UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended ~~September 30, 2019~~March 31, 2020

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

For the transition period from _____________ to _____________

Commission File Number: 0-1402

LINCOLN ELECTRIC HOLDINGS, INC.

(Exact name of registrant as specified in its charter)



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

22801 St. Clair Avenue, Cleveland, Ohio 44117

(Address of principal executive offices) (Zip Code)

(216) 481-8100

(Registrant's telephone number, including area code)

Not applicable

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

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



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

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

Yes ý No ☐

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

Yes ý No ☐

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



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

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

☐

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

Yes ☐ No ý

The number of shares outstanding of the registrant’s common shares as of ~~September 30, 2019~~March 31, 2020 was ~~61,148,658.~~59,386,965.

TABLE OF CONTENTS



PART I. FINANCIAL INFORMATION		3
Item 1. Financial Statements		3
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)		3
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)		4
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)		5
CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)		6
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)		87
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS		98
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		2421
Item 3. Quantitative and Qualitative Disclosures About Market Risk		3529
Item 4. Controls and Procedures		3529

PART II. OTHER INFORMATION		3630
Item 1. Legal Proceedings		3630
Item 1A. Risk Factors		3630
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		3630
Item 4. Mine Safety Disclosures		3731
Item 5: Other Information		31
Item 6. Exhibits		3732
Signatures		3833
~~EX-10.1~~	First Amendment, dated as of July 30, 2019, to the Note Purchase Agreement dated as of April 1, 2015, by and among Lincoln Electric Holdings, Inc., The Lincoln Electric Company, Lincoln Electric International Holding Company, J.W. Harris Co., Inc., Lincoln Global, Inc., Techalloy, Inc., Wayne Trail Technologies, Inc. and the purchasers party thereto (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 September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
	2019			2018			2019			2018			2020			2019
Net sales (Note 2)	$	730,783		$	737,099		$	2,266,965		$	2,284,847		$	701,991		$	759,174
Cost of goods sold	492,432			485,547			1,500,312			1,506,625			464,669			500,753
Gross profit	238,351			251,552			766,653			778,222			237,322			258,421
Selling, general & administrative expenses	148,312			148,129			472,108			473,260			149,727			160,408
Rationalization and asset impairment charges (Note 6)	1,495			2,636			6,337			24,353			6,521			3,535
Operating income	88,544			100,787			288,208			280,609			81,074			94,478
Interest expense, net	6,400			3,969			17,621			13,222			5,458			5,323
Other income (expense) (Note 14)	9,653			(1,074		)	17,612			6,818			309			3,763
Income before income taxes	91,797			95,744			288,199			274,205			75,925			92,918
Income taxes (Note 15)	19,340			25,209			58,832			73,991			20,370			21,452
Net income including non-controlling interests	72,457			70,535			229,367			200,214			55,555			71,466
Non-controlling interests in subsidiaries’ earnings (loss)	(4		)	(4		)	(26		)	(13		)	(7		)	(14		)
Net income	$	72,461		$	70,539		$	229,393		$	200,227		$	55,562		$	71,480

Basic earnings per share (Note 3)	$	1.18		$	1.09		$	3.68		$	3.07		$	0.92		$	1.13
Diluted earnings per share (Note 3)	$	1.17		$	1.07		$	3.64		$	3.03		$	0.91		$	1.12
Cash dividends declared per share	$	0.47		$	0.39		$	1.41		$	1.17		$	0.49		$	0.47

See notes to these consolidated financial statements.

LINCOLN ELECTRIC HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)

(In thousands)


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
	2019			2018			2019			2018			2020			2019
Net income including non-controlling interests	$	72,457		$	70,535		$	229,367		$	200,214		$	55,555		$	71,466
Other comprehensive income (loss), net of tax:
Unrealized gain (loss) on derivatives designated and qualifying as cash flow hedges, net of tax of ($66) and ($121) in the three and nine months ended September 30, 2019; $390 and $415 in the three and nine months ended September 30, 2018.	(348		)	1,416			(320		)	1,039
Defined benefit pension plan activity, net of tax of $536 and $673 in the three and nine months ended September 30, 2019; $1,278 and $1,927 in the three and nine months ended September 30, 2018.	613			3,855			2,491			5,863
Unrealized gain (loss) on derivatives designated and qualifying as cash flow hedges, net of tax of $(716) and $122 in the three months ended March 31, 2020 and 2019													(2,369		)	329
Defined benefit pension plan activity, net of tax of $164 and $227 in the three months ended March 31, 2020 and 2019													609			787
Currency translation adjustment	(24,025		)	(467		)	(14,040		)	(31,422		)	(70,608		)	5,136
Other comprehensive income (loss):	(23,760		)	4,804			(11,869		)	(24,520		)	(72,368		)	6,252
Comprehensive income	48,697			75,339			217,498			175,694
Comprehensive income (loss)													(16,813		)	77,718
Comprehensive income (loss) attributable to non-controlling interests	254			(65		)	234			(105		)	(48		)	23
Comprehensive income attributable to shareholders	$	48,443		$	75,404		$	217,264		$	175,799
Comprehensive income (loss) attributable to shareholders													$	(16,765	)	$	77,695

See notes to these consolidated financial statements.

LINCOLN ELECTRIC HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)


	September 30, 2019			December 31, 2018			March 31, 2020			December 31, 2019
	(UNAUDITED)			(NOTE 1)			(UNAUDITED)			(NOTE 1)
ASSETS
Current Assets
Cash and cash equivalents	$	156,612		$	358,849		$	163,375		$	199,563
Accounts receivable (less allowance for doubtful accounts of $16,893 in 2019; $12,827 in 2018)	395,355			396,885
Accounts receivable (less allowance for doubtful accounts of $16,169 in 2020; $16,002 in 2019)							385,673			374,649
Inventories (Note 9)	411,120			361,829			398,248			393,748
Other current assets	119,347			120,236			112,048			107,621
Total Current Assets	1,082,434			1,237,799			1,059,344			1,075,581
Property, plant and equipment (less accumulated depreciation of $803,332 in 2019; $778,817 in 2018)	523,229			478,801
Property, plant and equipment (less accumulated depreciation of $816,947 in 2020; $825,769 in 2019)							503,179			529,344
Goodwill	331,311			281,294			326,584			337,107
Other assets	424,186			351,931			416,793			429,181
TOTAL ASSETS	$	2,361,160		$	2,349,825		$	2,305,900		$	2,371,213

LIABILITIES AND EQUITY
Current Liabilities
Short-term debt (Note 12)	$	13,293		$	111		$	132,378		$	34,969
Trade accounts payable	243,837			268,600			248,335			273,002
Accrued employee compensation and benefits	133,361			94,202			82,630			83,033
Other current liabilities	181,946			175,269			191,479			172,131
Total Current Liabilities	572,437			538,182			654,822			563,135
Long-term debt, less current portion (Note 12)	713,884			702,549			715,950			712,302
Other liabilities	261,031			221,502			267,168			276,699
Total Liabilities	1,547,352			1,462,233			1,637,940			1,552,136
Shareholders’ Equity
Common shares	9,858			9,858			9,858			9,858
Additional paid-in capital	377,584			360,308			387,096			389,446
Retained earnings	2,704,486			2,564,440			2,767,939			2,736,481
Accumulated other comprehensive loss	(305,868		)	(293,739		)	(348,177		)	(275,850		)
Treasury shares	(1,973,136		)	(1,753,925		)	(2,149,613		)	(2,041,763		)
Total Shareholders’ Equity	812,924			886,942			667,103			818,172
Non-controlling interests	884			650			857			905
Total Equity	813,808			887,592			667,960			819,077
TOTAL LIABILITIES AND TOTAL EQUITY	$	2,361,160		$	2,349,825		$	2,305,900		$	2,371,213

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			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
Balance at December 31, 2019																							60,592		$	9,858	$	389,446		$	2,736,481		$	(275,850	)	$	(2,041,763	)	$	905		$	819,077
Net income								85,452									(8		)	85,444										55,562									(7		)	55,555
Unrecognized amounts from defined benefit pension plans, net of tax											1,091									1,091													609									609
Unrealized loss on derivatives designated and qualifying as cash flow hedges, net of tax											(301		)							(301		)											(2,369		)							(2,369		)
Currency translation adjustment											4,884						(35		)	4,849													(70,567		)				(41		)	(70,608		)
Cash dividends declared – $0.47 per share								(29,279		)										(29,279		)
Cash dividends declared – $0.49 per share																														(29,280		)										(29,280		)
Stock-based compensation activity	13				4,783									136						4,919			152				2,826									1,912						4,738
Purchase of shares for treasury	(1,034	)												(85,330		)				(85,330		)	(1,357	)												(109,762		)				(109,762		)
Other					(282		)	282												—							(5,176		)	5,176												—
Balance at June 30, 2019	61,779		$	9,858	$	368,919		$	2,661,720		$	(281,850	)	$	(1,913,219	)	$	630		$	846,058
Net income								72,461									(4		)	72,457
Unrecognized amounts from defined benefit pension plans, net of tax											613									613
Unrealized gain on derivatives designated and qualifying as cash flow hedges, net of tax											(348		)							(348		)
Currency translation adjustment											(24,283		)				258			(24,025		)
Cash dividends declared – $0.47 per share								(28,931		)										(28,931		)
Stock-based compensation activity	107				7,996									1,111						9,107
Purchase of shares for treasury	(737	)												(61,028		)				(61,028		)
Other					669			(764		)										(95		)
Balance at September 30, 2019	61,149		$	9,858	$	377,584		$	2,704,486		$	(305,868	)	$	(1,973,136	)	$	884		$	813,808
Balance at March 31, 2020																							59,387		$	9,858	$	387,096		$	2,767,939		$	(348,177	)	$	(2,149,613	)	$	857		$	667,960

~~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			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
Balance at December 31, 2018																							63,546		$	9,858	$	360,308	$	2,564,440		$	(293,739	)	$	(1,753,925	)	$	650		$	887,592
Net income								60,824									(4		)	60,820									71,480									(14		)	71,466
Unrecognized amounts from defined benefit pension plans, net of tax											1,287									1,287												787									787
Unrealized gain on derivatives designated and qualifying as cash flow hedges, net of tax											855									855												329									329
Currency translation adjustment											19,328						59			19,387												5,099						37			5,136
Cash dividends declared – $0.39 per share								(25,787		)										(25,787		)
Cash dividends declared – $0.47 per share																													(29,847		)										(29,847		)
Stock-based compensation activity	55				5,819									562						6,381			148				3,302								1,484						4,786
Purchase of shares for treasury	(159	)												(14,724		)				(14,724		)	(894	)											(75,584		)				(75,584		)
Other					5,483			(5,483		)										—							808		(808		)										—
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
Net income								70,539									(4		)	70,535
Unrecognized amounts from defined benefit pension plans, net of tax											3,855									3,855
Unrealized gain on derivatives designated and qualifying as cash flow hedges, net of tax											1,416									1,416
Currency translation adjustment											(406		)				(61		)	(467		)
Cash dividends declared – $0.39 per share								(25,346		)										(25,346		)
Stock-based compensation activity	41				5,190									422						5,612
Purchase of shares for treasury	(767	)												(71,245		)				(71,245		)
Other					927			(927		)										—
Balance at September 30, 2018	64,446		$	9,858	$	357,749		$	2,505,396		$	(271,614	)	$	(1,674,232	)	$	711		$	927,868
Balance at March 31, 2019																							62,800		$	9,858	$	364,418	$	2,605,265		$	(287,524	)	$	(1,828,025	)	$	673		$	864,665

LINCOLN ELECTRIC HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(In thousands)


	Nine Months Ended September 30,						Three Months Ended March 31,
	2019			2018			2020			2019
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	229,393		$	200,227		$	55,562		$	71,480
Non-controlling interests in subsidiaries’ loss	(26		)	(13		)	(7		)	(14		)
Net income including non-controlling interests	229,367			200,214			55,555			71,466
Adjustments to reconcile Net income including non-controlling interests to Net cash provided by operating activities:
Rationalization and asset impairment net charges (gains) (Note 6)	1,069			(1,408		)
Rationalization and asset impairment net (gains) charges (Note 6)							(236		)	1,424
Depreciation and amortization	60,400			53,946			21,028			18,901
Equity earnings in affiliates, net	(1,266		)	(1,427		)	(162		)	(448		)
Deferred income taxes	4,045			4,444			(3,685		)	1,317
Stock-based compensation	12,602			13,583			3,691			4,149
Gain on change in control	(7,601		)	—
Other, net	(7,362		)	(5,945		)	(4,188		)	(1,072		)
Changes in operating assets and liabilities, net of effects from acquisitions:
Decrease (increase) in accounts receivable	24,103			(25,492		)
Increase in accounts receivable							(25,698		)	(26,900		)
Increase in inventories	(36,476		)	(41,533		)	(17,401		)	(14,638		)
Decrease (increase) in other current assets	3,227			(12,081		)
Increase in other current assets							(1,789		)	(8,701		)
Decrease in trade accounts payable	(34,202		)	(17,523		)	(16,676		)	(15,107		)
Increase in other current liabilities	31,113			58,397
Increase (decrease) in other current liabilities							13,482			(5,947		)
Net change in other assets and liabilities	1,647			4,602			(1,949		)	1,434
NET CASH PROVIDED BY OPERATING ACTIVITIES	280,666			229,777			21,972			25,878

CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures	(53,551		)	(48,746		)	(11,828		)	(16,251		)
Acquisition of businesses, net of cash acquired	(136,735		)	6,591
Proceeds from sale of property, plant and equipment	9,491			10,585			6,100			302
Purchase of marketable securities	—			(268,335		)
Proceeds from marketable securities	—			348,178
Other investing activities	2,000			—			—			2,000
NET CASH (USED BY) PROVIDED BY INVESTING ACTIVITIES	(178,795		)	48,273
NET CASH USED BY INVESTING ACTIVITIES							(5,728		)	(13,949		)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from short-term borrowings							126			—
Payments on short-term borrowings							(1,747		)	—
Amounts due banks, net	2,439			(639		)	99,400			—
Payments on long-term borrowings	(6		)	(7		)	(2		)	(3		)
Proceeds from exercise of stock options	6,210			4,448			1,047			637
Purchase of shares for treasury (Note 8)	(221,942		)	(121,477		)	(109,762		)	(75,584		)
Cash dividends paid to shareholders	(89,162		)	(76,674		)	(30,675		)	(30,560		)
Other financing activities	—			(2,170		)
NET CASH USED BY FINANCING ACTIVITIES	(302,461		)	(196,519		)	(41,613		)	(105,510		)

Effect of exchange rate changes on Cash and cash equivalents	(1,647		)	(10,032		)	(10,819		)	1,866
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS	(202,237		)	71,499
DECREASE IN CASH AND CASH EQUIVALENTS							(36,188		)	(91,715		)

Cash and cash equivalents at beginning of period	358,849			326,701			199,563			358,849
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	156,612		$	398,200		$	163,375		$	267,134

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 ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020 are not necessarily indicative of the results to be expected for the year ending December 31, ~~2019~~2020.

The accompanying Consolidated Balance Sheet at December 31, ~~2018~~2019 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, ~~2018~~2019.

COVID-19 Assessment

In March 2020, the World Health Organization categorized the current coronavirus disease (“COVID-19”) as a pandemic, and the President of the United States declared the COVID-19 outbreak a national emergency. COVID-19 continues to spread throughout the United States and other countries across the world, and the duration and severity of its effects are currently unknown. While the Company expects the effects of the pandemic to negatively impact its results of operations, cash flows and financial position, the current level of uncertainty over the economic and operational impacts of COVID-19 means the related financial impact cannot be reasonably estimated at this time. The Company’s consolidated financial statements presented herein reflect estimates and assumptions made by management that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and reported amounts of revenue and expenses during the reporting periods presented. Such estimates and assumptions affect, among other things, the Company’s goodwill, long-lived asset and indefinite-lived intangible asset valuation; inventory valuation; assessment of the annual effective tax rate; valuation of deferred income taxes and income tax contingencies; the allowance for doubtful accounts; measurement of compensation cost for certain share-based awards and cash bonus plans; and pension plan assumptions. Events and changes in circumstances arising after March 31, 2020, including those resulting from the impacts of COVID-19, will be reflected in management’s estimates for future periods.

Table of Contents

LINCOLN ELECTRIC HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Dollars in thousands, except per share amounts

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, ~~2019:~~2020, unless otherwise noted below:



~~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 (the "U.S. Tax Act"). The ASU only applies to the income tax effects of the U.S. Tax Act; all other existing guidance remains the same. The Company has elected not to reclassify the income tax effects of the U.S. Tax Act from Accumulated other comprehensive loss to Retained earnings.
~~ASU No. 2016-02,~~ ~~Leases (Topic 842), issued February 2016~~	ASU 2016-02 ("Topic 842") aims to increase transparency and comparability among organizations by recognizing a right-of-use asset and lease liability on the balance sheet for all leases with a lease term greater than twelve months. Topic 842 also requires the disclosure of key information about leasing agreements. The Company adopted Topic 842 using the modified retrospective transition option of applying the new standard at the adoption date. The Company also elected the package of practical expedients, which among other things, allows it to not reassess the identification, classification and initial direct costs of leases commencing before the effective date of Topic 842. Refer to Note 10 to the consolidated financial statements for further details.

~~Table of Contents~~

~~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,~~These disclosure requirements will be reflected in the Notes to the consolidated financial statements in the Company's year ended December 31, 2020 ~~and early adoption is permitted.~~Form 10-K.
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~~removes disclosure requirements pertaining to the amount of and reasons for transfers between Level 1 and Level 2 of the fair value ~~disclosure, including but not limited~~hierarchy, the policy for timing of transfers between levels and the valuation processes for Level 3 fair value measurements. Refer 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.~~Note 17 to the consolidated financial statements for further details.
ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326), issued June 2016.	ASU 2016-13 modifies disclosure and measurement requirements related to credit losses. ~~The ASU impacts various financial instruments, including but not limited to, trade receivables.~~ Topic 326 requires that an entity estimate impairment of trade receivables based on expected losses rather than incurred losses. The adoption did not have a material impact on the Company's consolidated financial statements.
ASU No. 2020-04, Reference Rate Reform (Topic 848), issued March 2020.	ASU 2020-04 provides temporary optional guidance to ease the financial reporting burden associated with the expected market transition from the London Inter-Bank Offer Rate ("LIBOR") to alternative reference rates. The Company adopted the ASU on March 12, 2020 and it is effective through December 31, 2022. As of March 31, 2020, the Company has not utilized any of the optional guidance, however, it will continue to assess the potential impact on the Company’s debt contracts and hedging relationships through the effective period.

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



Standard	Description
ASU No. 2019-12, Income Taxes (Topic 740), issued December 2019.	ASU 2019-12 simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. The ASU is effective January 1, ~~2020~~2021 and early adoption is permitted.

NOTE 2 — REVENUE RECOGNITION

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


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended March 31,
	2019		2018		2019		2018		2020		2019
Consumables	$	420,980	$	426,837	$	1,308,788	$	1,329,768	$	405,840	$	442,958
Equipment	309,803		310,262		958,177		955,079		296,151		316,216
Net sales	$	730,783	$	737,099	$	2,266,965	$	2,284,847	$	701,991	$	759,174

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~~automated joining, assembly and cutting 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~~

Table of ~~the Company's sales arrangements are short-term~~Contents

LINCOLN ELECTRIC HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Dollars 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.thousands, except per share amounts

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, certain customized automation performance obligations within the Equipment product line, are 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 ~~September 30, 2019,~~March 31, 2020, the Company recorded ~~$21,544~~$17,914 related to advance customer payments and ~~$12,854~~$15,377 related to billings in excess of revenue recognized. These contract liabilities are included in Other current liabilities in the Condensed Consolidated Balance Sheets. At December 31, ~~2018,~~2019, the balances related to advance customer payments and billings in excess of revenue recognized were ~~$17,023~~$16,040 and ~~$17,013,~~$16,274, 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 ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018, $36,568~~2019, $32,223 and ~~$25,032,~~$33,566, 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.

~~Table of Contents~~

~~LINCOLN ELECTRIC HOLDINGS, INC.~~

~~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 September 30,				Nine Months Ended September 30,				Three Months Ended March 31,
	2019		2018		2019		2018		2020		2019
Numerator:
Net income	$	72,461	$	70,539	$	229,393	$	200,227	$	55,562	$	71,480
Denominator (shares in 000's):
Basic weighted average shares outstanding	61,380		64,821		62,282		65,245		60,184		63,160
Effect of dilutive securities - Stock options and awards	681		831		690		810		615		739
Diluted weighted average shares outstanding	62,061		65,652		62,972		66,055		60,799		63,899
Basic earnings per share	$	1.18	$	1.09	$	3.68	$	3.07	$	0.92	$	1.13
Diluted earnings per share	$	1.17	$	1.07	$	3.64	$	3.03	$	0.91	$	1.12

For the three months ended September 30, 2019 and 2018, common shares subject to equity-based awards of 548,049 and 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 ~~nine months ended September 30, 2019~~March 31, 2020 and ~~2018,~~2019, common shares subject to equity-based awards of ~~514,402~~655,764 and ~~317,528~~498,694, respectively, were excluded from the computation of diluted earnings per share because the effect of their exercise would be anti-dilutive.

NOTE 4 — ACQUISITIONS

During July 2019, the Company acquired the controlling stake of Kaynak Tekniği Sanayi ve Ticaret A.Ş. (“Askaynak”). Askaynak, based in Turkey, is a supplier and manufacturer of welding consumables, arc welding equipment, including plasma and oxy-fuel cutting equipment and robotic welding systems. The acquisition 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 of Worthington Industries (“Worthington”). The Worthington business, based in Winston Salem, North Carolina, broadened The Harris Products Group’s portfolio of industry-leading consumables with the addition of premium solders and fluxes.

Also during December 2018, the Company acquired Coldwater Machine Company (“Coldwater”) and 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 acquisitions accelerated growth and expand the Company’s industry-leading portfolio of automated cutting and 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 structural steel applications. The acquisition scaled the Company's automated cutting solutions and application expertise and supports long-term growth in that market.

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

1110

Table of Contents

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 3 operating segments. The operating segments consist of Americas Welding, International Welding and The Harris Products Group. The Americas Welding segment includes welding operations in North and South America. The International Welding segment includes welding operations in Europe, Africa, Asia and Australia. The Harris Products Group includes the Company’s global oxy-fuel cutting, soldering and brazing businesses as well as its retail business in the United States.

Segment performance is measured and resources are allocated based on a number of factors, the primary measure being the adjusted earnings before interest and income taxes (“Adjusted EBIT”) profit measure. EBIT is defined as Operating income plus Other income (expense). EBIT is adjusted for special items as determined by management such as the impact of rationalization activities, certain asset impairment charges and gains or losses on disposals of assets.

The following table presents Adjusted EBIT by segment:



	Americas Welding		International Welding		The Harris Products Group		Corporate / Eliminations			Consolidated
Three Months Ended March 31, 2020
Net sales	$	418,535	$	197,923	$	85,533	$	—		$	701,991
Inter-segment sales	24,783		4,483		1,725		(30,991		)	—
Total	$	443,318	$	202,406	$	87,258	$	(30,991	)	$	701,991

Adjusted EBIT	$	70,702	$	6,615	$	12,492	$	(1,099	)	$	88,710
Special items charge (gain) ⁽¹⁾	1,190		6,137		—		—			7,327
EBIT	$	69,512	$	478	$	12,492	$	(1,099	)	$	81,383
Interest income										860
Interest expense										(6,318		)
Income before income taxes										$	75,925
Three Months Ended March 31, 2019
Net sales	$	457,719	$	218,086	$	83,369	$	—		$	759,174
Inter-segment sales	29,388		4,209		1,867		(35,464		)	—
Total	$	487,107	$	222,295	$	85,236	$	(35,464	)	$	759,174

Adjusted EBIT	$	81,752	$	13,337	$	10,519	$	(3,042	)	$	102,566
Special items charge (gain) ⁽²⁾	1,336		2,199		—		790			4,325
EBIT	$	80,416	$	11,138	$	10,519	$	(3,832	)	$	98,241
Interest income										964
Interest expense										(6,287		)
Income before income taxes										$	92,918


(1)	In the three months ended March 31, 2020, special items reflect Rationalization and asset impairment charges of $1,190 and $5,331 in Americas Welding and International Welding, respectively, and amortization of step up in value of acquired inventories of $806 related to an acquisition.


(2)	In the three months ended March 31, 2019, special items reflect Rationalization and asset impairment charges of $1,336 and $2,199 in Americas Welding and International Welding, respectively, and acquisition transaction and integration costs of $790 in Corporate / Eliminations related to the Air Liquide Welding acquisition.

NOTE 6 — RATIONALIZATION AND ASSET IMPAIRMENTS

The Company recorded Rationalization and asset impairment net charges of $6,521 and $3,535 in the three months ended March 31, 2020 and 2019, respectively. The charges are primarily related to employee severance, asset impairments and gains or losses on the disposal of assets.

