Table of Contents
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 March 31, 2021
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
LINCOLN ELECTRIC HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Ohio
34-1860551
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
22801 St. Clair Avenue, Cleveland, Ohio
44117
(Address of principal executive offices)
(Zip Code)
(216) 481-8100
(Registrant’s telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol
Name of exchange on which registered
Common Shares, without par value
LECO
The NASDAQ Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes 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).
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
The number of shares outstanding of the registrant’s common shares as of March 31, 2021 was 59,537,683.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
3
Item 1. Financial Statements
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
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)
7
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
20
Item 3. Quantitative and Qualitative Disclosures About Market Risk
29
Item 4. Controls and Procedures
PART II. OTHER INFORMATION
30
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 4. Mine Safety Disclosures
Item 5. Other Information
31
Item 6. Exhibits
33
Signatures
34
EX-10.1
Form of Stock Option Agreement for Executive Officers (filed herewith).
EX-10.2
Form of Restricted Stock Unit Agreement for Executive Officers (filed herewith).
EX-10.3
Form of Performance Share Award Agreement for Executive Officers (filed herewith).
EX-10.4
Second Amended and Restated Credit Agreement, dated as of April 23, 2021, by and among Lincoln Electric Holdings, Inc., The Lincoln Electric Company, Lincoln Electric International Holding Company, J.W. Harris Co., Inc., Lincoln Electric Automation, Inc., Lincoln Global, Inc., the Lenders and KeyBank National Association (filed herewith).
EX-31.1
Certification of the Chairman, President and Chief Executive Officer (Principal Executive Officer) pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.
EX-31.2
Certification of the Executive Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer) pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.
EX-32.1
Certification of the Chairman, President and Chief Executive Officer (Principal Executive Officer) and Executive Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer) pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
EX-101
Instance Document
Schema Document
Calculation Linkbase Document
Label Linkbase Document
Presentation Linkbase Document
Definition Linkbase Document
2
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(In thousands, except per share amounts)
Three Months Ended March 31,
2021
2020
Net sales (Note 2)
$
757,021
701,991
Cost of goods sold
503,254
464,669
Gross profit
253,767
237,322
Selling, general & administrative expenses
145,676
149,727
Rationalization and asset impairment charges (Note 6)
4,163
6,521
Operating income
103,928
81,074
Interest expense, net
5,359
5,458
Other income (expense) (Note 14)
(1,416)
309
Income before income taxes
97,153
75,925
Income taxes (Note 15)
23,020
20,370
Net income including non-controlling interests
74,133
55,555
Non-controlling interests in subsidiaries’ income (loss)
(44)
(7)
Net income
74,177
55,562
Basic earnings per share (Note 3)
1.24
0.92
Diluted earnings per share (Note 3)
1.23
0.91
Cash dividends declared per share
0.51
0.49
See notes to these consolidated financial statements.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
Other comprehensive income (loss), net of tax:
Unrealized gain (loss) on derivatives designated and qualifying as cash flow hedges, net of tax of $2,309 and $(716) in the three months ended March 31, 2021 and 2020
7,290
(2,369)
Defined benefit pension plan activity, net of tax of $815 and $164 in the three months ended March 31, 2021 and 2020
5,060
609
Currency translation adjustment
(22,743)
(70,608)
Other comprehensive income (loss):
(10,393)
(72,368)
Comprehensive income
63,740
(16,813)
Comprehensive income (loss) attributable to non-controlling interests
(203)
(48)
Comprehensive income (loss) attributable to shareholders
63,943
(16,765)
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, 2021
December 31, 2020
(NOTE 1)
ASSETS
Current Assets
Cash and cash equivalents
242,126
257,279
Accounts receivable (less allowance for doubtful accounts of $14,029 in 2021; $14,779 in 2020)
431,350
373,487
Inventories (Note 9)
415,901
381,258
Other current assets
106,910
100,319
Total Current Assets
1,196,287
1,112,343
Property, plant and equipment (less accumulated depreciation of $875,114 in 2021; $884,647 in 2020)
500,449
522,092
Goodwill
334,194
335,593
Other assets
330,819
344,425
TOTAL ASSETS
2,361,749
2,314,453
LIABILITIES AND EQUITY
Current Liabilities
Short-term debt (Note 12)
3,607
2,734
Trade accounts payable
294,062
256,530
Accrued employee compensation and benefits
92,769
98,437
Other current liabilities
224,023
191,748
Total Current Liabilities
614,461
549,449
Long-term debt, less current portion (Note 12)
715,328
715,456
Other liabilities
228,552
259,298
Total Liabilities
1,558,341
1,524,203
Shareholders' Equity
Common Shares
9,858
Additional paid-in capital
418,529
409,958
Retained earnings
2,864,223
2,821,359
Accumulated other comprehensive loss
(312,424)
(302,190)
Treasury Shares
(2,176,671)
(2,149,714)
Total Shareholders' Equity
803,515
789,271
Non-controlling interests
(107)
979
Total Equity
803,408
790,250
