UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
or
For the transition period from _____________ to _____________
Commission File Number:
(Exact name of registrant as specified in its charter)
(
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “small reporting company”, and "emerging growth company" in Rule 12b-2 of the Exchange Act.
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
The number of shares outstanding of the registrant’s common shares as of June 30, 2021 was
TABLE OF CONTENTS
3 | ||
3 | ||
3 | ||
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED) | 4 | |
5 | ||
6 | ||
8 | ||
9 | ||
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations | 23 | |
Item 3. Quantitative and Qualitative Disclosures About Market Risk | 34 | |
34 | ||
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35 | ||
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35 | ||
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | 35 | |
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36 | ||
37 | ||
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EX-101 | Instance Document |
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EX-101 | Schema Document |
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EX-101 | Calculation Linkbase Document |
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EX-101 | Label Linkbase Document |
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EX-101 | Presentation Linkbase Document |
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EX-101 | Definition Linkbase Document |
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2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LINCOLN ELECTRIC HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(In thousands, except per share amounts)
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||
| 2021 |
| 2020 |
| 2021 |
| 2020 | |||||
Net sales (Note 2) |
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Cost of goods sold |
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Gross profit |
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Selling, general & administrative expenses |
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Rationalization and asset impairment charges (Note 6) |
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Operating income |
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Interest expense, net |
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Other income (expense) (Note 14) |
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Income before income taxes |
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Income taxes (Note 15) |
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Net income including non-controlling interests |
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Non-controlling interests in subsidiaries’ income (loss) |
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Net income | $ | | $ | | $ | | $ | | ||||
Basic earnings per share (Note 3) | $ | | $ | | $ | | $ | | ||||
Diluted earnings per share (Note 3) | $ | | $ | | $ | | $ | | ||||
Cash dividends declared per share | $ | | $ | | $ | | $ | |
See notes to these consolidated financial statements.
3
LINCOLN ELECTRIC HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
(In thousands)
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||
| 2021 |
| 2020 |
| 2021 |
| 2020 | |||||
Net income including non-controlling interests |
| $ | |
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Other comprehensive income (loss), net of tax: |
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Unrealized gain (loss) on derivatives designated and qualifying as cash flow hedges, net of tax of $( |
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Defined benefit pension plan activity, net of tax of $( |
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Currency translation adjustment |
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Other comprehensive income (loss): |
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Comprehensive income |
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Comprehensive income (loss) attributable to non-controlling interests |
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Comprehensive income (loss) attributable to shareholders | $ | | $ | | $ | | $ | |
See notes to these consolidated financial statements.
4
LINCOLN ELECTRIC HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
June 30, 2021 | December 31, 2020 | |||||
(UNAUDITED) | (NOTE 1) | |||||
ASSETS |
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Current Assets |
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Cash and cash equivalents | $ | | $ | | ||
Accounts receivable (less allowance for doubtful accounts of $ |
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Inventories (Note 9) |
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Other current assets |
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Total Current Assets |
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Property, plant and equipment (less accumulated depreciation of $ | | | ||||
Goodwill |
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Other assets |
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TOTAL ASSETS | $ | | $ | | ||
LIABILITIES AND EQUITY |
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Current Liabilities |
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Short-term debt (Note 12) | $ | | $ | | ||
Trade accounts payable |
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Accrued employee compensation and benefits |
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Other current liabilities |
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Total Current Liabilities |
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Long-term debt, less current portion (Note 12) |
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Other liabilities |
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Total Liabilities |
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Shareholders' Equity |
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Common Shares |
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Additional paid-in capital |
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Retained earnings |
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Accumulated other comprehensive loss |
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Treasury Shares |
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Total Shareholders' Equity |
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Non-controlling interests |
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Total Equity |
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TOTAL LIABILITIES AND TOTAL EQUITY | $ | | $ | |
See notes to these consolidated financial statements.
5
LINCOLN ELECTRIC HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF EQUITY
(UNAUDITED)
(In thousands, except per share amounts)
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Common | Additional | Other | Non- | ||||||||||||||||||||
Shares | Common | Paid-In | Retained | Comprehensive | Treasury | Controlling | |||||||||||||||||
| Outstanding |
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| Capital |
| Earnings |
| Income (Loss) |
| Shares |
| Interests |
| Total | ||||||||
Balance at December 31, 2020 |
| | $ | | $ | | $ | | $ | ( | $ | ( | $ | | $ | | |||||||
Net income |
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Unrecognized amounts from defined benefit pension plans, net of tax |
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Unrealized gain on derivatives designated and qualifying as cash flow hedges, net of tax |
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Currency translation adjustment |
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Cash dividends declared - $ |
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Stock-based compensation activity |
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Purchase of shares for treasury |
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Other |
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Balance at March 31, 2021 |
| | $ | | $ | | $ | | $ | ( | $ | ( | $ | ( | $ | | |||||||
Net income |
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Unrecognized amounts from defined benefit pension plans, net of tax |
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Unrealized loss on derivatives designated and qualifying as cash flow hedges, net of tax |
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Currency translation adjustment |
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Cash dividends declared – $ |
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Stock-based compensation activity |
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Purchase of shares for treasury |
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Other |
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Balance at June 30, 2021 |
| | $ | | $ | | $ | | $ | ( | $ | ( | $ | ( | $ | |
6
LINCOLN ELECTRIC HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF EQUITY
(UNAUDITED)
(In thousands, except per share amounts)
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Common | Additional | Other | Non- | ||||||||||||||||||||
Shares | Common | Paid-In | Retained | Comprehensive | Treasury | Controlling | |||||||||||||||||
| Outstanding |
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| Capital |
| Earnings |
| Income (Loss) |
| Shares |
| Interests |
| Total | ||||||||
Balance at December 31, 2019 |
| | $ | | $ | | $ | | $ | ( | $ | ( | $ | | $ | | |||||||
Net income |
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Unrecognized amounts from defined benefit pension plans, net of tax |
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Unrealized loss on derivatives designated and qualifying as cash flow hedges, net of tax |
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Currency translation adjustment |
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Cash dividends declared – $ |
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Stock-based compensation activity |
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Purchase of shares for treasury |
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Other |
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Balance at March 31, 2020 |
| | $ | | $ | | $ | | $ | ( | $ | ( | $ | | $ | | |||||||
Net income |
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Unrecognized amounts from defined benefit pension plans, net of tax |
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Unrealized gain on derivatives designated and qualifying as cash flow hedges, net of tax |
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Currency translation adjustment |
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Cash dividends declared – $ |
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Stock-based compensation activity |
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Purchase of shares for treasury |
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Other |
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Balance at June 30, 2020 |
| | $ | | $ | | $ | | $ | ( | $ | ( | $ | | $ | |
7
LINCOLN ELECTRIC HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
Six Months Ended June 30, | ||||||
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| 2021 |
| 2020 | ||
CASH FLOWS FROM OPERATING ACTIVITIES |
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Net income | $ | | $ | | ||
Non-controlling interests in subsidiaries' income (loss) |
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Net income including non-controlling interests |
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Adjustments to reconcile Net income including non-controlling interests to Net cash provided by operating activities: |
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Rationalization and asset impairment net (gains) charges (Note 6) |
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Depreciation and amortization |
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Equity earnings in affiliates, net |
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Deferred income taxes |
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Stock-based compensation |
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Other, net |
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Changes in operating assets and liabilities, net of effects from acquisitions: |
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(Increase) decrease in accounts receivable |
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Increase in inventories |
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(Increase) decrease in other current assets |
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Increase (decrease) in trade accounts payable |
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Increase in other current liabilities |
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Net change in other assets and liabilities |
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NET CASH PROVIDED BY OPERATING ACTIVITIES |
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CASH FLOWS FROM INVESTING ACTIVITIES |
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Capital expenditures |
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Acquisition of businesses, net of cash acquired |
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Proceeds from sale of property, plant and equipment |
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Other investing activities |
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NET CASH USED BY INVESTING ACTIVITIES |
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CASH FLOWS FROM FINANCING ACTIVITIES |
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Amounts due banks, net |
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Proceeds from exercise of stock options |
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Purchase of shares for treasury (Note 8) |
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Cash dividends paid to shareholders |
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Other financing activities |
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NET CASH USED BY FINANCING ACTIVITIES |
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Effect of exchange rate changes on Cash and cash equivalents |
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DECREASE IN CASH AND CASH EQUIVALENTS |
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Cash and cash equivalents at beginning of period |
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CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | | $ | |
See notes to these consolidated financial statements.
