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, 2020~~

March 31, 2021

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

For the transition period from _____________ to _____________

Commission File Number: 0-1402

LINCOLN ELECTRIC HOLDINGS, INC.

(Exact name of registrant as specified in its charter)


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

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

~~22801 St. Clair Avenue, Cleveland, Ohio44117~~

~~(Address of principal executive offices) (Zip Code)~~

(~~216~~)(216) 481-8100

(~~Registrant's~~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, 2020~~March 31, 2021 was ~~59,470,712.~~

59,537,683.

Table of Contents

TABLE OF CONTENTS


PART I. FINANCIAL INFORMATION				3
Item 1. Financial Statements			3
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)			3
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)			4
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)			5
CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)			6
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)			8 7
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS			9 8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			24 20
Item 3. Quantitative and Qualitative Disclosures About Market Risk			35 29
Item 4. Controls and Procedures			35 29

PART II. OTHER INFORMATION			36 30
Item 1. Legal Proceedings			36 30
Item 1A. Risk Factors			36 30
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			36 30
Item 4. Mine Safety Disclosures			36 30
Item 5. Other Information		31
Item 6. Exhibits			36 33
Signatures			38 34
EX-10.1	~~Amendment No. 1 to 2005 Deferred Compensation Plan~~Form of Stock Option Agreement for ~~Executives (Amended~~Executive Officers (filed herewith).
EX-10.2	Form of Restricted Stock Unit Agreement for Executive Officers (filed herewith).
EX-10.3	Form of Performance Share Award Agreement for Executive Officers (filed herewith).
EX-10.4	Second Amended and Restated Credit Agreement, dated as of ~~January 1, 2018) dated August 1, 2020 (filed herewith).~~
~~EX-10.2~~			~~Amendment No. 1 to Non-Employee Directors' Deferred Compensation Plan (Amended~~April 23, 2021, by and ~~Restated as of January 1, 2019) dated August 1, 2020 (filed herewith).~~
~~EX-10.3~~			~~Amendment No. 1 to~~among Lincoln Electric Holdings, Inc., The Lincoln Electric Company, ~~Restoration Plan dated August 1, 2020~~Lincoln Electric International Holding Company, J.W. Harris Co., Inc., Lincoln Electric Automation, Inc., Lincoln Global, Inc., the Lenders and KeyBank National Association (filed herewith).
~~EX-10.4~~EX-31.1	~~Amendment No. 2 to Supplemental Executive Retirement Plan (As Amended and Restated as of December 31, 2008) dated August 1, 2020 (filed herewith).~~
~~EX-10.5~~			~~Amendment No. 1 to Form of Change in Control Severance Agreement (as entered into by the Company and its executive officers) dated August 1, 2020 (filed herewith).~~
~~EX-31.1~~			Certification of the Chairman, President and Chief Executive Officer (Principal Executive Officer) pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.
EX-31.2	Certification of the Executive Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer) pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.
EX-32.1	Certification of the Chairman, President and Chief Executive Officer (Principal Executive Officer) and Executive Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer) pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
EX-101	Instance Document
EX-101	Schema Document
EX-101	Calculation Linkbase Document
EX-101	Label Linkbase Document
EX-101	Presentation Linkbase Document
EX-101	Definition Linkbase Document

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

LINCOLN ELECTRIC HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

(In thousands, except per share amounts)

Three Months Ended September 30, Nine Months Ended September 30,
2020 2019 2020 2019
Net sales (Note 2) $ 668,888 $ 730,783 $ 1,961,606 $ 2,266,965
Cost of goods sold 453,501 492,432 1,319,519 1,500,312
Gross profit 215,387 238,351 642,087 766,653
Selling, general & administrative expenses 131,337 148,312 407,440 472,108
Rationalization and asset impairment charges (Note 6) 6,257 1,495 36,016 6,337
Operating income 77,793 88,544 198,631 288,208
Interest expense, net 5,552 6,400 16,891 17,621
Other income (expense) (Note 14) 1,062 9,653 1,168 17,612
Income before income taxes 73,303 91,797 182,908 288,199
Income taxes (Note 15) 14,797 19,340 41,834 58,832
Net income including non-controlling interests 58,506 72,457 141,074 229,367
Non-controlling interests in subsidiaries’ income (loss) 27 (4) 37 (26)
Net income $ 58,479 $ 72,461 $ 141,037 $ 229,393
Basic earnings per share (Note 3) $ 0.98 $ 1.18 $ 2.36 $ 3.68
Diluted earnings per share (Note 3) $ 0.97 $ 1.17 $ 2.34 $ 3.64
Cash dividends declared per share $ 0.49 $ 0.47 $ 1.47 $ 1.41


	Three Months Ended March 31,
	2021		2020
Net sales (Note 2)	$	757,021	$	701,991
Cost of goods sold		503,254		464,669
Gross profit		253,767		237,322
Selling, general & administrative expenses		145,676		149,727
Rationalization and asset impairment charges (Note 6)		4,163		6,521
Operating income		103,928		81,074
Interest expense, net		5,359		5,458
Other income (expense) (Note 14)		(1,416)		309
Income before income taxes		97,153		75,925
Income taxes (Note 15)		23,020		20,370
Net income including non-controlling interests		74,133		55,555
Non-controlling interests in subsidiaries’ income (loss)		(44)		(7)
Net income	$	74,177	$	55,562

Basic earnings per share (Note 3)	$	1.24	$	0.92
Diluted earnings per share (Note 3)	$	1.23	$	0.91
Cash dividends declared per share	$	0.51	$	0.49

See notes to these consolidated financial statements.

Table of Contents

LINCOLN ELECTRIC HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)

(In thousands)

Three Months Ended September 30, Nine Months Ended September 30,
2020 2019 2020 2019
Net income including non-controlling interests $ 58,506 $ 72,457 $ 141,074 $ 229,367
Other comprehensive income (loss), net of tax:
Unrealized gain (loss) on derivatives designated and qualifying as cash flow hedges, net of tax of $337 and $(62) in the three and nine months ended September 30, 2020; $(66) and $(121) in the three and nine months ended September 30, 2019. 639 (348) (622) (320)
Defined benefit pension plan activity, net of tax of $(776) and $(8,303) in the three and nine months ended September 30, 2020; $536 and $673 in the three and nine months ended September 30, 2019. (1,304) 613 (23,731) 2,491
Currency translation adjustment 13,039 (24,025) (43,101) (14,040)
Other comprehensive income (loss): 12,374 (23,760) (67,454) (11,869)
Comprehensive income 70,880 48,697 73,620 217,498
Comprehensive income (loss) attributable to non-controlling interests 62 254 14 234
Comprehensive income attributable to shareholders $ 70,818 $ 48,443 $ 73,606 $ 217,264


	Three Months Ended March 31,
	2021		2020
Net income including non-controlling interests	$	74,133	$	55,555
Other comprehensive income (loss), net of tax:
Unrealized gain (loss) on derivatives designated and qualifying as cash flow hedges, net of tax of $2,309 and $(716) in the three months ended March 31, 2021 and 2020		7,290		(2,369)
Defined benefit pension plan activity, net of tax of $815 and $164 in the three months ended March 31, 2021 and 2020		5,060		609
Currency translation adjustment		(22,743)		(70,608)
Other comprehensive income (loss):		(10,393)		(72,368)
Comprehensive income		63,740		(16,813)
Comprehensive income (loss) attributable to non-controlling interests		(203)		(48)
Comprehensive income (loss) attributable to shareholders	$	63,943	$	(16,765)

See notes to these consolidated financial statements.

Table of Contents

LINCOLN ELECTRIC HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

September 30, 2020 December 31, 2019
(UNAUDITED) (NOTE 1)
ASSETS
Current Assets
Cash and cash equivalents $ 152,479 $ 199,563
Accounts receivable (less allowance for doubtful accounts of $15,657 in 2020; $16,002 in 2019) 373,044 374,649
Inventories (Note 9) 396,214 393,748
Other current assets 104,474 107,621
Total Current Assets 1,026,211 1,075,581
Property, plant and equipment (less accumulated depreciation of $858,288 in 2020; $825,769 in 2019) 504,520 529,344
Goodwill 331,473 337,107
Other assets 355,295 429,181
TOTAL ASSETS $ 2,217,499 $ 2,371,213
LIABILITIES AND EQUITY
Current Liabilities
Short-term debt (Note 12) $ 1,147 $ 34,969
Trade accounts payable 226,494 273,002
Accrued employee compensation and benefits 121,967 83,033
Other current liabilities 183,553 172,131
Total Current Liabilities 533,161 563,135
Long-term debt, less current portion (Note 12) 715,687 712,302
Other liabilities 257,907 276,699
Total Liabilities 1,506,755 1,552,136
Shareholders’ Equity
Common shares 9,858 9,858
Additional paid-in capital 404,086 389,446
Retained earnings 2,790,579 2,736,481
Accumulated other comprehensive loss (343,281) (275,850)
Treasury shares (2,151,417) (2,041,763)
Total Shareholders’ Equity 709,825 818,172
Non-controlling interests 919 905
Total Equity 710,744 819,077
TOTAL LIABILITIES AND TOTAL EQUITY $ 2,217,499 $ 2,371,213


	March 31, 2021		December 31, 2020
	(UNAUDITED)		(NOTE 1)
ASSETS
Current Assets
Cash and cash equivalents	$	242,126	$	257,279
Accounts receivable (less allowance for doubtful accounts of $14,029 in 2021; $14,779 in 2020)		431,350		373,487
Inventories (Note 9)		415,901		381,258
Other current assets		106,910		100,319
Total Current Assets		1,196,287		1,112,343
Property, plant and equipment (less accumulated depreciation of $875,114 in 2021; $884,647 in 2020)		500,449		522,092
Goodwill		334,194		335,593
Other assets		330,819		344,425
TOTAL ASSETS	$	2,361,749	$	2,314,453
LIABILITIES AND EQUITY
Current Liabilities
Short-term debt (Note 12)	$	3,607	$	2,734
Trade accounts payable		294,062		256,530
Accrued employee compensation and benefits		92,769		98,437
Other current liabilities		224,023		191,748
Total Current Liabilities		614,461		549,449
Long-term debt, less current portion (Note 12)		715,328		715,456
Other liabilities		228,552		259,298
Total Liabilities		1,558,341		1,524,203
Shareholders' Equity
Common Shares		9,858		9,858
Additional paid-in capital		418,529		409,958
Retained earnings		2,864,223		2,821,359
Accumulated other comprehensive loss		(312,424)		(302,190)
Treasury Shares		(2,176,671)		(2,149,714)
Total Shareholders' Equity		803,515		789,271
Non-controlling interests		(107)		979
Total Equity		803,408		790,250
TOTAL LIABILITIES AND TOTAL EQUITY	$	2,361,749	$	2,314,453

See notes to these consolidated financial statements.

Table of Contents

LINCOLN ELECTRIC HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF EQUITY

(UNAUDITED)

(In thousands, except per share amounts)


								Accumulated
	Common			Additional				Other				Non-
	Shares	Common		Paid-In		Retained		Comprehensive		Treasury		Controlling
	Outstanding	Shares		Capital		Earnings		Income (Loss)		Shares		Interests		Total
Balance at December 31, 2020	59,641	$	9,858	$	409,958	$	2,821,359	$	(302,190)	$	(2,149,714)	$	979	$	790,250
Net income							74,177						(44)		74,133
Unrecognized amounts from defined benefit pension plans, net of tax									5,060						5,060
Unrealized gain on derivatives designated and qualifying as cash flow hedges, net of tax									7,290						7,290
Currency translation adjustment									(22,584)				(159)		(22,743)
Cash dividends declared - $0.51 per share							(30,572)								(30,572)
Stock-based compensation activity	134				7,680						1,502				9,182
Purchase of shares for treasury	(237)										(28,459)				(28,459)
Other					891		(741)						(883)		(733)
Balance at March 31, 2021	59,538	$	9,858	$	418,529	$	2,864,223	$	(312,424)	$	(2,176,671)	$	(107)	$	803,408


								Accumulated
	Common			Additional				Other				Non-
	Shares	Common		Paid-In		Retained		Comprehensive		Treasury		Controlling
	Outstanding	Shares		Capital		Earnings		Income (Loss)		Shares		Interests		Total
Balance at December 31, 2019	60,592	$	9,858	$	389,446	$	2,736,481	$	(275,850)	$	(2,041,763)	$	905	$	819,077
Net income							55,562						(7)		55,555
Unrecognized amounts from defined benefit pension plans, net of tax									609						609
Unrealized loss on derivatives designated and qualifying as cash flow hedges, net of tax									(2,369)						(2,369)
Currency translation adjustment									(70,567)				(41)		(70,608)
Cash dividends declared – $0.49 per share							(29,280)								(29,280)
Stock-based compensation activity	152				2,826						1,912				4,738
Purchase of shares for treasury	(1,357)										(109,762)				(109,762)
Other					(5,176)		5,176								—
Balance at March 31, 2020	59,387	$	9,858	$	387,096	$	2,767,939	$	(348,177)	$	(2,149,613)	$	857	$	667,960

Common
Shares
Outstanding Common
Shares Additional
Paid-In
Capital Retained
Earnings Accumulated
Other
Comprehensive
Income (Loss) Treasury
Shares Non-controlling
Interests Total
Balance at December 31, 2019 60,592 $ 9,858 $ 389,446 $ 2,736,481 $ (275,850) $ (2,041,763) $ 905 $ 819,077
Net income 55,562 (7) 55,555
Unrecognized amounts from defined benefit pension plans, net of tax 609 609
Unrealized loss on derivatives designated and qualifying as cash flow hedges, net of tax (2,369) (2,369)
Currency translation adjustment (70,567) (41) (70,608)
Cash dividends declared – $0.49 per share (29,280) (29,280)
Stock-based compensation activity 152 2,826 1,912 4,738
Purchase of shares for treasury (1,357) (109,762) (109,762)
Other (5,176) 5,176 0
Balance at March 31, 2020 59,387 $ 9,858 $ 387,096 $ 2,767,939 $ (348,177) $ (2,149,613) $ 857 $ 667,960
Net income 26,996 17 27,013
Unrecognized amounts from defined benefit pension plans, net of tax (23,036) (23,036)
Unrealized gain on derivatives designated and qualifying as cash flow hedges, net of tax 1,108 1,108
Currency translation adjustment 14,485 (17) 14,468
Cash dividends declared – $0.49 per share (29,260) (29,260)
Stock-based compensation activity 25 4,754 317 5,071
Purchase of shares for treasury (45) (3,213) (3,213)
Other 2,842 (2,842) 0
Balance at June 30, 2020 59,367 $ 9,858 $ 394,692 $ 2,762,833 $ (355,620) $ (2,152,509) $ 857 $ 660,111
Net income 58,479 27 58,506
Unrecognized amounts from defined benefit pension plans, net of tax (1,304) (1,304)
Unrealized gain on derivatives designated and qualifying as cash flow hedges, net of tax 639 639
Currency translation adjustment 13,004 35 13,039
Cash dividends declared – $0.49 per share (29,326) (29,326)
Stock-based compensation activity 106 8,493 1,315 9,808
Purchase of shares for treasury (2) (223) (223)
Other 901 (1,407) (506)
Balance at September 30, 2020 59,471 $ 9,858 $ 404,086 $ 2,790,579 $ (343,281) $ (2,151,417) $ 919 $ 710,744

Table of Contents

LINCOLN ELECTRIC HOLDINGS, INC.

