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 SeptemberJune 30, 2020
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
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) |
22801 St. Clair Avenue, Cleveland, Ohio44117
(Registrant'sRegistrant’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 ý 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 ý 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 ý
The number of shares outstanding of the registrant’s common shares as of SeptemberJune 30, 20202021 was 59,470,712.
2
LINCOLN ELECTRIC HOLDINGS, INC.
(UNAUDITED)
(In thousands, except per share amounts)
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||
2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||||||||||||||
Net sales (Note 2) | $ | 668,888 | $ | 730,783 | $ | 1,961,606 | $ | 2,266,965 | |||||||||||||||||||||||||||
Cost of goods sold | 453,501 | 492,432 | 1,319,519 | 1,500,312 | |||||||||||||||||||||||||||||||
Gross profit | 215,387 | 238,351 | 642,087 | 766,653 | |||||||||||||||||||||||||||||||
Selling, general & administrative expenses | 131,337 | 148,312 | 407,440 | 472,108 | |||||||||||||||||||||||||||||||
Rationalization and asset impairment charges (Note 6) | 6,257 | 1,495 | 36,016 | 6,337 | |||||||||||||||||||||||||||||||
Operating income | 77,793 | 88,544 | 198,631 | 288,208 | |||||||||||||||||||||||||||||||
Interest expense, net | 5,552 | 6,400 | 16,891 | 17,621 | |||||||||||||||||||||||||||||||
Other income (expense) (Note 14) | 1,062 | 9,653 | 1,168 | 17,612 | |||||||||||||||||||||||||||||||
Income before income taxes | 73,303 | 91,797 | 182,908 | 288,199 | |||||||||||||||||||||||||||||||
Income taxes (Note 15) | 14,797 | 19,340 | 41,834 | 58,832 | |||||||||||||||||||||||||||||||
Net income including non-controlling interests | 58,506 | 72,457 | 141,074 | 229,367 | |||||||||||||||||||||||||||||||
Non-controlling interests in subsidiaries’ income (loss) | 27 | (4) | 37 | (26) | |||||||||||||||||||||||||||||||
Net income | $ | 58,479 | $ | 72,461 | $ | 141,037 | $ | 229,393 | |||||||||||||||||||||||||||
Basic earnings per share (Note 3) | $ | 0.98 | $ | 1.18 | $ | 2.36 | $ | 3.68 | |||||||||||||||||||||||||||
Diluted earnings per share (Note 3) | $ | 0.97 | $ | 1.17 | $ | 2.34 | $ | 3.64 | |||||||||||||||||||||||||||
Cash dividends declared per share | $ | 0.49 | $ | 0.47 | $ | 1.47 | $ | 1.41 |
| | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, | ||||||||
|
| 2021 |
| 2020 |
| 2021 |
| 2020 | ||||
Net sales (Note 2) |
| $ | 826,454 |
| $ | 590,727 |
| $ | 1,583,475 |
| $ | 1,292,718 |
Cost of goods sold | |
| 552,445 | |
| 401,349 | |
| 1,055,699 | |
| 866,018 |
Gross profit | |
| 274,009 | |
| 189,378 | |
| 527,776 | |
| 426,700 |
Selling, general & administrative expenses | |
| 151,557 | |
| 126,376 | |
| 297,233 | |
| 276,103 |
Rationalization and asset impairment charges (Note 6) | |
| 630 | |
| 23,238 | |
| 4,793 | |
| 29,759 |
Operating income | |
| 121,822 | |
| 39,764 | |
| 225,750 | |
| 120,838 |
Interest expense, net | |
| 5,663 | |
| 5,881 | |
| 11,022 | |
| 11,339 |
Other income (expense) (Note 14) | |
| 1,702 | |
| (203) | |
| 286 | |
| 106 |
Income before income taxes | |
| 117,861 | |
| 33,680 | |
| 215,014 | |
| 109,605 |
Income taxes (Note 15) | |
| 21,581 | |
| 6,667 | |
| 44,601 | |
| 27,037 |
Net income including non-controlling interests | |
| 96,280 | |
| 27,013 | |
| 170,413 | |
| 82,568 |
Non-controlling interests in subsidiaries’ income (loss) | |
| 175 | |
| 17 | |
| 131 | |
| 10 |
Net income | | $ | 96,105 | | $ | 26,996 | | $ | 170,282 | | $ | 82,558 |
| | | | | | | | | | | | |
Basic earnings per share (Note 3) | | $ | 1.62 | | $ | 0.45 | | $ | 2.86 | | $ | 1.38 |
Diluted earnings per share (Note 3) | | $ | 1.60 | | $ | 0.45 | | $ | 2.83 | | $ | 1.37 |
Cash dividends declared per share | | $ | 0.51 | | $ | 0.49 | | $ | 1.02 | | $ | 0.98 |
See notes to these consolidated financial statements.
3
(UNAUDITED)
(In thousands)
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||
2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||||||||||||||
Net income including non-controlling interests | $ | 58,506 | $ | 72,457 | $ | 141,074 | $ | 229,367 | |||||||||||||||||||||||||||
Other comprehensive income (loss), net of tax: | |||||||||||||||||||||||||||||||||||
Unrealized gain (loss) on derivatives designated and qualifying as cash flow hedges, net of tax of $337 and $(62) in the three and nine months ended September 30, 2020; $(66) and $(121) in the three and nine months ended September 30, 2019. | 639 | (348) | (622) | (320) | |||||||||||||||||||||||||||||||
Defined benefit pension plan activity, net of tax of $(776) and $(8,303) in the three and nine months ended September 30, 2020; $536 and $673 in the three and nine months ended September 30, 2019. | (1,304) | 613 | (23,731) | 2,491 | |||||||||||||||||||||||||||||||
Currency translation adjustment | 13,039 | (24,025) | (43,101) | (14,040) | |||||||||||||||||||||||||||||||
Other comprehensive income (loss): | 12,374 | (23,760) | (67,454) | (11,869) | |||||||||||||||||||||||||||||||
Comprehensive income | 70,880 | 48,697 | 73,620 | 217,498 | |||||||||||||||||||||||||||||||
Comprehensive income (loss) attributable to non-controlling interests | 62 | 254 | 14 | 234 | |||||||||||||||||||||||||||||||
Comprehensive income attributable to shareholders | $ | 70,818 | $ | 48,443 | $ | 73,606 | $ | 217,264 |
| | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, | ||||||||
|
| 2021 |
| 2020 |
| 2021 |
| 2020 | ||||
Net income including non-controlling interests |
| $ | 96,280 |
| $ | 27,013 |
| $ | 170,413 |
| $ | 82,568 |
Other comprehensive income (loss), net of tax: | |
|
| |
|
| |
|
| |
|
|
Unrealized gain (loss) on derivatives designated and qualifying as cash flow hedges, net of tax of $(1,012) and $1,297 in the three and six months ended June 30, 2021; $317 and $(399) in the three and six months ended June 30, 2020 | |
| (4,754) | |
| 1,108 | | | 2,536 | | | (1,261) |
Defined benefit pension plan activity, net of tax of $(569) and $246 in the three and six months ended June 30, 2021; $(7,691) and $(7,527) in the three and six months ended June 30, 2020 | |
| (1,702) | |
| (23,036) | | | 3,358 | | | (22,427) |
Currency translation adjustment | |
| 13,579 | |
| 14,468 | |
| (9,164) | |
| (56,140) |
Other comprehensive income (loss): | |
| 7,123 | |
| (7,460) | |
| (3,270) | |
| (79,828) |
Comprehensive income | |
| 103,403 | |
| 19,553 | |
| 167,143 | |
| 2,740 |
Comprehensive income (loss) attributable to non-controlling interests | |
| 65 | |
| — | |
| (138) | |
| (48) |
Comprehensive income (loss) attributable to shareholders | | $ | 103,338 | | $ | 19,553 | | $ | 167,281 | | $ | 2,788 |
See notes to these consolidated financial statements.
4
(In thousands)
September 30, 2020 | December 31, 2019 | ||||||||||
(UNAUDITED) | (NOTE 1) | ||||||||||
ASSETS | |||||||||||
Current Assets | |||||||||||
Cash and cash equivalents | $ | 152,479 | $ | 199,563 | |||||||
Accounts receivable (less allowance for doubtful accounts of $15,657 in 2020; $16,002 in 2019) | 373,044 | 374,649 | |||||||||
Inventories (Note 9) | 396,214 | 393,748 | |||||||||
Other current assets | 104,474 | 107,621 | |||||||||
Total Current Assets | 1,026,211 | 1,075,581 | |||||||||
Property, plant and equipment (less accumulated depreciation of $858,288 in 2020; $825,769 in 2019) | 504,520 | 529,344 | |||||||||
Goodwill | 331,473 | 337,107 | |||||||||
Other assets | 355,295 | 429,181 | |||||||||
TOTAL ASSETS | $ | 2,217,499 | $ | 2,371,213 | |||||||
LIABILITIES AND EQUITY | |||||||||||
Current Liabilities | |||||||||||
Short-term debt (Note 12) | $ | 1,147 | $ | 34,969 | |||||||
Trade accounts payable | 226,494 | 273,002 | |||||||||
Accrued employee compensation and benefits | 121,967 | 83,033 | |||||||||
Other current liabilities | 183,553 | 172,131 | |||||||||
Total Current Liabilities | 533,161 | 563,135 | |||||||||
Long-term debt, less current portion (Note 12) | 715,687 | 712,302 | |||||||||
Other liabilities | 257,907 | 276,699 | |||||||||
Total Liabilities | 1,506,755 | 1,552,136 | |||||||||
Shareholders’ Equity | |||||||||||
Common shares | 9,858 | 9,858 | |||||||||
Additional paid-in capital | 404,086 | 389,446 | |||||||||
Retained earnings | 2,790,579 | 2,736,481 | |||||||||
Accumulated other comprehensive loss | (343,281) | (275,850) | |||||||||
Treasury shares | (2,151,417) | (2,041,763) | |||||||||
Total Shareholders’ Equity | 709,825 | 818,172 | |||||||||
Non-controlling interests | 919 | 905 | |||||||||
Total Equity | 710,744 | 819,077 | |||||||||
TOTAL LIABILITIES AND TOTAL EQUITY | $ | 2,217,499 | $ | 2,371,213 |
| | | | | | |
| | June 30, 2021 | | December 31, 2020 | ||
| | (UNAUDITED) | | (NOTE 1) | ||
ASSETS |
| |
|
| |
|
Current Assets |
| |
|
| |
|
Cash and cash equivalents | | $ | 190,884 | | $ | 257,279 |
Accounts receivable (less allowance for doubtful accounts of $14,141 in 2021; $14,779 in 2020) | |
| 457,454 | |
| 373,487 |
Inventories (Note 9) | |
| 477,677 | |
| 381,258 |
Other current assets | |
| 111,925 | |
| 100,319 |
Total Current Assets | |
| 1,237,940 | |
| 1,112,343 |
Property, plant and equipment (less accumulated depreciation of $892,915 in 2021; $884,647 in 2020) | | | 513,686 | | | 522,092 |
Goodwill | |
| 412,803 | |
| 335,593 |
Other assets | |
| 348,297 | |
| 344,425 |
TOTAL ASSETS | | $ | 2,512,726 | | $ | 2,314,453 |
LIABILITIES AND EQUITY | |
| | |
|
|
Current Liabilities | |
| | |
|
|
Short-term debt (Note 12) | | $ | 10,435 | | $ | 2,734 |
Trade accounts payable | |
| 317,771 | |
| 256,530 |
Accrued employee compensation and benefits | |
| 124,606 | |
| 98,437 |
Other current liabilities | |
| 243,208 | |
| 191,748 |
Total Current Liabilities | |
| 696,020 | |
| 549,449 |
Long-term debt, less current portion (Note 12) | |
| 718,137 | |
| 715,456 |
Other liabilities | |
| 238,946 | |
| 259,298 |
Total Liabilities | |
| 1,653,103 | |
| 1,524,203 |
Shareholders' Equity | |
| | |
|
|
Common Shares | |
| 9,858 | |
| 9,858 |
Additional paid-in capital | |
| 427,576 | |
| 409,958 |
Retained earnings | |
| 2,928,819 | |
| 2,821,359 |
Accumulated other comprehensive loss | |
| (305,191) | |
| (302,190) |
Treasury Shares | |
| (2,201,397) | |
| (2,149,714) |
Total Shareholders' Equity | |
| 859,665 | |
| 789,271 |
Non-controlling interests | |
| (42) | |
| 979 |
Total Equity | |
| 859,623 | |
| 790,250 |
TOTAL LIABILITIES AND TOTAL EQUITY | | $ | 2,512,726 | | $ | 2,314,453 |
See notes to these consolidated financial statements.
5
(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 |
Common Shares Outstanding | Common Shares | Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Treasury Shares | Non-controlling Interests | Total | |||||||||||||||||||||||||||||||||||||||||||
Balance at December 31, 2019 | 60,592 | $ | 9,858 | $ | 389,446 | $ | 2,736,481 | $ | (275,850) | $ | (2,041,763) | $ | 905 | $ | 819,077 | |||||||||||||||||||||||||||||||||||
Net income | 55,562 | (7) | 55,555 | |||||||||||||||||||||||||||||||||||||||||||||||
Unrecognized amounts from defined benefit pension plans, net of tax | 609 | 609 | ||||||||||||||||||||||||||||||||||||||||||||||||
Unrealized loss on derivatives designated and qualifying as cash flow hedges, net of tax | (2,369) | (2,369) | ||||||||||||||||||||||||||||||||||||||||||||||||
Currency translation adjustment | (70,567) | (41) | (70,608) | |||||||||||||||||||||||||||||||||||||||||||||||
Cash dividends declared – $0.49 per share | (29,280) | (29,280) | ||||||||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation activity | 152 | 2,826 | 1,912 | 4,738 | ||||||||||||||||||||||||||||||||||||||||||||||
Purchase of shares for treasury | (1,357) | (109,762) | (109,762) | |||||||||||||||||||||||||||||||||||||||||||||||
Other | (5,176) | 5,176 | 0 | |||||||||||||||||||||||||||||||||||||||||||||||
Balance at March 31, 2020 | 59,387 | $ | 9,858 | $ | 387,096 | $ | 2,767,939 | $ | (348,177) | $ | (2,149,613) | $ | 857 | $ | 667,960 | |||||||||||||||||||||||||||||||||||
Net income | 26,996 | 17 | 27,013 | |||||||||||||||||||||||||||||||||||||||||||||||
Unrecognized amounts from defined benefit pension plans, net of tax | (23,036) | (23,036) | ||||||||||||||||||||||||||||||||||||||||||||||||
Unrealized gain on derivatives designated and qualifying as cash flow hedges, net of tax | 1,108 | 1,108 | ||||||||||||||||||||||||||||||||||||||||||||||||
Currency translation adjustment | 14,485 | (17) | 14,468 | |||||||||||||||||||||||||||||||||||||||||||||||
Cash dividends declared – $0.49 per share | (29,260) | (29,260) | ||||||||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation activity | 25 | 4,754 | 317 | 5,071 | ||||||||||||||||||||||||||||||||||||||||||||||
Purchase of shares for treasury | (45) | (3,213) | (3,213) | |||||||||||||||||||||||||||||||||||||||||||||||
Other | 2,842 | (2,842) | 0 | |||||||||||||||||||||||||||||||||||||||||||||||
Balance at June 30, 2020 | 59,367 | $ | 9,858 | $ | 394,692 | $ | 2,762,833 | $ | (355,620) | $ | (2,152,509) | $ | 857 | $ | 660,111 | |||||||||||||||||||||||||||||||||||
Net income | 58,479 | 27 | 58,506 | |||||||||||||||||||||||||||||||||||||||||||||||
Unrecognized amounts from defined benefit pension plans, net of tax | (1,304) | (1,304) | ||||||||||||||||||||||||||||||||||||||||||||||||
Unrealized gain on derivatives designated and qualifying as cash flow hedges, net of tax | 639 | 639 | ||||||||||||||||||||||||||||||||||||||||||||||||
Currency translation adjustment | 13,004 | 35 | 13,039 | |||||||||||||||||||||||||||||||||||||||||||||||
Cash dividends declared – $0.49 per share | (29,326) | (29,326) | ||||||||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation activity | 106 | 8,493 | 1,315 | 9,808 | ||||||||||||||||||||||||||||||||||||||||||||||
Purchase of shares for treasury | (2) | (223) | (223) | |||||||||||||||||||||||||||||||||||||||||||||||
Other | 901 | (1,407) | (506) | |||||||||||||||||||||||||||||||||||||||||||||||
Balance at September 30, 2020 | 59,471 | $ | 9,858 | $ | 404,086 | $ | 2,790,579 | $ | (343,281) | $ | (2,151,417) | $ | 919 | $ | 710,744 |
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, 2019 |
| 60,592 | | $ | 9,858 | | $ | 389,446 | | $ | 2,736,481 | | $ | (275,850) | | $ | (2,041,763) | | $ | 905 | | $ | 819,077 |
Net income |
|
| |
|
| |
|
| |
| 55,562 | |
|
| |
|
| |
| (7) | |
| 55,555 |
Unrecognized amounts from defined benefit pension plans, net of tax |
|
| |
|
| |
|
| |
|
| |
| 609 | |
|
| |
|
| |
| 609 |
Unrealized loss on derivatives designated and qualifying as cash flow hedges, net of tax |
|
| |
|
| |
|
| |
|
| |
| (2,369) | |
|
| |
|
| |
| (2,369) |
Currency translation adjustment |
|
| |
|
| |
|
| |
|
| |
| (70,567) | |
|
| |
| (41) | |
| (70,608) |
Cash dividends declared – $0.49 per share |
|
| |
|
| |
|
| |
| (29,280) | |
|
| |
|
| |
|
| |
| (29,280) |
Stock-based compensation activity |
| 152 | |
|
| |
| 2,826 | |
|
| |
|
| |
| 1,912 | |
|
| |
| 4,738 |
Purchase of shares for treasury |
| (1,357) | |
|
| |
|
| |
|
| |
|
| |
| (109,762) | |
|
| |
| (109,762) |
Other |
|
| |
|
| |
| (5,176) | |
| 5,176 | |
|
| |
|
| |
|
| |
| — |
Balance at March 31, 2020 |
| 59,387 | | $ | 9,858 | | $ | 387,096 | | $ | 2,767,939 | | $ | (348,177) | | $ | (2,149,613) | | $ | 857 | | $ | 667,960 |
Net income |
| | |
|
| |
| | |
| 26,996 | |
| | |
| | |
| 17 | |
| 27,013 |
Unrecognized amounts from defined benefit pension plans, net of tax |
| | |
|
| |
| | |
| | |
| (23,036) | |
| | |
| | |
| (23,036) |
Unrealized gain on derivatives designated and qualifying as cash flow hedges, net of tax |
| | |
|
| |
| | |
| | |
| 1,108 | |
| | |
| | |
| 1,108 |
Currency translation adjustment |
| | |
|
| |
| | |
| | |
| 14,485 | |
| | |
| (17) | |
| 14,468 |
Cash dividends declared – $0.49 per share |
| | |
|
| |
| | |
| (29,260) | |
| | |
| | |
| | |
| (29,260) |
Stock-based compensation activity |
| 25 | |
|
| |
| 4,754 | |
| | |
| | |
| 317 | |
| | |
| 5,071 |
Purchase of shares for treasury |
| (45) | |
|
| |
| | |
| | |
| | |
| (3,213) | |
| | |
| (3,213) |
Other |
| | |
|
| |
| 2,842 | |
| (2,842) | |
| | |
| | |
| | |
| — |
Balance at June 30, 2020 |
| 59,367 | | $ | 9,858 | | $ | 394,692 | | $ | 2,762,833 | | $ | (355,620) | | $ | (2,152,509) | | $ | 857 | | $ | 660,111 |
Common Shares Outstanding | Common Shares | Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Treasury Shares | Non-controlling Interests | Total | |||||||||||||||||||||||||||||||||||||||||||
Balance at December 31, 2018 | 63,546 | $ | 9,858 | $ | 360,308 | $ | 2,564,440 | $ | (293,739) | $ | (1,753,925) | $ | 650 | $ | 887,592 | |||||||||||||||||||||||||||||||||||
Net income | 71,480 | (14) | 71,466 | |||||||||||||||||||||||||||||||||||||||||||||||
Unrecognized amounts from defined benefit pension plans, net of tax | 787 | 787 | ||||||||||||||||||||||||||||||||||||||||||||||||
Unrealized gain on derivatives designated and qualifying as cash flow hedges, net of tax | 329 | 329 | ||||||||||||||||||||||||||||||||||||||||||||||||
Currency translation adjustment | 5,099 | 37 | 5,136 | |||||||||||||||||||||||||||||||||||||||||||||||
Cash dividends declared – $0.47 per share | (29,847) | (29,847) | ||||||||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation activity | 148 | 3,302 | 1,484 | 4,786 | ||||||||||||||||||||||||||||||||||||||||||||||