TOTAL LIABILITIES AND TOTAL EQUITY
CONSOLIDATED STATEMENTS OF EQUITY
Accumulated
Common
Additional
Other
Non-
Shares
Paid-In
Retained
Comprehensive
Treasury
Controlling
Outstanding
Capital
Earnings
Income (Loss)
Interests
Total
Balance at December 31, 2020
59,641
Unrecognized amounts from defined benefit pension plans, net of tax
Unrealized gain on derivatives designated and qualifying as cash flow hedges, net of tax
(22,584)
(159)
Cash dividends declared - $0.51 per share
(30,572)
Stock-based compensation activity
134
7,680
1,502
9,182
Purchase of shares for treasury
(237)
(28,459)
891
(741)
(883)
(733)
Balance at March 31, 2021
59,538
Balance at December 31, 2019
60,592
389,446
2,736,481
(275,850)
(2,041,763)
905
819,077
Unrealized loss on derivatives designated and qualifying as cash flow hedges, net of tax
(70,567)
(41)
Cash dividends declared – $0.49 per share
(29,280)
152
2,826
1,912
4,738
(1,357)
(109,762)
(5,176)
5,176
—
Balance at March 31, 2020
59,387
387,096
2,767,939
(348,177)
(2,149,613)
857
667,960
CONSOLIDATED STATEMENTS OF CASH FLOWS
CASH FLOWS FROM OPERATING ACTIVITIES
Non-controlling interests in subsidiaries' income (loss)
Adjustments to reconcile Net income including non-controlling interests to Net cash provided by operating activities:
Rationalization and asset impairment net charges (Note 6)
60
(236)
Depreciation and amortization
19,118
21,028
Equity earnings in affiliates, net
(177)
(162)
Deferred income taxes
(16,115)
(3,685)
Stock-based compensation
6,402
3,691
Other, net
9,016
(4,188)
Changes in operating assets and liabilities, net of effects from acquisitions:
Increase in accounts receivable
(65,795)
(25,698)
Increase in inventories
(42,568)
(17,401)
Increase in other current assets
(8,095)
(1,789)
Increase (decrease) in trade accounts payable
42,325
(16,676)
Increase in other current liabilities
30,266
13,482
Net change in other assets and liabilities
(3,308)
(1,949)
NET CASH PROVIDED BY OPERATING ACTIVITIES
45,262
21,972
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures
(9,936)
(11,828)
Proceeds from sale of property, plant and equipment
584
6,100
Other investing activities
6,500
NET CASH USED BY INVESTING ACTIVITIES
(2,852)
(5,728)
CASH FLOWS FROM FINANCING ACTIVITIES
Amounts due banks, net
1,307
97,777
Proceeds from exercise of stock options
2,780
1,047
Purchase of shares for treasury (Note 8)
Cash dividends paid to shareholders
(30,999)
(30,675)
NET CASH USED BY FINANCING ACTIVITIES
(55,371)
(41,613)
Effect of exchange rate changes on Cash and cash equivalents
(2,192)
(10,819)
DECREASE IN CASH AND CASH EQUIVALENTS
(15,153)
(36,188)
Cash and cash equivalents at beginning of period
199,563
CASH AND CASH EQUIVALENTS AT END OF PERIOD
163,375
Dollars in thousands, except per share amounts
NOTE 1 — SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
As used in this report, the term “Company,” except as otherwise indicated by the context, means Lincoln Electric Holdings, Inc. and its wholly-owned and majority-owned subsidiaries for which it has a controlling interest.
The consolidated financial statements include the accounts of all legal entities in which the Company holds a controlling interest. Investments in legal entities in which the Company does not own a majority interest but has the ability to exercise significant influence over operating and financial policies are accounted for using the equity method.
The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, these unaudited consolidated financial statements do not include all of the information and notes required by GAAP for complete financial statements. However, in the opinion of management, these unaudited consolidated financial statements contain all the adjustments (consisting of normal recurring accruals) considered necessary to present fairly the financial position, results of operations and cash flows for the interim periods. Operating results for the three months ended March 31, 2021 are not necessarily indicative of the results to be expected for the year ending December 31, 2021.
The accompanying Consolidated Balance Sheet at December 31, 2020 has been derived from the audited financial statements at that date, but does not include all of the information and notes required by GAAP for complete financial statements. For further information, refer to the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.
The current coronavirus disease (“COVID-19”) pandemic has adversely impacted global economic conditions and has contributed to significant volatility in financial markets beginning in early calendar year 2020. Although the Company's estimates contemplate current conditions, the inputs into certain significant and critical accounting estimates include judgments and assumptions about the economic implications of the COVID-19 pandemic and how management expects them to change in the future. It is reasonably possible that actual results experienced may differ materially from the Company's estimates in future periods, which could affect our results of operations and financial condition. For additional discussion, see “Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.
New Accounting Pronouncements:
This section provides a description of new accounting pronouncements ("Accounting Standard Update" or "ASU") issued by the Financial Accounting Standards Board ("FASB") that are applicable to the Company.
The following ASU was adopted as of January 1, 2021:
Standard
Description
ASU No. 2019-12, Income Taxes (Topic 740), issued December 2019.
