UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended ~~March 31,~~September 30, 2021

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

For the transition period from _____________ to _____________

Commission File Number: 0-1402

LINCOLN ELECTRIC HOLDINGS, INC.

(Exact name of registrant as specified in its charter)


Ohio		34-1860551
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

22801 St. Clair Avenue, Cleveland, Ohio		44117
(Address of principal executive offices)		(Zip Code)

(216) 481-8100

(Registrant’s telephone number, including area code)

Not applicable

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

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


Title of each class	Trading Symbol	Name of exchange on which registered
Common Shares, without par value	LECO	The NASDAQ Stock Market LLC

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

Yes  No ☐

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

Yes  No ☐

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


Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

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

☐

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

Yes ☐ No 

The number of shares outstanding of the registrant’s common shares as of ~~March 31,~~September 30, 2021 was ~~59,537,683.~~59,048,285.

Table of Contents

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION		3
Item 1. Financial Statements		3
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)		3
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)		4
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)		5
CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)		6
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)		78
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS		89
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		2024
Item 3. Quantitative and Qualitative Disclosures About Market Risk		2935
Item 4. Controls and Procedures		2935

PART II. OTHER INFORMATION		3037
Item 1. Legal Proceedings		3037
Item 1A. Risk Factors		3037
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		3037
Item 4. Mine Safety Disclosures		30
~~Item 5. Other Information~~		3137
Item 6. Exhibits		3338
Signatures		3439
~~EX-10.1~~		~~Form of Stock Option Agreement for Executive Officers (filed herewith).~~
~~EX-10.2~~	~~Form of Restricted Stock Unit Agreement for Executive Officers (filed herewith).~~
~~EX-10.3~~	~~Form of Performance Share Award Agreement for Executive Officers (filed herewith).~~
~~EX-10.4~~	Second Amended and Restated Credit Agreement, dated as of April 23, 2021, by and among Lincoln Electric Holdings, Inc., The Lincoln Electric Company, Lincoln Electric International Holding Company, J.W. Harris Co., Inc., Lincoln Electric Automation, Inc., Lincoln Global, Inc., the Lenders and KeyBank National Association (filed herewith).
EX-31.1	Certification of the Chairman, President and Chief Executive Officer (Principal Executive Officer) pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.
EX-31.2	Certification of the Executive Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer) pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.
EX-32.1	Certification of the Chairman, President and Chief Executive Officer (Principal Executive Officer) and Executive Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer) pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
EX-101	Instance Document
EX-101	Schema Document
EX-101	Calculation Linkbase Document
EX-101	Label Linkbase Document
EX-101	Presentation Linkbase Document
EX-101	Definition Linkbase Document

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

LINCOLN ELECTRIC HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

(In thousands, except per share amounts)

Three Months Ended March 31,


2021

2020
Net sales (Note 2)

$
757,021

$
701,991
Cost of goods sold

503,254

464,669
Gross profit

253,767

237,322
Selling, general & administrative expenses

145,676

149,727
Rationalization and asset impairment charges (Note 6)

4,163

6,521
Operating income

103,928

81,074
Interest expense, net

5,359

5,458
Other income (expense) (Note 14)

(1,416)

309
Income before income taxes

97,153

75,925
Income taxes (Note 15)

23,020

20,370
Net income including non-controlling interests

74,133

55,555
Non-controlling interests in subsidiaries’ income (loss)

(44)

(7)
Net income

$
74,177

$
55,562

Basic earnings per share (Note 3)

$
1.24

$
0.92
Diluted earnings per share (Note 3)

$
1.23

$
0.91
Cash dividends declared per share

$
0.51

$
0.49


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Net sales (Note 2)	$	806,454	$	668,888	$	2,389,929	$	1,961,606
Cost of goods sold		538,282		453,501		1,593,981		1,319,519
Gross profit		268,172		215,387		795,948		642,087
Selling, general & administrative expenses		149,118		131,337		446,351		407,440
Rationalization and asset impairment charges (Note 6)		3,484		6,257		8,277		36,016
Operating income		115,570		77,793		341,320		198,631
Interest expense, net		5,714		5,552		16,736		16,891
Other income (expense) (Note 14)		(71,441)		1,062		(71,155)		1,168
Income before income taxes		38,415		73,303		253,429		182,908
Income taxes (Note 15)		6,658		14,797		51,259		41,834
Net income including non-controlling interests		31,757		58,506		202,170		141,074
Non-controlling interests in subsidiaries’ income (loss)		0		27		131		37
Net income	$	31,757	$	58,479	$	202,039	$	141,037

Basic earnings per share (Note 3)	$	0.54	$	0.98	$	3.40	$	2.36
Diluted earnings per share (Note 3)	$	0.53	$	0.97	$	3.36	$	2.34
Cash dividends declared per share	$	0.51	$	0.49	$	1.53	$	1.47

See notes to these consolidated financial statements.

Table of Contents

LINCOLN ELECTRIC HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)

(In thousands)

Three Months Ended March 31,


2021

2020
Net income including non-controlling interests

$
74,133

$
55,555
Other comprehensive income (loss), net of tax:




Unrealized gain (loss) on derivatives designated and qualifying as cash flow hedges, net of tax of $2,309 and $(716) in the three months ended March 31, 2021 and 2020

7,290

(2,369)
Defined benefit pension plan activity, net of tax of $815 and $164 in the three months ended March 31, 2021 and 2020

5,060

609
Currency translation adjustment

(22,743)

(70,608)
Other comprehensive income (loss):

(10,393)

(72,368)
Comprehensive income

63,740

(16,813)
Comprehensive income (loss) attributable to non-controlling interests

(203)

(48)
Comprehensive income (loss) attributable to shareholders

$
63,943

$
(16,765)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Net income including non-controlling interests	$	31,757	$	58,506	$	202,170	$	141,074
Other comprehensive income (loss), net of tax:
Unrealized gain (loss) on derivatives designated and qualifying as cash flow hedges, net of tax of $707 and $1,493 in the three and nine months ended September 30, 2021; $337 and $(62) in the three and nine months ended September 30, 2020		2,876		639		5,412		(622)
Defined benefit pension plan activity, net of tax of $18,759 and $19,005 in the three and nine months ended September 30, 2021; $(776) and $(8,303) in the three and nine months ended September 30, 2020		55,558		(1,304)		58,916		(23,731)
Currency translation adjustment		(19,120)		13,039		(28,284)		(43,101)
Other comprehensive income (loss):		39,314		12,374		36,044		(67,454)
Comprehensive income		71,071		70,880		238,214		73,620
Comprehensive income (loss) attributable to non-controlling interests		(58)		62		(196)		14
Comprehensive income (loss) attributable to shareholders	$	71,129	$	70,818	$	238,410	$	73,606

See notes to these consolidated financial statements.

Table of Contents

LINCOLN ELECTRIC HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)


	March 31, 2021		December 31, 2020		September 30, 2021		December 31, 2020
	(UNAUDITED)		(NOTE 1)		(UNAUDITED)		(NOTE 1)
ASSETS
Current Assets
Cash and cash equivalents	$	242,126	$	257,279	$	160,559	$	257,279
Accounts receivable (less allowance for doubtful accounts of $14,029 in 2021; $14,779 in 2020)		431,350		373,487
Accounts receivable (less allowance for doubtful accounts of $13,059 in 2021; $14,779 in 2020)						443,054		373,487
Inventories (Note 9)		415,901		381,258		524,433		381,258
Other current assets		106,910		100,319		107,912		100,319
Total Current Assets		1,196,287		1,112,343		1,235,958		1,112,343
Property, plant and equipment (less accumulated depreciation of $875,114 in 2021; $884,647 in 2020)		500,449		522,092
Property, plant and equipment (less accumulated depreciation of $879,395 in 2021; $884,647 in 2020)						520,081		522,092
Goodwill		334,194		335,593		436,039		335,593
Other assets		330,819		344,425		376,719		344,425
TOTAL ASSETS	$	2,361,749	$	2,314,453	$	2,568,797	$	2,314,453
LIABILITIES AND EQUITY
Current Liabilities
Short-term debt (Note 12)	$	3,607	$	2,734	$	41,404	$	2,734
Trade accounts payable		294,062		256,530		309,202		256,530
Accrued employee compensation and benefits		92,769		98,437		156,128		98,437
Other current liabilities		224,023		191,748		238,686		191,748
Total Current Liabilities		614,461		549,449		745,420		549,449
Long-term debt, less current portion (Note 12)		715,328		715,456		717,787		715,456
Other liabilities		228,552		259,298		247,697		259,298
Total Liabilities		1,558,341		1,524,203		1,710,904		1,524,203
Shareholders' Equity
Common Shares		9,858		9,858		9,858		9,858
Additional paid-in capital		418,529		409,958		434,786		409,958
Retained earnings		2,864,223		2,821,359		2,930,361		2,821,359
Accumulated other comprehensive loss		(312,424)		(302,190)		(265,819)		(302,190)
Treasury Shares		(2,176,671)		(2,149,714)		(2,251,193)		(2,149,714)
Total Shareholders' Equity		803,515		789,271		857,993		789,271
Non-controlling interests		(107)		979		(100)		979
Total Equity		803,408		790,250		857,893		790,250
TOTAL LIABILITIES AND TOTAL EQUITY	$	2,361,749	$	2,314,453	$	2,568,797	$	2,314,453

See notes to these consolidated financial statements.

Table of Contents

LINCOLN ELECTRIC HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF EQUITY

(UNAUDITED)

(In thousands, except per share amounts)

Accumulated






Common

Additional

Other

Non-

Shares

Common

Paid-In

Retained

Comprehensive

Treasury

Controlling


Outstanding

Shares

Capital

Earnings

Income (Loss)

Shares

Interests

Total
Balance at December 31, 2020

59,641

$
9,858

$
409,958

$
2,821,359

$
(302,190)

$
(2,149,714)

$
979

$
790,250
Net income

74,177

(44)

74,133
Unrecognized amounts from defined benefit pension plans, net of tax

5,060

5,060
Unrealized gain on derivatives designated and qualifying as cash flow hedges, net of tax

7,290

7,290
Currency translation adjustment

(22,584)

(159)

(22,743)
Cash dividends declared - $0.51 per share

(30,572)

(30,572)
Stock-based compensation activity

134

7,680

1,502

9,182
Purchase of shares for treasury

(237)

(28,459)

(28,459)
Other

891

(741)

(883)

(733)
Balance at March 31, 2021

59,538

$
9,858

$
418,529

$
2,864,223

$
(312,424)

$
(2,176,671)

$
(107)

