ​ Inter-segment sales ​ $ (132,772) ​ $ (120,047) ​ ​ (12,725) ​ (10.6) % ​ Adjusted EBIT (7) ​ (11,840) ​ (14,538) ​ ​ 2,698 ​ 18.6 % ​ Consolidated: ​ ​ ​ ​ ​ ​ ​ ​ ​ Net sales ​ $ 2,986,639 ​ $ 3,133,122 ​ ​ (146,483) ​ (4.7) % ​ Net income ​ $ 325,879 ​ $ 388,605 ​ ​ (62,726) ​ (16.1) % ​ As a percent of total sales ​ 10.9 % 12.4 % ​ ​ ​ (1.5) % ​ Adjusted EBIT (8) ​ $ 526,773 ​ $ 546,769 ​ ​ (19,996) ​ (3.7) % ​ As a percent of sales ​ 17.6 % 17.5 % ​ ​ 0.1 % ​ ​ (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 . 28 Table of Contents (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. 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. 29 Table of Contents 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, ​ 2024 2023 2024 2023 Operating income as reported ​ $ 145,560 ​ $ 171,441 ​ $ 459,445 ​ $ 513,818 ​ Special items (pre-tax): ​ ​ ​ ​ ​ Rationalization and asset impairment charges (1) ​ 20,227 ​ 7,074 ​ 51,322 ​ 10,618 ​ Acquisition transaction costs (2) ​ 610 ​ — ​ 4,551 ​ — ​ Amortization of step up in value of acquired inventories (4) ​ 3,359 ​ 4,852 ​ 3,474 ​ 12,252 ​ Adjusted operating income ​ $ 169,756 ​ $ 183,367 ​ $ 518,792 ​ $ 536,688 ​ As a percentage of net sales ​ ​ 17.3 % ​ 17.7 % ​ 17.4 % ​ 17.1 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income as reported ​ $ 100,756 $ 129,343 ​ $ 325,879 ​ $ 388,605 ​ Special items: ​ ​ ​ ​ ​ ​ ​ ​ Rationalization and asset impairment charges (1) ​ 20,227 7,074 ​ 51,322 ​ ​ 10,618 ​ Acquisition transaction costs (2) ​ 610 — ​ 4,551 ​ ​ — ​ Pension settlement net gains (3) ​ 3,966 — ​ 3,966 ​ ​ — ​ Amortization of step up in value of acquired inventories (4) ​ 3,359 4,852 ​ 3,474 ​ ​ 12,252 ​ Loss (gain) on asset disposal (5) ​ — — ​ 4,950 ​ ​ (1,646) ​ Tax effect of Special items (6) ​ (6,550) (1,780) ​ (8,858) ​ ​ (3,908) ​ Adjusted net income ​ ​ 122,368 ​ 139,489 ​ ​ 385,284 ​ ​ 405,921 ​ Interest expense, net ​ 11,974 10,809 ​ 31,414 ​ ​ 35,708 ​ Income taxes as reported ​ 31,186 32,090 ​ 101,217 ​ ​ 101,232 ​ Tax effect of Special items (6) ​ 6,550 1,780 ​ 8,858 ​ ​ 3,908 ​ Adjusted EBIT ​ $ 172,078 $ 184,168 ​ $ 526,773 ​ $ 546,769 ​ Effective tax rate as reported ​ 23.6 % 19.9 % ​ 23.7 % ​ 20.7 % Net special item tax impact ​ — % (0.4) % ​ (1.5) % ​ (0.1) % Adjusted effective tax rate ​ 23.6 % 19.5 % ​ 22.2 % ​ 20.6 % Diluted earnings per share as reported ​ $ 1.77 $ 2.22 ​ $ 5.68 ​ $ 6.67 ​ Special items per share ​ 0.37 0.18 ​ 1.04 ​ ​ 0.30 ​ Adjusted diluted earnings per share ​ $ 2.14 $ 2.40 ​ $ 6.72 ​ $ 6.97 ​ ​ (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) 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. The applicable tax rates reflect the taxable jurisdiction and nature of each Special item. 30 Table of Contents 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: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Nine Months Ended September 30, ​ ​ 2024 2023 $ Change Cash provided by operating activities ​ $ 503,182 ​ $ 545,880 ​ $ (42,698) Cash used by investing activities (1) ​ (335,357) ​ (101,109) ​ (234,248) Capital expenditures ​ (85,117) ​ (66,459) ​ (18,658) Acquisition of