8
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 six months ended June 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:
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. |
9
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Dollars in thousands, except per share amounts
NOTE 2 — REVENUE RECOGNITION
The following table presents the Company’s Net sales disaggregated by product line:
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||
| 2021 |
| 2020 |
| 2021 |
| 2020 | |||||
Consumables | $ | | $ | | $ | | $ | | ||||
Equipment |
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Net sales | $ | | $ | | $ | | $ | |
Consumable sales consist of electrodes, fluxes, specialty welding consumables and brazing and soldering alloys. Equipment sales consist of arc welding power sources, welding accessories, fabrication, plasma cutters, wire feeding systems, automated joining, assembly and cutting systems, fume extraction equipment, CNC plasma and oxy-fuel cutting systems and regulators and torches used in oxy-fuel welding, cutting and brazing. Consumable and Equipment products are sold within each of the Company’s operating segments.
Within the Equipment product line, there are certain customer contracts related to automation products that may include multiple performance obligations. For such arrangements, the Company allocates revenue to each performance obligation based on its relative standalone selling price. The Company generally determines the standalone selling price based on the prices charged to customers or using expected cost plus margin. Less than
At June 30, 2021, the Company recorded $
NOTE 3 — EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per share:
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||
| 2021 |
| 2020 |
| 2021 |
| 2020 | |||||
Numerator: |
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Net income | $ | | $ | | $ | | $ | | ||||
Denominator (shares in 000's): |
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Basic weighted average shares outstanding |
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Effect of dilutive securities - Stock options and awards |
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Diluted weighted average shares outstanding |
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Basic earnings per share | $ | | $ | | $ | | $ | | ||||
Diluted earnings per share | $ | | $ | | $ | | $ | |
For the three months ended June 30, 2021 and 2020, common shares subject to equity-based awards of
10
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Dollars in thousands, except per share amounts
effect of their exercise would be anti-dilutive. For the six months ended June 30, 2021 and 2020, common shares subject to equity-based awards of
NOTE 4 — ACQUISITIONS
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 acquisition discussed above has not been presented because the impact on the Company’s Consolidated Statements of Income is not material. The preliminary purchase price allocation is expected to be finalized within the allowable measurement period. The acquired company is included in the Company's consolidated financial statements as of the date of acquisition.
NOTE 5 — SEGMENT INFORMATION
The Company’s business units are aligned into
Segment performance is measured and resources are allocated based on a number of factors, the primary measure being the adjusted earnings before interest and income taxes (“Adjusted EBIT”) profit measure. EBIT is defined as Operating income plus Other income (expense). EBIT is adjusted for special items as determined by management such as the impact of rationalization activities, certain asset impairment charges and gains or losses on disposals of assets.
11
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Dollars in thousands, except per share amounts
The following table presents Adjusted EBIT by segment:
The Harris | |||||||||||||||
Americas | International | Products | Corporate / | ||||||||||||
| Welding |
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| Eliminations |
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Three Months Ended June 30, 2021 |
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Net sales | $ | | $ | | $ | | $ | | $ | | |||||
Inter-segment sales |
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Total | $ | | $ | | $ | | $ | ( | $ | | |||||
Adjusted EBIT | $ | | $ | | $ | | $ | ( | $ | | |||||
Special items charge (gain) (1) |
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EBIT | $ | | $ | | $ | | $ | ( | $ | | |||||
Interest income | | ||||||||||||||
Interest expense | ( | ||||||||||||||
Income before income taxes |
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Three Months Ended June 30, 2020 |
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Net sales | $ | | $ | | $ | | $ | | $ | | |||||
Inter-segment sales |
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Total | $ | | $ | | $ | | $ | ( | $ | | |||||
Adjusted EBIT | $ | | $ | | $ | | $ | ( | $ | | |||||
Special items charge (gain) (2) |
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EBIT | $ | | $ | | $ | | $ | ( | $ | | |||||
Interest income |
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Interest expense |
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Income before income taxes |
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Six Months Ended June 30, 2021 |
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Net sales | $ | | $ | | $ | | $ | | $ | | |||||
Inter-segment sales |
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Total | $ | | $ | | $ | | $ | ( | $ | | |||||
Adjusted EBIT | $ | | $ | | $ | | $ | ( | $ | | |||||
Special items charge (gain) (1) |
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EBIT | $ | | $ | | $ | | $ | ( | $ | | |||||
Interest income |
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Interest expense |
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Income before income taxes |
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Six Months Ended June 30, 2020 |
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Net sales | $ | | $ | | $ | | $ | | $ | | |||||
Inter-segment sales |
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Total | $ | | $ | | $ | | $ | ( | $ | | |||||
Adjusted EBIT | $ | | $ | | $ | | $ | ( | $ | | |||||
Special items charge (gain) (2) |
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EBIT | $ | | $ | | $ | | $ | ( | $ | | |||||
Interest income |
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Interest expense |
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Income before income taxes |
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(1) | In the three and six months ended June 30, 2021, special items reflect Rationalization and asset impairment charges of $ |
12
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Dollars in thousands, except per share amounts
(2) | In the three months ended June 30, 2020, special items reflect Rationalization and asset impairment charges of $ |
NOTE 6 — RATIONALIZATION AND ASSET IMPAIRMENTS
The Company recorded Rationalization and asset impairment net charges of $
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 June 30, 2021, liabilities of $
The Company believes the rationalization actions will positively impact future results of operations and will not have a material effect on liquidity and sources and uses of capital. The Company continues to evaluate its cost structure and additional rationalization actions may result in charges in future periods.
The following table summarizes the activity related to rationalization liabilities for the six months ended June 30, 2021:
|
| International |
| ||||||
Americas Welding |
| Welding |
| Consolidated | |||||
Balance at December 31, 2020 | $ | | $ | | $ | | |||
Payments and other adjustments |
| ( |
| ( |
| ( | |||
Charged to expense |
| |
| |
| | |||
Balance at June 30, 2021 | $ | | $ | | $ | |
13
LINCOLN ELECTRIC HOLDINGS, INC.