1211

Table of Contents

LINCOLN ELECTRIC HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Dollars in thousands, except per share amounts

~~The following table presents Adjusted EBIT by segment:~~

Americas Welding International Welding
The Harris
Products Group

Corporate /
Eliminations
Consolidated
Three Months Ended September 30, 2019

Net sales $ 443,521
$ 205,378
$ 81,884
$ —
$ 730,783
Inter-segment sales 31,101
4,441
1,857
(37,399 ) —
Total $ 474,622
$ 209,819
$ 83,741
$ (37,399 ) $ 730,783

Adjusted EBIT $ 74,110
$ 10,184
$ 11,038
$ (1,632 ) $ 93,700
Special items charge (gain) ⁽¹⁾
—
(4,497 ) —
—
(4,497 )
EBIT $ 74,110
$ 14,681
$ 11,038
$ (1,632 ) $ 98,197
Interest income

491
Interest expense

(6,891 )
Income before income taxes

$ 91,797
Three Months Ended September 30, 2018

Net sales $ 454,010
$ 209,622
$ 73,467
$ —
$ 737,099
Inter-segment sales 31,845
3,663
1,537
(37,045 ) —
Total $ 485,855
$ 213,285
$ 75,004
$ (37,045 ) $ 737,099

Adjusted EBIT $ 89,253
$ 10,721
$ 8,676
$ (1,099 ) $ 107,551
Special items charge (gain) ⁽²⁾
4,232
2,636
—
970
7,838
EBIT $ 85,021
$ 8,085
$ 8,676
$ (2,069 ) $ 99,713
Interest income

1,993
Interest expense

(5,962 )
Income before income taxes

$ 95,744
Nine Months Ended September 30, 2019

Net sales $ 1,377,847
$ 635,770
$ 253,348
$ —
$ 2,266,965
Inter-segment sales 95,300
12,838
5,837
(113,975 ) —
Total $ 1,473,147
$ 648,608
$ 259,185
$ (113,975 ) $ 2,266,965

Adjusted EBIT $ 240,713
$ 38,699
$ 35,045
$ (8,643 ) $ 305,814
Special items charge (gain) ⁽¹⁾
3,115
(4,925 ) —
1,804
(6 )
EBIT $ 237,598
$ 43,624
$ 35,045
$ (10,447 ) $ 305,820
Interest income

2,047
Interest expense

(19,668 )
Income before income taxes

$ 288,199
Nine Months Ended September 30, 2018

Net sales $ 1,351,297
$ 700,315
$ 233,235
$ —
$ 2,284,847
Inter-segment sales 89,671
13,669
5,447
(108,787 ) —
Total $ 1,440,968
$ 713,984
$ 238,682
$ (108,787 ) $ 2,284,847

Adjusted EBIT $ 254,850
$ 41,970
$ 28,058
$ (4,443 ) $ 320,435
Special items charge (gain) ⁽²⁾
4,990
24,353
—
3,665
33,008
EBIT $ 249,860
$ 17,617
$ 28,058
$ (8,108 ) $ 287,427
Interest income

5,273
Interest expense

(18,495 )
Income before income taxes

$ 274,205


~~(1)~~	In the three months ended September 30, 2019, special items reflect Rationalization and asset impairment charges of $1,495, amortization of step up in value of acquired inventories of $1,609 related to the acquisition of Askaynak and

~~Table of Contents~~

~~LINCOLN ELECTRIC HOLDINGS, INC.~~

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

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

~~gain on change in control of $7,601 related to~~During 2020, the ~~acquisition of Askaynak in International Welding. In the nine months ended September 30, 2019, special items reflect Rationalization and asset impairment charges of $1,716 in~~Company initiated rationalization plans within Americas Welding and ~~$4,621 in~~ International Welding ~~amortization~~segments. The plans include headcount restructuring and the consolidation of ~~step up in value~~manufacturing facilities to better align the cost structure with economic conditions and operating needs. At March 31, 2020, liabilities of ~~acquired inventories of $1,399 related to the acquisition of Baker Industries in~~$854 and $6,168 for Americas Welding and ~~$1,609 related to the acquisition of Askaynak in~~ International Welding, ~~gains on disposals of assets of $3,554~~respectively, were recognized in International Welding and acquisition transaction and integration costs of $1,804 in Corporate / Eliminations related to the Air Liquide Welding acquisition and a gain on change in control of $7,601 related to the acquisition of Askaynak.

~~(2)~~

In the three months ended September 30, 2018, special items reflect pension settlement charges of $4,232 in Americas Welding, rationalization and asset impairment charges of $2,636 in International Welding and transaction and integration costs of $970 in Corporate / Eliminations related to the Air Liquide Welding acquisition. In the nine months ended September 30, 2018, special items reflect pension settlement charges of $4,990 in Americas Welding, Rationalization and asset impairment charges of $24,353 in International Welding and acquisition transaction and integration costs of $3,665 in Corporate / Eliminations related to the Air Liquide Welding acquisition.

~~NOTE 6 — RATIONALIZATION AND ASSET IMPAIRMENTS~~

~~The Company recorded rationalization and asset impairment net charges of $6,337~~Other current liabilities in the ~~nine months ended September 30, 2019. The 2019 charges are primarily related to employee severance, asset impairments and gains or losses on the disposal of assets.~~Company's Condensed Consolidated Balance Sheet.

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 ~~September 30, 2019,~~March 31, 2020, liabilities of ~~$1,903 were recognized in Other current liabilities in the Company's 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 structure with economic conditions and operating needs. At September 30, 2019, liabilities of $528$6,616 were recognized in Other current liabilities in the Company's Condensed Consolidated Balance Sheet.

The Company believes the rationalization actions will positively impact future results of operations and will not have a material effect on liquidity and sources and uses of capital. The Company continues to evaluate its cost structure and additional rationalization actions may result in charges in future periods.

The following table summarizes the activity related to rationalization ~~liabilities:~~liabilities for the three months ended March 31, 2020:


	Nine Months Ended September 30, 2019			Americas Welding		International Welding			Consolidated
Balance, December 31, 2018	$	11,192
Balance, December 31, 2019				$	—	$	8,202		$	8,202
Payments and other adjustments	(14,029		)	—		(1,321		)	(1,321		)
Charged to expense	5,268			854		5,903			6,757
Balance, September 30, 2019	$	2,431
Balance, March 31, 2020				$	854	$	12,784		$	13,638

1412

Table of Contents

LINCOLN ELECTRIC HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Dollars in thousands, except per share amounts

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

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



	Three Months Ended March 31, 2020
	Unrealized gain (loss) on derivatives designated and qualifying as cash flow hedges				Defined benefit pension plan activity				Currency translation adjustment				Total
Balance at December 31, 2019	$	1,626			$	(70,546	)		$	(206,930	)		$	(275,850	)
Other comprehensive income (loss) before reclassification	(2,312		)		—				(70,567		)	³	(72,879		)
Amounts reclassified from AOCI	(57		)	¹	609			²	—				552
Net current-period other comprehensive income (loss)	(2,369		)		609				(70,567		)		(72,327		)
Balance at March 31, 2020	$	(743	)		$	(69,937	)		$	(277,497	)		$	(348,177	)

	Three Months Ended March 31, 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	682				—				5,099			³	5,781
Amounts reclassified from AOCI	(353		)	¹	787			²	—				434
Net current-period other comprehensive income (loss)	329				787				5,099				6,215
Balance at March 31, 2019	$	2,023			$	(81,262	)		$	(208,285	)		$	(287,524	)

Three Months Ended September 30, 2019
Unrealized gain (loss) on derivatives designated and qualifying as cash flow hedges Defined benefit pension plan activity Currency translation adjustment Total
Balance at June 30, 2019 $ 1,722
$ (80,171 ) $ (203,401 ) $ (281,850 )
Other comprehensive income (loss)
before reclassification (268 ) —
(24,283 )
³
(24,551 )
Amounts reclassified from AOCI (80 )
¹
613
²
—
533
Net current-period other
comprehensive income (loss) (348 ) 613
(24,283 ) (24,018 )
Balance at September 30, 2019 $ 1,374
$ (79,558 ) $ (227,684 ) $ (305,868 )

Three Months Ended September 30, 2018
Unrealized gain (loss) on derivatives designated and qualifying as cash flow hedges Defined benefit pension plan activity Currency translation adjustment Total
Balance at June 30, 2018 $ 498
$ (83,269 ) $ (193,708 ) $ (276,479 )
Other comprehensive income (loss)
before reclassification 1,218
—
(406 )
³
812
Amounts reclassified from AOCI 198
¹
3,855
²
—
4,053
Net current-period other
comprehensive income (loss) 1,416
3,855
(406 ) 4,865
Balance at September 30, 2018 $ 1,914
$ (79,414 ) $ (194,114 ) $ (271,614 )

(1)

During the ~~2019~~2020 period, this AOCI reclassification is a component of Net sales of ~~$(15)~~$(41) (net of tax of $(21)) and Cost of goods sold of ~~$(95)~~$(98) (net of tax of ~~$(22)~~$(24)); during the ~~2018~~2019 period, the reclassification is a component of Net sales of ~~$(124)~~$286 (net of tax of ~~$(19))~~$102) and Cost of goods sold of ~~$74~~$(67) (net of tax of ~~$(5)~~$(30)). See Note 16 to the consolidated financial statements for additional details.


(2)	This AOCI component is included in the computation of net periodic pension costs (net of tax of ~~$536~~$164 and ~~$1,278~~$227 during the three months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ respectively). See Note 13 to the consolidated financial statements for additional details.


(3)	The Other comprehensive income (loss) before reclassifications excludes ~~$258~~$(41) and ~~$(61)~~$37 attributable to Non-controlling interests in the three months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ respectively.

~~Table of Contents~~

~~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 by component, net of taxes, for the nine months ended September 30, 2019 and 2018:~~

Nine Months Ended September 30, 2019
Unrealized gain (loss) on derivatives designated and qualifying as cash flow hedges Defined benefit pension plan activity Currency translation adjustment Total
Balance at December 31, 2018 $ 1,694
$ (82,049 ) $ (213,384 ) $ (293,739 )
Other comprehensive income (loss)
before reclassification 521
—
(14,300 )
³
(13,779 )
Amounts reclassified from AOCI (841 )
¹
2,491
²
—
1,650
Net current-period other
comprehensive income (loss) (320 ) 2,491
(14,300 ) (12,129 )
Balance at September 30, 2019 $ 1,374
$ (79,558 ) $ (227,684 ) $ (305,868 )

Nine Months Ended September 30, 2018
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 )
Other comprehensive income (loss)
before reclassification 987
—
(31,330 )
³
(30,343 )
Amounts reclassified from AOCI 52
¹
5,863
²
—
5,915
Net current-period other
comprehensive income (loss) 1,039
5,863
(31,330 ) (24,428 )
Balance at September 30, 2018 $ 1,914
$ (79,414 ) $ (194,114 ) $ (271,614 )


~~(1)~~	During the 2019 period, this AOCI reclassification is a component of Net sales of $557 (net of tax of $203) and Cost of goods sold of $(284) (net of tax of $(82)); during the 2018 period, the reclassification is a component of Net sales of $(12) (net of tax of $(25)) and Cost of goods sold of $40 (net of tax of $(24)). See Note 16 to the consolidated financial statements for additional details.


~~(2)~~	This AOCI component is included in the computation of net periodic pension costs (net of tax of $673 and $1,927 during the nine months ended September 30, 2019 and 2018, respectively). See Note 13 to the consolidated financial statements for additional details.


~~(3)~~	~~The Other comprehensive income (loss) before reclassifications excludes $260 and $(92) attributable to Non-controlling interests in the nine months ended September 30, 2019 and 2018, respectively.~~

NOTE 8 — COMMON STOCK REPURCHASE PROGRAM

The Company has a total 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 ~~September 30, 2019,~~March 31, 2020, the Company purchased a total of ~~0.7~~1.3 million shares at an average cost per share of ~~$82.80. During the nine months ended September 30, 2019, the Company purchased a total of 2.6 million shares at an average cost per share of $83.18.~~$80.57. As of ~~September 30, 2019,~~March 31, 2020, there remained ~~3.6~~1.5 million common shares available for repurchase under this program. The repurchased common shares remain in treasury and have not been retired.

On February 12, 2020, the Company's Board of Director's approved a new share repurchase program authorizing the Company to repurchase, in the aggregate, up to 10 million shares of its outstanding common stock.

1613

Table of Contents

LINCOLN ELECTRIC HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Dollars in thousands, except per share amounts

NOTE 9 — INVENTORIES

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


	September 30, 2019		December 31, 2018		March 31, 2020		December 31, 2019
Raw materials	$	107,278	$	103,820	$	110,641	$	116,716
Work-in-process	69,671		53,950		63,077		63,744
Finished goods	234,171		204,059		224,530		213,288
Total	$	411,120	$	361,829	$	398,248	$	393,748

At ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, approximately ~~36%~~37% and ~~37%~~36%, respectively, of total inventories were valued using the last-in, first-out ("LIFO") method. The excess of current cost over LIFO cost was ~~$77,112~~$75,504 and ~~$79,626~~$75,292 at ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively.

NOTE 10 — 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	September 30, 2019		Balance Sheet Classification	March 31, 2020		December 31, 2019
Right-of-use assets	Other assets	$	53,732	Other assets	$	48,893	$	51,533

Current liabilities	Other current liabilities	$	13,958	Other current liabilities	$	12,839	$	13,572
Noncurrent liabilities	Other liabilities	40,285		Other liabilities	38,001		39,076
Total lease liabilities		$	54,243		$	50,840	$	52,648

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

The 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 its incremental borrowing 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 Company's Consolidated Statements of Income, was ~~$6,290~~$5,219 and ~~$18,725~~$5,888 in the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019, respectively. Cash paid for amounts included in the measurement of lease liabilities ~~for the three~~at March 31, 2020 and ~~nine months ended September 30,~~ 2019, respectively, ~~was $4,528~~were $4,097 and ~~$13,761~~$4,684 and isare 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 nine~~ months ended ~~September 30,~~March 31, 2020 and 2019 were ~~$1,550~~$2,035 and ~~$16,223,~~$4,956, respectively.

