UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
or
For the transition period from _____________ to _____________
Commission File Number:
(Exact name of registrant as specified in its charter)
(
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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.
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).
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.
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
The number of shares outstanding of the registrant’s common shares as of March 31, 2022 was
TABLE OF CONTENTS
3 | ||
3 | ||
3 | ||
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED) | 4 | |
5 | ||
6 | ||
7 | ||
8 | ||
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations | 20 | |
Item 3. Quantitative and Qualitative Disclosures About Market Risk | 29 | |
29 | ||
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30 | ||
30 | ||
30 | ||
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | 31 | |
31 | ||
32 | ||
33 | ||
Form of Stock Option Agreement for Executive Officers (filed herewith). | ||
Form of Restricted Stock Unit Agreement for Executive Officers (filed herewith). | ||
Form of Performance Share Award Agreement for Executive Officers (filed herewith). | ||
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EX-101 | Instance Document |
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EX-101 | Schema Document |
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EX-101 | Calculation Linkbase Document |
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EX-101 | Label Linkbase Document |
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EX-101 | Presentation Linkbase Document |
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EX-101 | Definition Linkbase Document |
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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 March 31, | ||||||
| 2022 |
| 2021 | |||
Net sales (Note 2) |
| $ | |
| $ | |
Cost of goods sold |
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Gross profit |
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Selling, general & administrative expenses |
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Rationalization and asset impairment charges (Note 6) |
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Operating income |
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Interest expense, net |
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Other income (expense) (Note 14) |
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Income before income taxes |
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Income taxes (Note 15) |
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Net income including non-controlling interests |
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Non-controlling interests in subsidiaries’ income (loss) |
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| ( | ||
Net income | $ | | $ | | ||
Basic earnings per share (Note 3) | $ | | $ | | ||
Diluted earnings per share (Note 3) | $ | | $ | | ||
Cash dividends declared per share | $ | | $ | |
See notes to these consolidated financial statements.
3
LINCOLN ELECTRIC HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
(In thousands)
Three Months Ended March 31, | ||||||
| 2022 |
| 2021 | |||
Net income including non-controlling interests |
| $ | |
| $ | |
Other comprehensive income (loss), net of tax: |
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Unrealized gain (loss) on derivatives designated and qualifying as cash flow hedges, net of tax of $ | | | ||||
Defined benefit pension plan activity, net of tax of $ | | | ||||
Currency translation adjustment |
| ( |
| ( | ||
Other comprehensive loss: |
| ( |
| ( | ||
Comprehensive income |
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Comprehensive income (loss) attributable to non-controlling interests |
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Comprehensive income attributable to shareholders | $ | | $ | |
See notes to these consolidated financial statements.
4
LINCOLN ELECTRIC HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
March 31, 2022 | December 31, 2021 | |||||
(UNAUDITED) | (NOTE 1) | |||||
ASSETS |
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Current Assets |
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Cash and cash equivalents | $ | | $ | | ||
Accounts receivable (less allowance for doubtful accounts of $ |
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Inventories (Note 9) |
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Other current assets |
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Total Current Assets |
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Property, plant and equipment (less accumulated depreciation of $ | | | ||||
Goodwill |
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Other assets |
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TOTAL ASSETS | $ | | $ | | ||
LIABILITIES AND EQUITY |
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Current Liabilities |
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Short-term debt (Note 12) | $ | | $ | | ||
Trade accounts payable |
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Accrued employee compensation and benefits |
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Other current liabilities |
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Total Current Liabilities |
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Long-term debt, less current portion (Note 12) |
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Other liabilities |
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Total Liabilities |
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Shareholders' Equity |
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Common Shares |
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Additional paid-in capital |
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Retained earnings |
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Accumulated other comprehensive loss |
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Treasury Shares |
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Total Shareholders' Equity |
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Non-controlling interests |
| ( |
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Total Equity |
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TOTAL LIABILITIES AND TOTAL EQUITY | $ | | $ | |
See notes to these consolidated financial statements.