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 June 30, 2021 | ||||||||||||
Unrealized gain | ||||||||||||
(loss) on derivatives | ||||||||||||
designated and | Defined benefit | Currency | ||||||||||
qualifying as cash | pension plan | translation | ||||||||||
flow hedges | activity | adjustment | Total | |||||||||
Balance at March 31, 2021 | $ | | $ | ( | $ | ( | $ | ( | ||||
Other comprehensive income (loss) before reclassification |
| ( | ( | | 3 | | ||||||
Amounts reclassified from AOCI |
| | 1 | | 2 | | | |||||
Net current-period other comprehensive income (loss) |
| ( |
| ( |
| |
| | ||||
Balance at June 30, 2021 | $ | | $ | ( | $ | ( | $ | ( |
Three Months Ended June 30, 2020 | ||||||||||||
Unrealized gain | ||||||||||||
(loss) on derivatives | ||||||||||||
designated and | Defined benefit | Currency | ||||||||||
qualifying as cash | pension plan | translation | ||||||||||
flow hedges | activity | adjustment | Total | |||||||||
Balance at March 31, 2020 | $ | ( | $ | ( | $ | ( | $ | ( | ||||
Other comprehensive income (loss) before reclassification |
| |
| ( |
| | 3 |
| ( | |||
Amounts reclassified from AOCI |
| | 1 |
| | 2 |
| |
| | ||
Net current-period other comprehensive income (loss) |
| |
| ( |
| |
| ( | ||||
Balance at June 30, 2020 | $ | | $ | ( | $ | ( | $ | ( |
(1) | During the three months ended June 30, 2021, the AOCI reclassification is a component of Net sales of $ |
(2) | This AOCI component is included in the computation of net periodic pension costs (net of tax of $ |
(3) | The Other comprehensive income (loss) before reclassifications excludes $( |
14
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Dollars in thousands, except per share amounts
Six Months Ended June 30, 2021 | ||||||||||||
Unrealized gain | ||||||||||||
(loss) on derivatives | ||||||||||||
designated and | Defined benefit | Currency | ||||||||||
qualifying as cash | pension plan | translation | ||||||||||
flow hedges | activity | adjustment | Total | |||||||||
Balance at December 31, 2020 | $ | | $ | ( | $ | ( | $ | ( | ||||
Other comprehensive income (loss) before reclassification |
| | ( | ( | 3 | ( | ||||||
Amounts reclassified from AOCI |
| | 1 | | 2 | — | | |||||
Net current-period other comprehensive income (loss) |
| |
| |
| ( |
| ( | ||||
Balance at June 30, 2021 | $ | | $ | ( | $ | ( | $ | ( |
Six Months Ended June 30, 2020 | ||||||||||||
Unrealized gain | ||||||||||||
(loss) on derivatives | ||||||||||||
designated and | Defined benefit | Currency | ||||||||||
qualifying as cash | pension plan | translation | ||||||||||
flow hedges | activity | adjustment | Total | |||||||||
Balance at December 31, 2019 | $ | | $ | ( | $ | ( | $ | ( | ||||
Other comprehensive income (loss) before reclassification |
| ( |
| ( |
| ( | 3 |
| ( | |||
Amounts reclassified from AOCI |
| | 1 |
| | 2 |
| — |
| | ||
Net current-period other comprehensive income (loss) |
| ( |
| ( |
| ( |
| ( | ||||
Balance at June 30, 2020 | $ | | $ | ( | $ | ( | $ | ( |
(1) | During the six months ended June 30, 2021, the AOCI reclassification is a component of Net sales of $ |
(2) | This AOCI component is included in the computation of net periodic pension costs (net of tax of $ |
(3) | The Other comprehensive income (loss) before reclassifications excludes $( |
NOTE 8 — COMMON STOCK REPURCHASE PROGRAM
The Company has a share repurchase program for up to
15
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Dollars in thousands, except per share amounts
NOTE 9 — INVENTORIES
Inventories in the Condensed Consolidated Balance Sheets are comprised of the following components:
| ||||||
| June 30, 2021 |
| December 31, 2020 | |||
Raw materials | $ | | $ | | ||
Work-in-process |
| |
| | ||
Finished goods |
| |
| | ||
Total | $ | | $ | |
At June 30, 2021 and December 31, 2020, approximately
NOTE 10 — LEASES
The table below summarizes the right-of-use assets and lease liabilities in the Company’s Condensed Consolidated Balance sheets:
Operating Leases |
| Balance Sheet Classification |
| June 30, 2021 |
| December 31, 2020 | ||
Right-of-use assets |
| $ | $ | | ||||
Current liabilities |
| $ | $ | | ||||
Noncurrent liabilities |
|
|
| | ||||
Total lease liabilities |
|
| $ | | $ | |
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 $
16
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:
| June 30, 2021 | ||
2021 | $ | ||
2022 |
| ||
2023 |
| ||
2024 |
| ||
2025 |
| ||
After 2025 |
| ||
Total lease payments | $ | | |
Less: Imputed interest |
| ||
Operating lease liabilities | $ | |
As of June 30, 2021, the weighted average remaining lease term is
NOTE 11 — PRODUCT WARRANTY COSTS
The changes in the carrying amount of product warranty accruals are as follows:
Six Months Ended June 30, | ||||||
| 2021 |
| 2020 | |||
Balance at beginning of year | $ | | $ | | ||
Accruals for warranties |
| |
| | ||
Settlements |
| ( |
| ( | ||
Foreign currency translation and other adjustments |
| ( |
| ( | ||
Balance at end of year | $ | | $ | |
NOTE 12 — DEBT
Revolving Credit Agreements
On April 23, 2021, the Company amended and restated the agreement governing its line of credit by entering into the Second Amended and Restated Credit Agreement (“Credit Agreement”). The Credit Agreement has a line of credit totaling $
The Company has other lines of credit totaling $
Senior Unsecured Notes
On
17
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Dollars in thousands, except per share amounts
have an aggregate principal amount of $
Shelf Agreements
On November 27, 2018, the Company entered into
Fair Value of Debt
At June 30, 2021 and December 31, 2020, the fair value of long-term debt, including the current portion, was approximately $
NOTE 13 — RETIREMENT AND POSTRETIREMENT BENEFIT PLANS
The components of total pension cost were as follows:
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||
U.S. pension | Non-U.S. | U.S. pension | Non-U.S. | U.S. pension | Non-U.S. | U.S. pension | Non-U.S. | |||||||||||||||||
| plans |
| pension plans |
| plans |
| pension plans |
| plans |
| pension plans |
| plans |
| pension plans | |||||||||
Service cost | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | ||||||||
Interest cost |
| | |
| |
| |
| |
| |
| |
| | |||||||||
Expected return on plan assets |
| ( | ( |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( | |||||||||
Amortization of prior service cost |
| | ( |
| |
| |
| — |
| |
| — |
| | |||||||||
Amortization of net loss |
| | |
| |
| |
| |
| |
| |
| | |||||||||
Settlement charges (1) |
| | |
| |
| |
| |
| |
| |
| — | |||||||||
Defined benefit plans | | | | | | | | | ||||||||||||||||
Multi-employer plans | | | | | — | | — | | ||||||||||||||||
Defined contribution plans | | | | | | | | | ||||||||||||||||
Total pension cost | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | |
(1) | Pension settlement charges primarily resulting from lump sum pension payments in the three and six months ended June 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.
18
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Dollars in thousands, except per share amounts
In March 2020, the Company approved an amendment to terminate the Lincoln Electric Company Retirement Annuity Program plan effective as of December 31, 2020. The Company provided notice to participants of the intent to terminate the plan and applied for a determination letter. Pension obligations will be distributed through a combination of lump sum payments to eligible plan participants and through the purchase of a group annuity contract. Upon settlement of the pension obligations, the Company will reclassify unrecognized actuarial gains or losses, currently recorded in AOCI, to the Company’s Consolidated Statements of Income as settlement gains or charges in the second half of 2021. The Company anticipates the termination process will be substantially complete by the end of 2021.
NOTE 14 — OTHER INCOME (EXPENSE)
The components of Other income (expense) were as follows:
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||
| 2021 |
| 2020 |
| 2021 |
| 2020 | |||||
Equity earnings in affiliates | $ | |
| $ | | $ | | $ | | |||
Other components of net periodic pension (cost) income (1) |
| ( |
|
| ( |
| ( |
| ( | |||
Other income (expense) |
| |
|
| |
| |
| | |||
Total Other income (expense) | $ | |
| $ | ( | $ | | $ | |
(1) | Other components of net periodic pension (cost) income includes pension settlements and curtailments. |
NOTE 15 — INCOME TAXES
The Company recognized $
The effective tax rate was lower for the six months ended June 30, 2021, as compared with the same period in 2020, primarily due to favorable discrete tax adjustments in 2021, as well as higher tax expense associated with a valuation allowance recorded in 2020.
As of June 30, 2021, the Company had $
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 $
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 six months ended June 30, 2021 and 2020.
19
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Dollars in thousands, except per share amounts
The Company is subject to the credit risk of the counterparties to derivative instruments. Counterparties include a number of major banks and financial institutions. None of the concentrations of risk with any individual counterparty was considered significant at June 30, 2021. The Company does not expect any counterparties to fail to meet their obligations.