Purchase of shares for treasury | (894) | (75,584) | (75,584) | |||||||||||||||||||||||||||||||||||||||||||||||
Other | 808 | (808) | 0 | |||||||||||||||||||||||||||||||||||||||||||||||
Balance at March 31, 2019 | 62,800 | $ | 9,858 | $ | 364,418 | $ | 2,605,265 | $ | (287,524) | $ | (1,828,025) | $ | 673 | $ | 864,665 | |||||||||||||||||||||||||||||||||||
Net income | 85,452 | (8) | 85,444 | |||||||||||||||||||||||||||||||||||||||||||||||
Unrecognized amounts from defined benefit pension plans, net of tax | 1,091 | 1,091 | ||||||||||||||||||||||||||||||||||||||||||||||||
Unrealized loss on derivatives designated and qualifying as cash flow hedges, net of tax | (301) | (301) | ||||||||||||||||||||||||||||||||||||||||||||||||
Currency translation adjustment | 4,884 | (35) | 4,849 | |||||||||||||||||||||||||||||||||||||||||||||||
Cash dividends declared – $0.47 per share | (29,279) | (29,279) | ||||||||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation activity | 13 | 4,783 | 136 | 4,919 | ||||||||||||||||||||||||||||||||||||||||||||||
Purchase of shares for treasury | (1,034) | (85,330) | (85,330) | |||||||||||||||||||||||||||||||||||||||||||||||
Other | (282) | 282 | 0 | |||||||||||||||||||||||||||||||||||||||||||||||
Balance at June 30, 2019 | 61,779 | $ | 9,858 | $ | 368,919 | $ | 2,661,720 | $ | (281,850) | $ | (1,913,219) | $ | 630 | $ | 846,058 | |||||||||||||||||||||||||||||||||||
Net income | 72,461 | (4) | 72,457 | |||||||||||||||||||||||||||||||||||||||||||||||
Unrecognized amounts from defined benefit pension plans, net of tax | 613 | 613 | ||||||||||||||||||||||||||||||||||||||||||||||||
Unrealized gain on derivatives designated and qualifying as cash flow hedges, net of tax | (348) | (348) | ||||||||||||||||||||||||||||||||||||||||||||||||
Currency translation adjustment | (24,283) | 258 | (24,025) | |||||||||||||||||||||||||||||||||||||||||||||||
Cash dividends declared – $0.47 per share | (28,931) | (28,931) | ||||||||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation activity | 107 | 7,996 | 1,111 | 9,107 | ||||||||||||||||||||||||||||||||||||||||||||||
Purchase of shares for treasury | (737) | (61,028) | (61,028) | |||||||||||||||||||||||||||||||||||||||||||||||
Other | 669 | (764) | (95) | |||||||||||||||||||||||||||||||||||||||||||||||
Balance at September 30, 2019 | 61,149 | $ | 9,858 | $ | 377,584 | $ | 2,704,486 | $ | (305,868) | $ | (1,973,136) | $ | 884 | $ | 813,808 |
7
(UNAUDITED)
(In thousands)
Nine Months Ended September 30, | |||||||||||||||||
2020 | 2019 | ||||||||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES | |||||||||||||||||
Net income | $ | 141,037 | $ | 229,393 | |||||||||||||
Non-controlling interests in subsidiaries’ income (loss) | 37 | (26) | |||||||||||||||
Net income including non-controlling interests | 141,074 | 229,367 | |||||||||||||||
Adjustments to reconcile Net income including non-controlling interests to Net cash provided by operating activities: | |||||||||||||||||
Rationalization and asset impairment net charges (Note 6) | 21,927 | 1,069 | |||||||||||||||
Depreciation and amortization | 60,566 | 60,400 | |||||||||||||||
Equity earnings in affiliates, net | (323) | (1,266) | |||||||||||||||
Deferred income taxes | (10,143) | 4,045 | |||||||||||||||
Stock-based compensation | 11,656 | 12,602 | |||||||||||||||
Gain on change in control | 0 | (7,601) | |||||||||||||||
Other, net | (4,283) | (7,362) | |||||||||||||||
Changes in operating assets and liabilities, net of effects from acquisitions: | |||||||||||||||||
(Increase) decrease in accounts receivable | (6,851) | 24,103 | |||||||||||||||
Increase in inventories | (3,430) | (36,476) | |||||||||||||||
Decrease in other current assets | 8,027 | 3,227 | |||||||||||||||
Decrease in trade accounts payable | (42,333) | (34,202) | |||||||||||||||
Increase in other current liabilities | 38,615 | 31,113 | |||||||||||||||
Net change in other assets and liabilities | 1,059 | 1,647 | |||||||||||||||
NET CASH PROVIDED BY OPERATING ACTIVITIES | 215,561 | 280,666 | |||||||||||||||
CASH FLOWS FROM INVESTING ACTIVITIES | |||||||||||||||||
Capital expenditures | (37,116) | (53,551) | |||||||||||||||
Acquisition of businesses, net of cash acquired | 0 | (136,735) | |||||||||||||||
Proceeds from sale of property, plant and equipment | 6,957 | 9,491 | |||||||||||||||
Other investing activities | 0 | 2,000 | |||||||||||||||
NET CASH USED BY INVESTING ACTIVITIES | (30,159) | (178,795) | |||||||||||||||
CASH FLOWS FROM FINANCING ACTIVITIES | |||||||||||||||||
Payments on short-term borrowings | (3,504) | 0 | |||||||||||||||
Amounts due banks, net | (29,619) | 2,439 | |||||||||||||||
Payments on long-term borrowings | (12) | (6) | |||||||||||||||
Proceeds from exercise of stock options | 7,961 | 6,210 | |||||||||||||||
Purchase of shares for treasury (Note 8) | (113,198) | (221,942) | |||||||||||||||
Cash dividends paid to shareholders | (88,945) | (89,162) | |||||||||||||||
NET CASH USED BY FINANCING ACTIVITIES | (227,317) | (302,461) | |||||||||||||||
Effect of exchange rate changes on Cash and cash equivalents | (5,169) | (1,647) | |||||||||||||||
DECREASE IN CASH AND CASH EQUIVALENTS | (47,084) | (202,237) | |||||||||||||||
Cash and cash equivalents at beginning of period | 199,563 | 358,849 | |||||||||||||||
CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | 152,479 | $ | 156,612 |
| | | | | | |
| | Six Months Ended June 30, | ||||
|
| 2021 |
| 2020 | ||
CASH FLOWS FROM OPERATING ACTIVITIES |
| |
| | |
|
Net income | | $ | 170,282 | | $ | 82,558 |
Non-controlling interests in subsidiaries' income (loss) | |
| 131 | |
| 10 |
Net income including non-controlling interests | |
| 170,413 | |
| 82,568 |
Adjustments to reconcile Net income including non-controlling interests to Net cash provided by operating activities: | |
| | |
|
|
Rationalization and asset impairment net (gains) charges (Note 6) | |
| (1,374) | |
| 21,905 |
Depreciation and amortization | |
| 38,508 | |
| 41,078 |
Equity earnings in affiliates, net | |
| (291) | |
| (243) |
Deferred income taxes | |
| (20,995) | |
| (10,636) |
Stock-based compensation | |
| 12,651 | |
| 7,807 |
Other, net | |
| 3,524 | |
| (2,459) |
Changes in operating assets and liabilities, net of effects from acquisitions: | |
| | |
|
|
(Increase) decrease in accounts receivable | |
| (87,571) | |
| 23,666 |
Increase in inventories | |
| (83,186) | |
| (30,378) |
(Increase) decrease in other current assets | |
| (12,007) | |
| 3,241 |
Increase (decrease) in trade accounts payable | |
| 63,275 | |
| (40,115) |
Increase in other current liabilities | |
| 59,128 | |
| 29,169 |
Net change in other assets and liabilities | |
| 3,159 | |
| 410 |
NET CASH PROVIDED BY OPERATING ACTIVITIES | |
| 145,234 | |
| 126,013 |
CASH FLOWS FROM INVESTING ACTIVITIES | |
| | |
|
|
Capital expenditures | |
| (27,768) | |
| (25,011) |
Acquisition of businesses, net of cash acquired | |
| (83,723) | |
| 0 |
Proceeds from sale of property, plant and equipment | |
| 2,557 | |
| 6,218 |
Other investing activities | |
| 6,500 | |
| 0 |
NET CASH USED BY INVESTING ACTIVITIES | |
| (102,434) | |
| (18,793) |
CASH FLOWS FROM FINANCING ACTIVITIES | |
| | |
|
|
Amounts due banks, net | |
| 1,163 | |
| 15,095 |
Proceeds from exercise of stock options | |
| 5,672 | |
| 2,002 |
Purchase of shares for treasury (Note 8) | |
| (53,688) | |
| (112,975) |
Cash dividends paid to shareholders | |
| (61,379) | |
| (59,814) |
Other financing activities | |
| (763) | |
| 0 |
NET CASH USED BY FINANCING ACTIVITIES | |
| (108,995) | |
| (155,692) |
Effect of exchange rate changes on Cash and cash equivalents | |
| (200) | |
| (8,036) |
DECREASE IN CASH AND CASH EQUIVALENTS | |
| (66,395) | |
| (56,508) |
| | | | | | |
Cash and cash equivalents at beginning of period | |
| 257,279 | |
| 199,563 |
CASH AND CASH EQUIVALENTS AT END OF PERIOD | | $ | 190,884 | | $ | 143,055 |
See notes to these consolidated financial statements.
8
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Dollars in thousands, except per share amounts
Principles of Consolidation
As used in this report, the term “Company,” except as otherwise indicated by the context, means Lincoln Electric Holdings, Inc. and its wholly-owned and majority-owned subsidiaries for which it has a controlling interest.
The consolidated financial statements include the accounts of all legal entities in which the Company holds a controlling interest. The Company is also considered to have a controlling interest in a variable interest entity (“VIE”) if the Company determines it is the primary beneficiary of the VIE. Investments in legal entities in which the Company does not own a majority interest but has the ability to exercise significant influence over operating and financial policies are accounted for using the equity method.
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 ninesix months ended SeptemberJune 30, 20202021 are not necessarily indicative of the results to be expected for the year ending December 31, 2020.
The accompanying Consolidated Balance Sheet at December 31, 20192020 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, 2019.
The current coronavirus disease (“COVID-19”COVID-19”) as a pandemic has adversely impacted global economic conditions and the President of the United States declared the COVID-19 outbreak a national emergency. COVID-19 continueshas contributed to spread throughout the United States and other countries across the world, and the ultimate duration and severity onsignificant volatility in financial markets beginning in early calendar year 2020. Although the Company's business remains unknown. Newestimates contemplate current conditions, the inputs into certain significant and changing government actions to addresscritical accounting estimates include judgments and assumptions about the economic implications of the COVID-19 pandemic continueand how management expects them to occur. As a result,change in the countriesfuture. It is reasonably possible that actual results experienced may differ materially from the Company's estimates in future periods, which the Company’s products are manufactured and distributed are in varying stages of restrictions. Certain jurisdictions may have to re-establish restrictions due to a resurgence in COVID-19 cases. Additionally, although most of the Company’s customers have re-opened and increased operating levels, such customers may be forced to close or limit operations as any new COVID-19 outbreaks occur. Even as government restrictions are lifted and economies reopen, the ultimate shape of the economic recovery is uncertain and may continue to negatively impact the Company'scould affect our results of operations cash flows and financial positioncondition. For additional discussion, see “Item 1A. Risk Factors” in subsequent quarters. Given this current level of economic and operational uncertainty over the impacts of COVID-19, the ultimate financial impact cannot be reasonably estimated at this time. The Company’s consolidated financial statements presented herein reflect estimates and assumptions made by management that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and reported amounts of revenue and expenses during the reporting periods presented. Such estimates and assumptions affect, among other things, the Company’s goodwill, long-lived asset and indefinite-lived intangible asset valuation; inventory valuation; assessment ofAnnual Report on Form 10-K for the annual effective tax rate; valuation of deferred income taxes and income tax contingencies; the allowance for doubtful accounts; measurement of compensation cost for certain share-based awards and cash bonus plans; and pension plan assumptions. Events and changes in circumstances arising after September 30, 2020, including those resulting from the continued impacts of COVID-19, will be reflected in management’s estimates for future periods.
New Accounting Pronouncements:
This section provides a description of new accounting pronouncements ("Accounting Standard Update" or "ASU") issued by the Financial Accounting Standards Board ("FASB") that are applicable to the Company.
The following ASUs wereASU was adopted as of January 1, 2020, unless otherwise noted below:
| ||||||||||||||
| ||||||||||||||
Standard | Description | |||||||||||||
ASU No. 2019-12, Income Taxes (Topic 740), issued December 2019. | ASU 2019-12 simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. The |
9
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Dollars in thousands, except per share amounts
The following table presents the Company'sCompany’s Net sales disaggregated by product line:
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||||||||||||||||||||||||
Consumables | $ | 379,177 | $ | 420,980 | $ | 1,118,688 | $ | 1,308,788 | ||||||||||||||||||||||||||||||
Equipment | 289,711 | 309,803 | 842,918 | 958,177 | ||||||||||||||||||||||||||||||||||
Net sales | $ | 668,888 | $ | 730,783 | $ | 1,961,606 | $ | 2,266,965 |
| | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, | ||||||||
|
| 2021 |
| 2020 |
| 2021 |
| 2020 | ||||
Consumables | | $ | 475,559 | | $ | 333,671 | | $ | 909,738 | | $ | 739,511 |
Equipment | |
| 350,895 | |
| 257,056 | |
| 673,737 | |
| 553,207 |
Net sales | | $ | 826,454 | | $ | 590,727 | | $ | 1,583,475 | | $ | 1,292,718 |
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 10% of the Company'sCompany’s Net sales are recognized over time.
At SeptemberJune 30, 2020,2021, the Company recorded $15,749$22,283 related to advance customer payments and $14,090$50,357 related to billings in excess of revenue recognized. These contract liabilities are included in Other current liabilities in the Condensed Consolidated Balance Sheets. At December 31, 2019,2020, the balances related to advance customer payments and billings in excess of revenue recognized were $16,040$14,920 and $16,274,$21,396, respectively. Substantially all of the Company’s contract liabilities are recognized within twelve months based on contract duration. The Company records an asset for contracts where it has recognized revenue, but has not yet invoiced the customer for goods or services. At SeptemberJune 30, 20202021 and December 31, 2019, $29,6882020, the Company recorded $23,294 and $33,566,$22,113, respectively, related to these future customer receivables wascontract assets which are included in Other current assets in the Condensed Consolidated Balance Sheets. Contract asset amounts are expected to be billed within the next twelve months.
The following table sets forth the computation of basic and diluted earnings per share:
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||
2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||||||||||||||
Numerator: | |||||||||||||||||||||||||||||||||||
Net income | $ | 58,479 | $ | 72,461 | $ | 141,037 | $ | 229,393 | |||||||||||||||||||||||||||
Denominator (shares in 000's): | |||||||||||||||||||||||||||||||||||
Basic weighted average shares outstanding | 59,426 | 61,380 | 59,655 | 62,282 | |||||||||||||||||||||||||||||||
Effect of dilutive securities - Stock options and awards | 592 | 681 | 547 | 690 | |||||||||||||||||||||||||||||||
Diluted weighted average shares outstanding | 60,018 | 62,061 | 60,202 | 62,972 | |||||||||||||||||||||||||||||||
Basic earnings per share | $ | 0.98 | $ | 1.18 | $ | 2.36 | $ | 3.68 | |||||||||||||||||||||||||||
Diluted earnings per share | $ | 0.97 | $ | 1.17 | $ | 2.34 | $ | 3.64 |
| | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, | ||||||||
|
| 2021 |
| 2020 |
| 2021 |
| 2020 | ||||
Numerator: |
| | |
| |
|
| |
|
| |
|
Net income | | $ | 96,105 | | $ | 26,996 | | $ | 170,282 | | $ | 82,558 |
Denominator (shares in 000's): | |
| | |
| | |
| | |
| |
Basic weighted average shares outstanding | |
| 59,464 | |
| 59,354 | |
| 59,553 | |
| 59,769 |
Effect of dilutive securities - Stock options and awards | |
| 700 | |
| 477 | |
| 676 | |
| 531 |
Diluted weighted average shares outstanding | |
| 60,164 | |
| 59,831 | |
| 60,229 | |
| 60,300 |
Basic earnings per share | | $ | 1.62 | | $ | 0.45 | | $ | 2.86 | | $ | 1.38 |
Diluted earnings per share | | $ | 1.60 | | $ | 0.45 | | $ | 2.83 | | $ | 1.37 |
For the three months ended SeptemberJune 30, 20202021 and 2019,2020, common shares subject to equity-based awards of 557,198179,861 and 548,049,852,159, respectively, were excluded from the computation of diluted earnings per share because the
10
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Dollars in thousands, except per share amounts
effect of their exercise would be anti-dilutive. For the six months ended June 30, 2021 and 2020, common shares subject to equity-based awards of 134,388 and 779,404, respectively, were excluded from the computation of diluted earnings per share because the effect of their exercise would be anti-dilutive. For the nine months ended September 30, 2020 and 2019, common shares subject to equity-based awards of 547,329 and 514,402, respectively, were excluded from the computation of diluted earnings per share because the effect of their exercise would be anti-dilutive.
