LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
The following ASUs were adopted as of January 1, 2018. The impact on the Company's consolidated financial statements is described within the table below:
|
|
|
Standard
|
Description
|
ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, issued August 2017.
|
Provides updated guidance to more closely align hedge accounting with a company's risk management strategy, to simplify the application of hedge accounting and to better portray the economic results of hedging instruments in the financial statements. The ASU is effective January 1, 2019 and early adoption is permitted. On the date of adoption, the ASU applies to all existing hedging relationships and should be reflected as of the beginning of the respective fiscal year. The Company early adopted the ASU effective January 1, 2018. The adoption is not expected to have a material impact on the Company's consolidated financial statements.
|
ASU No. 2017-07, Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Period Pension Cost and Net Periodic Postretirement Benefit Cost, issued March 2017.
|
Requires an entity to report the service cost component of the net periodic benefit cost in the same income statement line item as other employee compensation costs. The other components of the net periodic benefit cost are required to be presented in the income statement separately from the service cost component and outside of any subtotal of operating income. Additionally, only the service cost component will be eligible for capitalization in assets. The ASU should be applied retrospectively for the presentation of the service cost component and the other components of net periodic pension cost in the income statement and prospectively for the capitalization of the service cost component. The adoption primarily results in the reclassification of other components of net periodic benefit cost outside of Operating income in the Consolidated Statements of Income. Refer to Note 11 of the consolidated financial statements for details.
|
ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, issued January 2017.
|
Provides updated guidance for evaluating whether certain transactions should be accounted for as an acquisition (or disposal) of an asset or a business. The ASU should be applied prospectively. The adoption is not expected to have a material impact on the Company's consolidated financial statements.
|
ASU No. 2016-18, Statement of Cash Flows(Topic 230): Restricted Cash, issued November 2016.
|
Requires amounts generally described as restricted cash and restricted cash equivalents be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The ASU should be applied retrospectively. The adoption is not expected to have a material impact on the Company's consolidated financial statements.
|
ASU No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory, issued October 2016.
|
Requires an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The ASU should be applied using a modified retrospective approach, through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. The adoption is not expected to have a material impact on the Company's consolidated financial statements.
|
ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, issued August 2016.
|
Reduces existing diversity in practice by addressing eight specific cash flow issues related to how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The ASU should be applied retrospectively. The adoption is not expected to have a material impact on the Company's consolidated financial statements.
|
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
The Company is currently evaluating the impact on its financial statements of the following ASUs:
|
|
|
Standard
|
Description
|
ASU No. 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220), issued February 2018.
|
Allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the U.S. Tax Act (as defined within Note 12 to the consolidated financial statements). The ASU only applies to the income tax effects of the U.S. Tax Act, all other existing guidance remains the same. The ASU is effective January 1, 2019, early adoption is permitted and the ASU should be applied retrospectively to each period impacted by the U.S. Tax Act.
|
ASU No. 2016-02, Leases (Topic 842), issued February 2016.
|
Increases transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and requiring disclosure of key information about leasing agreements. Entities are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The ASU is effective January 1, 2019, early adoption is permitted and the ASU should be applied using either a modified retrospective or modified retrospective with practical expedients approach.
|
NOTE 2 - EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2017
|
|
2016
|
|
2015
|
Numerator:
|
|
|
|
|
|
Net income
|
$
|
247,503
|
|
|
$
|
198,399
|
|
|
$
|
127,478
|
|
Denominator:
|
|
|
|
|
|
Basic weighted average shares outstanding
|
65,739
|
|
|
67,462
|
|
|
74,111
|
|
Effect of dilutive securities - Stock options and awards
|
904
|
|
|
694
|
|
|
743
|
|
Diluted weighted average shares outstanding
|
66,643
|
|
|
68,156
|
|
|
74,854
|
|
Basic earnings per share
|
$
|
3.76
|
|
|
$
|
2.94
|
|
|
$
|
1.72
|
|
Diluted earnings per share
|
$
|
3.71
|
|
|
$
|
2.91
|
|
|
$
|
1.70
|
|
For the years ended
December 31, 2017
,
2016
and
2015
, common shares subject to equity-based awards of
157,033
,
774,502
and
522,471
, respectively, were excluded from the computation of diluted earnings per share because the effect of their exercise would be anti-dilutive.
NOTE 3 – ACQUISITIONS
During July 2017, the Company completed its acquisition of Air Liquide Welding, a subsidiary of Air Liquide. The agreed upon purchase price was
$135,123
, which was adjusted for certain debt like obligations, for a net purchase price of
$61,953
, net of cash acquired. The primary debt like obligation was a pension liability. The acquisition was accounted for as a business combination. The funding of the cash portion of the purchase price and acquisition costs was provided for with available cash.
The complementary business enhanced the Company’s global specialty consumables portfolio and extended its channel reach for equipment systems and cutting, soldering and brazing solutions in Europe. The acquisition also offers European customers more comprehensive welding solutions, greater technical application expertise and improved service levels.
The fair value of the net assets acquired exceeded the purchase consideration by
$49,650
, resulting in a bargain purchase gain at acquisition, which is included in Bargain purchase gain in the Company’s Consolidated Statements of Income. The Company believes that the bargain purchase gain was primarily the result of the divestiture by Air Liquide of the welding business, which was outside Air Liquide’s core business, as part of an overall repositioning of its core business. The Company anticipates future integration initiatives are necessary in order to achieve commercial and operational synergies. The assets and liabilities assumed and presented in the table below are based on available information and may be revised during the measurement period, not to exceed 12 months, if additional information becomes available.
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
The following table summarizes the purchase price allocation for the Air Liquide Welding acquisition:
|
|
|
|
|
|
Assets acquired and liabilities assumed
|
|
As of July 31, 2017
|
Accounts receivable
|
|
$
|
89,442
|
|
Inventory
(1)
|
|
97,803
|
|
Property, plant and equipment
(2)
|
|
73,056
|
|
Intangible assets
(3)
|
|
11,715
|
|
Accounts payable
|
|
(65,640
|
)
|
Pension liability
|
|
(67,563
|
)
|
Bargain purchase gain
|
|
(49,650
|
)
|
Net other assets and liabilities
(4)
|
|
(27,210
|
)
|
Total purchase price, net of cash acquired
(5)
|
|
$
|
61,953
|
|
|
|
(1)
|
Inventories acquired were sold in 2017 resulting in a
$4,578
increase in cost of sales for the amortization of step up in the value of acquired inventories.
|
|
|
(2)
|
Property, plant and equipment acquired includes a number of manufacturing and distribution sites, including the related facilities, land and leased sites, and machinery and equipment for use in manufacturing operations.
|
|
|
(3)
|
$7,099
of the intangible asset balance was assigned to a trade name expected to have an indefinite life. Of the remaining amount,
$1,183
was assigned to a finite-lived trade name (
10
year weighted average useful life) and
$3,433
was assigned to other intangible assets (
9
year weighted average life).
|
|
|
(4)
|
Consists primarily of other accrued liabilities.
|
(5) Reflects a receivable from seller of
$10,670
as of December 31, 2017 for an agreed upon purchase price adjustment received in the first quarter of 2018.
In 2017, the Company recognized
$15,002
in acquisition transaction and integration costs related to the acquisition of Air Liquide Welding. Such costs were expensed as incurred and are included in the "Selling, general and administrative expenses" line item in the Consolidated Statements of Income.
In 2016, the Air Liquide Welding businesses generated sales of approximately
$400
million. Beginning August 1, 2017, the Company's Consolidated Statements of Income include the results of the Air Liquide Welding businesses, including sales revenue of
$182
million through December 31, 2017. The impact on net income in the year ended December 31, 2017 from Air Liquide Welding businesses was immaterial.
During May 2016, the Company acquired Vizient Manufacturing Solutions ("Vizient"). Vizient, based in Bettendorf, Iowa, is a robotic integrator specializing in custom engineered tooling and automated arc welding systems for general and heavy fabrication applications. The acquisition assisted in diversifying end-market exposure and broadening global growth opportunities.
During August 2015, the Company acquired Specialised Welding Products ("SWP"). SWP, based in Melbourne, Australia, is a provider of specialty welding consumables and fabrication, maintenance and repair services for alloy and wear resistant products commonly used in mining and energy sector applications. The acquisition broadened the Company's presence and specialty alloy offering in Australia and New Zealand.
Also in August 2015, the Company acquired Rimrock Holdings Corporation ("Rimrock"). Rimrock is a manufacturer of industrial automation products and robotic systems with two divisions, Wolf Robotics LLC, based in Fort Collins, Colorado, and Rimrock Corporation, based in Columbus, Ohio. Wolf Robotics integrates robotic welding and cutting systems predominantly for heavy fabrication and transportation OEMs and suppliers. The acquisition advanced the Company's leadership position in automated welding and cutting solutions. Rimrock Corporation designs and manufactures automated spray systems and turnkey robotic systems for the die casting, foundry and forging markets.
Pro forma information related to these acquisitions has not been presented because the impact on the Company's Consolidated Statements of Income is not material. Acquired companies are included in the Company's consolidated financial statements as of the date of acquisition.
