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 June 30, 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 June 30, 2021 was 59,386,601.
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)
8
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
9
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
23
Item 3. Quantitative and Qualitative Disclosures About Market Risk
34
Item 4. Controls and Procedures
PART II. OTHER INFORMATION
35
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 6. Exhibits
36
Signatures
37
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 as exhibit 10.4 to Form 10-Q of the Lincoln Electric Holdings, Inc. filed on April 27, 2021, SEC File No. 0-1402, and incorporated herein by reference and made a part hereof).
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 June 30,
Six Months Ended June 30,
2021
2020
Net sales (Note 2)
$
826,454
590,727
1,583,475
1,292,718
Cost of goods sold
552,445
401,349
1,055,699
866,018
Gross profit
274,009
189,378
527,776
426,700
Selling, general & administrative expenses
151,557
126,376
297,233
276,103
Rationalization and asset impairment charges (Note 6)
630
23,238
4,793
29,759
Operating income
121,822
39,764
225,750
120,838
Interest expense, net
5,663
5,881
11,022
11,339
Other income (expense) (Note 14)
1,702
(203)
286
106
Income before income taxes
117,861
33,680
215,014
109,605
Income taxes (Note 15)
21,581
6,667
44,601
27,037
Net income including non-controlling interests
96,280
27,013
170,413
82,568
Non-controlling interests in subsidiaries’ income (loss)
175
17
131
10
Net income
96,105
26,996
170,282
82,558
Basic earnings per share (Note 3)
1.62
0.45
2.86
1.38
Diluted earnings per share (Note 3)
1.60
2.83
1.37
Cash dividends declared per share
0.51
0.49
1.02
0.98
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 $(1,012) and $1,297 in the three and six months ended June 30, 2021; $317 and $(399) in the three and six months ended June 30, 2020
(4,754)
1,108
2,536
(1,261)
Defined benefit pension plan activity, net of tax of $(569) and $246 in the three and six months ended June 30, 2021; $(7,691) and $(7,527) in the three and six months ended June 30, 2020
(1,702)
(23,036)
3,358
(22,427)
Currency translation adjustment
13,579
14,468
(9,164)
(56,140)
Other comprehensive income (loss):
7,123
(7,460)
(3,270)
(79,828)
Comprehensive income
103,403
19,553
167,143
2,740
Comprehensive income (loss) attributable to non-controlling interests
65
—
(138)
(48)
Comprehensive income (loss) attributable to shareholders
103,338
167,281
2,788
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, 2021
December 31, 2020
(NOTE 1)
ASSETS
Current Assets
Cash and cash equivalents
190,884
257,279
Accounts receivable (less allowance for doubtful accounts of $14,141 in 2021; $14,779 in 2020)
457,454
373,487
Inventories (Note 9)
477,677
381,258
Other current assets
111,925
100,319
Total Current Assets
1,237,940
1,112,343
Property, plant and equipment (less accumulated depreciation of $892,915 in 2021; $884,647 in 2020)
513,686
522,092
Goodwill
412,803
335,593
Other assets
348,297
344,425
TOTAL ASSETS
2,512,726
2,314,453
LIABILITIES AND EQUITY
Current Liabilities
Short-term debt (Note 12)
10,435
2,734
Trade accounts payable
317,771
256,530
Accrued employee compensation and benefits
124,606
98,437
Other current liabilities
243,208
191,748
Total Current Liabilities
696,020
549,449
Long-term debt, less current portion (Note 12)
718,137
715,456
Other liabilities
238,946
259,298
Total Liabilities
1,653,103
1,524,203
Shareholders' Equity
Common Shares
9,858
Additional paid-in capital
427,576
409,958
Retained earnings
2,928,819
2,821,359
Accumulated other comprehensive loss
(305,191)
(302,190)
Treasury Shares
(2,201,397)
(2,149,714)
Total Shareholders' Equity
859,665
789,271
Non-controlling interests
(42)
979
Total Equity
859,623
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
74,177
(44)
74,133
Unrecognized amounts from defined benefit pension plans, net of tax
5,060
Unrealized gain on derivatives designated and qualifying as cash flow hedges, net of tax
7,290
(22,584)
(159)
(22,743)