NOTE 4 — ACQUISITIONS
During July 2019,April 2021, the Company acquired Zeman Bauelemente Produktionsgesellschaft m.b.H. (“Zeman Bauelemente"), a division of the controlling stake of Kaynak Tekniği Sanayi ve Ticaret A.Ş. (“Askaynak”). Askaynak,Zeman Group. Zeman Bauelemente, based in Turkey,Vienna, Austria, is a supplierleading designer and manufacturer of welding consumables,robotic assembly and arc welding equipment, including plasmasystems that automate the tacking and oxy-fuel cutting equipment and robotic welding systems.of steel beams. The acquisition advancedexpands the Company's regional growth strategyCompany’s international automation capabilities to serve customers in Europe, the Middle Eaststructural steel and Africa.
Pro forma information related to the acquisitionsacquisition discussed above has not been presented because the impact on the Company’s Consolidated Statements of Income is not material. Acquired companies areThe preliminary purchase price allocation is expected to be finalized within the allowable measurement period. The acquired company is included in the Company's consolidated financial statements as of the date of acquisition.
NOTE 5 — SEGMENT INFORMATION
The Company'sCompany’s business units are aligned into 3 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.
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.
11
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 June 30, 2021 |
| |
|
| |
|
| |
|
| |
|
| |
|
Net sales | | $ | 457,468 | | $ | 252,352 | | $ | 116,634 | | $ | 0 | | $ | 826,454 |
Inter-segment sales | |
| 39,765 | | | 6,897 | | | 2,284 | | | (48,946) | | | 0 |
Total | | $ | 497,233 | | $ | 259,249 | | $ | 118,918 | | $ | (48,946) | | $ | 826,454 |
Adjusted EBIT | | $ | 84,134 | | $ | 29,997 | | $ | 18,212 | | $ | (3,888) | | $ | 128,455 |
Special items charge (gain) (1) | |
| 1,650 | | | 2,471 | | | — | | | 810 | | | 4,931 |
EBIT | | $ | 82,484 | | $ | 27,526 | | $ | 18,212 | | $ | (4,698) | | $ | 123,524 |
Interest income | | | | | | | | | | | | | | | 398 |
Interest expense | | | | | | | | | | | | | | | (6,061) |
Income before income taxes | | | | |
| | |
| | |
| | | $ | 117,861 |
| | | | | | | | | | | | | | | |
Three Months Ended June 30, 2020 | |
|
| |
|
| |
|
| |
|
| |
|
|
Net sales | | $ | 333,229 | | $ | 177,167 | | $ | 80,331 | | $ | 0 | | $ | 590,727 |
Inter-segment sales | |
| 27,493 | |
| 4,286 | |
| 1,753 | |
| (33,532) | | | 0 |
Total | | $ | 360,722 | | $ | 181,453 | | $ | 82,084 | | $ | (33,532) | | $ | 590,727 |
Adjusted EBIT | | $ | 46,702 | | $ | 9,682 | | $ | 11,713 | | $ | (1,964) | | $ | 66,133 |
Special items charge (gain) (2) | |
| 26,007 | |
| 565 | |
| — | |
| — | | | 26,572 |
EBIT | | $ | 20,695 | | $ | 9,117 | | $ | 11,713 | | $ | (1,964) | | $ | 39,561 |
Interest income | | | | |
|
| |
|
| |
|
| |
| 424 |
Interest expense | | | | |
|
| |
|
| |
|
| |
| (6,305) |
Income before income taxes | | | | |
|
| |
|
| |
|
| | $ | 33,680 |
| | | | | | | | | | | | | | | |
Six Months Ended June 30, 2021 | |
| | | | | | | | | | | |
|
|
Net sales | | $ | 882,710 | | $ | 475,431 | | $ | 225,334 | | $ | 0 | | $ | 1,583,475 |
Inter-segment sales | |
| 72,513 | |
| 11,182 | |
| 4,431 | |
| (88,126) | | | 0 |
Total | | $ | 955,223 | | $ | 486,613 | | $ | 229,765 | | $ | (88,126) | | $ | 1,583,475 |
Adjusted EBIT | | $ | 160,751 | | $ | 48,813 | | $ | 36,909 | | $ | (5,344) | | $ | 241,129 |
Special items charge (gain) (1) | |
| 6,090 | |
| 7,080 | |
| — | |
| 1,923 | | | 15,093 |
EBIT | | $ | 154,661 | | $ | 41,733 | | $ | 36,909 | | $ | (7,267) | | $ | 226,036 |
Interest income | | | | |
|
| |
|
| |
|
| |
| 852 |
Interest expense | | | | |
|
| |
|
| |
|
| |
| (11,874) |
Income before income taxes | | | | |
|
| |
|
| |
|
| | $ | 215,014 |
| | | | | | | | | | | | | | | |
Six Months Ended June 30, 2020 | |
| | | | | | | | | | | |
|
|
Net sales | | $ | 751,764 | | $ | 375,090 | | $ | 165,864 | | $ | 0 | | $ | 1,292,718 |
Inter-segment sales | |
| 52,276 | |
| 8,769 | |
| 3,478 | |
| (64,523) | | | 0 |
Total | | $ | 804,040 | | $ | 383,859 | | $ | 169,342 | | $ | (64,523) | | $ | 1,292,718 |
Adjusted EBIT | | $ | 117,404 | | $ | 16,297 | | $ | 24,205 | | $ | (3,063) | | $ | 154,843 |
Special items charge (gain) (2) | |
| 27,197 | |
| 6,702 | |
| — | |
| — | | | 33,899 |
EBIT | | $ | 90,207 | | $ | 9,595 | | $ | 24,205 | | $ | (3,063) | | $ | 120,944 |
Interest income | | | | |
|
| |
|
| |
|
| |
| 1,284 |
Interest expense | | | | |
|
| |
|
| |
|
| |
| (12,623) |
Income before income taxes | | | | |
|
| |
|
| |
|
| | $ | 109,605 |
(1) | In the three and six months ended June 30, 2021, special items reflect Rationalization and asset impairment charges of $630 and $4,793, respectively, in International Welding, amortization of step up in value of acquired inventories of $1,841 related to the acquisition of Zeman Bauelemente in International Welding and pension settlement charges of $1,650 and $6,536 in Americas Welding, respectively, and $446 in International Welding in the six months ended June 30, 2021. Also in the three and six months ended June 30, 2021, special items reflect acquisition transaction costs of $810 and $1,923, respectively, in Corporate/Eliminations related to an acquisition. |
Americas Welding | International Welding | The Harris Products Group | Corporate / Eliminations | Consolidated | |||||||||||||||||||||||||
Three Months Ended September 30, 2020 | |||||||||||||||||||||||||||||
Net sales | $ | 371,535 | $ | 196,937 | $ | 100,416 | $ | 0 | $ | 668,888 | |||||||||||||||||||
Inter-segment sales | 29,368 | 4,898 | 1,898 | (36,164) | 0 | ||||||||||||||||||||||||
Total | $ | 400,903 | $ | 201,835 | $ | 102,314 | $ | (36,164) | $ | 668,888 | |||||||||||||||||||
Adjusted EBIT | $ | 59,120 | $ | 13,432 | $ | 17,587 | $ | (1,839) | $ | 88,300 | |||||||||||||||||||
Special items charge (gain) (1) | 7,044 | 2,401 | 0 | 0 | 9,445 | ||||||||||||||||||||||||
EBIT | $ | 52,076 | $ | 11,031 | $ | 17,587 | $ | (1,839) | $ | 78,855 | |||||||||||||||||||
Interest income | 293 | ||||||||||||||||||||||||||||
Interest expense | (5,845) | ||||||||||||||||||||||||||||
Income before income taxes | $ | 73,303 | |||||||||||||||||||||||||||
Three Months Ended September 30, 2019 | |||||||||||||||||||||||||||||
Net sales | $ | 443,521 | $ | 205,378 | $ | 81,884 | $ | 0 | $ | 730,783 | |||||||||||||||||||
Inter-segment sales | 31,101 | 4,441 | 1,857 | (37,399) | 0 | ||||||||||||||||||||||||
Total | $ | 474,622 | $ | 209,819 | $ | 83,741 | $ | (37,399) | $ | 730,783 | |||||||||||||||||||
Adjusted EBIT | $ | 74,110 | $ | 10,184 | $ | 11,038 | $ | (1,632) | $ | 93,700 | |||||||||||||||||||
Special items charge (gain) (2) | 0 | (4,497) | 0 | 0 | (4,497) | ||||||||||||||||||||||||
EBIT | $ | 74,110 | $ | 14,681 | $ | 11,038 | $ | (1,632) | $ | 98,197 | |||||||||||||||||||
Interest income | 491 | ||||||||||||||||||||||||||||
Interest expense | (6,891) | ||||||||||||||||||||||||||||
Income before income taxes | $ | 91,797 | |||||||||||||||||||||||||||
Nine Months Ended September 30, 2020 | |||||||||||||||||||||||||||||
Net sales | $ | 1,123,299 | $ | 572,027 | $ | 266,280 | $ | 0 | $ | 1,961,606 | |||||||||||||||||||
Inter-segment sales | 81,644 | 13,667 | 5,376 | (100,687) | 0 | ||||||||||||||||||||||||
Total | $ | 1,204,943 | $ | 585,694 | $ | 271,656 | $ | (100,687) | $ | 1,961,606 | |||||||||||||||||||
Adjusted EBIT | $ | 176,524 | $ | 29,729 | $ | 41,792 | $ | (4,902) | $ | 243,143 | |||||||||||||||||||
Special items charge (gain) (1) | 34,241 | 9,103 | 0 | 0 | 43,344 | ||||||||||||||||||||||||
EBIT | $ | 142,283 | $ | 20,626 | $ | 41,792 | $ | (4,902) | $ | 199,799 | |||||||||||||||||||
Interest income | 1,576 | ||||||||||||||||||||||||||||
Interest expense | (18,467) | ||||||||||||||||||||||||||||
Income before income taxes | $ | 182,908 | |||||||||||||||||||||||||||
Nine Months Ended September 30, 2019 | |||||||||||||||||||||||||||||
Net sales | $ | 1,377,847 | $ | 635,770 | $ | 253,348 | $ | 0 | $ | 2,266,965 | |||||||||||||||||||
Inter-segment sales | 95,300 | 12,838 | 5,837 | (113,975) | 0 | ||||||||||||||||||||||||
Total | $ | 1,473,147 | $ | 648,608 | $ | 259,185 | $ | (113,975) | $ | 2,266,965 | |||||||||||||||||||
Adjusted EBIT | $ | 240,713 | $ | 38,699 | $ | 35,045 | $ | (8,643) | $ | 305,814 | |||||||||||||||||||
Special items charge (gain) (2) | 3,115 | (4,925) | 0 | 1,804 | (6) | ||||||||||||||||||||||||
EBIT | $ | 237,598 | $ | 43,624 | $ | 35,045 | $ | (10,447) | $ | 305,820 | |||||||||||||||||||
Interest income | 2,047 | ||||||||||||||||||||||||||||
Interest expense | (19,668) | ||||||||||||||||||||||||||||
Income before income taxes | $ | 288,199 |
12
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Dollars in thousands, except per share amounts
(2) | In the three months ended June 30, 2020, special items reflect Rationalization and asset impairment charges of $22,673 and $565 in Americas Welding and International Welding, respectively, and pension settlement charges of $3,334 in Americas Welding. In the six months ended June 30, 2020, special items reflect Rationalization and asset impairment charges of $23,863 and $5,896 in Americas Welding and International Welding, respectively, amortization of step up in value of acquired inventories of $806 related to an acquisition in International Welding and pension settlement charges of $3,334 in Americas Welding. |
The Company recorded Rationalization and asset impairment net charges of $36,016$4,793 and $6,337$29,759 in the ninesix months ended SeptemberJune 30, 20202021 and 2019,2020, respectively. The charges are primarily related to employee severance, non-cash asset impairments of long-lived assets and gains or losses on the disposal of assets.
During 2020 and 2021, the Company initiated rationalization plans within Americas Welding and International Welding segments. The plans include headcount restructuring and the consolidation of manufacturing facilitiesoperations to better align the Company’s cost structure with economic conditions and operating needs. At SeptemberJune 30, 2020,2021, liabilities of $218 and $6,592$12,353 for Americas Welding and International Welding respectively, were recognized in Other current liabilities in the Company'sCompany’s Condensed Consolidated Balance Sheet.
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.
The following table summarizes the activity related to rationalization liabilities for the ninesix months ended SeptemberJune 30, 2020:2021:
| | | | | | | | | |
|
| |
| International |
| | |||
| | Americas Welding |
| Welding |
| Consolidated | |||
Balance at December 31, 2020 | | $ | 25 | | $ | 13,597 | | $ | 13,622 |
Payments and other adjustments | |
| (25) | |
| (7,411) | |
| (7,436) |
Charged to expense | |
| 0 | |
| 6,167 | |
| 6,167 |
Balance at June 30, 2021 | | $ | 0 | | $ | 12,353 | | $ | 12,353 |
Americas Welding | International Welding | Consolidated | |||||||||||||||||||||||||||
Balance, December 31, 2019 | $ | 0 | $ | 8,202 | $ | 8,202 | |||||||||||||||||||||||
Payments and other adjustments | (5,367) | (5,180) | (10,547) | ||||||||||||||||||||||||||
Charged to expense | 5,585 | 8,504 | 14,089 | ||||||||||||||||||||||||||
Balance, September 30, 2020 | $ | 218 | $ | 11,526 | $ | 11,744 |
13
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Dollars in thousands, except per share amounts
The following tables set forth the total changes in accumulated other comprehensive income (loss) ("AOCI") by component, net of taxes:
| | | | | | | | | | | | |
| | Three Months Ended June 30, 2021 | ||||||||||
| | Unrealized gain | | | | | | | | | | |
| | (loss) on derivatives | | | | | | | | | | |
| | designated and | | Defined benefit | | Currency | | | | |||
| | qualifying as cash | | pension plan | | translation | | | | |||
| | flow hedges | | activity | | adjustment | | Total | ||||
Balance at March 31, 2021 | | $ | 9,777 | | $ | (96,710) | | $ | (225,491) | | $ | (312,424) |
Other comprehensive income (loss) before reclassification | |
| (5,089) | | | (2,587) | | | 13,689 | 3 | | 6,013 |
Amounts reclassified from AOCI | |
| 335 | 1 | | 885 | 2 | | 0 | | | 1,220 |
Net current-period other comprehensive income (loss) | |
| (4,754) | |
| (1,702) | |
| 13,689 | |
| 7,233 |
Balance at June 30, 2021 | | $ | 5,023 | | $ | (98,412) | | $ | (211,802) | | $ | (305,191) |
| | | | | | | | | | | | |
| | Three Months Ended June 30, 2020 | ||||||||||
| | Unrealized gain | | | | | | | | | | |
| | (loss) on derivatives | | | | | | | | | | |
| | designated and | | Defined benefit | | Currency | | | | |||
| | qualifying as cash | | pension plan | | translation | | | | |||
| | flow hedges | | activity | | adjustment | | Total | ||||
Balance at March 31, 2020 | | $ | (743) | | $ | (69,937) | | $ | (277,497) | | $ | (348,177) |
Other comprehensive income (loss) before reclassification | |
| 112 | |
| (26,127) | |
| 14,485 | 3 |
| (11,530) |
Amounts reclassified from AOCI | |
| 996 | 1 |
| 3,091 | 2 |
| 0 | |
| 4,087 |
Net current-period other comprehensive income (loss) | |
| 1,108 | |
| (23,036) | |
| 14,485 | |
| (7,443) |
Balance at June 30, 2020 | | $ | 365 | | $ | (92,973) | | $ | (263,012) | | $ | (355,620) |
(1) | During the three months ended June 30, 2021, the AOCI reclassification is a component of Net sales of $70 (net of tax of $27) and Cost of goods sold of $405 (net of tax of $90); during the three months ended June 30, 2020, the reclassification is a component of Net sales of $(1,065) (net of tax of $(398)) and Cost of goods sold of $(69) (net of tax of $(77)). See Note 16 to the consolidated financial statements for additional details. |
(2) | This AOCI component is included in the computation of net periodic pension costs (net of tax of $1,445 and $1,002) during the three months ended June 30, 2021 and 2020, respectively. See Note 13 to the consolidated financial statements for additional details. |
(3) | ||||||||||||||||||||||||||
The Other comprehensive income (loss) before reclassifications excludes $(110) and $(17) attributable to Non-controlling interests in the three months ended June 30, 2021 and 2020, respectively. |
Three Months Ended September 30, 2020 | ||||||||||||||||||||||||||||||||||||||||||||
Unrealized gain (loss) on derivatives designated and qualifying as cash flow hedges | Defined benefit pension plan activity | Currency translation adjustment | Total | |||||||||||||||||||||||||||||||||||||||||
Balance at June 30, 2020 | $ | 365 | $ | (92,973) | $ | (263,012) | $ | (355,620) | ||||||||||||||||||||||||||||||||||||
Other comprehensive income (loss) before reclassification | (104) | (4,411) | 2 | 13,004 | 3 | 8,489 | ||||||||||||||||||||||||||||||||||||||
Amounts reclassified from AOCI | 743 | 1 | 3,107 | 2 | 0 | 3,850 | ||||||||||||||||||||||||||||||||||||||
Net current-period other comprehensive income (loss) | 639 | (1,304) | 13,004 | 12,339 | ||||||||||||||||||||||||||||||||||||||||
Balance at September 30, 2020 | $ | 1,004 | $ | (94,277) | $ | (250,008) | $ | (343,281) | ||||||||||||||||||||||||||||||||||||
Three Months Ended September 30, 2019 | ||||||||||||||||||||||||||||||||||||||||||||
Unrealized gain (loss) on derivatives designated and qualifying as cash flow hedges | Defined benefit pension plan activity | Currency translation adjustment | Total | |||||||||||||||||||||||||||||||||||||||||
Balance at June 30, 2019 | $ | 1,722 | $ | (80,171) | $ | (203,401) | $ | (281,850) | ||||||||||||||||||||||||||||||||||||
Other comprehensive income (loss) before reclassification | (268) | 0 | (24,283) | 3 | (24,551) | |||||||||||||||||||||||||||||||||||||||
Amounts reclassified from AOCI | (80) | 1 | 613 | 2 | 0 | 533 | ||||||||||||||||||||||||||||||||||||||
Net current-period other comprehensive income (loss) | (348) | 613 | (24,283) | (24,018) | ||||||||||||||||||||||||||||||||||||||||
Balance at September 30, 2019 | $ | 1,374 | $ | (79,558) | $ | (227,684) | $ | (305,868) | ||||||||||||||||||||||||||||||||||||
14
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Dollars in thousands, except per share amounts
| | | | | | | | | | | | |
| | Six Months Ended June 30, 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 | | $ | 2,487 | | $ | (101,770) | | $ | (202,907) | | $ | (302,190) |
Other comprehensive income (loss) before reclassification | |
| 1,977 | | | (1,985) | | | (8,895) | 3 | | (8,903) |
Amounts reclassified from AOCI | |
| 559 | 1 | | 5,343 | 2 | | — | | | 5,902 |
Net current-period other comprehensive income (loss) | |
| 2,536 | |
| 3,358 | |
| (8,895) | |
| (3,001) |
Balance at June 30, 2021 | | $ | 5,023 | | $ | (98,412) | | $ | (211,802) | | $ | (305,191) |
Nine Months Ended September 30, 2020 | ||||||||||||||||||||||||||||||||||||||||||||
Unrealized gain (loss) on derivatives designated and qualifying as cash flow hedges | Defined benefit pension plan activity | Currency translation adjustment | Total | |||||||||||||||||||||||||||||||||||||||||
Balance at December 31, 2019 | $ | 1,626 | $ | (70,546) | $ | (206,930) | $ | (275,850) | ||||||||||||||||||||||||||||||||||||
Other comprehensive income (loss) before reclassification | (2,304) | (30,538) | 2 | (43,078) | 3 | (75,920) | ||||||||||||||||||||||||||||||||||||||
Amounts reclassified from AOCI | 1,682 | 1 | 6,807 | 2 | 0 | 8,489 | ||||||||||||||||||||||||||||||||||||||
Net current-period other comprehensive income (loss) | (622) | (23,731) | (43,078) | (67,431) | ||||||||||||||||||||||||||||||||||||||||
Balance at September 30, 2020 | $ | 1,004 | $ | (94,277) | $ | (250,008) | $ | (343,281) | ||||||||||||||||||||||||||||||||||||
Nine Months Ended September 30, 2019 | ||||||||||||||||||||||||||||||||||||||||||||
Unrealized gain (loss) on derivatives designated and qualifying as cash flow hedges | Defined benefit pension plan activity | Currency translation adjustment | Total | |||||||||||||||||||||||||||||||||||||||||
Balance at December 31, 2018 | $ | 1,694 | $ | (82,049) | $ | (213,384) | $ | (293,739) | ||||||||||||||||||||||||||||||||||||
Other comprehensive income (loss) before reclassification | 521 | 0 | (14,300) | 3 | (13,779) | |||||||||||||||||||||||||||||||||||||||
Amounts reclassified from AOCI | (841) | 1 | 2,491 | 2 | 0 | 1,650 | ||||||||||||||||||||||||||||||||||||||
Net current-period other comprehensive income (loss) | (320) | 2,491 | (14,300) | (12,129) | ||||||||||||||||||||||||||||||||||||||||
Balance at September 30, 2019 | $ | 1,374 | $ | (79,558) | $ | (227,684) | $ | (305,868) | ||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | |
| | Six Months Ended June 30, 2020 | ||||||||||
| | 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, 2019 | | $ | 1,626 | | $ | (70,546) | | $ | (206,930) | | $ | (275,850) |
Other comprehensive income (loss) before reclassification | |
| (2,200) | |
| (26,127) | |
| (56,082) | 3 |
| (84,409) |
Amounts reclassified from AOCI | |
| 939 | 1 |
| 3,700 | 2 |
| — | |
| 4,639 |
Net current-period other comprehensive income (loss) | |
| (1,261) | |
| (22,427) | |
| (56,082) | |
| (79,770) |
Balance at June 30, 2020 | | $ | 365 | | $ | (92,973) | | $ | (263,012) | | $ | (355,620) |
(1) | During the six months ended June 30, 2021, the AOCI reclassification is a component of Net sales of $172 (net of tax of $69) and Cost of goods sold of $731 (net of tax of $243); during the six months ended June 30, 2020, the reclassification is a component of Net sales of $(1,106) (net of tax of $(419)) and Cost of goods sold of $(167) (net of tax of $(101)). See Note 16 to the consolidated financial statements for additional details. |
(2) | This AOCI component is included in the computation of net periodic pension costs (net of tax of $2,901 and $1,166) during the six months ended June 30, 2021 and 2020, respectively. See Note 13 to the consolidated financial statements for additional details. |
(3) | The Other comprehensive income (loss) before reclassifications excludes $(269) and $(58) attributable to Non-controlling interests in the six months ended June 30, 2021 and 2020, respectively. |
NOTE 8 — COMMON STOCK REPURCHASE PROGRAM
The Company has a share repurchase program for up to 55 million shares of the Company'sCompany’s common shares. On February 12, 2020, the Company'sCompany’s Board of Director'sDirector’s approved a new share repurchase program authorizing the Company to repurchase, in the aggregate, up to an additional 10 million shares of its outstanding common shares under this program. From time to time at management'smanagement’s discretion, the Company repurchases its common shares in the open market, depending on market conditions, stock price and other factors. During the ninethree months ended SeptemberJune 30, 2020,2021, the Company purchased a total of 1.40.2 million shares at an average cost per share of $80.22.$127.73. During the six months ended June 30, 2021, the Company purchased a total of 0.4 million shares at an average cost per share of $124.04. As of SeptemberJune 30, 2020, there remained 11.52021, 11.0 million common shares remained available for repurchase under these programs. The repurchased common shares remain in treasury and have not been retired.
