Companies: 10,652     total market cap: $140.563 T
โ‚ฌEUR๐Ÿ‡ช๐Ÿ‡บโ‚นINR๐Ÿ‡ฎ๐Ÿ‡ณยฃGBP๐Ÿ‡ฌ๐Ÿ‡ง$CAD๐Ÿ‡จ๐Ÿ‡ฆ$AUD๐Ÿ‡ฆ๐Ÿ‡บ$NZD๐Ÿ‡ณ๐Ÿ‡ฟ$HKD๐Ÿ‡ญ๐Ÿ‡ฐ$SGD๐Ÿ‡ธ๐Ÿ‡ฌ
Lincoln Electric
LECO
#1401
Rank
$16.20 B
Marketcap
๐Ÿ‡บ๐Ÿ‡ธ United States
Country
$293.68
Share price
-0.83%
Change (1 day)
38.40%
Change (1 year)
  1. Lincoln Electric
  2. Quarterly Reports (10-Q)
  3. Financial Year FY2020 Q3

Lincoln Electric - 10-Q quarterly report FY2020 Q3


Text size:
LINCOLN ELECTRIC HOLDINGS INC0000059527FALSE12/312020Q333766621217765368,30367315,65716,002858,288825,7690.490.470.490.470.490.47350,000Hedge ineffectiveness was immaterial in the three months ended September 30, 2020 and 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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
or
☐ 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
leco-20200930_g1.jpg 
LINCOLN ELECTRIC HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Ohio 34-1860551
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
   
     22801 St. Clair Avenue, Cleveland, Ohio                 44117
     (Address of principal executive offices)                 (Zip Code)

(216) 481-8100
(Registrant's telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year, if changed since last report)
 
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of exchange on which registered
Common Shares, without par valueLECOThe 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 was 59,470,712.
1

TABLE OF CONTENTS
 
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
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
9
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
24
Item 3. Quantitative and Qualitative Disclosures About Market Risk
35
Item 4. Controls and Procedures
35
  
36
Item 1. Legal Proceedings
36
Item 1A. Risk Factors
36
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
36
Item 4. Mine Safety Disclosures
36
Item 6. Exhibits
36
38
 
 
 
EX-101Instance Document 
EX-101Schema Document 
EX-101Calculation Linkbase Document 
EX-101Label Linkbase Document 
EX-101Presentation Linkbase Document 
EX-101Definition Linkbase Document 
2
PART I. FINANCIAL INFORMATION
 
ITEM 1. FINANCIAL STATEMENTS
 
LINCOLN ELECTRIC HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(In thousands, except per share amounts)
 
 Three Months Ended September 30,Nine Months Ended September 30,
 2020201920202019
Net sales (Note 2)$668,888 $730,783 $1,961,606 $2,266,965 
Cost of goods sold453,501 492,432 1,319,519 1,500,312 
Gross profit215,387 238,351 642,087 766,653 
Selling, general & administrative expenses131,337 148,312 407,440 472,108 
Rationalization and asset impairment charges (Note 6)6,257 1,495 36,016 6,337 
Operating income77,793 88,544 198,631 288,208 
Interest expense, net5,552 6,400 16,891 17,621 
Other income (expense) (Note 14)1,062 9,653 1,168 17,612 
Income before income taxes73,303 91,797 182,908 288,199 
Income taxes (Note 15)14,797 19,340 41,834 58,832 
Net income including non-controlling interests58,506 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 
 
See notes to these consolidated financial statements.
3
LINCOLN ELECTRIC HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
(In thousands)
 
 Three Months Ended September 30,Nine Months Ended September 30,
 2020201920202019
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 adjustment13,039 (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 interests62 254 14 234 
Comprehensive income attributable to shareholders$70,818 $48,443 $73,606 $217,264 
 
See notes to these consolidated financial statements.
4
LINCOLN ELECTRIC HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
 
 September 30, 2020December 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 Assets1,026,211 1,075,581 
Property, plant and equipment (less accumulated depreciation of $858,288 in 2020; $825,769 in 2019)504,520 529,344 
Goodwill331,473 337,107 
Other assets355,295 429,181 
TOTAL ASSETS$2,217,499 $2,371,213 
LIABILITIES AND EQUITY  
Current Liabilities  
Short-term debt (Note 12)$1,147 $34,969 
Trade accounts payable226,494 273,002 
Accrued employee compensation and benefits121,967 83,033 
Other current liabilities183,553 172,131 
Total Current Liabilities533,161 563,135 
Long-term debt, less current portion (Note 12)715,687 712,302 
Other liabilities257,907 276,699 
Total Liabilities1,506,755 1,552,136 
Shareholders’ Equity  
Common shares9,858 9,858 
Additional paid-in capital404,086 389,446 
Retained earnings2,790,579 2,736,481 
Accumulated other comprehensive loss(343,281)(275,850)
Treasury shares(2,151,417)(2,041,763)
Total Shareholders’ Equity709,825 818,172 
Non-controlling interests919 905 
Total Equity 710,744 819,077 
TOTAL LIABILITIES AND TOTAL EQUITY$2,217,499 $2,371,213 