Cash Flow Hedges
Certain foreign currency forward contracts were qualified and designated as cash flow hedges. The dollar equivalent gross notional amount of these short-term contracts was $
During March and April 2020, the Company entered into interest rate forward starting swap agreements to hedge the variability of future changes in interest rates. The dollar equivalent gross notional amount of the long-term contracts was $
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 June 30, 2021, the Company had
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 $
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 $
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 $
Fair values of derivative instruments in the Company’s Condensed Consolidated Balance Sheets follow:
June 30, 2021 | December 31, 2020 | ||||||||||||||||||||||
Other | Other | Other | Other | ||||||||||||||||||||
Current | Current | Other | Other | Current | Current | Other | Other | ||||||||||||||||
Derivatives by hedge designation | Assets |
| Liabilities |
| Assets |
| Liabilities |
| Assets |
| Liabilities |
| Assets |
| Liabilities | ||||||||
Designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Foreign exchange contracts | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | |||||||
Forward starting swap agreements | | | | | | | | | |||||||||||||||
Net investment contracts | | | | | | | | | |||||||||||||||
Not designated as hedging instruments: |
|
|
|
|
|
| |||||||||||||||||
Foreign exchange contracts |
| | | | |
| |
| |
| |
| | ||||||||||
Total derivatives | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | |
20
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Dollars in thousands, except per share amounts
The effects of undesignated derivative instruments on the Company’s Consolidated Statements of Income consisted of the following:
|
| Three Months Ended June 30, |
| Six Months Ended June 30, | ||||||||||
Derivatives by hedge designation |
| Classification of gain (loss) |
| 2021 |
| 2020 |
| 2021 |
| 2020 | ||||
Not designated as hedges: |
|
|
|
|
|
|
| |||||||
Foreign exchange contracts | Selling, general & administrative expenses | $ | | $ | | $ | | $ | ( |
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 |
| June 30, 2021 |
| December 31, 2020 |
| ||
Foreign exchange contracts | $ | | $ | | |||
Forward starting swap agreements | | | |||||
Net investment contracts |
| ( |
| ( |
The Company expects a loss of $
|
| Three Months Ended June 30, |
| Six Months Ended June 30, | ||||||||||
Gain (loss) recognized in the | ||||||||||||||
Derivative type |
| Consolidated Statements of Income: |
| 2021 |
| 2020 |
| 2021 |
| 2020 | ||||
Foreign exchange contracts |
| Sales | $ | | $ | ( | $ | | $ | ( | ||||
| Cost of goods sold |
| ( |
| |
| ( |
| |
NOTE 17 - FAIR VALUE
The following table provides a summary of assets and liabilities as of June 30, 2021, measured at fair value on a recurring basis:
|
| Quoted Prices in |
|
| ||||||||
Active Markets for | ||||||||||||
Identical Assets or | Significant Other | Significant | ||||||||||
Balance as of | Liabilities | Observable Inputs | Unobservable | |||||||||
Description |
| June 30, 2021 |
| (Level 1) |
| (Level 2) |
| Inputs (Level 3) | ||||
Assets: |
|
|
|
|
|
|
|
| ||||
Foreign exchange contracts | $ | | $ | | $ | | $ | | ||||
Forward starting swap agreements |
| |
| |
| |
| | ||||
Total assets | $ | | $ | | $ | | $ | | ||||
Liabilities: |
|
|
|
|
|
|
|
| ||||
Foreign exchange contracts | $ | | $ | | $ | | $ | | ||||
Net investment contracts | | | | | ||||||||
Deferred compensation |
| |
| |
| |
| | ||||
Total liabilities | $ | | $ | | $ | | $ | |
21
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Dollars in thousands, except per share amounts
The following table provides a summary of assets and liabilities as of December 31, 2020, measured at fair value on a recurring basis:
|
| Quoted Prices in |
|
| ||||||||
Active Markets for | ||||||||||||
Identical Assets or | Significant Other | Significant | ||||||||||
Balance as of | Liabilities | Observable Inputs | Unobservable | |||||||||
Description |
| December 31, 2020 |
| (Level 1) |
| (Level 2) |
| Inputs (Level 3) | ||||
Assets: |
|
|
|
|
|
|
|
| ||||
Foreign exchange contracts | $ | | $ | | $ | | $ | | ||||
Forward starting swap agreements |
| |
| |
| |
| | ||||
Total assets | $ | | $ | | $ | | $ | | ||||
Liabilities: |
|
|
|
|
|
|
|
| ||||
Foreign exchange contracts | $ | | $ | | $ | | $ | | ||||
Net investment contracts |
| |
| |
| |
| | ||||
Deferred compensation |
| |
| |
| |
| | ||||
Total liabilities | $ | | $ | | $ | | $ | |
The Company’s derivative contracts are valued at fair value using the market approach. The Company measures the fair value of foreign exchange contracts, 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 June 30, 2021 and December 31, 2020.
The Company has various financial instruments, including cash and cash equivalents, short and long-term debt and forward contracts. While these financial instruments are subject to concentrations of credit risk, the Company has minimized this risk by entering into arrangements with a number of major banks and financial institutions and investing in several high-quality instruments. The Company does not expect any counterparties to fail to meet their obligations.
22
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Dollars in thousands, except per share amounts)
This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read together with the Company’s unaudited consolidated financial statements and other financial information included elsewhere in this Quarterly Report on Form 10-Q.
General
The Company is the world’s largest designer and manufacturer of arc welding and cutting products, manufacturing a broad line of arc welding equipment, consumable welding products and other welding and cutting products. Welding products include arc welding power sources, computer numerical control and plasma cutters, wire feeding systems, robotic welding packages, integrated automation systems, fume extraction equipment, consumable electrodes, fluxes, welding accessories and specialty welding consumables and fabrication. The Company’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.
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.
23
Results of Operations
The following table shows the Company’s results of operations:
Three Months Ended June 30, |
| |||||||||||||||
Favorable (Unfavorable) |
| |||||||||||||||
2021 | 2020 | 2021 vs. 2020 | ||||||||||||||
Amount |
| % of Sales |
| Amount |
| % of Sales |
| $ |
| % |
| |||||
Net sales | $ | 826,454 | $ | 590,727 |
| $ | 235,727 |
| 39.9 | % | ||||||
Cost of goods sold |
| 552,445 |
|
| 401,349 |
|
| (151,096) |
| (37.6) | % | |||||
Gross profit |
| 274,009 |
| 33.2 | % |
| 189,378 |
| 32.1 | % |
| 84,631 |
| 44.7 | % | |
Selling, general & administrative expenses |
| 151,557 |
| 18.3 | % |
| 126,376 |
| 21.4 | % |
| (25,181) |
| (19.9) | % | |
Rationalization and asset impairment charges |
| 630 |
| 0.1 | % |
| 23,238 |
| 3.9 | % |
| 22,608 |
| 97.3 | % | |
Operating income |
| 121,822 |
| 14.7 | % |
| 39,764 |
| 6.7 | % |
| 82,058 |
| 206.4 | % | |
Interest expense, net |
| 5,663 |
|
| 5,881 |
|
| 218 |
| 3.7 | % | |||||
Other income (expense) |
| 1,702 |
|
| (203) |
|
| 1,905 |
| 938.4 | % | |||||
Income before income taxes |
| 117,861 |
| 14.3 | % |
| 33,680 |
| 5.7 | % |
| 84,181 |
| 249.9 | % | |
Income taxes |
| 21,581 |
|
| 6,667 |
|
| (14,914) |
| (223.7) | % | |||||
Effective tax rate |
| 18.3 | % |
|
| 19.8 | % |
| 1.5 | % | ||||||
Net income including non-controlling interests |
| 96,280 |
|
| 27,013 |
|
| 69,267 |
| 256.4 | % | |||||
Non-controlling interests in subsidiaries' loss |
| 175 |
|
| 17 |
|
| 158 |
| 929.4 | % | |||||
Net income | $ | 96,105 |