1714

Table of Contents

LINCOLN ELECTRIC HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Dollars in thousands, except per share amounts

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


	September 30, 2019			March 31, 2020
2019	$	4,014
2020	14,680			$	11,695
2021	11,169			11,801
2022	8,473			9,150
2023	6,902			7,718
After 2023	16,016
2024				6,314
After 2025				11,096
Total lease payments	$	61,254		$	57,774
Less: Imputed interest	(7,011		)	(6,934		)
Operating lease liabilities	$	54,243		$	50,840

As of ~~September 30, 2019,~~March 31, 2020, the weighted average remaining lease term is 6.3 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:


	Nine Months Ended September 30,						Three Months Ended March 31,
	2019			2018			2020			2019
Balance at beginning of year	$	19,778		$	22,029		$	20,650		$	19,778
Accruals for warranties	12,494			6,855			4,117			2,847
Settlements	(11,787		)	(8,064		)	(3,591		)	(2,663		)
Foreign currency translation and other adjustments	(125		)	349			(318		)	(19		)
Balance at September 30	$	20,360		$	21,169
Balance at March 31							$	20,858		$	19,943

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 term of 5 years with a maturity date of June 30, 2022 and may be increased, subject to certain conditions, by an additional amount up to $100,000. The interest rate on borrowings is based on either ~~the London Inter-Bank Offered Rate ("LIBOR")~~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~~. 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 ~~September 30, 2019,~~March 31, 2020, the Company was in compliance with all of its covenants and had no$115,000 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, comprised of four different series ranging from $50,000 to $100,000, with maturity dates ranging from August 20, 2025 through April 1, 2045, and interest rates ranging from 2.75% and 4.02%. Interest on the Notes is paid semi-annually. The Company's total weighted average effective interest rate and remaining weighted average tenure of the Notes is 3.3% and 1514.1 years, respectively. The proceeds of the Notes were used for general corporate purposes. The Notes contain certain affirmative and negative covenants. As of ~~September 30, 2019,~~March 31, 2020, the Company was in compliance with all of its debt covenants relating to the Notes.

1815

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 ~~September 30, 2019,~~March 31, 2020, the Company was in compliance with all of its covenants and had no outstanding borrowings under the Shelf Agreements.

Fair Value of Debt

At March 31, 2020 and December 31, 2019, the fair value of long-term debt, including the current portion, was approximately $710,599 and $721,494, respectively, which was determined using available market information and methodologies requiring judgment. The carrying value of this debt at such dates was $716,062 and $712,414, respectively. Since judgment is required in interpreting market information, the fair value of the debt is not necessarily the amount which could be realized in a current market exchange.

NOTE 13 — RETIREMENT AND POSTRETIREMENT BENEFIT PLANS

The components of total pension cost were as follows:


	Three Months Ended September 30,												Nine Months Ended September 30,												Three Months Ended March 31,
	2019						2018						2019						2018						2020						2019
	U.S. pension plans			Non-U.S. pension plans			U.S. pension plans			Non-U.S. pension plans			U.S. pension plans			Non-U.S. pension plans			U.S. pension plans			Non-U.S. pension plans			U.S. pension plans			Non-U.S. pension plans			U.S. pension plans			Non-U.S. pension plans
Service cost	$	35		$	697		$	35		$	796		$	105		$	2,126		$	105		$	2,479		$	39		$	756		$	35		$	728
Interest cost	4,652			903			4,574			867			13,958			2,761			13,561			2,774			4,050			696			4,653			936
Expected return on plan assets	(6,245		)	(1,087		)	(6,450		)	(1,174		)	(18,735		)	(3,317		)	(20,281		)	(3,714		)	(5,711		)	(1,007		)	(6,245		)	(1,124		)
Amortization of prior service cost	—			16			—			—			—			47			—			1			—			15			—			16
Amortization of net loss	413			720			355			546			1,240			1,877			1,123			1,676			203			555			413			585
Settlement charges ⁽¹⁾	—			—			4,232			—			—			—			4,990			—
Defined benefit plans	(1,145		)	1,249			2,746			1,035			(3,432		)	3,494			(502		)	3,216			(1,419		)	1,015			(1,144		)	1,141
Multi-employer plans	—			227			—			226			—			717			—			687			—			269			—			247
Defined contribution plans	5,506			692			5,712			813			17,205			1,615			17,216			2,678			5,626			702			5,908			499
Total pension cost	$	4,361		$	2,168		$	8,458		$	2,074		$	13,773		$	5,826		$	16,714		$	6,581		$	4,207		$	1,986		$	4,764		$	1,887

~~(1) Pension settlement charges resulting from lump sum pension payments in the three and nine months ended September 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.

In March 2020, the Company approved an amendment to terminate the Lincoln Electric Company Retirement Annuity Program plan effective as of December 31, 2020. The Company provided notice to participants of the intent to terminate the plan and applied for a determination letter. Pension obligations will be distributed through a combination of lump sum payments to eligible plan participants and through the purchase of a group annuity contract. Upon settlement of the pension obligations, the Company will reclassify unrecognized actuarial gains or losses, currently recorded in AOCI, to the Company's Consolidated Statements of Income as settlement gains or charges in the second half of 2021. The Company anticipates the termination process will take approximately two years to complete.

NOTE 14 — OTHER INCOME (EXPENSE)

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



	Three Months Ended March 31,
	2020			2019
Equity earnings in affiliates	$	162		$	1,006
Other components of net periodic pension (cost) income	1,199			766
Other income (expense)	(1,052		)	1,991
Total Other income (expense)	$	309		$	3,763

Three Months Ended September 30, Nine Months Ended September 30,
2019 2018 2019 2018
Equity earnings in affiliates $ 206
$ 542
$ 3,002
$ 3,301
Other components of net periodic pension (cost) income ⁽¹⁾
628
(2,950 ) 2,169
(130 )
Other income ⁽²⁾
8,819
1,334
12,441
3,647
Total Other income (expense) $ 9,653
$ (1,074 ) $ 17,612
$ 6,818

~~(1) Includes pension settlement charges in the three and nine months ended September 30, 2018 of $4,232 and $4,990. Refer to Note 13 to the consolidated financial statements for details.~~


~~(2)~~	Includes a gain on change in control related to the acquisition of Askaynak in the three and nine months ended September 30, 2019 of $7,601. Refer to Note 4 to the consolidated financial statements for details.

1916

Table of Contents

LINCOLN ELECTRIC HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Dollars in thousands, except per share amounts

NOTE 15 — INCOME TAXES

The Company recognized ~~$58,832~~$20,370 of tax expense on pretax income of ~~$288,199,~~$75,925, resulting in an effective income tax rate of ~~20.4%~~26.8% for the ~~nine~~three months ended ~~September 30, 2019.~~March 31, 2020. The effective income tax rate was ~~27.0%~~23.1% for the ~~nine~~three months ended ~~September 30, 2018.~~March 31, 2019.

The ~~decrease~~increase in the effective tax rate for the ~~nine~~three months ended ~~September 30, 2019,~~March 31, 2020, as compared with the same period in ~~2018,~~2019, was primarily due to recording the tax expense associated with a valuation allowance in 2020, smaller tax benefits related to the vesting of stock based compensation in 2020 and income tax benefits for the settlement of tax items ~~as well as tax deductions associated with an investment in a subsidiary in 2019, rationalization charges in regions with low or no tax benefit~~ recorded in ~~2018 and adjustments and incremental tax expense recorded in 2018 related to the U.S. Tax Act.~~2019.

As of ~~September 30, 2019,~~March 31, 2020, the Company had ~~$22,083~~$20,256 of unrecognized tax benefits. If recognized, approximately ~~$18,590~~$17,235 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 ~~2014.~~2015. 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 ~~$1,470~~$2,769 in previously unrecognized tax benefits by the end of the ~~third~~first quarter ~~2020.~~2021.

NOTE 16 — DERIVATIVES

The Company uses derivative instruments to manage exposures to currency exchange rates, interest rates and commodity prices arising in the normal course of business. Both at inception and on an ongoing basis, the derivative instruments that qualify for hedge accounting are assessed as to their effectiveness, when applicable. Hedge ineffectiveness was immaterial in the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020 and ~~2018.~~2019.

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 ~~September 30, 2019.~~March 31, 2020. 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 ~~$64,675~~$76,358 at ~~September 30, 2019~~March 31, 2020 and ~~$45,909~~$59,982 at December 31, ~~2018.~~2019.

During March 2020, in anticipation of future debt issuance associated with the Notes, as discussed in Note 12, the Company entered into an interest rate forward starting swap agreement, which was qualified and designated as a cash flow hedge, to hedge the variability of future changes in interest rates. The change in fair value is recorded as part of AOCI, and upon completion of debt issuance and termination of the swap, is amortized to interest expense over the life of the underlying debt. The dollar equivalent gross notional amount of the long-term contract was $50,000 at March 31, 2020 and has a termination date of August 2025.

Fair Value Hedges

~~Certain~~From time to time the company will enter into certain interest rate swap agreements ~~were~~that are qualified and designated as fair value hedges. At ~~September 30, 2019,~~March 31, 2020, the Company had no interest rate swap agreements outstanding that effectively convert notional amounts of $50,000 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 0.6%. The variable rates reset every three months, at which time payment or receipt of interest will be settled.outstanding. The Company terminated $~~75,000~~50,000 of interest rate swaps in the three months ended ~~September 30, 2019.~~March 31, 2020 which resulted in a gain of $6,629 that will be amortized to interest expense over the remaining life of the underlying debt.

Net Investment Hedges

~~From time to time, the~~The Company ~~executes foreign~~has cross currency ~~forward contracts~~swap agreements that ~~qualify~~are qualified and ~~are~~ designated as net investment hedges. ~~No such~~The dollar equivalent gross notional amount of these contracts ~~were outstanding at September 30, 2019~~is $50,000 as of March 31, 2020 and December 31, ~~2018.~~2019.

Table of Contents

LINCOLN ELECTRIC HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Dollars in thousands, except per share amounts

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 ~~$378,147~~$363,772 and ~~$328,534~~$363,820 at ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively.

~~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:


	September 30, 2019						December 31, 2018								March 31, 2020								December 31, 2019
Derivatives by hedge designation	Other Current Assets		Other Current Liabilities		Other Assets		Other Current Assets		Other Current Liabilities		Other Assets		Other Liabilities		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	$	641	$	863	$	—	$	647	$	404	$	—	$	—	$	1,184	$	5,267	$	—	$	—	$	1,288	$	522	$	—	$	—
Interest rate swap agreements	—		—		4,493		—		—		302		7,033		—		—		—		—		—		—		2,964		—
Forward starting swap agreement															—		—		—		352		—		—		—		—
Cross currency swap agreements															—		—		1,398		—		—		—		—		653
Not designated as hedging instruments:
Foreign exchange contracts	8,287		2,417		—		6,375		829		—		—		9,284		1,043		—		—		2,397		973		—		—
Total derivatives	$	8,928	$	3,280	$	4,493	$	7,022	$	1,233	$	302	$	7,033	$	10,468	$	6,310	$	1,398	$	352	$	3,685	$	1,495	$	2,964	$	653

The effects of undesignated derivative instruments on the Company’s Consolidated Statements of Income consisted of the following:


		Three Months Ended September 30,					Nine Months Ended September 30,					Three Months Ended March 31,
Derivatives by hedge designation	Classification of gain (loss)	2019			2018		2019		2018		Classification of gain (loss)	2020			2019
Not designated as hedges:
Foreign exchange contracts	Selling, general & administrative expenses	$	(710	)	$	4,894	$	5,707	$	9,143	Selling, general & administrative expenses	$	(22,133	)	$	5,407

The effects of designated hedges on AOCI and the Company’s Consolidated Statements of Income consisted of the following:


Total gain (loss) recognized in AOCI, net of tax	September 30, 2019			December 31, 2018		March 31, 2020			December 31, 2019
Foreign exchange contracts	$	(147	)	$	173	$	(3,084	)	$	620
Forward starting swap agreement						(264		)	—
Net investment contracts	1,521			1,521		2,605			1,006

The Company expects a loss of $~~147~~3,084 related to existing contracts to be reclassified from AOCI, net of tax, to earnings over the next 12 months as the hedged transactions are realized.


		Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
Derivative type	Gain (loss) recognized in the Consolidated Statements of Income:	2019			2018			2019		2018			Gain (loss) recognized in the Consolidated Statements of Income:	2020			2019
Foreign exchange contracts	Sales	$	(15	)	$	(143	)	$	760	$	(37	)	Sales	$	(62	)	$	388
	Cost of goods sold	117			(69		)	366		(16		)	Cost of goods sold	122			97

2118

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 ~~September 30, 2019~~March 31, 2020, measured at fair value on a recurring basis:


Description	Balance as of September 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)		Balance as of March 31, 2020		Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Foreign exchange contracts	$	8,928	$	—	$	8,928	$	—	$	10,468	$	—	$	10,468	$	—
Interest rate swap agreements	4,493		—		4,493		—
Cross currency swap agreements									1,398		—		1,398		—
Total assets	$	13,421	$	—	$	13,421	$	—	$	11,866	$	—	$	11,866	$	—

Liabilities:
Foreign exchange contracts	3,280		—		3,280		—		6,310		—		6,310		—
Contingent consideration	470		—		—		470
Forward starting swap agreement									352		—		352		—
Deferred compensation	28,616		—		28,616		—		27,717		—		27,717		—
Total liabilities	$	32,366	$	—	$	31,896	$	470	$	34,379	$	—	$	34,379	$	—

The following table provides a summary of assets and liabilities as of December 31, ~~2018,~~2019, 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)		Balance as of December 31, 2019		Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Foreign exchange contracts	$	7,022	$	—	$	7,022	$	—	$	3,685	$	—	$	3,685	$	—
Interest rate swap agreements	302		—		302		—		2,964		—		2,964		—
Total assets	$	7,324	$	—	$	7,324	$	—	$	6,649	$	—	$	6,649	$	—

Liabilities:
Foreign exchange contracts	$	1,233	$	—	$	1,233	$	—	$	1,495	$	—	$	1,495	$	—
Interest rate swap agreements	7,033		—		7,033		—
Cross currency swap agreements									653		—		653		—
Contingent considerations	2,100		—		—		2,100		470		—		—		470
Deferred compensation	26,524		—		26,524		—		29,170		—		29,170		—
Total liabilities	$	36,890	$	—	$	34,790	$	2,100	$	31,788	$	—	$	31,318	$	470

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

In connection with an acquisition, the Company recorded a contingent consideration liability, which will be paid based upon actual financial results of the acquired entity for a specified future period. The fair value of the contingent consideration is a Level 3 valuation and fair valued using 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 ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018. The fair value of long-term debt at September 30, 2019 and December 31, 2018,~~

~~Table of Contents~~

~~LINCOLN ELECTRIC HOLDINGS, INC.~~

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

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

including the current portion, was approximately $732,531 and $649,714, respectively, which was determined using available market information and methodologies requiring judgment. The carrying value of this debt at such dates was $713,994 and $702,660, respectively. Since 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.2019.

The Company has various financial instruments, including cash and cash equivalents, short and long-term debt and forward contracts. While these financial instruments are subject to concentrations of credit risk, the Company has minimized this risk by

Table of Contents

LINCOLN ELECTRIC HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Dollars in thousands, except per share amounts

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, computer numerical control and plasma cutters, wire feeding systems, robotic welding packages, integrated automation systems, ~~automation components,~~ fume extraction equipment, consumable electrodes, fluxes, welding accessories and specialty welding consumables and fabrication. The Company's product offering also includes oxy-fuel cutting systems and regulators and torches used in oxy-fuel welding, cutting and brazing. In addition, the Company has a leading global position in the brazing and soldering alloys market.

The Company’s products are sold in both domestic and international markets. In the Americas, products are sold principally through industrial distributors, retailers and directly to users of welding products. Outside of the Americas, the Company has an international sales organization comprised of Company employees and agents who sell products from the Company’s various manufacturing sites to distributors and product users.

The Company's business units are aligned into three operating segments. The operating segments consist of Americas Welding, International Welding and The Harris Products Group. The Americas Welding segment includes welding operations in North and South America. The International Welding segment includes welding operations in Europe, Africa, Asia and Australia. The Harris Products Group includes the Company’s global oxy-fuel cutting, soldering and brazing businesses as well as its retail business in the United States.

COVID-19 Assessment

The Company has begun to see the impacts of COVID-19 on its markets and operations including softening demand, supply chain disruptions, and other logistics constraints. The Company notes that global demand trends weakened significantly in April, declining in the low 40% range versus the prior year. The full extent to which COVID-19 will adversely impact the Company’s business depends on future developments, which are highly uncertain and unpredictable, including new information concerning the severity of the outbreak and the effectiveness of actions globally to contain or mitigate its effects. While this matter will negatively impact the Company's results of operations, cash flows and financial position, the current level of uncertainty over the economic and operational impacts of COVID-19 means the full financial impact cannot be reasonably estimated at this time. The Company’s consolidated financial statements and discussion and analysis of financial condition and results of operations reflect estimates and assumptions made by management as of March 31, 2020. Events and changes in circumstances arising after March 31, 2020, including those resulting from the impacts of COVID-19, will be reflected in management’s estimates for future periods.

During the COVID-19 pandemic, substantially all of the Company’s global businesses have continued to operate within a critical infrastructure sector (as established by the Cybersecurity & Infrastructure Security Agency of the U.S. Department of Homeland Security, as well as other governments worldwide), and as a result, the Company has been able to meet the demand of its customers in the various markets it serves. Notwithstanding its continued operations, COVID-19 has begun to have and will have further negative impacts on the Company’s operations, supply chain, transportation networks and customers, which will compress margins, including as a result of preventative and precautionary measures that the Company, its customers and suppliers and governments are taking. The COVID-19 outbreak is a widespread public health crisis that is adversely affecting the economies and financial markets of many countries. Any resulting economic downturn would adversely affect demand for the Company’s products and contribute to volatile supply and demand conditions affecting prices and volumes in the markets for the Company’s products and services. The progression of this matter will also negatively impact the Company’s business or results of operations through the temporary closure of the Company’s operating locations or those of its customers or suppliers.

Additionally, the ability of the Company’s employees and its suppliers’ and customers’ employees to work may be significantly impacted by individuals contracting or being exposed to COVID-19, or as a result of the control measures noted above, which

may significantly hamper the Company’s production throughout the supply chain and constrict sales channels. The Company’s customers may be directly impacted by business curtailments or weak market conditions and may not be willing or able to fulfill their contractual obligations.

During March 2020, the Coronavirus Aid, Relief and Economic Security Act, the Families First Coronavirus Response Act and several other state and local legislative acts were signed and enacted into law. The Company continues to evaluate the impact of the new laws on its business, but at this time it does not expect a material impact to its consolidated financial statements.

For further discussion of this matter, refer “Item 1A. Risk Factors” in Part II of this report.

Results of Operations

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


	Three Months Ended September 30,															Three Months Ended March 31,
	2019					2018					Favorable (Unfavorable) 2019 vs. 2018					2020					2019					Favorable (Unfavorable) 2020 vs. 2019
	Amount			% of Sales		Amount			% of Sales		$			%		Amount			% of Sales		Amount			% of Sales		$			%
Net sales	$	730,783				$	737,099				$	(6,316	)	(0.9	%)	$	701,991				$	759,174				$	(57,183	)	(7.5	%)
Cost of goods sold	492,432					485,547					(6,885		)	(1.4	%)	464,669					500,753					36,084			7.2	%
Gross profit	238,351			32.6	%	251,552			34.1	%	(13,201		)	(5.2	%)	237,322			33.8	%	258,421			34.0	%	(21,099		)	(8.2	%)
Selling, general & administrative expenses	148,312			20.3	%	148,129			20.1	%	(183		)	(0.1	%)	149,727			21.3	%	160,408			21.1	%	10,681			6.7	%
Rationalization and asset impairment charges	1,495			0.2	%	2,636			0.4	%	1,141			43.3	%	6,521			0.9	%	3,535			0.5	%	(2,986		)	(84.5	%)
Operating income	88,544			12.1	%	100,787			13.7	%	(12,243		)	(12.1	%)	81,074			11.5	%	94,478			12.4	%	(13,404		)	(14.2	%)
Interest expense, net	6,400					3,969					(2,431		)	(61.2	%)	5,458					5,323					(135		)	(2.5	%)
Other income (expense)	9,653					(1,074		)			10,727			998.8	%	309					3,763					(3,454		)	(91.8	%)
Income before income taxes	91,797			12.6	%	95,744			13.0	%	(3,947		)	(4.1	%)	75,925			10.8	%	92,918			12.2	%	(16,993		)	(18.3	%)
Income taxes	19,340					25,209					5,869			23.3	%	20,370					21,452					1,082			5.0	%
Effective tax rate	21.1		%			26.3		%			5.2		%			26.8		%			23.1		%			(3.7		%)
Net income including non-controlling interests	72,457					70,535					1,922			2.7	%	55,555					71,466					(15,911		)	(22.3	%)
Non-controlling interests in subsidiaries’ loss	(4		)			(4		)			—			—		(7		)			(14		)			7			50.0	%
Net income	$	72,461		9.9	%	$	70,539		9.6	%	$	1,922		2.7	%	$	55,562		7.9	%	$	71,480		9.4	%	$	(15,918	)	(22.3	%)
Diluted earnings per share	$	1.17				$	1.07				$	0.10		9.3	%	$	0.91				$	1.12				$	(0.21	)	(18.8	%)

	Nine Months Ended September 30,
	2019					2018					Favorable (Unfavorable) 2019 vs. 2018
	Amount			% of Sales		Amount			% of Sales		$			%
Net sales	$	2,266,965				$	2,284,847				$	(17,882	)	(0.8	%)
Cost of goods sold	1,500,312					1,506,625					6,313			0.4	%
Gross profit	766,653			33.8	%	778,222			34.1	%	(11,569		)	(1.5	%)
Selling, general & administrative expenses	472,108			20.8	%	473,260			20.7	%	1,152			0.2	%
Rationalization and asset impairment charges	6,337			0.3	%	24,353			1.1	%	18,016			74.0	%
Operating income	288,208			12.7	%	280,609			12.3	%	7,599			2.7	%
Interest expense, net	17,621					13,222					(4,399		)	(33.3	%)
Other income (expense)	17,612					6,818					10,794			158.3	%
Income before income taxes	288,199			12.7	%	274,205			12.0	%	13,994			5.1	%
Income taxes	58,832					73,991					15,159			20.5	%
Effective tax rate	20.4		%			27.0		%			6.6		%
Net income including non-controlling interests	229,367					200,214					29,153			14.6	%
Non-controlling interests in subsidiaries’ loss	(26		)			(13		)			(13		)	(100.0	%)
Net income	$	229,393		10.1	%	$	200,227		8.8	%	$	29,166		14.6	%
Diluted earnings per share	$	3.64				$	3.03				$	0.61		20.1	%

Net Sales:

The following table summarizes the impact of volume, acquisitions, price and foreign currency exchange rates on Net sales for the three ~~and nine~~ months ended ~~September 30, 2019~~March 31, 2020 on a consolidated basis:

Three Months Ended September 30, Change in Net Sales due to:
Net Sales
2018 Volume Acquisitions Price Foreign Exchange Net Sales
2019
Lincoln Electric Holdings, Inc. $ 737,099
$ (30,142 ) $ 39,559
$ (4,235 ) $ (11,498 ) $ 730,783
% Change

Lincoln Electric Holdings, Inc.
(4.1 %) 5.4 % (0.6 %) (1.6 %) (0.9 %)


Nine Months Ended September 30,			Change in Net Sales due to:
Three Months Ended March 31,																				Change in Net Sales due to:
	Net Sales 2018		Volume			Acquisitions			Price			Foreign Exchange			Net Sales 2019			Net Sales 2019		Volume			Acquisitions			Price			Foreign Exchange			Net Sales 2020
Lincoln Electric Holdings, Inc.	$	2,284,847	$	(98,216	)	$	85,221		$	43,919		$	(48,806	)	$	2,266,965		$	759,174	$	(65,399	)	$	24,492		$	(6,760	)	$	(9,516	)	$	701,991
% Change
Lincoln Electric Holdings, Inc.			(4.3		%)	3.7		%	1.9		%	(2.1		%)	(0.8		%)			(8.6		%)	3.2		%	(0.9		%)	(1.3		%)	(7.5		%)

Net sales decreased in the three ~~and nine~~ months ended ~~September 30, 2019~~March 31, 2020 primarily as a result of lower organic sales and unfavorable foreign exchange, offset by acquisitions. The increase in Net sales from acquisitions was driven by the acquisitions of ~~Coldwater, Pro Systems, Inovatech and~~ Baker within Americas Welding ~~Worthington within The Harris Products Group~~ and Askaynak within International Welding. Refer to Note 4 to the consolidated financial statements for details.

Gross Profit:

Gross profit for the three ~~and nine~~ months ended ~~September 30, 2019~~March 31, 2020 decreased, as a percent of sales, compared to the prior year primarily due to ~~product mix,~~ lower volumes and acquisitions. The three and nine months ended September 30, 2019 includes a last-in, first-out ("LIFO") credit of $1,649 and $2,514, respectively, as compared to a LIFO charge of $3,498 and $9,671, respectively, in the three and nine months ended September 30, 2018.product mix.

