UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period endedJune 30, ~~2018~~2019

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

For the transition period from _____________ to _____________

Commission File Number: 0-1402

LINCOLN ELECTRIC HOLDINGS, INC.

(Exact name of registrant as specified in its charter)



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

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

22801 St. Clair Avenue, Cleveland,Ohio44117

~~(216) 481-8100~~

~~(Registrant’s~~(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)

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 xý No o☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ 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 ~~and post~~ such files).

Yes xý No o☐

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 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 filerx	☒	Accelerated filero	☐
Non-accelerated filero ~~(Do not check if a smaller reporting company)~~	☐	Smaller reporting companyo	☐
		Emerging growth companyo	☐

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.o

☐

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

Yes o☐ No xý

The number of shares outstanding of the registrant’s common shares as of June 30, ~~2018~~2019 was ~~65,172,057~~.61,779,153.

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 ~~CASH FLOWS~~EQUITY (UNAUDITED)		6
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)		8
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS		79
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		2224
Item 3. Quantitative and Qualitative Disclosures About Market Risk		3134
Item 4. Controls and Procedures		3134

PART II. OTHER INFORMATION		3235
Item 1. Legal Proceedings		3235
Item 1A. Risk Factors		3235
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		3235
Item 4. Mine Safety Disclosures		3336
Item 6. Exhibits		3336
Signatures		3437
~~EX-31.1~~EX-10.1	Amendment No. 1 to The Lincoln Electric Company Employee Savings Plan As Amended and Restated Effective January 1, 2019, effective July 1, 2019 (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

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,						Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017			2019			2018			2019			2018
Net sales (Note 2)	$	790,052		$	626,858		$	1,547,748		$	1,207,755		$	777,008		$	790,052		$	1,536,182		$	1,547,748
Cost of goods sold	519,936			410,547			1,021,078			788,781			507,127			519,936			1,007,880			1,021,078
Gross profit	270,116			216,311			526,670			418,974			269,881			270,116			528,302			526,670
Selling, general & administrative expenses	163,940			130,738			325,131			253,994			163,388			163,940			323,796			325,131
Rationalization and asset impairment charges (Note 6)	11,542			—			21,717			—			1,307			11,542			4,842			21,717
Operating income	94,634			85,573			179,822			164,980			105,186			94,634			199,664			179,822
Interest expense, net	4,812			5,052			9,253			10,389			5,898			4,812			11,221			9,253
Other income (expense) (Note 13)	4,441			3,445			7,892			7,275
Other income (expense) (Note 14)													4,196			4,441			7,959			7,892
Income before income taxes	94,263			83,966			178,461			161,866			103,484			94,263			196,402			178,461
Income taxes (Note 14)	25,404			22,635			48,782			44,687
Income taxes (Note 15)													18,040			25,404			39,492			48,782
Net income including non-controlling interests	68,859			61,331			129,679			117,179			85,444			68,859			156,910			129,679
Non-controlling interests in subsidiaries’ earnings (loss)	(5		)	(21		)	(9		)	(17		)	(8		)	(5		)	(22		)	(9		)
Net income	$	68,864		$	61,352		$	129,688		$	117,196		$	85,452		$	68,864		$	156,932		$	129,688

Basic earnings per share (Note 3)	$	1.05		$	0.93		$	1.98		$	1.78		$	1.37		$	1.05		$	2.50		$	1.98
Diluted earnings per share (Note 3)	$	1.04		$	0.92		$	1.96		$	1.76		$	1.36		$	1.04		$	2.47		$	1.96
Cash dividends declared per share	$	0.39		$	0.35		$	0.78		$	0.70		$	0.47		$	0.39		$	0.94		$	0.78

See notes to these consolidated financial statements.

LINCOLN ELECTRIC HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)

(In thousands)


	Three Months Ended June 30,						Six Months Ended June 30,					Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017		2019			2018			2019			2018
Net income including non-controlling interests	$	68,859		$	61,331		$	129,679		$	117,179	$	85,444		$	68,859		$	156,910		$	129,679
Other comprehensive income (loss), net of tax:
Unrealized gain (loss) on derivatives designated and qualifying as cash flow hedges, net of tax of $(309) and $25 in the three and six months ended June 30, 2018; $97 and $(334) in the three and six months ended June 30, 2017.	(1,232		)	(277		)	(377		)	1,247
Defined benefit pension plan activity, net of tax of $218 and $649 in the three and six months ended June 30, 2018; $149 and $362 in the three months ended June 30, 2017.	721			712			2,008			1,426
Unrealized gain (loss) on derivatives designated and qualifying as cash flow hedges, net of tax of $(117) and $(60) in the three and six months ended June 30, 2019; $(309) and $25 in the three and six months ended June 30, 2018.												(301		)	(1,232		)	28			(377		)
Defined benefit pension plan activity, net of tax of $(90) and $137 in the three and six months ended June 30, 2019; $218 and $649 in the three and six months ended June 30, 2018.												1,091			721			1,878			2,008
Currency translation adjustment	(50,342		)	25,356			(30,955		)	53,889		4,849			(50,342		)	9,985			(30,955		)
Other comprehensive income (loss):	(50,853		)	25,791			(29,324		)	56,562		5,639			(50,853		)	11,891			(29,324		)
Comprehensive income	18,006			87,122			100,355			173,741		91,083			18,006			168,801			100,355
Comprehensive income (loss) attributable to non-controlling interests	(95		)	5			(40		)	31		(43		)	(95		)	(20		)	(40		)
Comprehensive income attributable to shareholders	$	18,101		$	87,117		$	100,395		$	173,710	$	91,126		$	18,101		$	168,821		$	100,395

See notes to these consolidated financial statements.

LINCOLN ELECTRIC HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)


	June 30, 2018			December 31, 2017			June 30, 2019			December 31, 2018
	(UNAUDITED)			(NOTE 1)			(UNAUDITED)			(NOTE 1)
ASSETS
Current Assets
Cash and cash equivalents	$	357,094		$	326,701		$	189,861		$	358,849
Accounts receivable (less allowance for doubtful accounts of $14,279 in 2018; $15,943 in 2017)	425,806			395,279
Inventories (Note 8)	365,634			348,667
Marketable securities	139,059			179,125
Accounts receivable (less allowance for doubtful accounts of $12,678 in 2019; $12,827 in 2018)							428,353			396,885
Inventories (Note 9)							397,752			361,829
Other current assets	123,974			123,836			111,897			120,236
Total Current Assets	1,411,567			1,373,608			1,127,863			1,237,799
Property, plant and equipment (less accumulated depreciation of $794,927 in 2018; $787,780 in 2017)	468,205			477,031
Property, plant and equipment (less accumulated depreciation of $800,287 in 2019; $778,817 in 2018)							512,364			478,801
Goodwill	233,982			234,582			323,016			281,294
Other assets	319,977			321,326			431,090			351,931
TOTAL ASSETS	$	2,433,731		$	2,406,547		$	2,394,333		$	2,349,825

LIABILITIES AND EQUITY
Current Liabilities
Short-term debt (Note 11)	$	1,889		$	2,131
Short-term debt (Note 12)							$	30,110		$	111
Trade accounts payable	269,824			269,763			254,814			268,600
Accrued employee compensation and benefits							115,891			94,202
Other current liabilities	268,045			256,848			170,196			175,269
Total Current Liabilities	539,758			528,742			571,011			538,182
Long-term debt, less current portion (Note 11)	700,194			704,136
Long-term debt, less current portion (Note 12)							710,458			702,549
Other liabilities	250,271			241,216			266,806			221,502
Total Liabilities	1,490,223			1,474,094			1,548,275			1,462,233
Shareholders’ Equity
Common shares	9,858			9,858			9,858			9,858
Additional paid-in capital	351,632			334,309			368,919			360,308
Retained earnings	2,461,130			2,388,219			2,661,720			2,564,440
Accumulated other comprehensive loss	(276,479		)	(247,186		)	(281,850		)	(293,739		)
Treasury shares	(1,603,409		)	(1,553,563		)	(1,913,219		)	(1,753,925		)
Total Shareholders’ Equity	942,732			931,637			845,428			886,942
Non-controlling interests	776			816			630			650
Total Equity (Note 7)	943,508			932,453
Total Equity							846,058			887,592
TOTAL LIABILITIES AND TOTAL EQUITY	$	2,433,731		$	2,406,547		$	2,394,333		$	2,349,825

See notes to these consolidated financial statements.

LINCOLN ELECTRIC HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF EQUITY

(UNAUDITED)

(In thousands, except per share amounts)



	Common Shares Outstanding		Common Shares		Additional Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Treasury Shares			Non-controlling Interests			Total
Balance at December 31, 2018	63,546		$	9,858	$	360,308		$	2,564,440		$	(293,739	)	$	(1,753,925	)	$	650		$	887,592
Net income								71,480									(14		)	71,466
Unrecognized amounts from defined benefit pension plans, net of tax											787									787
Unrealized gain on derivatives designated and qualifying as cash flow hedges, net of tax											329									329
Currency translation adjustment											5,099						37			5,136
Cash dividends declared – $0.47 per share								(29,847		)										(29,847		)
Stock-based compensation activity	148				3,302									1,484						4,786
Purchase of shares for treasury	(894	)												(75,584		)				(75,584		)
Other					808			(808		)										—
Balance at March 31, 2019	62,800		$	9,858	$	364,418		$	2,605,265		$	(287,524	)	$	(1,828,025	)	$	673		$	864,665
Net income								85,452									(8		)	85,444
Unrecognized amounts from defined benefit pension plans, net of tax											1,091									1,091
Unrealized loss on derivatives designated and qualifying as cash flow hedges, net of tax											(301		)							(301		)
Currency translation adjustment											4,884						(35		)	4,849
Cash dividends declared – $0.47 per share								(29,279		)										(29,279		)
Stock-based compensation activity	13				4,783									136						4,919
Purchase of shares for treasury	(1,034	)												(85,330		)				(85,330		)
Other					(282		)	282												—
Balance at June 30, 2019	61,779		$	9,858	$	368,919		$	2,661,720		$	(281,850	)	$	(1,913,219	)	$	630		$	846,058

LINCOLN ELECTRIC HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF EQUITY

(UNAUDITED)

(In thousands, except per share amounts)



	Common Shares Outstanding		Common Shares		Additional Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Treasury Shares			Non-controlling Interests			Total
Balance at December 31, 2017	65,663		$	9,858	$	334,309		$	2,388,219		$	(247,186	)	$	(1,553,563	)	$	816		$	932,453
Net income								60,824									(4		)	60,820
Unrecognized amounts from defined benefit pension plans, net of tax											1,287									1,287
Unrealized gain on derivatives designated and qualifying as cash flow hedges, net of tax											855									855
Currency translation adjustment											19,328						59			19,387
Cash dividends declared – $0.39 per share								(25,787		)										(25,787		)
Stock-based compensation activity	55				5,819									562						6,381
Purchase of shares for treasury	(159	)												(14,724		)				(14,724		)
Other					5,483			(5,483		)										—
Balance at March 31, 2018	65,559		$	9,858	$	345,611		$	2,417,773		$	(225,716	)	$	(1,567,725	)	$	871		$	980,672
Net income								68,864									(5		)	68,859
Unrecognized amounts from defined benefit pension plans, net of tax											721									721
Unrealized loss on derivatives designated and qualifying as cash flow hedges, net of tax											(1,232		)							(1,232		)
Currency translation adjustment											(50,252		)				(90		)	(50,342		)
Cash dividends declared – $0.39 per share								(25,701		)										(25,701		)
Stock-based compensation activity	15				6,215									(176		)				6,039
Purchase of shares for treasury	(402	)												(35,508		)				(35,508		)
Other					(194		)	194												—
Balance at June 30, 2018	65,172		$	9,858	$	351,632		$	2,461,130		$	(276,479	)	$	(1,603,409	)	$	776		$	943,508

LINCOLN ELECTRIC HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(In thousands)


	Six Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2019			2018
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	129,688		$	117,196		$	156,932		$	129,688
Non-controlling interests in subsidiaries’ loss	(9		)	(17		)	(22		)	(9		)
Net income including non-controlling interests	129,679			117,179			156,910			129,679
Adjustments to reconcile Net income including non-controlling interests to Net cash provided by operating activities:
Rationalization and asset impairment net charges (Note 6)	626			—			1,069			626
Depreciation and amortization	36,323			32,006			39,252			36,323
Equity earnings in affiliates, net	(1,377		)	(75		)	(1,217		)	(1,377		)
Deferred income taxes	4,969			6,396			2,674			4,969
Stock-based compensation	9,821			6,632			8,745			9,821
Pension (income) expense and settlement charges (Note 12)	(1,067		)	(2,679		)
Other, net	(7,075		)	1,436			(5,700		)	(8,142		)
Changes in operating assets and liabilities, net of effects from acquisitions:
Increase in accounts receivable	(39,907		)	(40,006		)	(21,271		)	(39,907		)
Increase in inventories	(27,899		)	(24,757		)	(27,767		)	(27,899		)
(Increase) decrease in other current assets	(13,839		)	2,639
Increase in trade accounts payable	4,861			12,619
Decrease (increase) in other current assets							11,135			(13,839		)
(Decrease) increase in trade accounts payable							(15,469		)	4,861
Increase in other current liabilities	26,223			36,230			2,812			26,223
Net change in other assets and liabilities	2,220			4,067			812			2,220
NET CASH PROVIDED BY OPERATING ACTIVITIES	123,558			151,687			151,985			123,558

CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures	(31,383		)	(28,131		)	(36,513		)	(31,383		)
Acquisition of businesses, net of cash acquired	6,235			—			(107,843		)	6,591
Proceeds from sale of property, plant and equipment	227			1,102			8,712			227
Purchase of marketable securities	(218,667		)	(69,934		)	—			(218,667		)
Proceeds from marketable securities	258,733			4,990			—			258,733
Other investing activities	356			—			2,000			—
NET CASH PROVIDED BY (USED BY) INVESTING ACTIVITIES	15,501			(91,973		)
NET CASH (USED BY) PROVIDED BY INVESTING ACTIVITIES							(133,644		)	15,501

CASH FLOWS FROM FINANCING ACTIVITIES
Amounts due banks, net	216			(192		)	29,982			216
Proceeds from long-term borrowings	—			15
Payments on long-term borrowings	(6		)	(34		)	(5		)	(6		)
Proceeds from exercise of stock options	2,599			13,397			960			2,599
Purchase of shares for treasury (Note 7)	(50,232		)	(7,748		)
Purchase of shares for treasury (Note 8)							(160,914		)	(50,232		)
Cash dividends paid to shareholders	(51,250		)	(46,016		)	(60,101		)	(51,250		)
Other financing activities	—			(15,189		)
NET CASH USED BY FINANCING ACTIVITIES	(98,673		)	(55,767		)	(190,078		)	(98,673		)

Effect of exchange rate changes on Cash and cash equivalents	(9,993		)	12,609			2,749			(9,993		)
INCREASE IN CASH AND CASH EQUIVALENTS	30,393			16,556
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS							(168,988		)	30,393

Cash and cash equivalents at beginning of period	326,701			379,179			358,849			326,701
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	357,094		$	395,735		$	189,861		$	357,094

See notes to these consolidated financial statements.