15
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Dollars in thousands, except per share amounts
Inventories in the Condensed Consolidated Balance Sheets are comprised of the following components:
September 30, 2020 | December 31, 2019 | ||||||||||
Raw materials | $ | 110,590 | $ | 116,716 | |||||||
Work-in-process | 69,501 | 63,744 | |||||||||
Finished goods | 216,123 | 213,288 | |||||||||
Total | $ | 396,214 | $ | 393,748 |
| | | | | | |
|
| | | | | |
|
| June 30, 2021 |
| December 31, 2020 | ||
Raw materials | | $ | 125,080 | | $ | 111,888 |
Work-in-process | |
| 91,899 | |
| 60,341 |
Finished goods | |
| 260,698 | |
| 209,029 |
Total | | $ | 477,677 | | $ | 381,258 |
At SeptemberJune 30, 20202021 and December 31, 2019,2020, approximately 35% and 36%35%, respectively, of total inventories were valued using the last-in, first-out ("LIFO") method. The excess of current cost over LIFO cost was $76,204$88,909 and $75,292$75,581 at SeptemberJune 30, 20202021 and December 31, 2019,2020, respectively.
The table below summarizes the right-of-use assets and lease liabilities in the Company'sCompany’s Condensed Consolidated Balance sheets:
Operating Leases | Balance Sheet Classification | September 30, 2020 | December 31, 2019 | |||||||||||
Right-of-use assets | Other assets | $ | 46,626 | $ | 51,533 | |||||||||
Current liabilities | Other current liabilities | $ | 12,821 | $ | 13,572 | |||||||||
Noncurrent liabilities | Other liabilities | 36,949 | 39,076 | |||||||||||
Total lease liabilities | $ | 49,770 | $ | 52,648 |
| | | | | | | | |
Operating Leases |
| Balance Sheet Classification |
| June 30, 2021 |
| December 31, 2020 | ||
Right-of-use assets |
| Other assets | | $ | 47,268 | | $ | 43,570 |
| | | | | | | | |
Current liabilities |
| Other current liabilities | | $ | 10,651 | | $ | 11,502 |
Noncurrent liabilities |
| Other liabilities | |
| 38,259 | |
| 33,988 |
Total lease liabilities |
|
| | $ | 48,910 | | $ | 45,490 |
Total lease expense, which is included in Cost of goods sold and Selling, general and administrative expenses in the Company'sCompany’s Consolidated Statements of Income, was $5,655$5,608 and $17,665$10,660 in the three and ninesix months ended SeptemberJune 30, 20202021 and $6,290$5,990 and $18,725$11,209 in the three and ninesix months ended SeptemberJune 30, 2019,2020, respectively. Cash paid for amounts included in the measurement of lease liabilities for the three and ninesix months ended SeptemberJune 30, 2020,2021, respectively, were $3,733$3,263 and $11,727$6,652 and are included in Net cash provided by operating activities in the Company'sCompany’s Consolidated Statements of Cash Flows. Cash paid for amounts included in the measurement of lease liabilities for the three and ninesix months ended SeptemberJune 30, 2019,2020, respectively, were $4,528$3,897 and $13,761$7,994 and are included in Net cash provided by operating activities in the Company'sCompany’s Consolidated Statements of Cash Flows. Right-of-use assets obtained in exchange for operating lease liabilities were $214 and $2,249$9,694 during the three and ninesix months ended SeptemberJune 30, 20202021 and $1,550$0 and $16,223$2,035 for the three and ninesix months ended SeptemberJune 30, 2019,2020, respectively.
16
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Dollars in thousands, except per share amounts
September 30, 2020 | |||||||||||||||||
2020 | $ | 3,218 | |||||||||||||||
2021 | 13,619 | ||||||||||||||||
2022 | 9,962 | ||||||||||||||||
2023 | 8,233 | ||||||||||||||||
2024 | 6,754 | ||||||||||||||||
After 2025 | 14,544 | ||||||||||||||||
Total lease payments | $ | 56,330 | |||||||||||||||
Less: Imputed interest | (6,560) | ||||||||||||||||
Operating lease liabilities | $ | 49,770 |
| | | |
|
| June 30, 2021 | |
2021 | | $ | 6,417 |
2022 | |
| 10,496 |
2023 | |
| 8,478 |
2024 | |
| 6,848 |
2025 | |
| 4,024 |
After 2025 | |
| 20,677 |
Total lease payments | | $ | 56,940 |
Less: Imputed interest | |
| 8,030 |
Operating lease liabilities | | $ | 48,910 |
As of SeptemberJune 30, 2020,2021, the weighted average remaining lease term is 7.18.7 years and the weighted average discount rate used to determine the operating lease liability is 3.5%.
The changes in the carrying amount of product warranty accruals are as follows:
Nine Months Ended September 30, | |||||||||||||||||
2020 | 2019 | ||||||||||||||||
Balance at beginning of year | $ | 20,650 | $ | 19,778 | |||||||||||||
Accruals for warranties | 13,629 | 12,494 | |||||||||||||||
Settlements | (10,699) | (11,787) | |||||||||||||||
Foreign currency translation and other adjustments | (126) | (125) | |||||||||||||||
Balance at September 30 | $ | 23,454 | $ | 20,360 |
| | | | | | |
| | Six Months Ended June 30, | ||||
|
| 2021 |
| 2020 | ||
Balance at beginning of year | | $ | 21,760 | | $ | 20,650 |
Accruals for warranties | |
| 7,637 | |
| 7,835 |
Settlements | |
| (6,603) | |
| (6,940) |
Foreign currency translation and other adjustments | |
| (176) | |
| (206) |
Balance at end of year | | $ | 22,618 | | $ | 21,339 |
NOTE 12 — DEBT
—DEBT
On April 23, 2021, the Company amended and restated the agreement governing its line of credit by entering into the Second Amended and Restated Credit Agreement (“Credit Agreement”). The CompanyCredit Agreement has a line of credit totaling $400,000 through the Amended and Restated Credit Agreement (the “Credit Agreement”). The Credit Agreement$500,000, has a term of 5 years with a maturity date of June 30, 2022April 23, 2026 and may be increased, subject to certain conditions including the consent of its lenders, by an additional amount up to $100,000.$150,000. The interest rate on borrowings is based on either LIBOR or the prime rate, plus a spread based on the Company’s net leverage ratio, at the Company’s election.ratio. The Credit Agreement 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 and a fixed charges coverage ratio and total leverage ratio. affiliates. As of SeptemberJune 30, 2020,2021, the Company was in compliance with all of its covenants and had no outstanding borrowings under the Credit Agreement.
The Company has other lines of credit totaling $50,000.$94,170. As of SeptemberJune 30, 20202021, the Company was in compliance with all of its covenants and had $1,039$9,787 outstanding at SeptemberJune 30, 2020.
Senior Unsecured Notes
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
17
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Dollars in thousands, except per share amounts
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. The Company'sCompany’s total weighted average effective interest rate and remaining weighted average tenure of the Notes is 3.3% and 13.612.9 years, respectively. The proceeds of the Notes were used for general corporate purposes. The Notes contain certain affirmative and negative covenants. As of SeptemberJune 30, 2020,2021, the Company was in compliance with all of its debt covenants relating to the Notes.
On November 27, 2018, the Company entered into seven7 uncommitted master note facilities (the "Shelf Agreements") that allow borrowings up to $700,000 in the aggregate. The Shelf Agreements have a term of 5 years and the average life of borrowings cannot exceed 15 years. The Company is required to comply with covenants similar to those contained in the Notes. As of SeptemberJune 30, 2020,2021, the Company was in compliance with all of its covenants and had no outstanding borrowings under the Shelf Agreements.
Fair Value of Debt
At SeptemberJune 30, 20202021 and December 31, 2019,2020, the fair value of long-term debt, including the current portion, was approximately $785,579 and $721,494,approximately $776,643 and $793,591, respectively, which was determined using available market information and methodologies requiring judgment. The carrying value of this debt at such dates was $715,795$718,785 and $712,414,$715,567, 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.
The components of total pension cost were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, | ||||||||||||||||||||
| | 2021 | | 2020 | | 2021 | | 2020 | ||||||||||||||||
| | U.S. pension | | Non-U.S. | | U.S. pension | | Non-U.S. | | U.S. pension | | Non-U.S. | | U.S. pension | | Non-U.S. | ||||||||
|
| plans |
| pension plans |
| plans |
| pension plans |
| plans |
| pension plans |
| plans |
| pension plans | ||||||||
Service cost | | $ | 48 | | $ | 324 | | $ | 39 | | $ | 742 | | $ | 97 | | $ | 795 | | $ | 78 | | $ | 1,498 |
Interest cost | |
| 3,072 | | | 392 | |
| 4,051 | |
| 683 | |
| 6,053 | |
| 1,008 | |
| 8,101 | |
| 1,379 |
Expected return on plan assets | |
| (4,198) | | | (537) | |
| (5,711) | |
| (1,014) | |
| (8,707) | |
| (1,509) | |
| (11,422) | |
| (2,021) |
Amortization of prior service cost | |
| 0 | | | (1) | |
| 0 | |
| 16 | |
| — | |
| 11 | |
| — | |
| 31 |
Amortization of net loss | |
| 670 | | | 11 | |
| 203 | |
| 540 | |
| 1,251 | |
| 446 | |
| 406 | |
| 1,095 |
Settlement charges (1) | |
| 1,650 | | | 0 | |
| 3,334 | |
| 0 | |
| 6,090 | |
| 446 | |
| 3,334 | |
| — |
Defined benefit plans | | | 1,242 | | | 189 | | | 1,916 | | | 967 | | | 4,784 | | | 1,197 | | | 497 | | | 1,982 |
Multi-employer plans | | | 0 | | | 258 | | | 0 | | | 257 | | | — | | | 502 | | | — | | | 526 |
Defined contribution plans | | | 5,872 | | | 553 | | | 4,751 | | | 773 | | | 11,034 | | | 1,398 | | | 10,377 | | | 1,475 |
Total pension cost | | $ | 7,114 | | $ | 1,000 | | $ | 6,667 | | $ | 1,997 | | $ | 15,818 | | $ | 3,097 | | $ | 10,874 | | $ | 3,983 |
(1) | Pension settlement charges primarily resulting from lump sum pension payments in the three and six months ended June 30, 2021 and 2020. |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
U.S. pension plans | Non-U.S. pension plans | U.S. pension plans | Non-U.S. pension plans | U.S. pension plans | Non-U.S. pension plans | U.S. pension plans | Non-U.S. pension plans | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Service cost | $ | 39 | $ | 718 | $ | 35 | $ | 697 | $ | 117 | $ | 2,216 | $ | 105 | $ | 2,126 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Interest cost | 3,346 | 673 | 4,652 | 903 | 11,447 | 2,052 | 13,958 | 2,761 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Expected return on plan assets | (6,009) | (1,076) | (6,245) | (1,087) | (17,431) | (3,097) | (18,735) | (3,317) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Amortization of prior service cost | 0 | 15 | 0 | 16 | 0 | 46 | 0 | 47 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Amortization of net loss | 459 | 468 | 413 | 720 | 865 | 1,563 | 1,240 | 1,877 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Settlement charges (1) | 3,188 | 0 | 0 | 0 | 6,522 | 0 | 0 | 0 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Defined benefit plans | 1,023 | 798 | (1,145) | 1,249 | 1,520 | 2,780 | (3,432) | 3,494 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Multi-employer plans | 0 | 274 | 0 | 227 | 0 | 800 | 0 | 717 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Defined contribution plans | 4,945 | 931 | 5,506 | 692 | 15,322 | 2,406 | 17,205 | 1,615 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total pension cost | $ | 5,968 | $ | 2,003 | $ | 4,361 | $ | 2,168 | $ | 16,842 | $ | 5,986 | $ | 13,773 | $ | 5,826 |
The defined benefit plan components of Total pension cost, other than service cost, are included in Other income (expense) in the Company'sCompany’s Consolidated Statements of Income.
18
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Dollars in thousands, except per share amounts
In March 2020, the Company approved an amendment to terminate the Lincoln Electric Company Retirement Annuity Program plan effective as of December 31, 2020. The Company provided notice to participants of the intent to terminate the plan and applied for a determination letter. Pension obligations will be distributed through a combination of lump sum payments to eligible plan participants and through the purchase of a group annuity contract. Upon settlement of the pension obligations, the Company will reclassify unrecognized actuarial gains or losses, currently recorded in AOCI, to the Company'sCompany’s Consolidated Statements of Income as settlement gains or charges in the second half of 2021. The Company anticipates the termination process will take approximately two years to complete.
The components of Other income (expense) were as follows:
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||||||||||||||||||||||||
Equity earnings in affiliates | $ | 81 | $ | 206 | $ | 323 | $ | 3,002 | ||||||||||||||||||||||||||||||
Other components of net periodic pension (cost) income | (1,064) | 628 | (1,967) | 2,169 | ||||||||||||||||||||||||||||||||||
Other income (expense) (1) | 2,045 | 8,819 | 2,812 | 12,441 | ||||||||||||||||||||||||||||||||||
Total Other income (expense) | $ | 1,062 | $ | 9,653 | $ | 1,168 | $ | 17,612 |
| | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, | ||||||||
|
| 2021 |
| 2020 |
| 2021 |
| 2020 | ||||
Equity earnings in affiliates | | $ | 114 |
| $ | 81 | | $ | 291 | | $ | 243 |
Other components of net periodic pension (cost) income (1) | |
| (1,059) |
|
| (2,102) | |
| (5,089) | |
| (903) |
Other income (expense) | |
| 2,647 |
|
| 1,818 | |
| 5,084 | |
| 766 |
Total Other income (expense) | | $ | 1,702 |
| $ | (203) | | $ | 286 | | $ | 106 |
(1) | Other components of net periodic pension (cost) income includes pension settlements and curtailments. |
NOTE 15 — INCOME TAXES
The Company recognized $41,834$44,601 of tax expense on pretax income of $182,908,$215,014, resulting in an effective income tax rate of 22.9%20.7% for the ninesix months ended SeptemberJune 30, 2020.2021. The effective income tax rate was 20.4%24.7% for the ninesix months ended SeptemberJune 30, 2019.
