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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2022

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____________ to _____________

Commission File Number:  0-1402

Graphic

LINCOLN ELECTRIC HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

Ohio

 

34-1860551

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification No.)

22801 St. Clair Avenue, Cleveland, Ohio

44117

(Address of principal executive offices)

(Zip Code)

(216) 481-8100

(Registrant’s telephone number, including area code)

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of exchange on which registered

Common Shares, without par value

LECO

The NASDAQ Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes   No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes   No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “small reporting company”, and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

 

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes  No 

The number of shares outstanding of the registrant’s common shares as of September 30, 2022 was 57,738,400.

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION

3

Item 1. Financial Statements

3

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

3

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)

4

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

5

CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)

6

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

8

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

9

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

25

Item 3. Quantitative and Qualitative Disclosures About Market Risk

36

Item 4. Controls and Procedures

36

 

 

PART II. OTHER INFORMATION

37

Item 1. Legal Proceedings

37

Item 1A. Risk Factors

37

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

37

Item 4. Mine Safety Disclosures

37

Item 6. Exhibits

38

Signatures

39

EX-31.1

Certification of the Chairman, President and Chief Executive Officer (Principal Executive Officer) pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.

 

EX-31.2

Certification of the Executive Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer) pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.

 

EX-32.1

Certification of the Chairman, President and Chief Executive Officer (Principal Executive Officer) and Executive Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer) pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

EX-101

Instance Document

 

EX-101

Schema Document

 

EX-101

Calculation Linkbase Document

 

EX-101

Label Linkbase Document

 

EX-101

Presentation Linkbase Document

 

EX-101

Definition Linkbase Document

 

2

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

LINCOLN ELECTRIC HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

(In thousands, except per share amounts)

Three Months Ended September 30, 

Nine Months Ended September 30, 

    

2022

    

2021

    

2022

    

2021

Net sales (Note 2)

    

$

935,240

    

$

806,454

    

$

2,830,277

    

$

2,389,929

Cost of goods sold

 

625,722

 

538,282

 

1,857,501

 

1,593,981

Gross profit

 

309,518

 

268,172

 

972,776

 

795,948

Selling, general & administrative expenses

 

159,045

 

149,118

 

492,523

 

446,351

Rationalization and asset impairment charges (Note 6)

 

8,364

 

3,484

 

9,405

 

8,277

Operating income

 

142,109

 

115,570

 

470,848

 

341,320

Interest expense, net

 

8,210

 

5,714

 

20,867

 

16,736

Other income (expense) (Note 14)

 

3,588

 

(71,441)

 

7,088

 

(71,155)

Income before income taxes

 

137,487

 

38,415

 

457,069

 

253,429

Income taxes (Note 15)

 

28,262

 

6,658

 

93,991

 

51,259

Net income including non-controlling interests

 

109,225

 

31,757

 

363,078

 

202,170

Non-controlling interests in subsidiaries’ income (loss)

 

 

 

 

131

Net income

$

109,225

$

31,757

$

363,078

$

202,039

Basic earnings per share (Note 3)

$

1.89

$

0.54

$

6.24

$

3.40

Diluted earnings per share (Note 3)

$

1.87

$

0.53

$

6.17

$

3.36

Cash dividends declared per share

$

0.56

$

0.51

$

1.68

$

1.53

See notes to these consolidated financial statements.

3

LINCOLN ELECTRIC HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)

(In thousands)

Three Months Ended September 30, 

Nine Months Ended September 30, 

    

2022

    

2021

    

2022

    

2021

Net income including non-controlling interests

    

$

109,225

    

$

31,757

    

$

363,078

    

$

202,170

Other comprehensive income (loss), net of tax:

 

  

 

  

 

  

 

  

Unrealized gain (loss) on derivatives designated and qualifying as cash flow hedges, net of tax of $3,234 and $8,079 in the three and nine months ended September 30, 2022; $707 and $1,493 in the three and nine months ended September 30, 2021

 

7,777

 

2,876

22,082

5,412

Defined benefit pension plan activity, net of tax of $47 and $506 in the three and nine months ended September 30, 2022; $18,759 and $19,005 in the three and nine months ended September 30, 2021

 

85

 

55,558

148

58,916

Currency translation adjustment

 

(52,129)

 

(19,120)

 

(94,193)

 

(28,284)

Other comprehensive income (loss):

 

(44,267)

 

39,314

 

(71,963)

 

36,044

Comprehensive income

 

64,958

 

71,071

 

291,115

 

238,214

Comprehensive income (loss) attributable to non-controlling interests

 

(13)

 

(58)

 

102

 

(196)

Comprehensive income attributable to shareholders

$

64,971

$

71,129

$

291,013

$

238,410

See notes to these consolidated financial statements.