businesses, net of cash acquired ​ (252,746) ​ (32,685) ​ (220,061) Cash used by financing activities (2) ​ (152,298) ​ (311,382) ​ 159,084 Proceeds from (payments on) short-term borrowings ​ 5,521 ​ (74,818) ​ 80,339 Proceeds from long-term borrowings ​ ​ 550,000 ​ ​ — ​ ​ 550,000 Payments on long-term borrowings ​ ​ (400,508) ​ ​ (7,997) ​ ​ (392,511) Purchase of shares for treasury ​ (211,212) ​ (130,589) ​ (80,623) Cash dividends paid to shareholders ​ (121,979) ​ (111,277) ​ (10,702) Increase in Cash and cash equivalents (3) ​ 10,431 ​ 145,517 ​ (135,086) ​ (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 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. 31 Table of Contents Working Capital Ratios ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, 2024 December 31, 2023 September 30, 2023 Average operating working capital to Net sales (1) 19.1 % 17.1 % 18.3 % Days sales in Inventories 123.4 104.6 ​ 116.6 ​ Days sales in Accounts receivable 51.4 50.0 ​ 50.5 ​ Average days in Trade accounts payable 52.3 47.6 ​ 49.8 ​ ​ (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 September 30, ​ ​ 2024 2023 Net income as reported ​ $ 482,523 $ 497,751 ​ Plus: Interest expense (after-tax) ​ ​ 37,665 ​ ​ 36,283 ​ Less: Interest income (after-tax) ​ ​ 7,845 ​ ​ 3,104 ​ Net operating profit after taxes ​ $ 512,343 ​ $ 530,930 ​ Special items: ​ ​ ​ ​ ​ ​ ​ Rationalization and asset impairment charges ​ 29,390 13,001 ​ Acquisition transaction costs ​ 4,554 2,935 Pension settlement charges ​ 4,811 — ​ Amortization of step up in value of acquired inventories ​ 3,471 12,253 ​ Loss (gain) on asset disposal ​ 4,950 (1,646) ​ Tax effect of Special items (2) ​ (2,413) (5,159) ​ Adjusted net operating profit after taxes ​ $ 557,106 $ 552,314 ​ ​ ​ ​ ​ ​ ​ Invested Capital September 30, 2024 September 30, 2023 ​ Short-term debt ​ $ 111,993 ​ $ 7,700 ​ Long-term debt, less current portion ​ ​ 1,150,616 ​ ​ 1,102,858 ​ Total debt ​ ​ 1,262,609 ​ ​ 1,110,558 ​ Total equity ​ 1,339,190 ​ 1,225,582 ​ Invested capital ​ $ 2,601,799 ​ $ 2,336,140 ​ ​ ​ ​ ​ ​ ​ ​ ​ Return on invested capital as reported ​ 19.7 % 22.7 % Adjusted return on invested capital (1) ​ 21.4 % 23.6 % ​ (1) The decrease in Adjusted ROIC is primarily related to the increase in long-term debt as discussed in Note 10. ​ 32 Table of Contents (2) 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. 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 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. 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 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 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 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. 33 Table of Contents 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 9.2 years, respectively. The senior unsecured notes contain certain affirmative and negative covenants. As of September 30, 2024, the Company was in compliance with all of its debt covenants relating to the senior unsecured notes. 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 (expense) income. 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.