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

SG&A expenses ~~were flat~~decreased for the three ~~and nine~~ months ended ~~September 30, 2019~~March 31, 2020 as compared to ~~September 30, 2018~~March 31, 2019 due to lower employee costs, lower discretionary spending and favorable foreign exchange, offset by higher expense from ~~acquisitions, offset by lower compensation costs and favorable foreign exchange.~~acquisitions.

Rationalization and Asset Impairment Charges:

The Company recorded net charges of ~~$1,495, $1,240~~$6,521, $4,545 after-tax, and ~~$6,337, $4,991~~$3,535, $2,814 after-tax, in the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019, respectively, primarily related to severance, asset impairments and gains or losses on the disposal of assets. The Company recorded net charges of $2,636, $2,575 after-tax, and $24,353, $20,807 after-tax, in the three and nine months ended September 30, 2018, respectively, primarily related to severance, asset impairments and gains or losses on the disposal of assets.

~~Interest Expense, Net:~~

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

~~Other Income (Expense):~~

The increase in Other income (expense) for the three and nine months ended September 30, 2019 as compared to September 30, 2018 was primarily due to the gain on change in control of $7,601 related to the acquisition of Askaynak and lower net periodic pension cost.

Income Taxes:

The increase in the effective tax rate ~~was lower~~ for the three months ended ~~September 30, 2019~~March 31, 2020 as compared to ~~September 30, 2018~~March 31, 2019 was primarily due to ~~higher favorable discrete tax adjustments in 2019, rationalization charges in regions with low or no tax benefit recorded in 2018 and adjustments and incremental~~recording the tax expense ~~recorded~~associated with a valuation allowance in ~~2018~~2020, smaller tax benefits related to the ~~U.S. Tax Cuts~~vesting of stock based compensation in 2020 and ~~Job Act (the "U.S. Tax Act").~~

~~The effective tax rate was lower for the nine months ended September 30, 2019 as compared to September 30, 2018 primarily due to~~ income tax benefits for the settlement of tax items ~~as well as tax deductions associated with an investment in a~~

~~subsidiary in 2019, rationalization charges in regions with low or no tax benefit~~ recorded in ~~2018 and adjustments and incremental tax expense recorded in 2018 related to the U.S. Tax Act.~~2019.

Net Income:

The ~~increase~~decrease in Net income for the three ~~and nine~~ months ended ~~September 30, 2019~~March 31, 2020 as compared to ~~September 30, 2018~~March 31, 2019 was primarily due to a lower ~~effective tax rate, lower rationalization and asset impairment charges and a gain on change in control related to the acquisition of Askaynak.~~sales volumes.

Segment Results

~~Net Sales:~~ ~~The table below summarizes the impact of volume, acquisitions, price and foreign currency exchange rates on Net sales for the three and nine months ended September 30, 2019:~~



Three Months Ended March 31,			Change in Net Sales due to:
	Net Sales 2019		Volume ⁽¹⁾			Acquisitions ⁽²⁾			Price ⁽³⁾			Foreign Exchange			Net Sales 2020
Operating Segments
Americas Welding	$	457,719	$	(37,692	)	$	6,190		$	(5,392	)	$	(2,290	)	$	418,535
International Welding	218,086		(30,507		)	18,302			(1,691		)	(6,267		)	197,923
The Harris Products Group	83,369		2,800			—			323			(959		)	85,533
% Change
Americas Welding			(8.2		%)	1.4		%	(1.2		%)	(0.5		%)	(8.6		%)
International Welding			(14.0		%)	8.4		%	(0.8		%)	(2.9		%)	(9.2		%)
The Harris Products Group			3.4		%	—			0.4		%	(1.2		%)	2.6		%

Three Months Ended September 30, Change in Net Sales due to:
Net Sales
2018
Volume ⁽¹⁾

Acquisitions ⁽²⁾

Price ⁽³⁾

Foreign
Exchange
Net Sales
2019
Operating Segments

Americas Welding $ 454,010
$ (20,605 ) $ 17,380
$ (5,603 ) $ (1,661 ) $ 443,521
International Welding 209,622
(12,966 ) 17,413
607
(9,298 ) 205,378
The Harris Products Group 73,467
3,429
4,766
761
(539 ) 81,884
% Change

Americas Welding
(4.5 %) 3.8 % (1.2 %) (0.4 %) (2.3 %)
International Welding
(6.2 %) 8.3 % 0.3 % (4.4 %) (2.0 %)
The Harris Products Group
4.7 % 6.5 % 1.0 % (0.7 %) 11.5 %

(1) Decrease for Americas Welding due to softer demand associated with the current economic environment. Decrease for International Welding due to ~~integration activities and~~ softer demand in the European and Asian markets. Increase for The Harris Products Group driven primarily by higher ~~consumables~~retail volumes.

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

(3) Decrease for Americas Welding due to ~~decreased product~~the pricing ~~as a result~~effects of ~~lower input costs.~~

Nine Months Ended September 30, Change in Net Sales due to:

Net Sales
2018

Volume ⁽¹⁾

Acquisitions ⁽²⁾

Price ⁽³⁾

Foreign
Exchange

Net Sales
2019
Operating Segments

Americas Welding $ 1,351,297
$ (49,756 ) $ 51,612
$ 33,424
$ (8,730 ) $ 1,377,847
International Welding 700,315
(54,433 ) 17,413
9,919
(37,444 ) 635,770
The Harris Products Group 233,235
5,973
16,196
576
(2,632 ) 253,348
% Change

Americas Welding
(3.7 %) 3.8 % 2.5 % (0.6 %) 2.0 %
International Welding
(7.8 %) 2.5 % 1.4 % (5.3 %) (9.2 %)
The Harris Products Group
2.6 % 6.9 % 0.2 % (1.1 %) 8.6 %

~~(1) Decrease for Americas Welding due to softer demand associated with~~tariffs implemented in the prior year and the reduction of tariff surcharges in the current economic environment. Decrease for International Welding due to integration activities and softer demand in the European and Asian markets. Increase for The Harris Products Group driven primarily by higher consumables volume.year.

(2) Increase due to the acquisition of Coldwater, Pro Systems, Inovatech and Baker within Americas Welding, Worthington within The Harris Products Group and Askaynak within International Welding. 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.~~

Adjusted Earnings Before Interest and Income Taxes:

Segment performance is measured and resources are allocated based on a number of factors, the primary measure being the Adjusted EBIT profit measure. EBIT is defined as Operating income plus Other income (expense). EBIT is adjusted for special items as determined by management such as the impact of rationalization activities, certain asset impairment charges and gains or losses on disposals of assets.

The following table presents Adjusted EBIT by segment:

Three Months Ended September 30, Favorable (Unfavorable)
2019 vs. 2018
2019 2018 $ %
Americas Welding:

Net sales $ 443,521
$ 454,010
$ (10,489 ) (2.3 %)
Inter-segment sales 31,101
31,845
(744 ) (2.3 %)
Total Sales $ 474,622
$ 485,855
(11,233 ) (2.3 %)

Adjusted EBIT ⁽⁴⁾
$ 74,110
$ 89,253
(15,143 ) (17.0 %)
As a percent of total sales ⁽¹⁾
15.6 % 18.4 %
(2.8 %)
International Welding:

Net sales $ 205,378
$ 209,622
(4,244 ) (2.0 %)
Inter-segment sales 4,441
3,663
778
21.2 %
Total Sales $ 209,819
$ 213,285
(3,466 ) (1.6 %)

Adjusted EBIT ⁽⁵⁾
$ 10,184
$ 10,721
(537 ) (5.0 %)
As a percent of total sales ⁽²⁾
4.9 % 5.0 %
(0.1 %)
The Harris Products Group:

Net sales $ 81,884
$ 73,467
8,417
11.5 %
Inter-segment sales 1,857
1,537
320
20.8 %
Total Sales $ 83,741
$ 75,004
8,737
11.6 %

Adjusted EBIT $ 11,038
$ 8,676
2,362
27.2 %
As a percent of total sales ⁽³⁾
13.2 % 11.6 %
1.6 %
Corporate / Eliminations:
Inter-segment sales $ (37,399 ) $ (37,045 ) 354
1.0 %
Adjusted EBIT ⁽⁶⁾
(1,632 ) (1,099 ) 533
48.5 %
Consolidated:
Net sales $ 730,783
$ 737,099
(6,316 ) (0.9 %)
Net income $ 72,461
$ 70,539
1,922
2.7 %
As a percent of total sales 9.9 % 9.6 % 0.3 %

Adjusted EBIT ⁽⁷⁾
$ 93,700
$ 107,551
(13,851 ) (12.9 %)
As a percent of sales 12.8 % 14.6 %
(1.8 %)



	Three Months Ended March 31,						Favorable (Unfavorable) 2020 vs. 2019
	2020			2019			$			%
Americas Welding:
Net sales	$	418,535		$	457,719		$	(39,184	)	(8.6	%)
Inter-segment sales	24,783			29,388			(4,605		)	(15.7	%)
Total Sales	$	443,318		$	487,107		(43,789		)	(9.0	%)

Adjusted EBIT ⁽⁴⁾	$	70,702		$	81,752		(11,050		)	(13.5	%)
As a percent of total sales ⁽¹⁾	15.9		%	16.8		%				(0.9	%)
International Welding:
Net sales	$	197,923		$	218,086		(20,163		)	(9.2	%)
Inter-segment sales	4,483			4,209			274			6.5	%
Total Sales	$	202,406		$	222,295		(19,889		)	(8.9	%)

Adjusted EBIT ⁽⁵⁾	$	6,615		$	13,337		(6,722		)	(50.4	%)
As a percent of total sales ⁽²⁾	3.3		%	6.0		%				(2.7	%)
The Harris Products Group:
Net sales	$	85,533		$	83,369		2,164			2.6	%
Inter-segment sales	1,725			1,867			(142		)	(7.6	%)
Total Sales	$	87,258		$	85,236		2,022			2.4	%

Adjusted EBIT	$	12,492		$	10,519		1,973			18.8	%
As a percent of total sales ⁽³⁾	14.3		%	12.3		%				2.0	%
Corporate / Eliminations:
Inter-segment sales	$	(30,991	)	$	(35,464	)	(4,473		)	(12.6	%)
Adjusted EBIT ⁽⁶⁾	(1,099		)	(3,042		)	(1,943		)	(63.9	%)
Consolidated:
Net sales	$	701,991		$	759,174		(57,183		)	(7.5	%)
Net income	$	55,562		$	71,480		(15,918		)	(22.3	%)
As a percent of total sales	7.9		%	9.4		%				(1.5	%)

Adjusted EBIT ⁽⁷⁾	$	88,710		$	102,566		(13,856		)	(13.5	%)
As a percent of sales	12.6		%	13.5		%				(0.9	%)


(1)	Decrease for the three months ended ~~September 30, 2019~~March 31, 2020 as compared to ~~September 30, 2018~~March 31, 2019 primarily driven ~~by the dilutive impact of recent acquisitions and~~ lower Net sales ~~volumes.~~volumes from softer demand in current economic environment.


(2)	Decrease for the three months ended ~~September 30, 2019~~March 31, 2020 as compared to ~~September 30, 2018~~March 31, 2019 driven by lower Net sales volumes ~~and product mix.~~from softer demand in current economic environment.


(3)	Increase for the three months ended ~~September 30, 2019~~March 31, 2020 as compared to ~~September 30, 2018~~March 31, 2019 driven by ~~consumables~~retail volume increases.


(4)	The three months ended ~~September 30, 2018~~March 31, 2020 and 2019 exclude ~~pension settlement~~Rationalization and asset impairment charges of ~~$4,232~~$1,190, and $1,336, respectively related to ~~lump sum pension payments~~severance and asset impairments as discussed in Note 136 to the consolidated financial statements.

(5)

The three months ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~ exclude Rationalization and asset impairment charges of ~~$1,495~~$5,331 and ~~$2,636,~~$2,199, 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 ~~September 30, 2019~~March 31, 2020 also ~~excludes the~~exclude amortization of step up in value of acquired inventories of ~~$1,609 and a gain on change in control of $7,601~~$806 related ~~to the Askaynak~~an acquisition.