See notes to these consolidated financial statements.
5

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, 201960,592 $9,858 $389,446 $2,736,481 $(275,850)$(2,041,763)$905 $819,077 
Net income55,562 (7)55,555 
Unrecognized amounts from defined benefit pension plans, net of tax609 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 activity152 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, 202059,387 $9,858 $387,096 $2,767,939 $(348,177)$(2,149,613)$857 $667,960 
Net income26,996 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 tax1,108 1,108 
Currency translation adjustment14,485 (17)14,468 
Cash dividends declared – $0.49 per share(29,260)(29,260)
Stock-based compensation activity25 4,754 317 5,071 
Purchase of shares for treasury(45)(3,213)(3,213)
Other2,842 (2,842)— 
Balance at June 30, 202059,367 $9,858 $394,692 $2,762,833 $(355,620)$(2,152,509)$857 $660,111 
Net income58,479 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 tax639 639 
Currency translation adjustment13,004 35 13,039 
Cash dividends declared – $0.49 per share(29,326)(29,326)
Stock-based compensation activity106 8,493 1,315 9,808 
Purchase of shares for treasury(2)(223)(223)
Other 901 (1,407)(506)
Balance at September 30, 202059,471 $9,858 $404,086 $2,790,579 $(343,281)$(2,151,417)$919 $710,744 

6

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, 201863,546 $9,858 $360,308 $2,564,440 $(293,739)$(1,753,925)$650 $887,592 
Net income71,480 (14)71,466 
Unrecognized amounts from defined benefit pension plans, net of tax787 787 
Unrealized gain on derivatives designated and qualifying as cash flow hedges, net of tax329 329 
Currency translation adjustment5,099 37 5,136 
Cash dividends declared – $0.47 per share(29,847)(29,847)
Stock-based compensation activity148 3,302 1,484 4,786 
Purchase of shares for treasury(894)(75,584)(75,584)
Other808 (808)— 
Balance at March 31, 201962,800 $9,858 $364,418 $2,605,265 $(287,524)$(1,828,025)$673 $864,665 
Net income85,452 (8)85,444 
Unrecognized amounts from defined benefit pension plans, net of tax1,091 1,091 
Unrealized loss on derivatives designated and qualifying as cash flow hedges, net of tax(301)(301)
Currency translation adjustment4,884 (35)4,849 
Cash dividends declared – $0.47 per share(29,279)(29,279)
Stock-based compensation activity13 4,783 136 4,919 
Purchase of shares for treasury(1,034)(85,330)(85,330)
Other(282)282 — 
Balance at June 30, 201961,779 $9,858 $368,919 $2,661,720 $(281,850)$(1,913,219)$630 $846,058 
Net income72,461 (4)72,457 
Unrecognized amounts from defined benefit pension plans, net of tax613 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 activity107 7,996 1,111 9,107 
Purchase of shares for treasury(737)(61,028)(61,028)
Other 669 (764)(95)
Balance at September 30, 201961,149 $9,858 $377,584 $2,704,486 $(305,868)$(1,973,136)$884 $813,808 



7
LINCOLN ELECTRIC HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
 Nine Months Ended September 30,
 20202019
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 interests141,074 229,367 
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 amortization60,566 60,400 
Equity earnings in affiliates, net(323)(1,266)
Deferred income taxes(10,143)4,045 
Stock-based compensation11,656 12,602 
Gain on change in control— (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 assets8,027 3,227 
Decrease in trade accounts payable(42,333)(34,202)
Increase in other current liabilities38,615 31,113 
Net change in other assets and liabilities1,059 1,647 
NET CASH PROVIDED BY OPERATING ACTIVITIES215,561 280,666 
CASH FLOWS FROM INVESTING ACTIVITIES  
Capital expenditures(37,116)(53,551)
Acquisition of businesses, net of cash acquired— (136,735)
Proceeds from sale of property, plant and equipment6,957 9,491 
Other investing activities— 2,000 
NET CASH USED BY INVESTING ACTIVITIES(30,159)(178,795)
CASH FLOWS FROM FINANCING ACTIVITIES  
Payments on short-term borrowings(3,504)— 
Amounts due banks, net(29,619)2,439 
Payments on long-term borrowings(12)(6)
Proceeds from exercise of stock options7,961 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 period199,563 358,849 
CASH AND CASH EQUIVALENTS AT END OF PERIOD$152,479 $156,612 
See notes to these consolidated financial statements.
8
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Dollars in thousands, except per share amounts

NOTE 1 — SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
As used in this report, the term “Company,” except as otherwise indicated by the context, means Lincoln Electric Holdings, Inc. and its wholly-owned and majority-owned subsidiaries for which it has a controlling interest. 
The consolidated financial statements include the accounts of all legal entities in which the Company holds a controlling interest. 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 months ended September 30, 2020 are not necessarily indicative of the results to be expected for the year ending December 31, 2020.
The accompanying Consolidated Balance Sheet at December 31, 2019 has been derived from the audited financial statements at that date, but does not include all of the information and notes required by GAAP for complete financial statements.  For further information, refer to the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.
COVID-19 Assessment
In March 2020, the World Health Organization categorized the current coronavirus disease (“COVID-19”) as a pandemic, and the President of the United States declared the COVID-19 outbreak a national emergency. COVID-19 continues to spread throughout the United States and other countries across the world, and the 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. The Company’s consolidated financial statements presented herein reflect estimates and assumptions made by management that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and reported amounts of revenue and expenses during the reporting periods presented. Such estimates and assumptions affect, among other things, the Company’s goodwill, long-lived asset and indefinite-lived intangible asset valuation; inventory valuation; assessment of the annual effective tax rate; valuation of deferred income taxes and income tax contingencies; the allowance for doubtful accounts; measurement of compensation cost for certain share-based awards and cash bonus plans; and pension plan assumptions. Events and changes in circumstances arising after September 30, 2020, including those resulting from the continued impacts of COVID-19, will be reflected in management’s estimates for future periods.
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.
9
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Dollars in thousands, except per share amounts

The following ASUs were adopted as of January 1, 2020, unless otherwise noted below:
StandardDescription
ASU No. 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20), issued August 2018.
ASU 2018-14 modifies disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. The ASU also requires an entity to disclose the weighted-average interest crediting rates for cash balance plans and to explain the reasons for significant gains and losses related to changes in the benefit obligation. 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.
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:
StandardDescription
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.

