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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

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

For the fiscal year ended December 31, 2022

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)

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Ohio

  

34-1860551

(State or other jurisdiction of

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(I.R.S. Employer Identification No.)

incorporation or organization)

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22801 St. Clair Avenue, Cleveland, Ohio

  

44117

(Address of principal executive offices)

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(Zip Code)

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(216) 481-8100

(Registrant’s telephone number, including area code)

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

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Title of each class

   

Trading Symbol

   

Name of each exchange on which registered

Common Shares, without par value

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LECO

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The NASDAQ Stock Market LLC

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Securities registered pursuant to Section 12(g) of the Act: None

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Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒    No ☐

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Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐    No ☒

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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 ☐

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Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒   No ☐

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

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Large accelerated filer

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Accelerated filer

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Non-accelerated filer

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Smaller reporting company

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Emerging growth company

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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. ☐

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Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(c)) by the registered public accounting firm that prepared or issued its audit report. ☒

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If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

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Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐

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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐    No ☒

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The aggregate market value of the common shares held by non-affiliates as of June 30, 2022 was $7,021,065,796 (affiliates, for this purpose, have been deemed to be Directors and Executive Officers of the Company and certain significant shareholders).

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The number of shares outstanding of the registrant’s common shares as of January 31, 2023 was 57,581,543.

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DOCUMENTS INCORPORATED BY REFERENCE

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Part III of this Annual Report on Form 10-K incorporates by reference certain information from the registrant’s definitive proxy statement with respect to the registrant’s 2023 Annual Meeting of Shareholders.

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Table of Contents

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PART I

ITEM 1. BUSINESS

General

As used in this Annual Report on Form 10-K, 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 Lincoln Electric Company began operations in 1895 and was incorporated under the laws of the State of Ohio in 1906. During 1998, The Lincoln Electric Company reorganized into a holding company structure, and Lincoln Electric Holdings, Inc. became the publicly-held parent of Lincoln Electric subsidiaries worldwide, including The Lincoln Electric Company.

The Company is one of only a few worldwide broad-line manufacturers of welding, cutting and brazing products. The Company is the world leader in the design, development and manufacture of arc welding products, automated joining, assembly and cutting systems, plasma and oxy-fuel cutting equipment. The Company also has a leading global position in brazing and soldering alloys.

The Company’s products include arc welding, brazing and soldering filler metals (consumables), arc welding equipment, plasma and oxyfuel cutting systems, wire feeding systems, fume control equipment, welding accessories, specialty gas regulators, and education solutions; as well as a comprehensive portfolio of automated solutions for joining, cutting, material handling, module assembly, and end of line testing.

The arc welding power sources and wire feeding systems manufactured by the Company range in technology from basic units used for light manufacturing and maintenance to highly sophisticated robotic applications for high volume production welding and fabrication. Three primary types of arc welding consumables are produced: (1) coated manual or stick electrodes; (2) solid wire produced in coil, reel or drum forms for continuous feeding in mechanized welding; and (3) cored wire produced in coil form for continuous feeding in mechanized welding.

The Company has, through wholly-owned subsidiaries, manufacturing facilities located in the United States, Australia, Austria, Brazil, Canada, China, Colombia, France, Germany, India, Italy, Mexico, Poland, Portugal, Romania, Russia, South Korea, Spain, Turkey and the United Kingdom.

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 cutting, soldering and brazing businesses, specialty gas equipment, as well as the retail business in the United States.

On December 1, 2022, the Company acquired Fori Automation, LLC (“Fori”) for a cash purchase price of $427,000, subject to customary working capital adjustments. Fori is a leading designer and manufacturer of complex, multi-armed automated welding systems, with an extensive range of automated assembly systems, automated material handling solutions, automated large-scale, industrial guidance vehicles, and end of line testing systems. The Fori acquisition will extend the Company’s market presence within the automotive sector as well as its automation footprint in the International Welding segment.

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Customers

The Company’s products are sold in both domestic and international markets. In the Americas, products are sold principally through industrial distributors, retailers and also directly to users of welding products (OEMs, manufacturers and integrators). 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.

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The Company’s major end-user markets include:

●general fabrication,
●energy (oil and gas, power generation and process industries),
●heavy industries (heavy fabrication, ship building and maintenance and repair),
●automotive and transportation, and
●construction and infrastructure.

The Company is not dependent on a single customer or a few customers and no individual customer currently accounts for more than ten percent of total Net sales. However, the loss of a large customer could have an adverse effect on the Company’s business. The Company’s operating results are sensitive to changes in general economic conditions, including an increase in interest rates, inflationary pressures and fluctuations in foreign currency rates. The arc welding and cutting industry is generally a mature industry in developed markets such as North America and Western Europe and is cyclical in nature. Overall demand for arc welding and cutting products is largely determined by economic cycles and the level of capital spending in manufacturing and other industrial sectors. The Company experiences some variability in reported period-to-period results as historical demand for the Company’s products is mildly seasonal with generally higher demand in the second and third quarters. See "Item 1A. Risk Factors" for further discussion regarding risks associated with customers, general economic conditions and demand.

Competition

Conditions in the arc welding and cutting industry are highly competitive. The Company believes it is the world’s largest manufacturer of consumables and equipment with relatively few major broad-line competitors worldwide, but numerous smaller competitors in specific geographic markets. The Company continues to pursue strategies to heighten its competitiveness in domestic and international markets, which includes positioning low cost manufacturing facilities in most geographical markets. Competition in the arc welding and cutting industry is based on brand preference, product quality, price, performance, warranty, delivery, service and technical support. The Company believes its performance against these factors has contributed to the Company’s position as the leader in the industry.

Most of the Company’s products may be classified as standard commercial articles and are manufactured for stock. The Company believes it has a competitive advantage in the marketplace because of its highly trained technical sales force and the support of its welding research and development staff to assist customers in optimizing their welding applications. This allows the Company to introduce its products to new users and to establish and maintain close relationships with its customers. This close relationship between the technical sales force and the direct customers, together with its supportive relationship with its distributors, who are particularly interested in handling the broad range of the Company’s products, is an important element of the Company’s market success and a valuable asset of the Company.

Raw Materials

The principal raw materials essential to the Company’s business are steel, electronic components, engines, brass, copper, silver, aluminum alloys, robotic components and various chemicals, all of which are normally available for purchase in the open market.

Patents and Trademarks

The Company holds many valuable patents, primarily in arc welding, and actively protects its innovations as research and development has progressed in both the United States and major international jurisdictions. The Company believes its trademarks are an important asset and aggressively pursues brand management.

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Environmental Regulations

The Company’s facilities are subject to environmental regulations. To date, compliance with these environmental regulations has not had a material adverse effect on the Company’s earnings. The Company is ISO 14001 certified at most significant manufacturing facilities in North America and Europe and is progressing towards certification at its remaining facilities worldwide. In addition, the Company is ISO 9001 certified at 42 facilities worldwide.

The Company ensures compliance as well as the continuous improvement of the environmental performance of its products and operations through its global Environmental, Health, Safety and Quality (“EHS&Q”) systems. The Company’s systems are guided by the Corporate EHS&Q Policy, global directives and corporate standards that establish consistent guidelines for the management, measurement and reporting of environmental, health and safety activities, as well as quality across the Company’s global platform. The Company’s products support our customers' sustainability initiatives through enhanced worker safety, reduced emissions, improved energy efficiency, reduced waste and regulatory compliance.

International Operations

The Company conducts a significant amount of its business and has a number of operating facilities in countries outside the United States. As a result, the Company is subject to business risks inherent to non-U.S. activities, including political uncertainty, import and export limitations, exchange controls and currency fluctuations.

Human Capital Management

Employee Profile

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The Company’s employees are its most valuable asset as they represent the foundation of the Company and its future success. The number of persons employed by the Company worldwide at December 31, 2022 was approximately 12,000.

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Employee Engagement

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The Company strongly believes that employee engagement drives better business results and that a highly engaged workforce can increase innovation, productivity and bottom-line performance while reducing costs. The Company engages employees through individual, small group and town hall meetings, its Advisory Board, global intranet, employee surveys, resource groups, health and safety communications and initiatives, training and development, employee wellness programs, and an ethics hotline, among other vehicles.

Talent Management and Development

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In order to ensure the competitiveness of our workforce as well as a strong succession pipeline, the Company provides development opportunities to advance skills, knowledge and expertise. The Company’s programs include formal leadership, management and professional development programs, tuition reimbursement for external accredited programs, mentoring, self-guided online courses, instructor-led programs and special project and rotational assignments that can lead to extensive global exposure.

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Diversity and Inclusion

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The Company has a longstanding commitment to equal opportunity in all aspects of employment—including employee compensation, job placement and promotion regardless of gender, race or other personal characteristics. The Company’s culture is underpinned by its core values, including the guiding principles championed by James F. and John C. Lincoln when they founded Lincoln Electric over 125 years ago – The Golden Rule: Treat Others How You Would Like to Be Treated. The Company has implemented several measures that focus on ensuring that accountability exists for making progress in diversity. The CEO and other senior leaders have diversity and inclusion objectives as part of their annual

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performance goals. The Company focuses on diverse talent sourcing strategies and partners with external organizations that develop and supply diverse talent. The Company reviews and updates its human resources processes and benchmarks roles and compensation externally on a regular basis to help prevent bias and promote a diverse and inclusive workplace.

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Compensation

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The Company’s compensation program is designed to attract and retain exceptional employees and to maintain a strong pay for performance culture. The Company has designed its compensation system to reflect current best practices, including setting base pay below the competitive market for each position, targeting incentive-based cash compensation above the competitive market and promoting quality corporate governance in compensation decisions.

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The Company’s annual talent and succession planning process reviews 100% of its global professional staff worldwide to support the development of a talent pipeline for critical roles in general management, engineering and operations. This evaluation includes the Company’s CEO, as well as segment business and functional leaders, and focuses on high potential talent, diverse talent and succession within the Company’s most critical roles.