Table of Contents

LINCOLN ELECTRIC HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Dollars in thousands, except per share amounts

NOTE 1 — SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

As used in this report, the term “Company,” except as otherwise indicated by the context, means Lincoln Electric Holdings, Inc. and its wholly-owned and majority-owned subsidiaries for which it has a controlling interest.

The consolidated financial statements include the accounts of all legal entities in which the Company holds a controlling interest. The Company is also considered to have a controlling interest in a variable interest entity (“VIE”) if the Company determines it is the primary beneficiary of the VIE. Investments in legal entities in which the Company does not own a majority interest but has the ability to exercise significant influence over operating and financial policies are accounted for using the equity method.

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, these unaudited consolidated financial statements do not include all of the information and notes required by GAAP for complete financial statements. However, in the opinion of management, these unaudited consolidated financial statements contain all the adjustments (consisting of normal recurring accruals) considered necessary to present fairly the financial position, results of operations and cash flows for the interim periods. Operating results for the six months endedJune 30, ~~2018~~2019 are not necessarily indicative of the results to be expected for the year ending December 31, ~~2018.~~2019.

The accompanying Consolidated Balance Sheet at December 31, ~~2017~~2018 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, ~~2017.~~

~~Certain reclassifications have been made to the prior year financial statements to conform to current year classifications.~~2018.

New Accounting Pronouncements:

This section provides a description of new accounting pronouncements ("Accounting Standard Update" or "ASU") issued by the Financial Accounting Standards Board ("FASB") that are applicable to the Company.

The following ASUs were adopted as of January 1, ~~2018 and did not have a significant financial impact on the Company's consolidated financial statements unless otherwise described within the table below:~~



~~Standard~~	~~Description~~
~~ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, issued August 2017.~~	ASU 2017-12 provides updated guidance to more closely align hedge accounting with a company's risk management strategy, to simplify the application of hedge accounting and to better portray the economic results of hedging instruments in the financial statements. The Company early adopted the ASU on January 1, 2018.
~~ASU No. 2017-07, Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Period Pension Cost and Net Periodic Postretirement Benefit Cost, issued March 2017.~~	ASU 2017-07 requires an entity to report the service cost component of the net periodic benefit cost in the same income statement line item as other employee compensation costs. The other components of the net periodic benefit cost are required to be presented in the income statement separately from the service cost component and outside of any subtotal of operating income. Additionally, only the service cost component will be eligible for capitalization in assets. The impact of the adoption resulted in the reclassification of the other components of net periodic benefit cost from Cost of goods sold and Selling, general & administrative expenses to Other periodic pension income. The reclassification resulted in a decrease in Operating income of $2,069 as a result of an increase in Cost of goods sold of $1,177 and an increase in Selling, general & administrative expenses of $892 for the three months ended June 30, 2017. The reclassification resulted in a decrease in Operating income of $4,148 as a result of an increase in Cost of goods sold of $2,370 and an increase in Selling, general & administrative expenses of $1,778 for the six months ended June 30, 2017. Refer to Note 12 to the consolidated financial statements for details.

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~~LINCOLN ELECTRIC HOLDINGS, INC.~~

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

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

2019:



Standard	Description
~~ASU No. 2017-01,~~ ~~Business Combinations (Topic 805): Clarifying the Definition of a Business,~~ ~~issued January 2017.~~	~~ASU 2017-01 provides updated guidance for evaluating whether certain transactions should be accounted for as an acquisition (or disposal) of an asset or a business.~~
~~ASU No. 2016-18,~~ ~~Statement of Cash Flows(Topic 230): Restricted Cash,~~ ~~issued November 2016.~~	ASU 2016-18 requires amounts generally described as restricted cash and restricted cash equivalents be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows.
~~ASU No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory,~~ ~~issued October 2016.~~	~~ASU 2016-16 requires an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs.~~
~~ASU 2016-15,~~ ~~Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments,~~ ~~issued August 2016.~~	ASU 2016-15 reduces existing diversity in practice by addressing eight specific cash flow issues related to how certain cash receipts and cash payments are presented and classified in the statement of cash flows.
~~ASU 2014-09,~~ ~~Revenue from Contracts with Customers (Topic 606)~~ ~~issued May 2014andASU 2015-14,~~ ~~Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, issued August 2015.~~	ASU 2014-09 requires an entity to recognize revenue in a manner that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard also specifies the accounting of some costs to obtain or fulfill a contract with a customer and expands the disclosure requirements around contracts with customers. ASU 2015-14 deferred the effective date of ASU 2014-09 to annual reporting periods beginning after December 15, 2017, and interim periods within those fiscal years. The Company adopted ASU 2014-09 as of January 1, 2018 using the modified retrospective transition method applied to those contracts that were not completed as of that date. The adoption did not have a material impact on the consolidated financial statements. Refer to Note 2 to the consolidated financial statements for further details.

~~The Company is currently evaluating the impact on its financial statements of the following ASUs:~~



~~Standard~~	~~Description~~
ASU No. 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220), issued February 2018.	ASU 2018-02 allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the U.S. Tax Cuts and Jobs Act ~~(as defined within Note 14 to the consolidated financial statements)~~(the "U.S. Tax Act"). The ASU only applies to the income tax effects of the U.S. Tax ~~Act,~~Act; all other existing guidance remains the same. The ~~ASU is effective January 1, 2019, early adoption is permitted and~~Company has elected not to reclassify the ~~ASU should be applied retrospectively to each period impacted by~~income tax effects of the U.S. Tax ~~Act.~~Act from Accumulated other comprehensive loss to Retained earnings.
ASU No. 2016-02, Leases (Topic 842), issued February 2016 ~~and ASU 2018-10,~~ ~~Codification Improvements to Topic 842, Leases, issued July 2018.~~	ASU 2016-02 ("Topic 842") aims to increase transparency and comparability among organizations by recognizing ~~lease assets~~a right-of-use asset and lease ~~liabilities~~liability on the balance sheet ~~and requiring~~for all leases with a lease term greater than twelve months. Topic 842 also requires the disclosure of key information about leasing agreements. ~~ASU 2018-10 provides narrow amendments to clarify how to apply certain aspects~~The Company adopted Topic 842 using the modified retrospective transition option of applying the new ~~lease standard. Entities are required to recognize and measure leases~~standard at the beginning of the earliest period presented using a modified retrospective approach. The modified retrospective approach includes a number of optional practical expedients that entities may elect to apply. The ASU is effective January 1, 2019 and early adoption ~~is permitted.~~ date. The Company ~~has established a cross-functional team to implement~~also elected the ~~ASU and is in the process of determining the scope of impact and use~~package of practical expedients, ~~gathering data on all~~which among other things, allows it to not reassess the identification, classification and initial direct costs of leases ~~and designing a new system solution. The Company is also evaluating its processes and internal controls~~commencing before the effective date of Topic 842. Refer to ~~meet~~Note 10 to the ASU’s accounting, reporting and disclosure requirements. While the Company has not yet completed its evaluation of the ASU’s impact, the Company expects to recognize a right of use asset and a corresponding liability on the Consolidated Balance Sheets related to substantially all operating lease arrangements.consolidated financial statements for further details.

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LINCOLN ELECTRIC HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Dollars in thousands, except per share amounts

The Company is currently evaluating the impact on its financial statements of the following ASUs:



Standard	Description
ASU No. 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20), issued August 2018.	ASU 2018-14 modifies disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. The ASU also requires an entity to disclose the weighted-average interest crediting rates for cash balance plans and to explain the reasons for significant gains and losses related to changes in the benefit obligation. The ASU is effective January 1, 2020 and early adoption is permitted.
ASU No. 2018-13, Fair Value Measurement (Topic 944), issued August 2018.	ASU 2018-13 eliminates, amends and adds disclosure requirements related to fair value measurements. The ASU impacts various elements of fair value disclosure, including but not limited to, changes in unrealized gains or losses, significant unobservable inputs and measurement uncertainty. The ASU is effective January 1, 2020 and early adoption is permitted.
ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326), issued June 2016.	ASU 2016-13 requires that an entity measure impairment of certain financial instruments, including trade receivables, based on expected losses rather than incurred losses. The ASU is effective January 1, 2020 and early adoption is permitted.

NOTE 2 — REVENUE RECOGNITION

~~Adoption of ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)"~~

On January 1, 2018, the Company adopted ASU 2014-09 (“Topic 606”) using the modified retrospective method applied to those contracts which were not completed as of January 1, 2018. Results for reporting periods beginning after January 1, 2018 are presented under Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting. The cumulative impact of adopting Topic 606 as of January 1, 2018 did not have a material impact to the consolidated financial statements. The Company does not expect the impact of the adoption of Topic 606 to be material to the consolidated financial statements on an ongoing basis.

~~Revenue Recognition~~

Revenue is recognized when obligations under the terms of a contract are satisfied and control is transferred to the customer. Revenue is measured as the amount of consideration the Company expects to be entitled to in exchange for goods or services. The Company recognizes any discounts, credits, returns, rebates and incentive programs based on reasonable estimates as a reduction of sales to arrive at Net sales at the same time the related revenue is recorded. Taxes collected by the Company, including sales tax and value add tax, are excluded from Net sales. The Company recognizes freight billed as a component of Net sales and shipping costs as a component of Cost of goods sold when control transfers to the customer. Sales commissions are expensed when incurred because the amortization period is generally one year or less. These costs are recorded within Selling, general and administrative expenses in the Company's Consolidated Statements of Income.

The Company’s payment terms vary by the type and location of the customer and the products or services offered. The Company does not offer any payment terms that would meet the requirements for consideration as a financing component under Topic 606.

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



	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Consumables	$	444,850	$	461,040	$	887,808	$	902,931
Equipment	332,158		329,012		648,374		644,817
Net sales	$	777,008	$	790,052	$	1,536,182	$	1,547,748

Three Months Ended June 30, 2018 Six Months Ended June 30, 2018
Consumables $ 461,040
$ 902,931
Equipment 329,012
644,817
Net sales $ 790,052
$ 1,547,748

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, robotic welding packages, integrated automation systems, automation components, 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.

Substantially all of the Company's sales arrangements are short-term in nature involving a single performance obligation. The Company recognizes revenue when the performance obligation is satisfied and control of the product is transferred to the customer based upon shipping terms.

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. In addition, ~~for~~ certain customized automation ~~deliverables~~performance obligations within the Equipment product line, ~~there~~ are ~~contracts~~ accounted for over time. Under this method, revenue recognition is primarily based upon the ratio of costs incurred to date compared with estimated total costs to complete. The cumulative impact of revisions to total estimated costs is reflected in the period of the change, including anticipated losses. Less than 10% of the Company's Net sales are recognized over time.

At June 30, ~~2018,~~2019, the Company recorded ~~$16,247~~$20,730 related to advance customer payments and ~~$14,418~~$8,752 related to billings in excess of revenue recognized. These contract liabilities are included in Other current liabilities in the Condensed Consolidated Balance Sheets. At ~~January 1,~~December 31, 2018, the balances related to advance customer payments and billings in excess of revenue recognized were ~~$19,683~~$17,023 and ~~$11,132,~~$17,013, 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 June 30, 2019 and December 31, 2018, $32,705 and ~~January 1, 2018, $32,262 and $22,229,~~$25,032, respectively, related to these future customer receivables was included in Other current assets in the Condensed Consolidated Balance Sheets. Contract asset amounts are expected to be billed within the next twelve months.

910

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Dollars in thousands, except per share amounts

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,
	2019		2018		2019		2018
Numerator:
Net income	$	85,452	$	68,864	$	156,932	$	129,688
Denominator (shares in 000's):
Basic weighted average shares outstanding	62,305		65,337		62,733		65,458
Effect of dilutive securities - Stock options and awards	665		784		686		799
Diluted weighted average shares outstanding	62,970		66,121		63,419		66,257
Basic earnings per share	$	1.37	$	1.05	$	2.50	$	1.98
Diluted earnings per share	$	1.36	$	1.04	$	2.47	$	1.96

Three Months Ended June 30, Six Months Ended June 30,
2018 2017 2018 2017
Numerator:

Net income $ 68,864
$ 61,352
$ 129,688
$ 117,196
Denominator (shares in 000's):

Basic weighted average shares outstanding 65,337
65,811
65,458
65,750
Effect of dilutive securities - Stock options and awards 784
932
799
916
Diluted weighted average shares outstanding 66,121
66,743
66,257
66,666
Basic earnings per share $ 1.05
$ 0.93
$ 1.98
$ 1.78
Diluted earnings per share $ 1.04
$ 0.92
$ 1.96
$ 1.76

For the three months ended June 30, ~~2018~~2019 and ~~2017,~~2018, common shares subject to equity-based awards of ~~346,168~~548,049 and ~~179,178,~~346,168, respectively, were excluded from the computation of diluted earnings per share because the effect of their exercise would be anti-dilutive. For the six months ended June 30, ~~2018~~2019 and ~~2017,~~2018, common shares subject to equity-based awards of ~~303,207~~346,168 and ~~133,748,~~303,207, respectively, were excluded from the computation of diluted earnings per share because the effect of their exercise would be anti-dilutive.

NOTE 4 — ACQUISITIONS

OnDuring July ~~31, 2017,~~2019, the Company ~~completed its acquisition~~acquired the controlling stake of ~~Air Liquide Welding,~~Kaynak Tekniği Sanayi ve Ticaret A.Ş. (“Askaynak”). Askaynak is a ~~subsidiary~~supplier and manufacturer of Air Liquide. The agreed upon purchase price was $135,123, which was adjusted for certain debt like obligations, for a net purchase price of $61,953, net of cash acquired. The primary debt like obligations were pension liabilities.welding consumables, arc welding equipment, including plasma and oxy-fuel cutting equipment, and robotic welding systems located in Turkey. The acquisition ~~was accounted for as~~advances the Company's regional growth strategy in Europe, the Middle East and Africa.

During April 2019, the Company acquired Baker Industries, Inc. ("Baker"). Baker, based in Detroit, Michigan, is a provider of custom tooling, parts and fixtures primarily serving automotive and aerospace markets. The acquisition compliments the Company's automation portfolio and its metal additive manufacturing service business.