4

LINCOLN ELECTRIC HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

September 30, 2022

December 31, 2021

(UNAUDITED)

(NOTE 1)

ASSETS

    

  

    

  

Current Assets

 

  

 

  

Cash and cash equivalents

$

141,307

$

192,958

Accounts receivable (less allowance for doubtful accounts of $10,009 in 2022; $11,105 in 2021)

 

463,106

 

429,074

Inventories (Note 9)

 

632,376

 

539,919

Other current assets

 

158,609

 

127,642

Total Current Assets

 

1,395,398

 

1,289,593

Property, plant and equipment (less accumulated depreciation of $863,983 in 2022; $868,036 in 2021)

489,961

511,744

Goodwill

 

424,505

 

430,162

Other assets

 

342,101

 

360,808

TOTAL ASSETS

$

2,651,965

$

2,592,307

LIABILITIES AND EQUITY

 

 

  

Current Liabilities

 

 

  

Short-term debt (Note 12)

$

68,375

$

52,730

Trade accounts payable

 

329,890

 

330,230

Accrued employee compensation and benefits

 

183,638

 

108,562

Other current liabilities

 

238,425

 

264,383

Total Current Liabilities

 

820,328

 

755,905

Long-term debt, less current portion (Note 12)

 

711,250

 

717,089

Other liabilities

 

196,159

 

255,404

Total Liabilities

 

1,727,737

 

1,728,398

Shareholders' Equity

 

 

  

Common Shares

 

9,858

 

9,858

Additional paid-in capital

 

471,172

 

451,268

Retained earnings

 

3,237,200

 

2,970,303

Accumulated other comprehensive loss

 

(329,451)

 

(257,386)

Treasury Shares

 

(2,464,460)

 

(2,309,941)

Total Shareholders' Equity

 

924,319

 

864,102

Non-controlling interests

 

(91)

 

(193)

Total Equity

 

924,228

 

863,909

TOTAL LIABILITIES AND TOTAL EQUITY

$

2,651,965

$

2,592,307

See notes to these consolidated financial statements.

5

LINCOLN ELECTRIC HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF EQUITY

(UNAUDITED)

(In thousands, except per share amounts)

    

    

    

    

    

Accumulated

    

    

    

Common

Additional

Other

Non-

Shares

Common

Paid-In

Retained

Comprehensive

Treasury

Controlling

    

Outstanding

    

Shares

    

Capital

    

Earnings

    

Income (Loss)

    

Shares

    

Interests

    

Total

Balance at December 31, 2021

 

58,787

$

9,858

$

451,268

$

2,970,303

$

(257,386)

$

(2,309,941)

$

(193)

$

863,909

Net income

 

126,030

1

 

126,031

Unrecognized amounts from defined benefit pension plans, net of tax

 

107

 

107

Unrealized gain on derivatives designated and qualifying as cash flow hedges, net of tax

 

5,355

 

5,355

Currency translation adjustment

 

(7,583)

134

 

(7,449)

Cash dividends declared - $0.56 per share

 

(32,505)

 

(32,505)

Stock-based compensation activity

 

116

10,834

1,349

 

12,183

Purchase of shares for treasury

 

(805)

(104,579)

 

(104,579)

Other

 

115

(107)

 

8

Balance at March 31, 2022

 

58,098

$

9,858

$

462,217

$

3,063,721

$

(259,507)

$

(2,413,171)

$

(58)

$

863,060

Net income

 

127,823

(1)

 

127,822

Unrecognized amounts from defined benefit pension plans, net of tax

 

(44)

 

(44)

Unrealized gain on derivatives designated and qualifying as cash flow hedges, net of tax

 

8,950

 

8,950

Currency translation adjustment

 

(34,596)

(19)

 

(34,615)

Cash dividends declared – $0.56 per share

 

(32,698)

 

(32,698)

Stock-based compensation activity

 

15

5,428

146

 

5,574

Purchase of shares for treasury

 

(191)

(25,119)

 

(25,119)

Other

 

(2,021)

2,074

 

53

Balance at June 30, 2022

 

57,922

$

9,858

$

465,624

$

3,160,920

$

(285,197)

$

(2,438,144)

$

(78)

$

912,983

Net income

 

 

  

 

 

109,225

 

 

 

 

109,225

Unrecognized amounts from defined benefit pension plans, net of tax

 

85

 

85

Unrealized gain on derivatives designated and qualifying as cash flow hedges, net of tax

 

7,777

 

7,777

Currency translation adjustment

 

(52,116)

(13)

 

(52,129)

Cash dividends declared – $0.56 per share

 

(32,580)

 

(32,580)

Stock-based compensation activity

 

14

5,158

202

 

5,360

Purchase of shares for treasury

 

(198)

(26,518)

 

(26,518)

Other

 

390

(365)

 

25

Balance at September 30, 2022

57,738

$

9,858

$

471,172

$

3,237,200

$

(329,451)

$

(2,464,460)

$

(91)

$

924,228

6

LINCOLN ELECTRIC HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF EQUITY

(UNAUDITED)