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
NOTE 4 – GOODWILL AND INTANGIBLES
The changes in the carrying amount of goodwill by reportable segments for the years ended December 31,
2017
and
2016
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
Welding
|
|
International
Welding
|
|
The Harris
Products
Group
|
|
Consolidated
|
Balance as of December 31, 2015
|
|
$
|
152,335
|
|
|
$
|
23,345
|
|
|
$
|
11,824
|
|
|
$
|
187,504
|
|
Additions and adjustments
(1)(2)
|
|
43,217
|
|
|
(30
|
)
|
|
(301
|
)
|
|
42,886
|
|
Foreign currency translation
|
|
826
|
|
|
349
|
|
|
354
|
|
|
1,529
|
|
Balance as of December 31, 2016
|
|
196,378
|
|
|
23,664
|
|
|
11,877
|
|
|
231,919
|
|
Additions and adjustments
(2)
|
|
(76
|
)
|
|
—
|
|
|
(301
|
)
|
|
(377
|
)
|
Impairment charges
(3)
|
|
(1,091
|
)
|
|
—
|
|
|
—
|
|
|
(1,091
|
)
|
Foreign currency translation
|
|
2,048
|
|
|
2,003
|
|
|
80
|
|
|
4,131
|
|
Balance as of December 31, 2017
|
|
$
|
197,259
|
|
|
$
|
25,667
|
|
|
$
|
11,656
|
|
|
$
|
234,582
|
|
|
|
(1)
|
Additions to Americas Welding reflect goodwill recognized in the acquisition of Vizient in 2016.
|
|
|
(2)
|
Adjustments to Harris Products Group include the tax benefit attributable to the amortization of tax deductible goodwill in excess of goodwill recorded for financial reporting purposes.
|
|
|
(3)
|
The Company performed an interim goodwill impairment test, using a combination of income and market valuation approaches, resulting in a non-cash impairment charge to the carrying value of goodwill. The impairment charge is recorded within Rationalization and asset impairment charges in the accompanying Consolidated Statements of Income.
|
Gross carrying values and accumulated amortization of intangible assets other than goodwill by asset class were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
December 31, 2016
|
|
|
Gross
Amount
|
|
Accumulated
Amortization
|
|
Gross
Amount
|
|
Accumulated
Amortization
|
Intangible assets not subject to amortization
|
|
|
|
|
|
|
|
|
Trademarks and trade names
|
|
$
|
24,235
|
|
|
|
|
$
|
17,113
|
|
|
|
Intangible assets subject to amortization
|
|
|
|
|
|
|
|
|
Trademarks and trade names
|
|
$
|
41,203
|
|
|
$
|
24,147
|
|
|
$
|
38,972
|
|
|
$
|
20,648
|
|
Customer relationships
|
|
93,139
|
|
|
47,175
|
|
|
91,216
|
|
|
39,033
|
|
Patents
|
|
27,777
|
|
|
12,978
|
|
|
28,073
|
|
|
11,467
|
|
Other
|
|
57,351
|
|
|
31,953
|
|
|
52,071
|
|
|
26,209
|
|
Total intangible assets subject to amortization
|
|
$
|
219,470
|
|
|
$
|
116,253
|
|
|
$
|
210,332
|
|
|
$
|
97,357
|
|
Increases in gross intangible assets reflect the acquisition of Air Liquide Welding in 2017.
Aggregate amortization expense was
$15,671
,
$14,525
and
$13,296
for
2017
,
2016
and
2015
, respectively. Estimated annual amortization expense for intangible assets for each of the next five years is
$14,856
in
2018
,
$13,233
in
2019
,
$12,513
in
2020
,
$11,467
in
2021
and
$10,437
in
2022
.
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
NOTE 5 – SEGMENT INFORMATION
The Company's primary business is the design and manufacture of arc welding and cutting products, manufacturing a broad line of arc welding equipment, consumable welding products and other welding and cutting products. Welding products include arc welding power sources, CNC and plasma cutters, wire feeding systems, robotic welding packages, integrated automation systems, fume extraction equipment, consumable electrodes, fluxes and welding accessories and specialty welding consumables and fabrication. The Company's product offering also includes oxy-fuel cutting systems and regulators and torches used in oxy-fuel welding, cutting and brazing. In addition, the Company has a leading global position in the brazing and soldering alloys market.
During the first quarter of 2016, the Company realigned its organizational and leadership structure into
three
operating segments to support growth strategies and enhance the utilization of the Company's worldwide resources and global sourcing initiatives. 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 primarily includes welding operations in Europe, Africa, Asia and Australia. The Harris Products Group includes the Company's global cutting, soldering and brazing businesses as well as its retail business in the United States. 2015 results reflect the realigned segment structure.
Segment performance is measured and resources are allocated based on a number of factors, the primary profit measure being adjusted earnings before interest and income taxes ("Adjusted EBIT"). EBIT is defined as Operating income plus Equity earnings in affiliates and Other income. Segment 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 accounting principles applied at the operating segment level are generally the same as those applied at the consolidated financial statement level with the exception of LIFO. Segment assets include inventories measured on a FIFO basis while consolidated inventories include inventories reported on a LIFO basis. Segment and consolidated income before interest and income taxes include the effect of inventories reported on a LIFO basis. At December 31,
2017
approximately
32%
of total inventories were valued using the LIFO method. At December 31,
2016
and
2015
approximately
40%
of total inventories were valued using the LIFO method. LIFO is used for a substantial portion of U.S. inventories included in Americas Welding. Inter-segment sales are recorded at agreed upon prices that approximate arm's length prices and are eliminated in consolidation. Corporate-level expenses are allocated to the operating segments.
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
Financial information for the reportable segments follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas Welding
(1)
|
|
International Welding
(2)
|
|
The Harris
Products
Group
|
|
Corporate /
Eliminations
(3)
|
|
Consolidated
|
For the Year Ended
December 31, 2017
|
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
1,609,779
|
|
|
$
|
724,024
|
|
|
$
|
290,628
|
|
|
$
|
—
|
|
|
$
|
2,624,431
|
|
Inter-segment sales
|
97,382
|
|
|
18,860
|
|
|
8,190
|
|
|
(124,432
|
)
|
|
$
|
—
|
|
Total
|
$
|
1,707,161
|
|
|
$
|
742,884
|
|
|
$
|
298,818
|
|
|
$
|
(124,432
|
)
|
|
$
|
2,624,431
|
|
Adjusted EBIT
|
$
|
291,866
|
|
|
$
|
41,721
|
|
|
$
|
36,442
|
|
|
$
|
309
|
|
|
$
|
370,338
|
|
Special items charge (gain)
|
9,242
|
|
|
10,076
|
|
|
—
|
|
|
(34,648
|
)
|
|
$
|
(15,330
|
)
|
EBIT
|
$
|
282,624
|
|
|
$
|
31,645
|
|
|
$
|
36,442
|
|
|
$
|
34,957
|
|
|
$
|
385,668
|
|
Interest income
|
|
|
|
|
|
|
|
|
4,788
|
|
Interest expense
|
|
|
|
|
|
|
|
|
(24,220
|
)
|
Income before income taxes
|
|
|
|
|
|
|
|
|
$
|
366,236
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
$
|
1,253,411
|
|
|
$
|
919,995
|
|
|
$
|
175,151
|
|
|
$
|
57,990
|
|
|
$
|
2,406,547
|
|
Equity investments in affiliates
|
4,037
|
|
|
24,489
|
|
|
—
|
|
|
—
|
|
|
$
|
28,526
|
|
Capital expenditures
|
43,158
|
|
|
14,549
|
|
|
3,949
|
|
|
—
|
|
|
$
|
61,656
|
|
Depreciation and amortization
|
47,038
|
|
|
18,364
|
|
|
2,885
|
|
|
(172
|
)
|
|
$
|
68,115
|
|
For the Year Ended
December 31, 2016
|
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
1,494,982
|
|
|
$
|
507,289
|
|
|
$
|
272,343
|
|
|
$
|
—
|
|
|
$
|
2,274,614
|
|
Inter-segment sales
|
93,612
|
|
|
15,975
|
|
|
8,709
|
|
|
(118,296
|
)
|
|
$
|
—
|
|
Total
|
$
|
1,588,594
|
|
|
$
|
523,264
|
|
|
$
|
281,052
|
|
|
$
|
(118,296
|
)
|
|
$
|
2,274,614
|
|
Adjusted EBIT
|
$
|
266,633
|
|
|
$
|
29,146
|
|
|
$
|
32,380
|
|
|
$
|
564
|
|
|
$
|
328,723
|
|
Special items charge
|
—
|
|
|
—
|
|
|
—
|
|
|
34,348
|
|
|
$
|
34,348
|
|
EBIT
|
$
|
266,633
|
|
|
$
|
29,146
|
|
|
$
|
32,380
|
|
|
$
|
(33,784
|
)
|
|
$
|
294,375
|
|
Interest income
|
|
|
|
|
|
|
|
|
2,092
|
|
Interest expense
|
|
|
|
|
|
|
|
|
(19,079
|
)
|
Income before income taxes
|
|
|
|
|
|
|
|
|
$
|
277,388
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
$
|
1,278,417
|
|
|
$
|
529,223
|
|
|
$
|
161,391
|
|
|
$
|
(25,594
|
)
|
|
$
|
1,943,437
|
|
Equity investments in affiliates
|
3,946
|
|
|
23,355
|
|
|
—
|
|
|
—
|
|
|
$
|
27,301
|
|
Capital expenditures
|
35,314
|
|
|
12,354
|
|
|
2,209
|
|
|
—
|
|
|
$
|
49,877
|
|
Depreciation and amortization
|
47,359
|
|
|
15,063
|
|
|
2,860
|
|
|
(209
|
)
|
|
$
|
65,073
|
|
For the Year Ended
December 31, 2015
|
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
1,741,350
|
|
|
$
|
530,460
|
|
|
$
|
263,981
|
|
|
$
|
—
|
|
|
$
|
2,535,791
|
|
Inter-segment sales
|
92,538
|
|
|
18,747
|
|
|
9,312
|
|
|
(120,597
|
)
|
|
$
|
—
|
|
Total
|
$
|
1,833,888
|
|
|
$
|
549,207
|
|
|
$
|
273,293
|
|
|
$
|
(120,597
|
)
|
|
$
|
2,535,791
|
|
Adjusted EBIT
|
$
|
316,689
|
|
|
$
|
34,511
|
|
|
$
|
27,882
|
|
|
$
|
(275
|
)
|
|
$
|
378,807
|
|
Special items charge
|
173,239
|
|
|
16,671
|
|
|
—
|
|
|
—
|
|
|
$
|
189,910
|
|
EBIT
|
$
|
143,450
|
|
|
$
|
17,840
|
|
|
$
|
27,882
|
|
|
$
|
(275
|
)
|
|
$
|
188,897
|
|
Interest income
|
|
|
|
|
|
|
|
|
2,714
|
|
Interest expense
|
|
|
|
|
|
|
|
|
(21,824
|
)
|
Income before income taxes
|
|
|
|
|
|
|
|
|
$
|
169,787
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
$
|
1,165,817
|
|
|
$
|
543,254
|
|
|
$
|
143,905
|
|
|
$
|
(68,805
|
)
|
|
$
|
1,784,171
|
|
Equity investments in affiliates
|
3,791
|
|
|
23,450
|
|
|
—
|
|
|
—
|
|
|
$
|
27,241
|
|
Capital expenditures
|
35,721
|
|
|
12,059
|
|
|
2,727
|
|
|
—
|
|
|
$
|
50,507
|
|
Depreciation and amortization
|
45,447
|
|
|
15,776
|
|
|
2,978
|
|
|
(194
|
)
|
|
$
|
64,007
|
|
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
|
|
(1)
|
2017 special items reflect non-cash pension settlement charges related to lump sum pension payments, as well as non-cash charges related to the impairment of goodwill.