~~CONSOLIDATED STATEMENTS OF EQUITY~~

~~(UNAUDITED)~~

~~(In thousands, except per share amounts)~~

Common
Shares
Outstanding Common
Shares Additional
Paid-In
Capital Retained
Earnings Accumulated
Other
Comprehensive
Income (Loss) Treasury
Shares Non-controlling
Interests Total
Balance at December 31, 2018 63,546 $ 9,858 $ 360,308 $ 2,564,440 $ (293,739) $ (1,753,925) $ 650 $ 887,592
Net income 71,480 (14) 71,466
Unrecognized amounts from defined benefit pension plans, net of tax 787 787
Unrealized gain on derivatives designated and qualifying as cash flow hedges, net of tax 329 329
Currency translation adjustment 5,099 37 5,136
Cash dividends declared – $0.47 per share (29,847) (29,847)
Stock-based compensation activity 148 3,302 1,484 4,786
Purchase of shares for treasury (894) (75,584) (75,584)
Other 808 (808) 0
Balance at March 31, 2019 62,800 $ 9,858 $ 364,418 $ 2,605,265 $ (287,524) $ (1,828,025) $ 673 $ 864,665
Net income 85,452 (8) 85,444
Unrecognized amounts from defined benefit pension plans, net of tax 1,091 1,091
Unrealized loss on derivatives designated and qualifying as cash flow hedges, net of tax (301) (301)
Currency translation adjustment 4,884 (35) 4,849
Cash dividends declared – $0.47 per share (29,279) (29,279)
Stock-based compensation activity 13 4,783 136 4,919
Purchase of shares for treasury (1,034) (85,330) (85,330)
Other (282) 282 0
Balance at June 30, 2019 61,779 $ 9,858 $ 368,919 $ 2,661,720 $ (281,850) $ (1,913,219) $ 630 $ 846,058
Net income 72,461 (4) 72,457
Unrecognized amounts from defined benefit pension plans, net of tax 613 613
Unrealized gain on derivatives designated and qualifying as cash flow hedges, net of tax (348) (348)
Currency translation adjustment (24,283) 258 (24,025)
Cash dividends declared – $0.47 per share (28,931) (28,931)
Stock-based compensation activity 107 7,996 1,111 9,107
Purchase of shares for treasury (737) (61,028) (61,028)
Other 669 (764) (95)
Balance at September 30, 2019 61,149 $ 9,858 $ 377,584 $ 2,704,486 $ (305,868) $ (1,973,136) $ 884 $ 813,808

~~Table of Contents~~

~~LINCOLN ELECTRIC HOLDINGS, INC.~~

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(In thousands)

Nine Months Ended September 30,
2020 2019
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 141,037 $ 229,393
Non-controlling interests in subsidiaries’ income (loss) 37 (26)
Net income including non-controlling interests 141,074 229,367
Adjustments to reconcile Net income including non-controlling interests to Net cash
provided by operating activities:
Rationalization and asset impairment net charges (Note 6) 21,927 1,069
Depreciation and amortization 60,566 60,400
Equity earnings in affiliates, net (323) (1,266)
Deferred income taxes (10,143) 4,045
Stock-based compensation 11,656 12,602
Gain on change in control 0 (7,601)
Other, net (4,283) (7,362)
Changes in operating assets and liabilities, net of effects from acquisitions:
(Increase) decrease in accounts receivable (6,851) 24,103
Increase in inventories (3,430) (36,476)
Decrease in other current assets 8,027 3,227
Decrease in trade accounts payable (42,333) (34,202)
Increase in other current liabilities 38,615 31,113
Net change in other assets and liabilities 1,059 1,647
NET CASH PROVIDED BY OPERATING ACTIVITIES 215,561 280,666
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (37,116) (53,551)
Acquisition of businesses, net of cash acquired 0 (136,735)
Proceeds from sale of property, plant and equipment 6,957 9,491
Other investing activities 0 2,000
NET CASH USED BY INVESTING ACTIVITIES (30,159) (178,795)
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on short-term borrowings (3,504) 0
Amounts due banks, net (29,619) 2,439
Payments on long-term borrowings (12) (6)
Proceeds from exercise of stock options 7,961 6,210
Purchase of shares for treasury (Note 8) (113,198) (221,942)
Cash dividends paid to shareholders (88,945) (89,162)
NET CASH USED BY FINANCING ACTIVITIES (227,317) (302,461)
Effect of exchange rate changes on Cash and cash equivalents (5,169) (1,647)
DECREASE IN CASH AND CASH EQUIVALENTS (47,084) (202,237)
Cash and cash equivalents at beginning of period 199,563 358,849
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 152,479 $ 156,612


	Three Months Ended March 31,
	2021		2020
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	74,177	$	55,562
Non-controlling interests in subsidiaries' income (loss)		(44)		(7)
Net income including non-controlling interests		74,133		55,555
Adjustments to reconcile Net income including non-controlling interests to Net cash provided by operating activities:
Rationalization and asset impairment net charges (Note 6)		60		(236)
Depreciation and amortization		19,118		21,028
Equity earnings in affiliates, net		(177)		(162)
Deferred income taxes		(16,115)		(3,685)
Stock-based compensation		6,402		3,691
Other, net		9,016		(4,188)
Changes in operating assets and liabilities, net of effects from acquisitions:
Increase in accounts receivable		(65,795)		(25,698)
Increase in inventories		(42,568)		(17,401)
Increase in other current assets		(8,095)		(1,789)
Increase (decrease) in trade accounts payable		42,325		(16,676)
Increase in other current liabilities		30,266		13,482
Net change in other assets and liabilities		(3,308)		(1,949)
NET CASH PROVIDED BY OPERATING ACTIVITIES		45,262		21,972
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures		(9,936)		(11,828)
Proceeds from sale of property, plant and equipment		584		6,100
Other investing activities		6,500		0
NET CASH USED BY INVESTING ACTIVITIES		(2,852)		(5,728)
CASH FLOWS FROM FINANCING ACTIVITIES
Amounts due banks, net		1,307		97,777
Proceeds from exercise of stock options		2,780		1,047
Purchase of shares for treasury (Note 8)		(28,459)		(109,762)
Cash dividends paid to shareholders		(30,999)		(30,675)
NET CASH USED BY FINANCING ACTIVITIES		(55,371)		(41,613)
Effect of exchange rate changes on Cash and cash equivalents		(2,192)		(10,819)
DECREASE IN CASH AND CASH EQUIVALENTS		(15,153)		(36,188)

Cash and cash equivalents at beginning of period		257,279		199,563
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	242,126	$	163,375

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, 2020~~March 31, 2021 are not necessarily indicative of the results to be expected for the year ending December 31, ~~2020.~~

2021.

The accompanying Consolidated Balance Sheet at December 31, ~~2019~~2020 has been derived from the audited financial statements at that date, but does not include all of the information and notes required by GAAP for complete financial statements. For further information, refer to the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2019.~~

~~COVID-19 Assessment~~

~~In March 2020, the World Health Organization categorized the~~2020.

The current coronavirus disease (“~~COVID-19”~~COVID-19”) ~~as a~~ pandemic has adversely impacted global economic conditions and ~~the President of the United States declared the COVID-19 outbreak a national emergency. COVID-19 continues~~has contributed to ~~spread throughout the United States and other countries across the world, and the ultimate duration and severity on~~significant volatility in financial markets beginning in early calendar year 2020. Although the Company's ~~business remains unknown. New~~estimates contemplate current conditions, the inputs into certain significant and ~~changing government actions to address~~critical accounting estimates include judgments and assumptions about the economic implications of the COVID-19 pandemic ~~continue~~and how management expects them to ~~occur. As a result,~~change in the ~~countries~~future. It is reasonably possible that actual results experienced may differ materially from the Company's estimates in future periods, which the Company’s products are manufactured and distributed are in varying stages of restrictions. Certain jurisdictions may have to re-establish restrictions due to a resurgence in COVID-19 cases. Additionally, although most of the Company’s customers have re-opened and increased operating levels, such customers may be forced to close or limit operations as any new COVID-19 outbreaks occur. Even as government restrictions are lifted and economies reopen, the ultimate shape of the economic recovery is uncertain and may continue to negatively impact the Company'scould affect our results of operations ~~cash flows~~ and financial ~~position~~condition. For additional discussion, see “Item 1A. Risk Factors” in subsequent quarters. Given this current level of economic and operational uncertainty over the impacts of COVID-19, the ultimate financial impact cannot be reasonably estimated at this time. The Company’s consolidated financial statements presented herein reflect estimates and assumptions made by management that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and reported amounts of revenue and expenses during the reporting periods presented. Such estimates and assumptions affect, among other things, the Company’s ~~goodwill, long-lived asset and indefinite-lived intangible asset valuation; inventory valuation; assessment of~~Annual Report on Form 10-K for the annual effective tax rate; valuation of deferred income taxes and income tax contingencies; the allowance for doubtful accounts; measurement of compensation cost for certain share-based awards and cash bonus plans; and pension plan assumptions. Events and changes in circumstances arising after September 30, 2020, including those resulting from the continued impacts of COVID-19, will be reflected in management’s estimates for future periods.

year ended December 31, 2020.

New Accounting Pronouncements:

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

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~~LINCOLN ELECTRIC HOLDINGS, INC.~~

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

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

The following ~~ASUs were~~ASU was adopted as of January 1, ~~2020, unless otherwise noted below:~~

2021:

~~Standard~~

~~Description~~

~~ASU No. 2018-14,~~ ~~Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20),~~ ~~issued August 2018.~~

Standard

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. These disclosure requirements will be reflected in the Notes to the consolidated financial statements in the Company's Form 10-K for the year ended December 31, 2020.

Description

~~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 removes disclosure requirements pertaining to the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, the policy for timing of transfers between levels and the valuation processes for Level 3 fair value measurements. Refer to 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. 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 September 30, 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 ASU:~~


~~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, 2021 and early~~ adoption ~~is permitted.~~did not have a material impact on the Company’s consolidated financial statements.

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LINCOLN ELECTRIC HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Dollars in thousands, except per share amounts

NOTE 2 — REVENUE RECOGNITION

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

Three Months Ended September 30, Nine Months Ended September 30,
2020 2019 2020 2019
Consumables $ 379,177 $ 420,980 $ 1,118,688 $ 1,308,788
Equipment 289,711 309,803 842,918 958,177
Net sales $ 668,888 $ 730,783 $ 1,961,606 $ 2,266,965


	Three Months Ended March 31,
	2021		2020
Consumables	$	434,179	$	405,840
Equipment		322,842		296,151
Net sales	$	757,021	$	701,991

Consumable sales consist of electrodes, fluxes, specialty welding consumables and brazing and soldering alloys. Equipment sales consist of arc welding power sources, welding accessories, fabrication, plasma cutters, wire feeding systems, automated joining, assembly and cutting systems, fume extraction equipment, CNC plasma and oxy-fuel cutting systems and regulators and torches used in oxy-fuel welding, cutting and brazing. Consumable and Equipment products are sold within each of the Company’s operating segments.

Within the Equipment product line, there are certain customer contracts related to automation products that may include multiple performance obligations. For such arrangements, the Company allocates revenue to each performance obligation based on its relative standalone selling price. The Company generally determines the standalone selling price based on the prices charged to customers or using expected cost plus margin. Less than 10% of the ~~Company's~~Company’s Net sales are recognized over time.

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~~LINCOLN ELECTRIC HOLDINGS, INC.~~

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

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

At ~~September 30, 2020,~~March 31, 2021, the Company recorded ~~$15,749~~$19,292 related to advance customer payments and ~~$14,090~~$22,744 related to billings in excess of revenue recognized. These contract liabilities are included in Other current liabilities in the Condensed Consolidated Balance Sheets. At December 31, ~~2019,~~2020, the balances related to advance customer payments and billings in excess of revenue recognized were ~~$16,040~~$14,920 and ~~$16,274,~~$21,396, respectively. Substantially all of the Company’s contract liabilities are recognized within twelve months based on contract duration. The Company records an asset for contracts where it has recognized revenue, but has not yet invoiced the customer for goods or services. At ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019, $29,688~~2020, the Company recorded $25,709 and ~~$33,566,~~$22,113, respectively, related to these ~~future customer receivables was~~contract assets which are included in Other current assets in the Condensed Consolidated Balance Sheets. Contract asset amounts are expected to be billed within the next twelve months.

NOTE 3 — EARNINGS PER SHARE

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


	Three Months Ended March 31,
	2021		2020
Numerator:
Net income	$	74,177	$	55,562
Denominator (shares in 000's):
Basic weighted average shares outstanding		59,642		60,184
Effect of dilutive securities - Stock options and awards		657		615
Diluted weighted average shares outstanding		60,299		60,799
Basic earnings per share	$	1.24	$	0.92
Diluted earnings per share	$	1.23	$	0.91

Three Months Ended September 30, Nine Months Ended September 30,
2020 2019 2020 2019
Numerator:
Net income $ 58,479 $ 72,461 $ 141,037 $ 229,393
Denominator (shares in 000's):
Basic weighted average shares outstanding 59,426 61,380 59,655 62,282
Effect of dilutive securities - Stock options and awards 592 681 547 690
Diluted weighted average shares outstanding 60,018 62,061 60,202 62,972
Basic earnings per share $ 0.98 $ 1.18 $ 2.36 $ 3.68
Diluted earnings per share $ 0.97 $ 1.17 $ 2.34 $ 3.64

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LINCOLN ELECTRIC HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Dollars in thousands, except per share amounts

For the three months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019,~~ common shares subject to equity-based awards of ~~557,198~~89,592 and ~~548,049,~~655,764, respectively, were excluded from the computation of diluted earnings per share because the effect of their exercise would be anti-dilutive. For the nine months ended September 30, 2020 and 2019, common shares subject to equity-based awards of 547,329 and 514,402, respectively, were excluded from the computation of diluted earnings per share because the effect of their exercise would be anti-dilutive.

NOTE 4 — ACQUISITIONS

During ~~July 2019,~~April 2021, the Company acquired Zeman Bauelemente Produktionsgesellschaft m.b.H.(“Zeman Bauelemente"), a division of the ~~controlling stake of Kaynak Tekniği Sanayi ve Ticaret A.Ş. (“Askaynak”). Askaynak,~~Zeman Group. Zeman Bauelemente, based in ~~Turkey,~~Vienna, Austria, is a ~~supplier~~leading designer and manufacturer of ~~welding consumables,~~robotic assembly and arc welding ~~equipment, including plasma~~systems that automate the tacking and ~~oxy-fuel cutting equipment and robotic~~ welding ~~systems. The acquisition advanced 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 complimented the Company's automation portfolio and its metal additive manufacturing service business.

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.

steel beams.