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
418,529
2,864,223
(312,424)
(2,176,671)
(107)
803,408
Unrealized loss on derivatives designated and qualifying as cash flow hedges, net of tax
13,689
(110)
Cash dividends declared – $0.51 per share
(30,552)
46
8,638
503
9,141
(197)
(25,229)
409
(957)
(548)
Balance at June 30, 2021
59,387
Balance at December 31, 2019
60,592
389,446
2,736,481
(275,850)
(2,041,763)
905
819,077
55,562
(7)
55,555
609
(2,369)
(70,567)
(41)
(70,608)
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
387,096
2,767,939
(348,177)
(2,149,613)
857
667,960
14,485
(17)
(29,260)
25
4,754
317
5,071
(45)
(3,213)
2,842
(2,842)
Balance at June 30, 2020
59,367
394,692
2,762,833
(355,620)
(2,152,509)
660,111
7
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 (gains) charges (Note 6)
(1,374)
21,905
Depreciation and amortization
38,508
41,078
Equity earnings in affiliates, net
(291)
(243)
Deferred income taxes
(20,995)
(10,636)
Stock-based compensation
12,651
7,807
Other, net
3,524
(2,459)
Changes in operating assets and liabilities, net of effects from acquisitions:
(Increase) decrease in accounts receivable
(87,571)
23,666
Increase in inventories
(83,186)
(30,378)
(Increase) decrease in other current assets
(12,007)
3,241
Increase (decrease) in trade accounts payable
63,275
(40,115)
Increase in other current liabilities
59,128
29,169
Net change in other assets and liabilities
3,159
410
NET CASH PROVIDED BY OPERATING ACTIVITIES
145,234
126,013
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures
(27,768)
(25,011)
Acquisition of businesses, net of cash acquired
(83,723)
Proceeds from sale of property, plant and equipment
2,557
6,218
Other investing activities
6,500
NET CASH USED BY INVESTING ACTIVITIES
(102,434)
(18,793)
CASH FLOWS FROM FINANCING ACTIVITIES
Amounts due banks, net
1,163
15,095
Proceeds from exercise of stock options
5,672
2,002
Purchase of shares for treasury (Note 8)
(53,688)
(112,975)
Cash dividends paid to shareholders
(61,379)
(59,814)
Other financing activities
(763)
NET CASH USED BY FINANCING ACTIVITIES
(108,995)
(155,692)
Effect of exchange rate changes on Cash and cash equivalents
(200)
(8,036)
DECREASE IN CASH AND CASH EQUIVALENTS
(66,395)
(56,508)
Cash and cash equivalents at beginning of period
199,563
CASH AND CASH EQUIVALENTS AT END OF PERIOD
143,055
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 six months ended June 30, 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
475,559
333,671
909,738
739,511
Equipment
350,895
257,056
673,737
553,207
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 June 30, 2021, the Company recorded $22,283 related to advance customer payments and $50,357 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 June 30, 2021 and December 31, 2020, the Company recorded $23,294 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
59,464
59,354
59,553
59,769
Effect of dilutive securities - Stock options and awards
700
477
676
531
Diluted weighted average shares outstanding
60,164
59,831
60,229
60,300
Basic earnings per share
Diluted earnings per share
For the three months ended June 30, 2021 and 2020, common shares subject to equity-based awards of 179,861 and 852,159, respectively, were excluded from the computation of diluted earnings per share because the
effect of their exercise would be anti-dilutive. For the six months ended June 30, 2021 and 2020, common shares subject to equity-based awards of 134,388 and 779,404, 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. The acquisition expands the Company’s international automation capabilities to serve customers in the structural steel and infrastructure sectors.
Pro forma information related to the acquisition discussed above has not been presented because the impact on the Company’s Consolidated Statements of Income is not material. The preliminary purchase price allocation is expected to be finalized within the allowable measurement period. The acquired company is included in the Company's consolidated financial statements as of the date of acquisition.
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.