|
2015 special items reflect net charges related to employee severance and other related costs, Venezuelan foreign exchange remeasurement losses related to the adoption of a new foreign exchange mechanism and non-cash pension settlement charges related to the purchase of a group annuity contract.
|
|
(2)
|
2017 special items reflect amortization of step up in value of acquired inventories related to the Air Liquide Welding acquisition as discussed in Note 3 to the consolidated financial statements, as well as charges related to employee severance, asset impairments and other related costs.
|
2015 special items reflect net charges related to employee severance and other costs and adjustments to reclassify a potential divestiture that was previously held-for-sale, as well as non-cash charges related to the impairment of goodwill and long-lived assets.
|
|
(3)
|
2017 special items reflect a bargain purchase gain and acquisition transaction and integration costs related to the Air Liquide Welding acquisition as discussed in Note 3 to the consolidated financial statements.
|
2016 special items reflect a loss related to the deconsolidation of the Company's Venezuelan subsidiary.
Export sales (excluding inter-company sales) from the United States were
$151,630
in
2017
,
$134,216
in
2016
and
$175,049
in
2015
. No individual customer comprised more than
10%
of the Company's total revenues for any of the three years ended
December 31, 2017
.
The geographic split of the Company's Net sales, based on the location of the customer, and property, plant and equipment were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2017
|
|
2016
|
|
2015
|
Net sales:
|
|
|
|
|
|
|
United States
|
|
$
|
1,388,816
|
|
|
$
|
1,308,635
|
|
|
$
|
1,387,882
|
|
Foreign countries
|
|
1,235,615
|
|
|
965,979
|
|
|
1,147,909
|
|
Total
|
|
$
|
2,624,431
|
|
|
$
|
2,274,614
|
|
|
$
|
2,535,791
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2017
|
|
2016
|
|
2015
|
Property, plant and equipment, net:
|
|
|
|
|
|
|
United States
|
|
$
|
194,491
|
|
|
$
|
176,041
|
|
|
$
|
173,974
|
|
Foreign countries
|
|
282,931
|
|
|
196,679
|
|
|
237,718
|
|
Eliminations
|
|
(391
|
)
|
|
(343
|
)
|
|
(369
|
)
|
Total
|
|
$
|
477,031
|
|
|
$
|
372,377
|
|
|
$
|
411,323
|
|
NOTE 6 – RATIONALIZATION AND ASSET IMPAIRMENTS
The Company recorded rationalization and asset impairment charges of
$6,590
and
$19,958
for the years ended
December 31, 2017
and
2015
. The 2017 charges include
$5,149
primarily related to employee severance and
$1,441
in asset impairment charges.
A description of each restructuring plan and the related costs follows:
Americas Welding Plans:
During 2015, the Company initiated a rationalization plan within Americas Welding that included a voluntary separation incentive program covering certain U.S.-based employees. The plan was completed during 2016.
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
International Welding Plans:
During 2017, the Company initiated rationalization plans within International Welding. The plan includes headcount restructuring and the consolidation of manufacturing operations to better align the cost structures with economic conditions and operating needs. At
December 31, 2017
, liabilities relating to the International Welding plans of
$3,610
were recognized in Other current liabilities. The Company does not anticipate significant additional charges related to the completion of these plans.
During 2015, the Company initiated rationalization plans within International Welding. The plan included headcount restructuring to better align the cost structures with economic conditions and operating needs. The Company does not anticipate any additional charges related to the completion of these 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. The Company continues to evaluate its cost structure and additional rationalization actions may result in charges in future periods. The following table summarizes the activity related to the rationalization liabilities by segment for the year ended
December 31, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas Welding
|
|
International
Welding
|
|
Consolidated
|
Balance at December 31, 2015
|
|
$
|
67
|
|
|
$
|
7,598
|
|
|
$
|
7,665
|
|
Payments and other adjustments
|
|
(67
|
)
|
|
(2,408
|
)
|
|
(2,475
|
)
|
Balance at December 31, 2016
|
|
$
|
—
|
|
|
$
|
5,190
|
|
|
$
|
5,190
|
|
Payments and other adjustments
|
|
—
|
|
|
(3,536
|
)
|
|
(3,536
|
)
|
Charged to expense
|
|
—
|
|
|
5,149
|
|
|
5,149
|
|
Balance at December 31, 2017
|
|
$
|
—
|
|
|
$
|
6,803
|
|
|
$
|
6,803
|
|
NOTE 7 – ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) ("AOCI")
The following tables set forth the total changes in AOCI by component, net of taxes, for the years ended
December 31, 2017
and
2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain (loss) on derivatives designated and qualifying as cash flow hedges
|
|
Defined benefit pension plan activity
|
|
Currency translation adjustment
|
|
Total
|
Balance at December 31, 2015
|
|
$
|
548
|
|
|
$
|
(99,776
|
)
|
|
$
|
(197,039
|
)
|
|
$
|
(296,267
|
)
|
Other comprehensive income (loss) before reclassification
|
|
2,026
|
|
|
(1,268
|
)
|
(2)
|
(36,646
|
)
|
(3)
|
(35,888
|
)
|
Amounts reclassified from AOCI
|
|
(1,987
|
)
|
(1)
|
5,105
|
|
(2)
|
—
|
|
|
3,118
|
|
Net current-period other comprehensive income (loss)
|
|
39
|
|
|
3,837
|
|
|
(36,646
|
)
|
|
(32,770
|
)
|
Balance at December 31, 2016
|
|
$
|
587
|
|
|
$
|
(95,939
|
)
|
|
$
|
(233,685
|
)
|
|
$
|
(329,037
|
)
|
Other comprehensive income (loss) before reclassification
|
|
(2,074
|
)
|
|
2,736
|
|
(2)
|
70,901
|
|
(3)
|
71,563
|
|
Amounts reclassified from AOCI
|
|
2,362
|
|
(1)
|
7,926
|
|
(2)
|
—
|
|
|
10,288
|
|
Net current-period other comprehensive income (loss)
|
|
288
|
|
|
10,662
|
|
|
70,901
|
|
|
81,851
|
|
Balance at December 31, 2017
|
|
$
|
875
|
|
|
$
|
(85,277
|
)
|
|
$
|
(162,784
|
)
|
|
$
|
(247,186
|
)
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
During
2017
, this AOCI reclassification is a component of Net sales of
$1,860
(net of tax of
$693
) and Cost of goods sold of
$502
(net of tax of
$93
); during
2016
, the reclassification is a component of Net sales of
$(1,580)
(net of tax of
$(577)
) and Cost of goods sold of
$(407)
(net of tax of
$(24)
). Refer to Note 13 to the consolidated financial statements for additional details.
|
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
|
|
(2)
|
This AOCI component is included in the computation of net periodic pension costs (net of tax of
$19,252
and
$4,297
during the years ended December 31,
2017
and
2016
, respectively). Refer to Note 11 to the consolidated financial statements for additional details.
|
|
|
(3)
|
The Other comprehensive income before reclassifications excludes
$115
and
$(106)
attributable to Non-controlling interests in the years ended December 31,
2017
and
2016
, respectively. The reclassified AOCI component is included in the computation of Non-controlling interests. Refer to Consolidated Statements of Equity for additional details.
|
NOTE 8 – DEBT
At December 31,
2017
and
2016
, debt consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2017
|
|
2016
|
Long-term debt
|
|
|
|
|
Senior Unsecured Notes due through 2045, interest at 2.8% to 4.0% (net of debt issuance costs of $1,491 and $1,586 at December 31, 2017 and 2016, respectively),
swapped $100,000 to variable interest rates of 2.0% to 3.2%
|
|
$
|
693,424
|
|
|
$
|
692,975
|
|
Other borrowings due through 2023, interest up to 8.0%
|
|
10,823
|
|
|
10,860
|
|
|
|
704,247
|
|
|
703,835
|
|
Less current portion
|
|
111
|
|
|
131
|
|
Long-term debt, less current portion
|
|
704,136
|
|
|
703,704
|
|
Short-term debt
|
|
|
|
|
Amounts due banks, interest at 31.8% (29.0% in 2016)
|
|
2,020
|
|
|
1,758
|
|
Current portion long-term debt
|
|
111
|
|
|
131
|
|
Total short-term debt
|
|
2,131
|
|
|
1,889
|
|
Total debt
|
|
$
|
706,267
|
|
|
$
|
705,593
|
|
At
December 31, 2017
and
2016
, the fair value of long-term debt, including the current portion, was approximately
$687,428
and
$669,209
, respectively, which was determined using available market information and methodologies requiring judgment. 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
, the Company entered into a Note Purchase Agreement pursuant to which it issued senior unsecured notes (the "2015 Notes") in the aggregate principal amount of
$350,000
through a private placement. The proceeds were used for general corporate purposes. The 2015 Notes, as shown in the table below, have original maturities ranging from
10
to
30
years with a weighted average effective interest rate of
3.5%
, excluding accretion of original issuance costs, and an initial average tenure of
19
years. Interest is payable semi-annually. The 2015 Notes contain certain affirmative and negative covenants.