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The Company believes that the practices outlined above result in sustained increases in shareholder value and reflect its compensation philosophy of aligning long-term pay and performance.

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Health and Safety

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Health and safety is a priority for the Company, its vision is an accident-free workplace with zero safety incidents. The Company follows a rigorous health and safety program that adheres to stringent safety standards and best practices to ensure its manufacturing operations, related processes and products do not negatively impact the health and welfare of its employees, customers and neighbors.

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In addition to Company-led programs and employee engagement in behavior-based safety and wellness committees, the Company actively engages in health and safety standard development committees at key industry organizations such as the American Welding Society, the International Institute of Welding and across various International Standards Organization committees to ensure best practices for its employees and end users.

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The Company’s standard health and safety programs adhere to stringent safety standards and best practices to ensure that its operations, related processes and products do not negatively impact the health and welfare of its employees, customers or community.

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Community Engagement

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The Company is an active member in the communities in which it operates and where its employees live. The Company participates in community meetings, local business associations, offers plant visits, provides grants to nonprofit organizations and donates resources and time through in-kind gifts, employee volunteerism and non-profit board service. The Company’s partnership with academia includes executive-led lectures and donations of equipment and engineering expertise to support lab and research initiatives. In addition, the Company supports community educational / career programming among secondary and high school students in order to address skills gaps in the industry and maintain awareness of attractive career pathways in manufacturing.

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See "Part I, Item 1C" for information regarding the Company’s executive officers, which is incorporated herein by reference.

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Website Access

The Company’s website, www.lincolnelectric.com, is used as a channel for routine dissemination of important information, including news releases and financial information. The Company posts its filings as soon as reasonably practicable after they are electronically filed with, or furnished to, the Securities and Exchange Commission ("SEC"), including annual, quarterly and current reports on Forms 10-K, 10-Q and 8-K, respectively; proxy statements; and any amendments to those reports or statements. The Company also posts its Code of Corporate Conduct and Ethics on its website. All such postings and filings are available on the Company’s website free of charge. In addition, this website allows investors and other interested persons to sign up to automatically receive e-mail alerts when news releases and financial information is posted on the website. The SEC also maintains a website, www.sec.gov, that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. The content on any website referred to in this Annual Report on Form 10-K is not incorporated by reference into this Annual Report unless expressly noted.

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ITEM 1A. RISK FACTORS

From time to time, information we provide, statements by our employees or information included in our filings with the SEC may contain forward-looking statements that are not historical facts. Those statements are "forward-looking" within the meaning of the Private Securities Litigation Reform Act of 1995. 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. Forward-looking statements, and our future performance, operating results, financial position and liquidity, are subject to a variety of factors that could materially affect results, including those risks described below. Forward-looking statements made in this report speak only as of the date of the statement, and, except as required by law, we undertake no obligation to update those statements. Comparisons of results for current and any prior periods are not intended to express any future trends or indications of future performance, unless expressed as such, and should only be viewed as historical data.

In the ordinary course of our business, we face various strategic, operating, compliance and financial risks. These risks could have a material impact on our business, financial condition, operating results and cash flows. Our Enterprise Risk Management ("ERM") process seeks to identify and address significant risks. Our ERM process is a company-wide initiative that is designed with the intent of prioritizing risks and allocating appropriate resources to address such risks. We use the integrated risk framework of the Committee of Sponsoring Organizations to assess, manage and monitor risks.

Management has identified and prioritized critical risks based on the severity and likelihood of each risk and assigned an executive to address each major identified risk area and lead action plans to monitor and mitigate risks, where possible. Our Board of Directors provides oversight of the ERM process and systematically reviews identified critical risks. The Audit Committee also reviews major financial risk exposures and the steps management has taken to monitor and control them.

Our goal is to pro-actively manage risks in a structured approach and in conjunction with the strategic planning process, with the intent to preserve and enhance shareholder value. However, these and other risks and uncertainties could cause our results to vary materially from recent results or from our anticipated future results. The risk factors and uncertainties described below, together with information incorporated by reference or otherwise included elsewhere in this Annual Report on Form 10-K, should be carefully considered. Although the risks are organized by headings, and each risk is discussed separately, many are interrelated. Additional risks and uncertainties of which we are currently unaware or that we currently believe to be immaterial may also adversely affect our business. Readers should not interpret the disclosure of any risk factor to imply that the risk has not yet already materialized.

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Risks Related to Economic Conditions

General economic, financial and market conditions may adversely affect our financial condition, results of operations and access to capital markets.

Our operating results are sensitive to changes in general economic conditions. Recessionary economic cycles, global supply chain disruptions, higher logistics costs, higher interest rates, inflation, higher raw materials costs, higher labor costs, trade barriers in the world markets, financial turmoil related to sovereign debt and changes in tax laws or trade laws or other economic factors affecting the countries and industries in which we do business could adversely affect demand for our products. An adverse change in demand could impact our results of operations, collection of accounts receivable and our expected cash flow generation from current and acquired businesses, which may adversely affect our financial condition, results of operations and access to capital markets.

In March 2022, in response to Russia’s invasion of Ukraine, the Company announced it had ceased operations in Russia and implemented plans to support its Russian employees. Although the Company’s Net sales and Total assets in Russia were less than 1% of consolidated Net sales and Total assets for the year ended December 31, 2022, the Russia-Ukraine conflict and sanctions imposed globally may result in economic and supply chain disruptions, the ultimate financial impact of which cannot be reasonably estimated at this time. The Company continues to monitor the Russia-Ukraine conflict and its potential impacts.

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We conduct our sales and distribution operations on a worldwide basis and maintain manufacturing facilities in a number of foreign countries, which subjects us to risks associated with doing business outside the United States.

As a growing global enterprise, the share of sales and profits we derive from our international operations and exports from the United States is significant. This trend increases our exposure to the performance of many developing economies in addition to the developed economies outside of the United States. If international economies were to experience significant slowdowns, it could adversely affect our financial condition, results of operations and cash flows. There are a number of risks in doing business internationally, which may impede our ability to achieve our strategic objectives relating to our foreign operations, including:

●Political and economic uncertainty and social turmoil;
●Corporate governance and management challenges in consideration of the numerous U.S. and foreign laws and regulations, including regulations relating to import-export control, technology transfer restrictions, repatriation of earnings and funds, exchange controls, labor regulations, nationalization, tariffs, data protection and privacy requirements, anti-boycott provisions and anti-bribery laws (such as the Foreign Corrupt Practices Act and the Organization for Economic Cooperation and Development Convention);
●International terrorism and hostilities;
●Changes in the global regulatory environment, including revised or newly created laws, regulations or standards relating to the Company, our products or the markets in which we operate; and
●Significant fluctuations in relative currency values; in particular, an increase in the value of the U.S. dollar against foreign currencies could have an adverse effect on our profitability and financial condition, as well as the imposition of exchange controls, currency devaluations and hyperinflation.

The cyclical nature and maturity of the arc welding and cutting industry in developed markets may adversely affect our performance.

The arc welding and cutting industry is generally a mature industry in developed markets such as North America and Western Europe and is cyclical in nature. Overall demand for arc welding and cutting products is largely determined by the level of capital spending in manufacturing and other industrial sectors, and the welding industry has historically

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experienced contraction during periods of slowing industrial activity. If economic, business and industry conditions deteriorate, capital spending in those sectors may be substantially decreased, which could reduce demand for our products and have an adverse effect on our revenues and results of operations.

Risks Related to Manufacturing and Operations

Economic and supply disruptions associated with events beyond our control, such as war, acts of terror, political unrest, pandemic, labor disputes, natural disasters could adversely affect our supply chain and distribution channels or result in loss of sales and customers.

Our facilities and operations, and the facilities and operations of our suppliers and customers, could be disrupted by events beyond our control, such as war, political unrest, pandemics, including the current coronavirus disease (“COVID-19”) pandemic, labor disputes and natural disasters, including events caused by climate change. Any such disruption could cause delays in the production and distribution of our products and the loss of sales and customers. Insurance proceeds may not adequately compensate the Company for the losses.

We continue to experience supply shortages and inflationary pressures for certain components and raw materials due to the effects of the COVID-19 pandemic.  We expect these supply chain challenges and cost impacts to continue for the foreseeable future as markets recover. Although we have secured additional supply from existing and alternate suppliers and have taken other mitigating actions to mitigate supply disruptions, we cannot guarantee that we can continue to do so in the future. In this event, our business, results and financial condition could be adversely affected. Maintaining higher inventory levels to service customers may result in excess or obsolete inventory and related charges if demand for these products is lower than our expectations. This may adversely affect financial results.

Availability of and volatility in energy costs or raw material prices may adversely affect our performance.

In the normal course of business, we are exposed to market risks related to the availability of and price fluctuations in the purchase of energy and commodities used in the manufacture of our products (primarily steel, brass, copper, silver, aluminum alloys, electronic components, electricity and natural gas). The availability and prices for energy costs and raw materials, including steel, nonferrous metals and chemicals, are subject to volatility and are influenced by worldwide economic conditions, including the current rising inflationary pressure. They are also influenced by import duties and tariffs speculative action, world supply and demand balances, inventory levels, availability of substitute materials, currency exchange rates, anticipated or perceived shortages, government trade practices and regulations and other factors.

Increases in the cost of raw materials and components may adversely affect our profitability if we are unable to pass along to our customers these cost increases in the form of price increases or otherwise reduce our cost of goods sold. Although most of the raw materials and components used in our products are commercially available from a number of sources and in adequate supply, any disruption in the availability of such raw materials and components, our inability to timely or otherwise obtain substitutes for such items, or any deterioration in our relationships with or the financial viability of our suppliers could adversely affect our business.

We are subject to risks relating to our information technology systems.