NOTE 2 — REVENUE RECOGNITION
The following table presents the Company's Net sales disaggregated by product line:
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
Consumables$379,177 $420,980 $1,118,688 $1,308,788 
Equipment289,711 309,803 842,918 958,177 
     Net sales$668,888 $730,783 $1,961,606 $2,266,965 
Consumable sales consist of electrodes, fluxes, specialty welding consumables and brazing and soldering alloys. Equipment sales consist of arc welding power sources, welding accessories, fabrication, plasma cutters, wire feeding systems, automated joining, assembly and cutting systems, fume extraction equipment, CNC plasma and oxy-fuel cutting systems and regulators and torches used in oxy-fuel welding, cutting and brazing. Consumable and Equipment products are sold within each of the Company’s operating segments.
Within the Equipment product line, there are certain customer contracts related to automation products that may include multiple performance obligations. For such arrangements, the Company allocates revenue to each performance obligation based on its relative standalone selling price. The Company generally determines the standalone selling price based on the prices charged to customers or using expected cost plus margin. Less than 10% of the Company's Net sales are recognized over time.
10
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Dollars in thousands, except per share amounts

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

NOTE 3 — EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per share:
Three Months Ended September 30,Nine Months Ended September 30,
 2020201920202019
Numerator:    
Net income$58,479 $72,461 $141,037 $229,393 
Denominator (shares in 000's):    
Basic weighted average shares outstanding59,426 61,380 59,655 62,282 
Effect of dilutive securities - Stock options and awards592 681 547 690 
Diluted weighted average shares outstanding60,018 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 
For the three months ended September 30, 2020 and 2019, common shares subject to equity-based awards of 557,198 and 548,049, 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, the Company acquired the controlling stake of Kaynak Tekniği Sanayi ve Ticaret A.Ş. (“Askaynak”). Askaynak, based in Turkey, is a supplier and manufacturer of welding consumables, arc welding equipment, including plasma and oxy-fuel cutting equipment and robotic welding systems. The acquisition 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.

11
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Dollars in thousands, except per share amounts

NOTE 5 — SEGMENT INFORMATION
The Company's business units are aligned into three operating segments. The operating segments consist of Americas Welding, International Welding and The Harris Products Group.  The Americas Welding segment includes welding operations in North and South America. The International Welding segment includes welding operations in Europe, Africa, Asia and Australia. The Harris Products Group includes the Company’s global 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.
12
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Dollars in thousands, except per share amounts

The following table presents Adjusted EBIT by segment:
 Americas WeldingInternational WeldingThe Harris
Products Group		Corporate /
Eliminations		Consolidated
Three Months Ended September 30, 2020     
Net sales$371,535 $196,937 $100,416 $— $668,888 
Inter-segment sales29,368 4,898 1,898 (36,164)— 
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 — — 9,445 
EBIT$52,076 $11,031 $17,587 $(1,839)$78,855 
Interest income293 
Interest expense(5,845)
Income before income taxes$73,303 
Three Months Ended September 30, 2019     
Net sales$443,521 $205,378 $81,884 $— $730,783 
Inter-segment sales31,101 4,441 1,857 (37,399)— 
Total$474,622 $209,819 $83,741 $(37,399)$730,783 
Adjusted EBIT$74,110 $10,184 $11,038 $(1,632)$93,700 
Special items charge (gain) (2)
— (4,497)— — (4,497)
EBIT$74,110 $14,681 $11,038 $(1,632)$98,197 
Interest income    491 
Interest expense   (6,891)
Income before income taxes    $91,797 
Nine Months Ended September 30, 2020     
Net sales$1,123,299 $572,027 $266,280 $— $1,961,606 
Inter-segment sales81,644 13,667 5,376 (100,687)— 
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 — — 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 $— $2,266,965 
Inter-segment sales95,300 12,838 5,837 (113,975)— 
Total$1,473,147 $648,608 $259,185 $(113,975)$2,266,965 
Adjusted EBIT$240,713 $38,699 $35,045 $(8,643)$305,814 
Special items charge (gain) (2)
3,115 (4,925)— 1,804 (6)
EBIT$237,598 $43,624 $35,045 $(10,447)$305,820 
Interest income    2,047 
Interest expense    (19,668)
Income before income taxes    $288,199 

13
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Dollars in thousands, except per share amounts

(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 and $6,337 in the nine months ended September 30, 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, the Company initiated rationalization plans within Americas Welding and International Welding segments. The plans include headcount restructuring and the consolidation of manufacturing facilities to better align the cost structure with economic conditions and operating needs. At September 30, 2020, liabilities of $218 and $6,592 for Americas Welding and International Welding, respectively, were recognized in Other current liabilities in the 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 $4,934 were recognized in Other current liabilities in the Company's Condensed Consolidated Balance Sheet.
The Company believes the rationalization actions will positively impact future results of operations and will not have a material effect on liquidity and sources and uses of capital. The Company continues to evaluate its cost structure and additional rationalization actions may result in charges in future periods.
The following table summarizes the activity related to rationalization liabilities for the nine months ended September 30, 2020:
Americas WeldingInternational WeldingConsolidated
Balance, December 31, 2019$— $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 