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~~LINCOLN ELECTRIC HOLDINGS, INC.~~

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

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

NOTE 5 — SEGMENT INFORMATION

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

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

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~~LINCOLN ELECTRIC HOLDINGS, INC.~~

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

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

The following table presents Adjusted EBIT by segment:


					The Harris
	Americas		International		Products		Corporate /
	Welding		Welding		Group		Eliminations		Consolidated
Three Months Ended March 31, 2021
Net sales	$	425,242	$	223,079	$	108,700	$	0	$	757,021
Inter-segment sales		32,748		4,285		2,147		(39,180)		0
Total	$	457,990	$	227,364	$	110,847	$	(39,180)	$	757,021
Adjusted EBIT	$	76,617	$	18,816	$	18,697	$	(1,456)	$	112,674
Special items charge (gain) ⁽¹⁾		4,440		4,609		—		1,113		10,162
EBIT	$	72,177	$	14,207	$	18,697	$	(2,569)	$	102,512
Interest income										454
Interest expense										(5,813)
Income before income taxes									$	97,153

Three Months Ended March 31, 2020
Net sales	$	418,535	$	197,923	$	85,533	$	0	$	701,991
Inter-segment sales		24,783		4,483		1,725		(30,991)		0
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) ⁽²⁾		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

(1)

In the three months ended March 31, 2021, special items reflect Rationalization and asset impairment charges of $4,163 in International Welding, pension settlement charges of $4,440 and $446 in Americas Welding and

Americas Welding International Welding The Harris
Products Group Corporate /
Eliminations Consolidated
Three Months Ended September 30, 2020
Net sales $ 371,535 $ 196,937 $ 100,416 $ 0 $ 668,888
Inter-segment sales 29,368 4,898 1,898 (36,164) 0
Total $ 400,903 $ 201,835 $ 102,314 $ (36,164) $ 668,888
Adjusted EBIT $ 59,120 $ 13,432 $ 17,587 $ (1,839) $ 88,300
Special items charge (gain) ⁽¹⁾
7,044 2,401 0 0 9,445
EBIT $ 52,076 $ 11,031 $ 17,587 $ (1,839) $ 78,855
Interest income 293
Interest expense (5,845)
Income before income taxes $ 73,303
Three Months Ended September 30, 2019
Net sales $ 443,521 $ 205,378 $ 81,884 $ 0 $ 730,783
Inter-segment sales 31,101 4,441 1,857 (37,399) 0
Total $ 474,622 $ 209,819 $ 83,741 $ (37,399) $ 730,783
Adjusted EBIT $ 74,110 $ 10,184 $ 11,038 $ (1,632) $ 93,700
Special items charge (gain) ⁽²⁾
0 (4,497) 0 0 (4,497)
EBIT $ 74,110 $ 14,681 $ 11,038 $ (1,632) $ 98,197
Interest income 491
Interest expense (6,891)
Income before income taxes $ 91,797
Nine Months Ended September 30, 2020
Net sales $ 1,123,299 $ 572,027 $ 266,280 $ 0 $ 1,961,606
Inter-segment sales 81,644 13,667 5,376 (100,687) 0
Total $ 1,204,943 $ 585,694 $ 271,656 $ (100,687) $ 1,961,606
Adjusted EBIT $ 176,524 $ 29,729 $ 41,792 $ (4,902) $ 243,143
Special items charge (gain) ⁽¹⁾
34,241 9,103 0 0 43,344
EBIT $ 142,283 $ 20,626 $ 41,792 $ (4,902) $ 199,799
Interest income 1,576
Interest expense (18,467)
Income before income taxes $ 182,908
Nine Months Ended September 30, 2019
Net sales $ 1,377,847 $ 635,770 $ 253,348 $ 0 $ 2,266,965
Inter-segment sales 95,300 12,838 5,837 (113,975) 0
Total $ 1,473,147 $ 648,608 $ 259,185 $ (113,975) $ 2,266,965
Adjusted EBIT $ 240,713 $ 38,699 $ 35,045 $ (8,643) $ 305,814
Special items charge (gain) ⁽²⁾
3,115 (4,925) 0 1,804 (6)
EBIT $ 237,598 $ 43,624 $ 35,045 $ (10,447) $ 305,820
Interest income 2,047
Interest expense (19,668)
Income before income taxes $ 288,199

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Dollars in thousands, except per share amounts

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

(2)

In the three months ended March 31, 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 in International Welding related to an acquisition.

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

~~(2)~~In the three months ended September 30, 2019, special items reflect Rationalization and asset impairment charges $1,495, amortization of step up in value of acquired inventories of $1,609 related to the acquisition of Askaynak and a gain on change in control of $7,601 related to 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 and $4,621 in Americas Welding and International Welding, respectively, amortization of step up in value of acquired inventories of $1,399 in Americas Welding and $1,609 related to the acquisition of Askaynak in International Welding, gains on disposals of assets of $3,554 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 in International Welding.

NOTE 6 — RATIONALIZATION AND ASSET IMPAIRMENTS

The Company recorded Rationalization and asset impairment net charges of ~~$36,016~~$4,163 and ~~$6,337~~$6,521 in the ~~nine~~three months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019,~~ respectively. The charges are primarily related to employee severance, non-cash asset impairments of long-lived assets and gains or losses on the disposal of assets.

During 2020 and 2021, the Company initiated rationalization plans within Americas Welding and International Welding segments. The plans include headcount restructuring and the consolidation of manufacturing ~~facilities~~operations to better align the Company’s cost structure with economic conditions and operating needs. At ~~September 30, 2020,~~March 31, 2021, liabilities of ~~$218 and $6,592~~$13,155 for ~~Americas Welding and~~ International Welding ~~respectively,~~ were recognized in Other current liabilities in the ~~Company's~~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, 2020, liabilities of $4,934 were recognized in Other current liabilities in the Company's Condensed Consolidated Balance Sheet.

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

The following table summarizes the activity related to rationalization liabilities for the ~~nine~~three months ended ~~September 30, 2020:~~March 31, 2021:


			International
	Americas Welding		Welding		Consolidated
Balance at December 31, 2020	$	25	$	13,597	$	13,622
Payments and other adjustments		(25)		(4,545)		(4,570)
Charged to expense		0		4,103		4,103
Balance at March 31, 2021	$	0	$	13,155	$	13,155

Americas Welding International Welding Consolidated
Balance, December 31, 2019 $ 0 $ 8,202 $ 8,202
Payments and other adjustments (5,367) (5,180) (10,547)
Charged to expense 5,585 8,504 14,089
Balance, September 30, 2020 $ 218 $ 11,526 $ 11,744

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LINCOLN ELECTRIC HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Dollars in thousands, except per share amounts

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

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


	Three Months Ended March 31, 2021
	Unrealized gain
	(loss) on derivatives
	designated and			Defined benefit			Currency
	qualifying as cash			pension plan			translation
	flow hedges			activity			adjustment			Total
Balance at December 31, 2020	$	2,487		$	(101,770)		$	(202,907)		$	(302,190)
Other comprehensive income (loss) before reclassification		7,066			602			(22,584)	³		(14,916)
Amounts reclassified from AOCI		224	¹		4,458	²		0			4,682
Net current-period other comprehensive income (loss)		7,290			5,060			(22,584)			(10,234)
Balance at March 31, 2021	$	9,777		$	(96,710)		$	(225,491)		$	(312,424)


	Three Months Ended March 31, 2020
	Unrealized gain
	(loss) on derivatives
	designated and			Defined benefit			Currency
	qualifying as cash			pension plan			translation
	flow hedges			activity			adjustment			Total
Balance at December 31, 2019	$	1,626		$	(70,546)		$	(206,930)		$	(275,850)
Other comprehensive income (loss) before reclassification		(2,312)			0			(70,567)	³		(72,879)
Amounts reclassified from AOCI		(57)	¹		609	²		0			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)

(1)

During the three months ended March 31, 2021, the AOCI reclassification is a component of Net sales of $102 (net of tax of $42) and Cost of goods sold of $326 (net of tax of $133); during the three months ended March 31, 2020, the reclassification is a component of Net sales of $(41) (net of tax of $(21)) and Cost of goods sold of $(98) (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 $1,456 and $164 during the three months ended March 31, 2021 and 2020, respectively). See Note 13 to the consolidated financial statements for additional details.

(3)

The Other comprehensive income (loss) before reclassifications excludes $(159) and $(41) attributable to Non-controlling interests in the three months ended March 31, 2021 and 2020, respectively.

Three Months Ended September 30, 2020
Unrealized gain (loss) on derivatives designated and qualifying as cash flow hedges Defined benefit pension plan activity Currency translation adjustment Total
Balance at June 30, 2020 $ 365 $ (92,973) $ (263,012) $ (355,620)
Other comprehensive income (loss)
before reclassification (104) (4,411)
²
13,004
³
8,489
Amounts reclassified from AOCI 743
¹
3,107
²
0 3,850
Net current-period other
comprehensive income (loss) 639 (1,304) 13,004 12,339
Balance at September 30, 2020 $ 1,004 $ (94,277) $ (250,008) $ (343,281)
Three Months Ended September 30, 2019
Unrealized gain (loss) on derivatives designated and qualifying as cash flow hedges Defined benefit pension plan activity Currency translation adjustment Total
Balance at June 30, 2019 $ 1,722 $ (80,171) $ (203,401) $ (281,850)
Other comprehensive income (loss)
before reclassification (268) 0 (24,283)
³
(24,551)
Amounts reclassified from AOCI (80)
¹
613
²
0 533
Net current-period other
comprehensive income (loss) (348) 613 (24,283) (24,018)
Balance at September 30, 2019 $ 1,374 $ (79,558) $ (227,684) $ (305,868)

~~(1)~~During the 2020 period, this AOCI reclassification is a component of Net sales of $(551) (net of tax of $(205)) and Cost of goods sold of $192 (net of tax of $8); during the 2019 period, the reclassification is a component of Net sales of $(15) and Cost of goods sold of $(95) (net of tax of $(22)). 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 $(776) and $536 during the three months ended September 30, 2020 and 2019, respectively). See Note 13 to the consolidated financial statements for additional details.

~~(3)The Other comprehensive income (loss) before reclassifications excludes $35 and $258 attributable to Non-controlling interests in the three months ended September 30, 2020 and 2019, respectively.~~

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~~LINCOLN ELECTRIC HOLDINGS, INC.~~

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

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

~~The following tables set forth the total changes in AOCI by component, net of taxes:~~

Nine Months Ended September 30, 2020
Unrealized gain (loss) on derivatives designated and qualifying as cash flow hedges Defined benefit pension plan activity Currency translation adjustment Total
Balance at December 31, 2019 $ 1,626 $ (70,546) $ (206,930) $ (275,850)
Other comprehensive income (loss)
before reclassification (2,304) (30,538)
²
(43,078)
³
(75,920)
Amounts reclassified from AOCI 1,682
¹
6,807
²
0 8,489
Net current-period other
comprehensive income (loss) (622) (23,731) (43,078) (67,431)
Balance at September 30, 2020 $ 1,004 $ (94,277) $ (250,008) $ (343,281)
Nine Months Ended September 30, 2019
Unrealized gain (loss) on derivatives designated and qualifying as cash flow hedges Defined benefit pension plan activity Currency translation adjustment Total
Balance at December 31, 2018 $ 1,694 $ (82,049) $ (213,384) $ (293,739)
Other comprehensive income (loss)
before reclassification 521 0 (14,300)
³
(13,779)
Amounts reclassified from AOCI (841)
¹
2,491
²
0 1,650
Net current-period other
comprehensive income (loss) (320) 2,491 (14,300) (12,129)
Balance at September 30, 2019 $ 1,374 $ (79,558) $ (227,684) $ (305,868)

~~(1)~~During the 2020 period, this AOCI reclassification is a component of Net sales of $(1,657) (net of tax of $(624)) and Cost of goods sold of $25 (net of tax of $(92)); 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)). 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 $(8,303) and $673 during the nine months ended September 30, 2020 and 2019, respectively). See Note 13 to the consolidated financial statements for additional details.

~~(3)The Other comprehensive income (loss) before reclassifications excludes $(23) and $260 attributable to Non-controlling interests in the nine months ended September 30, 2020 and 2019, respectively.~~

NOTE 8 — COMMON STOCK REPURCHASE PROGRAM

The Company has a share repurchase program for up to 55 million shares of the ~~Company's~~Company’s common shares. On February 12, 2020, the ~~Company's~~Company’s Board of ~~Director's~~Director’s approved a new share repurchase program authorizing the Company to repurchase, in the aggregate, up to an additional 10 million shares of its outstanding common shares under this program. From time to time at ~~management's~~management’s discretion, the Company repurchases its common shares in the open market, depending on market conditions, stock price and other factors. During the ~~nine~~three months ended ~~September 30, 2020,~~March 31, 2021, the Company purchased a total of ~~1.4~~0.2 million shares at an average cost per share of ~~$80.22.~~$120.55. As of ~~September 30, 2020, there remained 11.5~~March 31, 2021, 11.2 million common shares remained available for repurchase under these programs. The repurchased common shares remain in treasury and have not been retired.

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, 2020 December 31, 2019
Raw materials $ 110,590 $ 116,716
Work-in-process 69,501 63,744
Finished goods 216,123 213,288
Total $ 396,214 $ 393,748



	March 31, 2021		December 31, 2020
Raw materials	$	115,278	$	111,888
Work-in-process		67,097		60,341
Finished goods		233,526		209,029
Total	$	415,901	$	381,258

At ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, approximately ~~35%~~36% and ~~36%~~35%, respectively, of total inventories were valued using the last-in, first-out ("LIFO") method. The excess of current cost over LIFO cost was ~~$76,204~~$79,435 and ~~$75,292~~$75,581 at ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, respectively.

NOTE 10 — LEASES

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

Operating Leases Balance Sheet Classification September 30, 2020 December 31, 2019
Right-of-use assets Other assets $ 46,626 $ 51,533
Current liabilities Other current liabilities $ 12,821 $ 13,572
Noncurrent liabilities Other liabilities 36,949 39,076
Total lease liabilities
$ 49,770 $ 52,648

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.


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

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

Total lease expense, which is included in Cost of goods sold and Selling, general and administrative expenses in the ~~Company's~~Company’s Consolidated Statements of Income, was ~~$5,655~~$5,051 and ~~$17,665~~$5,219 in the three ~~and nine~~ months ended ~~September 30,~~March 31, 2021 and 2020, ~~and $6,290 and $18,725 in the three and nine months ended September 30, 2019,~~ respectively. Cash paid for amounts included in the measurement of lease liabilities ~~for the three~~at March 31, 2021 and ~~nine months ended September 30,~~ 2020, respectively, were ~~$3,733~~$3,389 and ~~$11,727~~$4,097 and are included in Net cash provided by operating activities in the Company's Consolidated Statements of Cash Flows. Cash paid for amounts included in the measurement of lease liabilities for the three and nine months ended September 30, 2019, respectively, were $4,528 and $13,761 and are included in Net cash provided by operating activities in the Company'sCompany’s Consolidated Statements of Cash Flows. Right-of-use assets obtained in exchange for operating lease liabilities ~~were $214 and $2,249~~ during the three ~~and nine~~ months ended ~~September 30,~~March 31, 2021 and 2020 were $0 and ~~$1,550 and $16,223 for the three and nine months ended September 30, 2019,~~$2,035, respectively.

~~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, 2020
2020 $ 3,218
2021 13,619
2022 9,962
2023 8,233
2024 6,754
After 2025 14,544
Total lease payments $ 56,330
Less: Imputed interest (6,560)
Operating lease liabilities $ 49,770


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

As of ~~September 30, 2020,~~March 31, 2021, the weighted average remaining lease term is ~~7.1~~7.2 years and the weighted average discount rate used to determine the operating lease liability is 3.5%.

Table of Contents

LINCOLN ELECTRIC HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Dollars in thousands, except per share amounts

NOTE 11 — PRODUCT WARRANTY COSTS

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

Nine Months Ended September 30,
2020 2019
Balance at beginning of year $ 20,650 $ 19,778
Accruals for warranties 13,629 12,494
Settlements (10,699) (11,787)
Foreign currency translation and other adjustments (126) (125)
Balance at September 30 $ 23,454 $ 20,360


	Year Ended March 31,
	2021		2020
Balance at beginning of year	$	21,760	$	20,650
Accruals for warranties		3,136		4,117
Settlements		(3,253)		(3,591)
Foreign currency translation and other adjustments		(156)		(318)
Balance at March 31	$	21,487	$	20,858

NOTE 12 — DEBT

—~~DEBT~~

Revolving Credit Agreements

The Company has a line of credit totaling $400,000 through the Amended and Restated Credit Agreement (the “Credit Agreement”). The Credit Agreement has a term of 5 years with a maturity date of June 30, 2022 and may be increased, subject to certain conditions, by an additional amount up to $100,000. The interest rate on borrowings is based on either LIBOR or the prime rate, plus a spread based on the Company’s leverage ratio, at the Company’s election. The Credit Agreement contains customary affirmative, negative and financial covenants for credit facilities of this type, including limitations on the Company and its subsidiaries with respect to liens, investments, distributions, mergers and acquisitions, dispositions of assets, transactions with affiliates and a fixed charges coverage ratio and total leverage ratio. As of ~~September 30, 2020,~~March 31, 2021, the Company was in compliance with all of its covenants and had no outstanding borrowings under the Credit Agreement.