During December 2018, the Company acquired the soldering business ~~combination.~~of Worthington Industries (“Worthington”). The ~~funding~~Worthington business, based in Winston Salem, North Carolina, broadens The Harris Products Group’s portfolio of industry-leading consumables with the ~~cash portion~~addition of premium solders and fluxes.

Also during December 2018, the ~~purchase price~~Company acquired Coldwater Machine Company (“Coldwater”) and ~~acquisition costs was provided for with available cash.~~

Pro Systems. Coldwater, based in Coldwater, Ohio, is a flexible automation integrator and precision machining and assembly manufacturer serving diverse end markets. Pro Systems, based in Churubusco, Indiana, is an automation systems designer and integrator serving automotive, industrial, electrical and medical applications. The ~~complementary business enhanced~~acquisitions accelerate growth and expand the Company’s ~~global specialty consumables~~industry-leading portfolio of automated cutting and ~~extended its channel reach~~joining solutions.

Also during December 2018, the Company acquired Inovatech Engineering Corporation (“Inovatech”). Inovatech, based in Ontario, Canada, is a manufacturer of advanced robotic plasma cutting solutions for ~~equipment systems and cutting, soldering and brazing solutions in Europe.~~structural steel applications. The acquisition ~~also offers European customers more comprehensive welding~~scales the Company's automated cutting solutions ~~greater technical~~and application expertise and ~~improved service levels.~~

~~The fair value of the net assets acquired exceeded the purchase consideration by $49,650, resulting~~supports long-term growth in ~~a bargain purchase gain at acquisition, which was included in Bargain purchase gain in the Company’s Consolidated Statements of Income for the year ended December 31, 2017. The Company believes~~ that the bargain purchase gain was primarily the result of the divestiture by Air Liquide of the welding business, which was outside Air Liquide’s core business, as part of an overall repositioning of its core business. The Company anticipates future integration initiatives are necessary in order to achieve commercial and operational synergies. The assets and liabilities assumed and presented in the table below are based on available information and may be revised during the measurement period, not to exceed 12 months from the acquisition date, if additional information becomes available.

~~Table of Contents~~

~~LINCOLN ELECTRIC HOLDINGS, INC.~~

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

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

~~The following table summarizes the purchase price allocation for the Air Liquide Welding acquisition:~~

Assets acquired and liabilities assumed As of July 31, 2017
Accounts receivable $ 89,442
Inventory ⁽¹⁾
97,803
Property, plant and equipment ⁽²⁾
73,056
Intangible assets ⁽³⁾
11,715
Accounts payable (65,640 )
Pension liability (67,563 )
Bargain purchase gain (49,650 )
Net other assets and liabilities ⁽⁴⁾
(27,210 )
Total purchase price, net of cash acquired⁽⁵⁾
$ 61,953


~~(1)~~	Inventories acquired were sold in 2017 resulting in a $4,578 increase in Cost of goods sold for the year ended December 31, 2017 related to the amortization of step up in the value of acquired inventories.


~~(2)~~	Property, plant and equipment acquired includes a number of manufacturing and distribution sites, including the related facilities, land and leased sites, and machinery and equipment for use in manufacturing operations.


~~(3)~~	$7,099 of the intangible asset balance was assigned to a trade name expected to have an indefinite life. Of the remaining amount, $1,183 was assigned to a finite-lived trade name (10 year weighted average useful life) and $3,433 was assigned to other intangible assets (9 year weighted average life).


~~(4)~~	~~Consists primarily of other accrued liabilities.~~

~~(5) Reflects a receivable from seller for an agreed upon purchase price adjustment. The payment of $10,983 was received in the first quarter of 2018.~~

In the three and six months ended June 30, 2018, the Company recognized $788 and $2,695, respectively, in acquisition transaction and integration costs related to the acquisition of Air Liquide Welding. In the three and six months ended June 30, 2017, the Company recognized $4,498 and $8,113, respectively, in acquisition transaction and integration costs related to the acquisition of Air Liquide Welding. Such costs were expensed as incurred and are included in Selling, general & administrative expenses in the Company's Consolidated Statements of Income.

In 2016, the Air Liquide Welding businesses generated sales of approximately $400 million. Beginning August 1, 2017, the Company's Consolidated Statements of Income include the results of the Air Liquide Welding businesses, including sales revenue of $207 million for the six months ended June 30, 2018.market.

Pro forma information related to ~~this acquisition~~the acquisitions discussed above has not been presented because the impact on the Company’s Consolidated Statements of Income is not material. Acquired companies are included in the Company's consolidated financial statements as of the date of acquisition.

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LINCOLN ELECTRIC HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Dollars in thousands, except per share amounts

NOTE 5 — SEGMENT INFORMATION

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 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 ~~profit~~ 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

~~Financial information for the reportable segments follows:~~The following table presents Adjusted EBIT by segment:


	Americas Welding		International Welding		The Harris Products Group		Corporate / Eliminations			Consolidated			Americas Welding		International Welding			The Harris Products Group		Corporate / Eliminations			Consolidated
Three Months Ended June 30, 2018
Three Months Ended June 30, 2019
Net sales	$	462,515	$	243,373	$	84,164	$	—		$	790,052		$	476,607	$	212,306		$	88,095	$	—		$	777,008
Inter-segment sales	31,240		5,497		2,003		(38,740		)	—			34,811		4,188			2,113		(41,112		)	—
Total	$	493,755	$	248,870	$	86,167	$	(38,740	)	$	790,052		$	511,418	$	216,494		$	90,208	$	(41,112	)	$	777,008

Adjusted EBIT	$	88,158	$	16,276	$	10,157	$	(3,186	)	$	111,405		$	84,851	$	15,178		$	13,488	$	(3,969	)	$	109,548
Special items charge (gain) ⁽¹⁾	—		11,542		—		788			12,330			1,779		(2,627		)	—		1,014			166
EBIT	$	88,158	$	4,734	$	10,157	$	(3,974	)	$	99,075		$	83,072	$	17,805		$	13,488	$	(4,983	)	$	109,382
Interest income										1,808													592
Interest expense										(6,620		)											(6,490		)
Income before income taxes										$	94,263												$	103,484
Three Months Ended June 30, 2017
Three Months Ended June 30, 2018
Net sales	$	405,147	$	141,498	$	80,213	$	—		$	626,858		$	462,515	$	243,373		$	84,164	$	—		$	790,052
Inter-segment sales	27,374		5,478		2,399		(35,251		)	—			31,240		5,497			2,003		(38,740		)	—
Total	$	432,521	$	146,976	$	82,612	$	(35,251	)	$	626,858		$	493,755	$	248,870		$	86,167	$	(38,740	)	$	790,052

Adjusted EBIT	$	74,498	$	9,496	$	9,787	$	(265	)	$	93,516		$	88,158	$	16,276		$	10,157	$	(3,186	)	$	111,405
Special items charge (gain) ⁽²⁾	—		—		—		4,498			4,498			—		11,542			—		788			12,330
EBIT	$	74,498	$	9,496	$	9,787	$	(4,763	)	$	89,018		$	88,158	$	4,734		$	10,157	$	(3,974	)	$	99,075
Interest income										1,245													1,808
Interest expense										(6,297		)											(6,620		)
Income before income taxes										$	83,966												$	94,263
Six Months Ended June 30, 2018
Six Months Ended June 30, 2019
Net sales	$	897,287	$	490,693	$	159,768	$	—		$	1,547,748		$	934,326	$	430,392		$	171,464	$	—		$	1,536,182
Inter-segment sales	57,826		10,006		3,910		(71,742		)	—			64,199		8,397			3,980		(76,576		)	—
Total	$	955,113	$	500,699	$	163,678	$	(71,742	)	$	1,547,748		$	998,525	$	438,789		$	175,444	$	(76,576	)	$	1,536,182

Adjusted EBIT	$	165,597	$	31,249	$	19,382	$	(3,344	)	$	212,884		$	166,603	$	28,515		$	24,007	$	(7,011	)	$	212,114
Special items charge (gain) ⁽¹⁾	758		21,717		—		2,695			25,170			3,115		(428		)	—		1,804			4,491
EBIT	$	164,839	$	9,532	$	19,382	$	(6,039	)	$	187,714		$	163,488	$	28,943		$	24,007	$	(8,815	)	$	207,623
Interest income										3,280													1,556
Interest expense										(12,533		)											(12,777		)
Income before income taxes										$	178,461												$	196,402
Six Months Ended June 30, 2017
Six Months Ended June 30, 2018
Net sales	$	788,471	$	270,386	$	148,898	$	—		$	1,207,755		$	897,287	$	490,693		$	159,768	$	—		$	1,547,748
Inter-segment sales	49,834		9,763		4,699		(64,296		)	—			57,826		10,006			3,910		(71,742		)	—
Total	$	838,305	$	280,149	$	153,597	$	(64,296	)	$	1,207,755		$	955,113	$	500,699		$	163,678	$	(71,742	)	$	1,547,748

Adjusted EBIT	$	143,221	$	19,101	$	18,247	$	(201	)	$	180,368		$	165,597	$	31,249		$	19,382	$	(3,344	)	$	212,884
Special items charge (gain) ⁽²⁾	—		—		—		8,113			8,113			758		21,717			—		2,695			25,170
EBIT	$	143,221	$	19,101	$	18,247	$	(8,314	)	$	172,255		$	164,839	$	9,532		$	19,382	$	(6,039	)	$	187,714
Interest income										2,022													3,280
Interest expense										(12,411		)											(12,533		)
Income before income taxes										$	161,866												$	178,461


(1)	In the three months ended June 30, 2019, special items reflect Rationalization and asset impairment charges of $380 in Americas Welding and $927 in International Welding, amortization of step up in value of acquired inventories of $1,399

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Dollars in thousands, except per share amounts

in Americas Welding, gains on disposal of assets of $3,554 in International Welding and transaction and integration costs of $1,014 in Corporate / Eliminations related to the Air Liquide Welding acquisition. In the six months ended June 30, 2019, special items reflect Rationalization and asset impairment charges of $1,716 in Americas Welding and $3,126 in International Welding, amortization of step up in value of acquired inventories of $1,399 in Americas Welding, gains on disposals of assets of $3,554 in International Welding and transaction and integration costs of $1,804 in Corporate / Eliminations related to the Air Liquide Welding acquisition.

~~(1)~~(2)

In the three months ended June 30, 2018, special items reflect rationalization and asset impairment charges of $11,542 in International Welding and transaction and integration costs of $788 in ~~Corporate/~~Corporate / Eliminations related to the Air Liquide Welding ~~acquisition as discussed in Note 4 to the consolidated financial statements.~~acquisition. In the six months ended June 30, 2018, special items reflect pension settlement charges of $758 in Americas Welding, ~~rationalization~~Rationalization and asset impairment charges of $21,717 in International Welding and transaction and integration costs of $2,695 in Corporate / Eliminations related to the Air Liquide Welding ~~acquisition as discussed in Note 4 to the consolidated financial statements.~~acquisition.


~~(2)~~	In the three and six months ended June 30, 2017, special items in Corporate / Eliminations reflect transaction and integration costs of $4,498 and $8,113, respectively, related to the Air Liquide Welding acquisition as discussed in Note 4 to the consolidated financial statements.

NOTE 6 — RATIONALIZATION AND ASSET IMPAIRMENTS

The Company recorded rationalization and asset impairment net charges of ~~$21,717~~$4,842 in the six months ended June 30, ~~2018.~~2019. The ~~2018~~2019 charges are primarily related to employee severance, asset impairments and ~~other costs. A description~~gains or losses on the disposal of assets.

During 2019, the Company initiated rationalization plans within International Welding. The plans include headcount restructuring and the consolidation of manufacturing operations to better align the cost structure with economic conditions and operating needs. At June 30, 2019, liabilities of $1,583 were recognized in Other current liabilities in the Company's ~~restructuring plans and the related costs is as follows:~~Condensed Consolidated Balance Sheet.

During 2018, the Company initiated rationalization plans within International Welding. The plans include headcount restructuring and the consolidation of manufacturing operations to better align the cost ~~structures~~structure with economic conditions and operating needs. At June 30, ~~2018,~~2019, liabilities of ~~$14,043~~$1,553 were recognized in Other current liabilities in the Company's Condensed Consolidated Balance Sheet.

During 2017, the Company initiated rationalization plans within International Welding. The plans includes headcount restructuring and the consolidation of manufacturing operations to better align the cost structures with economic conditions and operating needs. At June 30, 2018, liabilities of $246 were recognized in Other current liabilities in the Company's Condensed Consolidated Balance Sheet.

~~As of June 30, 2018, the Company expects additional charges of approximately $5,000 to be recorded related to the completion of the International Welding plans.~~

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 ~~the~~ rationalization ~~liabilities in the International Welding segment:~~liabilities:



	Six Months Ended June 30, 2019
Balance, December 31, 2018	$	11,192
Payments and other adjustments	(10,769		)
Charged to expense	3,773
Balance, June 30, 2019	$	4,196

Six Months Ended June 30, 2018
Balance, December 31, 2017 $ 6,803
Payments and other adjustments (10,477 )
Charged to expense 21,091
Balance, June 30, 2018 $ 17,417

1314

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LINCOLN ELECTRIC HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Dollars in thousands, except per share amounts

NOTE 7 ~~— EQUITY~~

~~Changes in equity for the~~ ~~six months endedJune 30, 2018~~ ~~are as follows:~~

Shareholders’
Equity

Non-controlling
Interests
Total Equity
Balance at December 31, 2017 $ 931,637
$ 816
$ 932,453
Comprehensive income (loss):

Net income 129,688
(9 ) 129,679
Other comprehensive income (loss) (29,293 ) (31 ) (29,324 )
Total comprehensive income (loss) 100,395
(40 ) 100,355

Cash dividends declared - $0.78 per share (51,488 ) —
(51,488 )
Issuance of shares under benefit plans 12,420
—
12,420
Purchase of shares for treasury ⁽¹⁾
(50,232 ) —
(50,232 )
Balance at June 30, 2018 $ 942,732
$ 776
$ 943,508


~~(1)~~	The Company's total common shares authorized to be repurchased under the current repurchase program is 55 million shares. As of June 30, 2018, there remained 7.9 million common shares available for repurchase under this program. The repurchased common shares remain in treasury and have not been retired.