The conduct and management of our business relies extensively on information technology systems, which contain confidential information related to our customers, suppliers and employees and other proprietary business information. We maintain some of these systems and are also dependent on a number of critical corporate infrastructure services provided by third parties relating to, among other things, human resources, electronic communication services and finance functions. Like many multinational companies, our systems are subject to regular cyber attacks and other malicious efforts to cause cyber security incidents. To date, these attacks have not had a material impact on our business or operations. However, if as a result of future attacks, our systems are significantly damaged, cease to function properly or are subject to a significant cyber security breach, we may suffer an interruption in our ability to manage and operate the business, and our results of operations and financial condition could be adversely affected. The Company continues

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to invest in cyber security, including maintaining and improving cyber security resilience, and the Company’s cyber security risks are regularly monitored by the Audit Committee of our Board of Directors. Nevertheless, due to the nature of cyber threats, there can be no assurance that our preventive efforts can fully mitigate the risks of all cyber incidents, and a significant security breach could result in financial loss, unfavorable publicity, damage to our reputation, loss of our trade secrets and other competitive information, allegations by our customers that we have not performed our contractual obligations, litigation by affected parties and fines and other sanctions resulting from any related breaches of data privacy regulations. Any of these could have an adverse effect on our results of operations and financial condition.

Risks Related to Human Capital

Our operations depend on maintaining a skilled workforce, and any interruption in our workforce could negatively impact our results of operations and financial condition.

Our success depends in part on the efforts and abilities of our management team and key employees. Their skills, experience and industry knowledge significantly benefit our operations and performance. Our future success will also depend on our ability to identify, attract and retain highly qualified managerial and technical (including research and development) personnel. Competition for these individuals is intense and compensation rates are increasing due to lower labor availability. Under these conditions, we may not succeed in identifying, attracting or retaining qualified personnel. With our strategy to expand internationally into developing markets, we may incur additional risks as some developing economies lack a sufficiently trained labor pool.

Any interruption of our workforce, including rationalization efforts related to the integration of acquired businesses, interruptions due to unionization efforts, changes in labor relations or shortages of appropriately skilled individuals could impact our results of operations and financial condition.

Risks Related to Business Strategy

We may not be able to complete our acquisition or divestiture strategies, successfully integrate acquired businesses and in certain cases we may be required to retain liabilities for certain matters.

Part of our business strategy is to pursue targeted business acquisition opportunities, including foreign investment opportunities. We cannot be certain that we will be successful in pursuing potential acquisition candidates or that the consequences of any acquisition would be beneficial to us. Future acquisitions may expose us to unexpected liabilities and involve the expenditure of significant funds and management time. Further, we may not be able to successfully integrate an acquired business with our existing businesses or recognize the expected benefits from any completed acquisition. Integration efforts may include significant rationalization activities that could be disruptive to the business. Our current operational cash flow is sufficient to fund our acquisition plans, but a significant acquisition could require access to the capital markets.

Additionally, from time to time we may identify assets for strategic divestitures that would increase capital resources available for other activities and create organizational and operational efficiencies. Various factors could materially affect our ability to dispose of such assets or complete announced divestitures, including the receipt of approvals of governmental agencies or third parties and the availability of purchasers willing to acquire the interests or purchase the assets on terms and at prices acceptable to us.

Sellers typically retain certain liabilities or indemnify buyers for certain matters. The magnitude of any such retained liability or indemnification obligation may be difficult to quantify at the time of the transaction and ultimately may be material. Also, as is typical in divestitures, third parties may be unwilling to release us from guarantees or other credit support provided prior to the sale of the divested assets. As a result, after a divestiture, we may remain secondarily liable for the obligations guaranteed or supported to the extent that the buyer of the assets fails to perform these obligations.

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If we cannot continue to develop, manufacture and market products that meet customer demands, continue to enforce the intellectual property rights on which our business depends or if third parties assert that we violate their intellectual property rights, our revenues, gross margins and results of operations may suffer.

Our continued success depends, in part, on our ability to continue to meet our customers’ needs for welding and cutting products through the introduction of innovative new products and the enhancement of existing product design and performance characteristics. We must remain committed to product research and development and customer service in order to remain competitive. We cannot be assured that new products or product improvements, once developed, will meet with customer acceptance and contribute positively to our operating results, or that we will be able to continue our product development efforts at a pace to sustain future growth. Further, we may lose customers to our competitors if they demonstrate product design, development or manufacturing capabilities superior to ours.

We rely upon patent, trademark, copyright and trade secret laws in the United States and similar laws in foreign countries, as well as agreements with our employees, customers, suppliers and other third parties, to establish and maintain our intellectual property rights. However, any of our intellectual property rights could be challenged, invalidated or circumvented, or our intellectual property rights may not be sufficient to provide a competitive advantage. Further, the laws and their application in certain foreign countries do not protect our proprietary rights to the same extent as U.S. laws. Accordingly, in certain countries, we may be unable to protect our proprietary rights against unauthorized third-party copying or use, which could impact our competitive position.

Further, third parties may claim that we or our customers are infringing upon their intellectual property rights. Even if we believe that those claims are without merit, defending those claims and contesting the validity of patents can be time consuming and costly. Claims of intellectual property infringement also might require us to redesign affected products, enter into costly settlements or license agreements, pay costly damage awards or face a temporary or permanent injunction prohibiting us from manufacturing, marketing or selling certain of our products.

The competitive pressures we face could harm our revenue, results of operations and prospects.

We operate in a highly competitive global environment and compete in each of our businesses with other broad-line manufacturers and numerous smaller competitors specializing in particular products. We compete primarily on the basis of brand, product quality, price, performance, warranty, delivery, service and technical support. We have previously initiated, and may in the future initiate significant rationalization activities to align our business with market conditions and improve our overall competitiveness, including with respect to the integration of acquired businesses. Such rationalization activities could fail to deliver the desired competitive cost structure and could result in disruptions in customer service. If our products, services, support and cost structure do not enable us to compete successfully based on any of the criteria listed above, our revenue, results of operations and prospects could suffer.

Further, in the past decade, the arc welding industry in the United States and other developed countries has been subject to increased levels of foreign competition as low cost imports have become more readily available. Our competitive position could be harmed if new or emerging competitors become more active in the arc welding business. For example, while steel manufacturers traditionally have not been significant competitors in the domestic arc welding industry, some foreign integrated steel producers manufacture selected consumable arc welding products and robotic arm manufacturers compete in the automated welding and cutting space. In addition, in certain markets of the world, distributors manufacture and sell arc welding products. Our sales and results of operations, as well as our plans to expand in some foreign countries, could be adversely affected by this practice.

We may incur additional restructuring charges as we continue to contemplate rationalization actions in an effort to optimize our cost structure and may not achieve the anticipated savings and benefits of these actions.

We may take additional actions in the future to further optimize our cost structure and improve the efficiency of our operations, which will reduce our profitability in the periods incurred. As a result of these actions, we will likely continue to incur charges, which may include but are not limited to asset impairments, employee severance costs, charges for pension and other postretirement contractual benefits and pension settlements, any of which could be

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significant, and could adversely affect our financial condition and results of operations. In addition, we may not realize anticipated savings or benefits from past or future rationalization plans in full or in part or within the time periods we expect. Failure to realize anticipated savings or benefits from our cost reduction actions could have a material adverse effect on our business, financial condition, liquidity, results of operations and cash flows. For more information regarding rationalization plans, refer to the rationalization and asset impairment related disclosure under Note 7 to the Company’s consolidated financial statements.

Risks Related to Legal, Compliance and Regulatory Matters

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We are a co-defendant in litigation alleging asbestos induced illness. Liabilities relating to such litigation could reduce our profitability and impair our financial condition.

As of December 31, 2022, we were a co-defendant in cases alleging asbestos induced illness involving claims by approximately 1,483 plaintiffs. In each instance, we are one of a large number of defendants. The asbestos claimants allege that exposure to asbestos contained in welding consumables caused the plaintiffs to develop adverse pulmonary diseases, including mesothelioma and other lung cancers.

Since January 1, 1995, we have been a co-defendant in asbestos cases that have been resolved as follows: 56,877 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 1,012 were decided in favor of the Company following summary judgment motions.

The long-term impact of the asbestos loss contingency, in the aggregate, on operating results, operating cash flows and access to capital markets is difficult to assess, particularly since claims are in many different stages of development and we benefit significantly from cost-sharing with co-defendants and insurance carriers. While we intend to contest these lawsuits vigorously, and believe we have applicable insurance relating to these claims, there are several risks and uncertainties that may affect our liability for personal injury claims relating to exposure to asbestos, including the future impact of changing cost sharing arrangements or a change in our overall trial experience.

Asbestos use in welding consumables in the U.S. ceased in 1981.

We may incur material losses and costs as a result of product liability claims that may be brought against us or failure to meet contractual performance commitments.

Our business exposes us to potential product liability risks that are inherent in the design, manufacture, sale and application of our products and the products of third-party suppliers that we utilize or resell. Our products are used in a variety of applications, including infrastructure projects such as oil and gas pipelines and platforms, buildings, bridges and power generation facilities, the manufacture of transportation and heavy equipment and machinery and various other construction projects. We face risk of exposure to product liability claims in the event that accidents or failures on these projects result, or are alleged to result, in bodily injury or property damage. Further, our products are designed for use in specific applications, and if a product is used inappropriately, personal injury or property damage may result. In certain cases, we design automated welding systems for use in a customer’s production facilities (including automotive production facilities), which could expose us to financial losses or professional liability.