5
LINCOLN ELECTRIC HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF EQUITY
(UNAUDITED)
(In thousands, except per share amounts)
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| Accumulated |
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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 |
| | $ | | $ | | $ | | $ | ( | $ | ( | $ | ( | $ | | |||||||
Net income |
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Unrecognized amounts from defined benefit pension plans, net of tax |
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Unrealized gain on derivatives designated and qualifying as cash flow hedges, net of tax |
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Currency translation adjustment |
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Cash dividends declared - $ |
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Stock-based compensation activity |
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Purchase of shares for treasury |
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Other |
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Balance at March 31, 2022 |
| | $ | | $ | | $ | | $ | ( | $ | ( | $ | ( | $ | |
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| Accumulated |
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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 |
| | $ | | $ | | $ | | $ | ( | $ | ( | $ | | $ | | |||||||
Net income |
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Unrecognized amounts from defined benefit pension plans, net of tax |
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Unrealized loss on derivatives designated and qualifying as cash flow hedges, net of tax |
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Currency translation adjustment |
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Cash dividends declared – $ |
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Stock-based compensation activity |
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Purchase of shares for treasury |
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Other |
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Balance at March 31, 2021 |
| | $ | | $ | | $ | | $ | ( | $ | ( | $ | ( | $ | |
6
LINCOLN ELECTRIC HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
Three Months Ended March 31, | ||||||
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| 2022 |
| 2021 | ||
CASH FLOWS FROM OPERATING ACTIVITIES |
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Net income | $ | | $ | | ||
Non-controlling interests in subsidiaries' income (loss) |
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| ( | ||
Net income including non-controlling interests |
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Adjustments to reconcile Net income including non-controlling interests to Net cash provided by operating activities: |
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Rationalization and asset impairment net charges (Note 6) |
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Depreciation and amortization |
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Equity earnings in affiliates, net |
| ( |
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Deferred income taxes |
| ( |
| ( | ||
Stock-based compensation |
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Other, net |
| ( |
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Changes in operating assets and liabilities, net of effects from acquisitions: |
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Increase in accounts receivable |
| ( |
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Increase in inventories |
| ( |
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Increase in other current assets |
| ( |
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Increase in trade accounts payable |
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Increase in other current liabilities |
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Net change in other assets and liabilities |
| ( |
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NET CASH PROVIDED BY OPERATING ACTIVITIES |
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CASH FLOWS FROM INVESTING ACTIVITIES |
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Capital expenditures |
| ( |
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Acquisition of businesses, net of cash acquired |
| ( |
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Proceeds from sale of property, plant and equipment |
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Other investing activities |
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NET CASH USED BY INVESTING ACTIVITIES |
| ( |
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CASH FLOWS FROM FINANCING ACTIVITIES |
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Net change in borrowings |
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Proceeds from exercise of stock options |
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Purchase of shares for treasury (Note 8) |
| ( |
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Cash dividends paid to shareholders |
| ( |
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NET CASH USED BY FINANCING ACTIVITIES |
| ( |
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Effect of exchange rate changes on Cash and cash equivalents |
| ( |
| ( | ||
DECREASE IN CASH AND CASH EQUIVALENTS |
| ( |
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Cash and cash equivalents at beginning of period |
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CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | | $ | |
See notes to these consolidated financial statements.
7
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 three months ended March 31, 2022 are not necessarily indicative of the results to be expected for the year ending December 31, 2022.
The accompanying Consolidated Balance Sheet at December 31, 2021 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, 2021.
In March 2022, in response to Russia’s invasion of Ukraine, the Company announced it was ceasing operations in Russia and implementing plans to support its Russian employees. Although the Company’s Net sales and Total assets in Russia are less than
Subsequent Events
Cumulative inflation in Turkey over the preceding three-year period reached
Management has evaluated and disclosed all material events occurring subsequent to the date of the financial statements up to April 28, 2022, the filing date of this Quarterly Report on Form 10-Q.
New Accounting Pronouncements:
There were no new accounting pronouncements ("Accounting Standard Updates" or "ASUs") issued by the Financial Accounting Standards Board ("FASB") that are applicable to the Company as of January 1, 2022.