On April 23, 2021, the Company amended and restated the Credit Agreement by entering into the Second Amended and Restated Credit Agreement (“Second Credit Agreement”). The Second Credit Agreement has a line of credit totaling $500,000, has a term of 5 years with a maturity date of April 23, 2026 and may be increased, subject to certain conditions, by an additional amount up to $150,000. The interest rate on borrowings is based on LIBOR plus a spread based on the Company’s net leverage ratio. The Amended and Restated Credit Agreement contains customary representations and warranties, as well as customary affirmative, negative and financial covenants for credit facilities of this type (subject to negotiated baskets and exceptions), including limitations on the Company and its subsidiaries with respect to liens, investments, distributions, mergers and acquisitions, dispositions of assets and transactions with affiliates.

The Company has other lines of credit totaling ~~$50,000.~~$81,234. As of ~~September 30, 2020~~March 31, 2021, the Company was in compliance with all of its covenants and had ~~$1,039~~$3,497 outstanding at ~~September 30, 2020.~~

March 31, 2021.

Senior Unsecured Notes

On April 1, 2015 and October 20, 2016, the Company entered into separate Note Purchase Agreements pursuant to which it issued senior unsecured notes (the "Notes") through a private placement. The 2015 Notes and 2016 Notes each have an aggregate principal amount of $350,000, comprised of four different series ranging from $50,000 to $100,000, with maturity dates ranging from August 20, 2025 through April 1, 2045, and interest rates ranging from 2.75% to 4.02%. Interest on the Notes is paid semi-annually. The ~~Company's~~Company’s total weighted average effective interest rate and remaining weighted average tenure of the Notes is 3.3% and ~~13.6~~13.1 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, 2020,~~March 31, 2021, the Company was in compliance with all of its debt covenants relating to the Notes.

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LINCOLN ELECTRIC HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Dollars in thousands, except per share amounts

Shelf Agreements

On November 27, 2018, the Company entered into ~~seven~~7 uncommitted master note facilities (the "Shelf Agreements") that allow borrowings up to $700,000 in the aggregate. The Shelf Agreements have a term of 5 years and the average life of borrowings cannot exceed 15 years. The Company is required to comply with covenants similar to those contained in the Notes. As of ~~September 30, 2020,~~March 31, 2021, the Company was in compliance with all of its covenants and had no outstanding borrowings under the Shelf Agreements.

Fair Value of Debt

At ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, the fair value of long-term debt, including the current portion, was ~~approximately $785,579 and $721,494,~~approximately $739,945 and $793,591, respectively, which was determined using available market information and methodologies requiring judgment. The carrying value of this debt at such dates was ~~$715,795~~$715,438 and ~~$712,414,~~$715,567, respectively. Since judgment is required in interpreting market information, the fair value of the debt is not necessarily the amount which could be realized in a current market exchange.

NOTE 13—RETIREMENT AND POSTRETIREMENT BENEFIT PLANS

The components of total pension cost were as follows:


	Three Months Ended March 31,
	2021				2020
	U.S. pension		Non-U.S.		U.S. pension		Non-U.S.
	plans		pension plans		plans		pension plans
Service cost	$	49	$	471	$	39	$	756
Interest cost		2,981		616		4,050		696
Expected return on plan assets		(4,509)		(972)		(5,711)		(1,007)
Amortization of prior service cost		0		12		0		15
Amortization of net loss		581		435		203		555
Settlement charges ⁽¹⁾		4,440		446		0		0
Defined benefit plans		3,542		1,008		(1,419)		1,015
Multi-employer plans		0		244		0		269
Defined contribution plans		5,162		845		5,626		702
Total pension cost	$	8,704	$	2,097	$	4,207	$	1,986

(1)

Pension settlement charges primarily resulting from lump sum pension payments in the three months ended March 31, 2021.

Three Months Ended September 30, Nine Months Ended September 30,
2020 2019 2020 2019
U.S. pension plans Non-U.S. pension plans U.S. pension plans Non-U.S. pension plans U.S. pension plans Non-U.S. pension plans U.S. pension plans Non-U.S. pension plans
Service cost $ 39 $ 718 $ 35 $ 697 $ 117 $ 2,216 $ 105 $ 2,126
Interest cost 3,346 673 4,652 903 11,447 2,052 13,958 2,761
Expected return on plan assets (6,009) (1,076) (6,245) (1,087) (17,431) (3,097) (18,735) (3,317)
Amortization of prior service cost 0 15 0 16 0 46 0 47
Amortization of net loss 459 468 413 720 865 1,563 1,240 1,877
Settlement charges ⁽¹⁾
3,188 0 0 0 6,522 0 0 0
Defined benefit plans 1,023 798 (1,145) 1,249 1,520 2,780 (3,432) 3,494
Multi-employer plans 0 274 0 227 0 800 0 717
Defined contribution plans 4,945 931 5,506 692 15,322 2,406 17,205 1,615
Total pension cost $ 5,968 $ 2,003 $ 4,361 $ 2,168 $ 16,842 $ 5,986 $ 13,773 $ 5,826

~~(1) Pension settlement charges resulting from lump sum pension payments in the three and nine months ended September 30, 2020.~~

The defined benefit plan components of Total pension cost, other than service cost, are included in Other income (expense) in the ~~Company's~~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~~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.~~be substantially complete by the end of 2021.

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LINCOLN ELECTRIC HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Dollars in thousands, except per share amounts

NOTE 14—OTHER INCOME (EXPENSE)

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

Three Months Ended September 30, Nine Months Ended September 30,
2020 2019 2020 2019
Equity earnings in affiliates $ 81 $ 206 $ 323 $ 3,002
Other components of net periodic pension (cost) income (1,064) 628 (1,967) 2,169
Other income (expense)⁽¹⁾
2,045 8,819 2,812 12,441
Total Other income (expense) $ 1,062 $ 9,653 $ 1,168 $ 17,612

(1) 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.


	Three Months Ended March 31,
	2021		2020
Equity earnings in affiliates	$	176	$	162
Other components of net periodic pension (cost) income⁽¹⁾		(4,030)		1,199
Other income (expense)		2,438		(1,052)
Total Other income (expense)	$	(1,416)	$	309

(1)

Other components of net periodic pension (cost) income includes pension settlements and curtailments.

NOTE 15 — INCOME TAXES

The Company recognized ~~$41,834~~$23,020 of tax expense on pretax income of ~~$182,908,~~$97,153, resulting in an effective income tax rate of ~~22.9%~~23.7% for the ~~nine~~three months ended ~~September 30, 2020.~~March 31, 2021. The effective income tax rate was ~~20.4%~~26.8% for the ~~nine~~three months ended ~~September 30, 2019.~~

March 31, 2020.

The ~~increase~~decrease in the effective tax rate for the ~~nine~~three months ended ~~September 30, 2020,~~March 31, 2021, as compared with the same period in ~~2019,~~2020, was primarily due to ~~recording the~~income earned in lower tax rate jurisdictions in 2021, as well as higher tax expense associated with a valuation allowance ~~in 2020, smaller tax benefits related to the vesting of stock based compensation in 2020 and income tax benefits for the settlement of tax items~~ recorded in ~~2019.~~

The U.S. Department of Treasury and the Internal Revenue Service released proposed and final regulations on July 20, 2020 pertaining to the Global Intangible Low-Taxed Income and other provisions of the Internal Revenue Code. The Company is assessing the impact of the regulations and potential for early election of the regulations for prior years.

2020.

As of ~~September 30, 2020,~~March 31, 2021, the Company had ~~$20,481~~$17,768 of unrecognized tax benefits. If recognized, approximately ~~$17,043~~$14,281 would be reflected as a component of income tax expense.

The Company files income tax returns in the U.S. and various state, local and foreign jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal, state and local or non-U.S. income tax examinations by tax authorities for years before ~~2016.~~2017. The Company is currently subject to U.S., various state and non-U.S. income tax audits.

Unrecognized tax benefits are reviewed on an ongoing basis and are adjusted for changing facts and circumstances, including progress of tax audits and closing of statutes of limitations. Based on information currently available, management believes that additional audit activity could be completed and/or statutes of limitations may close relating to existing unrecognized tax benefits. It is reasonably possible there could be a reduction of ~~$865~~$1,749 in previously unrecognized tax benefits by the end of the ~~third~~first quarter ~~2021.~~

2022.

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, 2020~~March 31, 2021 and ~~2019.~~

2020.

The Company is subject to the credit risk of the counterparties to derivative instruments. Counterparties include a number of major banks and financial institutions. None of the concentrations of risk with any individual counterparty was considered significant at ~~September 30, 2020.~~March 31, 2021. The Company does not expect any counterparties to fail to meet their obligations.

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LINCOLN ELECTRIC HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Dollars in thousands, except per share amounts

Cash Flow Hedges

Certain foreign currency forward contracts were qualified and designated as cash flow hedges. The dollar equivalent gross notional amount of these short-term contracts was ~~$66,566~~$67,654 at ~~September 30, 2020~~March 31, 2021 and ~~$59,982~~$69,051 at December 31, ~~2019.~~

~~Table of Contents~~

~~LINCOLN ELECTRIC HOLDINGS, INC.~~

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

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

2020.

During March and April 2020, in anticipation of future debt issuance associated with the Notes referenced in Note 12, the Company entered into interest rate forward starting swap agreements to hedge the variability of future changes in interest rates. The forward starting swap agreements were qualified and designated as a cash flow hedge. The changes in fair value are recorded as part of AOCI, and upon completion of debt issuance and termination of the swaps, are amortized to interest expense over the life of the underlying debt. The dollar equivalent gross notional amount of the long-term contracts was $100,000 at ~~September 30,~~March 31, 2021 and December 31, 2020 and have a termination date of August 2025.

Fair Value Hedges

From time to time the company will enter into certain interest rate swap agreements that are qualified and designated as fair value hedges. At ~~September 30, 2020,~~March 31, 2021, the Company had no0 interest rate swap agreements outstanding. The Company terminated $50,000 of interest rate swaps in the ~~nine~~three months ended ~~September 30,~~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

The Company has cross currency swap agreements that are qualified and designated as net investment hedges. The dollar equivalent gross notional amount of these contracts is $50,000 as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, respectively.

Derivatives Not Designated as Hedging Instruments

The Company has certain foreign exchange forward contracts that are not designated as hedges. These derivatives are held as economic hedges of certain balance sheet exposures. The dollar equivalent gross notional amount of these contracts was ~~$390,926~~$585,340 and ~~$363,820~~$391,112 at ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, respectively.

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


	March 31, 2021								December 31, 2020
	Other		Other						Other		Other
	Current		Current		Other		Other		Current		Current		Other		Other
Derivatives by hedge designation	Assets		Liabilities		Assets		Liabilities		Assets		Liabilities		Assets		Liabilities
Designated as hedging instruments:
Foreign exchange contracts	$	1,337	$	1,090	$	0	$	0	$	2,451	$	1,124	$	0	$	0
Forward starting swap agreements		0		0		13,510		0		0		0		4,876		0
Cross currency swap agreements		0		0		0		2,263		0		0		0		4,308
Not designated as hedging instruments:
Foreign exchange contracts		2,715		1,682		0		0		1,398		3,485		0		0
Total derivatives	$	4,052	$	2,772	$	13,510	$	2,263	$	3,849	$	4,609	$	4,876	$	4,308

September 30, 2020 December 31, 2019
Derivatives by hedge designation Other Current Assets Other Current Liabilities Other Assets Other Liabilities Other Current Assets Other Current Liabilities Other Assets Other Liabilities
Designated as hedging instruments:
Foreign exchange contracts $ 1,034 $ 1,476 $ 0 $ 0 $ 1,288 $ 522 $ 0 $ 0
Interest rate swap agreements 0 0 0 0 0 0 2,964 0
Forward starting swap agreements 0 0 1,876 0 0 0 0 0
Cross currency swap agreements 0 0 0 1,877 0 0 0 653
Not designated as hedging instruments:
Foreign exchange contracts 3,067 2,872 0 0 2,397 973 0 0
Total derivatives $ 4,101 $ 4,348 $ 1,876 $ 1,877 $ 3,685 $ 1,495 $ 2,964 $ 653

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LINCOLN ELECTRIC HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Dollars in thousands, except per share amounts

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

Three Months Ended September 30, Nine Months Ended September 30,
Derivatives by hedge designation Classification of gain (loss) 2020 2019 2020 2019
Foreign exchange contracts Selling, general & administrative expenses $ 6,381 $ (710) $ (12,141) $ 5,707


		Three Months Ended March 31,
Derivatives by hedge designation	Classification of gain (loss)	2021		2020
Not designated as hedges:
Foreign exchange contracts	Selling, general & administrative expenses	$	(1,286)	$	(22,133)

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

Total gain (loss) recognized in AOCI, net of tax September 30, 2020 December 31, 2019
Foreign exchange contracts $ (468) $ 620
Forward starting swap agreements 1,407 0
Net investment contracts 65 1,006



Total gain (loss) recognized in AOCI, net of tax	March 31, 2021		December 31, 2020
Foreign exchange contracts	$	(90)	$	660
Forward starting swap agreements		10,109		3,649
Net investment contracts		(242)		(1,822)

The Company expects a loss of ~~$468~~$90 related to existing contracts to be reclassified from AOCI, net of tax, to earnings over the next 12 months as the hedged transactions are realized.


		Three Months Ended March 31,
	Gain (loss) recognized in the
Derivative type	Consolidated Statements of Income:	2021		2020
Foreign exchange contracts	Sales	$	144	$	(62)
	Cost of goods sold		(458)		122

~~Table of Contents~~

~~LINCOLN ELECTRIC HOLDINGS, INC.~~

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

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

Three Months Ended September 30, Nine Months Ended September 30,
Derivative type Gain (loss) recognized in the Consolidated Statements of Income: 2020 2019 2020 2019
Foreign exchange contracts Sales $ (756) $ (15) $ (2,281) $ 760
Cost of goods sold (200) 117 67 366

NOTE 17 - FAIR VALUE

The following table provides a summary of assets and liabilities as of ~~September 30, 2020,~~March 31, 2021, measured at fair value on a recurring basis:


			Quoted Prices in
			Active Markets for
			Identical Assets or		Significant Other		Significant
	Balance as of		Liabilities		Observable Inputs		Unobservable
Description	March 31, 2021		(Level 1)		(Level 2)		Inputs (Level 3)
Assets:
Foreign exchange contracts	$	4,052	$	0	$	4,052	$	0
Forward starting swap agreements		13,510		0		13,510		0
Total assets	$	17,562	$	0	$	17,562	$	0
Liabilities:
Foreign exchange contracts	$	2,772	$	0	$	2,772	$	0
Cross currency swap agreements		2,263		0		2,263		0
Deferred compensation		40,775		0		40,775		0
Total liabilities	$	45,810	$	0	$	45,810	$	0

Description Balance as of
September 30, 2020 Quoted Prices
in Active
Markets for
Identical Assets
or Liabilities
(Level 1) Significant
Other
Observable
Inputs
(Level 2) Significant
Unobservable
Inputs
(Level 3)
Assets:
Foreign exchange contracts $ 4,101 $ 0 $ 4,101 $ 0
Forward starting swap agreements 1,876 0 1,876 0
Total assets $ 5,977 $ 0 $ 5,977 $ 0
Liabilities:
Foreign exchange contracts 4,348 0 4,348 0
Cross currency swap agreements 1,877 0 1,877 0
Deferred compensation 29,728 0 29,728 0
Total liabilities $ 35,953 $ 0 $ 35,953 $ 0

Table of Contents

LINCOLN ELECTRIC HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Dollars in thousands, except per share amounts

The following table provides a summary of assets and liabilities as of December 31, ~~2019,~~2020, measured at fair value on a recurring basis:

Description Balance as of December 31, 2019 Quoted Prices
in Active
Markets for
Identical Assets
or Liabilities
(Level 1) Significant
Other
Observable
Inputs
(Level 2) Significant
Unobservable
Inputs
(Level 3)
Assets:
Foreign exchange contracts $ 3,685 $ 0 $ 3,685 $ 0
Interest rate swap agreements 2,964 0 2,964 0
Total assets $ 6,649 $ 0 $ 6,649 $ 0
Liabilities:
Foreign exchange contracts $ 1,495 $ 0 $ 1,495 $ 0
Cross currency swap agreements 653 0 653 0
Contingent considerations 470 0 0 470
Deferred compensation 29,170 0 29,170 0
Total liabilities $ 31,788 $ 0 $ 31,318 $ 470


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

The Company’s derivative contracts are valued at fair value using the market approach. The Company measures the fair value of foreign exchange contracts and swap agreements using Level 2 inputs based on observable spot and forward rates in active markets.