ASU 2019-12 simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. The adoption did not have a material impact on the Company’s consolidated financial statements.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 2 — REVENUE RECOGNITION
The following table presents the Company’s Net sales disaggregated by product line:
Consumables
434,179
405,840
Equipment
322,842
296,151
Net sales
Consumable sales consist of electrodes, fluxes, specialty welding consumables and brazing and soldering alloys. Equipment sales consist of arc welding power sources, welding accessories, fabrication, plasma cutters, wire feeding systems, automated joining, assembly and cutting systems, fume extraction equipment, CNC plasma and oxy-fuel cutting systems and regulators and torches used in oxy-fuel welding, cutting and brazing. Consumable and Equipment products are sold within each of the Company’s operating segments.
Within the Equipment product line, there are certain customer contracts related to automation products that may include multiple performance obligations. For such arrangements, the Company allocates revenue to each performance obligation based on its relative standalone selling price. The Company generally determines the standalone selling price based on the prices charged to customers or using expected cost plus margin. Less than 10% of the Company’s Net sales are recognized over time.
At March 31, 2021, the Company recorded $19,292 related to advance customer payments and $22,744 related to billings in excess of revenue recognized. These contract liabilities are included in Other current liabilities in the Condensed Consolidated Balance Sheets. At December 31, 2020, the balances related to advance customer payments and billings in excess of revenue recognized were $14,920 and $21,396, respectively. Substantially all of the Company’s contract liabilities are recognized within twelve months based on contract duration. The Company records an asset for contracts where it has recognized revenue, but has not yet invoiced the customer for goods or services. At March 31, 2021 and December 31, 2020, the Company recorded $25,709 and $22,113, respectively, related to these contract assets which are included in Other current assets in the Condensed Consolidated Balance Sheets. Contract asset amounts are expected to be billed within the next twelve months.
NOTE 3 — EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per share:
Numerator:
Denominator (shares in 000's):
Basic weighted average shares outstanding
59,642
60,184
Effect of dilutive securities - Stock options and awards
657
615
Diluted weighted average shares outstanding
60,299
60,799
Basic earnings per share
Diluted earnings per share
9
For the three months ended March 31, 2021 and 2020, common shares subject to equity-based awards of 89,592 and 655,764, 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 April 2021, the Company acquired Zeman Bauelemente Produktionsgesellschaft m.b.H.(“Zeman Bauelemente"), a division of the Zeman Group. Zeman Bauelemente, based in Vienna, Austria, is a leading designer and manufacturer of robotic assembly and arc welding systems that automate the tacking and welding of steel beams.
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.
The following table presents Adjusted EBIT by segment:
The Harris
Americas
International
Products
Corporate /
Welding
Group
Eliminations
Consolidated
Three Months Ended March 31, 2021
425,242
223,079
108,700
Inter-segment sales
32,748
4,285
2,147
(39,180)
457,990
227,364
110,847
Adjusted EBIT
76,617
18,816
18,697
(1,456)
112,674
Special items charge (gain) (1)
4,440
4,609
1,113
10,162
EBIT
72,177
14,207
(2,569)
102,512
Interest income
454
Interest expense
(5,813)
Three Months Ended March 31, 2020
418,535
197,923
85,533
24,783
4,483
1,725
(30,991)
443,318
202,406
87,258
70,702
6,615
12,492
(1,099)
88,710
Special items charge (gain) (2)
1,190
6,137
7,327
69,512
478
81,383
860
(6,318)
10
NOTE 6 — RATIONALIZATION AND ASSET IMPAIRMENTS
The Company recorded Rationalization and asset impairment net charges of $4,163 and $6,521 in the three months ended March 31, 2021 and 2020, respectively. The charges are primarily related to employee severance, non-cash asset impairments of long-lived assets and gains or losses on the disposal of assets.
During 2020 and 2021, the Company initiated rationalization plans within Americas Welding and International Welding segments. The plans include headcount restructuring and the consolidation of manufacturing operations to better align the Company’s cost structure with economic conditions and operating needs. At March 31, 2021, liabilities of $13,155 for International Welding 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 three months ended March 31, 2021:
Americas Welding
25
13,597
13,622
Payments and other adjustments
(25)
(4,545)
(4,570)
Charged to expense
4,103
13,155
11
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:
Unrealized gain
(loss) on derivatives
designated and
Defined benefit
Currency
qualifying as cash
pension plan
translation
flow hedges
activity
adjustment
2,487
(101,770)
(202,907)
Other comprehensive income (loss) before reclassification
7,066
602
(14,916)
Amounts reclassified from AOCI
224
1
4,458
4,682
Net current-period other comprehensive income (loss)
(10,234)
9,777
(96,710)
(225,491)
1,626
(70,546)
(206,930)
(2,312)
(72,879)
(57)
552
(72,327)
(743)
(69,937)
(277,497)
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 three months ended March 31, 2021, the Company purchased a total of 0.2 million shares at an average cost per share of $120.55. As of March 31, 2021, 11.2 million common shares remained available for repurchase under these programs. The repurchased common shares remain in treasury and have not been retired.
