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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, 2023

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, 2023 was 57,199,736.

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

 

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, 

    

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.

3

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.

4

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.

5

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

6

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

7

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.

8

Table of Contents

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.

9

Table of Contents

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