LINCOLN ELECTRIC HOLDINGS INC [LECO] Filings

10-Q 1 leco-20230930x10q.htm 10-Q

Table of Contents

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, 2023

☐ 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

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, 2023 was 57,199,736.

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TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION		3
Item 1. Financial Statements		3
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)		3
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (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 5. Other Information		38
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

Table of Contents

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,
	2023		2022		2023		2022
Net sales (Note 2)	$	1,033,214	$	935,240	$	3,133,122	$	2,830,277
Cost of goods sold		667,584		625,722		2,038,707		1,857,501
Gross profit		365,630		309,518		1,094,415		972,776
Selling, general & administrative expenses		187,115		159,045		569,979		492,523
Rationalization and asset impairment charges (Note 6)		7,074		8,364		10,618		9,405
Operating income		171,441		142,109		513,818		470,848
Interest expense, net		10,809		8,210		35,708		20,867
Other income (Note 11)		801		3,588		11,727		7,088
Income before income taxes		161,433		137,487		489,837		457,069
Income taxes (Note 12)		32,090		28,262		101,232		93,991
Net income	$	129,343	$	109,225	$	388,605	$	363,078

Basic earnings per share (Note 3)	$	2.26	$	1.89	$	6.76	$	6.24
Diluted earnings per share (Note 3)	$	2.22	$	1.87	$	6.67	$	6.17
Cash dividends declared per share	$	0.64	$	0.56	$	1.92	$	1.68

See notes to these consolidated financial statements.

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LINCOLN ELECTRIC HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

(In thousands)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Net income	$	129,343	$	109,225	$	388,605	$	363,078
Other comprehensive income (loss), net of tax:
Unrealized gain on derivatives designated and qualifying as cash flow hedges		2,665		7,777		6,908		22,082
Defined benefit pension plan activity		(15)		85		(821)		148
Currency translation adjustment		(32,297)		(52,129)		3,478		(94,193)
Other comprehensive (loss) income:		(29,647)		(44,267)		9,565		(71,963)
Comprehensive income	$	99,696	$	64,958	$	398,170	$	291,115

See notes to these consolidated financial statements.

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LINCOLN ELECTRIC HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)


	September 30, 2023		December 31, 2022
	(UNAUDITED)		(NOTE 1)
ASSETS
Current Assets
Cash and cash equivalents	$	342,667	$	197,150
Accounts receivable (less allowance for doubtful accounts of $11,202 in 2023; $12,556 in 2022)		537,637		541,529
Inventories (Note 8)		612,338		665,451
Other current assets		179,652		153,660
Total Current Assets		1,672,294		1,557,790
Property, plant and equipment (less accumulated depreciation of $920,048 in 2023; $890,543 in 2022)		565,875		544,871
Goodwill		686,625		665,257
Other assets		401,101		412,628
TOTAL ASSETS	$	3,325,895	$	3,180,546
LIABILITIES AND EQUITY
Current Liabilities
Short-term debt (Note 10)	$	7,700	$	93,483
Trade accounts payable		328,460		352,079
Accrued employee compensation and benefits		207,116		109,369
Other current liabilities		264,866		297,966
Total Current Liabilities		808,142		852,897
Long-term debt, less current portion (Note 10)		1,102,858		1,110,396
Other liabilities		189,313		183,212
Total Liabilities		2,100,313		2,146,505
Shareholders' Equity
Common Shares		9,858		9,858
Additional paid-in capital		519,151		481,857
Retained earnings		3,578,154		3,306,500
Accumulated other comprehensive loss		(265,833)		(275,398)
Treasury Shares		(2,615,748)		(2,488,776)
Total Equity		1,225,582		1,034,041
TOTAL LIABILITIES AND TOTAL EQUITY	$	3,325,895	$	3,180,546

See notes to these consolidated financial statements.