12
NOTE 9 — INVENTORIES
Inventories in the Condensed Consolidated Balance Sheets are comprised of the following components:
Raw materials
115,278
111,888
Work-in-process
67,097
60,341
Finished goods
233,526
209,029
At March 31, 2021 and December 31, 2020, approximately 36% and 35%, respectively, of total inventories were valued using the last-in, first-out ("LIFO") method. The excess of current cost over LIFO cost was $79,435 and $75,581 at March 31, 2021 and December 31, 2020, 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 Leases
Balance Sheet Classification
Right-of-use assets
39,936
43,570
Current liabilities
10,652
11,502
Noncurrent liabilities
31,175
33,988
Total lease liabilities
41,827
45,490
Total lease expense, which is included in Cost of goods sold and Selling, general and administrative expenses in the Company’s Consolidated Statements of Income, was $5,051 and $5,219 in the three months ended March 31, 2021 and 2020, respectively. Cash paid for amounts included in the measurement of lease liabilities at March 31, 2021 and 2020, respectively, were $3,389 and $4,097 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 during the three months ended March 31, 2021 and 2020 were $0 and $2,035, respectively.
The total future minimum lease payments for noncancelable operating leases were as follows:
9,132
2022
9,559
2023
7,596
2024
6,038
2025
3,253
After 2025
11,713
Total lease payments
47,291
Less: Imputed interest
5,464
Operating lease liabilities
As of March 31, 2021, the weighted average remaining lease term is 7.2 years and the weighted average discount rate used to determine the operating lease liability is 3.5%.
13
NOTE 11 — PRODUCT WARRANTY COSTS
The changes in the carrying amount of product warranty accruals are as follows:
Year Ended March 31,
Balance at beginning of year
21,760
20,650
Accruals for warranties
3,136
4,117
Settlements
(3,253)
(3,591)
Foreign currency translation and other adjustments
(156)
(318)
Balance at March 31
21,487
20,858
NOTE 12 — DEBT
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 March 31, 2021, the Company was in compliance with all of its covenants and had no outstanding borrowings under the Credit Agreement.
On April 23, 2021, the Company amended and restated the Credit Agreement by entering into the Second Amended and Restated Credit Agreement (“Second Credit Agreement”). The Second Credit Agreement has a line of credit totaling $500,000, has a term of 5 years with a maturity date of April 23, 2026 and may be increased, subject to certain conditions, by an additional amount up to $150,000. The interest rate on borrowings is based on LIBOR plus a spread based on the Company’s net leverage ratio. The Amended and Restated Credit Agreement contains customary representations and warranties, as well as customary affirmative, negative and financial covenants for credit facilities of this type (subject to negotiated baskets and exceptions), including limitations on the Company and its subsidiaries with respect to liens, investments, distributions, mergers and acquisitions, dispositions of assets and transactions with affiliates.
The Company has other lines of credit totaling $81,234. As of March 31, 2021, the Company was in compliance with all of its covenants and had $3,497 outstanding at March 31, 2021.
Senior Unsecured Notes
On April 1, 2015 and October 20, 2016, the Company entered into separate Note Purchase Agreements pursuant to which it issued senior unsecured notes (the "Notes") through a private placement. The 2015 Notes and 2016 Notes each have an aggregate principal amount of $350,000, comprised of four different series ranging from $50,000 to $100,000, with maturity dates ranging from August 20, 2025 through April 1, 2045, and interest rates ranging from 2.75% to 4.02%. Interest on the Notes is paid semi-annually. The Company’s total weighted average effective interest rate and remaining weighted average tenure of the Notes is 3.3% and 13.1 years, respectively. The proceeds of the Notes were used for general corporate purposes. The Notes contain certain affirmative and negative covenants. As of March 31, 2021, the Company was in compliance with all of its debt covenants relating to the Notes.
14
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 March 31, 2021, the Company was in compliance with all of its covenants and had no outstanding borrowings under the Shelf Agreements.
Fair Value of Debt
At March 31, 2021 and December 31, 2020, the fair value of long-term debt, including the current portion, was approximately $739,945 and $793,591, respectively, which was determined using available market information and methodologies requiring judgment. The carrying value of this debt at such dates was $715,438 and $715,567, respectively. Since judgment is required in interpreting market information, the fair value of the debt is not necessarily the amount which could be realized in a current market exchange.
NOTE 13 — RETIREMENT AND POSTRETIREMENT BENEFIT PLANS
The components of total pension cost were as follows:
U.S. pension
Non-U.S.
plans
pension plans
Service cost
49
471
39
756
Interest cost
2,981
616
4,050
696
Expected return on plan assets
(4,509)
(972)
(5,711)
(1,007)
Amortization of prior service cost
15
Amortization of net loss
581
435
203
555
Settlement charges (1)
446
Defined benefit plans
3,542
1,008
(1,419)
1,015
Multi-employer plans
244
269
Defined contribution plans
5,162
845
5,626
702
Total pension cost
8,704
2,097
4,207
1,986
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 be substantially complete by the end of 2021.