11
The following table presents Adjusted EBIT by segment:
The Harris
Americas
International
Products
Corporate /
Welding
Group
Eliminations
Consolidated
Three Months Ended June 30, 2021
457,468
252,352
116,634
Inter-segment sales
39,765
6,897
2,284
(48,946)
497,233
259,249
118,918
Adjusted EBIT
84,134
29,997
18,212
(3,888)
128,455
Special items charge (gain) (1)
1,650
2,471
810
4,931
EBIT
82,484
27,526
(4,698)
123,524
Interest income
398
Interest expense
(6,061)
Three Months Ended June 30, 2020
333,229
177,167
80,331
27,493
4,286
1,753
(33,532)
360,722
181,453
82,084
46,702
9,682
11,713
(1,964)
66,133
Special items charge (gain) (2)
26,007
565
26,572
20,695
9,117
39,561
424
(6,305)
Six Months Ended June 30, 2021
882,710
475,431
225,334
72,513
11,182
4,431
(88,126)
955,223
486,613
229,765
160,751
48,813
36,909
(5,344)
241,129
6,090
7,080
1,923
15,093
154,661
41,733
(7,267)
226,036
852
(11,874)
Six Months Ended June 30, 2020
751,764
375,090
165,864
52,276
8,769
3,478
(64,523)
804,040
383,859
169,342
117,404
16,297
24,205
(3,063)
154,843
27,197
6,702
33,899
90,207
9,595
120,944
1,284
(12,623)
12
NOTE 6 — RATIONALIZATION AND ASSET IMPAIRMENTS
The Company recorded Rationalization and asset impairment net charges of $4,793 and $29,759 in the six months ended June 30, 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 June 30, 2021, liabilities of $12,353 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 six months ended June 30, 2021:
Americas Welding
13,597
13,622
Payments and other adjustments
(25)
(7,411)
(7,436)
Charged to expense
6,167
12,353
13
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
9,777
(96,710)
(225,491)
Other comprehensive income (loss) before reclassification
(5,089)
(2,587)
6,013
Amounts reclassified from AOCI
335
1
885
1,220
Net current-period other comprehensive income (loss)
7,233
5,023
(98,412)
(211,802)
(743)
(69,937)
(277,497)
112
(26,127)
(11,530)
996
3,091
4,087
(7,443)
365
(92,973)
(263,012)
14
2,487
(101,770)
(202,907)
1,977
(1,985)
(8,895)
(8,903)
559
5,343
5,902
(3,001)
1,626
(70,546)
(206,930)
(2,200)
(56,082)
(84,409)
939
3,700
4,639
(79,770)
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 June 30, 2021, the Company purchased a total of 0.2 million shares at an average cost per share of $127.73. During the six months ended June 30, 2021, the Company purchased a total of 0.4 million shares at an average cost per share of $124.04. As of June 30, 2021, 11.0 million common shares remained available for repurchase under these programs. The repurchased common shares remain in treasury and have not been retired.
15
NOTE 9 — INVENTORIES
Inventories in the Condensed Consolidated Balance Sheets are comprised of the following components:
Raw materials
125,080
111,888
Work-in-process
91,899
60,341
Finished goods
260,698
209,029
At June 30, 2021 and December 31, 2020, approximately 35% 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 $88,909 and $75,581 at June 30, 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
47,268
43,570
Current liabilities
10,651
11,502
Noncurrent liabilities
38,259
33,988
Total lease liabilities
48,910
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 $5,608 and $10,660 in the three and six months ended June 30, 2021 and $5,990 and $11,209 in the three and six months ended June 30, 2020, respectively. Cash paid for amounts included in the measurement of lease liabilities for the three and six months ended June 30, 2021, respectively, were $3,263 and $6,652 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 six months ended June 30, 2020, respectively, were $3,897 and $7,994 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 $9,694 during the three and six months ended June 30, 2021 and $0 and $2,035 for the three and six months ended June 30, 2020, respectively.
16
The total future minimum lease payments for noncancelable operating leases were as follows:
6,417
2022
10,496
2023
8,478
2024
6,848
2025
4,024
After 2025
20,677
Total lease payments
56,940
Less: Imputed interest
8,030
Operating lease liabilities
As of June 30, 2021, the weighted average remaining lease term is 8.7 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:
Balance at beginning of year
21,760
20,650
Accruals for warranties
7,637
7,835
Settlements
(6,603)
(6,940)
Foreign currency translation and other adjustments
(176)
(206)
Balance at end of year
22,618
21,339
NOTE 12 — DEBT
Revolving Credit Agreements
On April 23, 2021, the Company amended and restated the agreement governing its line of credit by entering into the Second Amended and Restated Credit Agreement (“Credit Agreement”). The 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 including the consent of its lenders, 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 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. As of June 30, 2021, 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 $94,170. As of June 30, 2021, the Company was in compliance with all of its covenants and had $9,787 outstanding at June 30, 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 12.9 years, respectively. The proceeds of the Notes were used for general corporate purposes. The Notes contain certain affirmative and negative covenants. As of June 30, 2021, the Company was in compliance with all of its debt covenants relating to the Notes.