The increase in the effective tax rate was lower for the ninesix months ended SeptemberJune 30, 2020,2021, as compared with the same period in 2019, was2020, primarily due to recording thefavorable discrete tax adjustments in 2021, as well as higher tax expense associated with a valuation allowance in 2020, smaller tax benefits related to the vesting of stock based compensation in 2020 and income tax benefits for the settlement of tax items recorded in 2019.
As of SeptemberJune 30, 2020,2021, the Company had $20,481$18,210 of unrecognized tax benefits. If recognized, approximately $17,043$14,594 would be reflected as a component of income tax expense.
The Company files income tax returns in the U.S. and various state, local and foreign jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal, state and local or non-U.S. income tax examinations by tax authorities for years before 2016.2017. The Company is currently subject to U.S., various state and non-U.S. income tax audits.
Unrecognized tax benefits are reviewed on an ongoing basis and are adjusted for changing facts and circumstances, including progress of tax audits and closing of statutes of limitations. Based on information currently available, management believes that additional audit activity could be completed and/or statutes of limitations may close relating to existing unrecognized tax benefits. It is reasonably possible there could be a reduction of $865$1,645 in previously unrecognized tax benefits by the end of the thirdsecond quarter 2021.
NOTE 16 — DERIVATIVES
The Company uses derivative instruments to manage exposures to currency exchange rates, interest rates and commodity prices arising in the normal course of business. Both at inception and on an ongoing basis, the derivative instruments that qualify for hedge accounting are assessed as to their effectiveness, when applicable. Hedge ineffectiveness was immaterial in the ninesix months ended SeptemberJune 30, 20202021 and 2019.2020.
19
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Dollars in thousands, except per share amounts
The Company is subject to the credit risk of the counterparties to derivative instruments. Counterparties include a number of major banks and financial institutions. None of the concentrations of risk with any individual counterparty was considered significant at SeptemberJune 30, 2020.2021. The Company does not expect any counterparties to fail to meet their obligations.
Cash Flow Hedges
Certain foreign currency forward contracts were qualified and designated as cash flow hedges. The dollar equivalent gross notional amount of these short-term contracts was $66,566$66,588 at SeptemberJune 30, 20202021 and $59,982$69,051 at December 31, 2019.
During March and April 2020, in anticipation of future debt issuance associated with the Notes referenced in Note 12, the Company entered into interest rate forward starting swap agreements to hedge the variability of future changes in interest rates. The forward starting swap agreements were qualified and designated as a cash flow hedge. The changes in fair value are recorded as part of AOCI, and upon completion of debt issuance and termination of the swaps, are amortized to interest expense over the life of the underlying debt. The dollar equivalent gross notional amount of the long-term contracts was $100,000 at SeptemberJune 30, 2021 and December 31, 2020 and have a termination date of August 2025.
Fair Value Hedges
From time to time, the company will enter into certain interest rate swap agreements that are qualified and designated as fair value hedges. At SeptemberJune 30, 2020,2021, the Company had no0 interest rate swap agreements outstanding. The Company terminated $50,000 of interest rate swaps in the ninesix months ended SeptemberJune 30, 2020, which resulted in a gain of $6,629 that will beis amortized to interest expense over the remaining life of the underlying debt.
Net Investment Hedges
The Company has cross currency swap agreements that are qualified and designated as net investment hedges. The dollar equivalent gross notional amount of these contracts is $50,000 as of SeptemberJune 30, 20202021 and December 31, 2019,2020, respectively.
The Company has foreign currency forward contracts that qualify and are designated as net investment hedges. The dollar equivalent gross notional amount of these short-term contracts was $98,334 at June 30, 2021.
Derivatives Not Designated as Hedging Instruments
The Company has certain foreign exchange forward contracts that are not designated as hedges. These derivatives are held as economic hedges of certain balance sheet exposures. The dollar equivalent gross notional amount of these contracts was $390,926$425,603 and $363,820$391,112 at SeptemberJune 30, 20202021 and December 31, 2019,2020, respectively.
Fair values of derivative instruments in the Company’s Condensed Consolidated Balance Sheets follow:
| | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2021 | | December 31, 2020 | ||||||||||||||||||||
| Other | | Other | | | | | | | | Other | | Other | | | | | | | ||||
| Current | | Current | | Other | | Other | | Current | | Current | | Other | | Other | ||||||||
Derivatives by hedge designation | Assets |
| Liabilities |
| Assets |
| Liabilities |
| Assets |
| Liabilities |
| Assets |
| Liabilities | ||||||||
Designated as hedging instruments: | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Foreign exchange contracts | $ | 1,096 | | $ | 377 | | $ | 0 | | $ | 0 | | $ | 2,451 | | $ | 1,124 | | $ | 0 | | $ | 0 |
Forward starting swap agreements | | 0 | | | 0 | | | 8,279 | | | 0 | | | 0 | | | 0 | | | 4,876 | | | 0 |
Net investment contracts | | 0 | | | 860 | | | 0 | | | 2,929 | | | 0 | | | 0 | | | 0 | | | 4,308 |
Not designated as hedging instruments: |
| | | | | | | | | | | |
| | |
| | |
| | |
|
|
Foreign exchange contracts |
| 1,985 | | | 2,394 | | | 0 | | | 0 | |
| 1,398 | |
| 3,485 | |
| 0 | |
| 0 |
Total derivatives | $ | 3,081 | | $ | 3,631 | | $ | 8,279 | | $ | 2,929 | | $ | 3,849 | | $ | 4,609 | | $ | 4,876 | | $ | 4,308 |
September 30, 2020 | December 31, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Derivatives by hedge designation | Other Current Assets | Other Current Liabilities | Other Assets | Other Liabilities | Other Current Assets | Other Current Liabilities | Other Assets | Other Liabilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Designated as hedging instruments: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign exchange contracts | $ | 1,034 | $ | 1,476 | $ | 0 | $ | 0 | $ | 1,288 | $ | 522 | $ | 0 | $ | 0 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Interest rate swap agreements | 0 | 0 | 0 | 0 | 0 | 0 | 2,964 | 0 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Forward starting swap agreements | 0 | 0 | 1,876 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cross currency swap agreements | 0 | 0 | 0 | 1,877 | 0 | 0 | 0 | 653 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Not designated as hedging instruments: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign exchange contracts | 3,067 | 2,872 | 0 | 0 | 2,397 | 973 | 0 | 0 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total derivatives | $ | 4,101 | $ | 4,348 | $ | 1,876 | $ | 1,877 | $ | 3,685 | $ | 1,495 | $ | 2,964 | $ | 653 |
20
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Dollars in thousands, except per share amounts
The effects of undesignated derivative instruments on the Company’s Consolidated Statements of Income consisted of the following:
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||||||||||||||||||||
Derivatives by hedge designation | Classification of gain (loss) | 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||||||||||||||||||||||
Foreign exchange contracts | Selling, general & administrative expenses | $ | 6,381 | $ | (710) | $ | (12,141) | $ | 5,707 | |||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | |
|
| |
| Three Months Ended June 30, |
| Six Months Ended June 30, | ||||||||
Derivatives by hedge designation |
| Classification of gain (loss) |
| 2021 |
| 2020 |
| 2021 |
| 2020 | ||||
Not designated as hedges: | |
| | |
|
| |
| | |
|
| |
|
Foreign exchange contracts | | Selling, general & administrative expenses | | $ | 7,164 | | $ | 3,624 | | $ | 5,878 | | $ | (18,509) |
The effects of designated hedges on AOCI and the Company’s Consolidated Statements of Income consisted of the following:
Total gain (loss) recognized in AOCI, net of tax | September 30, 2020 | December 31, 2019 | ||||||||||||
Foreign exchange contracts | $ | (468) | $ | 620 | ||||||||||
Forward starting swap agreements | 1,407 | 0 | ||||||||||||
Net investment contracts | 65 | 1,006 | ||||||||||||
| | | | | | | |
|
| | | | | |
|
Total gain (loss) recognized in AOCI, net of tax |
| June 30, 2021 |
| December 31, 2020 |
| ||
Foreign exchange contracts | | $ | 426 | | $ | 660 | |
Forward starting swap agreements | | | 6,194 | | | 3,649 | |
Net investment contracts | |
| (1,597) | |
| (1,822) | |
The Company expects a loss of $468$3,489 related to existing contracts to be reclassified from AOCI, net of tax, to earnings over the next 12 months as the hedged transactions are realized.
| | | | | | | | | | | | | | |
|
| |
| Three Months Ended June 30, |
| Six Months Ended June 30, | ||||||||
| | Gain (loss) recognized in the | | | | | | | | | | | | |
Derivative type |
| Consolidated Statements of Income: |
| 2021 |
| 2020 |
| 2021 |
| 2020 | ||||
Foreign exchange contracts |
| Sales | | $ | 97 | | $ | (1,463) | | $ | 241 | | $ | (1,525) |
|
| Cost of goods sold | |
| (495) | |
| 146 | |
| (974) | |
| 268 |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||||||||||||||||||||
Derivative type | Gain (loss) recognized in the Consolidated Statements of Income: | 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||||||||||||||||||||||
Foreign exchange contracts | Sales | $ | (756) | $ | (15) | $ | (2,281) | $ | 760 | |||||||||||||||||||||||||||||||||||
Cost of goods sold | (200) | 117 | 67 | 366 |
The following table provides a summary of assets and liabilities as of SeptemberJune 30, 2020,2021, measured at fair value on a recurring basis:
| | | | | | | | | | | | |
|
| | |
| Quoted Prices in |
| | |
| | | |
| | | | | Active Markets for | | | | | | | |
| | | | | Identical Assets or | | Significant Other | | Significant | |||
| | Balance as of | | Liabilities | | Observable Inputs | | Unobservable | ||||
Description |
| June 30, 2021 |
| (Level 1) |
| (Level 2) |
| Inputs (Level 3) | ||||
Assets: |
| |
|
| |
|
| |
|
| |
|
Foreign exchange contracts | | $ | 3,081 | | $ | 0 | | $ | 3,081 | | $ | 0 |
Forward starting swap agreements | |
| 8,279 | |
| 0 | |
| 8,279 | |
| 0 |
Total assets | | $ | 11,360 | | $ | 0 | | $ | 11,360 | | $ | 0 |
Liabilities: | |
|
| |
|
| |
|
| |
|
|
Foreign exchange contracts | | $ | 2,771 | | $ | 0 | | $ | 2,771 | | $ | 0 |
Net investment contracts | | | 3,789 | | | 0 | | | 3,789 | | | 0 |
Deferred compensation | |
| 41,860 | |
| 0 | |
| 41,860 | |
| 0 |
Total liabilities | | $ | 48,420 | | $ | 0 | | $ | 48,420 | | $ | 0 |
Description | Balance as of September 30, 2020 | Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||||||||||||||||
Assets: | ||||||||||||||||||||||||||
Foreign exchange contracts | $ | 4,101 | $ | 0 | $ | 4,101 | $ | 0 | ||||||||||||||||||
Forward starting swap agreements | 1,876 | 0 | 1,876 | 0 | ||||||||||||||||||||||
Total assets | $ | 5,977 | $ | 0 | $ | 5,977 | $ | 0 | ||||||||||||||||||
Liabilities: | ||||||||||||||||||||||||||
Foreign exchange contracts | 4,348 | 0 | 4,348 | 0 | ||||||||||||||||||||||
Cross currency swap agreements | 1,877 | 0 | 1,877 | 0 | ||||||||||||||||||||||
Deferred compensation | 29,728 | 0 | 29,728 | 0 | ||||||||||||||||||||||
Total liabilities | $ | 35,953 | $ | 0 | $ | 35,953 | $ | 0 |
21
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Dollars in thousands, except per share amounts
The following table provides a summary of assets and liabilities as of December 31, 2019,2020, measured at fair value on a recurring basis:
Description | Balance as of December 31, 2019 | Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||||||||||||||||
Assets: | ||||||||||||||||||||||||||
Foreign exchange contracts | $ | 3,685 | $ | 0 | $ | 3,685 | $ | 0 | ||||||||||||||||||
Interest rate swap agreements | 2,964 | 0 | 2,964 | 0 | ||||||||||||||||||||||
Total assets | $ | 6,649 | $ | 0 | $ | 6,649 | $ | 0 | ||||||||||||||||||
Liabilities: | ||||||||||||||||||||||||||
Foreign exchange contracts | $ | 1,495 | $ | 0 | $ | 1,495 | $ | 0 | ||||||||||||||||||
Cross currency swap agreements | 653 | 0 | 653 | 0 | ||||||||||||||||||||||
Contingent considerations | 470 | 0 | 0 | 470 | ||||||||||||||||||||||
Deferred compensation | 29,170 | 0 | 29,170 | 0 | ||||||||||||||||||||||
Total liabilities | $ | 31,788 | $ | 0 | $ | 31,318 | $ | 470 |
| | | | | | | | | | | | |
|
| | |
| Quoted Prices in |
| | |
| | | |
| | | | | Active Markets for | | | | | | | |
| | | | | Identical Assets or | | Significant Other | | Significant | |||
| | Balance as of | | Liabilities | | Observable Inputs | | Unobservable | ||||
Description |
| December 31, 2020 |
| (Level 1) |
| (Level 2) |
| Inputs (Level 3) | ||||
Assets: |
| |
|
| |
|
| |
|
| |
|
Foreign exchange contracts | | $ | 3,849 | | $ | 0 | | $ | 3,849 | | $ | 0 |
Forward starting swap agreements | |
| 4,876 | |
| 0 | |
| 4,876 | |
| 0 |
Total assets | | $ | 8,725 | | $ | 0 | | $ | 8,725 | | $ | 0 |
Liabilities: | |
|
| |
|
| |
|
| |
|
|
Foreign exchange contracts | | $ | 4,609 | | $ | 0 | | $ | 4,609 | | $ | 0 |
Net investment contracts | |
| 4,308 | |
| 0 | |
| 4,308 | |
| 0 |
Deferred compensation | |
| 41,539 | |
| 0 | |
| 41,539 | |
| 0 |
Total liabilities | | $ | 50,456 | | $ | 0 | | $ | 50,456 | | $ | 0 |
The Company’s derivative contracts are valued at fair value using the market approach. The Company measures the fair value of foreign exchange contracts, and swap agreements and net investment contracts using Level 2 inputs based on observable spot and forward rates in active markets.
The deferred compensation liability is the Company’s obligation under its executive deferred compensation plan. The Company measures the fair value of the liability using the market values of the participants’ underlying investment fund elections.
The fair value of Cash and cash equivalents, Accounts receivable, Short-term debt excluding the current portion of long-term debt and Trade accounts payable approximated book value due to the short-term nature of these instruments at both SeptemberJune 30, 20202021 and December 31, 2019.
The Company has various financial instruments, including cash and cash equivalents, short and long-term debt and forward contracts. While these financial instruments are subject to concentrations of credit risk, the Company has minimized this risk by entering into arrangements with a number of major banks and financial institutions and investing in several high-quality instruments. The Company does not expect any counterparties to fail to meet their obligations.
22
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'sCompany’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'sCompany’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.
The current coronavirus disease (“COVID-19”COVID-19”) as a pandemic has adversely impacted global economic conditions and the President of the United States declared the COVID-19 outbreak a national emergency. COVID-19 continueshas contributed to spread throughout the United States and other countries across the world, and the ultimate duration and severity onsignificant volatility in financial markets beginning in early calendar year 2020. Although the Company's business remains unknown. The outbreak has resulted in governments aroundestimates contemplate current conditions, the world implementing stringent measures to help controlinputs into certain significant and critical accounting estimates include judgments and assumptions about the spreadeconomic implications of the virus, including quarantines, “shelter in place” and “stay at home” orders, travel restrictions, business curtailments, school closures and other measures. In addition, governments and central banks in several parts of the world have enacted fiscal and monetary stimulus measures to counteract the impacts of COVID-19.