NOTE 14 — OTHER INCOME (EXPENSE)
The components of Other income (expense) were as follows:
Equity earnings in affiliates
176
162
Other components of net periodic pension (cost) income (1)
(4,030)
1,199
Other income (expense)
2,438
(1,052)
Total Other income (expense)
NOTE 15 — INCOME TAXES
The Company recognized $23,020 of tax expense on pretax income of $97,153, resulting in an effective income tax rate of 23.7% for the three months ended March 31, 2021. The effective income tax rate was 26.8% for the three months ended March 31, 2020.
The decrease in the effective tax rate for the three months ended March 31, 2021, as compared with the same period in 2020, was primarily due to income earned in lower tax rate jurisdictions in 2021, as well as higher tax expense associated with a valuation allowance recorded in 2020.
As of March 31, 2021, the Company had $17,768 of unrecognized tax benefits. If recognized, approximately $14,281 would be reflected as a component of income tax expense.
The Company files income tax returns in the U.S. and various state, local and foreign jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal, state and local or non-U.S. income tax examinations by tax authorities for years before 2017. The Company is currently subject to U.S., various state and non-U.S. income tax audits.
Unrecognized tax benefits are reviewed on an ongoing basis and are adjusted for changing facts and circumstances, including progress of tax audits and closing of statutes of limitations. Based on information currently available, management believes that additional audit activity could be completed and/or statutes of limitations may close relating to existing unrecognized tax benefits. It is reasonably possible there could be a reduction of $1,749 in previously unrecognized tax benefits by the end of the first quarter 2022.
NOTE 16 — DERIVATIVES
The Company uses derivative instruments to manage exposures to currency exchange rates, interest rates and commodity prices arising in the normal course of business. Both at inception and on an ongoing basis, the derivative instruments that qualify for hedge accounting are assessed as to their effectiveness, when applicable. Hedge ineffectiveness was immaterial in the three months ended March 31, 2021 and 2020.
The Company is subject to the credit risk of the counterparties to derivative instruments. Counterparties include a number of major banks and financial institutions. None of the concentrations of risk with any individual counterparty was considered significant at March 31, 2021. The Company does not expect any counterparties to fail to meet their obligations.
16
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 $67,654 at March 31, 2021 and $69,051 at December 31, 2020.
During March and April 2020, in anticipation of future debt issuance associated with the Notes referenced in Note 12, the Company entered into interest rate forward starting swap agreements to hedge the variability of future changes in interest rates. The forward starting swap agreements were qualified and designated as a cash flow hedge. The changes in fair value are recorded as part of AOCI, and upon completion of debt issuance and termination of the swaps, are amortized to interest expense over the life of the underlying debt. The dollar equivalent gross notional amount of the long-term contracts was $100,000 at March 31, 2021 and December 31, 2020 and have a termination date of August 2025.
Fair Value Hedges
From time to time the company will enter into certain interest rate swap agreements that are qualified and designated as fair value hedges. At March 31, 2021, the Company had no interest rate swap agreements outstanding. The Company terminated $50,000 of interest rate swaps in the three months ended March 31, 2020, which resulted in a gain of $6,629 that will be amortized to interest expense over the remaining life of the underlying debt.
Net Investment Hedges
The Company has cross currency swap agreements that are qualified and designated as net investment hedges. The dollar equivalent gross notional amount of these contracts is $50,000 as of March 31, 2021 and December 31, 2020, respectively.
Derivatives Not Designated as Hedging Instruments
The Company has certain foreign exchange forward contracts that are not designated as hedges. These derivatives are held as economic hedges of certain balance sheet exposures. The dollar equivalent gross notional amount of these contracts was $585,340 and $391,112 at March 31, 2021 and December 31, 2020, respectively.
Fair values of derivative instruments in the Company’s Condensed Consolidated Balance Sheets follow:
Current
Derivatives by hedge designation
Assets
Liabilities
Designated as hedging instruments:
Foreign exchange contracts
1,337
1,090
2,451
1,124
Forward starting swap agreements
13,510
4,876
Cross currency swap agreements
2,263
4,308
Not designated as hedging instruments:
2,715
1,682
1,398
3,485
Total derivatives
4,052
2,772
3,849
17
The effects of undesignated derivative instruments on the Company’s Consolidated Statements of Income consisted of the following:
Classification of gain (loss)
Not designated as hedges:
(1,286)
(22,133)
The effects of designated hedges on AOCI and the Company’s Consolidated Statements of Income consisted of the following:
Total gain (loss) recognized in AOCI, net of tax
(90)
660
10,109
3,649
Net investment contracts
(242)
(1,822)
The Company expects a loss of $90 related to existing contracts to be reclassified from AOCI, net of tax, to earnings over the next 12 months as the hedged transactions are realized.
Gain (loss) recognized in the
Derivative type
Consolidated Statements of Income:
Sales
144
(62)
(458)
122
NOTE 17 - FAIR VALUE
The following table provides a summary of assets and liabilities as of March 31, 2021, measured at fair value on a recurring basis:
Quoted Prices in
Active Markets for
Identical Assets or
Significant Other
Significant
Balance as of
Observable Inputs
Unobservable
(Level 1)
(Level 2)
Inputs (Level 3)
Assets:
Total assets
17,562
Liabilities:
Deferred compensation
40,775
Total liabilities
45,810
18
The following table provides a summary of assets and liabilities as of December 31, 2020, measured at fair value on a recurring basis:
Interest rate swap agreements
8,725
41,539
50,456
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.