$
803,408


								Accumulated
	Common			Additional				Other				Non-
	Shares	Common		Paid-In		Retained		Comprehensive		Treasury		Controlling
	Outstanding	Shares		Capital		Earnings		Income (Loss)		Shares		Interests		Total
Balance at December 31, 2020	59,641	$	9,858	$	409,958	$	2,821,359	$	(302,190)	$	(2,149,714)	$	979	$	790,250
Net income							74,177						(44)		74,133
Unrecognized amounts from defined benefit pension plans, net of tax									5,060						5,060
Unrealized gain on derivatives designated and qualifying as cash flow hedges, net of tax									7,290						7,290
Currency translation adjustment									(22,584)				(159)		(22,743)
Cash dividends declared - $0.51 per share							(30,572)								(30,572)
Stock-based compensation activity	134				7,680						1,502				9,182
Purchase of shares for treasury	(237)										(28,459)				(28,459)
Other					891		(741)						(883)		(733)
Balance at March 31, 2021	59,538	$	9,858	$	418,529	$	2,864,223	$	(312,424)	$	(2,176,671)	$	(107)	$	803,408
Net income							96,105						175		96,280
Unrecognized amounts from defined benefit pension plans, net of tax									(1,702)						(1,702)
Unrealized loss on derivatives designated and qualifying as cash flow hedges, net of tax									(4,754)						(4,754)
Currency translation adjustment									13,689				(110)		13,579
Cash dividends declared – $0.51 per share							(30,552)								(30,552)
Stock-based compensation activity	46				8,638						503				9,141
Purchase of shares for treasury	(197)										(25,229)				(25,229)
Other					409		(957)								(548)
Balance at June 30, 2021	59,387	$	9,858	$	427,576	$	2,928,819	$	(305,191)	$	(2,201,397)	$	(42)	$	859,623
Net income							31,757						—		31,757
Unrecognized amounts from defined benefit pension plans, net of tax									55,558						55,558
Unrealized gain on derivatives designated and qualifying as cash flow hedges, net of tax									2,876						2,876
Currency translation adjustment									(19,062)				(58)		(19,120)
Cash dividends declared – $0.51 per share							(30,379)								(30,379)
Stock-based compensation activity	34				7,449						364				7,813
Purchase of shares for treasury	(373)										(50,160)				(50,160)
Other					(239)		164								(75)
Balance at September 30, 2021	59,048	$	9,858	$	434,786	$	2,930,361	$	(265,819)	$	(2,251,193)	$	(100)	$	857,893

Table of Contents

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


								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
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

Table of Contents

LINCOLN ELECTRIC HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(In thousands)

Three Months Ended March 31,


2021

2020
CASH FLOWS FROM OPERATING ACTIVITIES




Net income

$
74,177

$
55,562
Non-controlling interests in subsidiaries' income (loss)

(44)

(7)
Net income including non-controlling interests

74,133

55,555
Adjustments to reconcile Net income including non-controlling interests to Net cash provided by operating activities:


Rationalization and asset impairment net charges (Note 6)

60

(236)
Depreciation and amortization

19,118

21,028
Equity earnings in affiliates, net

(177)

(162)
Deferred income taxes

(16,115)

(3,685)
Stock-based compensation

6,402

3,691
Other, net

9,016

(4,188)
Changes in operating assets and liabilities, net of effects from acquisitions:


Increase in accounts receivable

(65,795)

(25,698)
Increase in inventories

(42,568)

(17,401)
Increase in other current assets

(8,095)

(1,789)
Increase (decrease) in trade accounts payable

42,325

(16,676)
Increase in other current liabilities

30,266

13,482
Net change in other assets and liabilities

(3,308)

(1,949)
NET CASH PROVIDED BY OPERATING ACTIVITIES

45,262

21,972
CASH FLOWS FROM INVESTING ACTIVITIES


Capital expenditures

(9,936)

(11,828)
Proceeds from sale of property, plant and equipment

584

6,100
Other investing activities

6,500

0
NET CASH USED BY INVESTING ACTIVITIES

(2,852)

(5,728)
CASH FLOWS FROM FINANCING ACTIVITIES


Amounts due banks, net

1,307

97,777
Proceeds from exercise of stock options

2,780

1,047
Purchase of shares for treasury (Note 8)

(28,459)

(109,762)
Cash dividends paid to shareholders

(30,999)

(30,675)
NET CASH USED BY FINANCING ACTIVITIES

(55,371)

(41,613)
Effect of exchange rate changes on Cash and cash equivalents

(2,192)

(10,819)
DECREASE IN CASH AND CASH EQUIVALENTS

(15,153)

(36,188)

Cash and cash equivalents at beginning of period

257,279

199,563
CASH AND CASH EQUIVALENTS AT END OF PERIOD

$
242,126

$
163,375


	Nine Months Ended September 30,
	2021		2020
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	202,039	$	141,037
Non-controlling interests in subsidiaries' income (loss)		131		37
Net income including non-controlling interests		202,170		141,074
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)		(1,162)		21,927
Depreciation and amortization		60,558		60,566
Equity earnings in affiliates, net		(399)		(323)
Deferred income taxes		(28,428)		(10,143)
Stock-based compensation		18,215		11,656
Pension settlement charges		80,098		6,522
Other, net		(754)		(10,805)
Changes in operating assets and liabilities, net of effects from acquisitions:
Increase in accounts receivable		(71,212)		(6,851)
Increase in inventories		(128,856)		(3,430)
(Increase) decrease in other current assets		(10,610)		8,027
Increase (decrease) in trade accounts payable		54,981		(42,333)
Increase in other current liabilities		89,569		38,615
Net change in other assets and liabilities		(9,045)		1,059
NET CASH PROVIDED BY OPERATING ACTIVITIES		255,125		215,561
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures		(46,440)		(37,116)
Acquisition of businesses, net of cash acquired		(158,605)		0
Proceeds from sale of property, plant and equipment		3,847		6,957
Other investing activities		6,500		0
NET CASH USED BY INVESTING ACTIVITIES		(194,698)		(30,159)
CASH FLOWS FROM FINANCING ACTIVITIES
Amounts due banks, net		32,295		(33,135)
Proceeds from exercise of stock options		7,921		7,961
Purchase of shares for treasury (Note 8)		(103,848)		(113,198)
Cash dividends paid to shareholders		(91,717)		(88,945)
Other financing activities		(763)		0
NET CASH USED BY FINANCING ACTIVITIES		(156,112)		(227,317)
Effect of exchange rate changes on Cash and cash equivalents		(1,035)		(5,169)
DECREASE IN CASH AND CASH EQUIVALENTS		(96,720)		(47,084)

Cash and cash equivalents at beginning of period		257,279		199,563
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	160,559	$	152,479

See notes to these consolidated financial statements.

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LINCOLN ELECTRIC HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Dollars in thousands, except per share amounts

NOTE 1 — SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

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. 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 ~~three~~nine months ended ~~March 31,~~September 30, 2021 are not necessarily indicative of the results to be expected for the year ending December 31, 2021.

The accompanying Consolidated Balance Sheet at December 31, 2020 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, 2020.

The current coronavirus disease (“COVID-19”) pandemic has adversely impacted global economic conditions and has contributed to significant volatility in financial markets beginning in early calendar year 2020. Although the Company's estimates contemplate current conditions, the inputs into certain significant and critical accounting estimates include judgments and assumptions about the economic implications of the COVID-19 pandemic and how management expects them to change in the future. It is reasonably possible that actual results experienced may differ materially from the Company's estimates in future periods, which could affect our results of operations and financial condition. For additional discussion, see “Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

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 ASU was adopted as of January 1, 2021:


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 adoption did not have a material impact on the Company’s consolidated financial statements.

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Dollars in thousands, except per share amounts

NOTE 2 — REVENUE RECOGNITION

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


	Three Months Ended March 31,				Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020		2021		2020
Consumables	$	434,179	$	405,840	$	465,829	$	379,177	$	1,375,567	$	1,118,688
Equipment		322,842		296,151		340,625		289,711		1,014,362		842,918
Net sales	$	757,021	$	701,991	$	806,454	$	668,888	$	2,389,929	$	1,961,606

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’s Net sales are recognized over time.

At ~~March 31,~~September 30, 2021, the Company recorded ~~$19,292~~$33,860 related to advance customer payments and ~~$22,744~~$52,588 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, 2020, the balances related to advance customer payments and billings in excess of revenue recognized were $14,920 and $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 ~~March 31,~~September 30, 2021 and December 31, 2020, the Company recorded ~~$25,709~~$26,665 and $22,113, respectively, related to these contract 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.

NOTE 3 — EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted earnings per share:


	Three Months Ended March 31,				Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020		2021		2020
Numerator:
Net income	$	74,177	$	55,562	$	31,757	$	58,479	$	202,039	$	141,037
Denominator (shares in 000's):
Basic weighted average shares outstanding		59,642		60,184		59,289		59,426		59,465		59,655
Effect of dilutive securities - Stock options and awards		657		615		766		592		703		547
Diluted weighted average shares outstanding		60,299		60,799		60,055		60,018		60,168		60,202
Basic earnings per share	$	1.24	$	0.92	$	0.54	$	0.98	$	3.40	$	2.36
Diluted earnings per share	$	1.23	$	0.91	$	0.53	$	0.97	$	3.36	$	2.34

For the three months ended September 30, 2021 and 2020, common shares subject to equity-based awards of 2,126 and 557,198, respectively, were excluded from the computation of diluted earnings per share because the effect

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Dollars in thousands, except per share amounts

of their exercise would be anti-dilutive. For the ~~three~~nine months ended ~~March 31,~~September 30, 2021 and 2020, common shares subject to equity-based awards of ~~89,592~~150,254 and ~~655,764,~~547,329, 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 2021, the Company acquired Overstreet-Hughes Company, Inc. (“FTP”) and Shoals Tubular, Inc. (“Shoals”). FTP and Shoals manufacture copper and aluminum headers, distributor assemblies and manifolds in the United States and Mexico for the heating, ventilation, and air conditioning sector (“HVAC”). The acquisitions further differentiate The Harris Products Group’s competitive position serving HVAC original equipment manufacturers with a comprehensive portfolio of solutions for the fabrication of HVAC coils and accelerates their growth in this market.

During April 2021, the Company acquired Zeman Bauelemente Produktionsgesellschaft m.b.H.(“ (“Zeman Bauelemente"), a division of the Zeman Group. Zeman Bauelemente, based in Vienna, Austria, is a leading designer and manufacturer of robotic assembly and arc welding systems that automate the tacking and welding of steel beams. The acquisition expands the Company’s international automation capabilities to serve customers in the structural steel and infrastructure sectors.

Pro forma information related to the acquisitions discussed above has not been presented because the impact on the Company’s Consolidated Statements of Income is not material. The preliminary purchase price allocations are expected to be finalized within the allowable measurement period. The acquired companies are included in the Company's consolidated financial statements as of the date of acquisition.

NOTE 5 — SEGMENT INFORMATION

The Company’s business units are aligned into 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.