The deferred compensation liability is the Company’s obligation under its executive deferred compensation plan. The Company measures the fair value of the liability using the market values of the participants’ underlying investment fund elections.

~~Table of Contents~~

~~LINCOLN ELECTRIC HOLDINGS, INC.~~

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

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

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, 2020~~March 31, 2021 and December 31, ~~2019.~~

2020.

The Company has various financial instruments, including cash and cash equivalents, short and long-term debt and forward contracts. While these financial instruments are subject to concentrations of credit risk, the Company has minimized this risk by entering into arrangements with a number of major banks and financial institutions and investing in several high-quality instruments. The Company does not expect any counterparties to fail to meet their obligations.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Dollars in thousands, except per share amounts)

This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read together with the Company’s unaudited consolidated financial statements and other financial information included elsewhere in this Quarterly Report on Form 10-Q.

General

The Company is the world’s largest designer and manufacturer of arc welding and cutting products, manufacturing a broad line of arc welding equipment, consumable welding products and other welding and cutting products. Welding products include arc welding power sources, computer numerical control and plasma cutters, wire feeding systems, robotic welding packages, integrated automation systems, fume extraction equipment, consumable electrodes, fluxes, welding accessories and specialty welding consumables and fabrication. The ~~Company's~~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~~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~~

~~In March 2020, the World Health Organization categorized the~~

~~During~~ the COVID-19 pandemic ~~substantially all of the Company’s global businesses have continued~~and how management expects them 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 customerschange in the ~~various markets it serves. For~~future. It is reasonably possible that actual results experienced may differ materially from the ~~nine months ended September 30, 2020, the Company continued to experience weakened global demand trends resulting~~Company's estimates in a decrease in Net sales and Net income primarily related to COVID-19. To date, the trough in demand occurred in April 2020 with negative impacts continuing to ease through the end of the third quarter. The Company has taken actions to protect the health and well-being of employees, while maintaining its workforce to serve customer requirements. These actions did not and are not expected to have a material negative impact on the Company’s profitability.

~~New and changing government actions to address the COVID-19 pandemic continue to occur. As a result, the countries in~~future periods, which the Company’s products are manufactured and distributed are in varying stages of restrictions. Certain jurisdictions may have to re-establish restrictions due to a resurgence in COVID-19 cases. Additionally, although most of the Company’s customers have re-opened and increased operating levels, such customers may be forced to close or limit operations as any new COVID-19 outbreaks occur. Even as government restrictions are lifted and economies reopen, the ultimate shape of the economic recovery is uncertain and may continue to negatively impact the Company'scould affect our results of operations ~~cash flows~~ and financial position in subsequent quarters. Given this current level of economic and operational uncertainty over the impacts of COVID-19, the ultimate financial impact cannot be reasonably estimated at this time. The Company’s consolidated financial statements andcondition. For additional discussion, and analysis of financial condition and results of operations reflect estimates and assumptions made by management as of September 30, 2020. Events and changes in circumstances arising after September 30, 2020, including those resulting from the continued impacts of COVID-19, will be reflected in management’s estimates for future periods.

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, and does not expect a material impact to its consolidated financial statements.

~~For further discussion of this matter, refer~~see “Item 1A. Risk Factors” in ~~Part II of this report.~~the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

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Results of Operations

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


	Three Months Ended March 31,
												Favorable (Unfavorable)
	2021						2020					2021 vs. 2020
	Amount			% of Sales			Amount			% of Sales		$			%
Net sales	$	757,021					$	701,991				$	55,030		7.8	%
Cost of goods sold		503,254						464,669					(38,585)		(8.3)	%
Gross profit		253,767			33.5	%		237,322		33.8	%		16,445		6.9	%
Selling, general & administrative expenses		145,676			19.2	%		149,727		21.3	%		4,051		2.7	%
Rationalization and asset impairment charges		4,163			0.5	%		6,521		0.9	%		2,358		36.2	%
Operating income		103,928			13.7	%		81,074		11.5	%		22,854		28.2	%
Interest expense, net		5,359						5,458					99		1.8	%
Other income (expense)		(1,416)						309					(1,725)		(558.3)	%
Income before income taxes		97,153			12.8	%		75,925		10.8	%		21,228		28.0	%
Income taxes		23,020						20,370					(2,650)		(13.0)	%
Effective tax rate		23.7	%					26.8	%				3.1	%
Net income including non-controlling interests		74,133						55,555					18,578		33.4	%
Non-controlling interests in subsidiaries' loss		(44)						(7)					(37)		(528.6)	%
Net income	$	74,177			9.8	%	$	55,562		7.9	%	$	18,615		33.5	%
Diluted earnings per share	$	1.23					$	0.91				$	0.32		35.2	%

Three Months Ended September 30,
2020 2019 Favorable (Unfavorable)
2020 vs. 2019
Amount % of Sales Amount % of Sales $ %
Net sales $ 668,888 $ 730,783 $ (61,895) (8.5 %)
Cost of goods sold 453,501 492,432 38,931 7.9 %
Gross profit 215,387 32.2 % 238,351 32.6 % (22,964) (9.6 %)
Selling, general & administrative expenses 131,337 19.6 % 148,312 20.3 % 16,975 11.4 %
Rationalization and asset impairment charges 6,257 0.9 % 1,495 0.2 % (4,762) (318.5 %)
Operating income 77,793 11.6 % 88,544 12.1 % (10,751) (12.1 %)
Interest expense, net 5,552 6,400 848 13.3 %
Other income (expense) 1,062 9,653 (8,591) (89.0 %)
Income before income taxes 73,303 11.0 % 91,797 12.6 % (18,494) (20.1 %)
Income taxes 14,797 19,340 4,543 23.5 %
Effective tax rate 20.2 % 21.1 % 0.9 %
Net income including non-controlling interests 58,506 72,457 (13,951) (19.3 %)
Non-controlling interests in subsidiaries’ loss 27 (4) 31 775.0 %
Net income $ 58,479 8.7 % $ 72,461 9.9 % $ (13,982) (19.3 %)
Diluted earnings per share $ 0.97 $ 1.17 $ (0.20) (17.1 %)
Nine Months Ended September 30,
2020 2019 Favorable (Unfavorable)
2020 vs. 2019
Amount % of Sales Amount % of Sales $ %
Net sales $ 1,961,606 $ 2,266,965 $ (305,359) (13.5 %)
Cost of goods sold 1,319,519 1,500,312 180,793 12.1 %
Gross profit 642,087 32.7 % 766,653 33.8 % (124,566) (16.2 %)
Selling, general & administrative expenses 407,440 20.8 % 472,108 20.8 % 64,668 13.7 %
Rationalization and asset impairment charges 36,016 1.8 % 6,337 0.3 % (29,679) (468.3 %)
Operating income 198,631 10.1 % 288,208 12.7 % (89,577) (31.1 %)
Interest expense, net 16,891 17,621 730 4.1 %
Other income (expense) 1,168 17,612 (16,444) (93.4 %)
Income before income taxes 182,908 9.3 % 288,199 12.7 % (105,291) (36.5 %)
Income taxes 41,834 58,832 16,998 28.9 %
Effective tax rate 22.9 % 20.4 % (2.5 %)
Net income including non-controlling interests 141,074 229,367 (88,293) (38.5 %)
Non-controlling interests in subsidiaries’ loss 37 (26) 63 242.3 %
Net income $ 141,037 7.2 % $ 229,393 10.1 % $ (88,356) (38.5 %)
Diluted earnings per share $ 2.34 $ 3.64 $ (1.30) (35.7 %)

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Net Sales:

The following table summarizes the impact of volume, acquisitions, price and foreign currency exchange rates on Net sales on a consolidated basis:

Three Months Ended September 30, Change in Net Sales due to:
Net Sales
2019 Volume Acquisitions Price Foreign Exchange Net Sales
2020
Lincoln Electric Holdings, Inc. $ 730,783 $ (69,531) $ — $ 8,860 $ (1,224) $ 668,888
% Change
Lincoln Electric Holdings, Inc. (9.5 %) — 1.2 % (0.2 %) (8.5 %)

Nine Months Ended September 30, Change in Net Sales due to:
Net Sales
2019 Volume Acquisitions Price Foreign Exchange Net Sales
2020
Lincoln Electric Holdings, Inc. $ 2,266,965 $ (325,308) $ 39,711 $ (307) $ (19,455) $ 1,961,606
% Change
Lincoln Electric Holdings, Inc. (14.3 %) 1.8 % — (0.9 %) (13.5 %)


Three Months Ended March 31,			Change in Net Sales due to:
	Net Sales										Foreign			Net Sales
	2020		Volume			Acquisitions		Price			Exchange			2021
Lincoln Electric Holdings, Inc.	$	701,991	$	19,101		$	—	$	26,128		$	9,801		$	757,021
% Change
Lincoln Electric Holdings, Inc.				2.7	%		—		3.7	%		1.4	%		7.8	%

Net sales ~~decreased~~increased in the three ~~and nine~~ months ended ~~September 30, 2020~~March 31, 2021 as a result of ~~lower~~higher organic sales driven by higher demand and increased product pricing as a result of higher input costs and the impact of ~~COVID-19 on global demand and unfavorable~~favorable foreign exchange. The decrease in Net sales for the nine months ended September 30, 2020 were partially offset by the acquisitions of Baker within Americas Welding and Askaynak within International Welding. Refer to Note 4 to the consolidated financial statements for details.

Gross Profit:

Gross profit for the three ~~and nine~~ months ended ~~September 30, 2020 decreased, as~~March 31, 2021 increased 6.9% driven by higher Net sales volumes and related operating leverage. As a percent of sales, Gross profit decreased slightly compared to the prior year primarily due to ~~lower volumes, including~~higher last-in, first-out (“LIFO”) charges of $3,854 in the ~~impact~~three months ended March 31, 2021, as compared with charges of ~~COVID-19 on global demand.~~$212 in 2020.

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

SG&A expenses decreased for the three ~~and nine~~ months ended ~~September 30, 2020~~March 31, 2021 as compared to ~~September 30, 2019~~March 31, 2020 due to lower ~~employee costs and~~ discretionary spending. ~~The decrease in SG&A expenses for the nine months ended September 30, 2020 was partially offset by higher expense from acquisitions.~~

Rationalization and Asset Impairment Charges:

The Company recorded ~~net~~ charges of ~~$6,257, $5,142~~$4,163, $3,831 after-tax, and ~~$36,016, $28,181~~$6,521, $4,545 after-tax, in the three ~~and nine~~ months ended ~~September 30,~~March 31, 2021 and 2020, respectively, primarily related to severance charges ~~non-cash asset impairments of long-lived assets~~ and gains or losses on the disposal of assets. The Company recorded net charges of $1,495, $1,240 after-tax, and $6,337, $4,991 after-tax, in the three and nine months ended September 30, 2019, respectively, primarily related to severance, asset impairments and gains or losses on the disposal of assets.

Income Taxes:

The decrease in the effective tax rate for the three months ended ~~September 30, 2020~~March 31, 2021 as compared to ~~September 30, 2019~~March 31, 2020 was primarily due to ~~tax benefits from the settlement of tax items~~income earned in ~~the third quarter of 2020.~~

~~The increase in the effective~~lower tax rate ~~for the nine months ended September 30, 2020~~jurisdictions in 2021, as ~~compared to September 30, 2019 was primarily due to recording~~well as higher tax expense associated with a valuation allowance ~~in 2020, smaller tax benefits related to the vesting of stock based compensation in 2020 and income tax benefits for the settlement of tax items~~ recorded in ~~2019.~~

2020.

Net Income:

The ~~decrease~~increase in Net income for the three ~~and nine~~ months ended ~~September 30, 2020~~March 31, 2021 as compared to ~~September 30, 2019~~March 31, 2020 was primarily due to ~~lower~~higher sales volumes ~~including the impact of COVID-19 on global~~driven by increased demand ~~higher Rationalization~~ and ~~asset impairment charges and higher pension settlement charges.~~related operating leverage.

Segment Results


Three Months Ended March 31,			Change in Net Sales due to:
	Net Sales										Foreign			Net Sales
	2020		Volume ⁽¹⁾			Acquisitions		Price ⁽²⁾			Exchange			2021
Operating Segments
Americas Welding	$	418,535	$	(3,790)		$	—	$	9,065		$	1,432		$	425,242
International Welding		197,923		11,250			—		4,620			9,286			223,079
The Harris Products Group		85,533		11,641			—		12,443			(917)			108,700

% Change
Americas Welding				(0.9)	%		—		2.2	%		0.3	%		1.6	%
International Welding				5.7	%		—		2.3	%		4.7	%		12.7	%
The Harris Products Group				13.6	%		—		14.5	%		(1.1)	%		27.1	%

(1)

Decrease for three months ended March 31, 2021 for Americas Welding due to softer demand associated with the current economic environment. International Welding volume increases were primarily due to higher demand and The Harris Products Group volume increases were primarily due to higher retail volumes.

(2)

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

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~~Segment Results~~

Three Months Ended September 30, Change in Net Sales due to:
Net Sales
2019
Volume ⁽¹⁾
Acquisitions ⁽²⁾
Price ⁽³⁾
Foreign
Exchange Net Sales
2020
Operating Segments
Americas Welding $ 443,521 $ (69,028) $ — $ (682) $ (2,276) $ 371,535
International Welding 205,378 (10,964) — 70 2,453 196,937
The Harris Products Group 81,884 10,461 — 9,472 (1,401) 100,416
% Change
Americas Welding (15.6 %) — (0.2 %) (0.5 %) (16.2 %)
International Welding (5.3 %) — — 1.2 % (4.1 %)
The Harris Products Group 12.8 % — 11.6 % (1.7 %) 22.6 %

Nine Months Ended September 30, Change in Net Sales due to:
Net Sales
2019
Volume ⁽¹⁾
Acquisitions ⁽²⁾
Price ⁽³⁾
Foreign
Exchange Net Sales
2020
Operating Segments
Americas Welding $ 1,377,847 $ (245,755) $ 6,190 $ (7,479) $ (7,504) $ 1,123,299
International Welding 635,770 (85,923) 33,521 (2,901) (8,440) 572,027
The Harris Products Group 253,348 6,370 — 10,073 (3,511) 266,280
% Change
Americas Welding (17.8 %) 0.4 % (0.5 %) (0.5 %) (18.5 %)
International Welding (13.5 %) 5.3 % (0.5 %) (1.3 %) (10.0 %)
The Harris Products Group 2.5 % — 4.0 % (1.4 %) 5.1 %

(1) Decrease for three and nine months ended September 30, 2020 for Americas Welding and International Welding due to softer demand associated with the current economic environment and the impacts of COVID-19 on global demand. The Harris Products Group volume increases were primarily due to higher retail volumes.

(2) Increase for the nine months ended September 30, 2020 due to the acquisition of Baker within Americas Welding and Askaynak within International Welding. Refer to Note 4 to the consolidated financial statements for details.

(3) Decrease for Americas Welding in the nine months ended September 30, 2020 reflects lower tariff-related surcharges in 2020 compared to 2019. Increase for The Harris Products Group in the three and nine months ended September 30, 2020 were due to increases in commodity costs.