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 March 31, 2021 and December 31, 2020.
The Company has various financial instruments, including cash and cash equivalents, short and long-term debt and forward contracts. While these financial instruments are subject to concentrations of credit risk, the Company has minimized this risk by entering into arrangements with a number of major banks and financial institutions and investing in several high-quality instruments. The Company does not expect any counterparties to fail to meet their obligations.
19
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.
Results of Operations
The following table shows the Company’s results of operations:
Favorable (Unfavorable)
2021 vs. 2020
Amount
% of Sales
%
55,030
7.8
(38,585)
(8.3)
33.5
33.8
16,445
6.9
19.2
21.3
4,051
2.7
Rationalization and asset impairment charges
0.5
0.9
2,358
36.2
13.7
11.5
22,854
28.2
99
1.8
(1,725)
(558.3)
12.8
10.8
21,228
28.0
Income taxes
(2,650)
(13.0)
Effective tax rate
23.7
26.8
3.1
18,578
33.4
Non-controlling interests in subsidiaries' loss
(37)
(528.6)
9.8
7.9
18,615
0.32
35.2
Net Sales:
The following table summarizes the impact of volume, acquisitions, price and foreign currency exchange rates on Net sales on a consolidated basis:
Change in Net Sales due to:
Net Sales
Foreign
Volume
Acquisitions
Price
Exchange
Lincoln Electric Holdings, Inc.
19,101
26,128
9,801
% Change
3.7
1.4
Net sales increased in the three months ended March 31, 2021 as a result of higher organic sales driven by higher demand and increased product pricing as a result of higher input costs and the impact of favorable foreign exchange.
Gross Profit:
Gross profit for the three months ended March 31, 2021 increased 6.9% driven by higher Net sales volumes and related operating leverage. As a percent of sales, Gross profit decreased slightly compared to the prior year primarily due to higher last-in, first-out (“LIFO”) charges of $3,854 in the three months ended March 31, 2021, as compared with charges of $212 in 2020.
21
Selling, General & Administrative ("SG&A") Expenses:
SG&A expenses decreased for the three months ended March 31, 2021 as compared to March 31, 2020 due to lower discretionary spending.
Rationalization and Asset Impairment Charges:
The Company recorded charges of $4,163, $3,831 after-tax, and $6,521, $4,545 after-tax, in the three months ended March 31, 2021 and 2020, respectively, primarily related to severance charges and gains or losses on the disposal of assets.
Income Taxes:
The decrease in the effective tax rate for the three months ended March 31, 2021 as compared to March 31, 2020 was primarily due to income earned in lower tax rate jurisdictions in 2021, as well as higher tax expense associated with a valuation allowance recorded in 2020.
Net Income:
The increase in Net income for the three months ended March 31, 2021 as compared to March 31, 2020 was primarily due to higher sales volumes driven by increased demand and related operating leverage.
Segment Results
Volume (1)
Price (2)
Operating Segments
(3,790)
9,065
1,432
International Welding
11,250
4,620
9,286
The Harris Products Group
11,641
12,443
(917)
(0.9)
2.2
0.3
1.6
5.7
2.3
4.7
12.7
13.6
14.5
(1.1)
27.1
22
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.
Americas Welding:
6,707
7,965
32.1
Total Sales
14,672
3.3
Adjusted EBIT (4)
5,915
8.4
As a percent of total sales (1)
16.7
15.9
0.8
International Welding:
25,156
(198)
(4.4)
24,958
12.3
Adjusted EBIT (5)
12,201
184.4
As a percent of total sales (2)
8.3
5.0
The Harris Products Group:
23,167
422
24.5
23,589
27.0
6,205
49.7
As a percent of total sales (3)
16.9
14.3
2.6
Corporate / Eliminations:
8,189
26.4
Adjusted EBIT (6)
357
32.5
Consolidated:
As a percent of total sales
1.9
Adjusted EBIT (7)
23,964
As a percent of sales
14.9
12.6
23
Non-GAAP Financial Measures
The Company reviews Adjusted operating income, Adjusted net income, Adjusted EBIT, Adjusted effective tax rate, Adjusted diluted earnings per share, Return on invested capital, Cash conversion, Organic sales, and Earnings before interest, taxes, depreciation and amortization, all non-GAAP financial measures, in assessing and evaluating the Company’s underlying operating performance. These non-GAAP financial measures exclude the impact of special items on the Company’s reported financial results. Non-GAAP financial measures should be read in conjunction with the generally accepted accounting principles in the United States ("GAAP") financial measures, as non-GAAP measures are a supplement to, and not a replacement for, GAAP financial measures.