(6)	The three months ended ~~September 30, 2018~~March 31, 2019 exclude acquisition transaction and integration costs of ~~$970 related to the Air Liquide Welding acquisition.~~


~~(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:~~

Nine Months Ended September 30, Favorable (Unfavorable)
2019 vs. 2018
2019 2018 $ %
Americas Welding:

Net sales $ 1,377,847
$ 1,351,297
$ 26,550
2.0 %
Inter-segment sales 95,300
89,671
5,629
6.3 %
Total Sales $ 1,473,147
$ 1,440,968
32,179
2.2 %

Adjusted EBIT ⁽⁴⁾
$ 240,713
$ 254,850
(14,137 ) (5.5 %)
As a percent of total sales ⁽¹⁾
16.3 % 17.7 %
(1.4 %)
International Welding:

Net sales $ 635,770
$ 700,315
(64,545 ) (9.2 %)
Inter-segment sales 12,838
13,669
(831 ) (6.1 %)
Total Sales $ 648,608
$ 713,984
(65,376 ) (9.2 %)

Adjusted EBIT ⁽⁵⁾
$ 38,699
$ 41,970
(3,271 ) (7.8 %)
As a percent of total sales ⁽²⁾
6.0 % 5.9 %
0.1 %
The Harris Products Group:

Net sales $ 253,348
$ 233,235
20,113
8.6 %
Inter-segment sales 5,837
5,447
390
7.2 %
Total Sales $ 259,185
$ 238,682
20,503
8.6 %

Adjusted EBIT $ 35,045
$ 28,058
6,987
24.9 %
As a percent of total sales ⁽³⁾
13.5 % 11.8 %
1.7 %
Corporate / Eliminations:
Inter-segment sales $ (113,975 ) $ (108,787 ) 5,188
4.8 %
Adjusted EBIT ⁽⁶⁾
(8,643 ) (4,443 ) 4,200
94.5 %
Consolidated:
Net sales $ 2,266,965
$ 2,284,847
(17,882 ) (0.8 %)
Net income $ 229,393
$ 200,227
29,166
14.6 %
As a percent of total sales 10.1 % 8.8 % 1.3 %

Adjusted EBIT ⁽⁷⁾
$ 305,814
$ 320,435
(14,621 ) (4.6 %)
As a percent of sales 13.5 % 14.0 %
(0.5 %)


~~(1)~~	~~Decrease for the nine months ended September 30, 2019 as compared to September 30, 2018 primarily driven by the dilutive impact of recent acquisitions and lower Net sales volumes.~~


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


~~(3)~~	~~Increase for the nine months ended September 30, 2019 as compared to September 30, 2018 driven by consumables volume increases.~~

~~(4)~~

The nine months ended September 30, 2019 exclude Rationalization and asset impairment charges of $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 the Baker acquisition. The nine months ended September 30, 2018 exclude pension settlement charges of $4,990 related to lump sum pension payments as discussed in Note 13 to the consolidated financial statements.

~~(5)~~

The nine months ended September 30, 2019 and 2018 exclude Rationalization and asset impairment charges of $4,621 and $24,353, 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 amortization of step up in value of acquired inventories of $1,609 and a gain on change in control of $7,601 related to the Askaynak acquisition. The nine months ended September 30, 2019 also exclude gains on disposal of assets of $3,554.


~~(6)~~	~~The nine months ended September 30, 2019 and 2018 exclude acquisition transaction and integration costs of $1,804 and $3,665, respectively,~~$790 related to the Air Liquide Welding acquisition.


(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 effective tax rate, Adjusted diluted earnings per share, ~~and~~ Return on invested capital, Cash conversion, Organic sales, Earnings before interest, taxes, depreciation and amortization, all non-GAAP financial measures, in assessing and evaluating the Company's underlying operating performance. These non-GAAP financial measures exclude the impact of special items on the Company's reported financial results. Non-GAAP financial measures should be read in conjunction with the generally accepted accounting principles in the United States ("GAAP") financial measures, as non-GAAP measures are a supplement to, and not a replacement for, GAAP financial measures.

The following table presents the reconciliations of Operating income as reported to Adjusted operating income, Net income as reported to Adjusted net income and Adjusted EBIT, Effective tax rate as reported to Adjusted effective tax rate and Diluted earnings per share as reported to Adjusted diluted earnings per share:


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
	2019			2018			2019			2018			2020			2019
Operating income as reported	$	88,544		$	100,787		$	288,208		$	280,609		$	81,074		$	94,478
Special items (pre-tax):
Rationalization and asset impairment charges ⁽¹⁾	1,495			2,636			6,337			24,353			6,521			3,535
Acquisition transaction and integration costs ⁽²⁾	—			970			1,804			3,665			—			790
Amortization of step up in value of acquired inventories ⁽³⁾	1,609			—			3,008			—			806			—
Gains on asset disposals ⁽⁴⁾	—			—			(3,045		)	—
Adjusted operating income	$	91,648		$	104,393		$	296,312		$	308,627		$	88,401		$	98,803

Net income as reported	$	72,461		$	70,539		$	229,393		$	200,227		$	55,562		$	71,480
Special items:
Rationalization and asset impairment charges ⁽¹⁾	1,495			2,636			6,337			24,353			6,521			3,535
Acquisition transaction and integration costs ⁽²⁾	—			970			1,804			3,665			—			790
Pension settlement charges ⁽⁵⁾	—			4,232			—			4,990
Amortization of step up in value of acquired inventories ⁽³⁾	1,609			—			3,008			—			806			—
Gains on asset disposals ⁽⁴⁾	—			—			(3,554		)	—
Gain on change in control ⁽⁶⁾	(7,601		)	—			(7,601		)	—
Tax effect of Special items ⁽⁷⁾	(255		)	1,033			(5,819		)	(132		)
Tax effect of Special items ⁽⁴⁾													(1,976		)	(813		)
Adjusted net income	67,709			79,410			223,568			233,103			60,913			74,992
Non-controlling interests in subsidiaries’ earnings (loss)	(4		)	(4		)	(26		)	(13		)	(7		)	(14		)
Interest expense, net	6,400			3,969			17,621			13,222			5,458			5,323
Income taxes as reported	19,340			25,209			58,832			73,991			20,370			21,452
Tax effect of Special items ⁽⁷⁾	255			(1,033		)	5,819			132
Tax effect of Special items ⁽⁴⁾													1,976			813
Adjusted EBIT	$	93,700		$	107,551		$	305,814		$	320,435		$	88,710		$	102,566
Effective tax rate as reported	21.1		%	26.3		%	20.4		%	27.0		%	26.8		%	23.1		%
Net special item tax impact	1.3		%	(3.0		%)	2.0		%	(2.9		%)	—			(0.2		%)
Adjusted effective tax rate	22.4		%	23.3		%	22.4		%	24.1		%	26.8		%	22.9		%

Diluted earnings per share as reported	$	1.17		$	1.07		$	3.64		$	3.03		$	0.91		$	1.12
Special items per share	(0.08		)	0.14			(0.09		)	0.50			0.09			0.05
Adjusted diluted earnings per share	$	1.09		$	1.21		$	3.55		$	3.53		$	1.00		$	1.17

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

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

~~(3) Charges related to the acquisitions of Baker and Askaynak~~


(3)	Costs related to an acquisition 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 13 to the consolidated financial statements and are included in Other income (expense).~~

~~(6) Gain on change in control related to the acquisition of Askaynak and is included in Other income (expense).~~

~~(7)~~ 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 nine months~~

ended September 30, 2019. The prior year includes an adjustment to taxes on unremitted foreign earnings related to the U.S. Tax Act of $2,323 and $4,823 in the three and nine months ended September 30, 2018, respectively.periods.

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

Liquidity and Capital Resources

The Company’s cash flow from operations can be cyclical. Operational cash flow is a key driver of liquidity, providing cash and access to capital markets. In assessing liquidity, the Company reviews working capital measurements to define areas for improvement. Management anticipates the Company will be able to satisfy cash requirements for its ongoing businesses for the foreseeable future primarily with cash generated by operations, existing cash balances, borrowings under its existing credit facilities and raising debt in capital markets. However, as the impact of the COVID-19 pandemic on the economy and the Company’s operations evolves, it will continue to assess liquidity needs. A continued worldwide disruption could materially affect the Company’s future access to its sources of liquidity, particularly cash flows from operations, financial condition, capitalization and capital investments. In the event of a sustained market deterioration, the Company may need additional liquidity, which would require it to evaluate available alternatives and take appropriate actions.

The Company continues to expand globally and periodically looks at transactions that would involve significant investments. The Company can fund its global expansion plans with operational cash flow, but a significant acquisition may require access to capital markets, in particular, the long-term debt market, as well as the syndicated bank loan market. The Company’s financing strategy is to fund itself at the lowest after-tax cost of funding. Where possible, the Company utilizes operational cash flows and raises capital in the most efficient market, usually the United States, and then lends funds to the specific subsidiary that requires funding. If additional acquisitions providing appropriate financial benefits become available, additional expenditures may be made.

The following table reflects changes in key cash flow measures:


	Nine Months Ended September 30,									Three Months Ended March 31,
	2019			2018			$ Change			2020			2019			$ Change
Cash provided by operating activities ⁽¹⁾	$	280,666		$	229,777		$	50,889		$	21,972		$	25,878		$	(3,906	)
Cash (used by) provided by investing activities ⁽²⁾	(178,795		)	48,273			(227,068		)
Cash used by investing activities ⁽²⁾										(5,728		)	(13,949		)	8,221
Capital expenditures	(53,551		)	(48,746		)	(4,805		)	(11,828		)	(16,251		)	4,423
Acquisition of businesses, net of cash acquired	(136,735		)	6,591			(143,326		)
Proceeds from marketable securities, net of purchases	—			79,843			(79,843		)
Cash used by financing activities ⁽³⁾	(302,461		)	(196,519		)	(105,942		)	(41,613		)	(105,510		)	63,897
Proceeds from short-term borrowings, net										97,779			—			97,779
Purchase of shares for treasury	(221,942		)	(121,477		)	(100,465		)	(109,762		)	(75,584		)	(34,178		)
Cash dividends paid to shareholders	(89,162		)	(76,674		)	(12,488		)	(30,675		)	(30,560		)	(115		)
(Decrease) increase in Cash and cash equivalents ⁽⁴⁾	(202,237		)	71,499
Decrease in Cash and cash equivalents ⁽⁴⁾										(36,188		)	(91,715		)

(1) Cash provided by operating activities ~~increased~~decreased for the ~~nine~~three months ended ~~September 30, 2019,~~March 31, 2020, compared with the ~~nine~~three months ended ~~September 30, 2018~~March 31, 2019 primarily due to ~~favorable~~lower company earnings and unfavorable changes in working ~~capital and cash flows from tax payments and receipts.~~capital.

(2) Cash used by investing activities ~~increased~~decreased for the ~~nine~~three months ended ~~September 30, 2019,~~March 31, 2020, compared with the ~~nine~~three months ended ~~September 30, 2018~~March 31, 2019 predominantly due to ~~cash used~~increased capital expenditures in ~~the acquisition of businesses in 2019 and net proceeds from marketable securities in 2018.~~2019. The Company currently anticipates capital expenditures of $55,000 to $65,000 ~~to $75,000~~ in ~~2019.~~2020. 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~~decreased in the ~~nine~~three months ended ~~September 30, 2019,~~March 31, 2020, compared with the ~~nine~~three months ended ~~September 30, 2018~~March 31, 2019 due to higher ~~purchases of common shares for treasury.~~borrowings.

(4) Cash and cash equivalents decreased ~~56.4%~~18.1%, or ~~$202,237,~~$36,188, to ~~$156,612~~$163,375 during the ~~nine~~three months ended ~~September 30, 2019,~~March 31, 2020, from ~~$358,849~~$199,563 as of December 31, ~~2018.~~2019. This decrease was predominantly due to cash used in the ~~acquisition of businesses,~~ purchases of common shares for treasury and cash dividends paid to shareholders, partially offset by proceeds from short-term borrowings and cash provided by operating activities. The decrease in Cash and cash equivalents during the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020 compares to ~~an increase~~a decrease of ~~21.9%~~25.6% during the ~~nine~~three months ended September 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.March 31, 2019. At ~~September 30, 2019, $144,324~~March 31, 2020, $151,875 of Cash and cash equivalents was held by international subsidiaries.

The Company's total debt levels increased compared to December 31, ~~2018~~2019 predominately due to additional short-term borrowings. Total debt to total invested capital increased to ~~47.2%~~55.9% at ~~September 30, 2019~~March 31, 2020 from ~~44.2%~~47.7% at December 31, ~~2018.~~2019.

In ~~October 2019,~~April 2020, the Company paid a cash dividend of ~~$0.47~~$0.49 per share, or ~~$28,740,~~$29,100, to shareholders of record as of ~~September 30, 2019.~~March 31, 2020.