~~Table of Contents~~

Adjusted Earnings Before Interest and Income Taxes:

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

The following table presents Adjusted EBIT by segment:


							Favorable (Unfavorable)
	Three Months Ended March 31,						2021 vs. 2020
	2021			2020			$		%
Americas Welding:
Net sales	$	425,242		$	418,535		$	6,707	1.6	%
Inter-segment sales		32,748			24,783			7,965	32.1	%
Total Sales	$	457,990		$	443,318			14,672	3.3	%
Adjusted EBIT ⁽⁴⁾	$	76,617		$	70,702			5,915	8.4	%
As a percent of total sales ⁽¹⁾		16.7	%		15.9	%			0.8	%
International Welding:
Net sales	$	223,079		$	197,923			25,156	12.7	%
Inter-segment sales		4,285			4,483			(198)	(4.4)	%
Total Sales	$	227,364		$	202,406			24,958	12.3	%
Adjusted EBIT ⁽⁵⁾	$	18,816		$	6,615			12,201	184.4	%
As a percent of total sales ⁽²⁾		8.3	%		3.3	%			5.0	%
The Harris Products Group:
Net sales	$	108,700		$	85,533			23,167	27.1	%
Inter-segment sales		2,147			1,725			422	24.5	%
Total Sales	$	110,847		$	87,258			23,589	27.0	%
Adjusted EBIT	$	18,697		$	12,492			6,205	49.7	%
As a percent of total sales ⁽³⁾		16.9	%		14.3	%			2.6	%
Corporate / Eliminations:
Inter-segment sales	$	(39,180)		$	(30,991)			8,189	26.4	%
Adjusted EBIT ⁽⁶⁾		(1,456)			(1,099)			357	32.5	%
Consolidated:
Net sales	$	757,021		$	701,991			55,030	7.8	%
Net income	$	74,177		$	55,562			18,615	33.5	%
As a percent of total sales		9.8	%		7.9	%			1.9	%
Adjusted EBIT ⁽⁷⁾	$	112,674		$	88,710			23,964	27.0	%
As a percent of sales		14.9	%		12.6	%			2.2	%

(1)

Increase for the three months ended March 31, 2021 as compared to March 31, 2020 primarily driven by cost reduction actions.

(2)

Increase for the three months ended March 31, 2021 as compared to March 31, 2020 primarily driven by higher Net sales volumes due to higher demand and cost reduction actions.

(3)

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

(4)

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

Three Months Ended September 30, Favorable (Unfavorable)
2020 vs. 2019
2020 2019 $ %
Americas Welding:
Net sales $ 371,535 $ 443,521 $ (71,986) (16.2 %)
Inter-segment sales 29,368 31,101 (1,733) (5.6 %)
Total Sales $ 400,903 $ 474,622 (73,719) (15.5 %)
Adjusted EBIT ⁽⁴⁾
$ 59,120 $ 74,110 (14,990) (20.2 %)
As a percent of total sales ⁽¹⁾
14.7 % 15.6 % (0.9 %)
International Welding:
Net sales $ 196,937 $ 205,378 (8,441) (4.1 %)
Inter-segment sales 4,898 4,441 457 10.3 %
Total Sales $ 201,835 $ 209,819 (7,984) (3.8 %)
Adjusted EBIT ⁽⁵⁾
$ 13,432 $ 10,184 3,248 31.9 %
As a percent of total sales ⁽²⁾
6.7 % 4.9 % 1.8 %
The Harris Products Group:
Net sales $ 100,416 $ 81,884 18,532 22.6 %
Inter-segment sales 1,898 1,857 41 2.2 %
Total Sales $ 102,314 $ 83,741 18,573 22.2 %
Adjusted EBIT $ 17,587 $ 11,038 6,549 59.3 %
As a percent of total sales ⁽³⁾
17.2 % 13.2 % 4.0 %
Corporate / Eliminations:
Inter-segment sales $ (36,164) $ (37,399) (1,235) (3.3 %)
Adjusted EBIT (1,839) (1,632) 207 12.7 %
Consolidated:
Net sales $ 668,888 $ 730,783 (61,895) (8.5 %)
Net income $ 58,479 $ 72,461 (13,982) (19.3 %)
As a percent of total sales 8.7 % 9.9 % (1.2 %)
Adjusted EBIT ⁽⁶⁾
$ 88,300 $ 93,700 (5,400) (5.8 %)
As a percent of sales 13.2 % 12.8 % 0.4 %

~~(1)~~Decrease for the three months ended September 30, 2020 as compared to September 30, 2019 primarily driven by lower Net sales volumes driven by the COVID-19 impact on global demand, partially offset by cost reduction actions.

~~(2)Increase for the three months ended September 30, 2020 as compared to September 30, 2019 driven by cost reduction actions.~~

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

~~(4)~~The three months ended September 30, 2020 exclude Rationalization and asset impairment charges of $3,856 related to severance charges as discussed in Note 6 to the consolidated financial statements. The three months ended September 30, 2020 also exclude pension settlement charges of $3,188 related to lump sum payments.

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~~(5)~~The three months ended September 30, 2020 and 2019 exclude Rationalization and asset impairment charges of $2,401 and $1,495, respectively, related to severance as discussed in Note 6 to the consolidated financial statements. The three months ended September 30, 2019 also excludes 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.

~~(6)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)
2020 vs. 2019
2020 2019 $ %
Americas Welding:
Net sales $ 1,123,299 $ 1,377,847 $ (254,548) (18.5 %)
Inter-segment sales 81,644 95,300 (13,656) (14.3 %)
Total Sales $ 1,204,943 $ 1,473,147 (268,204) (18.2 %)
Adjusted EBIT ⁽³⁾
$ 176,524 $ 240,713 (64,189) (26.7 %)
As a percent of total sales ⁽¹⁾
14.6 % 16.3 % (1.7 %)
International Welding:
Net sales $ 572,027 $ 635,770 (63,743) (10.0 %)
Inter-segment sales 13,667 12,838 829 6.5 %
Total Sales $ 585,694 $ 648,608 (62,914) (9.7 %)
Adjusted EBIT ⁽⁴⁾
$ 29,729 $ 38,699 (8,970) (23.2 %)
As a percent of total sales ⁽¹⁾
5.1 % 6.0 % (0.9 %)
The Harris Products Group:
Net sales $ 266,280 $ 253,348 12,932 5.1 %
Inter-segment sales 5,376 5,837 (461) (7.9 %)
Total Sales $ 271,656 $ 259,185 12,471 4.8 %
Adjusted EBIT $ 41,792 $ 35,045 6,747 19.3 %
As a percent of total sales ⁽²⁾
15.4 % 13.5 % 1.9 %
Corporate / Eliminations:
Inter-segment sales $ (100,687) $ (113,975) (13,288) (11.7 %)
Adjusted EBIT ⁽⁵⁾
(4,902) (8,643) (3,741) (43.3 %)
Consolidated:
Net sales $ 1,961,606 $ 2,266,965 (305,359) (13.5 %)
Net income $ 141,037 $ 229,393 (88,356) (38.5 %)
As a percent of total sales 7.2 % 10.1 % (2.9 %)
Adjusted EBIT ⁽⁶⁾
$ 243,143 $ 305,814 (62,671) (20.5 %)
As a percent of sales 12.4 % 13.5 % (1.1 %)

~~(1)~~Decrease for the nine months ended September 30, 2020 as compared to September 30, 2019 primarily driven by lower Net sales volumes from softer demand in the current economic environment, including the impact of COVID-19 on global demand, partially offset by cost reduction actions.

~~(2)Increase~~ ~~for the nine months ended September 30, 2020 as compared to September 30, 2019 driven by retail volume increases.~~

~~(3)~~The nine months ended September 30, 2020 and 2019 exclude Rationalization and asset impairment charges of $27,719 and $1,716, respectively, related to severance charges and non-cash asset impairments of long-lived assets as discussed in Note 6 to the consolidated financial statements. The nine months ended September 30, 2020 also exclude pension settlement charges of $6,522. The nine months ended September 30, 2019 exclude the amortization of step up in value of acquired inventories of $1,399 related to the Baker acquisition.

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~~(4)~~The nine months ended September 30, 2020 and 2019 exclude Rationalization and asset impairment charges of $8,297 and $4,621, 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 nine months ended September 30, 2020 also excludes the amortization of step up in value of acquired inventories of $806 related to an acquisition. The nine months ended September 30, 2019 exclude 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 and gains on disposal of assets of $3,554.

~~(5)The nine months ended September 30, 2019 exclude acquisition transaction and integration costs of $1,804 related to the Air Liquide Welding acquisition.~~

~~(6)See non-GAAP Financial Measures for a reconciliation of Net income as reported and Adjusted EBIT.~~

(5)

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

(6)

The three months ended March 31, 2021 exclude acquisition transaction costs related to an 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, Return on invested capital, Cash conversion, Organic sales, and Earnings before interest, taxes, depreciation and amortization, all non-GAAP financial measures, in assessing and evaluating the ~~Company's~~Company’s underlying operating performance. These non-GAAP financial measures exclude the impact of special items on the ~~Company's~~Company’s reported financial results. Non-GAAP financial measures should be read in conjunction with the generally accepted accounting principles in the United States ("GAAP") financial measures, as non-GAAP measures are a supplement to, and not a replacement for, GAAP financial measures.

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


	Three Months Ended March 31,
	2021			2020
Operating income as reported	$	103,928		$	81,074
Special items (pre-tax):
Rationalization and asset impairment charges ⁽¹⁾		4,163			6,521
Acquisition transaction costs ⁽²⁾		1,113			—
Amortization of step up in value of acquired inventories ⁽³⁾		—			806
Adjusted operating income	$	109,204		$	88,401
Net income as reported	$	74,177		$	55,562
Special items:
Rationalization and asset impairment charges ⁽¹⁾		4,163			6,521
Acquisition transaction costs ⁽²⁾		1,113			—
Pension settlement charges ⁽⁴⁾		4,886			—
Amortization of step up in value of acquired inventories ⁽³⁾		—			806
Tax effect of Special items ⁽⁵⁾		(1,561)			(1,976)
Adjusted net income		82,778			60,913
Non-controlling interests in subsidiaries’ income (loss)		(44)			(7)
Interest expense, net		5,359			5,458
Income taxes as reported		23,020			20,370
Tax effect of Special items⁽⁵⁾		1,561			1,976
Adjusted EBIT	$	112,674		$	88,710
Effective tax rate as reported		23.7	%		26.8	%
Net special item tax impact		(0.8)			—
Adjusted effective tax rate		22.9	%		26.8	%
Diluted earnings per share as reported	$	1.23		$	0.91
Special items per share		0.14			0.09
Adjusted diluted earnings per share	$	1.37		$	1.00

(1)

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

Three Months Ended September 30, Nine Months Ended September 30,
2020 2019 2020 2019
Operating income as reported $ 77,793 $ 88,544 $ 198,631 $ 288,208
Special items (pre-tax):
Rationalization and asset impairment charges ⁽¹⁾
6,257 1,495 36,016 6,337
Acquisition transaction and integration costs ⁽²⁾
— — — 1,804
Amortization of step up in value of
acquired inventories ⁽³⁾
— 1,609 806 3,008
Gains on asset disposals ⁽⁴⁾
— — — (3,045)
Adjusted operating income $ 84,050 $ 91,648 $ 235,453 $ 296,312
Net income as reported $ 58,479 $ 72,461 $ 141,037 $ 229,393
Special items:
Rationalization and asset impairment charges ⁽¹⁾
6,257 1,495 36,016 6,337
Acquisition transaction and integration costs ⁽²⁾
— — — 1,804
Pension settlement charges ⁽⁵⁾
3,188 — 6,522 —
Amortization of step up in value of
acquired inventories ⁽³⁾
— 1,609 806 3,008
Gains on asset disposals ⁽⁴⁾
— — — (3,554)
Gain on change in control ⁽⁶⁾
— (7,601) — (7,601)
Tax effect of Special items ⁽⁷⁾
(1,911) (255) (9,463) (5,819)
Adjusted net income 66,013 67,709 174,918 223,568
Non-controlling interests in subsidiaries’ income (loss) 27 (4) 37 (26)
Interest expense, net 5,552 6,400 16,891 17,621
Income taxes as reported 14,797 19,340 41,834 58,832
Tax effect of Special items ⁽⁷⁾
1,911 255 9,463 5,819
Adjusted EBIT $ 88,300 $ 93,700 $ 243,143 $ 305,814
Effective tax rate as reported 20.2 % 21.1 % 22.9 % 20.4 %
Net special item tax impact — 1.3 % (0.2 %) 2.0 %
Adjusted effective tax rate 20.2 % 22.4 % 22.7 % 22.4 %
Diluted earnings per share as reported $ 0.97 $ 1.17 $ 2.34 $ 3.64
Special items per share 0.13 (0.08) 0.57 (0.09)
Adjusted diluted earnings per share $ 1.10 $ 1.09 $ 2.91 $ 3.55

~~(1) Charges primarily related to severance, impairment of long-lived assets 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 SG&A.~~

~~(3) Costs related to an acquisition and are included in Cost of goods sold.~~

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

~~(5) Related to lump sum pension payments 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.

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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.

(2)

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

(3)

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

(4)

Primarily related to lump sum pension payments and are included in Other income (expense).

(5)

Liquidity and Capital Resources

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

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

The following table reflects changes in key cash flow measures:


	Three Months Ended March 31,
	2021		2020		$ Change
Cash provided by operating activities ⁽¹⁾	$	45,262	$	21,972	$	23,290
Cash used by investing activities ⁽²⁾		(2,852)		(5,728)		2,876
Capital expenditures		(9,936)		(11,828)		1,892
Proceeds from sale of property, plant and equipment		584		6,100		(5,516)
Other investing activities		6,500		—		6,500
Cash used by financing activities ⁽³⁾		(55,371)		(41,613)		(13,758)
Proceeds from short-term borrowings, net		1,307		97,777		(96,470)
Purchase of shares for treasury		(28,459)		(109,762)		81,303
Cash dividends paid to shareholders		(30,999)		(30,675)		(324)
Decrease in Cash and cash equivalents ⁽⁴⁾		(15,153)		(36,188)		21,035

(1)

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

(2)

Cash used by investing activities decreased for the three months ended March 31, 2021, compared with the three months ended March 31, 2020 primarily due to higher capital expenditures in 2020. The Company currently anticipates capital expenditures of $65,000 to $75,000 in 2021. Anticipated capital expenditures include investments for capital maintenance and projects to increase efficiency, reduce costs, promote business growth or improve the overall safety and environmental conditions of the Company’s facilities.

(3)

Cash used by financing activities increased in the three months ended March 31, 2021, compared with the three months ended March 31, 2020 due to higher proceeds from short-term borrowings in the prior period, partially offset by lower purchases of shares for treasury.

Nine Months Ended September 30,
2020 2019 $ Change
Cash provided by operating activities ⁽¹⁾
$ 215,561 $ 280,666 $ (65,105)
Cash used by investing activities ⁽²⁾
(30,159) (178,795) 148,636
Capital expenditures (37,116) (53,551) 16,435
Acquisition of businesses, net of cash acquired — (136,735) 136,735
Cash used by financing activities ⁽³⁾
(227,317) (302,461) 75,144
(Payments on) proceeds from short-term borrowings, net (33,123) 2,439 (35,562)
Purchase of shares for treasury (113,198) (221,942) 108,744
Cash dividends paid to shareholders (88,945) (89,162) 217
Decrease in Cash and cash equivalents ⁽⁴⁾
(47,084) (202,237)

~~(1) Cash provided by operating activities decreased for the nine months ended September 30, 2020, compared with the nine months ended September 30, 2019 primarily due to lower company earnings.~~

(2) Cash used by investing activities decreased for the nine months ended September 30, 2020, compared with the nine months ended September 30, 2019 predominantly due to cash used in the acquisition of businesses in 2019. The Company currently anticipates capital expenditures of $50,000 to $60,000 in 2020. Anticipated capital expenditures include investments for capital maintenance and projects to increase efficiency, reduce costs, promote business growth or improve the overall safety and environmental conditions of the Company’s facilities.