14
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 September 30, 2020
Unrealized gain (loss) on derivatives designated and qualifying as cash flow hedgesDefined benefit pension plan activityCurrency translation adjustmentTotal
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 AOCI743 
1
3,107 
2
— 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 hedgesDefined benefit pension plan activityCurrency translation adjustmentTotal
Balance at June 30, 2019$1,722 $(80,171)$(203,401)$(281,850)
Other comprehensive income (loss)
before reclassification		(268)— (24,283)
3
(24,551)
Amounts reclassified from AOCI(80)
1
613 
2
— 533 
Net current-period other
comprehensive income (loss)		(348)613 (24,283)(24,018)
Balance at September 30, 2019$1,374 $(79,558)$(227,684)$(305,868)
(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.

15
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 hedgesDefined benefit pension plan activityCurrency translation adjustmentTotal
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 AOCI1,682 
1
6,807 
2
— 8,489 
Net current-period other
comprehensive income (loss)		(622)(23,731)(43,078)(67,431)
Balance at September 30, 2020$1,004 $(94,277)$(250,008)$(343,281)
Nine Months Ended September 30, 2019
Unrealized gain (loss) on derivatives designated and qualifying as cash flow hedgesDefined benefit pension plan activityCurrency translation adjustmentTotal
Balance at December 31, 2018$1,694 $(82,049)$(213,384)$(293,739)
Other comprehensive income (loss)
before reclassification		521 — (14,300)
3
(13,779)
Amounts reclassified from AOCI(841)
1
2,491 
2
— 1,650 
Net current-period other
comprehensive income (loss)		(320)2,491 (14,300)(12,129)
Balance at September 30, 2019$1,374 $(79,558)$(227,684)$(305,868)

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


16
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, 2020December 31, 2019
Raw materials$110,590 $116,716 
Work-in-process69,501 63,744 
Finished goods216,123 213,288 
Total$396,214 $393,748 
At September 30, 2020 and December 31, 2019, approximately 35% and 36%, 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 and $75,292 at September 30, 2020 and December 31, 2019, respectively.

NOTE 10 — LEASES
The table below summarizes the right-of-use assets and lease liabilities in the Company's Condensed Consolidated Balance sheets:
Operating LeasesBalance Sheet ClassificationSeptember 30, 2020 December 31, 2019
Right-of-use assetsOther assets$46,626 $51,533 
Current liabilitiesOther current liabilities$12,821 $13,572 
Noncurrent liabilitiesOther liabilities36,949 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.
Total lease expense, which is included in Cost of goods sold and Selling, general and administrative expenses in the Company's Consolidated Statements of Income, was $5,655 and $17,665 in the three and nine months ended September 30, 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 and nine months ended September 30, 2020, respectively, were $3,733 and $11,727 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'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, 2020 and $1,550 and $16,223 for the three and nine months ended September 30, 2019, respectively.
17
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 
202113,619 
20229,962 
20238,233 
20246,754 
After 202514,544 
Total lease payments$56,330 
Less: Imputed interest(6,560)
Operating lease liabilities$49,770 
As of September 30, 2020, the weighted average remaining lease term is 7.1 years and the weighted average discount rate used to determine the operating lease liability is 3.5%.

NOTE 11 — PRODUCT WARRANTY COSTS
The changes in the carrying amount of product warranty accruals are as follows:
 Nine Months Ended September 30,
 20202019
Balance at beginning of year$20,650 $19,778 
Accruals for warranties13,629 12,494 
Settlements(10,699)(11,787)
Foreign currency translation and other adjustments (126)(125)
Balance at September 30$23,454 $20,360 

NOTE 12 — DEBT
Revolving Credit Agreements
The Company has a line of credit totaling $400,000 through the Amended and Restated Credit Agreement (the “Credit Agreement”). The Credit Agreement has a term of 5 years with a maturity date of June 30, 2022 and may be increased, subject to certain conditions, by an additional amount up to $100,000. The interest rate on borrowings is based on either LIBOR or the prime rate, plus a spread based on the Company’s leverage ratio, at the Company’s election. The Credit Agreement contains customary affirmative, negative and financial covenants for credit facilities of this type, including limitations on the Company and its subsidiaries with respect to liens, investments, distributions, mergers and acquisitions, dispositions of assets, transactions with affiliates and a fixed charges coverage ratio and total leverage ratio.  As of September 30, 2020, the Company was in compliance with all of its covenants and had no outstanding borrowings under the Credit Agreement. 
The Company has other lines of credit totaling $50,000. As of September 30, 2020 the Company was in compliance with all of its covenants and had $1,039 outstanding at September 30, 2020.
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 total weighted average effective interest rate and remaining weighted average tenure of the Notes is 3.3% and 13.6 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, the Company was in compliance with all of its debt covenants relating to the Notes.
18
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Dollars in thousands, except per share amounts

Shelf Agreements
On November 27, 2018, the Company entered into seven uncommitted master note facilities (the "Shelf Agreements") that allow borrowings up to $700,000 in the aggregate. The Shelf Agreements have a term of 5 years and the average life of borrowings cannot exceed 15 years. The Company is required to comply with covenants similar to those contained in the Notes.  As of September 30, 2020, the Company was in compliance with all of its covenants and had no outstanding borrowings under the Shelf Agreements.
Fair Value of Debt
At September 30, 2020 and December 31, 2019, the fair value of long-term debt, including the current portion, was approximately $785,579 and $721,494, respectively, which was determined using available market information and methodologies requiring judgment. The carrying value of this debt at such dates was $715,795 and $712,414, respectively. Since judgment is required in interpreting market information, the fair value of the debt is not necessarily the amount which could be realized in a current market exchange.