As of December 31, 2017, the Company was in compliance with all of its debt covenants
.
The maturity and interest rates of the 2015 Notes are as follows:
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
Maturity Date
|
|
Interest Rate
|
Series A
|
$
|
100,000
|
|
|
August 20, 2025
|
|
3.15
|
%
|
Series B
|
100,000
|
|
|
August 20, 2030
|
|
3.35
|
%
|
Series C
|
50,000
|
|
|
April 1, 2035
|
|
3.61
|
%
|
Series D
|
100,000
|
|
|
April 1, 2045
|
|
4.02
|
%
|
On
October 20, 2016
the Company entered into a Note Purchase Agreement pursuant to which it issued senior unsecured notes (the "2016 Notes") in the aggregate principal amount of
$350,000
through a private placement. The proceeds are being used for general corporate purposes. The 2016 Notes, as shown in the table below, have original maturities ranging from
12
to
25
years with a weighted average effective interest rate of
3.1%
, excluding accretion of original issuance costs, and an initial average tenure of
18
years. Interest is payable semi-annually. The 2016 Notes contain certain affirmative and negative covenants.
As of December 31, 2017, the Company was in compliance with all of its debt covenants
.
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
The maturity and interest rates of the 2016 Notes are as follows:
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
Maturity Date
|
|
Interest Rate
|
Series A
|
$
|
100,000
|
|
|
October 20, 2028
|
|
2.75
|
%
|
Series B
|
100,000
|
|
|
October 20, 2033
|
|
3.03
|
%
|
Series C
|
100,000
|
|
|
October 20, 2037
|
|
3.27
|
%
|
Series D
|
50,000
|
|
|
October 20, 2041
|
|
3.52
|
%
|
The Company's total weighted average effective interest rate and weighted average term, inclusive of the 2015 Notes and 2016 Notes, is
3.3%
and
18
years, respectively.
Revolving Credit Agreement
The Company has a line of credit totaling
$400,000
through the Amended and Restated Credit Agreement (the “Credit Agreement”). The Credit Agreement has a
five
-year term and may be increased, subject to certain conditions, by an additional amount up to
$100,000
. The interest rate on borrowings is based on either the London Inter-Bank Offered Rate ("LIBOR") or the prime rate, plus a spread based on the Company’s leverage ratio, at the Company’s election. The Company amended and restated the Credit Agreement on
June 30, 2017
, extending the maturity of the line of credit to
June 30, 2022
. The Credit Agreement contains customary affirmative, negative and financial covenants for credit facilities of this type, including limitations on the Company and its subsidiaries with respect to liens, investments, distributions, mergers and acquisitions, dispositions of assets, transactions with affiliates, a fixed charges coverage ratio and total leverage ratio.
As of December 31, 2017, the Company was in compliance with all of its covenants
and had no outstanding borrowings under the Credit Agreement.
Other
Maturities of long-term debt, including payments under capital leases and amounts due banks, for the five years succeeding
December 31, 2017
are
$2,132
in
2018
,
$111
in
2019
,
$108
in
2020
,
$110
in
2021
,
$107
in
2022
and
$710,607
thereafter. Total interest paid was
$23,820
in
2017
,
$15,332
in
2016
and
$5,631
in
2015
. The difference between interest paid and interest expense is due to the accrual of interest associated with the Senior Unsecured Notes and adjustments to the forward contract discussed in Note 14.
NOTE 9 – STOCK PLANS
On April 23, 2015, the shareholders of the Company approved the 2015 Equity and Incentive Compensation Plan ("Employee Plan"), which replaced the 2006 Equity and Performance Incentive Plan, as amended ("EPI 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"), which replaced the 2006 Stock Plan for Non-Employee Directors ("2006 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, 2017
, there were
4,324,951
common shares available for future grant under all plans.
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
Stock Options
The following table summarizes stock option activity for the year ended
December 31, 2017
under all Plans:
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2017
|
|
|
Number of
Options
|
|
Weighted
Average
Exercise
Price
|
Balance at beginning of year
|
|
1,609,702
|
|
|
$
|
51.32
|
|
Options granted
|
|
182,615
|
|
|
85.43
|
|
Options exercised
|
|
(401,233
|
)
|
|
41.44
|
|
Options canceled
|
|
(28,636
|
)
|
|
68.18
|
|
Balance at end of year
|
|
1,362,448
|
|
|
58.45
|
|
Exercisable at end of year
|
|
952,889
|
|
|
52.57
|
|
Options granted under both the Employee Plan and its predecessor plans may be outstanding for a maximum of
10 years
from the date of grant. The majority of options granted vest ratably over a period of
three years
from the grant date. The exercise prices of all options were equal to the quoted market price of the Company's common shares at the date of grant. The Company issued shares of common stock from treasury upon all exercises of stock options in
2017
. In
2017
, all options issued were under the Employee Plan.
The Company uses the Black-Scholes option pricing model for estimating fair values of options. In estimating the fair value of options granted, the expected option life is based on the Company's historical experience. The expected volatility is based on historical volatility. The weighted average assumptions for each of the three years ended December 31 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2017
|
|
2016
|
|
2015
|
Expected volatility
|
|
25.77
|
%
|
|
28.86
|
%
|
|
30.73
|
%
|
Dividend yield
|
|
1.62
|
%
|
|
1.70
|
%
|
|
1.48
|
%
|
Risk-free interest rate
|
|
1.90
|
%
|
|
1.27
|
%
|
|
1.32
|
%
|
Expected option life (years)
|
|
4.5
|
|
|
4.5
|
|
|
4.5
|
|
Weighted average fair value per option granted during the year
|
|
$
|
17.50
|
|
|
$
|
12.55
|
|
|
$
|
16.35
|
|
The following table summarizes non-vested stock options for the year ended
December 31, 2017
:
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2017
|
|
|
Number of
Options
|
|
Weighted
Average Fair
Value at Grant
Date
|
Balance at beginning of year
|
|
458,382
|
|
|
$
|
14.32
|
|
Granted
|
|
182,615
|
|
|
17.50
|
|
Vested
|
|
(205,066
|
)
|
|
14.82
|
|
Forfeited
|
|
(26,372
|
)
|
|
14.58
|
|
Balance at end of year
|
|
409,559
|
|
|
15.47
|
|
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, 2017
was
$45,139
and
$37,169
, respectively. The total intrinsic value of awards exercised during
2017
,
2016
and
2015
was
$19,328
,
$30,967
and
$6,879
, respectively. The total fair value of options that vested during
2017
,
2016
and
2015
was
$3,040
,
$2,865
and
$3,273
, respectively.
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
The following table summarizes information about awards outstanding as of
December 31, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
|
|
Exercisable
|
Exercise Price Range
|
|
Number of
Stock
Options
|
|
Weighted
Average
Exercise
Price
|
|
Weighted
Average
Remaining
Life (years)
|
|
Number of
Stock
Options
|
|
Weighted
Average
Exercise
Price
|
|
Weighted
Average
Remaining
Life (years)
|
Under $49.99
|
|
508,257
|
|
|
$
|
38.79
|
|
|
3.9
|
|
508,257
|
|
|
$
|
38.79
|
|
|
3.9
|
$50.00 - $59.99
|
|
224,894
|
|
|
58.11
|
|
|
8.1
|
|
75,615
|
|
|
58.07
|
|
|
8.1
|
Over $60.00
|
|
629,297
|
|
|
74.45
|
|
|
7.3
|
|
369,017
|
|
|
70.43
|
|
|
6.5
|
|
|
1,362,448
|
|
|
|
|
|
6.2
|
|
952,889
|
|
|
|
|
|
5.2
|
Restricted Share Awards ("RSAs")
The following table summarizes restricted share award activity for the year ended
December 31, 2017
under all Plans:
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2017
|
|
|
Number of Shares
|
|
Weighted
Average
Grant Date
Fair Value
|
Balance at beginning of year
|
|
46,159
|
|
|
$
|
64.65
|
|
Shares granted
|
|
13,910
|
|
|
89.82
|
|
Shares vested
|
|
(12,213
|
)
|
|
90.37
|
|
Balance at end of year
|
|
47,856
|
|
|
71.54
|
|
RSAs are valued at the quoted market price on the grant date. The majority of RSAs vest over a period of
three
to
five
years. The Company issued common shares from treasury upon the granting of RSAs in
2017
. Restricted shares issued in
2017
were under the 2015 Director Plan. The remaining weighted average vesting period of all non-vested RSAs is
1.2
years as of December 31,
2017
.
Restricted Stock Units ("RSUs") and Performance Share Units ("PSUs")
The following table summarizes RSU and PSU activity for the year ended
December 31, 2017
under all Plans:
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2017
|
|
|
Number of Units
|
|
Weighted
Average
Grant Date
Fair Value
|
Balance at beginning of year
|
|
376,784
|
|
|
$
|
59.75
|
|
Units granted
|
|
145,245
|
|
|
85.69
|
|
Units vested
|
|
(71,845
|
)
|
|
49.39
|
|
Units forfeited
|
|
(31,218
|
)
|
|
66.68
|
|
Balance at end of year
|
|
418,966
|
|
|
69.98
|
|
RSUs are valued at the quoted market price on the grant date. The majority of RSUs vest over a period of
three
to
five
years. The Company issues shares of common stock from treasury upon the vesting of RSUs and any earned dividend equivalents. Conversion of
10,193
RSUs to common shares in
2017
were deferred as part of the 2005 Deferred Compensation Plan for Executives (the "2005 Plan"). As of
December 31, 2017
,
96,180
RSUs, including related dividend equivalents, have been deferred under the 2005 Plan. These units are reflected within dilutive shares in the calculation of earnings per share. In
2017
,
110,585
RSUs were issued under the Employee Plan. The remaining weighted average vesting period of all non-vested RSUs is
1.9
years as of December 31,
2017
.