8
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Dollars in thousands, except per share amounts
NOTE 2 — REVENUE RECOGNITION
The following table presents the Company’s Net sales disaggregated by product line:
Three Months Ended March 31, | ||||||
| 2022 |
| 2021 | |||
Consumables | $ | | $ | | ||
Equipment |
| |
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Net sales | $ | | $ | |
Consumable sales consist of electrodes, fluxes, specialty welding consumables and brazing and soldering alloys. Equipment sales consist of arc welding power sources, welding accessories, fabrication, plasma cutters, wire feeding systems, automated joining, assembly and cutting systems, fume extraction equipment, CNC plasma and oxy-fuel cutting systems and regulators and torches used in oxy-fuel welding, cutting and brazing. 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
At March 31, 2022, the Company recorded $
NOTE 3 — EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per share:
Three Months Ended March 31, | ||||||
| 2022 |
| 2021 | |||
Numerator: |
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Net income | $ | | $ | | ||
Denominator (shares in 000's): |
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Basic weighted average shares outstanding |
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Effect of dilutive securities - Stock options and awards |
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Diluted weighted average shares outstanding |
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Basic earnings per share | $ | | $ | | ||
Diluted earnings per share | $ | | $ | |
9
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Dollars in thousands, except per share amounts
For the three months ended March 31, 2022 and 2021, common shares subject to equity-based awards of
NOTE 4 — ACQUISITIONS
During March 2022, the Company acquired Kestra Universal Soldas, Industria e Comercio, Imporacao e Exportacao Ltda. (“Kestra”), a privately held manufacturer headquartered in Atibaia, Sao Paulo State, Brazil. Kestra manufactures and provides specialty welding consumables, wear plates and maintenance and repair services for alloy and wear-resistant products commonly used in mining, steel, agricultural and industrial mill applications.
During July 2021, the Company acquired Overstreet-Hughes Company, Inc. and Shoals Tubular, Inc. (“FTP”). FTP manufactures copper and aluminum headers, distributor assemblies and manifolds in the United States and Mexico for the heating, ventilation, and air conditioning sector (“HVAC”). The acquisition further differentiated The Harris Products Group’s competitive position serving HVAC original equipment manufacturers with a comprehensive portfolio of solutions for the fabrication of HVAC coils and accelerates growth in this market.
During April 2021, the Company acquired Zeman Bauelemente Produktionsgesellschaft m.b.H. (“Zeman"), a division of the Zeman Group. Zeman, based in Vienna, Austria, is a leading designer and manufacturer of robotic assembly and arc welding systems that automate the tacking and welding of steel beams. The acquisition expanded the Company’s international automation capabilities to serve customers in the structural steel and infrastructure sectors.
Pro forma information related to the acquisitions discussed above has not been presented because the impact on the Company’s Consolidated Statements of Income is not material. The preliminary purchase price allocations are expected to be finalized within the allowable measurement period. The acquired companies are included in the Company's consolidated financial statements as of the date of acquisition.
NOTE 5 — SEGMENT INFORMATION
The Company’s business units are aligned into
Segment performance is measured and resources are allocated based on a number of factors, the primary measure being the adjusted earnings before interest and income taxes (“Adjusted EBIT”) profit measure. EBIT is defined as Operating income plus Other income (expense). 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.
10
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Dollars in thousands, except per share amounts
The following table presents Adjusted EBIT by segment:
The Harris | |||||||||||||||
Americas | International | Products | Corporate / | ||||||||||||
| Welding |
| Welding |
| Group |
| Eliminations |
| Consolidated | ||||||
Three Months Ended March 31, 2022 |
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Net sales | $ | | $ | | $ | | $ | | $ | | |||||
Inter-segment sales |
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Total | $ | | $ | | $ | | $ | ( | $ | | |||||
Adjusted EBIT | $ | | $ | | $ | | $ | ( | $ | | |||||
Special items charge (gain) (1) |
| ( | | | | ( | |||||||||
EBIT | $ | | $ | | $ | | $ | ( | $ | | |||||
Interest income | | ||||||||||||||
Interest expense | ( | ||||||||||||||
Income before income taxes |
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Three Months Ended March 31, 2021 |
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Net sales | $ | | $ | | $ | | $ | | $ | | |||||
Inter-segment sales |
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Total | $ | | $ | | $ | | $ | ( | $ | | |||||
Adjusted EBIT | $ | | $ | | $ | | $ | ( | $ | | |||||
Special items charge (gain) (2) |
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EBIT | $ | | $ | | $ | | $ | ( | $ | | |||||
Interest income |
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Interest expense |
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Income before income taxes |
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(1) | In the three months ended March 31, 2022, special items reflect Rationalization charges of $ |
(2) | In the three months ended March 31, 2021, special items reflect Rationalization and asset impairment charges of $ |
NOTE 6 — RATIONALIZATION AND ASSET IMPAIRMENTS
The Company recorded Rationalization and asset impairment net charges of $
During 2021, the Company initiated rationalization plans within the International Welding segment. The plans include headcount restructuring and the consolidation of manufacturing operations to better align the Company’s cost structure with economic conditions and operating needs. At March 31, 2022, liabilities of $
The Company believes the rationalization actions will positively impact future results of operations and will not have a material effect on liquidity and sources and uses of capital. The Company continues to evaluate its cost structure and additional rationalization actions may result in charges in future periods.