23
Results of Operations
The following table shows the Company'sCompany’s results of operations:
| | | | | | | | | | | | | | | | |
| Three Months Ended June 30, |
| ||||||||||||||
| | | | | | | | | | | | Favorable (Unfavorable) |
| |||
| 2021 | | 2020 | | 2021 vs. 2020 | | ||||||||||
| Amount |
| % of Sales |
| Amount |
| % of Sales |
| $ |
| % |
| ||||
Net sales | $ | 826,454 | | | | | $ | 590,727 |
| | | $ | 235,727 |
| 39.9 | % |
Cost of goods sold |
| 552,445 | |
| | |
| 401,349 |
| | |
| (151,096) |
| (37.6) | % |
Gross profit |
| 274,009 | |
| 33.2 | % |
| 189,378 |
| 32.1 | % |
| 84,631 |
| 44.7 | % |
Selling, general & administrative expenses |
| 151,557 | |
| 18.3 | % |
| 126,376 |
| 21.4 | % |
| (25,181) |
| (19.9) | % |
Rationalization and asset impairment charges |
| 630 | |
| 0.1 | % |
| 23,238 |
| 3.9 | % |
| 22,608 |
| 97.3 | % |
Operating income |
| 121,822 | |
| 14.7 | % |
| 39,764 |
| 6.7 | % |
| 82,058 |
| 206.4 | % |
Interest expense, net |
| 5,663 | |
| | |
| 5,881 |
| | |
| 218 |
| 3.7 | % |
Other income (expense) |
| 1,702 | |
| | |
| (203) |
| | |
| 1,905 |
| 938.4 | % |
Income before income taxes |
| 117,861 | |
| 14.3 | % |
| 33,680 |
| 5.7 | % |
| 84,181 |
| 249.9 | % |
Income taxes |
| 21,581 | |
| | |
| 6,667 |
| | |
| (14,914) |
| (223.7) | % |
Effective tax rate |
| 18.3 | % |
| | |
| 19.8 | % | | |
| 1.5 | % | | |
Net income including non-controlling interests |
| 96,280 | |
| | |
| 27,013 |
| | |
| 69,267 |
| 256.4 | % |
Non-controlling interests in subsidiaries' loss |
| 175 | |
| | |
| 17 |
| | |
| 158 |
| 929.4 | % |
Net income | $ | 96,105 | |
| 11.6 | % | $ | 26,996 |
| 4.6 | % | $ | 69,109 |
| 256.0 | % |
Diluted earnings per share | $ | 1.60 | | | | | $ | 0.45 |
|
| | $ | 1.15 |
| 255.6 | % |
| | | | | | | | | | | | | | | | |
| Six Months Ended June 30, |
| ||||||||||||||
| | | | | | | | | | | | Favorable (Unfavorable) |
| |||
| 2021 | | 2020 | | 2021 vs. 2020 | | ||||||||||
| Amount |
| % of Sales |
| Amount |
| % of Sales |
| $ |
| % |
| ||||
Net sales | $ | 1,583,475 | | | | | $ | 1,292,718 |
| | | $ | 290,757 |
| 22.5 | % |
Cost of goods sold |
| 1,055,699 | |
| | |
| 866,018 |
| | |
| (189,681) |
| (21.9) | % |
Gross profit |
| 527,776 | |
| 33.3 | % |
| 426,700 |
| 33.0 | % |
| 101,076 |
| 23.7 | % |
Selling, general & administrative expenses |
| 297,233 | |
| 18.8 | % |
| 276,103 |
| 21.4 | % |
| (21,130) |
| (7.7) | % |
Rationalization and asset impairment charges |
| 4,793 | |
| 0.3 | % |
| 29,759 |
| 2.3 | % |
| 24,966 |
| 83.9 | % |
Operating income |
| 225,750 | |
| 14.3 | % |
| 120,838 |
| 9.3 | % |
| 104,912 |
| 86.8 | % |
Interest expense, net |
| 11,022 | |
| | |
| 11,339 |
| | |
| 317 |
| 2.8 | % |
Other income (expense) |
| 286 | |
| | |
| 106 |
| | |
| 180 |
| 169.8 | % |
Income before income taxes |
| 215,014 | |
| 13.6 | % |
| 109,605 |
| 8.5 | % |
| 105,409 |
| 96.2 | % |
Income taxes |
| 44,601 | |
| | |
| 27,037 |
| | |
| (17,564) |
| (65.0) | % |
Effective tax rate |
| 20.7 | % |
| | |
| 24.7 | % | | |
| 4.0 | % | | |
Net income including non-controlling interests |
| 170,413 | |
| | |
| 82,568 |
| | |
| 87,845 |
| 106.4 | % |
Non-controlling interests in subsidiaries' loss |
| 131 | |
| | |
| 10 |
| | |
| 121 |
| 1,210.0 | % |
Net income | $ | 170,282 | |
| 10.8 | % | $ | 82,558 |
| 6.4 | % | $ | 87,724 |
| 106.3 | % |
Diluted earnings per share | $ | 2.83 | | | | | $ | 1.37 |
|
| | $ | 1.46 |
| 106.6 | % |
| | | | | | | | | | | | | | | | | |
��� | | | | | | | | | | | | | | | | | |
Three Months Ended September 30, | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2020 | 2019 | Favorable (Unfavorable) 2020 vs. 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Amount | % of Sales | Amount | % of Sales | $ | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net sales | $ | 668,888 | $ | 730,783 | $ | (61,895) | (8.5 | %) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cost of goods sold | 453,501 | 492,432 | 38,931 | 7.9 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Gross profit | 215,387 | 32.2 | % | 238,351 | 32.6 | % | (22,964) | (9.6 | %) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Selling, general & administrative expenses | 131,337 | 19.6 | % | 148,312 | 20.3 | % | 16,975 | 11.4 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Rationalization and asset impairment charges | 6,257 | 0.9 | % | 1,495 | 0.2 | % | (4,762) | (318.5 | %) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Operating income | 77,793 | 11.6 | % | 88,544 | 12.1 | % | (10,751) | (12.1 | %) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Interest expense, net | 5,552 | 6,400 | 848 | 13.3 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other income (expense) | 1,062 | 9,653 | (8,591) | (89.0 | %) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income before income taxes | 73,303 | 11.0 | % | 91,797 | 12.6 | % | (18,494) | (20.1 | %) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income taxes | 14,797 | 19,340 | 4,543 | 23.5 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Effective tax rate | 20.2 | % | 21.1 | % | 0.9 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net income including non-controlling interests | 58,506 | 72,457 | (13,951) | (19.3 | %) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Non-controlling interests in subsidiaries’ loss | 27 | (4) | 31 | 775.0 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net income | $ | 58,479 | 8.7 | % | $ | 72,461 | 9.9 | % | $ | (13,982) | (19.3 | %) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Diluted earnings per share | $ | 0.97 | $ | 1.17 | $ | (0.20) | (17.1 | %) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Nine Months Ended September 30, | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2020 | 2019 | Favorable (Unfavorable) 2020 vs. 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Amount | % of Sales | Amount | % of Sales | $ | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net sales | $ | 1,961,606 | $ | 2,266,965 | $ | (305,359) | (13.5 | %) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cost of goods sold | 1,319,519 | 1,500,312 | 180,793 | 12.1 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Gross profit | 642,087 | 32.7 | % | 766,653 | 33.8 | % | (124,566) | (16.2 | %) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Selling, general & administrative expenses | 407,440 | 20.8 | % | 472,108 | 20.8 | % | 64,668 | 13.7 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Rationalization and asset impairment charges | 36,016 | 1.8 | % | 6,337 | 0.3 | % | (29,679) | (468.3 | %) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Operating income | 198,631 | 10.1 | % | 288,208 | 12.7 | % | (89,577) | (31.1 | %) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Interest expense, net | 16,891 | 17,621 | 730 | 4.1 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other income (expense) | 1,168 | 17,612 | (16,444) | (93.4 | %) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income before income taxes | 182,908 | 9.3 | % | 288,199 | 12.7 | % | (105,291) | (36.5 | %) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income taxes | 41,834 | 58,832 | 16,998 | 28.9 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Effective tax rate | 22.9 | % | 20.4 | % | (2.5 | %) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net income including non-controlling interests | 141,074 | 229,367 | (88,293) | (38.5 | %) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Non-controlling interests in subsidiaries’ loss | 37 | (26) | 63 | 242.3 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net income | $ | 141,037 | 7.2 | % | $ | 229,393 | 10.1 | % | $ | (88,356) | (38.5 | %) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Diluted earnings per share | $ | 2.34 | $ | 3.64 | $ | (1.30) | (35.7 | %) |
24
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 2019 | Volume | Acquisitions | Price | Foreign Exchange | Net Sales 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Lincoln Electric Holdings, Inc. | $ | 730,783 | $ | (69,531) | $ | — | $ | 8,860 | $ | (1,224) | $ | 668,888 | ||||||||||||||||||||||||||||||||||||||||||||
% Change | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Lincoln Electric Holdings, Inc. | (9.5 | %) | — | 1.2 | % | (0.2 | %) | (8.5 | %) |
Nine Months Ended September 30, | Change in Net Sales due to: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net Sales 2019 | Volume | Acquisitions | Price | Foreign Exchange | Net Sales 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Lincoln Electric Holdings, Inc. | $ | 2,266,965 | $ | (325,308) | $ | 39,711 | $ | (307) | $ | (19,455) | $ | 1,961,606 | ||||||||||||||||||||||||||||||||||||||||||||
% Change | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Lincoln Electric Holdings, Inc. | (14.3 | %) | 1.8 | % | — | (0.9 | %) | (13.5 | %) | |||||||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | |
Three Months Ended June 30, | |
| |
| Change in Net Sales due to: | |
| |
| ||||||||||
| | Net Sales | | | | | | | | | | | Foreign | | Net Sales | | |||
|
| 2020 |
| Volume |
| Acquisitions |
| Price |
| Exchange |
| 2021 |
| ||||||
Lincoln Electric Holdings, Inc. | | $ | 590,727 | | $ | 153,801 | | $ | 3,585 | | $ | 59,021 |
| $ | 19,320 | | $ | 826,454 | |
% Change | | | | |
|
| |
|
| |
|
|
|
| | |
|
| |
Lincoln Electric Holdings, Inc. | | | | |
| 26.0 | % |
| 0.6 | % |
| 10.0 | % | | 3.3 | % | | 39.9 | % |
| | | | | | | | | | | | | | | | | | | |
Six Months Ended June 30, | |
| |
| Change in Net Sales due to: | |
| |
| ||||||||||
| | Net Sales | | | | | | | | | | | Foreign | | Net Sales | | |||
|
| 2020 |
| Volume |
| Acquisitions |
| Price |
| Exchange |
| 2021 |
| ||||||
Lincoln Electric Holdings, Inc. | | $ | 1,292,718 | | $ | 172,902 | | $ | 3,585 | | $ | 85,149 |
| $ | 29,121 | | $ | 1,583,475 | |
% Change | | | | |
|
| |
|
| |
|
|
|
| | |
|
| |
Lincoln Electric Holdings, Inc. | | | | |
| 13.4 | % |
| 0.3 | % |
| 6.6 | % | | 2.3 | % | | 22.5 | % |
Net sales decreasedincreased in the three and ninesix months ended SeptemberJune 30, 20202021 driven by higher demand reflecting recovery from the impacts of the pandemic, increased product pricing as a result of lower organic sales driven by the impact of COVID-19 on global demandhigher input costs and unfavorablefavorable foreign exchange. The decrease in Net sales for the nine months ended September 30, 2020 were partially offset by the acquisitions of Baker within Americas Welding and Askaynak within International Welding. Refer to Note 4 to the consolidated financial statements for details.
Gross Profit:
Gross profit for the three and ninesix months ended SeptemberJune 30, 2020 decreased, as2021 increased 44.7% and 23.7%, respectively, driven by higher Net sales volumes reflecting recovery from the impacts of the COVID-19 pandemic. As a percent of sales, Gross profit increased compared to the prior year periods primarily due to lowerhigher Net sales volumes includingand the impactrelated operating leverage, partially offset by higher last-in, first-out (“LIFO”) charges of COVID-19 on global demand.
Selling, General & Administrative ("SG&A") Expenses:
SG&A expenses decreasedincreased for the three and ninesix months ended SeptemberJune 30, 20202021 as compared to September 30, 2019the same 2020 periods, primarily due to lowerhigher employee costs and discretionary spending. The decrease in SG&A expenses for the nine months ended September 30, 2020 was partially offset by higher expense from acquisitions.
Rationalization and Asset Impairment Charges:
The Company recorded net charges of $6,257, $5,142 after-tax,$630 ($819 after-tax) and $36,016, $28,181 after-tax,$4,793 ($4,650 after-tax) in the three and ninesix months ended SeptemberJune 30, 2021, respectively, primarily related to severance charges and gains or losses on the disposal of assets. The Company recorded charges of $23,238 ($18,494 after-tax) and $29,759 ($23,039 after-tax) in the three and six months ended June 30, 2020, respectively, primarily related to severance charges, non-cash asset impairments of long-lived assets, and gains or losses on the disposal of assets.
Income Taxes:
The Company recorded net charges of $1,495, $1,240 after-tax, and $6,337, $4,991 after-tax, ineffective tax rate was lower for the three and ninesix months ended SeptemberJune 30, 2019, respectively, primarily related to severance, asset impairments and gains or losses on the disposal of assets.
Net Income:
The decreaseincrease in Net income for the three and ninesix months ended SeptemberJune 30, 20202021 as compared to September 30, 2019the same 2020 periods, was primarily due to lowerhigher Net sales volumes including the impact of COVID-19 on global demand, higher Rationalization and asset impairment charges and higher pension settlement charges.
Three Months Ended September 30, | Change in Net Sales due to: | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Net Sales 2019 | Volume (1) | Acquisitions (2) | Price (3) | Foreign Exchange | Net Sales 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||
Operating Segments | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Americas Welding | $ | 443,521 | $ | (69,028) | $ | — | $ | (682) | $ | (2,276) | $ | 371,535 | |||||||||||||||||||||||||||||||||||||||||
International Welding | 205,378 | (10,964) | — | 70 | 2,453 | 196,937 | |||||||||||||||||||||||||||||||||||||||||||||||
The Harris Products Group | 81,884 | 10,461 | — | 9,472 | (1,401) | 100,416 | |||||||||||||||||||||||||||||||||||||||||||||||
% Change | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Americas Welding | (15.6 | %) | — | (0.2 | %) | (0.5 | %) | (16.2 | %) | ||||||||||||||||||||||||||||||||||||||||||||
International Welding | (5.3 | %) | — | — | 1.2 | % | (4.1 | %) | |||||||||||||||||||||||||||||||||||||||||||||
The Harris Products Group | 12.8 | % | — | 11.6 | % | (1.7 | %) | 22.6 | % | ||||||||||||||||||||||||||||||||||||||||||||
Nine Months Ended September 30, | Change in Net Sales due to: | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Net Sales 2019 | Volume (1) | Acquisitions (2) | Price (3) | Foreign Exchange | Net Sales 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||
Operating Segments | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Americas Welding | $ | 1,377,847 | $ | (245,755) | $ | 6,190 | $ | (7,479) | $ | (7,504) | $ | 1,123,299 | |||||||||||||||||||||||||||||||||||||||||
International Welding | 635,770 | (85,923) | 33,521 | (2,901) | (8,440) | 572,027 | |||||||||||||||||||||||||||||||||||||||||||||||
The Harris Products Group | 253,348 | 6,370 | — | 10,073 | (3,511) | 266,280 | |||||||||||||||||||||||||||||||||||||||||||||||
% Change | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Americas Welding | (17.8 | %) | 0.4 | % | (0.5 | %) | (0.5 | %) | (18.5 | %) | |||||||||||||||||||||||||||||||||||||||||||
International Welding | (13.5 | %) | 5.3 | % | (0.5 | %) | (1.3 | %) | (10.0 | %) | |||||||||||||||||||||||||||||||||||||||||||
The Harris Products Group | 2.5 | % | — | 4.0 | % | (1.4 | %) | 5.1 | % | ||||||||||||||||||||||||||||||||||||||||||||
25
Segment Results
| | | | | | | | | | | | | | | | | | |
Three Months Ended June 30, | | |
| Change in Net Sales due to: |
|
| |
| ||||||||||
| Net Sales | | | | | | | | Foreign | | Net Sales | | ||||||
| 2020 |
| Volume (1) |
| Acquisitions (2) |
| Price (3) |
| Exchange |
| 2021 | | ||||||
Operating Segments | | | | | | | | | | | | | | | | | | |
Americas Welding | $ | 333,229 | | $ | 90,285 | | $ | — | | $ | 27,330 |
| $ | 6,624 | | $ | 457,468 | |
International Welding | | 177,167 | |
| 45,095 | |
| 3,585 |
| | 14,712 |
| | 11,793 | |
| 252,352 | |
The Harris Products Group | | 80,331 | |
| 18,421 | |
| — |
| | 16,979 |
| | 903 | |
| 116,634 | |
| | | | | | | | | | | | | | | | | | |
% Change | |
| |
|
| |
|
|
| |
|
| |
| |
|
| |
Americas Welding | | | | | 27.1 | % |
| — | | | 8.2 | % | | 2.0 | % | | 37.3 | % |
International Welding | | | | | 25.5 | % |
| 2.0 | % | | 8.3 | % | | 6.7 | % | | 42.4 | % |
The Harris Products Group | | | | | 22.9 | % |
| — | | | 21.1 | % | | 1.1 | % | | 45.2 | % |
| | | | | | | | | | | | | | | | | | |
Six Months Ended June 30, | | |
| Change in Net Sales due to: |
|
| |
| ||||||||||
| Net Sales |
| | |
| | |
| | |
| Foreign |
| Net Sales |
| |||
| 2020 | | Volume (1) |
| Acquisitions (2) |
| Price (3) | | Exchange | | 2021 | | ||||||
Operating Segments | | | | | | | | | | | | | | | | | | |
Americas Welding | $ | 751,764 | | $ | 86,495 | | $ | — | | $ | 36,395 |
| $ | 8,056 | | $ | 882,710 | |
International Welding | | 375,090 | |
| 56,345 | |
| 3,585 |
| | 19,332 |
| | 21,079 | |
| 475,431 | |
The Harris Products Group | | 165,864 | |
| 30,062 | |
| — |
| | 29,422 |
| | (14) | |
| 225,334 | |
| | | | | | | | | | | | | | | | | | |
% Change | |
| |
|
| |
|
|
| |
|
| |
| |
|
| |
Americas Welding | | | | | 11.5 | % |
| — | | | 4.8 | % | | 1.1 | % | | 17.4 | % |
International Welding | | | | | 15.0 | % |
| 1.0 | % | | 5.2 | % | | 5.6 | % | | 26.8 | % |
The Harris Products Group | | | | | 18.1 | % |
| — | | | 17.7 | % | | — | | | 35.9 | % |
| | | | | | | | | | | | | | | | | | | |
(1) | Increases for three and six months ended June 30, 2021 for all segments was primarily due to higher demand reflecting recovery from the impacts of the COVID-19 pandemic. The Harris Products Group volumes also reflect increases due to higher retail volumes. |
(2) | Increase for the three and six months ended June 30, 2021 for International Welding were due to the acquisition of Zeman Bauelemente as discussed in Note 4 to the consolidated financial statements. |
(3) | Increase for Americas Welding and International Welding in the three and six months ended June 30, 2021 reflects increased product pricing as a result of higher input costs. Increase for The Harris Products Group in the three and six months ended June 30, 2021 was due to increased commodity costs. |
26
Adjusted Earnings Before Interest and Income Taxes:
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 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.