(3) Cash used by financing activities decreased in the nine months ended September 30, 2020, compared with the nine months ended September 30, 2019 due to lower purchases of shares for treasury in 2020.

(4) Cash and cash equivalents decreased 23.6%, or $47,084, to $152,479 during the nine months ended September 30, 2020, from $199,563 as of December 31, 2019. This decrease was predominantly due to payments on short-term borrowings, cash used in the purchases of common shares for treasury and cash dividends paid to shareholders, partially offset by cash provided by operating activities.~~The decrease in Cash and cash equivalents during the nine months ended September 30, 2020 compares to a decrease of 56.4% during the nine months ended September 30, 2019. The decrease in~~ 2019 was predominantly due to cash used in the acquisition of businesses, purchases of common shares for treasury and cash dividends paid to shareholders, partially offset by cash provided by operating activities. At September 30, 2020, $130,267 of Cash and cash equivalents was held by international subsidiaries.

~~The Company's total debt levels decreased compared to~~ ~~December 31, 2019 predominately due to lower short-term borrowings. Total debt to total invested capital increased to 50.2% at September 30, 2020 from 47.7% at December 31, 2019.~~

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(4)

Cash and cash equivalents decreased 5.9%, or $15,153, to $242,126 during the three months ended March 31, 2021, from $257,279 as of December 31, 2020. This decrease was predominantly due to cash used in the purchases of common shares for treasury and cash dividends paid to shareholders, partially offset by cash provided by operating activities. At March 31, 2021, $175,501 of Cash and cash equivalents was held by international subsidiaries.

In ~~October 2020,~~April 2021, the Company paid a cash dividend of ~~$0.49~~$0.51 per share, or ~~$29,141,~~$30,364, to shareholders of record as of ~~September 30, 2020.~~

March 31, 2021.

Working Capital Ratios

September 30, 2020 December 31, 2019 September 30, 2019
Average operating working capital to Net sales ^{(1) (2)}
20.3 % 16.8 % 19.2 %
Days sales in Inventories ⁽²⁾
111.6 99.9 106.2
Days sales in Accounts receivable 55.2 51.4 53.9
Average days in Trade accounts payable 51.3 56.0 51.1

(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.

~~(2) In order to minimize potential supply chain disruptions in serving customers due to the COVID-19 crisis, the Company increased inventories~~


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

~~relative to expected~~ ~~Net sales resulting in higher Days sales in Inventories and higher Average operating working capital to Net sales.~~

(1)

Average operating working capital to net sales is defined as the sum of Accounts receivable, Inventories and contract assets less Trade accounts payable and contract liabilities as of period end divided by annualized rolling three months of Net sales.

(2)

In order to minimize potential supply chain disruptions in serving customers due to the COVID-19 crisis, the Company increased inventories relative to expected Net sales resulting in higher Days sales in Inventories and higher Average operating working capital to Net sales.

Return on Invested Capital

The Company reviews return on invested capital ("ROIC") in assessing and evaluating the ~~Company's~~Company’s underlying operating performance. ROIC is a non-GAAP financial measure that the Company believes is a meaningful metric to investors in evaluating the Company’s financial performance and may be different than the method used by other companies to calculate ROIC. ROIC is defined as rolling 12 months of Adjusted net income excluding tax-effected interest income and expense divided by invested capital. Invested capital is defined as total debt, which includes Short-term debt and Long-term debt, less current portions, plus Total equity.

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The following table presents ROIC:


	Twelve Months Ended March 31,
	2021			2020
Net income	$	224,730		$	277,191
Rationalization and asset impairment charges		43,110			18,174
Acquisition transaction and integration costs		1,113			1,014
Pension settlement charges		13,005			—
Amortization of step up in value of acquired inventories		—			3,814
Gains on disposal of assets		—			(3,554)
Gain on change in control		—			(7,601)
Tax effect of Special items ⁽¹⁾		(10,179)			(8,549)
Adjusted net income	$	271,779		$	280,489
Plus: Interest expense, net of tax of $5,904 and 6,484 in 2021 and 2020, respectively		17,550			19,489
Less: Interest income, net of tax of $396 and $605 in 2021 and 2020, respectively		1,184			1,818
Adjusted net income before tax effected interest	$	288,145		$	298,160

Invested Capital	March 31, 2021			March 31, 2020
Short-term debt	$	3,607		$	132,378
Long-term debt, less current portion		715,328			715,950
Total debt		718,935			848,328
Total equity		803,408			667,960
Invested capital	$	1,522,343		$	1,516,288
Return on invested capital		18.9	%		19.7	%

(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.

Twelve Months Ended September 30,
2020 2019
Net income $ 204,753 $ 316,232
Rationalization and asset impairment charges 44,867 7,269
Acquisition transaction and integration costs — 2,637
Pension settlement charges 6,522 1,696
Amortization of step up in value of acquired inventories 806 3,008
Gains on disposal of assets — (3,554)
Gain on change in control — (7,601)
Tax effect of Special items ⁽¹⁾
(11,030) (12,583)
Adjusted net income $ 245,918 $ 307,104
Plus: Interest expense, net of tax of $6,177 and $6,410 in 2020 and 2019, respectively
18,564 19,265
Less: Interest income, net of tax of $513 and $926 in 2020 and 2019, respectively 1,543 2,785
Adjusted net income before tax effected interest $ 262,939 $ 323,584
Invested Capital September 30, 2020 September 30, 2019
Short-term debt $ 1,147 $ 13,293
Long-term debt, less current portion 715,687 713,884
Total debt 716,834 727,177
Total equity 710,744 813,808
Invested capital $ 1,427,578 $ 1,540,985
Return on invested capital 18.4 % 21.0 %

~~(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 September 30, 2019.

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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~~Company’s recent acquisitions.

Debt

Revolving Credit Agreements

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

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distributions, mergers and acquisitions, dispositions of assets, transactions with affiliates and a fixed charges coverage ratio and total leverage ratio. As of ~~September 30, 2020,~~March 31, 2021, the Company was in compliance with all of its covenants and had no outstanding borrowings under the Credit Agreement.

March 31, 2021.

Senior Unsecured Notes

On April 1, 2015 and October 20, 2016, the Company entered into separate Note Purchase Agreements pursuant to which it issued senior unsecured notes (the "Notes") through a private placement. The 2015 Notes and 2016 Notes each have an aggregate principal amount of $350,000, comprised of four different series ranging from $50,000 to $100,000, with maturity dates ranging from August 20, 2025 through April 1, 2045, and interest rates ranging from 2.75% and 4.02%. Interest on the Notes is paid semi-annually. The ~~Company's~~Company’s total weighted average effective interest rate and remaining weighted average tenure of the Notes is 3.3% and ~~13.6~~13.1 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, 2020,~~March 31, 2021, the Company was in compliance with all of its debt covenants relating to the Notes.

Shelf Agreements

On November 27, 2018, the Company entered into seven uncommitted master note facilities (the "Shelf Agreements") that allow borrowings up to $700,000 in the aggregate. The Shelf Agreements have a term of 5 years and the average life of borrowings cannot exceed 15 years. The Company is required to comply with covenants similar to those contained in the Notes. As of ~~September 30, 2020,~~March 31, 2021, the Company was in compliance with all of its covenants and had no outstanding borrowings under the 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

~~Table~~be substantially complete by the end of ~~Contents~~

2021.

Forward-looking Statements

The Company’s expectations and beliefs concerning the future contained in this report are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements reflect management’s current expectations and involve a number of risks and uncertainties. Forward-looking statements generally can be identified by the use of words such as “may,” “will,” “expect,” “intend,” “estimate,” “anticipate,” “believe,” “forecast,” “guidance” or words of similar meaning. Actual results may differ materially from such statements due to a variety of factors that could adversely affect the Company’s operating results. The factors include, but are not limited to: general

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economic, financial and market conditions; the effectiveness of operating initiatives; completion of planned divestitures; interest rates; disruptions, uncertainty or volatility in the credit markets that may limit our access to capital; currency exchange rates and devaluations; adverse outcome of pending or potential litigation; actual costs of the Company’s rationalization plans; possible acquisitions, including the Company’s ability to successfully integrate acquisitions; market risks and price fluctuations related to the purchase of commodities and energy; global regulatory complexity; the effects of changes in tax law; tariff rates in the countries where the Company conducts business; and the possible effects of events beyond our control, such as political unrest, acts of terror, natural disasters and pandemics, including the COVID-19 outbreak, on the Company or its customers, suppliers and the economy in general. ~~The Company has experienced the negative impacts of COVID-19 on its markets and operations~~; however, the ultimate duration and severity on the Company's business remains unknown. New and changing government actions to address the COVID-19 pandemic continue to occur. As a result, the countries in which the Company’s products are manufactured and distributed are in varying stages of restrictions. Certain jurisdictions may have to re-establish restrictions due to a resurgence in COVID-19 cases. Additionally, although most of the Company’s customers have re-opened and increased operating levels, such customers may be forced to close or limit operations as any new COVID-19 outbreaks occur. Even as government restrictions are lifted and economies reopen, the ultimate shape of the economic recovery is uncertain and may continue to negatively impact the Company's results of operations, cash flows and financial position in subsequent quarters. Given this current level of economic and operational uncertainty over the impacts of COVID-19, the ultimate financial impact cannot be reasonably estimated at this time. For additional discussion, see “Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2019 and on Form 10-Q for the quarters ended March 31, 2020 and June 30,~~ 2020.

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, ~~2019.~~2020. See “Item 7A. Quantitative and Qualitative Disclosures About Market Risk” in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2019.~~

2020.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The Company carried out an evaluation under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, the Company’s management, including the Chief Executive Officer and Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective as of ~~September 30, 2020.~~

March 31, 2021.

Changes in Internal Control Over Financial Reporting

There have been no changes in the Company’s internal control over financial reporting during the quarter ended ~~September 30, 2020~~March 31, 2021 that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The Company is subject, from time to time, to a variety of civil and administrative proceedings arising out of its normal operations, including, without limitation, product liability claims, regulatory claims and health, safety and environmental claims. Among such proceedings are the cases described below.

As of ~~September 30, 2020,~~March 31, 2021, the Company was a co-defendant in cases alleging asbestos induced illness involving claims by approximately ~~2,774~~2,775 plaintiffs, which is a net ~~decrease~~increase of 166 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: ~~55,481~~55,500 of those claims were dismissed, 23 were tried to defense verdicts, 7 were tried to plaintiff verdicts (which were reversed or resolved after appeal), 1 was resolved by agreement for an immaterial amount and ~~1,007~~1,008 were decided in favor of the Company following summary judgment motions.

ITEM 1A. RISK FACTORS

In addition to the other information set forth in this report, the reader should carefully consider the factors discussed in “Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2019 and on Form 10-Q for the quarters ended March 31, 2020 and June 30,~~ 2020 which could materially affect the Company’s business, financial condition or future results.

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

Issuer purchases of its common shares during the ~~third~~first quarter of ~~2020~~2021 were as follows:


					Total Number of
					Shares	Maximum Number
					Repurchased	of Shares that May
	Total Number of				as Part of Publicly	Yet be Purchased
	Shares		Average Price		Announced Plans or	Under the Plans or
Period	Repurchased		Paid Per Share		Programs	Programs ^{(2) (3)}
January 1 - 31, 2021	580	⁽¹⁾	$	114.41	—	11,453,193
February 1 - 28, 2021	67,747	⁽¹⁾		115.80	48,301	11,404,892
March 1 - 31, 2021	169,024	⁽¹⁾		121.57	159,509	11,245,383
Total	237,351			119.90	207,810

(1)

The above share repurchases include the surrender of the Company’s common shares in connection with the vesting of restricted awards.

(2)

On April 20, 2016, the Company announced that the Board of Directors authorized a new share repurchase program, which increased the total number of the Company’s common shares authorized to be repurchased to 55 million shares. Total shares purchased through the share repurchase programs were 53.8 million shares at a total cost of $2.3 billion for a weighted average cost of $42.83 per share through March 31, 2021.

(3)

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

Period Total Number of
Shares Repurchased Average Price
Paid Per Share Total Number of
Shares Repurchased
as Part of Publicly
Announced Plans or
Programs
Maximum Number of
Shares that May Yet be
Purchased Under the
Plans or Programs ^{(2) (3)}
July 1 - 31, 2020 123
⁽¹⁾
$ 89.85 — 11,453,193
August 1 - 31, 2020 391
⁽¹⁾
95.42 — 11,453,193
September 1 - 30, 2020 1,786
⁽¹⁾
97.58 — 11,453,193
Total 2,300 96.80 —

~~(1)The above share repurchases include the surrender of the Company's common shares in connection with the vesting of restricted awards.~~

~~(2)~~On April 20, 2016, the Company announced that the Board of Directors authorized a new share repurchase program, which increased the total number of the Company’s common shares authorized to be repurchased to 55 million shares. Total shares purchased through the share repurchase programs were 53.5 million shares at a total cost of $2.3 billion for a weighted average cost of $42.53 per share through September 30, 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.

Table of Contents

ITEM 5. OTHER INFORMATION

Amendment and Restatement of Credit Agreement

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

The Amended and Restated Credit Agreement contains customary representations and warranties, as well as customary affirmative, negative and financial covenants for credit facilities of this type (subject to negotiated baskets and exceptions), including limitations on the Company and its subsidiaries with respect to liens, investments, distributions, mergers and acquisitions, dispositions of assets and transactions with affiliates. The Amended and Restated Credit Agreement requires the Borrowers to regularly provide certain financial information to the lenders thereunder and to maintain a minimum consolidated fixed charges coverage ratio and maximum consolidated net leverage ratio.

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

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

Table of Contents

Submission of Matters to a Vote of Security Holders.

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

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

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


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

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


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

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

Table of Contents

ITEM 6. EXHIBITS

~~(a) Exhibits~~

(a)

Exhibits


10.1*
10.1*		~~Amendment No. 1 to 2005 Deferred Compensation Plan~~Form of Stock Option Agreement for ~~Executives (Amended and Restated as of January 1, 2018) dated August 1, 2020~~Executive Officers (filed herewith).
10.2*	~~Amendment No. 1 to Non-Employee Directors' Deferred Compensation Plan (Amended and Restated as~~Form of ~~January 1, 2019) dated August 1, 2020~~Restricted Stock Unit Agreement for Executive Officers (filed herewith).
10.3*	~~Amendment No. 1 to~~Form of Performance Share Award Agreement for Executive Officers (filed herewith).
10.4*	Second Amended and Restated Credit Agreement, dated as of April 23, 2021, by and among Lincoln Electric Holdings, Inc., The Lincoln Electric Company, ~~Restoration Plan dated August 1, 2020~~Lincoln Electric International Holding Company, J.W. Harris Co., Inc., Lincoln Electric Automation, Inc., Lincoln Global, Inc., the Lenders and KeyBank National Association (filed herewith).
10.4*31.1	~~Amendment No. 2 to Supplemental Executive Retirement Plan (As Amended and Restated as of December 31, 2008) dated August 1, 2020 (filed herewith).~~
10.5*		~~Amendment No. 1 to Form of Change in Control Severance Agreement (as entered into by the Company and its executive officers) dated August 1, 2020 (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)

Table of Contents

SIGNATURES

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


		LINCOLN ELECTRIC HOLDINGS, INC.