| 11.6 | % | $ | 26,996 |
| 4.6 | % | $ | 69,109 |
| 256.0 | % | |
Diluted earnings per share | $ | 1.60 | $ | 0.45 |
|
| $ | 1.15 |
| 255.6 | % |
Six Months Ended June 30, |
| |||||||||||||||
Favorable (Unfavorable) |
| |||||||||||||||
2021 | 2020 | 2021 vs. 2020 | ||||||||||||||
Amount |
| % of Sales |
| Amount |
| % of Sales |
| $ |
| % |
| |||||
Net sales | $ | 1,583,475 | $ | 1,292,718 |
| $ | 290,757 |
| 22.5 | % | ||||||
Cost of goods sold |
| 1,055,699 |
|
| 866,018 |
|
| (189,681) |
| (21.9) | % | |||||
Gross profit |
| 527,776 |
| 33.3 | % |
| 426,700 |
| 33.0 | % |
| 101,076 |
| 23.7 | % | |
Selling, general & administrative expenses |
| 297,233 |
| 18.8 | % |
| 276,103 |
| 21.4 | % |
| (21,130) |
| (7.7) | % | |
Rationalization and asset impairment charges |
| 4,793 |
| 0.3 | % |
| 29,759 |
| 2.3 | % |
| 24,966 |
| 83.9 | % | |
Operating income |
| 225,750 |
| 14.3 | % |
| 120,838 |
| 9.3 | % |
| 104,912 |
| 86.8 | % | |
Interest expense, net |
| 11,022 |
|
| 11,339 |
|
| 317 |
| 2.8 | % | |||||
Other income (expense) |
| 286 |
|
| 106 |
|
| 180 |
| 169.8 | % | |||||
Income before income taxes |
| 215,014 |
| 13.6 | % |
| 109,605 |
| 8.5 | % |
| 105,409 |
| 96.2 | % | |
Income taxes |
| 44,601 |
|
| 27,037 |
|
| (17,564) |
| (65.0) | % | |||||
Effective tax rate |
| 20.7 | % |
|
| 24.7 | % |
| 4.0 | % | ||||||
Net income including non-controlling interests |
| 170,413 |
|
| 82,568 |
|
| 87,845 |
| 106.4 | % | |||||
Non-controlling interests in subsidiaries' loss |
| 131 |
|
| 10 |
|
| 121 |
| 1,210.0 | % | |||||
Net income | $ | 170,282 |
| 10.8 | % | $ | 82,558 |
| 6.4 | % | $ | 87,724 |
| 106.3 | % | |
Diluted earnings per share | $ | 2.83 | $ | 1.37 |
|
| $ | 1.46 |
| 106.6 | % |
24
Net Sales:
The following table summarizes the impact of volume, acquisitions, price and foreign currency exchange rates on Net sales on a consolidated basis:
Three Months Ended June 30, |
|
| Change in Net Sales due to: |
|
| ||||||||||||||
Net Sales | Foreign | Net Sales | |||||||||||||||||
| 2020 |
| Volume |
| Acquisitions |
| Price |
| Exchange |
| 2021 |
| |||||||
Lincoln Electric Holdings, Inc. | $ | 590,727 | $ | 153,801 | $ | 3,585 | $ | 59,021 |
| $ | 19,320 | $ | 826,454 | ||||||
% Change |
|
|
|
|
|
|
|
|
|
| |||||||||
Lincoln Electric Holdings, Inc. |
| 26.0 | % |
| 0.6 | % |
| 10.0 | % | 3.3 | % | 39.9 | % |
Six Months Ended June 30, |
|
| Change in Net Sales due to: |
|
| ||||||||||||||
Net Sales | Foreign | Net Sales | |||||||||||||||||
| 2020 |
| Volume |
| Acquisitions |
| Price |
| Exchange |
| 2021 |
| |||||||
Lincoln Electric Holdings, Inc. | $ | 1,292,718 | $ | 172,902 | $ | 3,585 | $ | 85,149 |
| $ | 29,121 | $ | 1,583,475 | ||||||
% Change |
|
|
|
|
|
|
|
|
|
| |||||||||
Lincoln Electric Holdings, Inc. |
| 13.4 | % |
| 0.3 | % |
| 6.6 | % | 2.3 | % | 22.5 | % |
Net sales increased in the three and six months ended June 30, 2021 driven by higher demand reflecting recovery from the impacts of the pandemic, increased product pricing as a result of higher input costs and favorable foreign exchange.
Gross Profit:
Gross profit for the three and six months ended June 30, 2021 increased 44.7% and 23.7%, respectively, driven by higher Net sales volumes reflecting recovery from the impacts of the COVID-19 pandemic. As a percent of sales, Gross profit increased compared to the prior year periods primarily due to higher Net sales volumes and the related operating leverage, partially offset by higher last-in, first-out (“LIFO”) charges of $9,474 and $13,328 in the three and six months ended June 30, 2021, respectively, as compared with charges of $(76) and $135 in the same 2020 periods, respectively.
Selling, General & Administrative ("SG&A") Expenses:
SG&A expenses increased for the three and six months ended June 30, 2021 as compared to the same 2020 periods, primarily due to higher employee costs.
Rationalization and Asset Impairment Charges:
The Company recorded charges of $630 ($819 after-tax) and $4,793 ($4,650 after-tax) in the three and six months ended June 30, 2021, respectively, primarily related to severance charges and gains or losses on the disposal of assets. The Company recorded charges of $23,238 ($18,494 after-tax) and $29,759 ($23,039 after-tax) in the three and six months ended June 30, 2020, respectively, primarily related to severance charges, non-cash asset impairments of long-lived assets, and gains or losses on the disposal of assets.
Income Taxes:
The effective tax rate was lower for the three and six months ended June 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 the six months ended June 30, 2020.
Net Income:
The increase in Net income for the three and six months ended June 30, 2021 as compared to the same 2020 periods, was primarily due to higher Net sales volumes reflecting recovery from the impacts of the COVID-19 pandemic and the related operating leverage.
25
Segment Results
Three Months Ended June 30, |
| Change in Net Sales due to: |
|
|
| |||||||||||||
Net Sales | Foreign | Net Sales | ||||||||||||||||
2020 |
| Volume (1) |
| Acquisitions (2) |
| Price (3) |
| Exchange |
| 2021 | ||||||||
Operating Segments | ||||||||||||||||||
Americas Welding | $ | 333,229 | $ | 90,285 | $ | — | $ | 27,330 |
| $ | 6,624 | $ | 457,468 | |||||
International Welding | 177,167 |
| 45,095 |
| 3,585 |
| 14,712 |
| 11,793 |
| 252,352 | |||||||
The Harris Products Group | 80,331 |
| 18,421 |
| — |
| 16,979 |
| 903 |
| 116,634 | |||||||
% Change |
|
|
|
|
|
|
|
|
|
|
| |||||||
Americas Welding | 27.1 | % |
| — | 8.2 | % | 2.0 | % | 37.3 | % | ||||||||
International Welding | 25.5 | % |
| 2.0 | % | 8.3 | % | 6.7 | % | 42.4 | % | |||||||
The Harris Products Group | 22.9 | % |
| — | 21.1 | % | 1.1 | % | 45.2 | % |
Six Months Ended June 30, |
| Change in Net Sales due to: |
|
|
| |||||||||||||
Net Sales |
|
|
|
| Foreign |
| Net Sales |
| ||||||||||
2020 | Volume (1) |
| Acquisitions (2) |
| Price (3) | Exchange | 2021 | |||||||||||
Operating Segments | ||||||||||||||||||
Americas Welding | $ | 751,764 | $ | 86,495 | $ | — | $ | 36,395 |
| $ | 8,056 | $ | 882,710 | |||||
International Welding | 375,090 |
| 56,345 |
| 3,585 |
| 19,332 |
| 21,079 |
| 475,431 | |||||||
The Harris Products Group | 165,864 |
| 30,062 |
| — |
| 29,422 |
| (14) |
| 225,334 | |||||||
% Change |
|
|
|
|
|
|
|
|
|
|
| |||||||
Americas Welding | 11.5 | % |
| — | 4.8 | % | 1.1 | % | 17.4 | % | ||||||||
International Welding | 15.0 | % |
| 1.0 | % | 5.2 | % | 5.6 | % | 26.8 | % | |||||||
The Harris Products Group | 18.1 | % |
| — | 17.7 | % | — | 35.9 | % |
(1) | Increases for three and six months ended June 30, 2021 for all segments was primarily due to higher demand reflecting recovery from the impacts of the COVID-19 pandemic. The Harris Products Group volumes also reflect increases due to higher retail volumes. |
(2) | Increase for the three and six months ended June 30, 2021 for International Welding were due to the acquisition of Zeman Bauelemente as discussed in Note 4 to the consolidated financial statements. |
(3) | Increase for Americas Welding and International Welding in the three and six months ended June 30, 2021 reflects increased product pricing as a result of higher input costs. Increase for The Harris Products Group in the three and six months ended June 30, 2021 was due to increased commodity costs. |
26
Adjusted Earnings Before Interest and Income Taxes:
Segment performance is measured and resources are allocated based on a number of factors, the primary measure being the Adjusted EBIT profit measure. EBIT is defined as Operating income plus Other income (expense). EBIT is adjusted for special items as determined by management such as the impact of rationalization activities, certain asset impairment charges and gains or losses on disposals of assets.