The following table presents Adjusted EBIT by segment:
| | | | | | | | | | | | |
| | | | | | | | Favorable (Unfavorable) |
| |||
| | Three Months Ended June 30, | | 2021 vs. 2020 |
| |||||||
|
| 2021 |
| 2020 |
| $ |
| % |
| |||
Americas Welding: |
| |
|
| |
| |
|
| |
| |
Net sales | | $ | 457,468 | | $ | 333,229 | | $ | 124,239 | | 37.3 | % |
Inter-segment sales | |
| 39,765 | |
| 27,493 | |
| 12,272 | | 44.6 | % |
Total Sales | | $ | 497,233 | | $ | 360,722 | | | 136,511 | | 37.8 | % |
Adjusted EBIT (3) | | $ | 84,134 | | $ | 46,702 | | | 37,432 | | 80.2 | % |
As a percent of total sales (1) | |
| 16.9 | % |
| 12.9 | % | | | | 4.0 | % |
International Welding: | |
| | |
|
| | |
| |
| |
Net sales | | $ | 252,352 | | $ | 177,167 | | | 75,185 | | 42.4 | % |
Inter-segment sales | |
| 6,897 | |
| 4,286 | | | 2,611 | | 60.9 | % |
Total Sales | | $ | 259,249 | | $ | 181,453 | | | 77,796 | | 42.9 | % |
Adjusted EBIT (4) | | $ | 29,997 | | $ | 9,682 | | | 20,315 | | 209.8 | % |
As a percent of total sales (1) | |
| 11.6 | % |
| 5.3 | % | | | | 6.3 | % |
The Harris Products Group: | |
| | |
|
| | |
| |
| |
Net sales | | $ | 116,634 | | $ | 80,331 | | | 36,303 | | 45.2 | % |
Inter-segment sales | |
| 2,284 | |
| 1,753 | | | 531 | | 30.3 | % |
Total Sales | | $ | 118,918 | | $ | 82,084 | | | 36,834 | | 44.9 | % |
Adjusted EBIT | | $ | 18,212 | | $ | 11,713 | | | 6,499 | | 55.5 | % |
As a percent of total sales (2) | |
| 15.3 | % |
| 14.3 | % | | | | 1.0 | % |
Corporate / Eliminations: | |
| | |
|
| | |
| |
| |
Inter-segment sales | | $ | (48,946) | | $ | (33,532) | | | 15,414 | | 46.0 | % |
Adjusted EBIT (5) | |
| (3,888) | |
| (1,964) | | | 1,924 | | 98.0 | % |
Consolidated: | |
| | |
|
| | |
| |
| |
Net sales | | $ | 826,454 | �� | $ | 590,727 | | | 235,727 | | 39.9 | % |
Net income | | $ | 96,105 | | $ | 26,996 | | | 69,109 | | 256.0 | % |
As a percent of total sales | |
| 11.6 | % |
| 4.6 | % | | | | 7.0 | % |
Adjusted EBIT (5) | | $ | 128,455 | | $ | 66,133 | | | 62,322 | | 94.2 | % |
As a percent of sales | |
| 15.5 | % |
| 11.2 | % |
| | | 4.3 | % |
(1) | Increase for the three months ended June 30, 2021 as compared to June 30, 2020 primarily driven by higher Net sales volumes reflecting recovery from the impacts of the COVID-19 pandemic and related operating leverage. |
(2) | Increase for the three months ended June 30, 2021 as compared to June 30, 2020 driven primarily by retail and brazing volume increases, as well as the recovery from the impacts of the COVID-19 pandemic. |
(3) | The three months ended June 30, 2021 and 2020 exclude pension settlement charges of $1,650 and $3,334, respectively. The three months ended June 30, 2020 excludes Rationalization and asset impairment charges of $22,673 related to severance and asset impairments as discussed in Note 6 to the consolidated financial statements. |
(4) | The three months ended June 30, 2021 and 2020 exclude Rationalization and asset impairment charges of $630 and $565, respectively, related to severance and gains or losses on the disposal of assets as discussed in Note 6 |
Three Months Ended September 30, | Favorable (Unfavorable) 2020 vs. 2019 | ||||||||||||||||||||||||||||||||||
2020 | 2019 | $ | % | ||||||||||||||||||||||||||||||||
Americas Welding: | |||||||||||||||||||||||||||||||||||
Net sales | $ | 371,535 | $ | 443,521 | $ | (71,986) | (16.2 | %) | |||||||||||||||||||||||||||
Inter-segment sales | 29,368 | 31,101 | (1,733) | (5.6 | %) | ||||||||||||||||||||||||||||||
Total Sales | $ | 400,903 | $ | 474,622 | (73,719) | (15.5 | %) | ||||||||||||||||||||||||||||
Adjusted EBIT (4) | $ | 59,120 | $ | 74,110 | (14,990) | (20.2 | %) | ||||||||||||||||||||||||||||
As a percent of total sales (1) | 14.7 | % | 15.6 | % | (0.9 | %) | |||||||||||||||||||||||||||||
International Welding: | |||||||||||||||||||||||||||||||||||
Net sales | $ | 196,937 | $ | 205,378 | (8,441) | (4.1 | %) | ||||||||||||||||||||||||||||
Inter-segment sales | 4,898 | 4,441 | 457 | 10.3 | % | ||||||||||||||||||||||||||||||
Total Sales | $ | 201,835 | $ | 209,819 | (7,984) | (3.8 | %) | ||||||||||||||||||||||||||||
Adjusted EBIT (5) | $ | 13,432 | $ | 10,184 | 3,248 | 31.9 | % | ||||||||||||||||||||||||||||
As a percent of total sales (2) | 6.7 | % | 4.9 | % | 1.8 | % | |||||||||||||||||||||||||||||
The Harris Products Group: | |||||||||||||||||||||||||||||||||||
Net sales | $ | 100,416 | $ | 81,884 | 18,532 | 22.6 | % | ||||||||||||||||||||||||||||
Inter-segment sales | 1,898 | 1,857 | 41 | 2.2 | % | ||||||||||||||||||||||||||||||
Total Sales | $ | 102,314 | $ | 83,741 | 18,573 | 22.2 | % | ||||||||||||||||||||||||||||
Adjusted EBIT | $ | 17,587 | $ | 11,038 | 6,549 | 59.3 | % | ||||||||||||||||||||||||||||
As a percent of total sales (3) | 17.2 | % | 13.2 | % | 4.0 | % | |||||||||||||||||||||||||||||
Corporate / Eliminations: | |||||||||||||||||||||||||||||||||||
Inter-segment sales | $ | (36,164) | $ | (37,399) | (1,235) | (3.3 | %) | ||||||||||||||||||||||||||||
Adjusted EBIT | (1,839) | (1,632) | 207 | 12.7 | % | ||||||||||||||||||||||||||||||
Consolidated: | |||||||||||||||||||||||||||||||||||
Net sales | $ | 668,888 | $ | 730,783 | (61,895) | (8.5 | %) | ||||||||||||||||||||||||||||
Net income | $ | 58,479 | $ | 72,461 | (13,982) | (19.3 | %) | ||||||||||||||||||||||||||||
As a percent of total sales | 8.7 | % | 9.9 | % | (1.2 | %) | |||||||||||||||||||||||||||||
Adjusted EBIT (6) | $ | 88,300 | $ | 93,700 | (5,400) | (5.8 | %) | ||||||||||||||||||||||||||||
As a percent of sales | 13.2 | % | 12.8 | % | 0.4 | % |
27
to the consolidated financial statements. The three months ended June 30, 2021 also exclude the amortization of step up in value of acquired inventories related to the acquisition of Zeman Bauelemente as discussed in Note 4 to the consolidated financial statements. |
(5) | The three months ended June 30, 2021 exclude acquisition transaction costs of $810 related to an acquisition. |
(6) | See non-GAAP Financial Measures for a reconciliation of Net income as reported and Adjusted EBIT. |
| | | | | | | | | | | | | |
|
| | | | | |
| |
|
| |||
| | | | | | | | Favorable (Unfavorable) |
| | |||
| | Six Months Ended June 30, | | 2021 vs. 2020 |
| | |||||||
|
| 2021 |
| 2020 |
| $ |
| % |
|
| |||
Americas Welding: |
| |
|
| |
| |
|
| |
| |
|
Net sales | | $ | 882,710 | | $ | 751,764 | | $ | 130,946 | | 17.4 | % | |
Inter-segment sales | |
| 72,513 | |
| 52,276 | |
| 20,237 | | 38.7 | % | |
Total Sales | | $ | 955,223 | | $ | 804,040 | | | 151,183 | | 18.8 | % | |
Adjusted EBIT (3) | | $ | 160,751 | | $ | 117,404 | | | 43,347 | | 36.9 | % | |
As a percent of total sales (1) | |
| 16.8 | % |
| 14.6 | % | | | | 2.2 | % | |
International Welding: | |
| | |
|
| | |
| |
| | |
Net sales | | $ | 475,431 | | $ | 375,090 | | | 100,341 | | 26.8 | % | |
Inter-segment sales | |
| 11,182 | |
| 8,769 | | | 2,413 | | 27.5 | % | |
Total Sales | | $ | 486,613 | | $ | 383,859 | | | 102,754 | | 26.8 | % | |
Adjusted EBIT (4) | | $ | 48,813 | | $ | 16,297 | | | 32,516 | | 199.5 | % | |
As a percent of total sales (1) | |
| 10.0 | % |
| 4.2 | % | | | | 5.8 | % | |
The Harris Products Group: | |
| | |
|
| | |
| |
| | |
Net sales | | $ | 225,334 | | $ | 165,864 | | | 59,470 | | 35.9 | % | |
Inter-segment sales | |
| 4,431 | |
| 3,478 | | | 953 | | 27.4 | % | |
Total Sales | | $ | 229,765 | | $ | 169,342 | | | 60,423 | | 35.7 | % | |
Adjusted EBIT | | $ | 36,909 | | $ | 24,205 | | | 12,704 | | 52.5 | % | |
As a percent of total sales (2) | |
| 16.1 | % |
| 14.3 | % | | | | 1.8 | % | |
Corporate / Eliminations: | |
| | |
|
| | |
| |
| | |
Inter-segment sales | | $ | (88,126) | | $ | (64,523) | | | 23,603 | | 36.6 | % | |
Adjusted EBIT (5) | |
| (5,344) | |
| (3,063) | | | 2,281 | | 74.5 | % | |
Consolidated: | |
| | |
|
| | |
| |
| | |
Net sales | | $ | 1,583,475 | | $ | 1,292,718 | | | 290,757 | | 22.5 | % | |
Net income | | $ | 170,282 | | $ | 82,558 | | | 87,724 | | 106.3 | % | |
As a percent of total sales | |
| 10.8 | % |
| 6.4 | % | | | | 4.4 | % | |
Adjusted EBIT (6) | | $ | 241,129 | | $ | 154,843 | | | 86,286 | | 55.7 | % | |
As a percent of sales | |
| 15.2 | % |
| 12.0 | % |
| | | 3.2 | % | |
(1) | Increase for the six months ended June 30, 2021 as compared to June 30, 2020 primarily driven higher Net sales volumes reflecting recovery from the impacts of the COVID-19 pandemic and related operating leverage, as well as cost reduction actions. |
(2) | Increase for the six months ended June 30, 2021 as compared to June 30, 2020 driven by retail and brazing volume increases, as well as the recovery from the impacts of the COVID-19 pandemic. |
(3) | The six months ended June 30, 2021 and 2020 exclude pension settlement charges of $6,536 and $3,334, respectively. The six months ended June 30, 2020 also exclude Rationalization and asset impairment charges of $23,863 related to severance charges and non-cash asset impairments of long-lived assets as discussed in Note 6 to the consolidated financial statements. |
(4) | The six months ended June 30, 2021, and 2020 exclude Rationalization and asset impairment charges of $4,793 and $5,896, respectively, related to severance, asset impairments and gains or losses on the disposal of assets discussed in Note 6 to the consolidated financial statements. The six months ended June 30, 2021 and 2020 also |
28
Nine Months Ended September 30, | Favorable (Unfavorable) 2020 vs. 2019 | ||||||||||||||||||||||||||||||||||
2020 | 2019 | $ | % | ||||||||||||||||||||||||||||||||
Americas Welding: | |||||||||||||||||||||||||||||||||||
Net sales | $ | 1,123,299 | $ | 1,377,847 | $ | (254,548) | (18.5 | %) | |||||||||||||||||||||||||||
Inter-segment sales | 81,644 | 95,300 | (13,656) | (14.3 | %) | ||||||||||||||||||||||||||||||
Total Sales | $ | 1,204,943 | $ | 1,473,147 | (268,204) | (18.2 | %) | ||||||||||||||||||||||||||||
Adjusted EBIT (3) | $ | 176,524 | $ | 240,713 | (64,189) | (26.7 | %) | ||||||||||||||||||||||||||||
As a percent of total sales (1) | 14.6 | % | 16.3 | % | (1.7 | %) | |||||||||||||||||||||||||||||
International Welding: | |||||||||||||||||||||||||||||||||||
Net sales | $ | 572,027 | $ | 635,770 | (63,743) | (10.0 | %) | ||||||||||||||||||||||||||||
Inter-segment sales | 13,667 | 12,838 | 829 | 6.5 | % | ||||||||||||||||||||||||||||||
Total Sales | $ | 585,694 | $ | 648,608 | (62,914) | (9.7 | %) | ||||||||||||||||||||||||||||
Adjusted EBIT (4) | $ | 29,729 | $ | 38,699 | (8,970) | (23.2 | %) | ||||||||||||||||||||||||||||
As a percent of total sales (1) | 5.1 | % | 6.0 | % | (0.9 | %) | |||||||||||||||||||||||||||||
The Harris Products Group: | |||||||||||||||||||||||||||||||||||
Net sales | $ | 266,280 | $ | 253,348 | 12,932 | 5.1 | % | ||||||||||||||||||||||||||||
Inter-segment sales | 5,376 | 5,837 | (461) | (7.9 | %) | ||||||||||||||||||||||||||||||
Total Sales | $ | 271,656 | $ | 259,185 | 12,471 | 4.8 | % | ||||||||||||||||||||||||||||
Adjusted EBIT | $ | 41,792 | $ | 35,045 | 6,747 | 19.3 | % | ||||||||||||||||||||||||||||
As a percent of total sales (2) | 15.4 | % | 13.5 | % | 1.9 | % | |||||||||||||||||||||||||||||
Corporate / Eliminations: | |||||||||||||||||||||||||||||||||||
Inter-segment sales | $ | (100,687) | $ | (113,975) | (13,288) | (11.7 | %) | ||||||||||||||||||||||||||||
Adjusted EBIT (5) | (4,902) | (8,643) | (3,741) | (43.3 | %) | ||||||||||||||||||||||||||||||
Consolidated: | |||||||||||||||||||||||||||||||||||
Net sales | $ | 1,961,606 | $ | 2,266,965 | (305,359) | (13.5 | %) | ||||||||||||||||||||||||||||
Net income | $ | 141,037 | $ | 229,393 | (88,356) | (38.5 | %) | ||||||||||||||||||||||||||||
As a percent of total sales | 7.2 | % | 10.1 | % | (2.9 | %) | |||||||||||||||||||||||||||||
Adjusted EBIT (6) | $ | 243,143 | $ | 305,814 | (62,671) | (20.5 | %) | ||||||||||||||||||||||||||||
As a percent of sales | 12.4 | % | 13.5 | % | (1.1 | %) |
excludes the amortization of step up in value of acquired inventories of $1,841 and $806, respectively, related to acquisitions as discussed in Note 4 to the consolidated financial statements. |
(5) | The six months ended June 30, 2021 exclude acquisition transaction costs of $1,923 related to an acquisition. |
(6) | 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, Return on invested capital, Cash conversion, Organic sales, and Earnings before interest, taxes, depreciation and amortization, all non-GAAP financial measures, in assessing and evaluating the Company'sCompany’s underlying operating performance. These non-GAAP financial measures exclude the impact of special items on the Company'sCompany’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.
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 June 30, |
| Six Months Ended June 30, |
| ||||||||
|
| 2021 |
| 2020 |
| 2021 |
| 2020 |
| ||||
Operating income as reported | | $ | 121,822 | | $ | 39,764 | | $ | 225,750 | | $ | 120,838 | |
Special items (pre-tax): | |
|
| |
|
| |
|
| |
|
| |
Rationalization and asset impairment charges (1) | |
| 630 | |
| 23,238 | |
| 4,793 | |
| 29,759 | |
Acquisition transaction costs (2) | |
| 810 | |
| — | |
| 1,923 | |
| — | |
Amortization of step up in value of acquired inventories (3) | |
| 1,841 | |
| — | |
| 1,841 | |
| 806 | |
Adjusted operating income | | $ | 125,103 | | $ | 63,002 | | $ | 234,307 | | $ | 151,403 | |
Net income as reported | | $ | 96,105 |
| $ | 26,996 | | $ | 170,282 | | $ | 82,558 | |
Special items: | |
| |
|
|
| |
| | | | | |
Rationalization and asset impairment charges (1) | |
| 630 |
|
| 23,238 | |
| 4,793 | | | 29,759 | |
Acquisition transaction costs (2) | |
| 810 |
|
| — | |
| 1,923 | | | — | |
Pension settlement charges (4) | |
| 1,650 |
|
| 3,334 | |
| 6,536 | | | 3,334 | |
Amortization of step up in value of acquired inventories (3) | |
| 1,841 |
|
| — | |
| 1,841 | | | 806 | |
Tax effect of Special items (5) | |
| (433) |
|
| (5,576) | |
| (1,994) | | | (7,552) | |
Adjusted net income | | | 100,603 |
| | 47,992 | | | 183,381 | | | 108,905 | |
Non-controlling interests in subsidiaries’ income (loss) | | | 175 |
| | 17 | | | 131 | | | 10 | |
Interest expense, net | |
| 5,663 |
|
| 5,881 | |
| 11,022 | | | 11,339 | |
Income taxes as reported | |
| 21,581 |
|
| 6,667 | |
| 44,601 | | | 27,037 | |
Tax effect of Special items (5) | |
| 433 |
|
| 5,576 | |
| 1,994 | | | 7,552 | |
Adjusted EBIT | | $ | 128,455 |
| $ | 66,133 | | $ | 241,129 | | $ | 154,843 | |
Effective tax rate as reported | |
| 18.3 | % |
| 19.8 | % |
| 20.7 | % | | 24.7 | % |
Net special item tax impact | |
| (0.4) | % |
| 0.5 | % |
| (0.5) | % | | (0.6) | % |
Adjusted effective tax rate | |
| 17.9 | % |
| 20.3 | % |
| 20.2 | % | | 24.1 | % |
Diluted earnings per share as reported | | $ | 1.60 |
| $ | 0.45 | | $ | 2.83 | | $ | 1.37 | |
Special items per share | |
| 0.07 |
|
| 0.35 | |
| 0.21 | | | 0.44 | |
Adjusted diluted earnings per share | | $ | 1.67 |
| $ | 0.80 | | $ | 3.04 | | $ | 1.81 | |
(1) | Charges primarily related to severance as discussed in Note 6 to the consolidated financial statements. |
(2) | Costs related to an acquisition and are included in SG&A. |
(3) | Costs related to acquisitions and are included in Cost of goods sold. |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||
2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||||||||||||||
Operating income as reported | $ | 77,793 | $ | 88,544 | $ | 198,631 | $ | 288,208 | |||||||||||||||||||||||||||
Special items (pre-tax): | |||||||||||||||||||||||||||||||||||
Rationalization and asset impairment charges (1) | 6,257 | 1,495 | 36,016 | 6,337 | |||||||||||||||||||||||||||||||
Acquisition transaction and integration costs (2) | — | — | — | 1,804 | |||||||||||||||||||||||||||||||
Amortization of step up in value of acquired inventories (3) | — | 1,609 | 806 | 3,008 | |||||||||||||||||||||||||||||||
Gains on asset disposals (4) | — | — | — | (3,045) | |||||||||||||||||||||||||||||||
Adjusted operating income | $ | 84,050 | $ | 91,648 | $ | 235,453 | $ | 296,312 | |||||||||||||||||||||||||||
Net income as reported | $ | 58,479 | $ | 72,461 | $ | 141,037 | $ | 229,393 | |||||||||||||||||||||||||||
Special items: | |||||||||||||||||||||||||||||||||||
Rationalization and asset impairment charges (1) | 6,257 | 1,495 | 36,016 | 6,337 | |||||||||||||||||||||||||||||||
Acquisition transaction and integration costs (2) | — | — | — | 1,804 | |||||||||||||||||||||||||||||||
Pension settlement charges (5) | 3,188 | — | 6,522 | — | |||||||||||||||||||||||||||||||
Amortization of step up in value of acquired inventories (3) | — | 1,609 | 806 | 3,008 | |||||||||||||||||||||||||||||||
Gains on asset disposals (4) | — | — | — | (3,554) | |||||||||||||||||||||||||||||||
Gain on change in control (6) | — | (7,601) | — | (7,601) | |||||||||||||||||||||||||||||||
Tax effect of Special items (7) | (1,911) | (255) | (9,463) | (5,819) | |||||||||||||||||||||||||||||||
Adjusted net income | 66,013 | 67,709 | 174,918 | 223,568 | |||||||||||||||||||||||||||||||
Non-controlling interests in subsidiaries’ income (loss) | 27 | (4) | 37 | (26) | |||||||||||||||||||||||||||||||
Interest expense, net | 5,552 | 6,400 | 16,891 | 17,621 | |||||||||||||||||||||||||||||||
Income taxes as reported | 14,797 | 19,340 | 41,834 | 58,832 | |||||||||||||||||||||||||||||||
Tax effect of Special items (7) | 1,911 | 255 | 9,463 | 5,819 | |||||||||||||||||||||||||||||||
Adjusted EBIT | $ | 88,300 | $ | 93,700 | $ | 243,143 | $ | 305,814 | |||||||||||||||||||||||||||
Effective tax rate as reported | 20.2 | % | 21.1 | % | 22.9 | % | 20.4 | % | |||||||||||||||||||||||||||
Net special item tax impact | — | 1.3 | % | (0.2 | %) | 2.0 | % | ||||||||||||||||||||||||||||
Adjusted effective tax rate | 20.2 | % | 22.4 | % | 22.7 | % | 22.4 | % | |||||||||||||||||||||||||||
Diluted earnings per share as reported | $ | 0.97 | $ | 1.17 | $ | 2.34 | $ | 3.64 | |||||||||||||||||||||||||||
Special items per share | 0.13 | (0.08) | 0.57 | (0.09) | |||||||||||||||||||||||||||||||
Adjusted diluted earnings per share | $ | 1.10 | $ | 1.09 | $ | 2.91 | $ | 3.55 |
29
(4) | Primarily related to lump sum pension payments and are included in Other income (expense). |
(5) | 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.