PSUs are valued at the quoted market price on the grant date. PSUs vest over a
three
-year period and are based on the Company's performance relative to pre-established performance goals. The Company issues common stock from treasury upon the vesting of PSUs and any earned dividend equivalents. In
2017
, the Company issued
34,660
PSU's and has
75,285
PSUs
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
outstanding under the Employee Plan at a weighted average fair value of
$70.09
per share. The remaining weighted average vesting period of all non-vested PSUs is
1.6
years as of December 31,
2017
.
Stock-Based Compensation Expense
Expense is recognized for all awards of stock-based compensation by allocating the aggregate grant date fair value over the vesting period. No expense is recognized for any stock options, restricted or deferred shares, RSUs or PSUs ultimately forfeited because recipients fail to meet vesting requirements. Total stock-based compensation expense recognized in the Consolidated Statements of Income for
2017
,
2016
and
2015
was
$12,698
,
$10,332
and
$7,932
, respectively. The related tax benefit for
2017
,
2016
and
2015
was
$4,861
,
$3,955
and
$3,037
, respectively. As of December 31,
2017
, total unrecognized stock-based compensation expense related to non-vested stock options, RSAs, RSUs and PSUs was
$20,022
, which is expected to be recognized over a weighted average period of approximately
1.9 years
years.
Lincoln Stock Purchase Plan
The 1995 Lincoln Stock Purchase Plan provides employees the ability to purchase open market shares on a commission-free basis up to a limit of
ten thousand
dollars annually. Under this plan,
800,000
shares have been authorized to be purchased. Shares purchased were
10,458
in
2017
,
15,827
in
2016
and
16,012
in
2015
.
NOTE 10 – COMMON STOCK REPURCHASE PROGRAM
The Company has a share repurchase program for up to
55 million
of the Company's common shares. At management's discretion, the Company repurchases its common shares from time to time in the open market, depending on market conditions, stock price and other factors. During the year ended December 31,
2017
, the Company purchased a total of
0.5 million
shares at an average cost per share of
$89.58
. As of December 31,
2017
,
8.4 million
shares remained available for repurchase under the stock repurchase program. The treasury shares have not been retired.
NOTE 11 – RETIREMENT ANNUITY AND GUARANTEED CONTINUOUS EMPLOYMENT PLANS
The Company maintains a number of defined benefit and defined contribution plans to provide retirement benefits for employees. These plans are maintained and contributions are made in accordance with the Employee Retirement Income Security Act of 1974 ("ERISA"), local statutory law or as determined by the Board of Directors. The plans generally provide benefits based upon years of service and compensation. Pension plans are funded except for a domestic non-qualified pension plan for certain key employees and certain foreign plans. The Company uses a December 31 measurement date for its plans.
The Company does not have, and does not provide for, any postretirement or postemployment benefits other than pensions and certain non-U.S. statutory termination benefits.
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
Defined Benefit Plans
Contributions are made in amounts sufficient to fund current service costs on a current basis and to fund past service costs, if any, over various amortization periods.
Obligations and Funded Status
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2017
|
|
2016
|
|
|
U.S. pension plans
|
|
Non-U.S. pension plans
|
|
U.S. pension plans
|
|
Non-U.S. pension plans
|
Change in benefit obligations
|
|
|
|
|
|
|
|
|
Benefit obligations at beginning of year
|
|
$
|
484,758
|
|
|
$
|
79,972
|
|
|
$
|
481,345
|
|
|
$
|
76,824
|
|
Service cost
|
|
608
|
|
|
2,678
|
|
|
15,474
|
|
|
2,215
|
|
Interest cost
|
|
19,497
|
|
|
3,253
|
|
|
20,676
|
|
|
2,902
|
|
Plan participants' contributions
|
|
—
|
|
|
176
|
|
|
—
|
|
|
148
|
|
Acquisitions
(1)
|
|
—
|
|
|
100,551
|
|
|
—
|
|
|
—
|
|
Actuarial loss (gain)
|
|
46,144
|
|
|
4,926
|
|
|
20,333
|
|
|
7,671
|
|
Benefits paid
|
|
(6,409
|
)
|
|
(4,909
|
)
|
|
(29,002
|
)
|
|
(2,306
|
)
|
Settlements/curtailments
(2)
|
|
(37,523
|
)
|
|
(700
|
)
|
|
(24,068
|
)
|
|
—
|
|
Currency translation
|
|
—
|
|
|
7,576
|
|
|
—
|
|
|
(7,482
|
)
|
Benefit obligations at end of year
|
|
507,075
|
|
|
193,523
|
|
|
484,758
|
|
|
79,972
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
|
528,744
|
|
|
70,341
|
|
|
502,184
|
|
|
73,917
|
|
Actual return on plan assets
|
|
82,732
|
|
|
5,770
|
|
|
34,779
|
|
|
3,485
|
|
Employer contributions
|
|
55
|
|
|
1,684
|
|
|
20,087
|
|
|
1,286
|
|
Plan participants' contributions
|
|
—
|
|
|
176
|
|
|
—
|
|
|
148
|
|
Acquisitions
(1)
|
|
—
|
|
|
32,599
|
|
|
—
|
|
|
—
|
|
Benefits paid
|
|
(5,620
|
)
|
|
(3,196
|
)
|
|
(28,306
|
)
|
|
(1,840
|
)
|
Settlements
(2)
|
|
(37,523
|
)
|
|
(22
|
)
|
|
—
|
|
|
—
|
|
Currency translation
|
|
—
|
|
|
5,992
|
|
|
—
|
|
|
(6,655
|
)
|
Fair value of plan assets at end of year
|
|
568,388
|
|
|
113,344
|
|
|
528,744
|
|
|
70,341
|
|
|
|
|
|
|
|
|
|
|
Funded status at end of year
|
|
61,313
|
|
|
(80,179
|
)
|
|
43,986
|
|
|
(9,631
|
)
|
Unrecognized actuarial net loss
|
|
90,679
|
|
|
25,987
|
|
|
122,109
|
|
|
24,476
|
|
Unrecognized prior service cost
|
|
—
|
|
|
(11
|
)
|
|
—
|
|
|
(18
|
)
|
Unrecognized transition assets, net
|
|
—
|
|
|
35
|
|
|
—
|
|
|
37
|
|
Net amount recognized
|
|
$
|
151,992
|
|
|
$
|
(54,168
|
)
|
|
$
|
166,095
|
|
|
$
|
14,864
|
|
|
|
(1)
|
Acquisitions in 2017 relate to acquisition of Air Liquide Welding as discussed in Note 3 to the consolidated financial statements.
|
|
|
(2)
|
Settlements in 2017 resulting from lump sum pension payments.
|
In August 2015, The Lincoln Electric Company, plan sponsor of the Lincoln Electric Retirement Annuity Program ("RAP") and subsidiary of the Company, entered into an agreement to purchase a group annuity contract from The Principal Financial Group ("Principal"). Under the agreement, Principal assumed the obligation to pay future pension benefits for specified U.S. retirees and surviving beneficiaries who retired on or before June 1, 2015 and are currently receiving payments from the RAP. The transaction will not change the amount of the monthly pension benefit received by affected retirees and surviving beneficiaries. The purchase was funded by existing plan assets and required no additional cash contribution.
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
In October 2016, The Lincoln Electric Company amended the plan to freeze all benefit accruals for participants under the RAP effective as of December 31, 2016. The RAP includes approximately 1,500 domestic employees who fully transitioned to The Lincoln Electric Company Employee Savings Plan (“Savings Plan”), a defined contribution retirement savings plan. The Company recorded pension curtailment gains of
$2,206
for the year ended December 31, 2016 related to the amendment. The Company did not make significant contributions to the defined benefit plans in the United States in 2017.
The after-tax amounts of unrecognized actuarial net loss, prior service costs and transition assets included in Accumulated other comprehensive loss at
December 31, 2017
were
$85,253
,
$(8)
and
$32
, respectively. The actuarial loss represents changes in the estimated obligation not yet recognized in the Consolidated Income Statement. The pre-tax amounts of unrecognized actuarial net loss, prior service credits and transition obligations expected to be recognized as components of net periodic benefit cost during
2018
are
$3,793
,
$1
and
$3
, respectively.
Amounts Recognized in Consolidated Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
2017
|
|
2016
|
|
|
U.S. pension plans
|
|
Non-U.S. pension plans
|
|
U.S. pension plans
|
|
Non-U.S. pension plans
|
Prepaid pensions
(1)
|
|
$
|
81,485
|
|
|
$
|
368
|
|
|
$
|
64,169
|
|
|
$
|
228
|
|
Accrued pension liability, current
(2)
|
|
(5,332
|
)
|
|
(3,483
|
)
|
|
(5,064
|
)
|
|
(283
|
)
|
Accrued pension liability, long-term
(3)
|
|
(14,840
|
)
|
|
(77,064
|
)
|
|
(15,119
|
)
|
|
(9,576
|
)
|
Accumulated other comprehensive loss, excluding tax effects
|
|
90,679
|
|
|
26,011
|
|
|
122,109
|
|
|
24,495
|
|
Net amount recognized in the balance sheets
|
|
$
|
151,992
|
|
|
$
|
(54,168
|
)
|
|
$
|
166,095
|
|
|
$
|
14,864
|
|
(1) I
ncluded in Other assets.
(2)
I
ncluded in Other current liabilities.
(3)
I
ncluded in Other liabilities.