The following table presents Adjusted EBIT by segment:
Favorable (Unfavorable) |
| |||||||||||
Three Months Ended June 30, | 2021 vs. 2020 |
| ||||||||||
| 2021 |
| 2020 |
| $ |
| % |
| ||||
Americas Welding: |
|
|
|
|
|
|
| |||||
Net sales | $ | 457,468 | $ | 333,229 | $ | 124,239 | 37.3 | % | ||||
Inter-segment sales |
| 39,765 |
| 27,493 |
| 12,272 | 44.6 | % | ||||
Total Sales | $ | 497,233 | $ | 360,722 | 136,511 | 37.8 | % | |||||
Adjusted EBIT (3) | $ | 84,134 | $ | 46,702 | 37,432 | 80.2 | % | |||||
As a percent of total sales (1) |
| 16.9 | % |
| 12.9 | % | 4.0 | % | ||||
International Welding: |
|
|
|
|
| |||||||
Net sales | $ | 252,352 | $ | 177,167 | 75,185 | 42.4 | % | |||||
Inter-segment sales |
| 6,897 |
| 4,286 | 2,611 | 60.9 | % | |||||
Total Sales | $ | 259,249 | $ | 181,453 | 77,796 | 42.9 | % | |||||
Adjusted EBIT (4) | $ | 29,997 | $ | 9,682 | 20,315 | 209.8 | % | |||||
As a percent of total sales (1) |
| 11.6 | % |
| 5.3 | % | 6.3 | % | ||||
The Harris Products Group: |
|
|
|
|
| |||||||
Net sales | $ | 116,634 | $ | 80,331 | 36,303 | 45.2 | % | |||||
Inter-segment sales |
| 2,284 |
| 1,753 | 531 | 30.3 | % | |||||
Total Sales | $ | 118,918 | $ | 82,084 | 36,834 | 44.9 | % | |||||
Adjusted EBIT | $ | 18,212 | $ | 11,713 | 6,499 | 55.5 | % | |||||
As a percent of total sales (2) |
| 15.3 | % |
| 14.3 | % | 1.0 | % | ||||
Corporate / Eliminations: |
|
|
|
|
| |||||||
Inter-segment sales | $ | (48,946) | $ | (33,532) | 15,414 | 46.0 | % | |||||
Adjusted EBIT (5) |
| (3,888) |
| (1,964) | 1,924 | 98.0 | % | |||||
Consolidated: |
|
|
|
|
| |||||||
Net sales | $ | 826,454 | $ | 590,727 | 235,727 | 39.9 | % | |||||
Net income | $ | 96,105 | $ | 26,996 | 69,109 | 256.0 | % | |||||
As a percent of total sales |
| 11.6 | % |
| 4.6 | % | 7.0 | % | ||||
Adjusted EBIT (5) | $ | 128,455 | $ | 66,133 | 62,322 | 94.2 | % | |||||
As a percent of sales |
| 15.5 | % |
| 11.2 | % |
| 4.3 | % |
(1) | Increase for the three months ended June 30, 2021 as compared to June 30, 2020 primarily driven by higher Net sales volumes reflecting recovery from the impacts of the COVID-19 pandemic and related operating leverage. |
(2) | Increase for the three months ended June 30, 2021 as compared to June 30, 2020 driven primarily by retail and brazing volume increases, as well as the recovery from the impacts of the COVID-19 pandemic. |
(3) | The three months ended June 30, 2021 and 2020 exclude pension settlement charges of $1,650 and $3,334, respectively. The three months ended June 30, 2020 excludes Rationalization and asset impairment charges of $22,673 related to severance and asset impairments as discussed in Note 6 to the consolidated financial statements. |
(4) | The three months ended June 30, 2021 and 2020 exclude Rationalization and asset impairment charges of $630 and $565, respectively, related to severance and gains or losses on the disposal of assets as discussed in Note 6 |
27
to the consolidated financial statements. The three months ended June 30, 2021 also exclude the amortization of step up in value of acquired inventories related to the acquisition of Zeman Bauelemente as discussed in Note 4 to the consolidated financial statements. |
(5) | The three months ended June 30, 2021 exclude acquisition transaction costs of $810 related to an acquisition. |
(6) | See non-GAAP Financial Measures for a reconciliation of Net income as reported and Adjusted EBIT. |
|
|
|
| ||||||||||
Favorable (Unfavorable) |
| ||||||||||||
Six Months Ended June 30, | 2021 vs. 2020 |
| |||||||||||
| 2021 |
| 2020 |
| $ |
| % |
|
| ||||
Americas Welding: |
|
|
|
|
|
|
|
| |||||
Net sales | $ | 882,710 | $ | 751,764 | $ | 130,946 | 17.4 | % | |||||
Inter-segment sales |
| 72,513 |
| 52,276 |
| 20,237 | 38.7 | % | |||||
Total Sales | $ | 955,223 | $ | 804,040 | 151,183 | 18.8 | % | ||||||
Adjusted EBIT (3) | $ | 160,751 | $ | 117,404 | 43,347 | 36.9 | % | ||||||
As a percent of total sales (1) |
| 16.8 | % |
| 14.6 | % | 2.2 | % | |||||
International Welding: |
|
|
|
|
| ||||||||
Net sales | $ | 475,431 | $ | 375,090 | 100,341 | 26.8 | % | ||||||
Inter-segment sales |
| 11,182 |
| 8,769 | 2,413 | 27.5 | % | ||||||
Total Sales | $ | 486,613 | $ | 383,859 | 102,754 | 26.8 | % | ||||||
Adjusted EBIT (4) | $ | 48,813 | $ | 16,297 | 32,516 | 199.5 | % | ||||||
As a percent of total sales (1) |
| 10.0 | % |
| 4.2 | % | 5.8 | % | |||||
The Harris Products Group: |
|
|
|
|
| ||||||||
Net sales | $ | 225,334 | $ | 165,864 | 59,470 | 35.9 | % | ||||||
Inter-segment sales |
| 4,431 |
| 3,478 | 953 | 27.4 | % | ||||||
Total Sales | $ | 229,765 | $ | 169,342 | 60,423 | 35.7 | % | ||||||
Adjusted EBIT | $ | 36,909 | $ | 24,205 | 12,704 | 52.5 | % | ||||||
As a percent of total sales (2) |
| 16.1 | % |
| 14.3 | % | 1.8 | % | |||||
Corporate / Eliminations: |
|
|
|
|
| ||||||||
Inter-segment sales | $ | (88,126) | $ | (64,523) | 23,603 | 36.6 | % | ||||||
Adjusted EBIT (5) |
| (5,344) |
| (3,063) | 2,281 | 74.5 | % | ||||||
Consolidated: |
|
|
|
|
| ||||||||
Net sales | $ | 1,583,475 | $ | 1,292,718 | 290,757 | 22.5 | % | ||||||
Net income | $ | 170,282 | $ | 82,558 | 87,724 | 106.3 | % | ||||||
As a percent of total sales |
| 10.8 | % |
| 6.4 | % | 4.4 | % | |||||
Adjusted EBIT (6) | $ | 241,129 | $ | 154,843 | 86,286 | 55.7 | % | ||||||
As a percent of sales |
| 15.2 | % |
| 12.0 | % |
| 3.2 | % |
(1) | Increase for the six months ended June 30, 2021 as compared to June 30, 2020 primarily driven higher Net sales volumes reflecting recovery from the impacts of the COVID-19 pandemic and related operating leverage, as well as cost reduction actions. |
(2) | Increase for the six months ended June 30, 2021 as compared to June 30, 2020 driven by retail and brazing volume increases, as well as the recovery from the impacts of the COVID-19 pandemic. |
(3) | The six months ended June 30, 2021 and 2020 exclude pension settlement charges of $6,536 and $3,334, respectively. The six months ended June 30, 2020 also exclude Rationalization and asset impairment charges of $23,863 related to severance charges and non-cash asset impairments of long-lived assets as discussed in Note 6 to the consolidated financial statements. |
(4) | The six months ended June 30, 2021, and 2020 exclude Rationalization and asset impairment charges of $4,793 and $5,896, respectively, related to severance, asset impairments and gains or losses on the disposal of assets discussed in Note 6 to the consolidated financial statements. The six months ended June 30, 2021 and 2020 also |
28
excludes the amortization of step up in value of acquired inventories of $1,841 and $806, respectively, related to acquisitions as discussed in Note 4 to the consolidated financial statements. |
(5) | The six months ended June 30, 2021 exclude acquisition transaction costs of $1,923 related to an acquisition. |
(6) | See non-GAAP Financial Measures for a reconciliation of Net Income as reported and Adjusted EBIT. |
Non-GAAP Financial Measures
The Company reviews Adjusted operating income, Adjusted net income, Adjusted EBIT, Adjusted effective tax rate, Adjusted diluted earnings per share, Return on invested capital, Cash conversion, Organic sales, and Earnings before interest, taxes, depreciation and amortization, all non-GAAP financial measures, in assessing and evaluating the Company’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.