NOTE 13 — RETIREMENT AND POSTRETIREMENT BENEFIT PLANS
The components of total pension cost were as follows:
 Three Months Ended September 30,Nine Months Ended September 30,
 2020201920202019
U.S. pension plansNon-U.S. pension plansU.S. pension plansNon-U.S. pension plansU.S. pension plansNon-U.S. pension plansU.S. pension plansNon-U.S. pension plans
Service cost$39 $718 $35 $697 $117 $2,216 $105 $2,126 
Interest cost3,346 673 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— 15 — 16 — 46 — 47 
Amortization of net loss 459 468 413 720 865 1,563 1,240 1,877 
Settlement charges (1)
3,188 — — — 6,522 — — — 
Defined benefit plans1,023 798 (1,145)1,249 1,520 2,780 (3,432)3,494 
Multi-employer plans— 274 — 227 — 800 — 717 
Defined contribution plans4,945 931 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 Consolidated Statements of Income.
In March 2020, the Company approved an amendment to terminate the Lincoln Electric Company Retirement Annuity Program plan effective as of December 31, 2020. The Company provided notice to participants of the intent to terminate the plan and applied for a determination letter. Pension obligations will be distributed through a combination of lump sum payments to eligible plan participants and through the purchase of a group annuity contract. Upon settlement of the pension obligations, the Company will reclassify unrecognized actuarial gains or losses, currently recorded in AOCI, to the Company's Consolidated Statements of Income as settlement gains or charges in the second half of 2021. The Company anticipates the termination process will take approximately two years to complete.

19
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,
 2020201920202019
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.

NOTE 15 — INCOME TAXES
The Company recognized $41,834 of tax expense on pretax income of $182,908, resulting in an effective income tax rate of 22.9% for the nine months ended September 30, 2020.  The effective income tax rate was 20.4% for the nine months ended September 30, 2019.
The increase in the effective tax rate for the nine months ended September 30, 2020, as compared with the same period in 2019, was primarily due to recording the tax expense associated with a valuation allowance in 2020, smaller tax benefits related to the vesting of stock based compensation in 2020 and income tax benefits for the settlement of tax items 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.
As of September 30, 2020, the Company had $20,481 of unrecognized tax benefits.  If recognized, approximately $17,043 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.  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 in previously unrecognized tax benefits by the end of the third quarter 2021.

NOTE 16 — DERIVATIVES
The Company uses derivative instruments to manage exposures to currency exchange rates, interest rates and commodity prices arising in the normal course of business.  Both at inception and on an ongoing basis, the derivative instruments that qualify for hedge accounting are assessed as to their effectiveness, when applicable. Hedge ineffectiveness was immaterial in the nine months ended September 30, 2020 and 2019.
The Company is subject to the credit risk of the counterparties to derivative instruments.  Counterparties include a number of major banks and financial institutions.  None of the concentrations of risk with any individual counterparty was considered significant at September 30, 2020.  The Company does not expect any counterparties to fail to meet their obligations.
Cash Flow Hedges
Certain foreign currency forward contracts were qualified and designated as cash flow hedges. The dollar equivalent gross notional amount of these short-term contracts was $66,566 at September 30, 2020 and $59,982 at December 31, 2019.
20
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Dollars in thousands, except per share amounts