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Dollars in thousands, except per share amounts

The following table presents Adjusted EBIT by segment:


					The Harris										The Harris
	Americas		International		Products		Corporate /				Americas		International		Products		Corporate /
	Welding		Welding		Group		Eliminations		Consolidated		Welding		Welding		Group		Eliminations		Consolidated
Three Months Ended March 31, 2021
Three Months Ended September 30, 2021
Net sales	$	425,242	$	223,079	$	108,700	$	0	$	757,021	$	461,508	$	227,165	$	117,781	$	0	$	806,454
Inter-segment sales		32,748		4,285		2,147		(39,180)		0		37,480		7,078		1,945		(46,503)		0
Total	$	457,990	$	227,364	$	110,847	$	(39,180)	$	757,021	$	498,988	$	234,243	$	119,726	$	(46,503)	$	806,454
Adjusted EBIT	$	76,617	$	18,816	$	18,697	$	(1,456)	$	112,674	$	84,557	$	29,032	$	15,980	$	(4,704)	$	124,865
Special items charge (gain) ⁽¹⁾		4,440		4,609		—		1,113		10,162		73,574		6,615		547		—		80,736
EBIT	$	72,177	$	14,207	$	18,697	$	(2,569)	$	102,512	$	10,983	$	22,417	$	15,433	$	(4,704)	$	44,129
Interest income										454										333
Interest expense										(5,813)										(6,047)
Income before income taxes									$	97,153									$	38,415

Three Months Ended March 31, 2020
Three Months Ended September 30, 2020
Net sales	$	418,535	$	197,923	$	85,533	$	0	$	701,991	$	371,535	$	196,937	$	100,416	$	0	$	668,888
Inter-segment sales		24,783		4,483		1,725		(30,991)		0		29,368		4,898		1,898		(36,164)		0
Total	$	443,318	$	202,406	$	87,258	$	(30,991)	$	701,991	$	400,903	$	201,835	$	102,314	$	(36,164)	$	668,888
Adjusted EBIT	$	70,702	$	6,615	$	12,492	$	(1,099)	$	88,710	$	59,120	$	13,432	$	17,587	$	(1,839)	$	88,300
Special items charge (gain) ⁽²⁾		1,190		6,137		—		—		7,327		7,044		2,401		—		—		9,445
EBIT	$	69,512	$	478	$	12,492	$	(1,099)	$	81,383	$	52,076	$	11,031	$	17,587	$	(1,839)	$	78,855
Interest income										860										293
Interest expense										(6,318)										(5,845)
Income before income taxes									$	75,925									$	73,303

Nine Months Ended September 30, 2021
Net sales											$	1,344,218	$	702,596	$	343,115	$	0	$	2,389,929
Inter-segment sales												109,993		18,260		6,376		(134,629)		0
Total											$	1,454,211	$	720,856	$	349,491	$	(134,629)	$	2,389,929
Adjusted EBIT											$	245,308	$	77,845	$	52,889	$	(10,048)	$	365,994
Special items charge (gain) ⁽¹⁾												79,664		13,695		547		1,923		95,829
EBIT											$	165,644	$	64,150	$	52,342	$	(11,971)	$	270,165
Interest income																				1,185
Interest expense																				(17,921)
Income before income taxes																			$	253,429

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) ⁽²⁾												34,241		9,103		—		—		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

(1)

In the three and nine months ended ~~March 31,~~September 30, 2021, special items reflect Rationalization and asset impairment charges of ~~$4,163~~$3,484 and $8,277, respectively, primarily in International Welding, amortization of the step up in value of acquired inventories of $3,690 and $5,531, respectively, related to the acquisitions of Zeman Bauelemente in International Welding and FTP and Shoals in The Harris Products Group, pension settlement charges of ~~$4,440~~$73,562 and ~~$446~~$79,652, respectively, in Americas Welding and $446 in International Welding in the nine months ended September 30, 2021. Also in the nine months ended September 30, 2021, special items reflect acquisition transaction costs of $1,923 in Corporate/Eliminations related to acquisitions.

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Dollars in thousands, except per share amounts

~~International Welding, respectively, and acquisition transaction costs of $1,113 in Corporate/Eliminations related to an acquisition.~~

(2)

In the three months ended ~~March 31,~~September 30, 2020, special items reflect Rationalization and asset impairment charges of ~~$1,190~~$3,856 and ~~$5,331~~$2,401 in Americas Welding and International Welding, respectively, and pension settlement charges of $3,188 in Americas Welding. In the nine months ended September 30, 2020, special items reflect Rationalization and asset impairment charges of $27,719 and $8,297 in Americas Welding and International Welding, respectively, amortization of the step up in value of acquired inventories of $806 related to an acquisition in International Welding ~~related to an acquisition.~~and pension settlement charges of $6,522 in Americas Welding.

NOTE 6 — RATIONALIZATION AND ASSET IMPAIRMENTS

The Company recorded Rationalization and asset impairment net charges of ~~$4,163~~$8,277 and ~~$6,521~~$36,016 in the ~~three~~nine months ended ~~March 31,~~September 30, 2021 and 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 operations to better align the Company’s cost structure with economic conditions and operating needs. At ~~March 31,~~September 30, 2021, liabilities of $~~13,155~~6,791 for International Welding were recognized in Other current liabilities in the Company’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 ~~three~~nine months ended ~~March 31,~~September 30, 2021:


			International						International
	Americas Welding		Welding		Consolidated		Americas Welding		Welding		Consolidated
Balance at December 31, 2020	$	25	$	13,597	$	13,622	$	25	$	13,597	$	13,622
Payments and other adjustments		(25)		(4,545)		(4,570)		(25)		(16,245)		(16,270)
Charged to expense		0		4,103		4,103		0		9,439		9,439
Balance at March 31, 2021	$	0	$	13,155	$	13,155
Balance at September 30, 2021							$	0	$	6,791	$	6,791

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Dollars in thousands, except per share amounts

NOTE 7 – ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) ("AOCI")

The following tables set forth the total changes in accumulated other comprehensive income (loss) ("AOCI") by component, net of taxes:


	Three Months Ended March 31, 2021											Three Months Ended September 30, 2021
	Unrealized gain											Unrealized gain
	(loss) on derivatives											(loss) on derivatives
	designated and			Defined benefit			Currency					designated and			Defined benefit			Currency
	qualifying as cash			pension plan			translation					qualifying as cash			pension plan			translation
	flow hedges			activity			adjustment			Total		flow hedges			activity			adjustment			Total
Balance at December 31, 2020	$	2,487		$	(101,770)		$	(202,907)		$	(302,190)
Balance at June 30, 2021												$	5,023		$	(98,412)		$	(211,802)		$	(305,191)
Other comprehensive income (loss) before reclassification		7,066			602			(22,584)	³		(14,916)		3,162			(235)			(19,062)	³		(16,135)
Amounts reclassified from AOCI		224	¹		4,458	²		0			4,682		(286)	¹		55,793	²		0			55,507
Net current-period other comprehensive income (loss)		7,290			5,060			(22,584)			(10,234)		2,876			55,558			(19,062)			39,372
Balance at March 31, 2021	$	9,777		$	(96,710)		$	(225,491)		$	(312,424)
Balance at September 30, 2021												$	7,899		$	(42,854)		$	(230,864)		$	(265,819)


	Three Months Ended March 31, 2020											Three Months Ended September 30, 2020
	Unrealized gain											Unrealized gain
	(loss) on derivatives											(loss) on derivatives
	designated and			Defined benefit			Currency					designated and			Defined benefit			Currency
	qualifying as cash			pension plan			translation					qualifying as cash			pension plan			translation
	flow hedges			activity			adjustment			Total		flow hedges			activity			adjustment			Total
Balance at December 31, 2019	$	1,626		$	(70,546)		$	(206,930)		$	(275,850)
Balance at June 30, 2020												$	365		$	(92,973)		$	(263,012)		$	(355,620)
Other comprehensive income (loss) before reclassification		(2,312)			0			(70,567)	³		(72,879)		(104)			(4,411)			13,004	³		8,489
Amounts reclassified from AOCI		(57)	¹		609	²		0			552		743	¹		3,107	²		0			3,850
Net current-period other comprehensive income (loss)		(2,369)			609			(70,567)			(72,327)		639			(1,304)			13,004			12,339
Balance at March 31, 2020	$	(743)		$	(69,937)		$	(277,497)		$	(348,177)
Balance at September 30, 2020												$	1,004		$	(94,277)		$	(250,008)		$	(343,281)

(1)

During the three months ended ~~March 31,~~September 30, 2021, the AOCI reclassification is a component of Net sales of ~~$102~~$304 (net of tax of ~~$42)~~$135) and Cost of goods sold of ~~$326~~$18 (net of tax of ~~$133)~~$26); during the three months ended ~~March 31,~~September 30, 2020, the reclassification is a component of Net sales of ~~$(41)~~$(551) (net of tax of ~~$(21)~~$(205)) and Cost of goods sold of ~~$(98)~~$192 (net of tax of ~~$(24)~~$8). 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 $18,677 and $1,023 during the three months ended September 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 $(58) and $35 attributable to Non-controlling interests in the three months ended September 30, 2021 and 2020, respectively.

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Dollars in thousands, except per share amounts


	Nine Months Ended September 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		6,275			(2,220)			(27,957)	³		(23,902)
Amounts reclassified from AOCI		(863)	¹		61,136	²		—			60,273
Net current-period other comprehensive income (loss)		5,412			58,916			(27,957)			36,371
Balance at September 30, 2021	$	7,899		$	(42,854)		$	(230,864)		$	(265,819)


	Nine Months Ended September 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		(2,304)			(30,538)			(43,078)	³		(75,920)
Amounts reclassified from AOCI		1,682	¹		6,807	²		—			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)

(1)

During the nine months ended September 30, 2021, the AOCI reclassification is a component of Net sales of $1,611 (net of tax of $692) and Cost of goods sold of $748 (net of tax of $270); during the nine months ended September 30, 2020, the reclassification is a component of Net sales of $(1,657) (net of tax of $(624)) and Cost of goods sold of $25 (net of tax of $(92)). 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 ~~$1,456~~$21,578 and ~~$164~~$2,189) during the ~~three~~nine months ended ~~March 31,~~September 30, 2021 and 2020, ~~respectively).~~respectively. See Note 13 to the consolidated financial statements for additional details.

(3)

The Other comprehensive income (loss) before reclassifications excludes ~~$(159)~~$(327) and ~~$(41)~~$(23) attributable to Non-controlling interests in the ~~three~~nine months ended ~~March 31,~~September 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’s common shares. On February 12, 2020, the Company’s Board of Director’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’s discretion, the Company repurchases its common shares in the open market, depending on market conditions, stock price and other factors. During the three months ended ~~March 31,~~September 30, 2021, the Company purchased a total of ~~0.2~~0.4 million shares at an average cost per share of ~~$120.55.~~$134.62. During the nine months ended September 30, 2021, the Company purchased a total of 0.8 million shares at an average cost per share of $129.11. As of ~~March 31,~~September 30, 2021, ~~11.2~~10.7 million common shares remained available for repurchase under these programs. The repurchased common shares remain in treasury and have not been retired.

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Dollars in thousands, except per share amounts

NOTE 9 — INVENTORIES

Inventories in the Condensed Consolidated Balance Sheets are comprised of the following components:



	March 31, 2021		December 31, 2020		September 30, 2021		December 31, 2020
Raw materials	$	115,278	$	111,888	$	141,006	$	111,888
Work-in-process		67,097		60,341		99,505		60,341
Finished goods		233,526		209,029		283,922		209,029
Total	$	415,901	$	381,258	$	524,433	$	381,258

At ~~March 31,~~September 30, 2021 and December 31, 2020, approximately ~~36% and~~ 35%~~, respectively,~~ of total inventories were valued using the last-in, first-out ("LIFO") method. The excess of current cost over LIFO cost was ~~$79,435~~$99,817 and $75,581 at ~~March 31,~~September 30, 2021 and December 31, 2020, respectively.