The following table presents the reconciliations of Operating income as reported to Adjusted operating income, Net income as reported to Adjusted net income and Adjusted EBIT, Effective tax rate as reported to Adjusted effective tax rate and Diluted earnings per share as reported to Adjusted diluted earnings per share:
| Three Months Ended June 30, |
| Six Months Ended June 30, |
| |||||||||
| 2021 |
| 2020 |
| 2021 |
| 2020 |
| |||||
Operating income as reported | $ | 121,822 | $ | 39,764 | $ | 225,750 | $ | 120,838 | |||||
Special items (pre-tax): |
|
|
|
|
|
|
|
| |||||
Rationalization and asset impairment charges (1) |
| 630 |
| 23,238 |
| 4,793 |
| 29,759 | |||||
Acquisition transaction costs (2) |
| 810 |
| — |
| 1,923 |
| — | |||||
Amortization of step up in value of acquired inventories (3) |
| 1,841 |
| — |
| 1,841 |
| 806 | |||||
Adjusted operating income | $ | 125,103 | $ | 63,002 | $ | 234,307 | $ | 151,403 | |||||
Net income as reported | $ | 96,105 |
| $ | 26,996 | $ | 170,282 | $ | 82,558 | ||||
Special items: |
|
|
|
|
| ||||||||
Rationalization and asset impairment charges (1) |
| 630 |
|
| 23,238 |
| 4,793 | 29,759 | |||||
Acquisition transaction costs (2) |
| 810 |
|
| — |
| 1,923 | — | |||||
Pension settlement charges (4) |
| 1,650 |
|
| 3,334 |
| 6,536 | 3,334 | |||||
Amortization of step up in value of acquired inventories (3) |
| 1,841 |
|
| — |
| 1,841 | 806 | |||||
Tax effect of Special items (5) |
| (433) |
|
| (5,576) |
| (1,994) | (7,552) | |||||
Adjusted net income | 100,603 |
| 47,992 | 183,381 | 108,905 | ||||||||
Non-controlling interests in subsidiaries’ income (loss) | 175 |
| 17 | 131 | 10 | ||||||||
Interest expense, net |
| 5,663 |
|
| 5,881 |
| 11,022 | 11,339 | |||||
Income taxes as reported |
| 21,581 |
|
| 6,667 |
| 44,601 | 27,037 | |||||
Tax effect of Special items (5) |
| 433 |
|
| 5,576 |
| 1,994 | 7,552 | |||||
Adjusted EBIT | $ | 128,455 |
| $ | 66,133 | $ | 241,129 | $ | 154,843 | ||||
Effective tax rate as reported |
| 18.3 | % |
| 19.8 | % |
| 20.7 | % | 24.7 | % | ||
Net special item tax impact |
| (0.4) | % |
| 0.5 | % |
| (0.5) | % | (0.6) | % | ||
Adjusted effective tax rate |
| 17.9 | % |
| 20.3 | % |
| 20.2 | % | 24.1 | % | ||
Diluted earnings per share as reported | $ | 1.60 |
| $ | 0.45 | $ | 2.83 | $ | 1.37 | ||||
Special items per share |
| 0.07 |
|
| 0.35 |
| 0.21 | 0.44 | |||||
Adjusted diluted earnings per share | $ | 1.67 |
| $ | 0.80 | $ | 3.04 | $ | 1.81 |
(1) | Charges primarily related to severance as discussed in Note 6 to the consolidated financial statements. |
(2) | Costs related to an acquisition and are included in SG&A. |
(3) | Costs related to acquisitions and are included in Cost of goods sold. |
29
(4) | Primarily related to lump sum pension payments and are included in Other income (expense). |
(5) | Includes the net tax impact of Special items recorded during the respective periods. |
The tax effect of Special items impacting pre-tax income was calculated as the pre-tax amount multiplied by the applicable tax rate. The applicable tax rates reflect the taxable jurisdiction and nature of each Special item.
Liquidity and Capital Resources
The Company’s cash flow from operations can be cyclical. Operational cash flow is a key driver of liquidity, providing cash and access to capital markets. In assessing liquidity, the Company reviews working capital measurements to define areas for improvement. Management anticipates the Company will be able to satisfy cash requirements for its ongoing businesses for the foreseeable future primarily with cash generated by operations, existing cash balances, borrowings under its existing credit facilities and raising debt in capital markets.
The Company continues to expand globally and periodically looks at transactions that would involve significant investments. The Company can fund its global expansion plans with operational cash flow, but a significant acquisition may require access to capital markets, in particular, the long-term debt market, as well as the syndicated bank loan market. The Company’s financing strategy is to fund itself at the lowest after-tax cost of funding. Where possible, the Company utilizes operational cash flows and raises capital in the most efficient market, usually the United States, and then lends funds to the specific subsidiary that requires funding. If additional acquisitions providing appropriate financial benefits become available, additional expenditures may be made.
The following table reflects changes in key cash flow measures:
| Six Months Ended June 30, | ||||||||
2021 |
| 2020 |
| $ Change | |||||
Cash provided by operating activities (1) | $ | 145,234 | $ | 126,013 | $ | 19,221 | |||
Cash used by investing activities (2) |
| (102,434) |
| (18,793) |
| (83,641) | |||
Capital expenditures |
| (27,768) |
| (25,011) |
| (2,757) | |||
Acquisition of businesses, net of cash acquired |
| (83,723) |
| — |
| (83,723) | |||
Cash used by financing activities (3) |
| (108,995) |
| (155,692) |
| 46,697 | |||
Purchase of shares for treasury |
| (53,688) |
| (112,975) |
| 59,287 | |||
Cash dividends paid to shareholders |
| (61,379) |
| (59,814) |
| (1,565) | |||
Decrease in Cash and cash equivalents (4) |
| (66,395) |
| (56,508) |
| (9,887) |
(1) | Cash provided by operating activities increased for the six months ended June 30, 2021, compared with the six months ended June 30, 2020 primarily due to higher company earnings. |
(2) | Cash used by investing activities increased for the six months ended June 30, 2021, compared with the six months ended June 30, 2020 primarily due to cash used in the acquisition of businesses. The Company currently anticipates capital expenditures of $65,000 to $75,000 in 2021. Anticipated capital expenditures include investments for capital maintenance and projects to increase efficiency, reduce costs, promote business growth or improve the overall safety and environmental conditions of the Company’s facilities. |
(3) | Cash used by financing activities decreased in the six months ended June 30, 2021, compared with the six months ended June 30, 2020 due to lower purchases of shares for treasury. |
(4) | Cash and cash equivalents decreased 25.8%, or $66,395, to $190,884 during the six months ended June 30, 2021, from $257,279 as of December 31, 2020. This decrease was predominantly due to cash used in the acquisition of businesses, purchases of common shares for treasury and cash dividends paid to shareholders, partially offset by cash provided by operating activities. At June 30, 2021, $142,522 of Cash and cash equivalents was held by international subsidiaries. |
30
In July 2021, the Company paid a cash dividend of $0.51 per share, or $30,287, to shareholders of record as of June 30, 2021.