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, 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, the Company had no interest rate swap agreements outstanding. The Company terminated $50,000 of interest rate swaps in the nine months ended September 30, 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 and December 31, 2019, 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 and $363,820 at September 30, 2020 and December 31, 2019, respectively.
Fair values of derivative instruments in the Company’s Condensed Consolidated Balance Sheets follow:
 September 30, 2020December 31, 2019
Derivatives by hedge designation Other Current AssetsOther Current LiabilitiesOther AssetsOther LiabilitiesOther Current AssetsOther Current LiabilitiesOther AssetsOther Liabilities
Designated as hedging instruments:    
Foreign exchange contracts$1,034 $1,476 $— $— $1,288 $522 $— $— 
Interest rate swap agreements— — — — — — 2,964 — 
Forward starting swap agreements— — 1,876 — — — — — 
Cross currency swap agreements— — — 1,877 — — — 653 
Not designated as hedging instruments:
Foreign exchange contracts3,067 2,872 — — 2,397 973 — — 
Total derivatives$4,101 $4,348 $1,876 $1,877 $3,685 $1,495 $2,964 $653 
The effects of undesignated derivative instruments on the Company’s Consolidated Statements of Income consisted of the following:
Three Months Ended September 30,Nine Months Ended September 30,
Derivatives by hedge designationClassification of gain (loss)2020201920202019
Foreign exchange contractsSelling, general & administrative expenses$6,381 $(710)$(12,141)$5,707 
The effects of designated hedges on AOCI and the Company’s Consolidated Statements of Income consisted of the following:
Total gain (loss) recognized in AOCI, net of taxSeptember 30, 2020December 31, 2019
Foreign exchange contracts$(468)$620 
Forward starting swap agreements1,407 — 
Net investment contracts65 1,006 
The Company expects a loss of $468 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. 
21
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 typeGain (loss) recognized in the Consolidated Statements of Income:2020201920202019
Foreign exchange contractsSales$(756)$(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, measured at fair value on a recurring basis:
DescriptionBalance 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 $— $4,101 $— 
Forward starting swap agreements1,876 — 1,876 — 
Total assets$5,977 $— $5,977 $— 
Liabilities:    
Foreign exchange contracts4,348 — 4,348 — 
Cross currency swap agreements1,877 — 1,877 — 
Deferred compensation29,728 — 29,728 — 
Total liabilities$35,953 $— $35,953 $— 
The following table provides a summary of assets and liabilities as of December 31, 2019, measured at fair value on a recurring basis:
DescriptionBalance as of December 31, 2019Quoted 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 $— $3,685 $— 
Interest rate swap agreements2,964 — 2,964 — 
Total assets$6,649 $— $6,649 $— 
Liabilities:    
Foreign exchange contracts$1,495 $— $1,495 $— 
Cross currency swap agreements653 — 653 — 
Contingent considerations470 — — 470 
Deferred compensation29,170 — 29,170 — 
Total liabilities$31,788 $— $31,318 $470 
The Company’s derivative contracts are valued at fair value using the market approach.  The Company measures the fair value of foreign exchange contracts and 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.
22
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 and December 31, 2019.
The Company has various financial instruments, including cash and cash equivalents, short and long-term debt and forward contracts. While these financial instruments are subject to concentrations of credit risk, the Company has minimized this risk by 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.
23
ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Dollars in thousands, except per share amounts)
This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read together with the Company’s unaudited consolidated financial statements and other financial information included elsewhere in this Quarterly Report on Form 10-Q.
General
The Company is the world’s largest designer and manufacturer of arc welding and cutting products, manufacturing a broad line of arc welding equipment, consumable welding products and other welding and cutting products.  Welding products include arc welding power sources, computer numerical control and plasma cutters, wire feeding systems, robotic welding packages, integrated automation systems, fume extraction equipment, consumable electrodes, fluxes, welding accessories and specialty welding consumables and fabrication. The Company's product offering also includes oxy-fuel cutting systems and regulators and torches used in oxy-fuel welding, cutting and brazing. In addition, the Company has a leading global position in the brazing and soldering alloys market.
The Company’s products are sold in both domestic and international markets.  In the Americas, products are sold principally through industrial distributors, retailers and directly to users of welding products.  Outside of the Americas, the Company has an international sales organization comprised of Company employees and agents who sell products from the Company’s various manufacturing sites to distributors and product users. 
The Company's business units are aligned into three operating segments. The operating segments consist of Americas Welding, International Welding and The Harris Products Group.  The Americas Welding segment includes welding operations in North and South America. The International Welding segment includes welding operations in Europe, Africa, Asia and Australia. The Harris Products Group includes the Company’s global oxy-fuel cutting, soldering and brazing businesses as well as its retail business in the United States.
COVID-19 Assessment
In March 2020, the World Health Organization categorized the current coronavirus disease (“COVID-19”) as a pandemic, and the President of the United States declared the COVID-19 outbreak a national emergency. COVID-19 continues to spread throughout the United States and other countries across the world, and the ultimate duration and severity on the Company's business remains unknown. The outbreak has resulted in governments around the world implementing stringent measures to help control the spread of the virus, including quarantines, “shelter in place” and “stay at home” orders, travel restrictions, business curtailments, school closures and other measures. In addition, governments and central banks in several parts of the world have enacted fiscal and monetary stimulus measures to counteract the impacts of COVID-19.
During the COVID-19 pandemic, substantially all of the Company’s global businesses have continued to operate within a critical infrastructure sector (as established by the Cybersecurity & Infrastructure Security Agency of the U.S. Department of Homeland Security, as well as other governments worldwide) and as a result, the Company has been able to meet the demand of its customers in the various markets it serves. For the nine months ended September 30, 2020, the Company continued to experience weakened global demand trends resulting 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 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. The Company’s consolidated financial statements and discussion and analysis of financial condition and results of operations reflect estimates and assumptions made by management as of 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.
24