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 the foreseeable future primarily with cash generated by operations, existing cash balances, borrowings under its existing credit facilities and raising debt in capital markets. As the impact of the COVID-19 pandemic on the economy and the Company’s operations evolves, it will continue to assess liquidity needs. A continued worldwide disruption could materially affect the Company’s future access to its sources of liquidity, particularly cash flows from operations, financial condition, capitalization and capital investments. In the event of a sustained market deterioration, the Company may need additional liquidity, which would require it to evaluate available alternatives and take appropriate actions.
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:
| | | | | | | | | |
|
| Six Months Ended June 30, | |||||||
| | 2021 |
| 2020 |
| $ Change | |||
Cash provided by operating activities (1) | | $ | 145,234 | | $ | 126,013 | | $ | 19,221 |
Cash used by investing activities (2) | |
| (102,434) | |
| (18,793) | |
| (83,641) |
Capital expenditures | |
| (27,768) | |
| (25,011) | |
| (2,757) |
Acquisition of businesses, net of cash acquired | |
| (83,723) | |
| — | |
| (83,723) |
Cash used by financing activities (3) | |
| (108,995) | |
| (155,692) | |
| 46,697 |
Purchase of shares for treasury | |
| (53,688) | |
| (112,975) | |
| 59,287 |
Cash dividends paid to shareholders | |
| (61,379) | |
| (59,814) | |
| (1,565) |
Decrease in Cash and cash equivalents (4) | |
| (66,395) | |
| (56,508) | |
| (9,887) |
(1) | Cash provided by operating activities increased for the six months ended June 30, 2021, compared with the six months ended June 30, 2020 primarily due to higher company earnings. |
(2) | Cash used by investing activities increased for the six months ended June 30, 2021, compared with the six months ended June 30, 2020 primarily due to cash used in the acquisition of businesses. The Company currently anticipates capital expenditures of $65,000 to $75,000 in 2021. 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. |
(3) | Cash used by financing activities decreased in the six months ended June 30, 2021, compared with the six months ended June 30, 2020 due to lower purchases of shares for treasury. |
(4) | Cash and cash equivalents decreased 25.8%, or $66,395, to $190,884 during the six months ended June 30, 2021, from $257,279 as of December 31, 2020. This decrease was predominantly due to cash used in the acquisition of businesses, purchases of common shares for treasury and cash dividends paid to shareholders, partially offset by cash provided by operating activities. At June 30, 2021, $142,522 of Cash and cash equivalents was held by international subsidiaries. |
Nine Months Ended September 30, | |||||||||||||||||||||||||||||
2020 | 2019 | $ Change | |||||||||||||||||||||||||||
Cash provided by operating activities (1) | $ | 215,561 | $ | 280,666 | $ | (65,105) | |||||||||||||||||||||||
Cash used by investing activities (2) | (30,159) | (178,795) | 148,636 | ||||||||||||||||||||||||||
Capital expenditures | (37,116) | (53,551) | 16,435 | ||||||||||||||||||||||||||
Acquisition of businesses, net of cash acquired | — | (136,735) | 136,735 | ||||||||||||||||||||||||||
Cash used by financing activities (3) | (227,317) | (302,461) | 75,144 | ||||||||||||||||||||||||||
(Payments on) proceeds from short-term borrowings, net | (33,123) | 2,439 | (35,562) | ||||||||||||||||||||||||||
Purchase of shares for treasury | (113,198) | (221,942) | 108,744 | ||||||||||||||||||||||||||
Cash dividends paid to shareholders | (88,945) | (89,162) | 217 | ||||||||||||||||||||||||||
Decrease in Cash and cash equivalents (4) | (47,084) | (202,237) |
30
In October 2020,July 2021, the Company paid a cash dividend of $0.49$0.51 per share, or $29,141,$30,287, to shareholders of record as of SeptemberJune 30, 2020.
Working Capital Ratios
September 30, 2020 | December 31, 2019 | September 30, 2019 | ||||||||||||||||||
Average operating working capital to Net sales (1) (2) | 20.3 | % | 16.8 | % | 19.2 | % | ||||||||||||||
Days sales in Inventories (2) | 111.6 | 99.9 | 106.2 | |||||||||||||||||
Days sales in Accounts receivable | 55.2 | 51.4 | 53.9 | |||||||||||||||||
Average days in Trade accounts payable | 51.3 | 56.0 | 51.1 | |||||||||||||||||
(2) In order to minimize potential supply chain disruptions in serving customers due to the COVID-19 crisis, the Company increased inventories
| | | | | | | |
| | June 30, 2021 |
| December 31, 2020 |
| June 30, 2020 |
|
Average operating working capital to Net sales (1) (2) |
| 17.2 | % | 17.4 | % | 22.8 | % |
Days sales in Inventories (2) |
| 110.2 |
| 104.7 | | 131.4 | |
Days sales in Accounts receivable |
| 53.9 |
| 53.5 | | 56.8 | |
Average days in Trade accounts payable |
| 59.9 |
| 56.5 | | 58.1 | |
relative to expected Net sales resulting in higher Days sales in Inventories and higher Average operating working capital to Net sales.
(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. |
(2) | In order to minimize potential supply chain disruptions in serving customers due to the COVID-19 pandemic, the Company increased inventories relative to expected Net sales resulting in higher Days sales in Inventories and had an unfavorable impact on Average operating working capital to Net sales. |
Return on Invested Capital
The Company reviews return on invested capital ("ROIC") in assessing and evaluating the Company'sCompany’s underlying operating performance. ROIC is a non-GAAP financial measure that the Company believes is a meaningful metric to investors in evaluating the Company’s financial performance and may be different than the method used by other companies to calculate ROIC. 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.
31
The following table presents ROIC:
| | | | | | | |
| | Twelve Months Ended June 30, | | ||||
|
| 2021 |
| 2020 |
| ||
Net income | | $ | 293,839 |
| $ | 218,735 | |
Rationalization and asset impairment charges | |
| 20,502 |
|
| 40,105 | |
Acquisition transaction costs | |
| 1,923 |
|
| — |
|
Pension settlement charges | |
| 11,321 |
|
| 3,334 | |
Amortization of step up in value of acquired inventories | |
| 1,841 |
|
| 2,415 | |
Gain on change in control | |
| — |
|
| (7,601) | |
Tax effect of Special items (1) | |
| (5,036) |
|
| (9,374) | |
Adjusted net income | | $ | 324,390 |
| $ | 247,614 | |
Plus: Interest expense, net of tax of $5,843 and $6,439 in 2021 and 2020, respectively | |
| 17,368 | |
| 19,348 | |
Less: Interest income, net of tax of $389 and $563 in 2021 and 2020, respectively | |
| 1,166 | |
| 1,691 | |
Adjusted net income before tax effected interest | | $ | 340,592 |
| $ | 265,271 | |
| | | | | | | |
Invested Capital |
| June 30, 2021 |
| June 30, 2020 | | ||
Short-term debt | | $ | 10,435 | | $ | 49,597 | |
Long-term debt, less current portion | | | 718,137 | | | 715,817 | |
Total debt | | | 728,572 | | | 765,414 | |
Total equity | |
| 859,623 | |
| 660,111 | |
Invested capital | | $ | 1,588,195 | | $ | 1,425,525 | |
Return on invested capital | |
| 21.4 | % |
| 18.6 | % |
(1) | Includes the net tax impact of Special items recorded during the respective periods. |
Twelve Months Ended September 30, | ||||||||||||||||||||
2020 | 2019 | |||||||||||||||||||
Net income | $ | 204,753 | $ | 316,232 | ||||||||||||||||
Rationalization and asset impairment charges | 44,867 | 7,269 | ||||||||||||||||||
Acquisition transaction and integration costs | — | 2,637 | ||||||||||||||||||
Pension settlement charges | 6,522 | 1,696 | ||||||||||||||||||
Amortization of step up in value of acquired inventories | 806 | 3,008 | ||||||||||||||||||
Gains on disposal of assets | — | (3,554) | ||||||||||||||||||
Gain on change in control | — | (7,601) | ||||||||||||||||||
Tax effect of Special items (1) | (11,030) | (12,583) | ||||||||||||||||||
Adjusted net income | $ | 245,918 | $ | 307,104 | ||||||||||||||||
Plus: Interest expense, net of tax of $6,177 and $6,410 in 2020 and 2019, respectively | 18,564 | 19,265 | ||||||||||||||||||
Less: Interest income, net of tax of $513 and $926 in 2020 and 2019, respectively | 1,543 | 2,785 | ||||||||||||||||||
Adjusted net income before tax effected interest | $ | 262,939 | $ | 323,584 | ||||||||||||||||
Invested Capital | September 30, 2020 | September 30, 2019 | ||||||||||||||||||
Short-term debt | $ | 1,147 | $ | 13,293 | ||||||||||||||||
Long-term debt, less current portion | 715,687 | 713,884 | ||||||||||||||||||
Total debt | 716,834 | 727,177 | ||||||||||||||||||
Total equity | 710,744 | 813,808 | ||||||||||||||||||
Invested capital | $ | 1,427,578 | $ | 1,540,985 | ||||||||||||||||
Return on invested capital | 18.4 | % | 21.0 | % |
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'sCompany’s recent acquisitions.
32
Debt
Revolving Credit Agreements
On April 23, 2021, the Company amended and restated the agreement governing its line of credit by entering into the Second Amended and Restated Credit Agreement (“Credit Agreement”). The CompanyCredit Agreement has a line of credit totaling $400,000 through the Amended and Restated Credit Agreement (the “Credit Agreement”). The Credit Agreement$500,000, has a term of 5 years with a maturity date of June 30, 2022April 23, 2026 and may be increased, subject to certain conditions including the consent of its lenders, by an additional amount up to $100,000.$150,000. The interest rate on borrowings is based on either the London Inter-Bank Offered Rate ("LIBOR") or the prime rate,LIBOR plus a spread based on the Company’s net leverage ratio, at the Company’s election.ratio. The Credit Agreement 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 and a fixed charges coverage ratio and total leverage ratio.affiliates. As of SeptemberJune 30, 2020,2021, the Company was in compliance with all of its covenants and had no outstanding borrowings under the Credit Agreement.
The Company has other lines of credit totaling $50,000.$94,170. As of SeptemberJune 30, 20202021, the Company was in compliance with all of its covenants and had $1,039$9,787 outstanding at SeptemberJune 30, 2020.
Senior Unsecured Notes
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% and 4.02%. Interest on the Notes is paid semi-annually. The Company'sCompany’s total weighted average effective interest rate and remaining weighted average tenure of the Notes is 3.3% and 13.612.9 years, respectively. The proceeds of the Notes were used for general corporate purposes. The Notes contain certain affirmative and negative covenants. As of SeptemberJune 30, 2020,2021, the Company was in compliance with all of its debt covenants relating to the Notes.
Shelf Agreements
On November 27, 2018, the Company entered into seven uncommitted master note facilities (the "Shelf Agreements") that allow borrowings up to $700,000 in the aggregate. The Shelf Agreements have a term of 5 years and the average life of borrowings cannot exceed 15 years. The Company is required to comply with covenants similar to those contained in the Notes. As of SeptemberJune 30, 2020,2021, the Company was in compliance with all of its covenants and had no outstanding borrowings under the Shelf Agreements.
Pensions
In March 2020, the Company approved an amendment to terminate the Lincoln Electric Company Retirement Annuity Program plan effective as of December 31, 2020. The Company provided notice to participants of the intent to terminate the plan and applied for a determination letter. Pension obligations will be distributed through a combination of lump sum payments to eligible plan participants and through the purchase of a group annuity contract. Upon settlement of the pension obligations, the Company will reclassify unrecognized actuarial gains or losses, currently recorded in AOCI, to the Company'sCompany’s Consolidated Statements of Income as settlement gains or charges in the second half of 2021. The Company anticipates the termination process will take approximately two years to complete.
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
33
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 political unrest, acts of terror, natural disasters and pandemics, including the COVID-19 outbreak,pandemic, on the Company or its customers, suppliers and the economy in general. The Company has experienced the negative impacts of COVID-19 on its markets and operations; however, the ultimate duration and severity on the Company's business remains unknown. New and changing government actions to address the COVID-19 pandemic continue to occur. As a result, the countries in which the Company’s products are manufactured and distributed are in varying stages of restrictions. Certain jurisdictions may have to re-establish restrictions due to a resurgence in COVID-19 cases. Additionally, although most of the Company’s customers have re-opened and increased operating levels, such customers may be forced to close or limit operations as any new COVID-19 outbreaks occur. Even as government restrictions are lifted and economies reopen, the ultimate shape of the economic recovery is uncertain and may continue to negatively impact the Company's results of operations, cash flows and financial position in subsequent quarters. Given this current level of economic and operational uncertainty over the impacts of COVID-19, the ultimate financial impact cannot be reasonably estimated at this time. For additional discussion, see “Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 and on Form 10-Q for the quarters ended March 31, 2020 and June 30, 2020.
There have been no material changes in the Company’s exposure to market risk since December 31, 2019.2020. 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, 2019.
Evaluation of Disclosure Controls and Procedures
The Company carried out an evaluation under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, the Company’s management, including the Chief Executive Officer and Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective as of SeptemberJune 30, 2020.
Changes in Internal Control Over Financial Reporting
There have been no changes in the Company’s internal control over financial reporting during the quarter ended SeptemberJune 30, 20202021 that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
34
The Company is subject, from time to time, to a variety of civil and administrative proceedings arising out of its normal operations, including, without limitation, product liability claims, regulatory claims and health, safety and environmental claims. Among such proceedings are the cases described below.
As of SeptemberJune 30, 2020,2021, the Company was a co-defendant in cases alleging asbestos induced illness involving claims by approximately 2,7742,751 plaintiffs, which is a net decrease of 1624 claims from those previously reported. In each instance, the Company is one of a large number of defendants. The asbestos claimants seek compensatory and punitive damages, in most cases for unspecified sums. Since January 1, 1995, the Company has been a co-defendant in other similar cases that have been resolved as follows: 55,48155,528 of those claims were dismissed, 23 were tried to defense verdicts, 7 were tried to plaintiff verdicts (which were reversed or resolved after appeal), 1 was resolved by agreement for an immaterial amount and 1,0071,008 were decided in favor of the Company following summary judgment motions.
In addition to the other information set forth in this report, the reader should carefully consider the factors discussed in “Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 and on Form 10-Q for the quarters ended March 31, 2020 and June 30, 2020, which could materially affect the Company’s business, financial condition or future results.
Issuer purchases of its common shares during the thirdsecond quarter of 20202021 were as follows:
| | | | | | | | | |
| | | | | | | Total Number of | | |
|
| |
| | |
| Shares |
| Maximum Number |
| | | | | | | Repurchased | | of Shares that May |
| | Total Number of | | | | | as Part of Publicly | | Yet be Purchased |
| | Shares | | Average Price | | Announced Plans or | | Under the Plans or | |
Period | | Repurchased | | Paid Per Share | | Programs | | Programs (2) (3) | |
April 1 - 30, 2021 |
| 67,780 | (1) | $ | 124.33 |
| 67,559 |
| 11,177,824 |
May 1 - 31, 2021 |
| 62,828 | (1) |
| 130.54 |
| 61,298 |
| 11,116,526 |
June 1 - 30, 2021 |
| 66,856 | |
| 128.63 |
| 66,856 |
| 11,049,670 |
Total |
| 197,464 | |
| 127.76 |
| 195,713 |
|
|
(1) | The above share repurchases include the surrender of the Company’s common shares in connection with the vesting of restricted awards. |
(2) | On April 20, 2016, the Company announced that the Board of Directors authorized a new share repurchase program, which increased the total number of the Company’s common shares authorized to be repurchased to 55 million shares. Total shares purchased through the share repurchase programs were 54.0 million shares at a total cost of $2.3 billion for a weighted average cost of $43.14 per share through June 30, 2021. |
(3) | On February 12, 2020, the Company’s Board of Directors authorized a new share repurchase program for up to an additional 10 million shares of the Company’s common stock. |
Period | Total Number of Shares Repurchased | Average Price Paid Per Share | Total Number of Shares Repurchased as Part of Publicly Announced Plans or Programs | Maximum Number of Shares that May Yet be Purchased Under the Plans or Programs (2) (3) | ||||||||||||||||||||||
July 1 - 31, 2020 | 123 | (1) | $ | 89.85 | — | 11,453,193 | ||||||||||||||||||||
August 1 - 31, 2020 | 391 | (1) | 95.42 | — | 11,453,193 | |||||||||||||||||||||
September 1 - 30, 2020 | 1,786 | (1) | 97.58 | — | 11,453,193 | |||||||||||||||||||||
Total | 2,300 | 96.80 | — |
(1)The above share repurchases include the surrender of the Company's common shares in connection with the vesting of restricted awards.
Not applicable.
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(a) | Exhibits |
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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. | ||||||||
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101.INS | | Inline XBRL Instance Document | ||||||
101.SCH | | Inline XBRL Taxonomy Extension Schema Document | ||||||
101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document | ||||||
101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase Document | ||||||
101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document | ||||||
101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase Document | ||||||
104 | | Cover page Interactive Data File (formatted as Inline XBRL and contained in the Exhibit 101 attachments) |
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Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | | ||||||
| LINCOLN ELECTRIC HOLDINGS, INC. | |||||||
| | | ||||||
| | /s/ Gabriel Bruno | ||||||
| | Gabriel Bruno | ||||||
| | Executive Vice President, Chief Financial Officer and Treasurer | ||||||
| | (Principal Financial and Accounting Officer) | ||||||
| | July 27, |
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