Working Capital Ratios
June 30, 2021 |
| December 31, 2020 |
| June 30, 2020 |
| ||
Average operating working capital to Net sales (1) (2) |
| 17.2 | % | 17.4 | % | 22.8 | % |
Days sales in Inventories (2) |
| 110.2 |
| 104.7 | 131.4 | ||
Days sales in Accounts receivable |
| 53.9 |
| 53.5 | 56.8 | ||
Average days in Trade accounts payable |
| 59.9 |
| 56.5 | 58.1 |
(1) | Average operating working capital to net sales is defined as the sum of Accounts receivable, Inventories and contract assets less Trade accounts payable and contract liabilities as of period end divided by annualized rolling three months of Net sales. |
(2) | In order to minimize potential supply chain disruptions in serving customers due to the COVID-19 pandemic, the Company increased inventories relative to expected Net sales resulting in higher Days sales in Inventories and had an unfavorable impact on Average operating working capital to Net sales. |
Return on Invested Capital
The Company reviews return on invested capital ("ROIC") in assessing and evaluating the Company’s underlying operating performance. ROIC is a non-GAAP financial measure that the Company believes is a meaningful metric to investors in evaluating the Company’s financial performance and may be different than the method used by other companies to calculate ROIC. ROIC is defined as rolling 12 months of Adjusted net income excluding tax-effected interest income and expense divided by invested capital. Invested capital is defined as total debt, which includes Short-term debt and Long-term debt, less current portions, plus Total equity.
31
The following table presents ROIC:
Twelve Months Ended June 30, | |||||||
| 2021 |
| 2020 |
| |||
Net income | $ | 293,839 |
| $ | 218,735 | ||
Rationalization and asset impairment charges |
| 20,502 |
|
| 40,105 | ||
Acquisition transaction costs |
| 1,923 |
|
| — |
| |
Pension settlement charges |
| 11,321 |
|
| 3,334 | ||
Amortization of step up in value of acquired inventories |
| 1,841 |
|
| 2,415 | ||
Gain on change in control |
| — |
|
| (7,601) | ||
Tax effect of Special items (1) |
| (5,036) |
|
| (9,374) | ||
Adjusted net income | $ | 324,390 |
| $ | 247,614 | ||
Plus: Interest expense, net of tax of $5,843 and $6,439 in 2021 and 2020, respectively |
| 17,368 |
| 19,348 | |||
Less: Interest income, net of tax of $389 and $563 in 2021 and 2020, respectively |
| 1,166 |
| 1,691 | |||
Adjusted net income before tax effected interest | $ | 340,592 |
| $ | 265,271 | ||
Invested Capital |
| June 30, 2021 |
| June 30, 2020 | |||
Short-term debt | $ | 10,435 | $ | 49,597 | |||
Long-term debt, less current portion | 718,137 | 715,817 | |||||
Total debt | 728,572 | 765,414 | |||||
Total equity |
| 859,623 |
| 660,111 | |||
Invested capital | $ | 1,588,195 | $ | 1,425,525 | |||
Return on invested capital |
| 21.4 | % |
| 18.6 | % |
(1) | Includes the net tax impact of Special items recorded during the respective periods. |
The tax effect of Special items impacting pre-tax income was calculated as the pre-tax amount multiplied by the applicable tax rate. The applicable tax rates reflect the taxable jurisdiction and nature of each Special item.
New Accounting Pronouncements
Refer to Note 1 to the consolidated financial statements for a discussion of new accounting pronouncements.
Acquisitions
Refer to Note 4 to the consolidated financial statements for a discussion of the Company’s recent acquisitions.
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Debt
Revolving Credit Agreement
On April 23, 2021, the Company amended and restated the agreement governing its line of credit by entering into the Second Amended and Restated Credit Agreement (“Credit Agreement”). The 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 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. As of June 30, 2021, the Company was in compliance with all of its covenants and had no outstanding borrowings under the Credit Agreement.
The Company has other lines of credit totaling $94,170. As of June 30, 2021, the Company was in compliance with all of its covenants and had $9,787 outstanding at June 30, 2021.
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 12.9 years, respectively. The proceeds of the Notes were used for general corporate purposes. The Notes contain certain affirmative and negative covenants. As of June 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 June 30, 2021, the Company was in compliance with all of its covenants and had no outstanding borrowings under the Shelf Agreements.
Pensions
In March 2020, the Company approved an amendment to terminate the Lincoln Electric Company Retirement Annuity Program plan effective as of December 31, 2020. The Company provided notice to participants of the intent to terminate the plan and applied for a determination letter. Pension obligations will be distributed through a combination of lump sum payments to eligible plan participants and through the purchase of a group annuity contract. Upon settlement of the pension obligations, the Company will reclassify unrecognized actuarial gains or losses, currently recorded in AOCI, to the Company’s Consolidated Statements of Income as settlement gains or charges in the second half of 2021. The Company anticipates the termination process will be substantially complete by the end of 2021.
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
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factors that could adversely affect the Company’s operating results. The factors include, but are not limited to: general economic, financial and market conditions; the effectiveness of operating initiatives; completion of planned divestitures; interest rates; disruptions, uncertainty or volatility in the credit markets that may limit our access to capital; currency exchange rates and devaluations; adverse outcome of pending or potential litigation; actual costs of the Company’s rationalization plans; possible acquisitions, including the Company’s ability to successfully integrate acquisitions; market risks and price fluctuations related to the purchase of commodities and energy; global regulatory complexity; the effects of changes in tax law; tariff rates in the countries where the Company conducts business; and the possible effects of events beyond our control, such as political unrest, acts of terror, natural disasters and pandemics, including the COVID-19 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 June 30, 2021.
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 June 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 June 30, 2021, the Company was a co-defendant in cases alleging asbestos induced illness involving claims by approximately 2,751 plaintiffs, which is a net decrease of 24 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: 55,528 of those claims were dismissed, 23 were tried to defense verdicts, 7 were tried to plaintiff verdicts (which were reversed or resolved after appeal), 1 was resolved by agreement for an immaterial amount and 1,008 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 second quarter of 2021 were as follows:
Total Number of | |||||||||
|
|
| Shares |
| Maximum Number | ||||
Repurchased | of Shares that May | ||||||||
Total Number of | as Part of Publicly | Yet be Purchased | |||||||
Shares | Average Price | Announced Plans or | Under the Plans or | ||||||
Period | Repurchased | Paid Per Share | Programs | Programs (2) (3) | |||||
April 1 - 30, 2021 |
| 67,780 | (1) | $ | 124.33 |
| 67,559 |
| 11,177,824 |
May 1 - 31, 2021 |
| 62,828 | (1) |
| 130.54 |
| 61,298 |
| 11,116,526 |
June 1 - 30, 2021 |
| 66,856 |
| 128.63 |
| 66,856 |
| 11,049,670 | |
Total |
| 197,464 |
| 127.76 |
| 195,713 |
|
|
(1) | The above share repurchases include the surrender of the Company’s common shares in connection with the vesting of restricted awards. |
(2) | On April 20, 2016, the Company announced that the Board of Directors authorized a new share repurchase program, which increased the total number of the Company’s common shares authorized to be repurchased to 55 million shares. Total shares purchased through the share repurchase programs were 54.0 million shares at a total cost of $2.3 billion for a weighted average cost of $43.14 per share through June 30, 2021. |
(3) | On February 12, 2020, the Company’s Board of Directors authorized a new share repurchase program for up to an additional 10 million shares of the Company’s common stock. |
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
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ITEM 6. EXHIBITS
(a) | Exhibits |
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 as exhibit 10.4 to Form 10-Q of the Lincoln Electric Holdings, Inc. filed on April 27, 2021, SEC File No. 0-1402, and incorporated herein by reference and made a part hereof). | ||
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) | ||
July 27, 2021 |
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