Components of Pension Cost for Defined Benefit Plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2017
|
|
2016
|
|
2015
|
Service cost
|
|
$
|
3,286
|
|
|
$
|
17,689
|
|
|
$
|
19,933
|
|
Interest cost
|
|
22,750
|
|
|
23,578
|
|
|
36,002
|
|
Expected return on plan assets
|
|
(35,800
|
)
|
|
(35,716
|
)
|
|
(54,638
|
)
|
Amortization of prior service cost
|
|
15
|
|
|
(394
|
)
|
|
(626
|
)
|
Amortization of net loss
(1)
|
|
4,014
|
|
|
9,893
|
|
|
19,406
|
|
Settlement/curtailment loss (gain)
(2)
|
|
8,252
|
|
|
(1,062
|
)
|
|
142,738
|
|
Pension cost for defined benefit plans
(3)
|
|
$
|
2,517
|
|
|
$
|
13,988
|
|
|
$
|
162,815
|
|
(1)
The amortization of net loss includes a
$959
charge resulting from the deconsolidation of the Venezuelan subsidiary during the year ended December 31, 2016.
|
|
(2)
|
Pension settlement charges for the year ended December 31, 2017 resulting from lump sum pension payments. For the year ended December 31, 2015, the Company recorded pension settlement charges of $142,738, primarily related to the purchase of the group annuity contract.
|
|
|
(3)
|
The decrease in pension cost for defined benefit plans for the year ended December 31, 2017 was due to the U.S. plan freeze effective December 31, 2016.
|
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
Pension Plans with Accumulated Benefit Obligations in Excess of Plan Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2017
|
|
2016
|
|
|
U.S. pension plans
|
|
Non-U.S. pension plans
|
|
U.S. pension plans
|
|
Non-U.S. pension plans
|
Projected benefit obligation
|
|
$
|
26,149
|
|
|
$
|
182,512
|
|
|
$
|
25,731
|
|
|
$
|
47,776
|
|
Accumulated benefit obligation
|
|
25,870
|
|
|
174,667
|
|
|
25,460
|
|
|
45,128
|
|
Fair value of plan assets
|
|
5,977
|
|
|
102,107
|
|
|
5,548
|
|
|
38,200
|
|
The total accumulated benefit obligation for all plans was
$691,827
as of
December 31, 2017
and
$560,230
as of
December 31, 2016
.
Benefit Payments for Plans
Benefits expected to be paid for the plans are as follows:
|
|
|
|
|
|
|
|
|
|
U.S. pension plans
|
|
Non-U.S. pension plans
|
Estimated Payments
|
|
|
|
2018
|
$
|
38,031
|
|
|
$
|
8,129
|
|
2019
|
29,782
|
|
|
8,633
|
|
2020
|
32,547
|
|
|
8,833
|
|
2021
|
28,542
|
|
|
9,133
|
|
2022
|
28,724
|
|
|
8,756
|
|
2023 through 2027
|
149,468
|
|
|
44,284
|
|
Assumptions
Weighted average assumptions used to measure the benefit obligation for the Company's significant defined benefit plans as of
December 31, 2017
and
2016
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2017
|
|
2016
|
|
|
U.S. pension plans
|
|
Non-U.S. pension plans
|
|
U.S. pension plans
|
|
Non-U.S. pension plans
|
Discount Rate
|
|
3.7
|
%
|
|
2.0
|
%
|
|
4.2
|
%
|
|
3.3
|
%
|
Rate of increase in compensation
|
|
2.5
|
%
|
|
2.7
|
%
|
|
2.5
|
%
|
|
3.7
|
%
|
Weighted average assumptions used to measure the net periodic benefit cost for the Company's significant defined benefit plans for each of the three years ended December 31 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2017
|
|
2016
|
|
2015
|
|
|
U.S. pension plans
|
|
Non-U.S. pension plans
|
|
U.S. pension plans
|
|
Non-U.S. pension plans
|
|
U.S. pension plans
|
|
Non-U.S. pension plans
|
Discount rate
|
|
4.2
|
%
|
|
2.2
|
%
|
|
4.5
|
%
|
|
3.9
|
%
|
|
4.0
|
%
|
|
4.0
|
%
|
Rate of increase in compensation
|
|
2.5
|
%
|
|
2.5
|
%
|
|
2.6
|
%
|
|
3.7
|
%
|
|
2.5
|
%
|
|
3.9
|
%
|
Expected return on plan assets
|
|
6.0
|
%
|
|
4.5
|
%
|
|
6.2
|
%
|
|
5.7
|
%
|
|
6.4
|
%
|
|
5.4
|
%
|
To develop the discount rate assumptions, the Company refers to the yield derived from matching projected pension payments with maturities of bonds rated AA or an equivalent quality. The expected long-term rate of return assumption is based on the weighted average expected return of the various asset classes in the plans' portfolio and the targeted allocation of plan assets. The asset class return is developed using historical asset return performance as well as current market conditions such as inflation, interest rates and equity market performance. The rate of compensation increase is determined by the Company based upon annual reviews.
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
Pension Plans' Assets
The primary objective of the pension plans' investment policy is to ensure sufficient assets are available to provide benefit obligations when such obligations mature. Investment management practices must comply with ERISA or any other applicable regulations and rulings. The overall investment strategy for the defined benefit pension plans' assets is to achieve a rate of return over a normal business cycle relative to an acceptable level of risk that is consistent with the long-term objectives of the portfolio. The target allocation for plan assets is
15%
to
25%
equity securities and
75%
to
85%
debt securities.
The following table sets forth, by level within the fair value hierarchy, the pension plans' assets as of
December 31, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plans' Assets at Fair Value as of December 31, 2017
|
|
|
Quoted Prices
in Active Markets
for Identical
Assets
(Level 1)
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Total
|
Cash and cash equivalents
|
|
$
|
8,922
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
8,922
|
|
Equity securities
(1)
|
|
4,566
|
|
|
—
|
|
|
—
|
|
|
4,566
|
|
Fixed income securities
(2)
|
|
|
|
|
|
|
|
|
U.S. government bonds
|
|
33,205
|
|
|
—
|
|
|
—
|
|
|
33,205
|
|
Corporate debt and other obligations
|
|
—
|
|
|
398,578
|
|
|
—
|
|
|
398,578
|
|
Investments measured at NAV
(3)
|
|
|
|
|
|
|
|
|
Common trusts and 103-12 investments
(4)
|
|
|
|
|
|
|
|
199,066
|
|
Private equity funds
(5)
|
|
|
|
|
|
|
|
37,395
|
|
Total investments at fair value
|
|
$
|
46,693
|
|
|
$
|
398,578
|
|
|
$
|
—
|
|
|
$
|
681,732
|
|
The following table sets forth, by level within the fair value hierarchy, the pension plans' assets as of
December 31, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plans' Assets at Fair Value as of December 31, 2016
|
|
|
Quoted Prices
in Active Markets
for Identical
Assets
(Level 1)
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Total
|
Cash and cash equivalents
|
|
$
|
3,652
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,652
|
|
Equity securities
(1)
|
|
4,071
|
|
|
—
|
|
|
—
|
|
|
4,071
|
|
Fixed income securities
(2)
|
|
|
|
|
|
|
|
|
U.S. government bonds
|
|
20,036
|
|
|
—
|
|
|
—
|
|
|
20,036
|
|
Corporate debt and other obligations
|
|
—
|
|
|
134,051
|
|
|
—
|
|
|
134,051
|
|
Investments measured at NAV
(3)
|
|
|
|
|
|
|
|
|
Common trusts and 103-12 investments
(4)
|
|
|
|
|
|
|
|
397,924
|
|
Private equity funds
(5)
|
|
|
|
|
|
|
|
39,351
|
|
Total investments at fair value
|
|
$
|
27,759
|
|
|
$
|
134,051
|
|
|
$
|
—
|
|
|
$
|
599,085
|
|
|
|
(1)
|
Equity securities are primarily comprised of corporate stock and mutual funds directly held by the plans. Equity securities are valued using the closing price reported on the active market on which the individual securities are traded.
|
|
|
(2)
|
Fixed income securities are primarily comprised of governmental and corporate bonds directly held by the plans. Governmental and corporate bonds are valued using both market observable inputs for similar assets that are traded on an active market and the closing price on the active market on which the individual securities are traded.
|
|
|
(3)
|
Certain assets that are measured at fair value using the net asset value ("NAV") practical expedient have not been classified in the fair value hierarchy.
|
|
|
(4)
|
Common trusts and 103-12 investments (collectively "Trusts") are comprised of a number of investment funds that invest in a diverse portfolio of assets including equity securities, corporate and governmental bonds, equity and credit indexes and money markets. Trusts are valued at the NAV as determined by their custodian. NAV represents the
|
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
accumulation of the unadjusted quoted close prices on the reporting date for the underlying investments divided by the total shares outstanding at the reporting dates.
|
|
(5)
|
Private equity funds consist of four funds seeking capital appreciation by investing in private equity investment partnerships and venture capital companies. Private equity fund valuations are based on the NAV of the underlying assets. Funds are comprised of unrestricted and restricted publicly traded securities and privately held securities. Unrestricted securities are valued at the closing market price on the reporting date. Restricted securities may be valued at a discount from such closing public market price, depending on facts and circumstances. Privately held securities are valued at fair value as determined by the fund directors and general partners.
|
Supplemental Executive Retirement Plan
The Company maintains a domestic unfunded Supplemental Executive Retirement Plan ("SERP") under which non-qualified supplemental pension benefits are paid to certain employees in addition to amounts received under the Company's qualified retirement plan which is subject to Internal Revenue Service ("IRS") limitations on covered compensation. The annual cost of this program has been included in the determination of total net pension costs shown above and was
$772
,
$2,113
and
$1,703
in
2017
,
2016
and
2015
, respectively. The projected benefit obligation associated with this plan is also included in the pension disclosure shown above and was
$17,047
,
$16,738
and
$14,643
at December 31,
2017
,
2016
and
2015
, respectively.