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LINCOLN ELECTRIC HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF EQUITY

(UNAUDITED)

(In thousands, except per share amounts)


								Accumulated
	Common			Additional				Other
	Shares	Common		Paid-In		Retained		Comprehensive		Treasury
	Outstanding	Shares		Capital		Earnings		Income (Loss)		Shares		Total
Balance at December 31, 2022	57,624	$	9,858	$	481,857	$	3,306,500	$	(275,398)	$	(2,488,776)	$	1,034,041
Net income							121,931						121,931
Unrecognized amounts from defined benefit pension plans, net of tax									560				560
Unrealized gain on derivatives designated and qualifying as cash flow hedges, net of tax									9,131				9,131
Currency translation adjustment, net of tax									14,818				14,818
Cash dividends declared - $0.64 per share							(36,971)						(36,971)
Stock-based compensation activity	143				12,475						1,635		14,110
Purchase of shares for treasury	(194)										(32,158)		(32,158)
Other					3,691		(3,917)						(226)
Balance at March 31, 2023	57,573	$	9,858	$	498,023	$	3,387,543	$	(250,889)	$	(2,519,299)	$	1,125,236
Net income							137,331						137,331
Unrecognized amounts from defined benefit pension plans, net of tax									(1,366)				(1,366)
Unrealized (loss) on derivatives designated and qualifying as cash flow hedges, net of tax									(4,888)				(4,888)
Currency translation adjustment, net of tax									20,957				20,957
Cash dividends declared – $0.64 per share							(36,917)						(36,917)
Stock-based compensation activity	152				12,818						1,697		14,515
Purchase of shares for treasury	(312)										(53,076)		(53,076)
Other					4,462		(4,830)						(368)
Balance at June 30, 2023	57,413	$	9,858	$	515,303	$	3,483,127	$	(236,186)	$	(2,570,678)	$	1,201,424
Net income							129,343						129,343
Unrecognized amounts from defined benefit pension plans, net of tax									(15)				(15)
Unrealized gain on derivatives designated and qualifying as cash flow hedges, net of tax									2,665				2,665
Currency translation adjustment, net of tax									(32,297)				(32,297)
Cash dividends declared – $0.64 per share							(36,876)						(36,876)
Stock-based compensation activity	26				6,513						285		6,798
Purchase of shares for treasury	(238)										(45,355)		(45,355)
Other					(2,665)		2,560						(105)
Balance at September 30, 2023	57,201	$	9,858	$	519,151	$	3,578,154	$	(265,833)	$	(2,615,748)	$	1,225,582

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LINCOLN ELECTRIC HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF EQUITY

(UNAUDITED)

(In thousands, except per share amounts)


								Accumulated
	Common			Additional				Other
	Shares	Common		Paid-In		Retained		Comprehensive		Treasury
	Outstanding	Shares		Capital		Earnings		Income (Loss)		Shares		Total
Balance at December 31, 2021	58,787	$	9,858	$	451,268	$	2,970,303	$	(257,579)	$	(2,309,941)	$	863,909
Net income							126,030						126,030
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									(7,448)				(7,448)
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	$	(259,565)	$	(2,413,171)	$	863,060
Net income							127,823						127,823
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									(34,616)				(34,616)
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	$	(285,275)	$	(2,438,144)	$	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									(52,129)				(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	$	(329,542)	$	(2,464,460)	$	924,228

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LINCOLN ELECTRIC HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(In thousands)


	Nine Months Ended September 30,
	2023		2022
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	388,605	$	363,078
Adjustments to reconcile Net income to Net cash provided by operating activities:
Rationalization and asset impairment net charges		1,128		7,776
Depreciation and amortization		64,701		59,009
Equity (earnings) loss in affiliates, net		(463)		254
Deferred income taxes		3,201		(34,403)
Stock-based compensation		22,124		20,949
Other, net		(3,435)		15,867
Changes in operating assets and liabilities, net of effects from acquisitions:
Decrease (increase) in accounts receivable		6,695		(64,569)
Decrease (increase) in inventories		57,781		(135,578)
Increase in other current assets		(14,729)		(34,368)
(Decrease) increase in trade accounts payable		(24,672)		19,572
Increase in other current liabilities		57,975		66,838
Net change in other assets and liabilities		(13,031)		(12,841)
NET CASH PROVIDED BY OPERATING ACTIVITIES		545,880		271,584
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures		(66,459)		(52,301)
Acquisition of businesses, net of cash acquired		(32,685)		(22,294)
Proceeds from sale of property, plant and equipment		4,596		2,338
Purchase of marketable securities		(6,561)		—
NET CASH USED BY INVESTING ACTIVITIES		(101,109)		(72,257)
CASH FLOWS FROM FINANCING ACTIVITIES
(Payments on) proceeds from short-term borrowings		(74,818)		9,399
(Payments on) proceeds from long-term borrowings		(7,997)		5,600
Proceeds from exercise of stock options		13,299		2,168
Purchase of shares for treasury		(130,589)		(156,216)
Cash dividends paid to shareholders		(111,277)		(98,377)
NET CASH USED BY FINANCING ACTIVITIES		(311,382)		(237,426)
Effect of exchange rate changes on Cash and cash equivalents		12,128		(13,552)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		145,517		(51,651)

Cash and cash equivalents at beginning of period		197,150		192,958
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	342,667	$	141,307

See notes to these consolidated financial statements.