– 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, for the three months ended June 30, ~~2018~~2019 and ~~2017:~~2018:


																Three Months Ended June 30, 2019
																Unrealized gain (loss) on derivatives designated and qualifying as cash flow hedges				Defined benefit pension plan activity				Currency translation adjustment				Total
Balance at March 31, 2019																$	2,023			$	(81,262	)		$	(208,285	)		$	(287,524	)
Other comprehensive income (loss) before reclassification																107				—				4,884			³	4,991
Amounts reclassified from AOCI																(408		)	¹	1,091			²	—				683
Net current-period other comprehensive income (loss)																(301		)		1,091				4,884				5,674
Balance at June 30, 2019																$	1,722			$	(80,171	)		$	(203,401	)		$	(281,850	)

	Three Months Ended June 30, 2018															Three Months Ended June 30, 2018
	Unrealized gain (loss) on derivatives designated and qualifying as cash flow hedges				Defined benefit pension plan activity				Currency translation adjustment				Total			Unrealized gain (loss) on derivatives designated and qualifying as cash flow hedges				Defined benefit pension plan activity				Currency translation adjustment				Total
Balance at March 31, 2018	$	1,730			$	(83,990	)		$	(143,456	)		$	(225,716	)	$	1,730			$	(83,990	)		$	(143,456	)		$	(225,716	)
Other comprehensive income (loss) before reclassification	(1,241		)		—				(50,252		)	³	(51,493		)	(1,241		)		—				(50,252		)	³	(51,493		)
Amounts reclassified from AOCI	9			¹	721			²	—				730			9			¹	721			²	—				730
Net current-period other comprehensive income (loss)	(1,232		)		721				(50,252		)		(50,763		)	(1,232		)		721				(50,252		)		(50,763		)
Balance at June 30, 2018	$	498			$	(83,269	)		$	(193,708	)		$	(276,479	)	$	498			$	(83,269	)		$	(193,708	)		$	(276,479	)

	Three Months Ended June 30, 2017
	Unrealized gain (loss) on derivatives designated and qualifying as cash flow hedges				Defined benefit pension plan activity				Currency translation adjustment				Total
Balance at March 31, 2017	$	2,111			$	(95,225	)		$	(205,174	)		$	(298,288	)
Other comprehensive income (loss) before reclassification	(1,276		)		—				25,330			³	24,054
Amounts reclassified from AOCI	999			¹	712			²	—				1,711
Net current-period other comprehensive income (loss)	(277		)		712				25,330				25,765
Balance at June 30, 2017	$	1,834			$	(94,513	)		$	(179,844	)		$	(272,523	)

(1)

During the ~~2018~~2019 period, this AOCI reclassification is a component of Net sales of $286 (net of tax of $101) and Cost of goods sold of $(122) (net of tax of $(30)); during the 2018 period, the reclassification is a component of Net sales of $(23) (net of tax of $(14)) and Cost of goods sold of $(14) (net of tax of $(6))~~; during the 2017 period, the reclassification is a component of Net sales of $797 (net of tax of $291) and Cost of goods sold of $202 (net of tax of $70)~~. See Note 1516 to the consolidated financial statements for additional details.

~~Table of Contents~~

~~LINCOLN ELECTRIC HOLDINGS, INC.~~

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

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


(2)	This AOCI component is included in the computation of net periodic pension costs (net of tax of ~~$218~~$(90) and ~~$149~~$218 during the three months ended June 30, ~~2018~~2019 and ~~2017,~~2018, respectively). See Note 1213 to the consolidated financial statements for additional details.


(3)	The Other comprehensive income (loss) before reclassifications excludes ~~$(90)~~$(35) and ~~$26~~$(90) attributable to Non-controlling interests in the three months ended June 30, ~~2018~~2019 and ~~2017,~~2018, respectively.

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LINCOLN ELECTRIC HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Dollars in thousands, except per share amounts

The following tables set forth the total changes in ~~AOCI~~accumulated other comprehensive income (loss) ("AOCI") by component, net of taxes, for the six months ended June 30, ~~2018~~2019 and ~~2017:~~2018:


																Six Months Ended June 30, 2019
																Unrealized gain (loss) on derivatives designated and qualifying as cash flow hedges				Defined benefit pension plan activity				Currency translation adjustment				Total
Balance at December 31, 2018																$	1,694			$	(82,049	)		$	(213,384	)		$	(293,739	)
Other comprehensive income (loss) before reclassification																789				—				9,983			³	10,772
Amounts reclassified from AOCI																(761		)	¹	1,878			²	—				1,117
Net current-period other comprehensive income (loss)																28				1,878				9,983				11,889
Balance at June 30, 2019																$	1,722			$	(80,171	)		$	(203,401	)		$	(281,850	)

	Six Months Ended June 30, 2018															Six Months Ended June 30, 2018
	Unrealized gain (loss) on derivatives designated and qualifying as cash flow hedges				Defined benefit pension plan activity				Currency translation adjustment				Total			Unrealized gain (loss) on derivatives designated and qualifying as cash flow hedges				Defined benefit pension plan activity				Currency translation adjustment				Total
Balance at December 31, 2017	$	875			$	(85,277	)		$	(162,784	)		$	(247,186	)	$	875			$	(85,277	)		$	(162,784	)		$	(247,186	)
Other comprehensive income (loss) before reclassification	(231		)		—				(30,924		)	³	(31,155		)	(231		)		—				(30,924		)	³	(31,155		)
Amounts reclassified from AOCI	(146		)	¹	2,008			²	—				1,862			(146		)	¹	2,008			²	—				1,862
Net current-period other comprehensive income (loss)	(377		)		2,008				(30,924		)		(29,293		)	(377		)		2,008				(30,924		)		(29,293		)
Balance at June 30, 2018	$	498			$	(83,269	)		$	(193,708	)		$	(276,479	)	$	498			$	(83,269	)		$	(193,708	)		$	(276,479	)

	Six Months Ended June 30, 2017
	Unrealized gain (loss) on derivatives designated and qualifying as cash flow hedges				Defined benefit pension plan activity				Currency translation adjustment				Total
Balance at December 31, 2016	$	587			$	(95,939	)		$	(233,685	)		$	(329,037	)
Other comprehensive income (loss) before reclassification	267				—				53,841			³	54,108
Amounts reclassified from AOCI	980			¹	1,426			²	—				2,406
Net current-period other comprehensive income (loss)	1,247				1,426				53,841				56,514
Balance at June 30, 2017	$	1,834			$	(94,513	)		$	(179,844	)		$	(272,523	)

(1)

During the 2019 period, this AOCI reclassification is a component of Net sales of $572 (net of tax of $203) and Cost of goods sold of $(189) (net of tax of $(60)); during the 2018 period, the ~~AOCI~~ reclassification is a component of Net sales of $112 (net of tax of $(6)) and Cost of goods sold of $(34) (net of tax of $(19))~~; during the 2017 period, the AOCI reclassification is a component of Net sales of $612 (net of tax of $204) and Cost of goods sold of $368 (net of tax of $181)~~. See Note 1516 to the consolidated financial statements for additional details.


(2)	~~The~~This AOCI component is included in the computation of net periodic pension costs (net of tax of ~~$649~~$137 and ~~$362~~$649 during the six months ended June 30, ~~2018~~2019 and ~~2017,~~2018, respectively). See Note 1213 to the consolidated financial statements for additional details.


(3)	The Other comprehensive income (loss) before reclassifications excludes ~~$(31)~~$2 and ~~$48~~$(31) attributable to Non-controlling interests in the six months ended June 30, ~~2018~~2019 and ~~2017,~~2018, respectively.

NOTE 8 — COMMON STOCK REPURCHASE PROGRAM

The Company has a share repurchase program for up 55 million shares of the Company's common shares. 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 June 30, 2019, the Company purchased a total of 1.0 million shares at an average cost per share of $82.51. During the six months ended June 30, 2019, the Company purchased a total of 1.9 million shares at an average cost per share of $83.33. As of June 30, 2019, there remained 4.3 million common shares available for repurchase under this program. The repurchased common shares remain in treasury and have not been retired.

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LINCOLN ELECTRIC HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Dollars in thousands, except per share amounts

NOTE 89 — ~~INVENTORY~~INVENTORIES

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



	June 30, 2019		December 31, 2018
Raw materials	$	99,219	$	103,820
Work-in-process	70,066		53,950
Finished goods	228,467		204,059
Total	$	397,752	$	361,829

June 30, 2018 December 31, 2017
Raw materials $ 106,464
$ 97,577
Work-in-process 52,827
50,695
Finished goods 206,343
200,395
Total $ 365,634
$ 348,667

At June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, approximately ~~37%~~36% and ~~32%~~37%, respectively, of total inventories were valued using the last-in, ~~first out~~first-out ("LIFO") ~~method, respectively.~~method. The excess of current cost over LIFO cost was ~~$74,814~~$78,760 and $79,626 at June 30, ~~2018~~2019 and ~~$68,641 at~~ December 31, ~~2017.~~2018, respectively.

~~NOTE 9 — CONTINGENCIES~~

The Company, like other manufacturers, is subject from time to time to a variety of civil and administrative proceedings arising in the ordinary course of business. Such claims and litigation include, without limitation, product liability claims, regulatory claims, employment-related claims and health, safety and environmental claims, some of which relate to cases alleging asbestos induced illnesses. The claimants in the asbestos cases seek compensatory and punitive damages, in most cases for unspecified amounts. The Company believes it has meritorious defenses to these claims and intends to contest such suits vigorously.

The Company accrues its best estimate of the probable costs, after a review of the facts with management and counsel and taking into account past experience. For claims or litigation that are material, if an unfavorable outcome is determined to be reasonably possible and the amount of loss can be reasonably estimated, or if an unfavorable outcome is determined to be probable and the amount of loss cannot be reasonably estimated, disclosure would be provided. Many of the current cases are in differing procedural stages and information on the circumstances of each claimant, which forms the basis for judgments as to the validity or ultimate disposition of such actions, varies greatly. Therefore, in many situations a range of possible losses cannot be made. Reserves are adjusted as facts and circumstances change and related management assessments of the underlying merits and the likelihood of outcomes change. Moreover, reserves only cover identified and/or asserted claims. Future claims could, therefore, give rise to increases to such reserves.

Based on the Company's historical experience in litigating product liability claims, including a significant number of dismissals, summary judgments and defense verdicts in many cases and immaterial settlement amounts, as well as the Company's current assessment of the underlying merits of the claims and applicable insurance, the Company believes resolution of these claims and proceedings, individually or in the aggregate, will not have a material effect on the Company's consolidated financial statements.

NOTE 10 — ~~PRODUCT WARRANTY COSTS~~LEASES

On January 1, 2019, the Company adopted Topic 842 using the modified retrospective transition option. The adoption of Topic 842 resulted in the recording of right-of-use assets and lease liabilities for the Company's operating 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, 2019
Right-of-use assets	Other assets	$	58,363

Current liabilities	Other current liabilities	$	14,362
Noncurrent liabilities	Other liabilities	44,326
Total lease liabilities		$	58,688

Topic 842 did not materially impact our consolidated net earnings, cash flows or debt covenants.

The ~~changes~~Company determines if an agreement is a lease at inception. Right-of-use assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease right-of-use assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. As most of the Company’s operating leases do not provide an implicit rate, the Company uses a discount rate based on information available at commencement date to present value the lease payments.

The Company has operating leases for sales offices, manufacturing facilities, warehouses and distribution centers, transportation equipment, office equipment and information technology equipment. Some of these leases are noncancelable. Variable or short term lease costs contained within the Company’s operating leases are not material. Most leases include one or more options to renew, which can extend the lease term from 1 year to 11 years or more. The exercise of lease renewal options is at the Company's sole discretion. Certain leases also include options to purchase the leased property. Leases with an initial term of 12 months or less are not recorded on the Company's Condensed Consolidated Balance sheets. The Company recognizes lease expense for these leases on a straight-line basis over the lease term.

The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise. The Company's lease agreements do not contain any material residual value guarantees or material restrictive covenants.

Total lease expense, which is included in Cost of goods sold and Selling, general and administrative expenses in the ~~carrying amount~~Company's Consolidated Statements of ~~product warranty accruals are as follows:~~Income, was $6,546 and $12,435 in the three and six months ended June 30, 2019, respectively. Cash paid for amounts included in the measurement of lease liabilities for the three and six months ended June 30, 2019 respectively was $4,549 and $9,233 and is 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 during the three and six months ended June 30, 2019 were $9,717 and $14,673, respectively.

Six Months Ended June 30,
2018 2017
Balance at beginning of year $ 22,029
$ 21,053
Accruals for warranties 4,818
6,464
Settlements (5,127 ) (6,369 )
Foreign currency translation and other adjustments (169 ) 191
Balance at June 30 $ 21,551
$ 21,339

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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:



	June 30, 2019
2019	$	8,330
2020	14,777
2021	11,441
2022	8,760
2023	7,128
After 2023	16,632
Total lease payments	$	67,068
Less: Imputed interest	(8,380		)
Operating lease liabilities	$	58,688

As of June 30, 2019, the weighted average remaining lease term is 6.4 years and the weighted average discount rate used to determine the operating lease liability is 3.6%.

NOTE 11— PRODUCT WARRANTY COSTS

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



	Six Months Ended June 30,
	2019			2018
Balance at beginning of year	$	19,778		$	22,029
Accruals for warranties	5,121			4,818
Settlements	(5,720		)	(5,127		)
Foreign currency translation and other adjustments	33			(169		)
Balance at June 30	$	19,212		$	21,551

NOTE 12—DEBT

Revolving Credit Agreement

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 ~~five-year~~ term of 5 years and may be increased, subject to certain conditions, by an additional amount up to ~~$100,000.~~$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 Company amended and restated the Credit Agreement on June 30, 2017, extending the maturity of the line of credit to June 30, ~~2022.~~2022. 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 June 30, ~~2018,~~2019, the Company was in compliance with all of its covenants and had no$30,000 of 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,~~$350,000, comprised of four different series ranging from ~~$50,000~~$50,000 to ~~$100,000,~~$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 ~~initial~~ tenure of the Notes is 3.3% and 1815 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, ~~2018,~~2019, the Company was in compliance with all of its debt covenants relating to the Notes.

Table of Contents

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 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, 2019, the Company was in compliance with all of its covenants and had no outstanding borrowings under the Shelf Agreements.