The following table presents the reconciliations of Operating income as reported to Adjusted operating income, Net income as reported to Adjusted net income and Adjusted EBIT, Effective tax rate as reported to Adjusted effective tax rate and Diluted earnings per share as reported to Adjusted diluted earnings per share:
Operating income as reported
Special items (pre-tax):
Rationalization and asset impairment charges (1)
Acquisition transaction costs (2)
Amortization of step up in value of acquired inventories (3)
806
Adjusted operating income
109,204
88,401
Net income as reported
Special items:
Pension settlement charges (4)
4,886
Tax effect of Special items (5)
(1,561)
(1,976)
Adjusted net income
82,778
60,913
Income taxes as reported
1,561
1,976
Effective tax rate as reported
Net special item tax impact
(0.8)
Adjusted effective tax rate
22.9
Diluted earnings per share as reported
Special items per share
0.14
0.09
Adjusted diluted earnings per share
1.37
1.00
24
Liquidity and Capital Resources
The Company’s cash flow from operations can be cyclical. Operational cash flow is a key driver of liquidity, providing cash and access to capital markets. In assessing liquidity, the Company reviews working capital measurements to define areas for improvement. Management anticipates the Company will be able to satisfy cash requirements for its ongoing businesses for the foreseeable future primarily with cash generated by operations, existing cash balances, borrowings under its existing credit facilities and raising debt in capital markets.
The Company continues to expand globally and periodically looks at transactions that would involve significant investments. The Company can fund its global expansion plans with operational cash flow, but a significant acquisition may require access to capital markets, in particular, the long-term debt market, as well as the syndicated bank loan market. The Company’s financing strategy is to fund itself at the lowest after-tax cost of funding. Where possible, the Company utilizes operational cash flows and raises capital in the most efficient market, usually the United States, and then lends funds to the specific subsidiary that requires funding. If additional acquisitions providing appropriate financial benefits become available, additional expenditures may be made.
The following table reflects changes in key cash flow measures:
$ Change
Cash provided by operating activities (1)
23,290
Cash used by investing activities (2)
2,876
1,892
(5,516)
Cash used by financing activities (3)
(13,758)
Proceeds from short-term borrowings, net
(96,470)
81,303
(324)
Decrease in Cash and cash equivalents (4)
21,035
In April 2021, the Company paid a cash dividend of $0.51 per share, or $30,364, to shareholders of record as of March 31, 2021.
Working Capital Ratios
March 31, 2020
Average operating working capital to Net sales (1) (2)
17.7
17.4
19.0
Days sales in Inventories (2)
104.6
104.7
108.7
Days sales in Accounts receivable
55.6
53.5
53.1
Average days in Trade accounts payable
60.0
56.5
54.8
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.
26
The following table presents ROIC:
Twelve Months Ended March 31,
224,730
277,191
43,110
18,174
Acquisition transaction and integration costs
1,014
Pension settlement charges
13,005
Amortization of step up in value of acquired inventories
3,814
Gains on disposal of assets
(3,554)
Gain on change in control
(7,601)
Tax effect of Special items (1)
(10,179)
(8,549)
271,779
280,489
Plus: Interest expense, net of tax of $5,904 and 6,484 in 2021 and 2020, respectively
17,550
19,489
Less: Interest income, net of tax of $396 and $605 in 2021 and 2020, respectively
1,184
1,818
Adjusted net income before tax effected interest
288,145
298,160
Invested Capital
Short-term debt
132,378
Long-term debt, less current portion
715,950
Total debt
718,935
848,328
Total equity
Invested capital
1,522,343
1,516,288
Return on invested capital
18.9
19.7
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.
Refer to Note 4 to the consolidated financial statements for a discussion of the Company’s recent acquisitions.
Debt
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,
27
distributions, mergers and acquisitions, dispositions of assets, transactions with affiliates and a fixed charges coverage ratio and total leverage ratio. As of March 31, 2021, the Company was in compliance with all of its covenants and had no outstanding borrowings under the Credit Agreement.
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 13.1 years, respectively. The proceeds of the Notes were used for general corporate purposes. The Notes contain certain affirmative and negative covenants. As of March 31, 2021, the Company was in compliance with all of its debt covenants relating to the Notes.
Pensions
Forward-looking Statements
The Company’s expectations and beliefs concerning the future contained in this report are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements reflect management’s current expectations and involve a number of risks and uncertainties. Forward-looking statements generally can be identified by the use of words such as “may,” “will,” “expect,” “intend,” “estimate,” “anticipate,” “believe,” “forecast,” “guidance” or words of similar meaning. Actual results may differ materially from such statements due to a variety of factors that could adversely affect the Company’s operating results. The factors include, but are not limited to: general
28
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. For additional discussion, see “Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in the Company’s exposure to market risk since December 31, 2020. See “Item 7A. Quantitative and Qualitative Disclosures About Market Risk” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Company carried out an evaluation under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, the Company’s management, including the Chief Executive Officer and Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective as of March 31, 2021.
Changes in Internal Control Over Financial Reporting
There have been no changes in the Company’s internal control over financial reporting during the quarter ended March 31, 2021 that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
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 March 31, 2021, the Company was a co-defendant in cases alleging asbestos induced illness involving claims by approximately 2,775 plaintiffs, which is a net increase of 6 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: 55,500 of those claims were dismissed, 23 were tried to defense verdicts, 7 were tried to plaintiff verdicts (which were reversed or resolved after appeal), 1 was resolved by agreement for an immaterial amount and 1,008 were decided in favor of the Company following summary judgment motions.