In October 2016, the Company announced an amendment to freeze and vest all benefit accruals under the SERP, effective November 30, 2016. The Company recorded a curtailment loss of
$1,144
for the year ended December 31, 2016 related to the amendment. The value of the frozen vested benefit was converted into an account balance and deferred. In addition, the Company created The Lincoln Electric Company Restoration Plan (“Restoration Plan”) effective January 1, 2017. The Restoration Plan is a domestic unfunded plan maintained for the purpose of providing certain employees the ability to fully participate in standard employee retirement offerings, which are limited by IRS regulations on covered compensation.
Defined Contribution Plans
Substantially all U.S. employees are covered under defined contribution plans. In October 2016, the Company announced a plan redesign of the Savings Plan that was effective January 1, 2017. The Savings Plan provides that eligible employees receive up to
6%
of employees' annual compensation through Company matching contributions of
100%
of the first
3%
of employee compensation contributed to the plan, and automatic Company contributions equal to
3%
of annual compensation. In addition, certain employees affected by the RAP freeze are also eligible to receive employer contributions equal to
6%
of annual compensation for a minimum period of
five years
or to the end of the year in which they complete
thirty years
of service.
The annual costs recognized for defined contribution plans were
$25,285
,
$8,361
and
$10,082
in
2017
,
2016
and
2015
, respectively.
Other Benefits
The Cleveland, Ohio, area operations have a Guaranteed Continuous Employment Plan covering substantially all employees which, in general, provides that the Company will provide work for at least
75%
of every standard work week (presently
40
hours). This plan does not guarantee employment when the Company's ability to continue normal operations is seriously restricted by events beyond the control of the Company. The Company has reserved the right to terminate this plan effective at the end of a calendar year by giving notice of such termination not less than
six
months prior to the end of such year.
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
NOTE 12 – INCOME TAXES
The components of income before income taxes for the three years ended
December 31, 2017
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2017
|
|
2016
|
|
2015
|
U.S.
|
|
$
|
213,171
|
|
|
$
|
209,409
|
|
|
$
|
118,037
|
|
Non-U.S.
|
|
153,065
|
|
|
67,979
|
|
|
51,750
|
|
Total
|
|
$
|
366,236
|
|
|
$
|
277,388
|
|
|
$
|
169,787
|
|
The components of income tax expense (benefit) for the three years ended
December 31, 2017
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2017
|
|
2016
|
|
2015
|
Current:
|
|
|
|
|
|
|
Federal
|
|
$
|
89,182
|
|
|
$
|
57,090
|
|
|
$
|
60,500
|
|
Non-U.S.
|
|
25,746
|
|
|
23,344
|
|
|
28,046
|
|
State and local
|
|
7,640
|
|
|
8,386
|
|
|
9,557
|
|
|
|
122,568
|
|
|
88,820
|
|
|
98,103
|
|
Deferred:
|
|
|
|
|
|
|
Federal
|
|
(4,391
|
)
|
|
(1,716
|
)
|
|
(47,902
|
)
|
Non-U.S.
|
|
(82
|
)
|
|
(8,261
|
)
|
|
(3,362
|
)
|
State and local
|
|
666
|
|
|
172
|
|
|
(4,464
|
)
|
|
|
(3,807
|
)
|
|
(9,805
|
)
|
|
(55,728
|
)
|
Total
|
|
$
|
118,761
|
|
|
$
|
79,015
|
|
|
$
|
42,375
|
|
The U.S. Tax Cuts and Jobs Act (the "U.S. Tax Act") was enacted on December 22, 2017. The SEC staff issued Staff Accounting Bulletin No. 118 ("SAB 118"), which provides for a one-year measurement period and provides guidance for the application of ASC Topic 740,
Income Taxes
. In accordance with SAB 118, the Company recognized the income tax effects of the U.S. Tax Act to the extent applicable for the year of enactment. The expense primarily relates to taxes on the Company's unremitted foreign earnings and profits, partially offset by the re-measurement of deferred tax assets and liabilities. The amounts recorded are based on reasonable estimates and may require further adjustments as additional guidance from the U.S. Department of Treasury is provided, the Company's assumptions change or as further information and interpretations become available.
The provisional amount recorded for the remeasurement of the Company's deferred tax assets and liabilities is a tax benefit of
$14,532
. The Company is still analyzing certain aspects of the U.S. Tax Act and refining calculations that could potentially affect the measurement of deferred income tax balances, including law changes surrounding deferred compensation.
The one-time transition tax is based on total post-1986 earnings and profits for which the Company had previously deferred from U.S. income taxes. The Company recorded a provisional amount for the one-time transition tax liability of
$36,387
, resulting in an increase to income tax expense. The transition tax is based partially on the earnings and profits held in cash and partially on the earnings and profits invested in assets.
The provisional amount recorded for taxes on the planned repatriation of certain earnings and profits subject to the transition tax is
$6,667
. This additional tax pertains to foreign withholding taxes associated with the repatriation of earnings that are not indefinitely reinvested in the foreign operations.
The net impact of the U.S. Tax Act provisional amounts are included in Income taxes in the accompanying Consolidated Statements of Income.
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
The differences between total income tax expense and the amount computed by applying the statutory federal income tax rate to income before income taxes for the three years ended
December 31, 2017
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2017
|
|
2016
|
|
2015
|
Statutory rate of 35% applied to pre-tax income
|
|
$
|
128,182
|
|
|
$
|
97,086
|
|
|
$
|
59,426
|
|
State and local income taxes, net of federal tax benefit
|
|
5,671
|
|
|
5,554
|
|
|
1,868
|
|
Excess tax benefits resulting from exercises of stock-based compensation
|
|
(6,276
|
)
|
|
—
|
|
|
—
|
|
Net impact of the U.S. Tax Act
|
|
21,949
|
|
|
—
|
|
|
—
|
|
Foreign withholding taxes
|
|
6,667
|
|
|
—
|
|
|
—
|
|
Intangible and asset impairments/(write-off)
|
|
—
|
|
|
(4,438
|
)
|
|
2,184
|
|
Foreign rate variance
|
|
(13,929
|
)
|
|
(8,128
|
)
|
|
(11,399
|
)
|
Venezuela deconsolidation/devaluation
|
|
—
|
|
|
5,192
|
|
|
11,396
|
|
Bargain purchase gain
|
|
(17,556
|
)
|
|
—
|
|
|
—
|
|
Valuation allowances
|
|
102
|
|
|
(8,525
|
)
|
|
2,900
|
|
Manufacturing deduction
|
|
(5,922
|
)
|
|
(5,190
|
)
|
|
(9,207
|
)
|
U.S. tax cost (benefit) of foreign source income
|
|
294
|
|
|
(489
|
)
|
|
(8,754
|
)
|
Other
|
|
(421
|
)
|
|
(2,047
|
)
|
|
(6,039
|
)
|
Total
|
|
$
|
118,761
|
|
|
$
|
79,015
|
|
|
$
|
42,375
|
|
Effective tax rate
|
|
32.4
|
%
|
|
28.5
|
%
|
|
25.0
|
%
|
The
2017
effective tax rate is impacted by the nontaxable bargain purchase gain recorded in connection with the acquisition of Air Liquide Welding, excess tax benefits from the exercise of stock based compensation awards, the net impact of the U.S. Tax Act and income earned in lower tax rate jurisdictions. Total income tax payments, net of refunds, were
$81,691
in
2017
,
$72,965
in
2016
and
$101,939
in
2015
.
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
Deferred Taxes
Significant components of deferred tax assets and liabilities at
December 31, 2017
and
2016
, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2017
|
|
2016
|
Deferred tax assets:
|
|
|
|
|
Tax loss and credit carry-forwards
|
|
$
|
65,284
|
|
|
$
|
52,270
|
|
Inventory
|
|
2,501
|
|
|
2,080
|
|
Other accruals
|
|
14,873
|
|
|
18,186
|
|
Employee benefits
|
|
18,468
|
|
|
23,596
|
|
Pension obligations
|
|
12,363
|
|
|
2,503
|
|
Other
|
|
4,923
|
|
|
3,020
|
|
Deferred tax assets, gross
|
|
118,412
|
|
|
101,655
|
|
Valuation allowance
|
|
(68,694
|
)
|
|
(47,849
|
)
|
Deferred tax assets, net
|
|
49,718
|
|
|
53,806
|
|
Deferred tax liabilities:
|
|
|
|
|
Property, plant and equipment
|
|
21,427
|
|
|
32,210
|
|
Intangible assets
|
|
10,729
|
|
|
17,506
|
|
Inventory
|
|
5,891
|
|
|
10,059
|
|
Pension obligations
|
|
16,137
|
|
|
17,915
|
|
Other
|
|
20,313
|
|
|
9,309
|
|
Deferred tax liabilities
|
|
74,497
|
|
|
86,999
|
|
Total deferred taxes
|
|
$
|
(24,779
|
)
|
|
$
|
(33,193
|
)
|
At
December 31, 2017
, certain subsidiaries had tax loss carry-forwards of approximately
$80,961
that expire in various years from
2018
through 2033, plus
$177,796
for which there is no expiration date.
In assessing the realizability of deferred tax assets, the Company assesses whether it is more likely than not that a portion or all of the deferred tax assets will not be realized. The Company considers the scheduled reversal of deferred tax liabilities, tax planning strategies and projected future taxable income in making this assessment. At
December 31, 2017
, a valuation allowance of
$68,694
was recorded against certain deferred tax assets based on this assessment. The Company believes it is more likely than not that the tax benefit of the remaining net deferred tax assets will be realized. The amount of net deferred tax assets considered realizable could be increased or reduced in the future if the Company's assessment of future taxable income or tax planning strategies changes.