NOTE 1213—RETIREMENT AND POSTRETIREMENT BENEFIT PLANS

The components of total pension cost were as follows:



	Three Months Ended June 30,												Six Months Ended June 30,
	2019						2018						2019						2018
	U.S. pension plans			Non-U.S. pension plans			U.S. pension plans			Non-U.S. pension plans			U.S. pension plans			Non-U.S. pension plans			U.S. pension plans			Non-U.S. pension plans
Service cost	$	35		$	701		$	35		$	832		$	70		$	1,429		$	70		$	1,683
Interest cost	4,653			922			4,493			937			9,306			1,858			8,987			1,907
Expected return on plan assets	(6,245		)	(1,106		)	(6,915		)	(1,266		)	(12,490		)	(2,230		)	(13,831		)	(2,540		)
Amortization of prior service cost	—			15			—			—			—			31			—			1
Amortization of net loss	414			572			384			555			827			1,157			768			1,130
Settlement charges ⁽¹⁾	—			—			—			—			—			—			758			—
Defined benefit plans	(1,143		)	1,104			(2,003		)	1,058			(2,287		)	2,245			(3,248		)	2,181
Multi-employer plans	—			243			—			234			—			490			—			461
Defined contribution plans	5,791			424			5,610			1,036			11,699			923			11,504			1,865
Total pension cost	$	4,648		$	1,771		$	3,607		$	2,328		$	9,412		$	3,658		$	8,256		$	4,507

Three Months Ended June 30, Six Months Ended June 30,
2018 2017 2018 2017
U.S. pension plans Non-U.S. pension plans U.S. pension plans Non-U.S. pension plans U.S. pension plans Non-U.S. pension plans U.S. pension plans Non-U.S. pension plans
Service cost $ 35
$ 832
$ 146
$ 589
$ 70
$ 1,683
$ 296
$ 1,173
Interest cost 4,493
937
4,870
672
8,987
1,907
9,740
1,334
Expected return on plan assets (6,915 ) (1,266 ) (7,671 ) (955 ) (13,831 ) (2,540 ) (15,342 ) (1,899 )
Amortization of prior service cost —
—
—
4
—
1
—
8
Amortization of net loss 384
555
547
464
768
1,130
1,094
917
Settlement charges ⁽¹⁾
—
—
—
—
758
—
—
—
Defined benefit plans (2,003 )
1,058
(2,108 ) 774
(3,248 ) 2,181
(4,212 ) 1,533
Multi-employer plans —
234
—
224
—
461
—
417
Defined contribution plans 5,610
1,036
5,436
368
11,504
1,865
11,834
734
Total pension cost $ 3,607
$ 2,328
$ 3,328
$ 1,366
$ 8,256
$ 4,507
$ 7,622
$ 2,684

(1) Pension settlement charges resulting from a lump sum pension ~~payment~~payments in the six months ended June 30, 2018.

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.

NOTE 14—OTHER INCOME (EXPENSE)

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



	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Equity earnings in affiliates	$	1,790	$	1,559	$	2,796	$	2,759
Other components of net periodic pension (cost) income ⁽¹⁾	775		1,812		1,541		2,820
Other income	1,631		1,070		3,622		2,313
Total Other income (expense)	$	4,196	$	4,441	$	7,959	$	7,892

(1) Includes pension settlement charges in the six months ended June 30, 2018 of $758. Refer to Note 13 to the consolidated financial statements for details.

NOTE 15 — INCOME TAXES

The Company recognized $39,492 of tax expense on pretax income of $196,402, resulting in an effective income tax rate of 20.1% for the six months ended June 30, 2019. The effective income tax rate was 27.3% for the six months ended June 30, 2018.

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LINCOLN ELECTRIC HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Dollars in thousands, except per share amounts

~~NOTE 13~~—~~OTHER INCOME (EXPENSE)~~

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

Three Months Ended June 30, Six Months Ended June 30,
2018 2017 2018 2017
Equity earnings in affiliates $ 1,559
$ 440
$ 2,759
$ 1,235
Other components of net periodic pension income 1,812
2,069
2,820
4,148
Other income 1,070
936
2,313
1,892
Total Other income (expense) $ 4,441
$ 3,445
$ 7,892
$ 7,275

~~NOTE 14 — INCOME TAXES~~

The Company recognized $48,782 of tax expense on pretax income of $178,461, resulting in an effective income tax rate of 27.3% for the six months ended June 30, 2018. The effective income tax rate was 27.6% for the six months ended June 30, 2017.

The U.S. Tax Cuts and Jobs Act (the “U.S. Tax Act”) was enacted on December 22, 2017. The SEC staff issued Staff Accounting Bulletin No. 118 ("SAB 118"), which provides for a one-year measurement period and provides guidance for the application of ASC Topic 740, ~~Income Taxes~~. The Company recognized the income tax effects of the U.S. Tax Act to the extent applicable for 2017, the year of enactment. The provisional expense recognized in 2017 primarily related to taxes on the Company’s unremitted foreign earnings, partially offset by the re-measurement of deferred tax assets and liabilities. The amounts recorded in 2017 were based on reasonable estimates at that time.

In the first quarter of 2018, the Department of Treasury and Internal Revenue Service issued Treasury Notice 2018-13. Notice 2018-13 requires the use of the spot exchange rate, instead of the average annual exchange rate, to value unremitted foreign earnings as of December 31, 2017. Based on this new guidance, in the first quarter of 2018 the Company increased the amount recorded in 2017 related to taxes on unremitted foreign earnings by $2,500. No other changes to provisional amounts were recorded in the second quarter of 2018. The Company continues to gather additional information and will complete the accounting within the prescribed measurement period.

The decrease in the effective tax rate for the six months ended June 30, ~~2018,~~2019, as compared with the same period in ~~2017,~~2018, was primarily due to ~~the U.S. Tax Act's reduction of the U.S. corporate~~ income tax ~~rate from 35 percent to 21 percent effective January 1, 2018. The rate decrease was partially offset by 2018~~benefits for the settlement of a tax item as well as tax deductions associated with an investment in a subsidiary in 2019, rationalization charges in regions with low or no tax benefit ~~the $2,500 adjustment~~ recorded in ~~the first quarter~~ 2018 ~~as discussed above, as well as~~and adjustments and incremental tax expense recorded in 2018 related to the U.S. Tax Act recorded in 2018. The incremental tax expense is the result of the Global Intangible Low-Taxed Income (“GILTI”) provisions of the U.S. Tax Act, partially offset by the Foreign-Derived Intangible Income (“FDII”) provisions. The amount recorded is based on a reasonable estimate as of June 30, 2018. The Company has not determined its accounting policy with respect to GILTI and has therefore included the 2018 estimate as a period cost and included as part of the estimated annual effective tax rate. The Company is continuing to gather additional information to complete its analysis within the prescribed measurement period. The Company is also continuing to analyze applicability of the Base Erosion Anti-Abuse Tax ("BEAT") and the interest expense limitation during the prescribed period.Act.

As of June 30, ~~2018,~~2019, the Company had ~~$15,837~~$26,157 of unrecognized tax benefits. If recognized, approximately ~~$12,231~~$22,597 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 ~~2013.~~2014. 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 ~~$1,973~~$5,379 in previously unrecognized tax benefits by the end of the second quarter~~2019~~. 2020.

~~Table of Contents~~

~~LINCOLN ELECTRIC HOLDINGS, INC.~~

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

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

NOTE 1516 — 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, ~~2018~~2019 and ~~2017.~~2018.

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, ~~2018.~~2019. 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 ~~$55,468~~$66,873 at June 30, ~~2018~~2019 and ~~$35,489~~$45,909 at December 31, ~~2017~~.2018.

Fair Value Hedges

Certain interest rate swap agreements were qualified and designated as fair value hedges. At June 30, ~~2018,~~2019, the Company had interest rate swap agreements outstanding that effectively convert notional amounts of $125,000 of debt from a fixed interest rate to a variable interest rate based on three-month LIBOR plus a spread of between 0.5% and 1.8%. The variable rates reset every three months, at which time payment or receipt of interest will be settled.

Net Investment Hedges

~~The~~From time to time, the Company ~~has~~executes foreign currency forward contracts that qualify and are designated as net investment hedges. ~~The dollar equivalent gross notional amount of these short-term~~No such contracts ~~was $48,686~~were outstanding at June 30, ~~2018. The effective portions of the fair value gains or losses on these net investment hedges are recognized in AOCI~~2019 and ~~subsequently reclassified to Selling, general and administrative expenses, as the underlying hedged investment is liquidated.~~December 31, 2018.

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 ~~$317,311~~$335,048 and $328,534 at June 30, ~~2018~~2019 and ~~$340,884 at~~ December 31, ~~2017~~. 2018, respectively.

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

June 30, 2018 December 31, 2017
Derivatives by hedge designation Other Current Assets Other Current Liabilities Other Liabilities Other Current Assets Other Current Liabilities Other Liabilities
Designated as hedging instruments:

Foreign exchange contracts $ 416
$ 1,623
$ —
$ 519
$ 604
$ —
Net investment contracts 608
46
—
—
—
—
Interest rate swap agreements —
—
9,106
—
—
5,085
Not designated as hedging instruments:
Foreign exchange contracts 3,078
1,578
—
2,257
3,747
—
Total derivatives $ 4,102
$ 3,247
$ 9,106
$ 2,776
$ 4,351
$ 5,085

~~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) 2018 2017 2018 2017
Not designated as hedges:

Foreign exchange contracts Selling, general & administrative expenses $ (4,406 ) $ 7,541
$ 4,249
$ 21,243

1920

Table of Contents

LINCOLN ELECTRIC HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Dollars in thousands, except per share amounts

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



	June 30, 2019								December 31, 2018
Derivatives by hedge designation	Other Current Assets		Other Current Liabilities		Other Assets		Other Liabilities		Other Current Assets		Other Current Liabilities		Other Assets		Other Liabilities
Designated as hedging instruments:
Foreign exchange contracts	$	676	$	514	$	—	$	—	$	647	$	404	$	—	$	—
Interest rate swap agreements	—		—		2,682		1,584		—		—		302		7,033
Not designated as hedging instruments:
Foreign exchange contracts	5,471		558		—		—		6,375		829		—		—
Total derivatives	$	6,147	$	1,072	$	2,682	$	1,584	$	7,022	$	1,233	$	302	$	7,033

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)	2019		2018			2019		2018
Not designated as hedges:
Foreign exchange contracts	Selling, general & administrative expenses	$	1,010	$	(4,406	)	$	6,417	$	4,249

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, 2018			December 31, 2017			June 30, 2019		December 31, 2018
Foreign exchange contracts	$	(1,023	)	$	(224	)	$	201	$	173
Net investment contracts	1,521			1,099			1,521		1,521

The Company expects a ~~loss~~gain of $~~1,023~~201 related to existing contracts to be reclassified from AOCI, net of tax, to earnings over the next 12 months as the hedged transactions are realized.



		Three Months Ended June 30,					Six Months Ended June 30,
Derivative type	Gain (loss) recognized in the Consolidated Statements of Income:	2019		2018			2019		2018
Foreign exchange contracts	Sales	$	387	$	(37	)	$	775	$	106
	Cost of goods sold	152		20			249		53

Three Months Ended June 30, Six Months Ended June 30,
Derivative type Gain (loss) recognized in the Consolidated Statements of Income: 2018 2017 2018 2017
Foreign exchange contracts Sales $ (37 ) $ 797
$ 106
$ 612
Cost of goods sold 20
202
53
368

~~NOTE 16 - FAIR VALUE~~

~~The following table provides a summary of assets and liabilities as of~~ ~~June 30, 2018, measured at fair value on a recurring basis:~~

Description Balance as of
June 30, 2018
Quoted Prices
in Active
Markets for
Identical Assets
or Liabilities
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)
Assets:

Foreign exchange contracts $ 3,494
$ —
$ 3,494
$ —
Net investment contracts 608
—
608
—
Marketable securities 139,059
—
139,059
—
Total assets $ 143,161
$ —
$ 143,161
$ —

Liabilities:

Foreign exchange contracts $ 3,201
$ —
$ 3,201
$ —
Net investment contracts 46
—
46
—
Interest rate swap agreements 9,106
—
9,106
—
Contingent considerations 7,294
—
—
7,294
Deferred compensation 26,955
—
26,955
—
Total liabilities $ 46,602
$ —
$ 39,308
$ 7,294

Table of Contents

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 ~~December 31, 2017~~June 30, 2019, measured at fair value on a recurring basis:


Description	Balance as of December 31, 2017		Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance as of June 30, 2019		Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Foreign exchange contracts	$	2,776	$	—	$	2,776	$	—	$	6,147	$	—	$	6,147	$	—
Marketable securities	179,125		—		179,125		—
Interest rate swap agreements									2,682		—		2,682		—
Total assets	$	181,901	$	—	$	181,901	$	—	$	8,829	$	—	$	8,829	$	—

Liabilities:
Foreign exchange contracts	$	4,351	$	—	$	4,351	$	—	1,072		—		1,072		—
Interest rate swap agreements	5,085		—		5,085		—		1,584		—		1,584		—
Contingent considerations	7,086		—		—		7,086
Contingent consideration									850		—		—		850
Deferred compensation	25,397		—		25,397		—		28,272		—		28,272		—
Total liabilities	$	41,919	$	—	$	34,833	$	7,086	$	31,778	$	—	$	30,928	$	850

The following table provides a summary of assets and liabilities as of December 31, 2018, measured at fair value on a recurring basis:



Description	Balance as of December 31, 2018		Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Foreign exchange contracts	$	7,022	$	—	$	7,022	$	—
Interest rate swap agreements	302		—		302		—
Total assets	$	7,324	$	—	$	7,324	$	—

Liabilities:
Foreign exchange contracts	$	1,233	$	—	$	1,233	$	—
Interest rate swap agreements	7,033		—		7,033		—
Contingent considerations	2,100		—		—		2,100
Deferred compensation	26,524		—		26,524		—
Total liabilities	$	36,890	$	—	$	34,790	$	2,100

The Company’s derivative contracts are valued at fair value using the market approach. The Company measures the fair value of foreign exchange ~~contracts, net investment~~ contracts and interest rate swap agreements using Level 2 inputs based on observable spot and forward rates in active markets. During the six months ended June 30, ~~2018,~~2019, there were no transfers between Levels 1, 2 or 3.

~~The Company measures the fair value of marketable securities using Level 2 inputs based on quoted market prices for similar assets in active markets.~~

In connection with ~~acquisitions,~~an acquisition, the Company recorded a contingent consideration ~~liabilities,~~liability, which will be paid based upon actual financial results of the acquired entity for a specified future ~~periods.~~period. The fair value of the contingent ~~considerations are~~consideration is a Level 3 valuation and fair valued using ~~either a probability weighted discounted cash flow analysis or~~ an option pricing model.

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, ~~2018~~

Table of Contents

LINCOLN ELECTRIC HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Dollars in thousands, except per share amounts

2019 and December 31, ~~2017~~.2018. The fair value of long-term debt at June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, including the current portion, was approximately ~~$638,829~~$704,319 and ~~$687,428,~~$649,714, respectively, which was determined using available market information and methodologies requiring judgment. The carrying value of this debt at such dates was ~~$700,305~~$710,568 and ~~$704,247~~,$702,660, respectively. Since ~~considerable~~ judgment is required in interpreting market information, the fair value of the debt is not necessarily the amount that could be realized in a current market exchange.