The occurrence of defects in or failures of our products, or the misuse of our products in specific applications, could cause termination of customer contracts, increased costs and losses to us, our customers and other end users. We cannot be assured that we will not experience any material product liability losses in the future or that we will not incur significant costs to defend those claims. Further, we cannot be assured that our product liability insurance coverage will be adequate for any liabilities that we may ultimately incur or that product liability insurance will continue to be available on terms acceptable to us. Even if we are successful defending such claims or product liability coverage is adequate, claims of this nature could cause customers to lose confidence in our products and our Company. Warranty claims are not generally covered by insurance and we may incur significant warranty costs in the future for which we would not be reimbursed.

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We may incur losses if we do not achieve contractual commitments, including project performance requirements or project schedules. Project performance can be affected by a number of factors, including but not limited to, availability of materials, changes in the project scope of services, environmental conditions or labor disruptions. In addition, our backlog consists of the expected revenue from projects for which we have an executed contract or commitment with a customer. Project cancellations, scope adjustments, deferrals or changes in cost estimates may reduce the dollar amount of revenue and profits that we actually earn.

Changes in tax rates or exposure to additional income tax liabilities could affect profitability.

Our business is subject to income taxes in the United States and various foreign jurisdictions. Domestic and international tax liabilities are subject to the allocation of income among various tax jurisdictions. Our effective tax rate could be adversely affected by changes in the mix among earnings in countries with differing statutory tax rates, changes in the valuation allowances of deferred tax assets or changes in tax laws.

The amount of income taxes paid is subject to ongoing audits by the United States federal, state and local tax authorities and by foreign tax authorities. If these audits result in assessments different from amounts reserved, future financial results may include unfavorable adjustments which could have a material adverse effect on our results of operations.

Our global operations are subject to increasingly complex environmental regulatory requirements.

We are subject to increasingly complex environmental regulations affecting international manufacturers, including those related to air and water emissions, waste management and climate change. Some environmental laws impose strict, retroactive and joint and several liability for the remediation of the release of hazardous substances, even for conduct that was lawful at the time it occurred, or for the conduct of or conditions caused by prior operators, predecessors or third parties. Failure to comply with environmental laws could expose us to penalties or clean-up costs, civil or criminal liability and sanctions on certain of our activities, as well as damage to property or natural resources. These liabilities, sanctions, damages and remediation efforts related to any non-compliance with such laws and regulations could negatively impact our ability to conduct our operations and our financial condition and results of operations. In addition, there can be no assurances that we will not be adversely affected by costs, liabilities or claims with respect to existing or subsequently acquired operations or under present laws and regulations or those that may be adopted or imposed in the future.

Changes in environmental laws or regulations could result in higher expenses and payments, and uncertainty relating to environmental laws or regulations may also affect how we conduct our operations and structure our investments and could limit our ability to enforce our rights. Changes in environmental and climate change laws or regulations, including laws relating to greenhouse gas emissions, could subject us to additional costs and restrictions, including increased energy and raw material costs. If environmental laws or regulations are either changed or adopted and impose significant operational restrictions and compliance requirements upon us or our products, they could negatively impact our business, capital expenditures, results of operations, financial condition and competitive position.

It is our policy to apply strict standards for environmental protection to all of our operations inside and outside of the United States, even when we are not subject to local government regulations. We may incur substantial costs, including cleanup costs, fines and civil or criminal sanctions, liabilities resulting from third-party property damage or personal injury claims, or our products could be prohibited from entering certain jurisdictions, if we were to violate or become liable under environmental laws, if our products become non-compliant with environmental laws or if we were to undertake environmental protection actions voluntarily.

We also face increasing complexity in our products design and procurement operations as we adjust to new and future requirements relating to the design, production and labeling of our products that are sold worldwide in multiple jurisdictions. The ultimate costs under environmental laws and the timing of these costs are difficult to predict.

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We may be exposed to certain regulatory and financial risks related to climate change.

A number of governments and agencies in the U.S. and in foreign jurisdictions have proposed and may continue to introduce regulatory changes to address climate change, including regulations related to greenhouse gas emissions. We may be subject to additional regulations or restrictions in jurisdictions where we operate, including charges to fund additional energy-efficient activities, assessments or fees, and operational restrictions such as reduced emission allowances. Compliance with climate change regulations and restrictions may result in additional costs, including increased production costs and taxes, which could adversely impact our financial position. In addition, climate change regulations and related operating restrictions may unfavorably affect our competitive position with companies who may not be subject to equivalent requirements in their jurisdictions. In addition, negative publicity or public perception of climate change issues associated with us or our industry may cause reputational damage and financial harm to the Company.

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ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

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ITEM 1C. INFORMATION ABOUT OUR EXECUTIVE OFFICERS

EXECUTIVE OFFICERS OF THE REGISTRANT

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Name

 

Age

 

Position

Christopher L. Mapes

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61

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Chairman of the Board effective December 21, 2013; President and Chief Executive Officer effective December 31, 2012; Chief Operating Officer from September 1, 2011 to December 31, 2012; Director since February 2010.

Gabriel Bruno

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55

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Executive Vice President, Chief Financial Officer and Treasurer since April 22, 2020; Executive Vice President, Finance from January 1, 2019 to April 22, 2020; Executive Vice President, Chief Human Resources Officer from July 1, 2016 to January 1, 2019; Executive Vice President, Chief Human Resources Officer and Chief Information Officer from February 18, 2016 to July 1, 2016; Executive Vice President, Chief Information Officer and Interim Chief Human Resources Officer from March 7, 2015 to February 18, 2016; Executive Vice President, Chief Information Officer from February 19, 2014 to March 7, 2015; Vice President, Chief Information Officer from May 1, 2012 to February 19, 2014; Vice President, Corporate Controller from 2005 to May 1, 2012.

Jennifer I. Ansberry

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49

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Executive Vice President, General Counsel and Secretary since April 20, 2017; Vice President, Deputy General Counsel from August 1, 2014 to April 20, 2017; Deputy General Counsel from 2004 to August 1, 2014.

Steven B. Hedlund

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56

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Executive Vice President, Chief Operating Officer since May 9, 2022; Executive Vice President and President, Americas and International Welding from October 21, 2020 to May 9, 2022; Executive Vice President and President, International Welding from June 1, 2017 to October 21, 2020; Senior Vice President and President, Global Automation from January 22, 2015 to June 1, 2017; Senior Vice President, Strategy & Business Development from February 19, 2014 to January 22, 2015; Vice President, Strategy and Business Development from September 15, 2008 to February 19, 2014.

Michele R. Kuhrt

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56

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Executive Vice President, Chief Human Resources Officer since February 25, 2019; Executive Vice President, Chief Information Officer from July 1, 2016 to February 25, 2019; Senior Vice President, Tax from 2006 to July 1, 2016.

Lisa A. Dietrich

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50

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Executive Vice President, Chief Information Officer since May 9, 2022. Senior Vice President and Chief Information Officer, American Greetings Corporation (a global leader in the large and enduring Celebrations marketplace) from March 2018 until April 2022; Vice President of Business Transformation and Executive Director, American Greetings Corporation from January 2011 to March 2018.

Geoffrey P. Allman

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52

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Senior Vice President, Strategy and Business Development since January 1, 2019; Senior Vice President, Corporate Controller from January 14, 2014 to January 1, 2019; Corporate Controller from July 1, 2012 to January 14, 2014; Director, Regional Finance North America from October 1, 2009 to July 1, 2012.

Michael J. Whitehead

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49

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Senior Vice President, President, Global Automation, Cutting and Additive Businesses since January 1, 2019; Senior Vice President, Strategy and Business Development from August 1, 2016 to January 1, 2019; President, Lincoln Canada from January 1, 2015 to August 1, 2016; Director, New Product Development, Consumables R&D from January 1, 2012 to January 1, 2015.

Peter M. Pletcher

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49

​

Senior Vice President, President International since August 1, 2022. Senior Vice President, President, International Welding from December 10, 2020 to August 1, 2022; Vice President, President, Europe Welding from April 1, 2019 to December 10, 2020; Vice President, President, Global Automation from January 1, 2018 to April 1, 2019; Director, Business Development, Cutting Products from January 1, 2016 to January 1, 2018.

Gregory Doria

​

46

​

Senior Vice President, President, Harris Products Group since October 1, 2021; Senior Vice President, Chief Operating Officer, Harris Products Group from April 21, 2021 to September 30, 2021; Vice President, Marketing from July 1, 2019 to April 20, 2021; Director, Global Industry Segments from March 1, 2017 to June 30, 2019; Regional Sales Manager, West Region from October 6, 2014 to February 28, 2017.

​

The Company has been advised that there is no arrangement or understanding among any one of the officers listed and any other persons pursuant to which he or she was elected as an officer. The executive officers are elected by the Board of Directors normally for a term of one year and/or until the election of their successors.

​

ITEM 2. PROPERTIES

The Company’s corporate headquarters and principal United States manufacturing facilities are located in the Cleveland, Ohio area. Total Cleveland area property consists of 244 acres, of which present manufacturing facilities comprise an area of approximately 3,017,090 square feet.

13

Table of Contents

​

The Company has 71 manufacturing facilities, including operations and joint ventures in 20 countries, the significant locations (grouped by operating segment) of which are as follows:

​

​

​

​

Americas Welding:

    

​

United States

​

Cleveland, Columbus, Coldwater, Fort Loramie, and Orrville, Ohio; Reno, Nevada; Ladson, South Carolina; Chattanooga, Tennessee; Detroit, Michigan; Fort Collins, Colorado; Bettendorf, Iowa; Churubusco, Indiana.

Brazil

​

Atibaia; Guarulhos; Sao Paulo.

Canada

​

Toronto; Mississauga; Hamilton; Montreal; Vankleek Hill.

Colombia

​

Bogota.

Mexico

​

Mexico City; Torreon; Saltillo.

International Welding:

​

​

Australia

​

Newcastle; Gladstone.

Austria

​

Scheifling.

China

​

Tangshan; Shanghai; Beijing.

France

​

Grand-Quevilly; Partheny.

Germany

​

Essen; Eisenberg; Frankfurt; Merzig.