		/s/ Gabriel Bruno
		Gabriel Bruno
		Executive Vice President, Chief Financial Officer and Treasurer
		(Principal Financial and Accounting Officer)
		~~October~~ April 27, ~~2020~~2021


	Three Months Ended September 30,						Nine Months Ended September 30,
	2020		2019		2020		2019
Net sales (Note 2)	$	668,888	$	730,783	$	1,961,606	$	2,266,965
Cost of goods sold	453,501		492,432		1,319,519		1,500,312
Gross profit	215,387		238,351		642,087		766,653
Selling, general & administrative expenses	131,337		148,312		407,440		472,108
Rationalization and asset impairment charges (Note 6)	6,257		1,495		36,016		6,337




Operating income	77,793		88,544		198,631		288,208
Interest expense, net	5,552		6,400		16,891		17,621
Other income (expense) (Note 14)	1,062		9,653		1,168		17,612







Income before income taxes	73,303		91,797		182,908		288,199
Income taxes (Note 15)	14,797		19,340		41,834		58,832
Net income including non-controlling interests	58,506		72,457		141,074		229,367
Non-controlling interests in subsidiaries’ income (loss)	27		(4)		37		(26)
Net income	$	58,479	$	72,461	$	141,037	$	229,393

Basic earnings per share (Note 3)	$	0.98	$	1.18	$	2.36	$	3.68
Diluted earnings per share (Note 3)	$	0.97	$	1.17	$	2.34	$	3.64
Cash dividends declared per share	$	0.49	$	0.47	$	1.47	$	1.41


	September 30, 2020		December 31, 2019
	(UNAUDITED)		(NOTE 1)
ASSETS
Current Assets
Cash and cash equivalents	$	152,479	$	199,563
Accounts receivable (less allowance for doubtful accounts of $15,657 in 2020; $16,002 in 2019)	373,044		374,649




Inventories (Note 9)	396,214		393,748

Other current assets	104,474		107,621
Total Current Assets	1,026,211		1,075,581







Property, plant and equipment (less accumulated depreciation of $858,288 in 2020; $825,769 in 2019)	504,520		529,344

Goodwill	331,473		337,107
Other assets	355,295		429,181
TOTAL ASSETS	$	2,217,499	$	2,371,213

LIABILITIES AND EQUITY
Current Liabilities
Short-term debt (Note 12)	$	1,147	$	34,969
Trade accounts payable	226,494		273,002
Accrued employee compensation and benefits	121,967		83,033
Other current liabilities	183,553		172,131

Total Current Liabilities	533,161		563,135
Long-term debt, less current portion (Note 12)	715,687		712,302
Other liabilities	257,907		276,699
Total Liabilities	1,506,755		1,552,136



Shareholders’ Equity
Common shares	9,858		9,858
Additional paid-in capital	404,086		389,446
Retained earnings	2,790,579		2,736,481
Accumulated other comprehensive loss	(343,281)		(275,850)
Treasury shares	(2,151,417)		(2,041,763)
Total Shareholders’ Equity	709,825		818,172
Non-controlling interests	919		905
Total Equity	710,744		819,077

TOTAL LIABILITIES AND TOTAL EQUITY	$	2,217,499	$	2,371,213


	Common Shares Outstanding	Common Shares		Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Shares		Non-controlling Interests		Total
Balance at December 31, 2019	60,592	$	9,858	$	389,446	$	2,736,481	$	(275,850)	$	(2,041,763)	$	905	$	819,077
Net income						55,562						(7)		55,555
Unrecognized amounts from defined benefit pension plans, net of tax								609						609
Unrealized loss on derivatives designated and qualifying as cash flow hedges, net of tax								(2,369)						(2,369)
Currency translation adjustment								(70,567)				(41)		(70,608)
Cash dividends declared – $0.49 per share						(29,280)								(29,280)
Stock-based compensation activity	152			2,826						1,912				4,738
Purchase of shares for treasury	(1,357)									(109,762)				(109,762)
Other				(5,176)		5,176								0
Balance at March 31, 2020	59,387	$	9,858	$	387,096	$	2,767,939	$	(348,177)	$	(2,149,613)	$	857	$	667,960
Net income						26,996						17		27,013
Unrecognized amounts from defined benefit pension plans, net of tax								(23,036)						(23,036)
Unrealized gain on derivatives designated and qualifying as cash flow hedges, net of tax								1,108						1,108
Currency translation adjustment								14,485				(17)		14,468
Cash dividends declared – $0.49 per share						(29,260)								(29,260)
Stock-based compensation activity	25			4,754						317				5,071
Purchase of shares for treasury	(45)									(3,213)				(3,213)
Other				2,842		(2,842)								0
Balance at June 30, 2020	59,367	$	9,858	$	394,692	$	2,762,833	$	(355,620)	$	(2,152,509)	$	857	$	660,111
Net income						58,479						27		58,506
Unrecognized amounts from defined benefit pension plans, net of tax								(1,304)						(1,304)
Unrealized gain on derivatives designated and qualifying as cash flow hedges, net of tax								639						639
Currency translation adjustment								13,004				35		13,039
Cash dividends declared – $0.49 per share						(29,326)								(29,326)
Stock-based compensation activity	106			8,493						1,315				9,808
Purchase of shares for treasury	(2)									(223)				(223)
Other				901		(1,407)								(506)

Balance at September 30, 2020	59,471	$	9,858	$	404,086	$	2,790,579	$	(343,281)	$	(2,151,417)	$	919	$	710,744


	Americas Welding		International Welding		The Harris Products Group		Corporate / Eliminations		Consolidated
Three Months Ended September 30, 2020
Net sales	$	371,535	$	196,937	$	100,416	$	0	$	668,888
Inter-segment sales	29,368		4,898		1,898		(36,164)		0
Total	$	400,903	$	201,835	$	102,314	$	(36,164)	$	668,888

Adjusted EBIT	$	59,120	$	13,432	$	17,587	$	(1,839)	$	88,300
Special items charge (gain) ⁽¹⁾	7,044		2,401		0		0		9,445
EBIT	$	52,076	$	11,031	$	17,587	$	(1,839)	$	78,855
Interest income									293
Interest expense									(5,845)
Income before income taxes									$	73,303
Three Months Ended September 30, 2019
Net sales	$	443,521	$	205,378	$	81,884	$	0	$	730,783
Inter-segment sales	31,101		4,441		1,857		(37,399)		0
Total	$	474,622	$	209,819	$	83,741	$	(37,399)	$	730,783

Adjusted EBIT	$	74,110	$	10,184	$	11,038	$	(1,632)	$	93,700
Special items charge (gain) ⁽²⁾	0		(4,497)		0		0		(4,497)
EBIT	$	74,110	$	14,681	$	11,038	$	(1,632)	$	98,197
Interest income									491
Interest expense									(6,891)
Income before income taxes									$	91,797
Nine Months Ended September 30, 2020
Net sales	$	1,123,299	$	572,027	$	266,280	$	0	$	1,961,606
Inter-segment sales	81,644		13,667		5,376		(100,687)		0
Total	$	1,204,943	$	585,694	$	271,656	$	(100,687)	$	1,961,606

Adjusted EBIT	$	176,524	$	29,729	$	41,792	$	(4,902)	$	243,143
Special items charge (gain) ⁽¹⁾	34,241		9,103		0		0		43,344
EBIT	$	142,283	$	20,626	$	41,792	$	(4,902)	$	199,799
Interest income									1,576
Interest expense									(18,467)
Income before income taxes									$	182,908
Nine Months Ended September 30, 2019
Net sales	$	1,377,847	$	635,770	$	253,348	$	0	$	2,266,965
Inter-segment sales	95,300		12,838		5,837		(113,975)		0
Total	$	1,473,147	$	648,608	$	259,185	$	(113,975)	$	2,266,965

Adjusted EBIT	$	240,713	$	38,699	$	35,045	$	(8,643)	$	305,814
Special items charge (gain) ⁽²⁾	3,115		(4,925)		0		1,804		(6)
EBIT	$	237,598	$	43,624	$	35,045	$	(10,447)	$	305,820
Interest income									2,047
Interest expense									(19,668)
Income before income taxes									$	288,199


	Three Months Ended September 30, 2020
	Unrealized gain (loss) on derivatives designated and qualifying as cash flow hedges			Defined benefit pension plan activity			Currency translation adjustment			Total
Balance at June 30, 2020	$	365		$	(92,973)		$	(263,012)		$	(355,620)
Other comprehensive income (loss) before reclassification	(104)			(4,411)		²	13,004		³	8,489
Amounts reclassified from AOCI	743		¹	3,107		²	0			3,850
Net current-period other comprehensive income (loss)	639			(1,304)			13,004			12,339
Balance at September 30, 2020	$	1,004		$	(94,277)		$	(250,008)		$	(343,281)

	Three Months Ended September 30, 2019
	Unrealized gain (loss) on derivatives designated and qualifying as cash flow hedges			Defined benefit pension plan activity			Currency translation adjustment			Total
Balance at June 30, 2019	$	1,722		$	(80,171)		$	(203,401)		$	(281,850)
Other comprehensive income (loss) before reclassification	(268)			0			(24,283)		³	(24,551)
Amounts reclassified from AOCI	(80)		¹	613		²	0			533
Net current-period other comprehensive income (loss)	(348)			613			(24,283)			(24,018)
Balance at September 30, 2019	$	1,374		$	(79,558)		$	(227,684)		$	(305,868)


Operating Leases	Balance Sheet Classification	September 30, 2020		December 31, 2019
Right-of-use assets	Other assets	$	46,626	$	51,533

Current liabilities	Other current liabilities	$	12,821	$	13,572
Noncurrent liabilities	Other liabilities	36,949		39,076
Total lease liabilities		$	49,770	$	52,648


	September 30, 2020
2020	$	3,218
2021	13,619
2022	9,962
2023	8,233
2024	6,754
After 2025	14,544
Total lease payments	$	56,330
Less: Imputed interest	(6,560)
Operating lease liabilities	$	49,770


	September 30, 2020														December 31, 2019
Derivatives by hedge designation	Other Current Assets		Other Current Liabilities		Other Assets		Other Liabilities		Other Current Assets		Other Current Liabilities		Other Assets		Other Liabilities
Designated as hedging instruments:
Foreign exchange contracts	$	1,034	$	1,476	$	0	$	0	$	1,288	$	522	$	0	$	0
Interest rate swap agreements	0		0		0		0		0		0		2,964		0
Forward starting swap agreements	0		0		1,876		0		0		0		0		0
Cross currency swap agreements	0		0		0		1,877		0		0		0		653
Not designated as hedging instruments:
Foreign exchange contracts	3,067		2,872		0		0		2,397		973		0		0

Total derivatives	$	4,101	$	4,348	$	1,876	$	1,877	$	3,685	$	1,495	$	2,964	$	653


		Three Months Ended September 30,						Nine Months Ended September 30,
Derivative type	Gain (loss) recognized in the Consolidated Statements of Income:	2020		2019		2020		2019
Foreign exchange contracts	Sales	$	(756)	$	(15)	$	(2,281)	$	760
	Cost of goods sold	(200)		117		67		366


Description	Balance as of September 30, 2020		Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Foreign exchange contracts	$	4,101	$	0	$	4,101	$	0



Forward starting swap agreements	1,876		0		1,876		0
Total assets	$	5,977	$	0	$	5,977	$	0

Liabilities:
Foreign exchange contracts	4,348		0		4,348		0




Cross currency swap agreements	1,877		0		1,877		0


Deferred compensation	29,728		0		29,728		0
Total liabilities	$	35,953	$	0	$	35,953	$	0


Description	Balance as of December 31, 2019		Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Foreign exchange contracts	$	3,685	$	0	$	3,685	$	0
Interest rate swap agreements	2,964		0		2,964		0

Total assets	$	6,649	$	0	$	6,649	$	0

Liabilities:
Foreign exchange contracts	$	1,495	$	0	$	1,495	$	0
Cross currency swap agreements	653		0		653		0


Contingent considerations	470		0		0		470

Deferred compensation	29,170		0		29,170		0
Total liabilities	$	31,788	$	0	$	31,318	$	470


Three Months Ended September 30,			Change in Net Sales due to:
	Net Sales 2019		Volume			Acquisitions		Price			Foreign Exchange			Net Sales 2020
Lincoln Electric Holdings, Inc.	$	730,783	$	(69,531)		$	—	$	8,860		$	(1,224)		$	668,888


% Change
Lincoln Electric Holdings, Inc.			(9.5		%)	—		1.2		%	(0.2		%)	(8.5		%)


	Three Months Ended September 30,								Favorable (Unfavorable) 2020 vs. 2019
	2020			2019			$		%
Americas Welding:
Net sales	$	371,535		$	443,521		$	(71,986)	(16.2	%)
Inter-segment sales	29,368			31,101			(1,733)		(5.6	%)
Total Sales	$	400,903		$	474,622		(73,719)		(15.5	%)

Adjusted EBIT ⁽⁴⁾	$	59,120		$	74,110		(14,990)		(20.2	%)
As a percent of total sales ⁽¹⁾	14.7		%	15.6		%			(0.9	%)
International Welding:
Net sales	$	196,937		$	205,378		(8,441)		(4.1	%)
Inter-segment sales	4,898			4,441			457		10.3	%
Total Sales	$	201,835		$	209,819		(7,984)		(3.8	%)

Adjusted EBIT ⁽⁵⁾	$	13,432		$	10,184		3,248		31.9	%
As a percent of total sales ⁽²⁾	6.7		%	4.9		%			1.8	%
The Harris Products Group:
Net sales	$	100,416		$	81,884		18,532		22.6	%
Inter-segment sales	1,898			1,857			41		2.2	%
Total Sales	$	102,314		$	83,741		18,573		22.2	%

Adjusted EBIT	$	17,587		$	11,038		6,549		59.3	%
As a percent of total sales ⁽³⁾	17.2		%	13.2		%			4.0	%
Corporate / Eliminations:
Inter-segment sales	$	(36,164)		$	(37,399)		(1,235)		(3.3	%)
Adjusted EBIT	(1,839)			(1,632)			207		12.7	%
Consolidated:
Net sales	$	668,888		$	730,783		(61,895)		(8.5	%)
Net income	$	58,479		$	72,461		(13,982)		(19.3	%)
As a percent of total sales	8.7		%	9.9		%			(1.2	%)

Adjusted EBIT ⁽⁶⁾	$	88,300		$	93,700		(5,400)		(5.8	%)

As a percent of sales	13.2		%	12.8		%			0.4	%


	September 30, 2020		December 31, 2019		September 30, 2019
Average operating working capital to Net sales ^{(1) (2)}	20.3	%	16.8	%	19.2	%
Days sales in Inventories ⁽²⁾	111.6		99.9		106.2
Days sales in Accounts receivable	55.2		51.4		53.9
Average days in Trade accounts payable	51.3		56.0		51.1


	Twelve Months Ended September 30,
	2020			2019
Net income	$	204,753		$	316,232
Rationalization and asset impairment charges	44,867			7,269


Acquisition transaction and integration costs	—			2,637
Pension settlement charges	6,522			1,696
Amortization of step up in value of acquired inventories	806			3,008
Gains on disposal of assets	—			(3,554)


Gain on change in control	—			(7,601)
Tax effect of Special items ⁽¹⁾	(11,030)			(12,583)
Adjusted net income	$	245,918		$	307,104
Plus: Interest expense, net of tax of $6,177 and $6,410 in 2020 and 2019, respectively	18,564			19,265
Less: Interest income, net of tax of $513 and $926 in 2020 and 2019, respectively	1,543			2,785
Adjusted net income before tax effected interest	$	262,939		$	323,584

Invested Capital	September 30, 2020			September 30, 2019
Short-term debt	$	1,147		$	13,293
Long-term debt, less current portion	715,687			713,884
Total debt	716,834			727,177
Total equity	710,744			813,808
Invested capital	$	1,427,578		$	1,540,985
Return on invested capital	18.4		%	21.0		%


Period	Total Number of Shares Repurchased		Average Price Paid Per Share		Total Number of Shares Repurchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that May Yet be Purchased Under the Plans or Programs ^{(2) (3)}
July 1 - 31, 2020	123	⁽¹⁾	$	89.85	—	11,453,193
August 1 - 31, 2020	391	⁽¹⁾	95.42		—	11,453,193
September 1 - 30, 2020	1,786	⁽¹⁾	97.58		—	11,453,193
Total	2,300		96.80		—

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