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.

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, ~~CNC~~computer numerical control and plasma cutters, wire feeding systems, robotic welding packages, integrated automation systems, automation components, fume extraction equipment, consumable electrodes, fluxes, ~~and~~ 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 U.S. Tax Cuts and Jobs Act (the "U.S. Tax Act") was enacted on December 22, 2017. The U.S. Tax Act represents major tax reform legislation that, among other provisions, reduces the U.S. corporate tax rate. The SEC staff issued Staff Accounting Bulletin No. 118 ("SAB 118"), which provides for a one-year measurement period and provides guidance for the application of ASC Topic 740, ~~Income Taxes~~. In accordance with SAB 118, the Company recognized the income tax effects of U.S. Tax Act to the extent applicable for 2017, the year of enactment. The Company's financial results reflect provisional amounts for the impact of the U.S. Tax Act for which accounting analysis under ASC Topic 740 is ongoing. Refer to Note 14 to the consolidated financial statements for further information on the financial statement impact of the U.S. Tax Act.

Results of Operations

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

Three Months Ended June 30,
2018 2017 Increase (Decrease)
2018 vs 2017
Amount % of Sales Amount % of Sales $ %
Net sales $ 790,052
$ 626,858
163,194
26.0 %
Cost of goods sold 519,936
410,547
109,389
26.6 %
Gross profit 270,116
34.2 % 216,311
34.5 % 53,805
24.9 %
Selling, general & administrative expenses 163,940
20.8 % 130,738
20.9 % 33,202
25.4 %
Rationalization and asset impairment charges 11,542
1.5 % —
—
11,542
100.0 %
Operating income 94,634
12.0 % 85,573
13.7 % 9,061
10.6 %
Interest expense, net 4,812
5,052
(240 ) (4.8 %)
Other income (expense) 4,441
3,445
996
28.9 %
Income before income taxes 94,263
11.9 % 83,966
13.4 % 10,297
12.3 %
Income taxes 25,404
22,635
2,769
12.2 %
Effective tax rate 27.0 % 27.0 %
Net income including non-controlling interests 68,859
61,331
7,528
12.3 %
Non-controlling interests in subsidiaries’ loss (5 ) (21 ) 16
76.2 %
Net income $ 68,864
8.7 % $ 61,352
9.8 % 7,512
12.2 %
Diluted earnings per share $ 1.04
$ 0.92

Six Months Ended June 30,
2018 2017
Increase (Decrease)
2018 vs 2017
Amount % of Sales Amount % of Sales $ %
Net sales $ 1,547,748

$ 1,207,755

339,993
28.2 %
Cost of goods sold 1,021,078

788,781

232,297
29.5 %
Gross profit 526,670
34.0 % 418,974
34.7 % 107,696
25.7 %
Selling, general & administrative expenses 325,131
21.0 % 253,994
21.0 % 71,137
28.0 %
Rationalization and asset impairment charges 21,717
1.4 % —
—
21,717
100.0 %
Operating income 179,822
11.6 % 164,980
13.7 % 14,842
9.0 %
Interest expense, net 9,253

10,389

(1,136 ) (10.9 %)
Other income (expense) 7,892

7,275

617
8.5 %
Income before income taxes 178,461
11.5 % 161,866
13.4 % 16,595
10.3 %
Income taxes 48,782

44,687

4,095
9.2 %
Effective tax rate 27.3 % 27.6 %
Net income including non-controlling interests 129,679

117,179

12,500
10.7 %
Non-controlling interests in subsidiaries’ loss (9 )

(17 )

8
47.1 %
Net income $ 129,688
8.4 % $ 117,196
9.7 % 12,492
10.7 %
Diluted earnings per share $ 1.96
$ 1.76



	Three Months Ended June 30,
	2019					2018					Favorable (Unfavorable) 2019 vs. 2018
	Amount			% of Sales		Amount			% of Sales		$			%
Net sales	$	777,008				$	790,052				$	(13,044	)	(1.7	%)
Cost of goods sold	507,127					519,936					12,809			2.5	%
Gross profit	269,881			34.7	%	270,116			34.2	%	(235		)	(0.1	%)
Selling, general & administrative expenses	163,388			21.0	%	163,940			20.8	%	552			0.3	%
Rationalization and asset impairment charges	1,307			0.2	%	11,542			1.5	%	10,235			88.7	%
Operating income	105,186			13.5	%	94,634			12.0	%	10,552			11.2	%
Interest expense, net	5,898					4,812					(1,086		)	(22.6	%)
Other income (expense)	4,196					4,441					(245		)	(5.5	%)
Income before income taxes	103,484			13.3	%	94,263			11.9	%	9,221			9.8	%
Income taxes	18,040					25,404					7,364			29.0	%
Effective tax rate	17.4		%			27.0		%			9.6		%
Net income including non-controlling interests	85,444					68,859					16,585			24.1	%
Non-controlling interests in subsidiaries’ loss	(8		)			(5		)			(3		)	(60.0	%)
Net income	$	85,452		11.0	%	$	68,864		8.7	%	$	16,588		24.1	%
Diluted earnings per share	$	1.36				$	1.04				$	0.32		30.8	%

	Six Months Ended June 30,
	2019					2018					Favorable (Unfavorable) 2019 vs. 2018
	Amount			% of Sales		Amount			% of Sales		$			%
Net sales	$	1,536,182				$	1,547,748				$	(11,566	)	(0.7	%)
Cost of goods sold	1,007,880					1,021,078					13,198			1.3	%
Gross profit	528,302			34.4	%	526,670			34.0	%	1,632			0.3	%
Selling, general & administrative expenses	323,796			21.1	%	325,131			21.0	%	1,335			0.4	%
Rationalization and asset impairment charges	4,842			0.3	%	21,717			1.4	%	16,875			77.7	%
Operating income	199,664			13.0	%	179,822			11.6	%	19,842			11.0	%
Interest expense, net	11,221					9,253					(1,968		)	(21.3	%)
Other income (expense)	7,959					7,892					67			0.8	%
Income before income taxes	196,402			12.8	%	178,461			11.5	%	17,941			10.1	%
Income taxes	39,492					48,782					9,290			19.0	%
Effective tax rate	20.1		%			27.3		%			7.2		%
Net income including non-controlling interests	156,910					129,679					27,231			21.0	%
Non-controlling interests in subsidiaries’ loss	(22		)			(9		)			(13		)	(144.4	%)
Net income	$	156,932		10.2	%	$	129,688		8.4	%	$	27,244		21.0	%
Diluted earnings per share	$	2.47				$	1.96				$	0.51		26.0	%

Net Sales:

The following ~~tables summarize~~table summarizes the impact of volume, acquisitions, price and foreign currency exchange rates on Net sales for the three and six months ended June 30, ~~2018~~2019 on a consolidated basis:



Three Months Ended June 30th			Change in Net Sales due to:
Three Months Ended June 30,																				Change in Net Sales due to:
	Net Sales 2017		Volume			Acquisitions			Price			Foreign Exchange			Net Sales 2018			Net Sales 2018		Volume			Acquisitions			Price			Foreign Exchange			Net Sales 2019
Lincoln Electric Holdings, Inc.	$	626,858	$	27,477		$	100,377		$	30,904		$	4,436		$	790,052		$	790,052	$	(40,723	)	$	27,168		$	13,801		$	(13,290	)	$	777,008
% Change
Lincoln Electric Holdings, Inc.			4.4		%	16.0		%	4.9		%	0.7		%	26.0		%			(5.2		%)	3.4		%	1.7		%	(1.7		%)	(1.7		%)


Six Months Ended June 30th			Change in Net Sales due to:
Six Months Ended June 30,																				Change in Net Sales due to:
	Net Sales 2017		Volume			Acquisitions			Price			Foreign Exchange			Net Sales 2018			Net Sales 2018		Volume			Acquisitions			Price			Foreign Exchange			Net Sales 2019
Lincoln Electric Holdings, Inc.	$	1,207,755	$	57,682		$	206,929		$	55,109		$	20,273		$	1,547,748		$	1,547,748	$	(68,074	)	$	45,662		$	48,154		$	(37,308	)	$	1,536,182
% Change
Lincoln Electric Holdings, Inc.			4.8		%	17.1		%	4.6		%	1.7		%	28.2		%			(4.4		%)	3.0		%	3.1		%	(2.4		%)	(0.7		%)

Net sales ~~increased~~were flat in the three and six months ended June 30, ~~2018~~2019 primarily as a result of acquisitions, ~~improved volume due to higher demand~~offset by lower organic sales and ~~increased product pricing.~~unfavorable foreign exchange. The increase in Net sales from acquisitions was driven by the ~~acquisition~~acquisitions of ~~Air Liquide Welding~~Coldwater, Pro Systems, Inovatech and Baker within Americas Welding and ~~International Welding.~~Worthington within The Harris Products Group.

Gross Profit:

Gross profit for the three and six months ended June 30, ~~2018 decreased,~~2019 increased, as a percent of sales, compared to the prior year due to ~~the acquisition of Air Liquide Welding~~price management and ~~rising input costs.~~segment mix. The three and six months ended June 30, ~~2018~~2019 includes a last-in, first-out ("LIFO") credit of $886 and $865, respectively, as compared to a LIFO charge of $5,261 and $6,173, ~~respectively, as compared to with a LIFO charge of $1,977 and $3,659,~~ respectively, in the three and six months ended June 30, ~~2017.~~2018.

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

The ~~increase~~decrease in SG&A expenses for the three and six months ended June 30, ~~2018~~2019 as compared to June 30, ~~2017~~2018 is due to ~~higher expense from acquisitions~~favorable foreign exchange and ~~higher~~lower compensation costs, partially offset by ~~lower acquisition transaction and integration costs.~~

~~The increase in SG&A expenses for the six months ended June 30, 2018 as compared to June 30, 2017 is due to~~ higher expense from ~~acquisitions, higher compensation costs and unfavorable foreign exchange, partially offset by lower acquisition transaction and integration costs.~~acquisitions.

Rationalization and Asset Impairment Charges:

The Company recorded net charges of $1,307, $937 after-tax, and $4,842, $3,751 after-tax, in the three and six months ended June 30, 2019, respectively, primarily related to severance, asset impairments and gains or losses on the disposal of assets. The Company recorded net charges of $11,542, $10,362 after-tax, and $21,717, $18,232 after-tax, in the three and six months ended June 30, 2018, respectively, primarily related to employee severance and asset impairment charges.

Interest Expense, Net:

The ~~decrease~~increase in Interest expense, net for the three and six months ended June 30, ~~2018~~2019 as compared to June 30, ~~2017~~2018 was due to ~~higher~~lower interest income on marketable ~~securities in 2018.~~

~~Other Income (Expense):~~

~~The increase in Other income (expense) for the three and six months ended June 30, 2018 as compared to June 30, 2017 was due to higher equity earnings in affiliates.~~securities.

Income Taxes:

The effective tax rate was lower for the three and six months ended June 30, ~~2018~~2019 as compared to June 30, ~~2017~~2018 primarily due to ~~the U.S. Tax Act's reduction of the U.S. corporate~~ income tax ~~rate. The rate decrease was partially offset by 2018~~benefits for the settlement of a tax item as well as tax deductions associated with an investment in a subsidiary in 2019, rationalization charges in regions with low or no tax benefit ~~as well as~~recorded in 2018 and adjustments and incremental tax expense recorded in 2018 related to the U.S. Tax ~~Act.~~Cuts and Job Act (the "U.S. Tax Act").

Net Income:

The increase in Net income for the three and six months ended June 30, ~~2018 increased~~2019 as compared to ~~the prior year periods~~June 30, 2018 was primarily due to ~~higher volumes partially offset by rising input costs~~a lower effective tax rate and ~~higher SG&A costs.~~lower rationalization and asset impairment charges.

Segment Results

Net Sales: The ~~tables~~table below ~~summarize~~summarizes the impact of volume, acquisitions, price and foreign currency exchange rates on Net sales for the three and six months ended June 30, ~~2018~~:

2019:


Three Months Ended June 30th			Change in Net Sales due to:
Three Months Ended June 30,																				Change in Net Sales due to:
	Net Sales 2017		Volume ⁽¹⁾			Acquisitions ⁽²⁾			Price ⁽³⁾			Foreign Exchange			Net Sales 2018			Net Sales 2018		Volume ⁽¹⁾			Acquisitions ⁽²⁾			Price ⁽³⁾			Foreign Exchange			Net Sales 2019
Operating Segments
Americas Welding	$	405,147	$	31,023		$	4,059		$	21,958		$	328		$	462,515		$	462,515	$	(16,756	)	$	21,512		$	11,599		$	(2,263	)	$	476,607
International Welding	141,498		(6,369		)	96,318			7,772			4,154			243,373			243,373		(23,550		)	—			2,837			(10,354		)	212,306
The Harris Products Group	80,213		2,823			—			1,174			(46		)	84,164			84,164		(417		)	5,656			(635		)	(673		)	88,095

% Change
Americas Welding			7.7		%	1.0		%	5.4		%	0.1		%	14.2		%			(3.6		%)	4.7		%	2.5		%	(0.5		%)	3.0		%
International Welding			(4.5		%)	68.1		%	5.5		%	2.9		%	72.0		%			(9.7		%)	—			1.2		%	(4.3		%)	(12.8		%)
The Harris Products Group			3.5		%	—			1.5		%	(0.1		%)	4.9		%			(0.5		%)	6.7		%	(0.8		%)	(0.8		%)	4.7		%

(1) ~~Increase~~Decrease for Americas Welding due to ~~improving~~softer demand ~~in a broad range of end markets.~~associated with the current economic environment. Decrease for International Welding due ~~repositioning of the Company's channel strategy~~to integration activities and softer demand in the European ~~market. Increase~~and Asian markets. Decrease for The Harris Products Group driven primarily by lower demand in the retail sector.

(2) Increase due to the acquisition of ~~Air Liquide Welding~~Coldwater, Pro Systems, Inovatech and Baker within Americas Welding and ~~International Welding.~~Worthington within The Harris Products Group. Refer to Note 4 to the consolidated financial statements for details.

(3) Increase for Americas Welding and International Welding segments due to increased product pricing as a result of higher input costs.