Shelf Agreements
On November 27, 2018, the Company entered into seven uncommitted master note facilities (the "Shelf Agreements") that allow borrowings up to $700,000 in the aggregate. The Shelf Agreements have a term of 5 years and the average life of borrowings cannot exceed 15 years. The Company is required to comply with covenants similar to those contained in the Notes. As of June 30, 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 June 30, 2021 and December 31, 2020, the fair value of long-term debt, including the current portion, was approximately $776,643 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 $718,785 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
48
324
39
742
97
795
78
1,498
Interest cost
3,072
392
4,051
683
6,053
1,008
8,101
1,379
Expected return on plan assets
(4,198)
(537)
(5,711)
(1,014)
(8,707)
(1,509)
(11,422)
(2,021)
Amortization of prior service cost
(1)
31
Amortization of net loss
670
203
540
1,251
446
406
1,095
Settlement charges (1)
3,334
Defined benefit plans
1,242
189
1,916
967
4,784
1,197
497
1,982
Multi-employer plans
258
257
502
526
Defined contribution plans
5,872
553
4,751
773
11,034
1,398
10,377
1,475
Total pension cost
7,114
1,000
1,997
15,818
3,097
10,874
3,983
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.
18
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
114
81
291
243
Other components of net periodic pension (cost) income (1)
(1,059)
(2,102)
(903)
Other income (expense)
2,647
1,818
5,084
766
Total Other income (expense)
NOTE 15 — INCOME TAXES
The Company recognized $44,601 of tax expense on pretax income of $215,014, resulting in an effective income tax rate of 20.7% for the six months ended June 30, 2021. The effective income tax rate was 24.7% for the six months ended June 30, 2020.
The effective tax rate was lower for the six months ended June 30, 2021, as compared with the same period in 2020, primarily due to favorable discrete tax adjustments in 2021, as well as higher tax expense associated with a valuation allowance recorded in 2020.
As of June 30, 2021, the Company had $18,210 of unrecognized tax benefits. If recognized, approximately $14,594 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 $1,645 in previously unrecognized tax benefits by the end of the second 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 six months ended June 30, 2021 and 2020.
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The Company is subject to the credit risk of the counterparties to derivative instruments. Counterparties include a number of major banks and financial institutions. None of the concentrations of risk with any individual counterparty was considered significant at June 30, 2021. 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 $66,588 at June 30, 2021 and $69,051 at December 31, 2020.
During March and April 2020, the Company entered into interest rate forward starting swap agreements to hedge the variability of future changes in interest rates. The dollar equivalent gross notional amount of the long-term contracts was $100,000 at June 30, 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 June 30, 2021, the Company had no interest rate swap agreements outstanding. The Company terminated $50,000 of interest rate swaps in the six months ended June 30, 2020, which resulted in a gain of $6,629 that is 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 June 30, 2021 and December 31, 2020, respectively.
The Company has foreign currency forward contracts that qualify and are designated as net investment hedges. The dollar equivalent gross notional amount of these short-term contracts was $98,334 at June 30, 2021.
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 $425,603 and $391,112 at June 30, 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
1,096
377
2,451
1,124
Forward starting swap agreements
8,279
4,876
Net investment contracts
860
2,929
4,308
Not designated as hedging instruments:
1,985
2,394
3,485
Total derivatives
3,081
3,631
3,849
4,609
20
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:
7,164
3,624
5,878
(18,509)
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
426
660
6,194
3,649
(1,597)
(1,822)
The Company expects a loss of $3,489 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
(1,463)
241
(1,525)
(495)
146
(974)
268
NOTE 17 - FAIR VALUE
The following table provides a summary of assets and liabilities as of June 30, 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
11,360
Liabilities:
2,771
3,789
Deferred compensation
41,860
Total liabilities
48,420
21
The following table provides a summary of assets and liabilities as of December 31, 2020, measured at fair value on a recurring basis:
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, swap agreements and net investment contracts 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 June 30, 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.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Dollars in thousands, except per share amounts)
This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read together with the Company’s unaudited consolidated financial statements and other financial information included elsewhere in this Quarterly Report on Form 10-Q.