Working Capital Ratios


	September 30, 2019		December 31, 2018		September 30, 2018		March 31, 2020		December 31, 2019		March 31, 2019
Average operating working capital to net sales ⁽¹⁾	19.2	%	16.5	%	18.3	%	19.1	%	16.8	%	18.0	%
Days sales in Inventories	106.2		95.1		100.8		108.7		99.9		96.2
Days sales in Accounts receivable	53.9		52.7		54.5		53.1		51.4		54.3
Average days in Trade accounts payable	51.1		55.5		52.3		54.8		56.0		51.3

(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 ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~ were as follows:


	Twelve Months Ended September 30,						Twelve Months Ended March 31,
	2019			2018			2020			2019
Net income	$	316,232		$	224,408		$	277,191		$	297,722
Rationalization and asset impairment charges	7,269			30,943			18,174			18,645
Acquisition transaction and integration costs	2,637			7,281			1,014			3,381
Pension settlement charges	1,696			7,857			—			5,928
Amortization of step up in value of acquired inventories	3,008			2,264			3,814			—
Gains on disposal of assets	(3,554		)	—			(3,554		)	—
Bargain purchase adjustment	—			1,935
Gain on change in control	(7,601		)	—			(7,601		)	—
Tax effect of Special items ⁽¹⁾	(12,583		)	25,925			(8,549		)	(7,328		)
Adjusted net income	$	307,104		$	300,613		$	280,489		$	318,348
Plus: Interest expense, net of tax of $6,410 and $6,087 in 2019 and 2018, respectively	19,265			18,295
Less: Interest income, net of tax of $926 and $1,676 in 2019 and 2018, respectively	2,785			5,036
Plus: Interest expense, net of tax of $6,484 and $6,211 in 2020 and 2019, respectively							19,489			18,666
Less: Interest income, net of tax of $605 and $1,605 in 2020 and 2019, respectively							1,818			4,825
Adjusted net income before tax effected interest	$	323,584		$	313,872		$	298,160		$	332,189

Invested Capital	September 30, 2019			September 30, 2018			March 31, 2020			March 31, 2019
Short-term debt	$	13,293		$	794		$	132,378		$	110
Long-term debt, less current portion	713,884			698,468			715,950			705,725
Total debt	727,177			699,262			848,328			705,835
Total equity	813,808			927,868			667,960			864,665
Invested capital	$	1,540,985		$	1,627,130		$	1,516,288		$	1,570,500
Return on invested capital	21.0		%	19.3		%	19.7		%	21.2		%


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

~~months ended September 30, 2019 and net charges of $33,439 related to the U.S. Tax Act in the twelve months ended September 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

The Company has a line of credit totaling $400,000 through the Amended and Restated Credit Agreement (the “Credit Agreement”). The Credit Agreement has a term of 5 years with a maturity date of June 30, 2022 and may be increased, subject to certain conditions, by an additional amount up to $100,000. The interest rate on borrowings is based on either the London Inter-Bank Offered Rate ("LIBOR") or the prime rate, plus a spread based on the Company’s leverage ratio, at the Company’s election. ~~The Company amended and restated the Credit Agreement on June 30, 2017, extending the maturity of the line of credit to June 30, 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 ~~September 30, 2019,~~March 31, 2020, the Company was in compliance with all of its covenants and had no outstanding borrowings of $115,000 under the Credit Agreement.

Senior Unsecured Notes

Shelf Agreements

As discussed above, the Company’s debt agreements require that it maintain certain financial and other covenants. Although the Company currently expects continued compliance with debt covenants for the next twelve months and believes it has adequate liquidity, events resulting from the effects of COVID-19 may negatively impact the Company’s ability to comply with these covenants or require the Company to pursue alternative financing. The Company has no assurance that any such alternative financing, if required, could be obtained at acceptable terms or at all.

Pensions

Forward-looking Statements

The Company’s expectations and beliefs concerning the future contained in this report are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements reflect management’s current expectations and involve a number of risks and uncertainties. Forward-looking statements generally can be identified by the use of words such as “may,” “will,” “expect,” “intend,” “estimate,” “anticipate,” “believe,” “forecast,” “guidance” or words of similar meaning. Actual results may differ materially from such statements due to a variety of factors that could adversely affect the Company’s operating results. The factors include, but are not limited to: general economic, financial and market conditions; the effectiveness of operating initiatives; completion of planned divestitures; interest rates; disruptions, uncertainty or volatility in the credit markets that may limit our access to capital; currency exchange rates and devaluations; adverse outcome of pending or potential litigation; actual costs of the Company’s rationalization plans; possible acquisitions, including the Company’s ability to successfully integrate acquisitions; market risks and price fluctuations related to the purchase of commodities and energy; global regulatory complexity; the effects of changes in tax law; tariff rates in the countries where the Company conducts business; and the possible effects of events beyond our control, such as political unrest, acts of terror, ~~and~~ natural disasters and pandemics, including the current coronavirus disease ("COVID-19") outbreak, on the Company or its customers, suppliers and the economy in general. The Company has begun to see the impacts of COVID-19 on its markets and operations including softening demand, supply chain disruptions, and other logistics constraints. The full extent to which COVID-19 will adversely impact the Company’s business depends on future developments, which are highly uncertain and unpredictable, including new information concerning the severity of the outbreak and the effectiveness of actions globally to contain or mitigate its effects. While this matter will negatively impact the Company’s results of operations, cash flows and financial position, the current level of uncertainty over the economic and operational impacts of COVID-19 means the full financial impact cannot be reasonably estimated at this time. For additional discussion, see “Item 1A. Risk Factors” presented herein, as well as in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019.

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, ~~2018.~~2019. 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, ~~2018.~~2019.

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 ~~September 30, 2019~~March 31, 2020.

Changes in Internal Control Over Financial Reporting

~~Beginning January 1, 2019, the Company implemented ASU 2016-02,~~ ~~Leases~~ ("Topic 842"). The adoption of Topic 842 resulted in changes to processes and control activities related to 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 ~~September 30, 2019~~March 31, 2020 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 ~~September 30, 2019,~~March 31, 2020, the Company was a co-defendant in cases alleging asbestos induced illness involving claims by approximately ~~3,283~~3,124 plaintiffs, which is a net ~~increase~~decrease of 4109 claims from those previously reported. In each instance, the Company is one of a large number of defendants. The asbestos claimants seek compensatory and punitive damages, in most cases for unspecified sums. Since January 1, 1995, the Company has been a co-defendant in other similar cases that have been resolved as follows: ~~55,061~~55,122 of those claims were dismissed, 23 were tried to defense verdicts, 7 were tried to plaintiff verdicts (which were reversed or resolved after appeal), 1 was resolved by agreement for an immaterial amount and ~~896~~1,005 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, ~~2018,~~2019 and the Risk Factor described below, which could materially affect the Company’s business, financial condition or future results.

The COVID-19 pandemic could have a material adverse effect our ability to operate, results of operations, financial condition, liquidity and capital investments.

The COVID-19 pandemic and similar issues in the future could have a material adverse effect on our ability to operate, results of operations, financial condition, liquidity, and capital investments. In addition, preventive measures we may voluntarily put in place, may have a material adverse effect on our business for an indefinite period of time, such as the potential shut down of certain locations, decreased employee availability, potential border closures, disruptions to the businesses of our channel partners and others. Our suppliers and customers may also face these and other challenges, which could lead to a disruption in our supply chain, as well as decreased customer demand for our products and services. These issues may also materially affect our future access to our sources of liquidity, particularly our cash flows from operations, financial condition, capitalization and capital investments. Although these disruptions may continue to occur, the long-term economic impact and near-term financial impacts of the COVID-19 pandemic, including but not limited to, possible impairment, restructuring and other charges, cannot be reasonably estimated at this time due to the uncertainty of future developments.

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

Issuer purchases of its common shares during the ~~third~~first quarter of ~~2019~~2020 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⁾
July 1 - 31, 2019 269,054
⁽¹⁾
$ 83.17
267,872
4,031,018
August 1 - 31, 2019 355,236
82.47
355,236
3,675,782
September 1 - 30, 2019 112,756
⁽¹⁾
82.95
112,147
3,563,635
Total 737,046

735,255



Period	Total Number of Shares Repurchased		Average Price Paid Per Share		Total Number of Shares Repurchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that May Yet be Purchased Under the Plans or Programs ^{(2) (3)}
January 1 - 31, 2020	241,080		$	95.73	241,080	12,566,813
February 1 - 29, 2020	335,024	⁽¹⁾	90.55		303,439	12,263,374
March 1 - 31, 2020	781,422	⁽¹⁾	72.11		767,083	11,496,291
Total	1,357,526		80.85		1,311,602


(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~~Company’s common shares authorized to be repurchased to 55 million shares. Total shares purchased through the share repurchase programs were ~~51.4~~53.5 million shares at a total cost of ~~$2.1~~$2.3 billion for a weighted average cost of ~~$40.79~~$42.51 per share through ~~September 30, 2019.~~March 31, 2020.


(3)	On February 12, 2020, the Company's Board of Directors authorized a new share repurchase program for up to an additional 10 million shares of the Company's common stock.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5: OTHER INFORMATION

Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain officers.

As previously announced, on April 22, 2020, Gabriel Bruno succeeded Vincent K. Petrella as Chief Financial Officer and Treasurer of the Company.

In connection with his appointment, on April 21, 2020, the Compensation and Executive Development Committee of the Board of Directors of the Company approved an award of 4,027 restricted stock units, in an amount equal to approximately $300,000, and an increase to his target bonus amount by $96,000, such that his total target bonus on an annualized basis is equal to $360,000. In general, the restricted stock units will vest in full after three years, subject to the terms of the Company’s standard award agreement for restricted stock units.

Submission of Matters to a Vote of Security Holders.

The 2020 Annual Meeting of the Company was held on Wednesday, April 22, 2020 as a virtual meeting and shareholders were able to participate in the 2020 Annual Meeting and vote via live webcast, and submit questions prior to the meeting. 53,420,153 shares, of the 60,156,998 shares that were outstanding and entitled to vote (89%), were represented in person or by proxy, constituting a quorum.

The final results of voting on each of the matters submitted for a vote of security holders at the 2020 Annual Meeting are as follows:

Proposal 1 - Shareholders elected eleven directors, each to hold office until the 2021 Annual Meeting of Shareholders and until their successors are duly elected and qualified, as set forth below.



Name	Votes For	Votes Withheld	Broker Non-Votes
Curtis E. Espeland	47,420,212	215,404	5,784,537
Patrick P. Goris	46,888,927	746,689	5,784,537
Stephen G. Hanks	47,122,105	513,511	5,784,537
Michael F. Hilton	46,820,200	815,416	5,784,537
G. Russell Lincoln	47,126,600	509,016	5,784,537
Kathryn Jo Lincoln	45,767,865	1,867,751	5,784,537
William E. MacDonald, III	47,016,277	619,339	5,784,537
Christopher L. Mapes	46,257,766	1,377,850	5,784,537
Phillip J. Mason	47,345,061	290,555	5,784,537
Ben P. Patel	46,895,167	740,449	5,784,537
Hellene S. Runtagh	46,592,400	1,043,216	5,784,537

Proposal 2 - Shareholders ratified the appointment of Ernst & Young LLP as the Company’s independent registered public accounting firm for the year ending December 31, 2020, as set forth below.



Votes For	Votes Against	Abstentions	Broker Non-Votes
52,451,029	867,740	101,384	0

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



Votes For	Votes Against	Abstentions	Broker Non-Votes
44,978,519	999,794	1,657,303	5,784,537

ITEM 6. EXHIBITS

(a) Exhibits



~~10.1~~		First Amendment, dated as of July 30, 2019, to the Note Purchase Agreement dated as of April 1, 2015, by and among Lincoln Electric Holdings, Inc., The Lincoln Electric Company, Lincoln Electric International Holding Company, J.W. Harris Co., Inc., Lincoln Global, Inc., Techalloy, Inc., Wayne Trail Technologies, Inc. and the purchasers party thereto (filed herewith).
31.1		Certification of the Chairman, President and Chief Executive Officer (Principal Executive Officer) pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.
31.2		Certification of the Executive Vice President, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.
32.1		Certification of the Chairman, President and Chief Executive Officer (Principal Executive Officer) and Executive Vice President, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS		Inline XBRL Instance Document
101.SCH		Inline XBRL Taxonomy Extension Schema Document
101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document
104		Cover page Interactive Data File (formatted as Inline XBRL and contained in the Exhibit 101 attachments)

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



		LINCOLN ELECTRIC HOLDINGS, INC.

		/s/ Gabriel Bruno
		Gabriel Bruno
		Executive Vice President, ~~Finance~~Chief Financial Officer and Treasurer
		(~~principal accounting officer)~~Principal Financial and Accounting Officer)
		~~October 30, 2019~~April 27, 2020

3833



	Three Months Ended September 30, 2019
	Unrealized gain (loss) on derivatives designated and qualifying as cash flow hedges				Defined benefit pension plan activity				Currency translation adjustment				Total
Balance at June 30, 2019	$	1,722			$	(80,171	)		$	(203,401	)		$	(281,850	)
Other comprehensive income (loss) before reclassification	(268		)		—				(24,283		)	³	(24,551		)
Amounts reclassified from AOCI	(80		)	¹	613			²	—				533
Net current-period other comprehensive income (loss)	(348		)		613				(24,283		)		(24,018		)
Balance at September 30, 2019	$	1,374			$	(79,558	)		$	(227,684	)		$	(305,868	)

	Three Months Ended September 30, 2018
	Unrealized gain (loss) on derivatives designated and qualifying as cash flow hedges				Defined benefit pension plan activity				Currency translation adjustment				Total
Balance at June 30, 2018	$	498			$	(83,269	)		$	(193,708	)		$	(276,479	)
Other comprehensive income (loss) before reclassification	1,218				—				(406		)	³	812
Amounts reclassified from AOCI	198			¹	3,855			²	—				4,053
Net current-period other comprehensive income (loss)	1,416				3,855				(406		)		4,865
Balance at September 30, 2018	$	1,914			$	(79,414	)		$	(194,114	)		$	(271,614	)