India

​

Chennai; Pune.

Italy

​

Corsalone; Due Carrare.

Poland

​

Bielawa; Dzierzoniow.

Romania

​

Buzau.

Russia

​

Mtsensk.

South Korea

​

Siheung-si.

Spain

​

Valencia; Zaragoza.

Turkey

​

Istanbul.

United Kingdom

​

Sheffield, England; Port Talbot, Wales.

The Harris Products Group:

​

​

United States

​

Mason, Ohio; Gainesville, Georgia; Winston Salem, North Carolina; Gordonsville, Carthage, Tennessee; Florence, Alabama.

Brazil

​

Maua.

Italy

​

Verona.

Mexico

​

Guadalupe.

Poland

​

Dzierzoniow.

Portugal

​

Albergaria-a-Velha.

​

All properties relating to the Company’s Cleveland, Ohio headquarters and manufacturing facilities are owned by the Company. Most of the Company’s foreign subsidiaries own manufacturing facilities in the country where they are located. The Company believes that its existing properties are in good condition and are suitable for the conduct of its business. In March 2022, in response to Russia’s invasion of Ukraine, the Company ceased operations in Russia.

In addition, the Company maintains operating leases for some manufacturing facilities, distribution centers and sales offices throughout the world. Refer to Note 17 to the consolidated financial statements for information regarding the Company’s lease commitments.

​

14

Table of Contents

​

ITEM 3. 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 December 31, 2022, the Company was a co-defendant in cases alleging asbestos induced illness involving claims by approximately 1,483 plaintiffs, which is a net decrease 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: 56,877 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 1,012 were decided in favor of the Company following summary judgment motions.

​

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

​

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

The Company’s common shares are traded on The NASDAQ Global Select Market under the symbol "LECO." The number of record holders of common shares at December 31, 2022 was 2,238.

Issuer purchases of equity securities for the fourth quarter 2022 were:

​

​

​

​

​

​

​

​

​

​

​

​

​

​

    

​

​

​

Total Number of
Shares

​

Maximum Number

​

​

​

​

​

​

​

Purchased

​

of Shares that May

​

​

Total Number of

​

​

​

​

as Part of Publicly

​

Yet be Purchased

​

​

Shares

​

Average Price

​

Announced Plans or

​

Under the Plans

Period

​

Purchased

​

Paid Per Share

​

Programs

​

or Programs (2) (3)

October 1 - 31, 2022

 

65,983

(1)​

$

128.36

 

65,429

 

9,018,517

November 1 - 30, 2022

 

57,782

(1)​

 

145.39

 

57,772

 

8,960,745

December 1 - 31, 2022

 

56,476

(1)​

 

145.31

 

56,419

 

8,904,326

Total

 

180,241

​

 

139.13

 

179,620

 

  

​

(1)The above share repurchases include the surrender of the Company’s common shares in connection with the vesting of restricted awards.
(2)On April 20, 2016, the Company announced that the Board of Directors authorized a new share repurchase program, which increased the total number of the Company’s common shares authorized to be repurchased to 55 million shares. Total shares purchased through the share repurchase program were 55 million shares at a cost of $2.5 billion for a weighted average cost of $44.89 per share through December 31, 2022.
(3)On February 12, 2020, the Company’s Board of Directors authorized a new share repurchase program for up to an additional 10 million shares of the Company’s common stock. Total shares purchased through the share repurchase program were 1.1 million shares at a total cost of $145.3 million for a weighted average cost of $132.65 per share through December 31, 2022.

15

Table of Contents

​

The following line graph compares the yearly percentage change in the cumulative total shareholder return on the Company’s common stock against the cumulative total return of the S&P Composite 500 Stock Index ("S&P 500") and the S&P 400 MidCap Index ("S&P 400") for the five-year calendar period commencing January 1, 2018 and ending December 31, 2022. This graph assumes that $100 was invested on December 31, 2017 in each of the Company’s common shares, the S&P 500 and the S&P 400. A peer-group index for the welding industry, in general, is not readily available because the industry is comprised of a large number of privately held competitors and competitors that are smaller parts of large publicly traded companies.

Graphic

ITEM 6. [RESERVED]

​

ITEM 7. 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 consolidated financial statements and other financial information included elsewhere in this Annual Report on Form 10-K. This Annual Report on Form 10-K contains forward-looking statements that involve risks and uncertainties. Actual results may differ materially from those indicated in the forward-looking statements. See "Item 1A. Risk Factors" for more information regarding forward-looking statements.

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.

16

Table of Contents

​

The Company is one of only a few worldwide broad-line manufacturers of welding, cutting and brazing products. The Company is the world leader in the design, development and manufacture of arc welding products, automated joining, assembly and cutting systems, plasma and oxy-fuel cutting equipment. The Company also has a leading global position in brazing and soldering alloys.

The Company’s products include arc welding, brazing and soldering filler metals (consumables), arc welding equipment, plasma and oxyfuel cutting systems, wire feeding systems, fume control equipment, welding accessories, specialty gas regulators, and education solutions; as well as a comprehensive portfolio of automated solutions for joining, cutting, material handling, module assembly, and end of line testing.

The Company invests in the research and development of arc welding products in order to continue its market leading product offering. The Company continues to invest in technologies that improve the quality and productivity of welding products. In addition, the Company actively protects its innovations as research and development has progressed in both the United States and other major international jurisdictions. The Company believes its significant investment in research and development and its highly trained technical sales force coupled with its extensive distributor network provide a competitive advantage in the marketplace.

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

The Company’s major end-user markets include:

●general fabrication,
●energy (oil and gas, power generation and process industries),
●heavy industries (heavy fabrication, ship building and maintenance and repair),
●automotive and transportation, and
●construction and infrastructure.

The Company has, through wholly-owned subsidiaries, manufacturing facilities located in the United States, Australia, Austria, Brazil, Canada, China, Colombia, France, Germany, India, Italy, Mexico, Poland, Portugal, Romania, Russia, South Korea, Spain, Turkey and the United Kingdom.

The principal raw materials essential to the Company’s business are steel, electronic components, engines, brass, copper, silver, aluminum alloys, robotic components and various chemicals, all of which are normally available for purchase in the open market.

The Company’s facilities are subject to environmental regulations. To date, compliance with these environmental regulations has not had a material adverse effect on the Company’s earnings. The Company is ISO 14001 certified at most significant manufacturing facilities in North America and Europe and is progressing towards certification at its remaining facilities worldwide. In addition, the Company is ISO 9001 certified at 42 facilities worldwide.

The Company ensures compliance and the continuous improvement of the environmental performance of its products and operations through its global Environmental, Health, Safety and Quality (“EHS&Q”) systems. The Company’s systems are guided by the Corporate EHS&Q Policy, global directives and corporate standards that establish consistent guidelines for the management, measurement and reporting of environmental, health and safety activities, as well as quality across the Company’s global platform. The Company’s products support our customers' sustainable operations through enhanced worker safety, reduced emissions, improved energy efficiency, reduced waste and regulatory compliance.

17

Table of Contents

​

On December 1, 2022, the Company acquired Fori Automation, LLC (“Fori”) for a cash purchase price of $427,000, subject to customary working capital adjustments. The Company funded the transaction with available cash on hand and a $400,000 senior unsecured term loan. Fori is a leading designer and manufacturer of complex, multi-armed automated welding systems, with an extensive range of automated assembly systems, automated material handling solutions, automated large-scale, industrial guidance vehicles, and end of line testing systems. The Fori acquisition will extend the Company’s market presence within the automotive sector as well as its automation footprint in the International Welding segment. Fori’s balance sheet is included in the Company’s Consolidated Balance Sheet as of December 31, 2022.

​

Key Indicators

Key economic measures relevant to the Company include industrial production trends, steel consumption, purchasing manager indices, capacity utilization within durable goods manufacturers and consumer confidence indicators. Key industries which provide a relative indication of demand drivers to the Company include steel, farm machinery and equipment, construction and transportation, fabricated metals, electrical equipment, ship and boat building, defense, truck manufacturing, energy and railroad equipment. Although these measures provide key information on trends relevant to the Company, the Company does not have available a more direct correlation of leading indicators which can provide a forward-looking view of demand levels in the markets which ultimately use the Company’s welding products.

Key operating measures utilized by the operating units to manage the Company include orders, backlog, sales, inventory and fill-rates, all of which provide key indicators of business trends. These measures are reported on various cycles including daily, weekly and monthly depending on the needs established by operating management.

Key financial measures utilized by the Company’s executive management and operating units in order to evaluate the results of its business and in understanding key variables impacting the current and future results of the Company include: sales; gross profit; selling, general and administrative expenses; operating income; earnings before interest and taxes; earnings before interest, taxes and bonus; net income; adjusted operating income; adjusted earnings before interest and income taxes; adjusted earnings before interest, taxes and bonus; adjusted net income; adjusted diluted earnings per share; operating cash flows; and capital expenditures, as well as applicable ratios such as return on invested capital and average operating working capital to sales. These measures are reviewed at monthly, quarterly and annual intervals and compared with historical periods, as well as objectives established by the Board of Directors of the Company.

​

The discussion that follows includes a comparison of our results of operations, liquidity and capital resources for fiscal years ended December 31, 2022 and 2021. For a comparison of the Company’s results of operations, liquidity and capital resources for the fiscal years ended December 31, 2021 and 2020, see Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, which was filed with the SEC on February 18, 2022.