NOTE 10 — LEASES

The table below summarizes the right-of-use assets and lease liabilities in the Company’s Condensed Consolidated Balance sheets:


Operating Leases	Balance Sheet Classification	March 31, 2021		December 31, 2020		Balance Sheet Classification	September 30, 2021		December 31, 2020
Right-of-use assets	Other assets	$	39,936	$	43,570	Other assets	$	49,325	$	43,570

Current liabilities	Other current liabilities	$	10,652	$	11,502	Other current liabilities	$	10,814	$	11,502
Noncurrent liabilities	Other liabilities		31,175		33,988	Other liabilities		40,063		33,988
Total lease liabilities		$	41,827	$	45,490		$	50,877	$	45,490

Total lease expense, which is included in Cost of goods sold and Selling, general and administrative expenses in the Company’s Consolidated Statements of Income, was ~~$5,051~~$5,619 and ~~$5,219~~$16,279 in the three and nine months ended ~~March 31,~~September 30, 2021, respectively, and $5,655 and $17,665 in the three and nine months ended September 30, 2020, respectively. Cash paid for amounts included in the measurement of lease liabilities ~~at March 31,~~for the three and nine months ended September 30, 2021 were $5,896 and $12,548, respectively, and are included in Net cash provided by operating activities in the Company’s Consolidated Statements of Cash Flows. Cash paid for amounts included in the measurement of lease liabilities for the three and nine months ended September 30, 2020 ~~respectively,~~ were ~~$3,389~~$3,733 and ~~$4,097~~$11,727, respectively, and are included in Net cash provided by operating activities in the Company’s Consolidated Statements of Cash Flows. Right-of-use assets obtained in exchange for operating lease liabilities were $3,218 and $12,912 during the three and nine months ended ~~March 31,~~September 30, 2021, respectively, and $214 and $2,249 for the three and nine months ended September 30, 2020, ~~were $0 and $2,035,~~ respectively.

~~The total future minimum lease payments for noncancelable operating leases were as follows:~~

March 31, 2021
2021

$
9,132
2022

9,559
2023

7,596
2024

6,038
2025

3,253
After 2025

11,713
Total lease payments

$
47,291
Less: Imputed interest

5,464
Operating lease liabilities

$
41,827

~~As of March 31, 2021, the weighted average remaining lease term is 7.2 years and the weighted average discount rate used to determine the operating lease liability is 3.5%.~~

1316

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LINCOLN ELECTRIC HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Dollars in thousands, except per share amounts

The total future minimum lease payments for noncancelable operating leases were as follows:


	September 30, 2021
2021	$	3,467
2022		11,382
2023		9,348
2024		7,715
2025		4,809
After 2025		21,164
Total lease payments	$	57,885
Less: Imputed interest		7,008
Operating lease liabilities	$	50,877

As of September 30, 2021, the weighted average remaining lease term is 8.6 years and the weighted average discount rate used to determine the operating lease liability is 3.1%.

NOTE 11 — PRODUCT WARRANTY COSTS

The changes in the carrying amount of product warranty accruals are as follows:


	Year Ended March 31,				Nine Months Ended September 30,
	2021		2020		2021		2020
Balance at beginning of year	$	21,760	$	20,650	$	21,760	$	20,650
Accruals for warranties		3,136		4,117		8,446		13,629
Settlements		(3,253)		(3,591)		(8,809)		(10,699)
Foreign currency translation and other adjustments		(156)		(318)		(306)		(126)
Balance at March 31	$	21,487	$	20,858
Balance at end of year					$	21,091	$	23,454

NOTE 12 — DEBT

Revolving Credit Agreements

The Company has a line of credit totaling $400,000 through the Amended and Restated Credit Agreement (the “Credit Agreement”). The Credit Agreement has a term of 5 years with a maturity date of June 30, 2022 and may be increased, subject to certain conditions, by an additional amount up to $100,000. The interest rate on borrowings is based on either LIBOR or the prime rate, plus a spread based on the Company’s leverage ratio, at the Company’s election. The Credit Agreement contains customary affirmative, negative and financial covenants for credit facilities of this type, including limitations on the Company and its subsidiaries with respect to liens, investments, distributions, mergers and acquisitions, dispositions of assets, transactions with affiliates and a fixed charges coverage ratio and total leverage ratio. As of March 31, 2021, the Company was in compliance with all of its covenants and had no outstanding borrowings under the Credit Agreement.

On April 23, 2021, the Company amended and restated the ~~Credit Agreement~~agreement governing its line of credit by entering into the Second Amended and Restated Credit Agreement (“~~Second~~ Credit Agreement”). The ~~Second~~ Credit Agreement has a line of credit totaling $500,000, has a term of 5 years with a maturity date of April 23, 2026 and may be increased, subject to certain conditions including the consent of its lenders, by an additional amount up to $150,000. The interest rate on borrowings is based on LIBOR plus a spread based on the Company’s net leverage ratio. The ~~Amended and Restated~~ 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.

~~The Company has other lines of credit totaling $81,234.~~ As of ~~March 31,~~September 30, 2021, the Company was in compliance with all of its covenants and had ~~$3,497~~$20,000 of outstanding borrowings under the Credit Agreement.

The Company has other lines of credit totaling $97,848. As of September 30, 2021, the Company was in compliance with all of its covenants and had $20,644 outstanding at ~~March 31,~~September 30, 2021.

Senior Unsecured Notes

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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’s total weighted average effective interest rate and remaining weighted average tenure of the Notes is 3.3% and ~~13.1~~12.6 years, respectively. The proceeds of the Notes were used for general corporate purposes. The Notes contain certain affirmative and negative covenants. As of ~~March 31,~~September 30, 2021, the Company was in compliance with all of its debt covenants relating to the Notes.

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~~LINCOLN ELECTRIC HOLDINGS, INC.~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~Dollars in thousands, except per share amounts~~

Shelf Agreements

On November 27, 2018, the Company entered into 7 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 ~~March 31,~~September 30, 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 ~~March 31,~~September 30, 2021 and December 31, 2020, the fair value of long-term debt, including the current portion, was approximately ~~$739,945~~$772,551 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 ~~$715,438~~$718,548 and $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.

NOTE 13 — RETIREMENT AND POSTRETIREMENT BENEFIT PLANS

The components of total pension cost were as follows:


	Three Months Ended March 31,								Three Months Ended September 30,								Nine Months Ended September 30,
	2021				2020				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.		U.S. pension		Non-U.S.		U.S. pension		Non-U.S.
	plans		pension plans		plans		pension plans		plans		pension plans		plans		pension plans		plans		pension plans		plans		pension plans
Service cost	$	49	$	471	$	39	$	756	$	49	$	395	$	39	$	718	$	146	$	1,190	$	117	$	2,216
Interest cost		2,981		616		4,050		696		2,622		924		3,346		673		8,675		1,932		11,447		2,052
Expected return on plan assets		(4,509)		(972)		(5,711)		(1,007)		(3,888)		(1,487)		(6,009)		(1,076)		(12,595)		(2,996)		(17,431)		(3,097)
Amortization of prior service cost		0		12		0		15		0		1		0		15		—		12		—		46
Amortization of net loss		581		435		203		555		616		291		459		468		1,867		737		865		1,563
Settlement charges ⁽¹⁾		4,440		446		0		0		73,562		0		3,188		0		79,652		446		6,522		—
Defined benefit plans		3,542		1,008		(1,419)		1,015		72,961		124		1,023		798		77,745		1,321		1,520		2,780
Multi-employer plans		0		244		0		269		0		138		0		274		—		640		—		800
Defined contribution plans		5,162		845		5,626		702		6,572		898		4,945		931		17,606		2,296		15,322		2,406
Total pension cost	$	8,704	$	2,097	$	4,207	$	1,986	$	79,533	$	1,160	$	5,968	$	2,003	$	95,351	$	4,257	$	16,842	$	5,986

(1)

Pension settlement charges primarily resulting from lump sum pension payments in the three and nine months ended ~~March 31, 2021.~~September 30, 2021 and 2020.

The defined benefit plan components of Total pension cost, other than service cost, are included in Other income (expense) in the Company’s Consolidated Statements of Income.

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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~~were distributed through ~~a combination of~~ lump sum payments to eligible plan participants during 2021 and resulted in pre-tax pension settlement charges of $73,562 and $79,652 in the three and nine months ended September 30, 2021, respectively. In October 2021, the remaining pension obligations were distributed through the purchase of a group annuity ~~contract. Upon settlement of the pension obligations,~~contract and the Company will reclassify any remaining unrecognized actuarial gains or losses, currently recorded in AOCI, net of tax, to the Company’s Consolidated Statements of Income as settlement ~~gains or charges in the second half of 2021.~~charges. The Company estimates the fourth quarter 2021 pre-tax settlement charge to be approximately $35,000 - $45,000. The Company anticipates using any remaining assets after liquidation to fund employer contributions in a different qualified plan. The Company expects the termination process will be substantially complete by the end of 2021.

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~~LINCOLN ELECTRIC HOLDINGS, INC.~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~Dollars in thousands, except per share amounts~~

NOTE 14 — OTHER INCOME (EXPENSE)

The components of Other income (expense) were as follows:


	Three Months Ended March 31,				Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020		2021		2020
Equity earnings in affiliates	$	176	$	162	$	108	$	81	$	399	$	323
Other components of net periodic pension (cost) income⁽¹⁾		(4,030)		1,199		(72,641)		(1,064)		(77,730)		(1,967)
Other income (expense)		2,438		(1,052)		1,092		2,045		6,176		2,812
Total Other income (expense)	$	(1,416)	$	309	$	(71,441)	$	1,062	$	(71,155)	$	1,168

(1)

Other components of net periodic pension (cost) income includes pension settlements and ~~curtailments.~~curtailments as discussed in Note 13 to the consolidated financial statements.

NOTE 15 — INCOME TAXES

The Company recognized ~~$23,020~~$51,259 of tax expense on pretax income of ~~$97,153,~~$253,429, resulting in an effective income tax rate of ~~23.7%~~20.2% for the ~~three~~nine months ended ~~March 31,~~September 30, 2021. The effective income tax rate was ~~26.8%~~22.9% for the ~~three~~nine months ended ~~March 31,~~September 30, 2020.

The ~~decrease in the~~ effective tax rate was lower for the ~~three~~nine months ended ~~March 31,~~September 30, 2021, as compared with the same period in 2020, ~~was~~ primarily due to ~~income earned in lower~~favorable discrete tax ~~rate jurisdictions~~adjustments in 2021, as well as higher tax expense associated with a valuation allowance recorded in 2020.

As of ~~March 31,~~September 30, 2021, the Company had ~~$17,768~~$17,733 of unrecognized tax benefits. If recognized, approximately ~~$14,281~~$14,008 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 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 ~~$1,749~~$937 in previously unrecognized tax benefits by the end of the ~~first~~third quarter 2022.

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LINCOLN ELECTRIC HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Dollars in thousands, except per share amounts

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 ~~three~~nine months ended ~~March 31,~~September 30, 2021 and 2020.

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 ~~March 31,~~September 30, 2021. The Company does not expect any counterparties to fail to meet their obligations.

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~~LINCOLN ELECTRIC HOLDINGS, INC.~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~Dollars in thousands, except per share amounts~~

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 ~~$67,654~~$77,691 at ~~March 31,~~September 30, 2021 and $69,051 at December 31, 2020.