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

Results of Operations
The following table shows the Company's results of operations:
 Three Months Ended September 30,
 20202019Favorable (Unfavorable)
2020 vs. 2019
 Amount% of SalesAmount% of Sales$%
Net sales$668,888 $730,783 $(61,895)(8.5 %)
Cost of goods sold453,501 492,432 38,931 7.9 %
Gross profit215,387 32.2 %238,351 32.6 %(22,964)(9.6 %)
Selling, general & administrative expenses131,337 19.6 %148,312 20.3 %16,975 11.4 %
Rationalization and asset impairment charges6,257 0.9 %1,495 0.2 %(4,762)(318.5 %)
Operating income77,793 11.6 %88,544 12.1 %(10,751)(12.1 %)
Interest expense, net5,552 6,400 848 13.3 %
Other income (expense)1,062 9,653 (8,591)(89.0 %)
Income before income taxes73,303 11.0 %91,797 12.6 %(18,494)(20.1 %)
Income taxes14,797 19,340 4,543 23.5 %
Effective tax rate20.2 %21.1 %0.9 %
Net income including non-controlling interests58,506 72,457 (13,951)(19.3 %)
Non-controlling interests in subsidiaries’ loss27 (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 $(0.20)(17.1 %)
 Nine Months Ended September 30,
 20202019Favorable (Unfavorable)
2020 vs. 2019
 Amount% of SalesAmount% of Sales$%
Net sales$1,961,606 $2,266,965 $(305,359)(13.5 %)
Cost of goods sold1,319,519 1,500,312 180,793 12.1 %
Gross profit642,087 32.7 %766,653 33.8 %(124,566)(16.2 %)
Selling, general & administrative expenses407,440 20.8 %472,108 20.8 %64,668 13.7 %
Rationalization and asset impairment charges36,016 1.8 %6,337 0.3 %(29,679)(468.3 %)
Operating income198,631 10.1 %288,208 12.7 %(89,577)(31.1 %)
Interest expense, net16,891 17,621 730 4.1 %
Other income (expense)1,168 17,612 (16,444)(93.4 %)
Income before income taxes182,908 9.3 %288,199 12.7 %(105,291)(36.5 %)
Income taxes41,834 58,832 16,998 28.9 %
Effective tax rate22.9 %20.4 %(2.5 %)
Net income including non-controlling interests141,074 229,367 (88,293)(38.5 %)
Non-controlling interests in subsidiaries’ loss37 (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 %)
25
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		VolumeAcquisitionsPriceForeign ExchangeNet 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		VolumeAcquisitionsPriceForeign ExchangeNet 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 %)
Net sales decreased in the three and nine months ended September 30, 2020 as a result of lower organic sales driven by the impact of COVID-19 on global demand and unfavorable 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 a percent of sales, compared to the prior year primarily due to lower volumes, including the impact of COVID-19 on global demand.
Selling, General & Administrative ("SG&A") Expenses:
SG&A expenses decreased for the three and nine months ended September 30, 2020 as compared to September 30, 2019 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 after-tax, and $36,016, $28,181 after-tax, in the three and nine months ended September 30, 2020, respectively, primarily related to severance charges, non-cash asset impairments of long-lived assets and gains or losses on the disposal of assets. 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 as compared to September 30, 2019 was primarily due to tax benefits from the settlement of tax items in the third quarter of 2020.
The increase in the effective tax rate for the nine months ended September 30, 2020 as compared to September 30, 2019 was primarily due to recording 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.
Net Income:
The decrease in Net income for the three and nine months ended September 30, 2020 as compared to September 30, 2019 was primarily due to lower sales volumes, including the impact of COVID-19 on global demand, higher Rationalization and asset impairment charges and higher pension settlement charges.
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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 Welding205,378 (10,964)— 70 2,453 196,937 
The Harris Products Group81,884 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 Welding635,770 (85,923)33,521 (2,901)(8,440)572,027 
The Harris Products Group253,348 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.

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

The following table presents Adjusted EBIT by segment:
Three Months Ended September 30,Favorable (Unfavorable)
2020 vs. 2019
 20202019$%
Americas Welding:    
Net sales$371,535 $443,521 $(71,986)(16.2 %)
Inter-segment sales29,368 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 sales4,898 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 sales1,898 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 sales8.7 %9.9 %(1.2 %)
Adjusted EBIT (6)
$88,300 $93,700 (5,400)(5.8 %)
As a percent of sales13.2 %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
 20202019$%
Americas Welding:    
Net sales$1,123,299 $1,377,847 $(254,548)(18.5 %)
Inter-segment sales81,644 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 sales13,667 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 sales5,376 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 sales7.2 %10.1 %(2.9 %)
Adjusted EBIT (6)
$243,143 $305,814 (62,671)(20.5 %)
As a percent of sales12.4 %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.

Non-GAAP Financial Measures
The Company reviews Adjusted operating income, Adjusted net income, Adjusted EBIT, Adjusted effective tax rate, Adjusted diluted earnings per share, Return on invested capital, Cash conversion, Organic sales, and Earnings before interest, taxes, depreciation and amortization, all non-GAAP financial measures, in assessing and evaluating the Company's underlying operating performance. These non-GAAP financial measures exclude the impact of special items on the Company's reported financial results. Non-GAAP financial measures should be read in conjunction with the generally accepted accounting principles in the United States ("GAAP") financial measures, as non-GAAP measures are a supplement to, and not a replacement for, GAAP financial measures.
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The following table presents the reconciliations of Operating income as reported to Adjusted operating income, Net income as reported to Adjusted net income and Adjusted EBIT, Effective tax rate as reported to Adjusted effective tax rate and Diluted earnings per share as reported to Adjusted diluted earnings per share:
 Three Months Ended September 30,Nine Months Ended September 30,
 2020201920202019
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 income66,013 67,709 174,918 223,568 
Non-controlling interests in subsidiaries’ income (loss)27 (4)37 (26)
Interest expense, net5,552 6,400 16,891 17,621 
Income taxes as reported14,797 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 reported20.2 %21.1 %22.9 %20.4 %
Net special item tax impact— 1.3 %(0.2 %)2.0 %
Adjusted effective tax rate20.2 %22.4 %22.7 %22.4 %
Diluted earnings per share as reported$0.97 $1.17 $2.34 $3.64 
Special items per share0.13 (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.