18

Table of Contents

​

Results of Operations

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

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Year Ended December 31, 

 

​

​

​

​

​

​

​

​

​

​

​

​

Favorable  (Unfavorable) 

 

​

2022

​

2021

​

2022 vs. 2021

​

​

Amount

    

% of Sales

    

Amount

    

% of Sales

    

$

    

%

 

Net sales (Note 2)

$

3,761,211

​

​

​

​

$

3,234,180

 

​

​

$

527,031

 

16.3

%

Cost of goods sold

 

2,480,451

​

 

​

​

 

2,165,575

 

​

​

  

(314,876)

 

(14.5)

%

Gross profit

 

1,280,760

​

 

34.1

%

 

1,068,605

 

33.0

%

 

212,155

 

19.9

%

Selling, general & administrative expenses

 

656,636

​

 

17.5

%

 

597,109

 

18.5

%

 

(59,527)

 

(10.0)

%

Rationalization and asset impairment charges (Note 7)

 

11,788

​

 

0.3

%

 

9,827

 

0.3

%

  

(1,961)

 

(20.0)

%

Operating income

 

612,336

​

 

16.3

%

 

461,669

 

14.3

%

 

150,667

 

32.6

%

Interest expense, net

 

29,500

​

 

​

​

 

22,214

 

​

​

 

(7,286)

 

(32.8)

%

Other income (expense) (Note 12)

 

9,991

​

 

​

​

 

(114,457)

 

​

​

  

124,448

 

108.7

%

Income before income taxes

 

592,827

​

 

15.8

%

 

324,998

 

10.0

%

 

267,829

 

82.4

%

Income taxes (Note 13)

 

120,603

​

 

​

​

 

48,418

 

​

​

 

(72,185)

 

(149.1)

%

Effective tax rate (Note 13)

 

20.3

%  

 

​

​

 

14.9

%  

​

​

  

(5.4)

%  

​

​

Net income including non-controlling interests

 

472,224

​

 

​

​

 

276,580

 

​

​

 

195,644

 

70.7

%

Non-controlling interests in subsidiaries' income

 

—

​

 

​

​

 

114

 

​

​

  

(114)

 

(100.0)

%

Net income

$

472,224

​

 

12.6

%

$

276,466

 

8.5

%

$

195,758

 

70.8

%

Diluted earnings per share (Note 3)

$

8.04

​

​

​

​

$

4.60

 

  

​

$

3.43

 

74.6

%

​

Net Sales:

The following table summarizes the impacts of volume, acquisitions, price and foreign currency exchange rates on Net sales for the twelve months ended December 31, 2022 on a consolidated basis:

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

    

​

    

Change in Net Sales due to:

​

    

​

 

​

​

Net Sales

​

​

​

​

​

​

​

​

​

​

Foreign

​

Net Sales

​

​

    

2021

    

Volume

    

Acquisitions

    

Price

    

Exchange

    

2022

 

Lincoln Electric Holdings, Inc.

​

$

3,234,180

​

$

160,362

​

$

74,645

​

$

468,925

 

$

(176,901)

​

$

3,761,211

​

% Change

​

​

​

​

 

  

​

 

  

​

 

  

 

  

​

​

 

  

​

Lincoln Electric Holdings, Inc.

​

​

​

​

 

5.0

%

 

2.3

%  

 

14.5

%  

​

(5.5)

%

​

16.3

%

​

Net sales increased primarily as a result of higher demand levels, increased product pricing as a result of higher input costs and the impact of acquisitions, partially offset by unfavorable foreign exchange.

Gross Profit:

Gross profit for 2022 increased, as a percent of sales, compared to the prior year primarily due to higher volumes, the benefit of profit improvement and cost reduction actions, which offset higher input costs. Last-in, first-out (“LIFO”) charges were $19,733 in the twelve months ended December 31, 2022 as compared with charges of $38,595 in the prior year.

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

SG&A expense increased in 2022 as compared to 2021 was primarily due to higher employee costs.

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Table of Contents

​

Other Income (Expense):

The increase in 2022 as compared to 2021 was primarily due to non-cash pension settlement charges in 2021 related to the termination of a pension plan. Refer to Note 12 to the consolidated financial statements for details.

Income Taxes:

The 2022 effective tax rate was higher than 2021 primarily due to a change in the mix of earnings, as well as the impact of the 2021 pension plan termination.

Segment Results

Net Sales:

The table below summarizes the impacts of volume, acquisitions, price and foreign currency exchange rates on Net sales for the twelve months ended December 31, 2022:

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

    

Change in Net Sales due to:

    

    

​

 

​

Net Sales

    

​

​

    

​

​

    

​

​

    

Foreign 

    

Net Sales

 

​

2021

​

Volume 

    

Acquisitions (1)

    

Price (2)

​

Exchange (3)

​

2022

​

Operating Segments

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Americas Welding

$

1,824,481

​

$

156,561

​

$

17,602

​

$

298,928

 

$

(8,638)

​

$

2,288,934

​

International Welding

​

948,125

​

 

(9,019)

​

 

17,632

 

​

159,130

 

​

(161,587)

​

 

954,281

​

The Harris Products Group

​

461,574

​

 

12,820

​

 

39,411

 

​

10,867

 

​

(6,676)

​

 

517,996

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

% Change

​

  

​

 

  

​

 

  

 

​

  

 

​

  

​

 

  

​

Americas Welding

​

​

​

​

8.6

%

 

1.0

%

​

16.4

%

​

(0.5)

%

​

25.5

%

International Welding

​

​

​

​

(1.0)

%

 

1.9

%

​

16.8

%

​

(17.0)

%

​

0.6

%

The Harris Products Group

​

​

​

​

2.8

%

 

8.5

%

​

2.4

%

​

(1.4)

%

​

12.2

%

​

(1)Increase due to the acquisitions discussed in Note 4.
(2)Increase for all segments reflects increased product pricing taken in response to higher input costs and unfavorable foreign exchange translation.
(3)Decrease for 2022 in International Welding primarily due to the devaluation of the Turkish Lira and Euro.

20

Table of Contents

​

Adjusted Earnings Before Interest and Income Taxes (“Adjusted EBIT”):

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 Equity earnings in affiliates and Other income. EBIT is adjusted for special items as determined by management such as the impact of rationalization activities, certain asset impairment charges and gains or losses on disposals of assets.

The following table presents Adjusted EBIT by segment:

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

    

​

​

​

​

​

    

​

 

    

​

​

​

​

​

​

​

​

Favorable (Unfavorable) 

 

​

​

​

Year Ended December 31, 

​

2022 vs. 2021

 

​

​

    

2022

    

2021

    

$

    

%

 

    

Americas Welding:

 

​

  

 

​

  

​

 

  

​

  

​

 

Net sales

​

$

2,288,934

​

$

1,824,481

​

$

464,453

​

25.5

%

​

Inter-segment sales

​

 

122,019

​

 

140,650

​

 

(18,631)

​

(13.2)

%

​

Total Sales

​

$

2,410,953

​

$

1,965,131

​

$

445,822

​

22.7

%

​

Adjusted EBIT (4)

​

$

462,819

​

$

329,016

​

$

133,803

​

40.7

%

​

As a percent of total sales (1)

​

 

19.2

%  

 

16.7

%  

​

​

​

2.5

%

​

International Welding:

​

 

​

​

 

  

​

​

  

​

  

​

​

Net sales

​

$

954,281

​

$

948,125

​

$

6,156

​

0.6

%

​

Inter-segment sales

​

 

31,503

​

 

26,331

​

​

5,172

​

19.6

%

​

Total Sales

​

$

985,784

​

$

974,456

​

$

11,328

​

1.2

%

​

Adjusted EBIT (5)

​

$

120,157

​

$

106,208

​

$

13,949

​

13.1

%

​

As a percent of total sales (2)

​

 

12.2

%  

 

10.9

%  

​

​

​

1.3

%

​

The Harris Products Group:

​

 

​

​

 

  

​

​

  

​

  

​

​

Net sales

​

$

517,996

​

$

461,574

​

$

56,422

​

12.2

%

​

Inter-segment sales

​

 

11,040

​

 

8,096

​

​

2,944

​

36.4

%

​

Total Sales

​

$

529,036

​

$

469,670

​

$

59,366

​

12.6

%

​

Adjusted EBIT (6)

​

$

64,008

​

$

68,447

​

$

(4,439)

​

(6.5)

%

​

As a percent of total sales (3)

​

 

12.1

%  

 

14.6

%  

​

​

​

(2.5)

%

​

Corporate / Eliminations:

​

 

​

​

 

  

​

​

  

​

  

​

​

Inter-segment sales

​

$

(164,562)

​

$

(175,077)

​

$

10,515

​

6.0

%

​

Adjusted EBIT (7)

​

 

(10,033)

​

 

(12,403)

​

​

2,370

​

19.1

%

​

Consolidated:

​

 

​

​

 

  

​

​

  

​

  

​

​

Net sales

​

$

3,761,211

​

$

3,234,180

​

$

527,031

​

16.3

%

​

Net income

​

$

472,224

​

$

276,466

​

$

195,758

​

70.8

%

​

As a percent of total sales

​

 

12.6

%  

 

8.5

%  

​

​

​

4.1

%

​

Adjusted EBIT (8)

​

$

636,951

​

$

491,268

​

$

145,683

​

29.7

%

​

As a percent of sales

​

 

16.9

%  

 

15.2

%  

 

​

​

1.7

%

​

​

(1)Increase for 2022 as compared to 2021 primarily driven by higher volumes, the impact of profit improvement initiatives and pricing actions taken to offset higher input costs, partially offset by higher employee costs.
(2)Increase for 2022 as compared to 2021 primarily driven by profit improvement initiatives including cost reduction activities.
(3)Decrease for 2022 compared to 2021 primarily driven by acquisition integration activities, unfavorable mix and declining commodity pricing in certain metal offerings.

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​

(4)2022 excludes a favorable adjustment related to the termination of a pension plan of $3,735, the amortization of step up in value of acquired inventories of $1,106 and Rationalization and asset impairment gains of $431 related to severance and gains or losses on the disposal of assets as discussed in Note 7 to the consolidated financial statements.

2021 excludes non-cash pension settlement charges of $123,091 as discussed in Note 11 to the consolidated financial statements.