~~During March and April 2020, in anticipation of future debt issuance associated with the Notes referenced in Note 12, the~~The Company ~~entered into~~has interest rate forward starting swap agreements ~~to hedge the variability of future changes in interest rates. The forward starting swap agreements were~~that are 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.hedges. The dollar equivalent gross notional amount of the long-term contracts was $100,000 at ~~March 31,~~September 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 ~~March 31,~~September 30, 2021, the Company had 0 interest rate swap agreements outstanding. The Company terminated $50,000 of interest rate swaps in the ~~three~~nine months ended ~~March 31,~~September 30, 2020, which resulted in a gain of $6,629 that ~~will be~~is 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 ~~March 31,~~September 30, 2021 and December 31, 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 $96,147 at September 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 ~~$585,340~~$312,682 and $391,112 at ~~March 31,~~September 30, 2021 and December 31, 2020, respectively.

~~Fair values of derivative instruments in the Company’s Condensed Consolidated Balance Sheets follow:~~

March 31, 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
$
1,337

$
1,090

$
0

$
0

$
2,451

$
1,124

$
0

$
0
Forward starting swap agreements

0

0

13,510

0

0

0

4,876

0
Cross currency swap agreements

0

0

0

2,263

0

0

0

4,308
Not designated as hedging instruments:


Foreign exchange contracts

2,715

1,682

0

0

1,398

3,485

0

0
Total derivatives
$
4,052

$
2,772

$
13,510

$
2,263

$
3,849

$
4,609

$
4,876

$
4,308

1720

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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 March 31,

Derivatives by hedge designation

Classification of gain (loss)

2021

2020

Not designated as hedges:







Foreign exchange contracts

Selling, general & administrative expenses

$
(1,286)

$
(22,133)

~~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

March 31, 2021

December 31, 2020

Foreign exchange contracts

$
(90)

$
660

Forward starting swap agreements

10,109

3,649

Net investment contracts

(242)

(1,822)

~~The Company expects a loss of $90 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 March 31,


Gain (loss) recognized in the

Derivative type

Consolidated Statements of Income:

2021

2020

Foreign exchange contracts

Sales

$
144

$
(62)

Cost of goods sold

(458)

122

Fair values of derivative instruments in the Company’s Condensed Consolidated Balance Sheets follow:


	September 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	$	898	$	914	$	0	$	0	$	2,451	$	1,124	$	0	$	0
Forward starting swap agreements		0		0		9,185		0		0		0		4,876		0
Net investment contracts		1,517		0		0		1,894		0		0		0		4,308
Not designated as hedging instruments:
Foreign exchange contracts		1,558		2,097		0		0		1,398		3,485		0		0
Total derivatives	$	3,973	$	3,011	$	9,185	$	1,894	$	3,849	$	4,609	$	4,876	$	4,308

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)	2021		2020		2021		2020
Not designated as hedges:
Foreign exchange contracts	Selling, general & administrative expenses	$	(878)	$	6,381	$	5,000	$	(12,141)

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, 2021		December 31, 2020
Foreign exchange contracts	$	30	$	660
Forward starting swap agreements		6,874		3,649
Net investment contracts		989		(1,822)

The Company expects a loss of $36 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 September 30,				Nine Months Ended September 30,
	Gain (loss) recognized in the
Derivative type	Consolidated Statements of Income:	2021		2020		2021		2020
Foreign exchange contracts	Sales	$	439	$	(756)	$	2,303	$	(2,281)
	Cost of goods sold		(44)		(200)		(1,018)		67

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LINCOLN ELECTRIC HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Dollars in thousands, except per share amounts

NOTE 17 - FAIR VALUE

The following table provides a summary of assets and liabilities as of ~~March 31,~~September 30, 2021, measured at fair value on a recurring basis:


			Quoted Prices in								Quoted Prices in
			Active Markets for								Active Markets for
			Identical Assets or		Significant Other		Significant				Identical Assets or		Significant Other		Significant
	Balance as of		Liabilities		Observable Inputs		Unobservable		Balance as of		Liabilities		Observable Inputs		Unobservable
Description	March 31, 2021		(Level 1)		(Level 2)		Inputs (Level 3)		September 30, 2021		(Level 1)		(Level 2)		Inputs (Level 3)
Assets:
Foreign exchange contracts	$	4,052	$	0	$	4,052	$	0	$	2,456	$	0	$	2,456	$	0
Net investment contracts										1,517		0		1,517		0
Forward starting swap agreements		13,510		0		13,510		0		9,185		0		9,185		0
Total assets	$	17,562	$	0	$	17,562	$	0	$	13,158	$	0	$	13,158	$	0
Liabilities:
Foreign exchange contracts	$	2,772	$	0	$	2,772	$	0	$	3,011	$	0	$	3,011	$	0
Cross currency swap agreements		2,263		0		2,263		0
Net investment contracts										1,894		0		1,894		0
Deferred compensation		40,775		0		40,775		0		41,227		—		41,227		0
Total liabilities	$	45,810	$	0	$	45,810	$	0	$	46,132	$	0	$	46,132	$	0

~~Table of Contents~~

~~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, 2020, measured at fair value on a recurring basis:


			Quoted Prices in								Quoted Prices in
			Active Markets for								Active Markets for
			Identical Assets or		Significant Other		Significant				Identical Assets or		Significant Other		Significant
	Balance as of		Liabilities		Observable Inputs		Unobservable		Balance as of		Liabilities		Observable Inputs		Unobservable
Description	December 31, 2020		(Level 1)		(Level 2)		Inputs (Level 3)		December 31, 2020		(Level 1)		(Level 2)		Inputs (Level 3)
Assets:
Foreign exchange contracts	$	3,849	$	0	$	3,849	$	0	$	3,849	$	0	$	3,849	$	0
Interest rate swap agreements		4,876		0		4,876		0
Forward starting swap agreements										4,876		0		4,876		0
Total assets	$	8,725	$	0	$	8,725	$	0	$	8,725	$	0	$	8,725	$	0
Liabilities:
Foreign exchange contracts	$	4,609	$	0	$	4,609	$	0	$	4,609	$	0	$	4,609	$	0
Cross currency swap agreements		4,308		0		4,308		0
Net investment contracts										4,308		0		4,308		0
Deferred compensation		41,539		0		41,539		0		41,539		0		41,539		0
Total liabilities	$	50,456	$	0	$	50,456	$	0	$	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 ~~March 31,~~September 30, 2021 and December 31, 2020.

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LINCOLN ELECTRIC HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Dollars in thousands, except per share amounts

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.

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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’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’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.

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Results of Operations

The following table shows the Company’s results of operations:


	Three Months Ended March 31,																Three Months Ended September 30,
												Favorable (Unfavorable)																Favorable (Unfavorable)
	2021						2020					2021 vs. 2020					2021						2020					2021 vs. 2020
	Amount			% of Sales			Amount			% of Sales		$			%		Amount			% of Sales			Amount			% of Sales		$			%
Net sales	$	757,021					$	701,991				$	55,030		7.8	%	$	806,454					$	668,888				$	137,566		20.6	%
Cost of goods sold		503,254						464,669					(38,585)		(8.3)	%		538,282						453,501					(84,781)		(18.7)	%
Gross profit		253,767			33.5	%		237,322		33.8	%		16,445		6.9	%		268,172			33.3	%		215,387		32.2	%		52,785		24.5	%
Selling, general & administrative expenses		145,676			19.2	%		149,727		21.3	%		4,051		2.7	%		149,118			18.5	%		131,337		19.6	%		(17,781)		(13.5)	%
Rationalization and asset impairment charges		4,163			0.5	%		6,521		0.9	%		2,358		36.2	%		3,484			0.4	%		6,257		0.9	%		2,773		44.3	%
Operating income		103,928			13.7	%		81,074		11.5	%		22,854		28.2	%		115,570			14.3	%		77,793		11.6	%		37,777		48.6	%
Interest expense, net		5,359						5,458					99		1.8	%		5,714						5,552					(162)		(2.9)	%
Other income (expense)		(1,416)						309					(1,725)		(558.3)	%		(71,441)						1,062					(72,503)		(6,827.0)	%
Income before income taxes		97,153			12.8	%		75,925		10.8	%		21,228		28.0	%		38,415			4.8	%		73,303		11.0	%		(34,888)		(47.6)	%
Income taxes		23,020						20,370					(2,650)		(13.0)	%		6,658						14,797					8,139		55.0	%
Effective tax rate		23.7	%					26.8	%				3.1	%				17.3	%					20.2	%				2.9	%
Net income including non-controlling interests		74,133						55,555					18,578		33.4	%		31,757						58,506					(26,749)		(45.7)	%
Non-controlling interests in subsidiaries' loss		(44)						(7)					(37)		(528.6)	%		—						27					(27)		(100.0)	%
Net income	$	74,177			9.8	%	$	55,562		7.9	%	$	18,615		33.5	%	$	31,757			3.9	%	$	58,479		8.7	%	$	(26,722)		(45.7)	%
Diluted earnings per share	$	1.23					$	0.91				$	0.32		35.2	%	$	0.53					$	0.97				$	(0.44)		(44.9)	%


	Nine Months Ended September 30,
												Favorable (Unfavorable)
	2021						2020					2021 vs. 2020
	Amount			% of Sales			Amount			% of Sales		$			%
Net sales	$	2,389,929					$	1,961,606				$	428,323		21.8	%
Cost of goods sold		1,593,981						1,319,519					(274,462)		(20.8)	%
Gross profit		795,948			33.3	%		642,087		32.7	%		153,861		24.0	%
Selling, general & administrative expenses		446,351			18.7	%		407,440		20.8	%		(38,911)		(9.6)	%
Rationalization and asset impairment charges		8,277			0.3	%		36,016		1.8	%		27,739		77.0	%
Operating income		341,320			14.3	%		198,631		10.1	%		142,689		71.8	%
Interest expense, net		16,736						16,891					155		0.9	%
Other income (expense)		(71,155)						1,168					(72,323)		(6,192.0)	%
Income before income taxes		253,429			10.6	%		182,908		9.3	%		70,521		38.6	%
Income taxes		51,259						41,834					(9,425)		(22.5)	%
Effective tax rate		20.2	%					22.9	%				2.7	%
Net income including non-controlling interests		202,170						141,074					61,096		43.3	%
Non-controlling interests in subsidiaries' loss		131						37					94		254.1	%
Net income	$	202,039			8.5	%	$	141,037		7.2	%	$	61,002		43.3	%
Diluted earnings per share	$	3.36					$	2.34				$	1.02		43.7	%

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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 March 31,			Change in Net Sales due to:
Three Months Ended September 30,																			Change in Net Sales due to:
	Net Sales										Foreign			Net Sales			Net Sales											Foreign			Net Sales
	2020		Volume			Acquisitions		Price			Exchange			2021			2020		Volume			Acquisitions			Price			Exchange			2021
Lincoln Electric Holdings, Inc.	$	701,991	$	19,101		$	—	$	26,128		$	9,801		$	757,021		$	668,888	$	48,506		$	13,251		$	73,771		$	2,038		$	806,454
% Change
Lincoln Electric Holdings, Inc.				2.7	%		—		3.7	%		1.4	%		7.8	%				7.3	%		2.0	%		11.0	%		0.3	%		20.6	%


Nine Months Ended September 30,			Change in Net Sales due to:
	Net Sales											Foreign			Net Sales
	2020		Volume			Acquisitions			Price			Exchange			2021
Lincoln Electric Holdings, Inc.	$	1,961,606	$	221,408		$	16,836		$	158,920		$	31,159		$	2,389,929
% Change
Lincoln Electric Holdings, Inc.				11.3	%		0.9	%		8.1	%		1.6	%		21.8	%

Net sales increased in the three and nine months ended ~~March 31,~~September 30, 2021 ~~as a result of higher organic sales~~ driven by higher demand ~~and~~reflecting recovery from the impacts of the pandemic, increased product pricing as a result of higher input costs and ~~the impact of~~ favorable foreign exchange. The increase in Net sales from acquisitions was driven by the acquisitions of Zeman Bauelemente within International Welding and FTP and Shoals within The Harris Products Group. Refer to Note 4 to the consolidated financial statements for details.