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: 
 Nine Months Ended September 30,
 20202019$ 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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In October 2020, the Company paid a cash dividend of $0.49 per share, or $29,141, to shareholders of record as of September 30, 2020.
Working Capital Ratios
September 30, 2020December 31, 2019September 30, 2019
Average operating working capital to Net sales (1) (2)
20.3 %16.8 %19.2 %
Days sales in Inventories (2)
111.699.9106.2
Days sales in Accounts receivable55.251.453.9
Average days in Trade accounts payable51.356.051.1
(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 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 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.
The following table presents ROIC:
Twelve Months Ended September 30,
20202019
Net income$204,753 $316,232 
Rationalization and asset impairment charges44,867 7,269 
Acquisition transaction and integration costs— 2,637 
Pension settlement charges6,522 1,696 
Amortization of step up in value of acquired inventories806 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, respectively1,543 2,785 
Adjusted net income before tax effected interest$262,939 $323,584 
Invested CapitalSeptember 30, 2020September 30, 2019
Short-term debt$1,147 $13,293 
Long-term debt, less current portion715,687 713,884 
Total debt716,834 727,177 
Total equity710,744 813,808 
Invested capital$1,427,578 $1,540,985 
Return on invested capital18.4 %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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The tax effect of Special items impacting pre-tax income was calculated as the pre-tax amount multiplied by the applicable tax rate. The applicable tax rates reflect the taxable jurisdiction and nature of each Special item.


New Accounting Pronouncements
Refer to Note 1 to the consolidated financial statements for a discussion of new accounting pronouncements.
Acquisitions
Refer to Note 4 to the consolidated financial statements for a discussion of the Company's recent acquisitions.
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, 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, the Company was in compliance with all of its covenants and had no outstanding borrowings under the Credit Agreement. 
The Company has other lines of credit totaling $50,000. As of September 30, 2020 the Company was in compliance with all of its covenants and had $1,039 outstanding at September 30, 2020.
Senior Unsecured Notes
On April 1, 2015 and October 20, 2016, the Company entered into separate Note Purchase Agreements pursuant to which it issued senior unsecured notes (the "Notes") through a private placement. The 2015 Notes and 2016 Notes each have an aggregate principal amount of $350,000, comprised of four different series ranging from $50,000 to $100,000, with maturity dates ranging from August 20, 2025 through April 1, 2045, and interest rates ranging from 2.75% and 4.02%. Interest on the Notes is paid semi-annually. The Company's total weighted average effective interest rate and remaining weighted average tenure of the Notes is 3.3% and 13.6 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, 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, 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
In March 2020, the Company approved an amendment to terminate the Lincoln Electric Company Retirement Annuity Program plan effective as of December 31, 2020. The Company provided notice to participants of the intent to terminate the plan and applied for a determination letter. Pension obligations will be distributed through a combination of lump sum payments to eligible plan participants and through the purchase of a group annuity contract. Upon settlement of the pension obligations, the Company will reclassify unrecognized actuarial gains or losses, currently recorded in AOCI, to the Company's Consolidated Statements of Income as settlement gains or charges in the second half of 2021. The Company anticipates the termination process will take approximately two years to complete.
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Forward-looking Statements
The Company’s expectations and beliefs concerning the future contained in this report are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.  These statements reflect management’s current expectations and involve a number of risks and uncertainties.  Forward-looking statements generally can be identified by the use of words such as “may,” “will,” “expect,” “intend,” “estimate,” “anticipate,” “believe,” “forecast,” “guidance” or words of similar meaning.  Actual results may differ materially from such statements due to a variety of factors that could adversely affect the Company’s operating results.  The factors include, but are not limited to: general economic, financial and market conditions; the effectiveness of operating initiatives; completion of planned divestitures; interest rates; disruptions, uncertainty or volatility in the credit markets that may limit our access to capital; currency exchange rates and devaluations; adverse outcome of pending or potential litigation; actual costs of the Company’s rationalization plans; possible acquisitions, including the Company’s ability to successfully integrate acquisitions; market risks and price fluctuations related to the purchase of commodities and energy; global regulatory complexity; the effects of changes in tax law; tariff rates in the countries where the Company conducts business; and the possible effects of events beyond our control, such as political unrest, acts of terror, 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.  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.

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.
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 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, the Company was a co-defendant in cases alleging asbestos induced illness involving claims by approximately 2,774 plaintiffs, which is a net decrease of 16 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 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 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 quarter of 2020 were as follows:
PeriodTotal 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, 2020123 
(1)
$89.85 — 11,453,193 
August 1 - 31, 2020391 
(1)
95.42 — 11,453,193 
September 1 - 30, 20201,786 
(1)
97.58 — 11,453,193 
Total2,300 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.

ITEM 6.  EXHIBITS
(a) Exhibits
36

Amendment No. 1 to 2005 Deferred Compensation Plan for Executives (Amended and Restated as of January 1, 2018) dated August 1, 2020 (filed herewith).
Amendment No. 1 to Non-Employee Directors' Deferred Compensation Plan (Amended and Restated as of January 1, 2019) dated August 1, 2020 (filed herewith).
Amendment No. 1 to The Lincoln Electric Company Restoration Plan dated August 1, 2020 (filed herewith).
Amendment No. 2 to Supplemental Executive Retirement Plan (As Amended and Restated as of December 31, 2008) dated August 1, 2020 (filed herewith).
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).
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.
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.
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.INSInline XBRL Instance Document
101.SCHInline XBRL Taxonomy Extension Schema Document
101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document
101.LABInline XBRL Taxonomy Extension Label Linkbase Document
101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document
101.DEFInline XBRL Taxonomy Extension Definition Linkbase Document
104Cover page Interactive Data File (formatted as Inline XBRL and contained in the Exhibit 101 attachments)

37
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 27, 2020
38

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