(5)2022 excludes Rationalization and asset impairment gains of $11,681 related to impairment charges as discussed in Note 7 to the consolidated financial statements.

2021 excludes Rationalization and asset impairment charges of $9,804 related to severance and gains or losses on the disposal of assets as discussed in Note 7 to the consolidated financial statements, the amortization of step up in value of acquired inventories of $4,984 related to an acquisition and pension settlement charges of $446.

(6)2021 excludes the amortization of step up in value of acquired inventories of $820 related to an acquisition and non-cash pension settlement charges of $2,965 as discussed in Note 11 to the consolidated financial statements.
(7)2022 excludes acquisition transaction and integration costs of $6,003 related to the acquisition as discussed in Note 4 to the consolidated financial statements.

2021 excludes acquisition transaction and integration costs of $1,923 related to the acquisitions as discussed in Note 4 to the consolidated financial statements.

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

Non-GAAP Financial Measures

The Company reviews Adjusted operating income, Adjusted EBIT, Adjusted net income, Adjusted effective tax rate, Adjusted diluted earnings per share, Adjusted return on invested capital, and Adjusted net operating profit after taxes, 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. From time to time, management evaluates and discloses to investors the following non-GAAP measures: Free cash flow ("FCF"), defined as Net cash provided by operating activities less Capital expenditures (the Company considers FCF to be a liquidity measure that provides useful information to management and investors about how the amount of cash generated by our business, after the purchase of property and equipment, can be used for debt service, acquisitions, paying dividends and repurchasing our common shares); Cash conversion, defined as FCF divided by Adjusted net income; Organic sales, defined as sales excluding the effects of foreign currency and acquisitions.

The following table presents a reconciliation of Operating income as reported to Adjusted operating income:

​

​

​

​

​

​

​

​

​

​

    

Year Ended December 31, 

 

​

    

2022

    

2021

 

Operating income as reported

​

$

612,336

​

$

461,669

​

Special items (pre-tax):

​

 

  

​

 

  

​

Rationalization and asset impairment charges (1)

​

 

11,788

​

 

9,827

​

Acquisition transaction costs (2)

​

 

6,003

​

 

1,923

​

Amortization of step up in value of acquired inventories (3)

​

 

1,106

​

 

5,804

​

Adjusted operating income

​

$

631,233

​

$

479,223

​

​

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​

(1)Charges primarily consist of employee severance, gains or losses on the disposal of assets and other related costs and non-cash asset impairment charges.
(2)Costs related to acquisition and included in Selling, general & administrative expenses.
(3)Costs related to acquisitions and included in Cost of goods sold.

The following table presents the reconciliations of 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:

​

​

​

​

​

​

​

​

​

​

    

Year Ended December 31, 

 

​

    

2022

    

2021

 

Net income as reported

​

$

472,224

 

$

276,466

​

Special items:

​

 

​

 

 

  

​

Rationalization and asset impairment charges (1)

​

 

11,788

 

 

9,827

​

Acquisition transaction costs (2)

​

 

6,003

 

 

1,923

​

Pension settlement net charges (3)

​

 

(4,273)

 

 

126,502

​

Amortization of step up in value of acquired inventories (4)

​

 

1,106

 

 

5,804

​

Tax effect of Special items (5)

​

 

(1,192)

 

 

(47,188)

​

Adjusted net income

​

$

485,656

 

$

373,334

​

Non-controlling interests in subsidiaries’ earnings (loss)

​

​

—

 

​

114

​

Interest expense, net

​

 

29,500

 

 

22,214

​

Income taxes as reported

​

 

120,603

 

 

48,418

​

Tax effect of Special items (5)

​

 

1,192

 

 

47,188

​

Adjusted EBIT

​

$

636,951

 

$

491,268

​

Effective tax rate as reported

​

 

20.3

%  

 

14.9

%

Net special item tax impact

​

 

(0.2)

%  

 

5.5

%

Adjusted effective tax rate

​

 

20.1

%  

 

20.4

%

Diluted earnings per share as reported

​

$

8.04

 

$

4.60

​

Special items per share

​

 

0.23

 

 

1.62

​

Adjusted diluted earnings per share

​

$

8.27

 

$

6.22

​

​

(1)Charges primarily consist of employee severance, gains or losses on the disposal of assets and other related costs and non-cash asset impairment charges.
(2)Costs related to acquisitions as discussed in Note 4 to the consolidated financial statements.
(3)Net charges related to lump sum pension payments and the purchase of a group annuity contract as discussed in Note 11 to the consolidated financial statements.
(4)Costs related to acquisitions and included in Cost of goods sold.
(5)Includes the net tax impact of Special items recorded during the respective periods. 

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

Liquidity and Capital Resources

The Company’s cash flow from operations can be cyclical. Operational cash flow is a key driver of liquidity. In assessing liquidity, the Company reviews working capital measurements to define areas for improvement. Management

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​

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:

​

​

​

​

​

​

​

​

​

​

​

​

    

Year Ended December 31, 

​

​

2022

    

2021

    

$ Change

Cash provided by operating activities (1)

​

$

383,386

​

$

365,063

​

$

18,323

Cash used by investing activities (2)

​

 

(504,691)

​

 

(205,356)

​

 

(299,335)

Capital expenditures

​

 

(71,883)

​

 

(62,531)

​

 

(9,352)

Acquisition of businesses, net of cash acquired

​

 

(436,298)

​

 

(156,106)

​

 

(280,192)

Cash provided by (used by) financing activities (3)

​

 

133,725

​

 

(221,940)

​

 

355,665

Proceeds from short-term borrowings

​

 

34,351

​

 

46,476

​

 

(12,125)

Proceeds from (payments on) long-term borrowings

​

​

405,444

​

​

(508)

​

​

405,952

Purchase of shares for treasury

​

 

(181,293)

​

 

(164,526)

​

 

(16,767)

Cash dividends paid to shareholders

​

 

(130,724)

​

 

(121,851)

​

 

(8,873)

Increase (decrease) in Cash and cash equivalents (4)

​

 

4,192

​

 

(64,321)

​

 

68,513

​

(1)Cash provided by operating activities increased for the twelve months ended December 31, 2022 compared with the twelve months ended December 31, 2021 primarily due to higher company earnings.
(2)Cash used by investing activities increased for the twelve months ended December 31, 2022 compared with the twelve months ended December 31, 2021 due to cash used in the acquisition of businesses in 2022. The Company currently anticipates capital expenditures of $80,000 to $100,000 in 2023. Anticipated capital expenditures include investments to increase capacity and improve operational effectiveness. Management critically evaluates all proposed capital expenditures and expects each project to increase efficiency, reduce costs, promote business growth or improve the overall safety and environmental conditions of the Company’s facilities.
(3)Cash provided by (used by) financing activities increased in the twelve months ended December 31, 2022 compared with the twelve months ended December 31, 2021 due to higher long-term borrowings in 2022 partially offset by an increase in the purchase of shares for treasury.
(4)Cash and cash equivalents increased 2.2%, or $4,192, to $197,950 during the twelve months ended December 31, 2022, from $192,958 as of December 31, 2021. The increase was predominantly due to higher cash provided by operating activities and an increase in long term borrowings offset by increase in cash used in the purchase of common shares for treasury, dividends paid to shareholders and for the acquisition of businesses in 2022.

The Company paid $130,724 and $121,851 in cash dividends to its shareholders in the twelve months ended December 31, 2022 and 2021, respectively. In January 2023, the Company paid a cash dividend of $0.64 per share, or $36,879, to shareholders of record on December 31, 2022, which reflects a 14.3% increase in the Company’s dividend payout rate.

​

24

Table of Contents

​

Working Capital Ratios

​

​

​

​

​

​

​

​

​

2022 (3)

    

2021

 

Average operating working capital to Net sales (1) (2)

 

20.9

%  

16.3

%

Days sales in Inventories (2)

 

132.5

 

121.0

​

Days sales in Accounts receivable

 

57.0

 

50.3

​

Average days in Trade accounts payable

 

57.0

 

59.8

​

​

(1)Average operating working capital to Net sales is defined as the sum of Accounts receivable, Inventories and contract assets less Trade accounts payable and contract liabilities as of period end divided by annualized rolling three months of Net sales.
(2)In order to minimize potential supply chain disruptions in serving customers due to the continued impacts of the COVID-19 pandemic, the Company increased inventories relative to expected Net sales resulting in higher Days sales in Inventories.
(3)Average operating working capital excluding Fori would have been 18.6% as a percent of Net sales.

Rationalization and Asset Impairments

Refer to Note 7 to the consolidated financial statements for a discussion of the Company’s rationalization plans. 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.

Acquisitions

Refer to Note 4 to the consolidated financial statements for a discussion of the Company’s recent acquisitions.

Debt

At December 31, 2022 and 2021, the total amount of debt outstanding was $1,203,879 and $769,819, respectively, while the fair value of long-term debt, including the current portion, was approximately $1,009,020 and $776,655, respectively, which was determined using available market information and methodologies requiring judgment. The carrying value of this debt at such dates was $1,121,435 and $717,855, 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.

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 Notes each have an aggregate principal amount of $350,000. Interest on the Notes are payable semi-annually. The proceeds of the Notes were used for general corporate purposes. The Notes contain certain affirmative and negative covenants. As of December 31, 2022, the Company was in compliance with all of its debt covenants relating to the Notes.

The Company’s total weighted average effective interest rate and remaining weighted average term, inclusive of the 2015 Notes and 2016 Notes, is 3.3% and 11.4 years, respectively.

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​

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 December 31, 2022, the Company was in compliance with all of its covenants and had $45,000 of outstanding borrowings under the Credit Agreement.

The Company has other lines of credit and debt agreements totaling $92,078. As of December 31, 2022, the Company was in compliance with all of its covenants and had $37,444 outstanding at December 31, 2022.