Gross Profit:

Gross profit for the three and nine months ended ~~March 31,~~September 30, 2021 increased ~~6.9% driven by higher Net sales volumes~~24.5% and ~~related operating leverage. As~~24.0%, respectively, and to 33.3% as a percent of sales, ~~Gross profit decreased slightly compared to the prior year primarily due to~~driven by higher ~~last-in,~~volumes and pricing actions which offset higher input costs. Last-in, first-out (“LIFO”) charges ~~of $3,854~~were $10,908 and $24,236 in the three and nine months ended ~~March 31,~~September 30, 2021, respectively, as compared with charges of ~~$212~~$597 and $732 in ~~2020.~~the same 2020 periods, respectively.

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Selling, General & Administrative ("SG&A") Expenses:

SG&A expenses ~~decreased~~increased for the three and nine months ended ~~March 31,~~September 30, 2021 as compared to ~~March 31,~~the same 2020 periods, primarily due to ~~lower discretionary spending.~~higher employee costs.

Rationalization and Asset Impairment Charges:

The Company recorded charges of ~~$4,163, $3,831 after-tax,~~$3,484 ($3,383 after-tax) and ~~$6,521, $4,545 after-tax,~~$8,277 ($8,033 after-tax) in the three and nine months ended ~~March 31,~~September 30, 2021, ~~and 2020,~~ respectively, primarily related to severance charges and gains or losses on the disposal of assets. The Company recorded charges of $6,257 ($5,142 after-tax) and $36,016 ($28,181 after-tax) in the three and nine months ended September 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.

Other Income ~~Taxes:~~(Expense):

The decrease in ~~the effective tax rate~~Other income (expense) for the three and nine months ended ~~March 31,~~September 30, 2021 as compared to ~~March 31,~~September 30, 2020 was primarily due to ~~income earned in lower~~non-cash pension settlement charges resulting from lump sum pension payments related to the termination of the Lincoln Electric Company Retirement Annuity Program (“RAP”) plan. Refer to Note 13 to the consolidated financial statements for details.

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Income Taxes:

The effective tax rate ~~jurisdictions~~was lower for the three and nine months ended September 30, 2021 as compared to the same 2020 periods, primarily due to favorable discrete tax adjustments in 2021, as well as higher tax expense associated with a valuation allowance recorded in ~~2020.~~

~~Net Income:~~

~~The increase in Net income for~~ the ~~three~~nine months ended ~~March 31, 2021 as compared to March 31, 2020 was primarily due to higher sales volumes driven by increased demand and related operating leverage.~~September 30, 2020.

Segment Results


Three Months Ended September 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	$	371,535	$	42,341		$	—		$	43,957		$	3,675		$	461,508
International Welding		196,937		7,452			3,371			21,205			(1,800)			227,165
The Harris Products Group		100,416		(1,287)			9,880			8,609			163			117,781

% Change
Americas Welding				11.4	%		—			11.8	%		1.0	%		24.2	%
International Welding				3.8	%		1.7	%		10.8	%		(0.9)	%		15.3	%
The Harris Products Group				(1.3)	%		9.8	%		8.6	%		0.2	%		17.3	%


Three Months Ended March 31,			Change in Net Sales due to:
Nine Months Ended September 30,																			Change in Net Sales due to:
	Net Sales										Foreign			Net Sales			Net Sales											Foreign			Net Sales
	2020		Volume ⁽¹⁾			Acquisitions		Price ⁽²⁾			Exchange			2021			2020		Volume ⁽¹⁾			Acquisitions ⁽²⁾			Price ⁽³⁾			Exchange			2021
Operating Segments
Americas Welding	$	418,535	$	(3,790)		$	—	$	9,065		$	1,432		$	425,242		$	1,123,299	$	128,836		$	—		$	80,352		$	11,731		$	1,344,218
International Welding		197,923		11,250			—		4,620			9,286			223,079			572,027		63,797			6,956			40,537			19,279			702,596
The Harris Products Group		85,533		11,641			—		12,443			(917)			108,700			266,280		28,775			9,880			38,031			149			343,115

% Change
Americas Welding				(0.9)	%		—		2.2	%		0.3	%		1.6	%				11.5	%		—			7.2	%		1.0	%		19.7	%
International Welding				5.7	%		—		2.3	%		4.7	%		12.7	%				11.2	%		1.2	%		7.1	%		3.4	%		22.8	%
The Harris Products Group				13.6	%		—		14.5	%		(1.1)	%		27.1	%				10.8	%		3.7	%		14.3	%		0.1	%		28.9	%

(1)

~~Decrease~~Increases for three and nine months ended ~~March 31,~~September 30, 2021 for Americas Welding ~~due to softer demand associated with the current economic environment.~~and International Welding ~~volume increases were~~was primarily due to higher demand ~~and The Harris Products Group volume increases were primarily due to higher retail volumes.~~reflecting recovery from the impacts of the COVID-19 pandemic.

(2)

Increase for the three and nine months ended September 30, 2021 were due to the acquisition of Zeman Bauelemente in International Welding and FTP and Shoals in The Harris Products Group, as discussed in Note 4 to the consolidated financial statements.

(3)

Increase for the three and nine months ended September 30, 2021 in Americas Welding and International Welding ~~in the three months ended March 31, 2021~~ reflects increased product pricing as a result of higher input costs. Increase for The Harris Products Group in the three and nine months ended ~~March 31,~~September 30, 2021 was due to ~~increases in~~increased commodity costs.

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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)										Favorable (Unfavorable)
	Three Months Ended March 31,						2021 vs. 2020				Three Months Ended September 30,						2021 vs. 2020
	2021			2020			$		%		2021			2020			$		%
Americas Welding:
Net sales	$	425,242		$	418,535		$	6,707	1.6	%	$	461,508		$	371,535		$	89,973	24.2	%
Inter-segment sales		32,748			24,783			7,965	32.1	%		37,480			29,368			8,112	27.6	%
Total Sales	$	457,990		$	443,318			14,672	3.3	%	$	498,988		$	400,903			98,085	24.5	%
Adjusted EBIT ⁽⁴⁾⁽³⁾	$	76,617		$	70,702			5,915	8.4	%	$	84,557		$	59,120			25,437	43.0	%
As a percent of total sales ⁽¹⁾		16.7	%		15.9	%			0.8	%		16.9	%		14.7	%			2.2	%
International Welding:
Net sales	$	223,079		$	197,923			25,156	12.7	%	$	227,165		$	196,937			30,228	15.3	%
Inter-segment sales		4,285			4,483			(198)	(4.4)	%		7,078			4,898			2,180	44.5	%
Total Sales	$	227,364		$	202,406			24,958	12.3	%	$	234,243		$	201,835			32,408	16.1	%
Adjusted EBIT ⁽⁵⁾⁽⁴⁾	$	18,816		$	6,615			12,201	184.4	%	$	29,032		$	13,432			15,600	116.1	%
As a percent of total sales ⁽²⁾		8.3	%		3.3	%			5.0	%
As a percent of total sales ⁽¹⁾												12.4	%		6.7	%			5.7	%
The Harris Products Group:
Net sales	$	108,700		$	85,533			23,167	27.1	%	$	117,781		$	100,416			17,365	17.3	%
Inter-segment sales		2,147			1,725			422	24.5	%		1,945			1,898			47	2.5	%
Total Sales	$	110,847		$	87,258			23,589	27.0	%	$	119,726		$	102,314			17,412	17.0	%
Adjusted EBIT(5)	$	18,697		$	12,492			6,205	49.7	%	$	15,980		$	17,587			(1,607)	(9.1)	%
As a percent of total sales ⁽³⁾⁽²⁾		16.9	%		14.3	%			2.6	%		13.3	%		17.2	%			(3.9)	%
Corporate / Eliminations:
Inter-segment sales	$	(39,180)		$	(30,991)			8,189	26.4	%	$	(46,503)		$	(36,164)			(10,339)	(28.6)	%
Adjusted EBIT ⁽⁶⁾		(1,456)			(1,099)			357	32.5	%		(4,704)			(1,839)			(2,865)	(155.8)	%
Consolidated:
Net sales	$	757,021		$	701,991			55,030	7.8	%	$	806,454		$	668,888			137,566	20.6	%
Net income	$	74,177		$	55,562			18,615	33.5	%	$	31,757		$	58,479			(26,722)	(45.7)	%
As a percent of total sales		9.8	%		7.9	%			1.9	%		3.9	%		8.7	%			(4.8)	%
Adjusted EBIT ⁽⁷⁾⁽⁶⁾	$	112,674		$	88,710			23,964	27.0	%	$	124,865		$	88,300			36,565	41.4	%
As a percent of sales		14.9	%		12.6	%			2.2	%		15.5	%		13.2	%			2.3	%

(1)

Increase for the three months ended ~~March 31,~~September 30, 2021 as compared to ~~March 31,~~September 30, 2020 primarily driven by higher volumes and pricing actions offsetting higher input and employee costs. The increase for International Welding was also driven by cost reduction actions.

(2)

~~Increase~~Decrease for the three months ended ~~March 31,~~September 30, 2021 as compared to ~~March 31,~~September 30, 2020 driven primarily ~~driven~~ by higher ~~Net sales volumes due to higher demand~~input costs, product mix and ~~cost reduction actions.~~integration activities.

(3)

~~Increase for the three months ended March 31, 2021 as compared to March 31, 2020 driven primarily by retail and brazing volume increases.~~

~~(4)~~

The three months ended ~~March 31,~~September 30, 2021 ~~also~~ and 2020 exclude pension settlement charges of ~~$4,440 related to lump sum payments.~~$73,562 and $3,188, respectively. The three months ended ~~March 31,~~September 30, 2020 also excludes Rationalization and asset impairment charges of ~~$1,190~~$3,856 related to severance ~~and asset impairments~~charges as discussed in Note 6 to the consolidated financial statements.

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~~(5)~~(4)

The three months ended ~~March 31,~~September 30, 2021 and 2020 exclude Rationalization and asset impairment charges of ~~$4,163~~$3,472 and ~~$5,331,~~$2,401, respectively, related to severance and gains or losses on the disposal of assets as discussed in Note 6 to the consolidated financial statements. The three months ended ~~March 31,~~September 30, 2021 also ~~excludes pension settlement charges~~exclude amortization of ~~$446. The three months ended~~ ~~March 31, 2020 excludes~~ the ~~amortization of~~ step up in value of acquired inventories of ~~$806~~$3,143 related to ~~an acquisition.~~the acquisition of Zeman Bauelemente as discussed in Note 4 to the consolidated financial statements.