(In thousands, except per share amounts)

    

    

    

    

    

Accumulated

    

    

    

Common

Additional

Other

Non-

Shares

Common

Paid-In

Retained

Comprehensive

Treasury

Controlling

    

Outstanding

    

Shares

    

Capital

    

Earnings

    

Income (Loss)

    

Shares

    

Interests

    

Total

Balance at December 31, 2020

 

59,641

$

9,858

$

409,958

$

2,821,359

$

(302,190)

$

(2,149,714)

$

979

$

790,250

Net income

 

74,177

(44)

 

74,133

Unrecognized amounts from defined benefit pension plans, net of tax

 

5,060

 

5,060

Unrealized gain on derivatives designated and qualifying as cash flow hedges, net of tax

 

7,290

 

7,290

Currency translation adjustment

 

(22,584)

(159)

 

(22,743)

Cash dividends declared – $0.51 per share

 

(30,572)

 

(30,572)

Stock-based compensation activity

 

134

7,680

1,502

 

9,182

Purchase of shares for treasury

 

(237)

(28,459)

 

(28,459)

Other

 

891

(741)

(883)

 

(733)

Balance at March 31, 2021

 

59,538

$

9,858

$

418,529

$

2,864,223

$

(312,424)

$

(2,176,671)

$

(107)

$

803,408

Net income

 

 

  

 

 

96,105

 

 

 

175

 

96,280

Unrecognized amounts from defined benefit pension plans, net of tax

 

 

  

 

 

 

(1,702)

 

 

 

(1,702)

Unrealized loss on derivatives designated and qualifying as cash flow hedges, net of tax

 

 

  

 

 

 

(4,754)

 

 

 

(4,754)

Currency translation adjustment

 

 

  

 

 

 

13,689

 

 

(110)

 

13,579

Cash dividends declared – $0.51 per share

 

 

  

 

 

(30,552)

 

 

 

 

(30,552)

Stock-based compensation activity

 

46

 

  

 

8,638

 

 

 

503

 

 

9,141

Purchase of shares for treasury

 

(197)

 

  

 

 

 

 

(25,229)

 

 

(25,229)

Other

 

 

  

 

409

 

(957)

 

 

 

 

(548)

Balance at June 30, 2021

 

59,387

$

9,858

$

427,576

$

2,928,819

$

(305,191)

$

(2,201,397)

$

(42)

$

859,623

Net income

 

 

  

 

 

31,757

 

 

 

 

31,757

Unrecognized amounts from defined benefit pension plans, net of tax

 

 

  

 

 

 

55,558

 

 

 

55,558

Unrealized gain on derivatives designated and qualifying as cash flow hedges, net of tax

 

 

  

 

 

 

2,876

 

 

 

2,876

Currency translation adjustment

 

 

  

 

 

 

(19,062)

 

 

(58)

 

(19,120)

Cash dividends declared – $0.51 per share

 

 

  

 

 

(30,379)

 

 

 

 

(30,379)

Stock-based compensation activity

 

34

 

  

 

7,449

 

 

 

364

 

 

7,813

Purchase of shares for treasury

 

(373)

(50,160)

(50,160)

Other

 

 

  

 

(239)

 

164

 

 

 

 

(75)

Balance at September 30, 2021

59,048

$

9,858

$

434,786

$

2,930,361

$

(265,819)

$

(2,251,193)

$

(100)

$

857,893

7

LINCOLN ELECTRIC HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(In thousands)

Nine Months Ended September 30, 

    

    

2022

    

2021

CASH FLOWS FROM OPERATING ACTIVITIES

 

  

  

Net income

$

363,078

$

202,039

Non-controlling interests in subsidiaries' income (loss)

 

 

131

Net income including non-controlling interests

 

363,078

 

202,170

Adjustments to reconcile Net income including non-controlling interests to Net cash provided by operating activities:

 

 

  

Rationalization and asset impairment net charges (gains) (Note 6)

 

7,776

 

(1,162)

Depreciation and amortization

 

59,009

 

60,558

Equity earnings (loss) in affiliates, net

 

254

 

(399)

Deferred income taxes

 

(34,403)

 

(28,428)

Stock-based compensation

 

20,949

 

18,215

Pension settlement charges

80,098

Other, net

 

15,867

 

(754)

Changes in operating assets and liabilities, net of effects from acquisitions:

 

 

  

Increase in accounts receivable

 

(64,569)

 

(71,212)

Increase in inventories

 

(135,578)

 

(128,856)

Increase in other current assets

 

(34,368)

 

(10,610)

Increase in trade accounts payable

 

19,572

 

54,981

Increase in other current liabilities

 

66,838

 

89,569

Net change in other assets and liabilities

 

(12,841)

 

(9,045)

NET CASH PROVIDED BY OPERATING ACTIVITIES

 

271,584

 

255,125

CASH FLOWS FROM INVES