General
The Company is the world’s largest designer and manufacturer of arc welding and cutting products, manufacturing a broad line of arc welding equipment, consumable welding products and other welding and cutting products. Welding products include arc welding power sources, computer numerical control and plasma cutters, wire feeding systems, robotic welding packages, integrated automation systems, fume extraction equipment, consumable electrodes, fluxes, welding accessories and specialty welding consumables and fabrication. The Company’s 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
%
235,727
39.9
(151,096)
(37.6)
33.2
32.1
84,631
44.7
18.3
21.4
(25,181)
(19.9)
Rationalization and asset impairment charges
0.1
3.9
22,608
97.3
14.7
6.7
82,058
206.4
218
3.7
1,905
938.4
14.3
5.7
84,181
249.9
Income taxes
(14,914)
(223.7)
Effective tax rate
19.8
1.5
69,267
256.4
Non-controlling interests in subsidiaries' loss
158
929.4
11.6
4.6
69,109
256.0
1.15
255.6
290,757
22.5
(189,681)
(21.9)
33.3
33.0
101,076
23.7
18.8
(21,130)
(7.7)
0.3
2.3
24,966
83.9
9.3
104,912
86.8
2.8
180
169.8
13.6
8.5
105,409
96.2
(17,564)
(65.0)
20.7
24.7
4.0
87,845
106.4
121
1,210.0
10.8
6.4
87,724
106.3
1.46
106.6
24
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.
153,801
3,585
59,021
19,320
% Change
26.0
0.6
10.0
3.3
172,902
85,149
29,121
13.4
6.6
Net sales increased in the three and six months ended June 30, 2021 driven by higher demand reflecting recovery from the impacts of the pandemic, increased product pricing as a result of higher input costs and favorable foreign exchange.
Gross Profit:
Gross profit for the three and six months ended June 30, 2021 increased 44.7% and 23.7%, respectively, driven by higher Net sales volumes reflecting recovery from the impacts of the COVID-19 pandemic. As a percent of sales, Gross profit increased compared to the prior year periods primarily due to higher Net sales volumes and the related operating leverage, partially offset by higher last-in, first-out (“LIFO”) charges of $9,474 and $13,328 in the three and six months ended June 30, 2021, respectively, as compared with charges of $(76) and $135 in the same 2020 periods, respectively.
Selling, General & Administrative ("SG&A") Expenses:
SG&A expenses increased for the three and six months ended June 30, 2021 as compared to the same 2020 periods, primarily due to higher employee costs.
Rationalization and Asset Impairment Charges:
The Company recorded charges of $630 ($819 after-tax) and $4,793 ($4,650 after-tax) in the three and six months ended June 30, 2021, respectively, primarily related to severance charges and gains or losses on the disposal of assets. The Company recorded charges of $23,238 ($18,494 after-tax) and $29,759 ($23,039 after-tax) in the three and six months ended June 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.
Income Taxes:
The effective tax rate was lower for the three and six months ended June 30, 2021 as compared to the same 2020 periods, primarily due to favorable discrete tax adjustments in 2021, as well as higher tax expense associated with a valuation allowance recorded in the six months ended June 30, 2020.
Net Income:
The increase in Net income for the three and six months ended June 30, 2021 as compared to the same 2020 periods, was primarily due to higher Net sales volumes reflecting recovery from the impacts of the COVID-19 pandemic and the related operating leverage.
Segment Results
Volume (1)
Acquisitions (2)
Price (3)
Operating Segments
90,285
27,330
6,624
International Welding
45,095
14,712
11,793
The Harris Products Group
18,421
16,979
903
27.1
8.2
2.0
37.3
25.5
8.3
42.4
22.9
21.1
1.1
45.2
86,495
36,395
8,056
56,345
19,332
21,079
30,062
29,422
(14)
11.5
4.8
17.4
15.0
1.0
5.2
5.6
26.8
18.1
17.7
35.9
26
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:
124,239
12,272
44.6
Total Sales
136,511
37.8
Adjusted EBIT (3)
37,432
80.2
As a percent of total sales (1)
16.9
12.9
International Welding:
75,185
2,611
60.9
77,796
42.9
Adjusted EBIT (4)
20,315
209.8
5.3
6.3
The Harris Products Group:
36,303
30.3
36,834
44.9
6,499
55.5
As a percent of total sales (2)
15.3
Corporate / Eliminations:
15,414
46.0
Adjusted EBIT (5)
1,924
98.0
Consolidated:
As a percent of total sales
7.0
62,322
94.2
As a percent of sales
15.5
11.2
4.3
27
130,946
20,237
38.7
151,183
43,347
36.9
16.8
14.6
2.2
100,341
2,413
27.5
102,754
32,516
199.5
4.2
5.8
59,470
953
27.4
60,423
35.7
12,704
52.5
16.1
1.8
23,603
36.6
2,281
74.5
4.4
Adjusted EBIT (6)
86,286
55.7
15.2
12.0
3.2
28
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)
1,841
806
Adjusted operating income
125,103
63,002
234,307
151,403
Net income as reported
Special items:
Pension settlement charges (4)
6,536
Tax effect of Special items (5)
(433)
(5,576)
(1,994)
(7,552)
Adjusted net income
100,603
47,992
183,381
108,905
Income taxes as reported
433
5,576
1,994
7,552
Effective tax rate as reported
Net special item tax impact
(0.4)
0.5
(0.5)
(0.6)
Adjusted effective tax rate
17.9
20.3
20.2
24.1
Diluted earnings per share as reported
Special items per share
0.07
0.35
0.21
0.44
Adjusted diluted earnings per share
1.67
0.80
3.04
1.81
29
The tax effect of Special items impacting pre-tax income was calculated as the pre-tax amount multiplied by the applicable tax rate. The applicable tax rates reflect the taxable jurisdiction and nature of each Special item.