(5)

The three months ended September 30, 2021 exclude amortization of the step up in value of acquired inventories of $547 related to the acquisition of FTP and Shoals as discussed in Note 4 to the consolidated financial statements.

(6)

See non-GAAP Financial Measures for a reconciliation of Net income as reported and Adjusted EBIT.



							Favorable (Unfavorable)
	Nine Months Ended September 30,						2021 vs. 2020
	2021			2020			$		%
Americas Welding:
Net sales	$	1,344,218		$	1,123,299		$	220,919	19.7	%
Inter-segment sales		109,993			81,644			28,349	34.7	%
Total Sales	$	1,454,211		$	1,204,943			249,268	20.7	%
Adjusted EBIT ⁽³⁾	$	245,308		$	176,524			68,784	39.0	%
As a percent of total sales ⁽¹⁾		16.9	%		14.6	%			2.3	%
International Welding:
Net sales	$	702,596		$	572,027			130,569	22.8	%
Inter-segment sales		18,260			13,667			4,593	33.6	%
Total Sales	$	720,856		$	585,694			135,162	23.1	%
Adjusted EBIT ⁽⁴⁾	$	77,845		$	29,729			48,116	161.8	%
As a percent of total sales ⁽¹⁾		10.8	%		5.1	%			5.7	%
The Harris Products Group:
Net sales	$	343,115		$	266,280			76,835	28.9	%
Inter-segment sales		6,376			5,376			1,000	18.6	%
Total Sales	$	349,491		$	271,656			77,835	28.7	%
Adjusted EBIT ⁽⁵⁾	$	52,889		$	41,792			11,097	26.6	%
As a percent of total sales ⁽²⁾		15.1	%		15.4	%			(0.3)	%
Corporate / Eliminations:
Inter-segment sales	$	(134,629)		$	(100,687)			(33,942)	(33.7)	%
Adjusted EBIT ⁽⁶⁾		(10,048)			(4,902)			(5,146)	(105.0)	%
Consolidated:
Net sales	$	2,389,929		$	1,961,606			428,323	21.8	%
Net income	$	202,039		$	141,037			61,002	43.3	%
As a percent of total sales		8.5	%		7.2	%			1.3	%
Adjusted EBIT ⁽⁷⁾	$	365,994		$	243,143			122,851	50.5	%
As a percent of sales		15.3	%		12.4	%			2.9	%

(1)

Increase for the nine months ended September 30, 2021 as compared to September 30, 2020 primarily driven higher volumes and pricing actions, which offset higher input costs, and cost reduction actions.

(2)

Decrease for the nine months ended September 30, 2021 as compared to September 30, 2020 primarily driven by higher input costs and product mix.

(3)

The nine months ended September 30, 2021 and 2020 exclude pension settlement charges of $79,652 and $6,522, respectively. The nine months ended September 30, 2020 also exclude Rationalization and asset impairment charges of $27,719 related to severance charges and non-cash asset impairments of long-lived assets as discussed in Note 6 to the consolidated financial statements.

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(4)

The nine months ended September 30, 2021, and 2020 exclude Rationalization and asset impairment charges of $8,265 and $8,297, 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 nine months ended September 30, 2021 and 2020 also excludes amortization of the step up in value of acquired inventories of $4,984 and $806, respectively, related to acquisitions as discussed in Note 4 to the consolidated financial statements. The nine months ended September 30, 2021 exclude pension settlement charges of $446.

(5)

The nine months ended September 30, 2021 excludes amortization of the step up in value of acquired inventories of $547 related to the acquisition of FTP and Shoals as discussed in Note 4 to the consolidated financial statements.

(6)

The ~~three~~nine months ended ~~March 31,~~September 30, 2021 exclude acquisition transaction costs of $1,923 related to ~~an acquisition.~~acquisitions.

(7)

See non-GAAP Financial Measures for a reconciliation of Net ~~income~~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’s underlying operating performance. These non-GAAP financial measures exclude the impact of special items on the Company’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.

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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 March 31,						Three Months Ended September 30,						Nine Months Ended September 30,
	2021			2020			2021			2020			2021			2020
Operating income as reported	$	103,928		$	81,074		$	115,570		$	77,793		$	341,320		$	198,631
Special items (pre-tax):
Rationalization and asset impairment charges ⁽¹⁾		4,163			6,521			3,484			6,257			8,277			36,016
Acquisition transaction costs ⁽²⁾		1,113			—			—			—			1,923			—
Amortization of step up in value of acquired inventories ⁽³⁾		—			806			3,690			—			5,531			806
Adjusted operating income	$	109,204		$	88,401		$	122,744		$	84,050		$	357,051		$	235,453
Net income as reported	$	74,177		$	55,562		$	31,757		$	58,479		$	202,039		$	141,037
Special items:
Rationalization and asset impairment charges ⁽¹⁾		4,163			6,521			3,484			6,257			8,277			36,016
Acquisition transaction costs ⁽²⁾		1,113			—			—			—			1,923			—
Pension settlement charges ⁽⁴⁾		4,886			—			73,562			3,188			80,098			6,522
Amortization of step up in value of acquired inventories ⁽³⁾		—			806			3,690			—			5,531			806
Tax effect of Special items ⁽⁵⁾		(1,561)			(1,976)			(18,743)			(1,911)			(20,737)			(9,463)
Adjusted net income		82,778			60,913			93,750			66,013			277,131			174,918
Non-controlling interests in subsidiaries’ income (loss)		(44)			(7)			—			27			131			37
Interest expense, net		5,359			5,458			5,714			5,552			16,736			16,891
Income taxes as reported		23,020			20,370			6,658			14,797			51,259			41,834
Tax effect of Special items⁽⁵⁾		1,561			1,976			18,743			1,911			20,737			9,463
Adjusted EBIT	$	112,674		$	88,710		$	124,865		$	88,300		$	365,994		$	243,143
Effective tax rate as reported		23.7	%		26.8	%		17.3	%		20.2	%		20.2	%		22.9	%
Net special item tax impact		(0.8)			—			4.0	%		—	%		0.4	%		(0.2)	%
Adjusted effective tax rate		22.9	%		26.8	%		21.3	%		20.2	%		20.6	%		22.7	%
Diluted earnings per share as reported	$	1.23		$	0.91		$	0.53		$	0.97		$	3.36		$	2.34
Special items per share		0.14			0.09			1.03			0.13			1.25			0.57
Adjusted diluted earnings per share	$	1.37		$	1.00		$	1.56		$	1.10		$	4.61		$	2.91

(1)

Charges primarily related to severance ~~and gains or losses on the disposal of assets~~ as discussed in Note 6 to the consolidated financial statements.

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(2)

Costs related to ~~an acquisition~~acquisitions and are included in SG~~&A.~~&A expenses.

(3)

Costs related to ~~an acquisition~~acquisitions and are included in Cost of goods sold.

(4)

~~Primarily~~Settlement charges related to lump sum pension payments associated with the termination of a pension plan and are included in Other income (expense).

(5)

~~The~~Includes the net tax ~~effect~~impact of Special items ~~impacting pre-tax income was calculated as~~recorded during the ~~pre-tax amount multiplied by the applicable tax rate. The applicable tax rates reflect the taxable jurisdiction and nature of each Special item.~~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

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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.

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:


	Three Months Ended March 31,						Nine Months Ended September 30,
	2021		2020		$ Change		2021		2020		$ Change
Cash provided by operating activities ⁽¹⁾	$	45,262	$	21,972	$	23,290	$	255,125	$	215,561	$	39,564
Cash used by investing activities ⁽²⁾		(2,852)		(5,728)		2,876		(194,698)		(30,159)		(164,539)
Capital expenditures		(9,936)		(11,828)		1,892		(46,440)		(37,116)		(9,324)
Proceeds from sale of property, plant and equipment		584		6,100		(5,516)
Other investing activities		6,500		—		6,500
Acquisition of businesses, net of cash acquired								(158,605)		—		(158,605)
Cash used by financing activities ⁽³⁾		(55,371)		(41,613)		(13,758)		(156,112)		(227,317)		71,205
Proceeds from short-term borrowings, net		1,307		97,777		(96,470)		32,295		(33,123)		65,418
Purchase of shares for treasury		(28,459)		(109,762)		81,303		(103,848)		(113,198)		9,350
Cash dividends paid to shareholders		(30,999)		(30,675)		(324)		(91,717)		(88,945)		(2,772)
Decrease in Cash and cash equivalents ⁽⁴⁾		(15,153)		(36,188)		21,035		(96,720)		(47,084)		(49,636)

(1)

Cash provided by operating activities increased for the ~~three~~nine months ended ~~March 31,~~September 30, 2021, compared with the ~~three~~nine months ended ~~March 31,~~September 30, 2020 primarily due to higher company earnings.

(2)

Cash used by investing activities ~~decreased~~increased for the ~~three~~nine months ended ~~March 31,~~September 30, 2021, compared with the ~~three~~nine months ended ~~March 31,~~September 30, 2020 primarily due to ~~higher capital expenditures~~cash used in ~~2020~~the acquisition of businesses. . The Company currently anticipates capital expenditures of $65,000 to ~~$75,000~~$70,000 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 ~~increased~~decreased in the ~~three~~nine months ended ~~March 31,~~September 30, 2021, compared with the ~~three~~nine months ended ~~March 31,~~September 30, 2020 due to higher proceeds from short-term ~~borrowings in the prior period, partially offset by lower purchases of shares for treasury.~~borrowings.

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(4)

Cash and cash equivalents decreased ~~5.9%~~37.6%, or ~~$15,153,~~$96,720, to ~~$242,126~~$160,559 during the ~~three~~nine months ended ~~March 31,~~September 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 ~~March 31,~~September 30, 2021, ~~$175,501~~$155,914 of Cash and cash equivalents was held by international subsidiaries.

In ~~April~~October 2021, the Company paid a cash dividend of $0.51 per share, or ~~$30,364,~~$30,115, to shareholders of record as of ~~March 31,~~September 30, 2021.

Working Capital Ratios


	March 31, 2021		December 31, 2020		March 31, 2020		September 30, 2021		December 31, 2020		September 30, 2020
Average operating working capital to Net sales ^{(1) (2)}	17.7	%	17.4	%	19.0	%	18.6	%	17.4	%	20.3	%
Days sales in Inventories ⁽²⁾	104.6		104.7		108.7		124.7		104.7		111.6
Days sales in Accounts receivable	55.6		53.5		53.1		53.9		53.5		55.2
Average days in Trade accounts payable	60.0		56.5		54.8		60.1		56.5		51.3

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(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 ~~crisis,~~pandemic, the Company increased inventories relative to expected Net sales resulting in higher Days sales in Inventories and ~~higher~~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’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.