ITEM 1A. RISK FACTORS
In addition to the other information set forth in this report, the reader should carefully consider the factors discussed in “Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 which could materially affect the Company’s business, financial condition or future results.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Issuer purchases of its common shares during the first quarter of 2021 were as follows:
Total Number of
Maximum Number
Repurchased
of Shares that May
as Part of Publicly
Yet be Purchased
Average Price
Announced Plans or
Under the Plans or
Period
Paid Per Share
Programs
Programs (2) (3)
January 1 - 31, 2021
580
(1)
114.41
11,453,193
February 1 - 28, 2021
67,747
115.80
48,301
11,404,892
March 1 - 31, 2021
169,024
121.57
159,509
11,245,383
237,351
119.90
207,810
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
Amendment and Restatement of Credit Agreement
On April 23, 2021, the Company and certain of its domestic subsidiaries (collectively, with the Company, the “Borrowers”), amended and restated the Credit Agreement by entering into the Second Amended and Restated Credit Agreement with the lenders party thereto and KeyBank National Association, as letter of credit issuer and administrative agent (the “Amended and Restated Credit Agreement”). The Amended and Restated Credit Agreement increases the total commitment amount of the line of credit to $500 million (from $400 million), provides for a maturity of the line of credit of April 23, 2026 and provides that the $500 million line of credit may be increased, subject to certain conditions, by an additional principal amount of up to $150 million. Borrowings under the Amended and Restated Credit Agreement bear interest at LIBOR plus a margin ranging from 0.67% to 1.40% based on the Company’s consolidated net leverage ratio. The line of credit may be used for general corporate purposes, including the acquisition of other businesses.
The Amended and Restated Credit Agreement contains customary representations and warranties, as well as customary affirmative, negative and financial covenants for credit facilities of this type (subject to negotiated baskets and exceptions), including limitations on the Company and its subsidiaries with respect to liens, investments, distributions, mergers and acquisitions, dispositions of assets and transactions with affiliates. The Amended and Restated Credit Agreement requires the Borrowers to regularly provide certain financial information to the lenders thereunder and to maintain a minimum consolidated fixed charges coverage ratio and maximum consolidated net leverage ratio.
As of the date of the filing of this Quarterly Report on Form 10-Q, the Company was in compliance with all applicable financial covenants and other restrictions under the Amended and Restated Credit Agreement.
The foregoing is merely a summary of the terms and conditions of the Amended and Restated Credit Agreement and is not a complete discussion of the document. Accordingly, the foregoing is qualified in its entirety by reference to the full text of the Amended and Restated Credit Agreement attached to this Quarterly Report on Form 10-Q as Exhibit 10.4, which is incorporated herein by reference.
Submission of Matters to a Vote of Security Holders.
The 2021 Annual Meeting of the shareholders of the Company was held on Thursday, April 22, 2021 as a virtual meeting and shareholders were able to participate in the 2021 Annual Meeting and vote via live webcast, and submit questions prior to the meeting. 53,132,098 shares, of the 59,659,764 shares that were outstanding and entitled to vote (89.05%), were represented in person or by proxy, constituting a quorum.
The final results of voting on each of the matters submitted for a vote of security holders at the 2021 Annual Meeting are as follows:
Proposal 1 - Shareholders elected twelve directors, each to hold office until the 2022 Annual Meeting of Shareholders and until their successors are duly elected and qualified, as set forth below.
Votes
Broker
Name
Votes For
Withheld
Non-Votes
Curtis E. Espeland
48,824,203
141,708
4,166,187
Patrick P. Goris
48,636,188
329,723
Stephen G. Hanks
48,349,000
616,911
Michael F. Hilton
48,633,905
332,006
G. Russell Lincoln
48,305,162
660,749
Kathryn Jo Lincoln
47,525,915
1,439,996
William E. MacDonald, III
48,340,431
625,480
Christopher L. Mapes
47,741,160
1,224,751
Phillip J. Mason
48,844,284
121,627
Ben P. Patel
48,633,466
332,445
Hellene S. Runtagh
48,476,674
489,237
Kellye L. Walker
48,641,736
324,175
Proposal 2 - Shareholders ratified the appointment of Ernst & Young LLP as the Company’s independent registered public accounting firm for the year ending December 31, 2021, as set forth below.
Votes Against
Abstentions
52,485,526
554,550
92,022
Proposal 3 - Shareholders approved, on an advisory basis, the compensation of the Company’s named executive officers, as set forth below.
Broker Non-Votes
46,076,948
1,130,381
1,758,582
32
ITEM 6. EXHIBITS
10.1*
10.2*
10.3*
10.4*
31.1
31.2
Certification of the Executive Vice President, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.
Certification of the Chairman, President and Chief Executive Officer (Principal Executive Officer) and Executive Vice President, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS
Inline XBRL Instance Document
101.SCH
Inline XBRL Taxonomy Extension Schema Document
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document
104
Cover page Interactive Data File (formatted as Inline XBRL and contained in the Exhibit 101 attachments)
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
/s/ Gabriel Bruno
Gabriel Bruno
Executive Vice President, Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
April 27, 2021