Six Months Ended June 30th			Change in Net Sales due to:
Six Months Ended June 30,																				Change in Net Sales due to:
	Net Sales 2017		Volume ⁽¹⁾			Acquisitions ⁽²⁾			Price ⁽³⁾			Foreign Exchange			Net Sales 2018			Net Sales 2018		Volume ⁽¹⁾			Acquisitions ⁽²⁾			Price ⁽³⁾			Foreign Exchange			Net Sales 2019
Operating Segments
Americas Welding	$	788,471	$	59,585		$	7,665		$	39,640		$	1,926		$	897,287		$	897,287	$	(29,151	)	$	34,232		$	39,027		$	(7,069	)	$	934,326
International Welding	270,386		(11,106		)	199,264			14,791			17,358			490,693			490,693		(41,467		)	—			9,312			(28,146		)	430,392
The Harris Products Group	148,898		9,203			—			678			989			159,768			159,768		2,544			11,430			(185		)	(2,093		)	171,464

% Change
Americas Welding			7.6		%	1.0		%	5.0		%	0.2		%	13.8		%			(3.2		%)	3.8		%	4.3		%	(0.8		%)	4.1		%
International Welding			(4.1		%)	73.7		%	5.5		%	6.4		%	81.5		%			(8.5		%)	—			1.9		%	(5.7		%)	(12.3		%)
The Harris Products Group			6.2		%	—			0.5		%	0.7		%	7.3		%			1.6		%	7.2		%	(0.1		%)	(1.3		%)	7.3		%

(1) ~~Increase~~Decrease for Americas Welding due to ~~improving~~softer demand ~~in a broad range of end markets.~~associated with the current economic environment. Decrease for International Welding due to ~~repositioning of the Company's channel strategy~~integration activities and softer demand in the European ~~market.~~and Asian markets. Increase for The Harris Products Group driven primarily by ~~demand in the retail sector.~~higher consumables volume.

(3) Increase for Americas Welding and International Welding segments due to increased product pricing as a result of higher input costs.

Adjusted Earnings Before Interest and Income Taxes:

Segment performance is measured and resources are allocated based on a number of factors, the primary ~~profit~~ measure being the Adjusted ~~EBIT.~~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:~~


	Three Months Ended June 30,						Increase (Decrease) 2018 vs. 2017				Three Months Ended June 30,						Favorable (Unfavorable) 2019 vs. 2018
	2018			2017			$		%		2019			2018			$			%
Americas Welding:
Net sales	$	462,515		$	405,147		57,368		14.2	%	$	476,607		$	462,515		$	14,092		3.0	%
Inter-segment sales	31,240			27,374			3,866		14.1	%	34,811			31,240			3,571			11.4	%
Total Sales	$	493,755		$	432,521		61,234		14.2	%	$	511,418		$	493,755		17,663			3.6	%

Adjusted EBIT	$	88,158		$	74,498		13,660		18.3	%
Adjusted EBIT ⁽⁴⁾											$	84,851		$	88,158		(3,307		)	(3.8	%)
As a percent of total sales ⁽¹⁾	17.9		%	17.2		%			0.7	%	16.6		%	17.9		%				(1.3	%)
International Welding:
Net sales	$	243,373		$	141,498		101,875		72.0	%	$	212,306		$	243,373		(31,067		)	(12.8	%)
Inter-segment sales	5,497			5,478			19		0.3	%	4,188			5,497			(1,309		)	(23.8	%)
Total Sales	$	248,870		$	146,976		101,894		69.3	%	$	216,494		$	248,870		(32,376		)	(13.0	%)

Adjusted EBIT ⁽³⁾⁽⁵⁾	$	16,276		$	9,496		6,780		71.4	%	$	15,178		$	16,276		(1,098		)	(6.7	%)
As a percent of total sales ⁽²⁾	6.5		%	6.5		%			—		7.0		%	6.5		%				0.5	%
The Harris Products Group:
Net sales	$	84,164		$	80,213		3,951		4.9	%	$	88,095		$	84,164		3,931			4.7	%
Inter-segment sales	2,003			2,399			(396	)	(16.5	%)	2,113			2,003			110			5.5	%
Total Sales	$	86,167		$	82,612		3,555		4.3	%	$	90,208		$	86,167		4,041			4.7	%

Adjusted EBIT	$	10,157		$	9,787		370		3.8	%	$	13,488		$	10,157		3,331			32.8	%
As a percent of total sales(3)	11.8		%	11.8		%			—		15.0		%	11.8		%				3.2	%
Corporate / Eliminations:
Inter-segment sales	$	(38,740	)	$	(35,251	)	3,489		9.9	%	$	(41,112	)	$	(38,740	)	2,372			6.1	%
Adjusted EBIT ⁽⁴⁾⁽⁶⁾	(3,186		)	(265		)	(2,921	)	(1,102.3	%)	(3,969		)	(3,186		)	783			24.6	%
Consolidated:
Net sales	$	790,052		$	626,858		163,194		26.0	%	$	777,008		$	790,052		(13,044		)	(1.7	%)
Net income	$	68,864		$	61,352		7,512		12.2	%	$	85,452		$	68,864		16,588			24.1	%
As a percent of total sales	8.7		%	9.8		%			(1.1	%)	11.0		%	8.7		%				2.3	%

Adjusted EBIT ⁽⁵⁾⁽⁷⁾	$	111,405		$	93,516		17,889		19.1	%	$	109,548		$	111,405		(1,857		)	(1.7	%)
As a percent of sales	14.1		%	14.9		%			(0.8	%)	14.1		%	14.1		%				—


(1)	Decrease for the three months ended June 30, 2019 as compared to June 30, 2018 driven by acquisitions, lower Net sales volumes and higher compensation costs, partially offset by lower LIFO charges.


(2)	Increase for the three months ended June 30, ~~2018~~2019 as compared to June 30, ~~2017~~2018 driven by ~~higher~~lower compensation costs, partially offset by lower Net sales volumes.


~~(2)~~(3)	~~The~~Increase for the three months ended June 30, ~~2018~~2019 as compared to June 30, ~~2017 was flat~~2018 driven by favorable sales mix ~~offset by lower Net sales volumes and the impact of the Air Liquide Welding acquisition.~~


~~(3)~~	~~The three months ended June 30, 2018 excludes rationalization charges of $11,542 related to severance, asset impairments and other related costs.~~associated with consumables volume increases.


(4)	The three months ended June 30, 2019 exclude Rationalization and asset impairment charges of $380, as discussed in Note 6 to the consolidated financial statements, and the amortization of step up in value of acquired inventories of $1,399 related to the Baker acquisition.


(5)	The three months ended June 30, 2019 and 2018 exclude Rationalization and ~~2017~~asset impairment charges of $927 and $11,542, respectively, related to severance, asset impairments and gains or losses on the disposal of assets as discussed in Note 6 to the consolidated financial statements. The three months ended June 30, 2019 also exclude gains on disposal of assets of $3,554.


(6)	The three months ended June 30, 2019 and 2018 exclude acquisition transaction and integration costs of ~~$788~~$1,014 and ~~$4,498,~~$788, respectively, related to the Air Liquide Welding ~~acquisition as discussed in Note 4 to the consolidated financial statements.~~acquisition.


~~(5)~~(7)	See non-GAAP Financial Measures for a reconciliation of Net income as reported and Adjusted EBIT.

The following table presents Adjusted EBIT by ~~segment for the six months ended June 30, 2018:~~segment:


	Six Months Ended June 30,						Increase (Decrease) 2018 vs. 2017				Six Months Ended June 30,						Favorable (Unfavorable) 2019 vs. 2018
	2018			2017			$		%		2019			2018			$			%
Americas Welding:
Net sales	$	897,287		$	788,471		108,816		13.8	%	$	934,326		$	897,287		$	37,039		4.1	%
Inter-segment sales	57,826			49,834			7,992		16.0	%	64,199			57,826			6,373			11.0	%
Total Sales	$	955,113		$	838,305		116,808		13.9	%	$	998,525		$	955,113		43,412			4.5	%

Adjusted EBIT ⁽³⁾⁽⁴⁾	$	165,597		$	143,221		22,376		15.6	%	$	166,603		$	165,597		1,006			0.6	%
As a percent of total sales ⁽¹⁾	17.3		%	17.1		%			0.2	%	16.7		%	17.3		%				(0.6	%)
International Welding:
Net sales	$	490,693		$	270,386		220,307		81.5	%	$	430,392		$	490,693		(60,301		)	(12.3	%)
Inter-segment sales	10,006			9,763			243		2.5	%	8,397			10,006			(1,609		)	(16.1	%)
Total Sales	$	500,699		$	280,149		220,550		78.7	%	$	438,789		$	500,699		(61,910		)	(12.4	%)

Adjusted EBIT ⁽⁴⁾⁽⁵⁾	$	31,249		$	19,101		12,148		63.6	%	$	28,515		$	31,249		(2,734		)	(8.7	%)
As a percent of total sales ⁽²⁾	6.2		%	6.8		%			(0.6	%)	6.5		%	6.2		%				0.3	%
The Harris Products Group:
Net sales	$	159,768		$	148,898		10,870		7.3	%	$	171,464		$	159,768		11,696			7.3	%
Inter-segment sales	3,910			4,699			(789	)	(16.8	%)	3,980			3,910			70			1.8	%
Total Sales	$	163,678		$	153,597		10,081		6.6	%	$	175,444		$	163,678		11,766			7.2	%

Adjusted EBIT	$	19,382		$	18,247		1,135		6.2	%	$	24,007		$	19,382		4,625			23.9	%
As a percent of total sales(3)	11.8		%	11.9		%			(0.1	%)	13.7		%	11.8		%				1.9	%
Corporate / Eliminations:
Inter-segment sales	$	(71,742	)	$	(64,296	)	7,446		11.6	%	$	(76,576	)	$	(71,742	)	4,834			6.7	%
Adjusted EBIT ⁽⁵⁾⁽⁶⁾	(3,344		)	(201		)	(3,143	)	(1,563.7	%)	(7,011		)	(3,344		)	3,667			109.7	%
Consolidated:
Net sales	$	1,547,748		$	1,207,755		339,993		28.2	%	$	1,536,182		$	1,547,748		(11,566		)	(0.7	%)
Net income	$	129,688		$	117,196		12,492		10.7	%	$	156,932		$	129,688		27,244			21.0	%
As a percent of total sales	8.4		%	9.7		%			(1.3	%)	10.2		%	8.4		%				1.8	%

Adjusted EBIT ⁽⁶⁾⁽⁷⁾	$	212,884		$	180,368		32,516		18.0	%	$	212,114		$	212,884		(770		)	(0.4	%)
As a percent of sales	13.8		%	14.9		%			(1.1	%)	13.8		%	13.8		%				—


(1)	Decrease for the six months ended June 30, 2019 as compared to June 30, 2018 driven by acquisitions, lower Net sales volumes and higher compensation costs, partially offset by lower LIFO charges.


(2)	Increase for the six months ended June 30, ~~2018~~2019 as compared to June 30, ~~2017~~2018 driven by ~~higher~~lower compensation costs, partially offset by lower Net sales volumes.


~~(2)~~(3)	~~Decrease~~Increase for the six months ended June 30, ~~2018~~2019 as compared to June 30, ~~2017~~2018 driven by ~~lower Net~~favorable sales ~~volumes and the impact of the Air Liquide Welding acquisition.~~


~~(3)~~	~~The six months ended June 30, 2018 excludes pension settlement charges of $758 related to a lump sum pension payment as discussed in Note 12 to the consolidated financial statements.~~mix associated with consumables volume increases.

(4)

The six months ended June 30, ~~2018 excludes rationalization~~2019 exclude Rationalization and asset impairment charges of ~~$21,717~~$1,716, as discussed in Note 6 to the consolidated financial statements, and the amortization of step up in value of acquired inventories of $1,399 related to ~~severance, asset impairments and other~~the Baker acquisition. The six months ended June 30, 2018 exclude pension settlement charges of $758 related ~~costs.~~to lump sum pension payments as discussed in Note 13 to the consolidated financial statements.


(5)	The six months ended June 30, 2019 and 2018 exclude Rationalization and ~~2017~~asset impairment charges of $3,126 and $21,717, respectively, related to severance, asset impairments and gains or losses on the disposal of assets as discussed in Note 6 to the consolidated financial statements. The three months ended June 30, 2019 also exclude gains on disposal of assets of $3,554.


(6)	The six months ended June 30, 2019 and 2018 exclude acquisition transaction and integration costs of ~~$2,695~~$1,804 and ~~$8,113,~~$2,695, respectively, related to the Air Liquide Welding ~~acquisition as discussed in Note 4 to the consolidated financial statements.~~acquisition.


~~(6)~~(7)	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 ~~net income,~~effective tax rate, Adjusted diluted earnings per share and Return on invested capital, 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 ~~financial~~ measures are a supplement to, and not a replacement for, GAAP financial measures.

The following table presents the ~~reconciliation~~reconciliations of ~~both Net~~Operating income as reported to Adjusted operating income, Net income as reported to Adjusted net income and Adjusted EBIT, Effective tax rate as ~~well 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,						Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017			2019			2018			2019			2018
Operating income as reported	$	94,634		$	85,573		$	179,822		$	164,980		$	105,186		$	94,634		$	199,664		$	179,822
Special items (pre-tax):
Rationalization and asset impairment charges ⁽¹⁾	11,542			—			21,717			—			1,307			11,542			4,842			21,717
Acquisition transaction and integration costs ⁽²⁾	788			4,498			2,695			8,113			1,014			788			1,804			2,695
Amortization of step up in value of acquired inventories ⁽³⁾													1,399			—			1,399			—
Gains on asset disposals ⁽⁴⁾													(3,045		)	—			(3,045		)	—
Adjusted operating income	$	106,964		$	90,071		$	204,234		$	173,093		$	105,861		$	106,964		$	204,664		$	204,234

Net income as reported	$	68,864		$	61,352		$	129,688		$	117,196		$	85,452		$	68,864		$	156,932		$	129,688
Special items:
Rationalization and asset impairment charges ⁽¹⁾	11,542			—			21,717			—			1,307			11,542			4,842			21,717
Acquisition transaction and integration costs ⁽²⁾	788			4,498			2,695			8,113			1,014			788			1,804			2,695
Pension settlement charges ⁽³⁾	—			—			758			—
Tax effect of Special items ⁽⁴⁾	(784		)	(1,004		)	(1,165		)	(1,885		)
Pension settlement charges ⁽⁵⁾													—			—			—			758
Amortization of step up in value of acquired inventories ⁽³⁾													1,399			—			1,399			—
Gains on asset disposals ⁽⁴⁾													(3,554		)	—			(3,554		)	—
Tax effect of Special items ⁽⁶⁾													(4,751		)	(784		)	(5,564		)	(1,165		)
Adjusted net income	80,410			64,846			153,693			123,424			80,867			80,410			155,859			153,693
Non-controlling interests in subsidiaries’ earnings (loss)	(5		)	(21		)	(9		)	(17		)	(8		)	(5		)	(22		)	(9		)
Interest expense, net	4,812			5,052			9,253			10,389			5,898			4,812			11,221			9,253
Income taxes as reported	25,404			22,635			48,782			44,687			18,040			25,404			39,492			48,782
Tax effect of Special items ⁽⁴⁾	784			1,004			1,165			1,885
Tax effect of Special items ⁽⁶⁾													4,751			784			5,564			1,165
Adjusted EBIT	$	111,405		$	93,516		$	212,884		$	180,368		$	109,548		$	111,405		$	212,114		$	212,884
Effective tax rate as reported													17.4		%	27.0		%	20.1		%	27.3		%
Net special item tax impact													4.6		%	(2.4		%)	2.3		%	(2.8		%)
Adjusted effective tax rate													22.0		%	24.6		%	22.4		%	24.5		%

Diluted earnings per share as reported	$	1.04		$	0.92		$	1.96		$	1.76		$	1.36		$	1.04		$	2.47		$	1.96
Special items per share	0.18			0.05			$	0.36		0.09			(0.08		)	0.18			(0.01		)	0.36
Adjusted diluted earnings per share	$	1.22		$	0.97		$	2.32		$	1.85		$	1.28		$	1.22		$	2.46		$	2.32

(1) C~~harges~~Charges primarily related to severance, asset impairments and ~~other related costs.~~gains or losses on the disposal of assets as discussed in Note 6 to the consolidated financial statements.