Term Loan

On November 29, 2022, the Company entered into a term loan in the aggregate principal amount of $400,000 (the “Term Loan”), which was borrowed in full. The Term Loan matures on November 29, 2025. The Term Loan bears an interest at a rate based on Term SOFR, plus a margin ranging from 0.75% to 1.75% based on the Company’s consolidated net leverage ratio. The proceeds of the Term Loan were used to pay a portion of the purchase price in connection with the acquisition of Fori.

The agreement governing the Term Loan (the “Term Loan Credit Agreement”) contains representations and warranties, as well as 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 and transactions with affiliates. The Term Loan Credit Agreement requires the Company to maintain a minimum consolidated fixed charges coverage ratio and maximum consolidated net leverage ratio. As of December 31, 2022, the Company was in compliance with all of its covenants.

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 five-year term and the average life of borrowings cannot exceed 15 years. The Company is required to comply with covenants similar to those contained in the 2015 Notes and 2016 Notes. As of December 31, 2022, the Company was in compliance with all of its covenants and had no outstanding borrowings under the Shelf Agreements.

Return on Invested Capital

The Company reviews return on invested capital ("ROIC") in assessing and evaluating the Company’s underlying operating performance. Adjusted 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. Adjusted 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 Amounts due banks, Current portion of long-term debt and Long-term debt, less current portions, plus Total equity.

​

26

Table of Contents

​

The following table presents the reconciliation of ROIC and Adjusted ROIC to net income:

​

​

​

​

​

​

​

​

​

Return on Invested Capital

    

2022

    

2021

 

Net income as reported

​

$

472,224

​

$

276,466

​

Plus: Interest expense (after-tax)

​

 

23,276

​

 

17,794

​

Less: Interest income (after-tax)

​

 

1,202

​

 

1,172

​

Net operating profit after taxes

​

$

494,298

​

$

293,088

​

Special items:

​

​

​

​

​

​

​

Rationalization and asset impairment charges

​

​

11,788

​

​

9,827

​

Acquisition transaction costs

​

​

6,003

​

​

1,923

​

Pension settlement net charges

​

​

(4,273)

​

​

126,502

​

Amortization of step up in value of acquired inventories

​

​

1,106

​

​

5,804

​

Tax effect of Special items (1)

​

​

(1,192)

​

​

(47,188)

​

Adjusted net operating profit after taxes

​

$

507,730

​

$

389,956

​

​

​

​

​

​

​

​

​

Invested Capital

​

​

​

​

​

​

​

Short-term debt

​

$

93,483

​

$

52,730

​

Long-term debt, less current portion

​

​

1,110,396

​

​

717,089

​

Total debt

​

​

1,203,879

​

​

769,819

​

Total equity

​

​

1,034,041

​

​

863,909

​

Invested capital

​

$

2,237,920

​

$

1,633,728

​

​

​

​

​

​

​

​

​

Return on invested capital as reported (2)

​

​

22.1

%  

​

17.9

%

Adjusted return on invested capital (2)

​

 

22.7

%  

 

23.9

%

​

(1)Includes the net tax impact of Special items recorded during the respective periods.

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

(2)Return on invested capital and Adjusted return on invested capital excluding Fori would have been 27.9% and 28.6%, respectively.

Contractual and Other Obligations

The Company’s cash requirements for contractual and other obligations as of December 31, 2022 are as follows:

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Payments Due By Period

​

      

   

 

​

​

 

2024 to

 

2026 to

 

2028 and

​

Total

​

2023

​

2025

​

2027

​

Beyond

Long-term debt, including current portion (Note 9)

$

1,118,336

​

$

11,039

​

$  

507,297

​

$  

—

​

$  

600,000

Interest on long-term debt (Note 9)

 

345,782

​

 

45,448

​

 

88,157

​

 

39,970

​

 

172,207

Amounts due banks (Note 9)

​

82,444

​

​

82,444

​

​

—

​

​

—

​

​

—

Operating leases (Note 17)

 

51,798

​

 

11,342

​

 

16,588

​

 

9,310

​

 

14,558

Purchase commitments (1)

 

2,003,872

​

 

1,999,751

​

 

3,579

​

 

355

​

 

187

Transition Tax (2)

 

11,459

​

 

—

​

 

11,459

​

 

—

​

 

—

Total

$

3,613,691

​

$

2,150,024

​

$

627,080

​

$

49,635

​

$

786,952

​

(1)Purchase commitments include contractual obligations for raw materials and services.
(2)Federal income taxes on the Company’s transition tax pursuant to the U.S. Tax Act is payable over eight years. Amounts reflect the utilization of 2017 overpayments and foreign tax credits.

27

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​

As of December 31, 2022, there were $17,424 of tax liabilities related to unrecognized tax benefits and a $39,090 liability for deferred compensation. Because of the high degree of uncertainty regarding the timing of future cash outflows associated with these liabilities, the Company is unable to estimate the years in which settlement will occur.

Stock-Based Compensation

On April 23, 2015, the shareholders of the Company approved the 2015 Equity and Incentive Compensation Plan ("Employee Plan"). The Employee Plan provides for the granting of options, appreciation rights, restricted shares, restricted stock units and performance-based awards up to an additional 5,400,000 of the Company’s common shares. In addition, on April 23, 2015, the shareholders of the Company approved the 2015 Stock Plan for Non-Employee Directors ("2015 Director Plan"). The 2015 Director Plan provides for the granting of options, restricted shares and restricted stock units up to an additional 300,000 of the Company’s common shares. At December 31, 2022, there were 1,381,427 common shares available for future grant under all plans.

Under these plans, options, restricted shares and restricted stock units granted were 284,946 in 2022 and 313,547 in 2021. The Company issued common shares from treasury upon all exercises of stock options, vesting of restricted stock units and the granting of restricted stock awards in 2022 and 2021.

Total stock-based compensation expense recognized in the Consolidated Statements of Income for 2022 and 2021 was $25,276 and $23,787, respectively, with a related tax benefit of $6,363 and $5,988, respectively. As of December 31, 2022, total unrecognized stock-based compensation expense related to non-vested stock options and restricted stock units was $17,610, which is expected to be recognized over a weighted average period of approximately 1.3 years.

The aggregate intrinsic value of options outstanding and exercisable, which would have been received by the optionees, had all awards been exercised at December 31, 2022 was $58,282 and $49,024, respectively. The total intrinsic value of awards exercised during 2022 and 2021 was $7,082 and $20,442, respectively.

Product Liability Costs

Product liability costs incurred can be volatile and are largely related to trial activity. The costs associated with these claims are predominantly defense costs which are recognized in the periods incurred.

The long-term impact of product liability contingencies, in the aggregate, on operating results, operating cash flows and access to capital markets is difficult to assess, particularly since claims are in many different stages of development and the Company benefits significantly from cost sharing with co-defendants and insurance carriers. Moreover, the Company has been largely successful to date in its defense of these claims.

Off-Balance Sheet Arrangements

The Company utilizes letters of credit to back certain payment and performance obligations. Letters of credit are subject to limits based on amounts outstanding under the Company’s Credit Agreement.

New Accounting Pronouncements

Refer to Note 1 to the consolidated financial statements for a discussion of new accounting pronouncements.

Critical Accounting Policies and Estimates

The Company’s consolidated financial statements are based on the selection and application of significant accounting policies, which require management to make estimates and assumptions. These estimates and assumptions are reviewed periodically by management and compared to historical trends to determine the accuracy of estimates and assumptions used. If warranted, these estimates and assumptions may be changed as current trends are assessed and updated. Historically, the Company’s estimates have been determined to be reasonable. No material changes to the Company’s

28

Table of Contents

​

accounting policies were made during 2022. The Company believes the following accounting policies are some of the more critical judgment areas affecting its financial condition and results of operations.

Legal and Tax Contingencies

The Company, like other manufacturers, is subject from time to time to a variety of civil and administrative proceedings arising in the ordinary course of business. Such claims and litigation include, without limitation, product liability claims, administrative claims, regulatory claims and health, safety and environmental claims, some of which relate to cases alleging asbestos induced illnesses. The costs associated with these claims are predominantly defense costs, which are recognized in the periods incurred. Insurance reimbursements mitigate these costs and, where reimbursements are probable, they are recognized in the applicable period. With respect to costs other than defense costs (i.e., for liability and/or settlement or other resolution), reserves are recorded when it is probable that the contingencies will have an unfavorable outcome. The Company accrues its best estimate of the probable costs after a review of the facts with management and counsel and taking into account past experience. If an unfavorable outcome is determined to be reasonably possible but not probable, or if the amount of loss cannot be reasonably estimated, disclosure would be provided for material claims or litigation. Many of the current cases are in differing procedural stages and information on the circumstances of each claimant, which forms the basis for judgments as to the validity or ultimate disposition of such actions, varies greatly. Therefore, in many situations a range of possible losses cannot be made. Reserves are adjusted as facts and circumstances change and related management assessments of the underlying merits and the likelihood of outcomes change. Moreover, reserves only cover identified and/or asserted claims. Future claims could, therefore, give rise to increases to such reserves.

The Company is subject to taxation from U.S. federal, state, municipal and international jurisdictions. The calculation of current income tax expense is based on the best information available and involves significant management judgment. The actual income tax liability for each jurisdiction in any year can in some instances be ultimately determined several years after the financial statements are published.

The Company maintains liabilities for unrecognized tax benefits related to uncertain income tax positions in various jurisdictions. The Company uses judgment in determining whether the technical merits of tax positions are more-likely-than-not to be sustained. Judgment is also used in measuring the related amount of tax benefit that qualifies for recognition, including the interpretation of applicable tax law, regulation and tax ruling.

Liabilities are settled primarily through the completion of audits within each individual tax jurisdiction or the closing of a statute of limitation. Liabilities can be affected by changes in ap