11
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Dollars in thousands, except per share amounts
The following table summarizes the activity related to rationalization liabilities for the three months ended March 31, 2022:
| |||
| Consolidated | ||
Balance at December 31, 2021 | $ | | |
Payments and other adjustments |
| ( | |
Charged to expense |
| | |
Balance at March 31, 2022 | $ | |
NOTE 7 – ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) ("AOCI")
The following tables set forth the total changes in accumulated other comprehensive income (loss) ("AOCI") by component, net of taxes:
Three Months Ended March 31, 2022 | ||||||||||||
Unrealized gain | ||||||||||||
(loss) on derivatives | ||||||||||||
designated and | Defined benefit | Currency | ||||||||||
qualifying as cash | pension plan | translation | ||||||||||
flow hedges | activity | adjustment | Total | |||||||||
Balance at December 31, 2021 | $ | | $ | ( | $ | ( | $ | ( | ||||
Other comprehensive income (loss) before reclassification |
| | | ( | 3 | ( | ||||||
Amounts reclassified from AOCI |
| ( | 1 | | 2 | | ( | |||||
Net current-period other comprehensive income (loss) |
| |
| |
| ( |
| ( | ||||
Balance at March 31, 2022 | $ | | $ | ( | $ | ( | $ | ( |
Three Months Ended March 31, 2021 | ||||||||||||
Unrealized gain | ||||||||||||
(loss) on derivatives | ||||||||||||
designated and | Defined benefit | Currency | ||||||||||
qualifying as cash | pension plan | translation | ||||||||||
flow hedges | activity | adjustment | Total | |||||||||
Balance at December 31, 2020 | $ | | $ | ( | $ | ( | $ | ( | ||||
Other comprehensive income (loss) before reclassification |
| |
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| ( | 3 |
| ( | |||
Amounts reclassified from AOCI |
| | 1 |
| | 2 |
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Net current-period other comprehensive income (loss) |
| |
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| ( |
| ( | ||||
Balance at March 31, 2021 | $ | | $ | ( | $ | ( | $ | ( |
(1) | During the three months ended March 31, 2022, the AOCI reclassification is a component of Net sales of $ |
(2) | This AOCI component is included in the computation of net periodic pension costs (net of tax of $ |
(3) | The Other comprehensive income (loss) before reclassifications excludes $ |
12
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Dollars in thousands, except per share amounts
NOTE 8 — COMMON STOCK REPURCHASE PROGRAM
The Company has a share repurchase program for up to
NOTE 9 — INVENTORIES
Inventories in the Condensed Consolidated Balance Sheets are comprised of the following components:
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| March 31, 2022 |
| December 31, 2021 | |||
Raw materials | $ | | $ | | ||
Work-in-process |
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Finished goods |
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Total | $ | | $ | |
At March 31, 2022 and December 31, 2021, approximately
NOTE 10 — LEASES
The table below summarizes the right-of-use assets and lease liabilities in the Company’s Condensed Consolidated Balance sheets:
Operating Leases |
| Balance Sheet Classification |
| March 31, 2022 |
| December 31, 2021 | ||
Right-of-use assets |
| $ | $ | | ||||
Current liabilities |
| $ |