(2) ~~Acquisition transaction and integration costs~~Costs related to the Air Liquide Welding acquisition and are included in Selling, general & administrative expenses.

(3) Charges related to the acquisition of Baker and are included in Cost of goods sold.

(4) Gains primarily included in Cost of goods sold.

(5) Pension settlement charges related to lump sum pension payments as discussed in Note 413 to the consolidated financial statements and are included in ~~the three and six months ended June 30, 2018 and 2017, respectively.~~Other income (expense).

~~(3)~~ P~~ension settlement charges related to a lump sum pension payment.~~

~~(4)~~(6) Includes the net tax impact of Special items recorded during the respective periods, including tax benefits of $4,852 for the ~~net impact~~settlement of ~~the U.S. Tax act of $2,500~~a tax item as well as tax deductions associated with an investment in a subsidiary in the three and six months ended June 30, ~~2018.~~2019.

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,								Six Months Ended June 30,
	2018			2017			$ Change		2019			2018			$ Change
Cash provided by operating activities ⁽¹⁾	$	123,558		$	151,687		(28,129	)	$	151,985		$	123,558		$	28,427
Cash provided by (used by) investing activities ⁽²⁾	15,501			(91,973		)	107,474
Cash (used by) provided by investing activities ⁽²⁾									(133,644		)	15,501			(149,145		)
Capital expenditures	(31,383		)	(28,131		)	(3,252	)	(36,513		)	(31,383		)	(5,130		)
Purchase of marketable securities, net of proceeds	40,066			(64,944		)	105,010
Acquisition of businesses, net of cash acquired									(107,843		)	6,591			(114,434		)
Proceeds from marketable securities, net of purchases									—			40,066			(40,066		)
Cash used by financing activities ⁽³⁾	(98,673		)	(55,767		)	(42,906	)	(190,078		)	(98,673		)	(91,405		)
Purchase of shares for treasury	(50,232		)	(7,748		)	(42,484	)	(160,914		)	(50,232		)	(110,682		)
Cash dividends paid to shareholders	(51,250		)	(46,016		)	(5,234	)	(60,101		)	(51,250		)	(8,851		)
Increase in Cash and cash equivalents ⁽⁴⁾	30,393			16,556
(Decrease) increase in Cash and cash equivalents ⁽⁴⁾									(168,988		)	30,393

(1) Cash provided by operating activities ~~decreased~~increased for the six months ended June 30, ~~2018,~~2019, compared with the six months ended June 30, ~~2017~~2018 primarily due to ~~changes in~~improved Company performance and cash flows from ~~operating working capital~~tax payments and ~~hedging activities.~~receipts.

(2) Cash ~~provided~~used by investing activities increased for the six months ended June 30, ~~2018,~~2019, compared with the six months ended June 30, ~~2017~~2018 predominantly due to cash used in the acquisition of businesses in 2019 and net proceeds from marketable securities in 2018. The Company currently anticipates capital expenditures of ~~$60,000~~$65,000 to ~~$70,000~~$75,000 in ~~2018.~~2019. Anticipated capital expenditures include investments for capital maintenance to improve operational effectiveness. Management critically evaluates all proposed capital expenditures and expects each project 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 in the six months ended June 30, ~~2018,~~2019, compared with the six months ended June 30, ~~2017~~2018 due to higher purchases of common shares for treasury.

(4) Cash and cash equivalents ~~increased 9.3%~~decreased 47.1%, or ~~$30,393,~~$168,988, to ~~$357,094~~$189,861 during the six months ended June 30, ~~2018,~~2019, from ~~$326,701~~$358,849 as of December 31, ~~2017.~~2018. This ~~increase~~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.The decrease in Cash and cash equivalents during the six months ended June 30, 2019 compares to an increase of 9.3% during the six months ended June 30, 2018. The increase in 2018 was primarily due to cash provided by operating activities and proceeds from marketable securities, partially offset by ~~purchases of common shares for treasury and cash dividends paid to shareholders.~~The increase in Cash and cash equivalents during the six months ended June 30, 2018 compares to an increase of 4.4% during the six months ended June 30, 2017. The increase in 2017 was primarily due to cash provided by operating activities offset by the purchase of marketable securities and cash dividends paid to shareholders. At June 30, ~~2018, $277,992~~2019, $173,350 of Cash and cash equivalents was held by international subsidiaries.

The Company's total debt ~~remained consistent as~~levels increased compared to December 31, ~~2017.~~2018 predominately due to additional short term borrowings. Total debt to total invested capital ~~decreased~~increased to ~~42.7%~~46.7% at June 30, ~~2018~~2019 from ~~43.1%~~44.2% at December 31, ~~2017.~~2018.

In July ~~2018,~~2019, the Company paid a cash dividend of ~~$0.39~~$0.47 per share, or ~~$25,417,~~$29,036, to shareholders of record as of June ~~29, 2018.~~28, 2019.

Working Capital Ratios


	June 30, 2018		December 31, 2017		June 30, 2017		June 30, 2019		December 31, 2018		June 30, 2018
Average operating working capital to net sales ⁽¹⁾	16.5	%	15.9	%	16.7	%	18.4	%	16.5	%	16.5	%
Days sales in Inventories	91.0		88.9		93.3		98.4		95.1		91.0
Days sales in Accounts receivable	52.2		52.4		49.6		53.6		52.7		52.2
Average days in Trade accounts payable	53.4		54.5		48.8		50.6		55.5		53.4

(1) Average operating working capital to net sales is defined as the sum of Accounts receivable and Inventories less Trade accounts payable as of period end divided by annualized rolling three months of 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.

ROIC for the twelve months ended June 30, ~~2018~~2019 and ~~2017~~2018 were as follows:


	Twelve Months Ended June 30,						Twelve Months Ended June 30,
	2018			2017			2019			2018
Net income	$	259,995		$	230,640		$	314,310		$	259,995
Rationalization and asset impairment charges	28,307			—			8,410			28,307
Pension settlement charges	8,908			—			5,928			8,908
Acquisition transaction and integration costs	9,584			8,113			3,607			9,584
Amortization of step up in value of acquired inventories	4,578			—			1,399			4,578
Gains on disposal of assets							(3,554		)	—
Bargain purchase gain	(49,650		)	—			—			(49,650		)
Tax effect of Special items ⁽¹⁾	21,256			(1,885		)	(11,295		)	21,256
Adjusted net income	$	282,978		$	236,868		$	318,805		$	282,978
Plus: Interest expense, net of tax of $6,077 and $8,988 in 2018 and 2017, respectively	18,265			14,489
Less: Interest income, net of tax of $1,509 and $1,244 in 2018 and 2017, respectively	4,537			2,005
Plus: Interest expense, net of tax of $6,178 and $6,077 in 2019 and 2018, respectively							18,569			18,265
Less: Interest income, net of tax of $1,302 and $1,509 in 2019 and 2018, respectively							3,912			4,537
Adjusted net income before tax effected interest	$	296,706		$	249,352		$	333,462		$	296,706

Invested Capital	June 30, 2018			June 30, 2017			June 30, 2019			June 30, 2018
Short-term debt	$	1,889		$	1,953		$	30,110		$	1,889
Long-term debt, less current portion	700,194			704,732			710,458			700,194
Total debt	702,083			706,685			740,568			702,083
Total equity	943,508			851,776			846,058			943,508
Invested capital	$	1,645,591		$	1,558,461		$	1,586,626		$	1,645,591
Return on invested capital	18.0		%	16.0		%	21.0		%	18.0		%


(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 June 30, 2019 and net ~~impact~~charges of $31,116 related to the U.S. Tax ~~act of $31,116~~Act in the twelve months ended June 30, 2018.

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.

Debt

Revolving Credit Agreement

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 June 30, ~~2018,~~2019, the Company was in compliance with all of its covenants and had no$30,000 of 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,~~$350,000, comprised of four different series ranging from ~~$50,000~~$50,000 to ~~$100,000,~~$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 ~~initial~~ tenure of the Notes is 3.3% and 1815 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, ~~2018,~~2019, the Company was in compliance with all of its debt covenants relating to the Notes.

Shelf Agreements

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 economic 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 ~~the Air Liquide Welding business acquisition;~~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 and natural disasters, 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, ~~2017.~~2018.

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, ~~2017.~~2018. 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, ~~2017.~~2018.

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, ~~2018~~2019.

Changes in Internal Control Over Financial Reporting

Beginning January 1, ~~2018,~~2019, the Company implemented ASU ~~2014-09, “Revenue from Contracts with Customers (Topic 606)~~”2016-02, Leases ("Topic 842"). ~~Although the new revenue standard is expected to have an immaterial impact on the consolidated financial statements on an ongoing basis, the Company implemented~~The adoption of Topic 842 resulted in changes to processes and control activities related to ~~revenue recognition and associated control activities.~~lease accounting, including the implementation of a supporting information technology application.

There have been no other changes in the Company’s internal control over financial reporting during the quarter ended June 30, ~~2018~~2019 that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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, ~~2018,~~2019, the Company was a co-defendant in cases alleging ~~asbestos-induced~~asbestos induced illness involving claims by approximately ~~3,507~~3,279 plaintiffs, which is a net decrease of 199 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: ~~54,869~~55,047 of those claims were dismissed, 23 were tried to defense verdicts, 7 were tried to plaintiff verdicts ~~(1 of which was appealed and eventually~~(which were reversed or resolved ~~for an immaterial amount)~~after appeal), 1 was resolved by agreement for an immaterial amount and ~~794~~894 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, ~~2017~~,2018, which could materially affect the Company’s business, financial condition or future results.

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

Issuer purchases of its common shares during the second quarter of ~~2018~~2019 were as follows:

Period
Total Number of
Shares Repurchased

Average Price
Paid Per Share

Total Number of
Shares Repurchased
as Part of Publicly
Announced Plans or
Programs

Maximum Number of
Shares that May Yet be
Purchased Under the
Plans or Programs ⁽²⁾
April 1 - 30, 2018 96,169
⁽¹⁾
$ 89.43
95,925
8,178,663
May 1 - 31, 2018 152,146
⁽¹⁾
87.46
152,044
8,026,619
June 1 - 30, 2018 149,181
91.17
149,181
7,877,438
Total 397,496
89.33
397,150



Period	Total Number of Shares Repurchased		Average Price Paid Per Share		Total Number of Shares Repurchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that May Yet be Purchased Under the Plans or Programs ⁽²⁾
April 1 - 30, 2019	254,018	⁽¹⁾	$	87.82	252,870	5,078,360
May 1 - 31, 2019	433,048	⁽¹⁾	82.19		433,009	4,645,351
June 1 - 30, 2019	346,969	⁽¹⁾	79.06		346,461	4,298,890
Total	1,034,035				1,032,340


(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 ~~47.1~~50.7 million shares at a total cost of ~~$1.7~~$2.0 billion for a weighted average cost of ~~$36.72~~$40.18 per share through June 30, ~~2018.~~2019.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 6. EXHIBITS

(a) Exhibits



10.1		Amendment No. 1 to The Lincoln Electric Company Employee Savings Plan As Amended and Restated Effective January 1, 2019, effective July 1, 2019 (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 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 Officer) pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema Document
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB		XBRL Taxonomy Extension Label Linkbase Document
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

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/ ~~Geoffrey P. Allman~~Gabriel Bruno
		~~Geoffrey P. Allman~~Gabriel Bruno
		~~Senior~~Executive Vice President, ~~Corporate Controller~~Finance
		(principal accounting officer)
		July ~~27, 2018~~26, 2019

3437



Assets acquired and liabilities assumed	As of July 31, 2017
Accounts receivable	$	89,442
Inventory ⁽¹⁾	97,803
Property, plant and equipment ⁽²⁾	73,056
Intangible assets ⁽³⁾	11,715
Accounts payable	(65,640		)
Pension liability	(67,563		)
Bargain purchase gain	(49,650		)
Net other assets and liabilities ⁽⁴⁾	(27,210		)
Total purchase price, net of cash acquired⁽⁵⁾	$	61,953



	Six Months Ended June 30, 2018
Balance, December 31, 2017	$	6,803
Payments and other adjustments	(10,477		)
Charged to expense	21,091
Balance, June 30, 2018	$	17,417



	Shareholders’ Equity			Non-controlling Interests			Total Equity
Balance at December 31, 2017	$	931,637		$	816		$	932,453
Comprehensive income (loss):
Net income	129,688			(9		)	129,679
Other comprehensive income (loss)	(29,293		)	(31		)	(29,324		)
Total comprehensive income (loss)	100,395			(40		)	100,355

Cash dividends declared - $0.78 per share	(51,488		)	—			(51,488		)
Issuance of shares under benefit plans	12,420			—			12,420
Purchase of shares for treasury ⁽¹⁾	(50,232		)	—			(50,232		)
Balance at June 30, 2018	$	942,732		$	776		$	943,508



Description	Balance as of June 30, 2018		Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Foreign exchange contracts	$	3,494	$	—	$	3,494	$	—
Net investment contracts	608		—		608		—
Marketable securities	139,059		—		139,059		—
Total assets	$	143,161	$	—	$	143,161	$	—

Liabilities:
Foreign exchange contracts	$	3,201	$	—	$	3,201	$	—
Net investment contracts	46		—		46		—
Interest rate swap agreements	9,106		—		9,106		—
Contingent considerations	7,294		—		—		7,294
Deferred compensation	26,955		—		26,955		—
Total liabilities	$	46,602	$	—	$	39,308	$	7,294