Liquidity and Capital Resources
The Company’s cash flow from operations can be cyclical. Operational cash flow is a key driver of liquidity, providing cash and access to capital markets. In assessing liquidity, the Company reviews working capital measurements to define areas for improvement. Management anticipates the Company will be able to satisfy cash requirements for its ongoing businesses for the foreseeable future primarily with cash generated by operations, existing cash balances, borrowings under its existing credit facilities and raising debt in capital markets.
The Company continues to expand globally and periodically looks at transactions that would involve significant investments. The Company can fund its global expansion plans with operational cash flow, but a significant acquisition may require access to capital markets, in particular, the long-term debt market, as well as the syndicated bank loan market. The Company’s financing strategy is to fund itself at the lowest after-tax cost of funding. Where possible, the Company utilizes operational cash flows and raises capital in the most efficient market, usually the United States, and then lends funds to the specific subsidiary that requires funding. If additional acquisitions providing appropriate financial benefits become available, additional expenditures may be made.
The following table reflects changes in key cash flow measures:
$ Change
Cash provided by operating activities (1)
19,221
Cash used by investing activities (2)
(83,641)
(2,757)
Cash used by financing activities (3)
46,697
59,287
(1,565)
Decrease in Cash and cash equivalents (4)
(9,887)
30
In July 2021, the Company paid a cash dividend of $0.51 per share, or $30,287, to shareholders of record as of June 30, 2021.
Working Capital Ratios
June 30, 2020
Average operating working capital to Net sales (1) (2)
17.2
22.8
Days sales in Inventories (2)
110.2
104.7
131.4
Days sales in Accounts receivable
53.9
53.5
56.8
Average days in Trade accounts payable
59.9
56.5
58.1
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 June 30,
293,839
218,735
20,502
40,105
Acquisition transaction costs
Pension settlement charges
11,321
Amortization of step up in value of acquired inventories
2,415
Gain on change in control
(7,601)
Tax effect of Special items (1)
(5,036)
(9,374)
324,390
247,614
Plus: Interest expense, net of tax of $5,843 and $6,439 in 2021 and 2020, respectively
17,368
19,348
Less: Interest income, net of tax of $389 and $563 in 2021 and 2020, respectively
1,166
1,691
Adjusted net income before tax effected interest
340,592
265,271
Invested Capital
Short-term debt
49,597
Long-term debt, less current portion
715,817
Total debt
728,572
765,414
Total equity
Invested capital
1,588,195
1,425,525
Return on invested capital
18.6
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.
32
Debt
Revolving 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 12.9 years, respectively. The proceeds of the Notes were used for general corporate purposes. The Notes contain certain affirmative and negative covenants. As of June 30, 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
33
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 pandemic, 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 June 30, 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 June 30, 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 June 30, 2021, the Company was a co-defendant in cases alleging asbestos induced illness involving claims by approximately 2,751 plaintiffs, which is a net decrease of 24 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: 55,528 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. The reader should not interpret the disclosure of any risk factor to imply that the risk has not already materialized.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Issuer purchases of its common shares during the second 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)
April 1 - 30, 2021
67,780
(1)
124.33
67,559
11,177,824
May 1 - 31, 2021
62,828
130.54
61,298
11,116,526
June 1 - 30, 2021
66,856
128.63
11,049,670
197,464
127.76
195,713
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 6. EXHIBITS
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)
July 27, 2021