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The following table presents ROIC:


	Twelve Months Ended March 31,						Twelve Months Ended September 30,
	2021			2020			2021			2020
Net income	$	224,730		$	277,191		$	267,117		$	204,753
Rationalization and asset impairment charges		43,110			18,174			17,729			44,867
Acquisition transaction and integration costs		1,113			1,014
Acquisition transaction costs								1,923			—
Pension settlement charges		13,005			—			81,695			6,522
Amortization of step up in value of acquired inventories		—			3,814			5,531			806
Gains on disposal of assets		—			(3,554)
Gain on change in control		—			(7,601)
Tax effect of Special items ⁽¹⁾		(10,179)			(8,549)			(21,868)			(11,030)
Adjusted net income	$	271,779		$	280,489		$	352,127		$	245,918
Plus: Interest expense, net of tax of $5,904 and 6,484 in 2021 and 2020, respectively		17,550			19,489
Less: Interest income, net of tax of $396 and $605 in 2021 and 2020, respectively		1,184			1,818
Plus: Interest expense, net of tax of $5,893 and $6,177 in 2021 and 2020, respectively								17,520			18,564
Less: Interest income, net of tax of $402 and $513 in 2021 and 2020, respectively								1,193			1,543
Adjusted net income before tax effected interest	$	288,145		$	298,160		$	368,454		$	262,939

Invested Capital	March 31, 2021			March 31, 2020			September 30, 2021			September 30, 2020
Short-term debt	$	3,607		$	132,378		$	41,404		$	1,147
Long-term debt, less current portion		715,328			715,950			717,787			715,687
Total debt		718,935			848,328			759,191			716,834
Total equity		803,408			667,960			857,893			710,744
Invested capital	$	1,522,343		$	1,516,288		$	1,617,084		$	1,427,578
Return on invested capital		18.9	%		19.7	%		22.8	%		18.4	%

(1)

Includes the net tax impact of Special items recorded during the respective ~~periods, including tax benefits of $4,852 for the settlement of a tax item as well as tax deductions associated with an investment in a subsidiary in the twelve months ended March 31, 2020.~~periods.

New Accounting Pronouncements

Refer to Note 1 to the consolidated financial statements for a discussion of new accounting pronouncements.

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Acquisitions

Refer to Note 4 to the consolidated financial statements for a discussion of the Company’s recent acquisitions.

Debt

Revolving Credit ~~Agreements~~

~~The Company has a line of credit totaling $400,000 through the Amended and Restated Credit~~ Agreement (the “Credit Agreement”). The Credit Agreement has a term of 5 years with a maturity date of June 30, 2022 and may be increased, subject to certain conditions, by an additional amount up to $100,000. The interest rate on borrowings is based on either the London Inter-Bank Offered Rate ("LIBOR") or the prime rate, plus a spread based on the Company’s leverage ratio, at the Company’s election. The Credit Agreement contains customary affirmative, negative and financial covenants for credit facilities of this type, including limitations on the Company and its subsidiaries with respect to liens, investments,

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distributions, mergers and acquisitions, dispositions of assets, transactions with affiliates and a fixed charges coverage ratio and total leverage ratio. As of March 31, 2021, the Company was in compliance with all of its covenants and had no outstanding borrowings under the Credit Agreement.

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’s total weighted average effective interest rate and remaining weighted average tenure of the Notes is 3.3% and ~~13.1~~12.6 years, respectively. The proceeds of the Notes were used for general corporate purposes. The Notes contain certain affirmative and negative covenants. As of ~~March 31,~~September 30, 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 ~~March 31,~~September 30, 2021, the Company was in compliance with all of its covenants and had no outstanding borrowings under the Shelf Agreements.

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Pensions

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 factors that could adversely affect the Company’s operating results. The factors include, but are not limited to: general

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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. For additional discussion, see “Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes in the Company’s exposure to market risk since December 31, 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, 2020.

ITEM 4. CONTROLS AND PROCEDURES

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 ~~March 31,~~September 30, 2021.

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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 ~~March 31,~~September 30, 2021 that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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 ~~March 31,~~September 30, 2021, the Company was a co-defendant in cases alleging asbestos induced illness involving claims by approximately ~~2,775~~2,768 plaintiffs, which is a net increase of 617 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: ~~55,500~~55,550 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 1,008 were decided in favor of the Company following summary judgment motions.

ITEM 1A. RISK FACTORS

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, 2020, which could materially affect the Company’s business, financial condition or future results. The reader should not interpret the disclosure of any risk factor to imply that the risk has not already materialized.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Issuer purchases of its common shares during the ~~first~~third quarter of 2021 were as follows:


					Total Number of						Total Number of
					Shares	Maximum Number					Shares	Maximum Number
					Repurchased	of Shares that May					Repurchased	of Shares that May
	Total Number of				as Part of Publicly	Yet be Purchased	Total Number of				as Part of Publicly	Yet be Purchased
	Shares		Average Price		Announced Plans or	Under the Plans or	Shares		Average Price		Announced Plans or	Under the Plans or
Period	Repurchased		Paid Per Share		Programs	Programs ^{(2) (3)}	Repurchased		Paid Per Share		Programs	Programs ^{(2) (3)}
January 1 - 31, 2021	580	⁽¹⁾	$	114.41	—	11,453,193
February 1 - 28, 2021	67,747	⁽¹⁾		115.80	48,301	11,404,892
March 1 - 31, 2021	169,024	⁽¹⁾		121.57	159,509	11,245,383
July 1 - 31, 2021							62,786	⁽¹⁾	$	134.23	62,573	10,987,097
August 1 - 31, 2021							63,945	⁽¹⁾		139.33	63,148	10,923,949
September 1 - 30, 2021							245,853	⁽¹⁾		133.51	245,683	10,678,266
Total	237,351			119.90	207,810		372,584			134.63	371,404

(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 ~~53.8~~54 million shares at a total cost of ~~$2.3~~$2.4 billion for a weighted average cost of ~~$42.83~~$43.77 per share through ~~March 31,~~September 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.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

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~~ITEM 5. OTHER INFORMATION~~

~~Amendment and Restatement of Credit Agreement~~

On April 23, 2021, the Company and certain of its domestic subsidiaries (collectively, with the Company, the “Borrowers”), amended and restated the Credit Agreement by entering into the Second Amended and Restated Credit Agreement with the lenders party thereto and KeyBank National Association, as letter of credit issuer and administrative agent (the “Amended and Restated Credit Agreement”). The Amended and Restated Credit Agreement increases the total commitment amount of the line of credit to $500 million (from $400 million), provides for a maturity of the line of credit of April 23, 2026 and provides that the $500 million line of credit may be increased, subject to certain conditions, by an additional principal amount of up to $150 million. Borrowings under the Amended and Restated Credit Agreement bear interest at LIBOR plus a margin ranging from 0.67% to 1.40% based on the Company’s consolidated net leverage ratio. The line of credit may be used for general corporate purposes, including the acquisition of other businesses.

The Amended and Restated 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. The Amended and Restated Credit Agreement requires the Borrowers to regularly provide certain financial information to the lenders thereunder and to maintain a minimum consolidated fixed charges coverage ratio and maximum consolidated net leverage ratio.

As of the date of the filing of this Quarterly Report on Form 10-Q, the Company was in compliance with all applicable financial covenants and other restrictions under the Amended and Restated Credit Agreement.

The foregoing is merely a summary of the terms and conditions of the Amended and Restated Credit Agreement and is not a complete discussion of the document. Accordingly, the foregoing is qualified in its entirety by reference to the full text of the Amended and Restated Credit Agreement attached to this Quarterly Report on Form 10-Q as Exhibit 10.4, which is incorporated herein by reference.

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~~Submission of Matters to a Vote of Security Holders.~~

The 2021 Annual Meeting of the shareholders of the Company was held on Thursday, April 22, 2021 as a virtual meeting and shareholders were able to participate in the 2021 Annual Meeting and vote via live webcast, and submit questions prior to the meeting. 53,132,098 shares, of the 59,659,764 shares that were outstanding and entitled to vote (89.05%), were represented in person or by proxy, constituting a quorum.

~~The final results of voting on each of the matters submitted for a vote of security holders at the 2021 Annual Meeting are as follows:~~

~~Proposal 1 - Shareholders elected twelve directors, each to hold office until the 2022 Annual Meeting of Shareholders and until their successors are duly elected and qualified, as set forth below.~~

Votes

Broker
Name

Votes For

Withheld

Non-Votes
Curtis E. Espeland

48,824,203

141,708

4,166,187
Patrick P. Goris

48,636,188

329,723

4,166,187
Stephen G. Hanks

48,349,000

616,911

4,166,187
Michael F. Hilton

48,633,905

332,006

4,166,187
G. Russell Lincoln

48,305,162

660,749

4,166,187
Kathryn Jo Lincoln

47,525,915

1,439,996

4,166,187
William E. MacDonald, III

48,340,431

625,480

4,166,187
Christopher L. Mapes

47,741,160

1,224,751

4,166,187
Phillip J. Mason

48,844,284

121,627

4,166,187
Ben P. Patel

48,633,466

332,445

4,166,187
Hellene S. Runtagh

48,476,674

489,237

4,166,187
Kellye L. Walker

48,641,736

324,175

4,166,187

~~Proposal 2 - Shareholders ratified the appointment of Ernst & Young LLP as the Company’s independent registered public accounting firm for the year ending December 31, 2021, as set forth below.~~

Votes For

Votes Against

Abstentions
52,485,526

554,550

92,022

~~Proposal 3 - Shareholders approved, on an advisory basis, the compensation of the Company’s named executive officers, as set forth below.~~

Votes For

Votes Against

Abstentions

Broker Non-Votes
46,076,948

1,130,381

1,758,582

4,166,187

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ITEM 6. EXHIBITS

(a)

Exhibits


10.1*		~~Form of Stock Option Agreement for Executive Officers (filed herewith).~~
10.2*		~~Form of Restricted Stock Unit Agreement for Executive Officers (filed herewith).~~
10.3*		~~Form of Performance Share Award Agreement for Executive Officers (filed herewith).~~
10.4*		Second Amended and Restated Credit Agreement, dated as of April 23, 2021, by and among Lincoln Electric Holdings, Inc., The Lincoln Electric Company, Lincoln Electric International Holding Company, J.W. Harris Co., Inc., Lincoln Electric Automation, Inc., Lincoln Global, Inc., the Lenders and KeyBank National Association (filed herewith).
31.1		Certification of the Chairman, President and Chief Executive Officer (Principal Executive Officer) pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.
31.2		Certification of the Executive Vice President, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.
32.1		Certification of the Chairman, President and Chief Executive Officer (Principal Executive Officer) and Executive Vice President, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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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SIGNATURES

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)
		~~April 27,~~October 28, 2021

3439


	March 31, 2021
2021	$	9,132
2022		9,559
2023		7,596
2024		6,038
2025		3,253
After 2025		11,713
Total lease payments	$	47,291
Less: Imputed interest		5,464
Operating lease liabilities	$	41,827


		Votes	Broker
Name	Votes For	Withheld	Non-Votes
Curtis E. Espeland	48,824,203	141,708	4,166,187
Patrick P. Goris	48,636,188	329,723	4,166,187
Stephen G. Hanks	48,349,000	616,911	4,166,187
Michael F. Hilton	48,633,905	332,006	4,166,187
G. Russell Lincoln	48,305,162	660,749	4,166,187
Kathryn Jo Lincoln	47,525,915	1,439,996	4,166,187
William E. MacDonald, III	48,340,431	625,480	4,166,187
Christopher L. Mapes	47,741,160	1,224,751	4,166,187
Phillip J. Mason	48,844,284	121,627	4,166,187
Ben P. Patel	48,633,466	332,445	4,166,187
Hellene S. Runtagh	48,476,674	489,237	4,166,187
Kellye L. Walker	48,641,736	324,175	4,166,187


Votes For	Votes Against	Abstentions
52,485,526	554,550	92,022