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LINCOLN ELECTRIC HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Dollars in thousands, except per share amounts

NOTE 1 — SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements include the accounts of Lincoln Electric Holdings, Inc. and its wholly-owned and majority-owned subsidiaries for which it has a controlling interest (the “Company”) after elimination of all inter-company accounts, transactions and profits.

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, these unaudited consolidated financial statements do not include all of the information and notes required by GAAP for complete financial statements. However, in the opinion of management, these unaudited consolidated financial statements contain all the adjustments (consisting of normal recurring accruals) considered necessary to present fairly the financial position, results of operations and cash flows for the interim periods. Operating results for the nine months ended September 30, 2023 are not necessarily indicative of the results to be expected for the year ending December 31, 2023.

The accompanying Condensed Consolidated Balance Sheet at December 31, 2022 has been derived from the audited financial statements at that date, but does not include all of the information and notes required by GAAP for complete financial statements. For further information, refer to the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

Certain reclassifications have been made to the prior period amounts to conform to the current period presentation, none of which are material.

Turkey – Highly Inflationary Economy

Effective April 1, 2022, the financial statements of the Company’s Turkish operation are reported under highly inflationary accounting rules. As a result, the financial statements of the Company’s Turkish operation have been remeasured into the Company’s reporting currency (U.S. dollar) and the exchange gains and losses from the remeasurement of monetary assets and liabilities are reflected in current earnings, rather than “Accumulated other comprehensive loss” on the balance sheet. For the nine months ended September 30, 2023, this impact was not significant to the Company’s results.

New Accounting Pronouncements:

This section provides a description of new accounting pronouncements (“Accounting Standards Updates” or “ASUs”) issued by the Financial Accounting Standards Board (“FASB”) that are applicable to the Company.

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LINCOLN ELECTRIC HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Dollars in thousands, except per share amounts

The following ASUs were adopted as of January 1, 2023:


Standard		Description
ASU No. 2022-04, Liabilities-Supplier Finance Programs (Subtopic 405-50), issued September 2022.		Requires disclosure about a company’s supplier finance program, including key terms, amount outstanding, assets pledged, as applicable, and presentation on the balance sheet. Refer to Note 15 for the impacts on the Company’s consolidated financial statements.
ASU No. 2021-08, Business Combinations (Subtopic 805), issued October 2021.		Requires the acquirer in a business combination to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606. The adoption did not have a material impact on the Company’s consolidated financial statements.

The Company is currently evaluating the impact on its financial statements of the following ASUs:


Standard		Description
ASU No. 2023-01, Leases-Common Control Arrangements (Topic 842), issued March 2023		Requires a lessee in a common-control arrangement to amortize leasehold improvements that it owns over the improvements’ useful life, regardless of the lease term. The requirement of the ASU is effective January 1, 2024.
ASU No. 2022-04, Liabilities-Supplier Finance Programs (Subtopic 405-50), issued September 2022.		Requires disclosure about a company’s supplier finance program, including a period-over-period balance roll forward. This requirement of the ASU is effective January 1, 2024 and should be applied prospectively.

NOTE 2 — REVENUE RECOGNITION

The following table presents the Company’s Net sales disaggregated by product line:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Consumables	$	543,132	$	547,596	$	1,690,726	$	1,655,613
Equipment		490,082		387,644		1,442,396		1,174,664
Net sales	$	1,033,214	$	935,240	$	3,133,122	$	2,830,277

Consumable sales consist of welding, brazing and soldering filler metals. Equipment sales consist of arc welding, welding accessories, arc welding equipment, wire feeding systems, fume control equipment, plasma and oxy-fuel cutting systems, specialty gas regulators, and education solutions; as well as a comprehensive portfolio of automated solutions for joining, cutting, material handling, module assembly, and end of line testing. Consumable and Equipment products are sold within each of the Company’s operating segments.

Within the Equipment product line, there are certain customer contracts related to automation products that may include multiple performance obligations. For such arrangements, the Company allocates revenue to each performance obligation based on its relative standalone selling price. The Company generally determines the standalone selling price based on the prices charged to customers or using expected cost plus margin. Less than