The Company previously considered the earnings in non-U.S. subsidiaries to be indefinitely reinvested and, accordingly, recorded no deferred income taxes. As a result of the U.S. Tax Act, the Company determined it will repatriate earnings for certain non-U.S. subsidiaries, which are subject to foreign withholding taxes. The Company has estimated the associated tax to be
$6,667
. The Company considers remaining earnings in all other non-U.S. subsidiaries to be indefinitely reinvested and has not recorded any deferred taxes as such estimate is not practicable.
Unrecognized Tax Benefits
Liabilities for unrecognized tax benefits are classified as Other liabilities unless expected to be paid in one year, with a portion recorded to Deferred income taxes to offset tax attributes. The Company recognizes interest and penalties related to unrecognized tax benefits in Income taxes. Current income tax expense included expense of
$1,079
for the year ended
December 31, 2017
and expense of
$597
for the year ended
December 31, 2016
for interest and penalties. For those same years, the Company's accrual for interest and penalties related to unrecognized tax benefits totaled
$8,135
and
$6,431
, respectively.
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
The following table summarizes the activity related to unrecognized tax benefits:
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
Balance at beginning of year
|
|
$
|
18,499
|
|
|
$
|
14,332
|
|
Increase related to current year tax provisions
|
|
1,448
|
|
|
1,975
|
|
Increase related to prior years' tax positions
|
|
1,460
|
|
|
5,188
|
|
Increase related to acquisitions
|
|
8,223
|
|
|
—
|
|
Decrease related to settlements with taxing authorities
|
|
(522
|
)
|
|
(265
|
)
|
Resolution of and other decreases in prior years' tax liabilities
|
|
(1,734
|
)
|
|
(1,982
|
)
|
Other
|
|
1,075
|
|
|
(749
|
)
|
Balance at end of year
|
|
$
|
28,449
|
|
|
$
|
18,499
|
|
The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate was
$12,709
at
December 31, 2017
and
$9,813
at
December 31, 2016
.
The Company files income tax returns in the U.S. and various state, local and foreign jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal, state and local or non-U.S. income tax examinations by tax authorities for years before 2013. The Company is currently subject to U.S. federal, various state audits and non-U.S. income tax audits. The Company is generally not able to precisely estimate the ultimate settlement amounts or timing until after the close of an audit. The Company evaluates its tax positions and establishes liabilities for uncertain tax positions that may be challenged by local authorities and may not be fully sustained.
Unrecognized tax benefits are reviewed on an ongoing basis and are adjusted for changing facts and circumstances, including progress of tax audits and closing of statutes of limitations. Based on information currently available, management believes that additional audit activity could be completed and/or statutes of limitations may close relating to existing unrecognized tax benefits. It is reasonably possible there could be a further reduction of
$2,414
in prior years' unrecognized tax benefits in
2018
.
NOTE 13 – DERIVATIVES
The Company uses derivative instruments to manage exposures to currency exchange rates, interest rates and commodity prices arising in the normal course of business. Both at inception and on an ongoing basis, the derivative instruments that qualify for hedge accounting are assessed as to their effectiveness, when applicable.
Hedge ineffectiveness was immaterial for each of the three years in the period ended December 31, 2017.
The Company is subject to the credit risk of the counterparties to derivative instruments. Counterparties include a number of major banks and financial institutions. None of the concentrations of risk with any individual counterparty was considered significant at December 31,
2017
. The Company does not expect any counterparties to fail to meet their obligations.
Cash flow hedges
Certain foreign currency forward contracts are qualified and designated as cash flow hedges. The dollar equivalent gross notional amount of these short-term contracts was
$35,489
at December 31,
2017
and
$36,385
at December 31,
2016
.
Fair value hedges
Certain interest rate swap agreements were qualified and designated as fair value hedges. At December 31,
2017
, the Company had interest rate swap agreements outstanding that effectively convert notional amounts of
$100,000
of debt from a fixed interest rate to a variable interest rate based on three-month LIBOR plus a spread of between
0.6%
and
1.8%
. The variable rates reset every three months, and cash flows related to these swaps are settled every three or six months.
Net investment hedges
From time to time, the Company executes foreign currency forward contracts that qualify and are designated as net investment hedges. No such contracts were outstanding at December 31,
2017
and December 31,
2016
.
Derivatives not designated as hedging instruments
The Company has certain foreign exchange forward contracts which are not designated as hedges. These derivatives are held as hedges of certain balance sheet exposures. The dollar equivalent gross notional amount of these contracts was
$340,884
at December 31,
2017
and
$261,168
at December 31,
2016
.
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
Fair values of derivative instruments in the Company's Consolidated Balance Sheets follow:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
December 31, 2016
|
Derivatives by hedge designation
|
|
Other
Current
Assets
|
|
Other
Current
Liabilities
|
|
Other Liabilities
|
|
Other
Current
Assets
|
|
Other
Current
Liabilities
|
|
Other Liabilities
|
Designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
$
|
519
|
|
|
$
|
604
|
|
|
$
|
—
|
|
|
$
|
439
|
|
|
$
|
923
|
|
|
$
|
—
|
|
Interest rate swap agreements
|
|
—
|
|
|
—
|
|
|
5,085
|
|
|
—
|
|
|
—
|
|
|
5,439
|
|
Not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
2,257
|
|
|
3,747
|
|
|
—
|
|
|
746
|
|
|
1,529
|
|
|
—
|
|
Total derivatives
|
|
$
|
2,776
|
|
|
$
|
4,351
|
|
|
$
|
5,085
|
|
|
$
|
1,185
|
|
|
$
|
2,452
|
|
|
$
|
5,439
|
|
The effects of undesignated derivative instruments on the Company's Consolidated Statements of Income for the years ended December 31,
2017
and
2016
consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
Derivatives by hedge designation
|
|
Classification of gains (losses)
|
|
2017
|
|
2016
|
Not designated as hedges:
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
Selling, general & administrative expenses
|
|
$
|
17,590
|
|
|
$
|
(21,096
|
)
|
Commodity contracts
|
|
Cost of goods sold
|
|
—
|
|
|
(742
|
)
|
The effects of designated cash flow hedges on AOCI and the Company's Consolidated Statements of Income for the years ended December 31,
2017
and
2016
consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
Total gain (loss) recognized in AOCI, net of tax
|
|
2017
|
|
2016
|
Foreign exchange contracts
|
|
$
|
(224
|
)
|
|
$
|
(512
|
)
|
Net investment contracts
|
|
1,099
|
|
|
1,099
|
|
The Company expects a loss of
$224
related to existing contracts to be reclassified from AOCI, net of tax, to earnings over the next
12 months
as the hedged transactions are realized.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
Derivative type
|
|
Gain (loss) reclassified from AOCI to:
|
|
2017
|
|
2016
|
Foreign exchange contracts
|
|
Net sales
|
|
$
|
1,860
|
|
|
$
|
(1,580
|
)
|
|
|
Cost of goods sold
|
|
502
|
|
|
(407
|
)
|
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
NOTE 14 – FAIR VALUE
The following table provides a summary of fair value assets and liabilities as of
December 31, 2017
measured at fair value on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
|
Balance as of December 31, 2017
|
|
Quoted Prices in
Active Markets for
Identical Assets or
Liabilities
(Level 1)
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs (Level 3)
|
Assets:
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
$
|
2,776
|
|
|
$
|
—
|
|
|
$
|
2,776
|
|
|
$
|
—
|
|
Marketable securities
|
|
179,125
|
|
|
—
|
|
|
179,125
|
|
|
—
|
|
Total assets
|
|
$
|
181,901
|
|
|
$
|
—
|
|
|
$
|
181,901
|
|
|
$
|
—
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
$
|
4,351
|
|
|
$
|
—
|
|
|
$
|
4,351
|
|
|
$
|
—
|
|
Interest rate swap agreements
|
|
5,085
|
|
|
—
|
|
|
5,085
|
|
|
—
|
|
Contingent considerations
|
|
7,086
|
|
|
—
|
|
|
—
|
|
|
7,086
|
|
Deferred compensation
|
|
25,397
|
|
|
—
|
|
|
25,397
|
|
|
—
|
|
Total liabilities
|
|
$
|
41,919
|
|
|
$
|
—
|
|
|
$
|
34,833
|
|
|
$
|
7,086
|
|
The following table provides a summary of fair value assets and liabilities as of
December 31, 2016
measured at fair value on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
|
Balance as of December 31, 2016
|
|
Quoted Prices in
Active Markets for
Identical Assets or
Liabilities
(Level 1)
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs (Level 3)
|
Assets:
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
$
|
1,185
|
|
|
$
|
—
|
|
|
$
|
1,185
|
|
|
$
|
—
|
|
Marketable securities
|
|
38,922
|
|
|
—
|
|
|
38,922
|
|
|
—
|
|
Total assets
|
|
$
|
40,107
|
|
|
$
|
—
|
|
|
$
|
40,107
|
|
|
$
|
—
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
$
|
2,452
|
|
|
$
|
—
|
|
|
$
|
2,452
|
|
|
$
|
—
|
|
Interest rate swap agreements
|
|
5,439
|
|
|
—
|
|
|
5,439
|
|
|
—
|
|
Contingent considerations
|
|
8,154
|
|
|
—
|
|
|
—
|
|
|
8,154
|
|
Forward contract
|
|
15,272
|
|
|
—
|
|
|
—
|
|
|
15,272
|
|
Deferred compensation
|
|
25,244
|
|
|
—
|
|
|
25,244
|
|
|
—
|
|
Total liabilities
|
|
$
|
56,561
|
|
|
$
|
—
|
|
|
$
|
33,135
|
|
|
$
|
23,426
|
|
The Company's derivative contracts are valued at fair value using the market approach. The Company measures the fair value of foreign exchange contracts and interest rate swap agreements using Level 2 inputs based on observable spot and forward rates in active markets. During the year ended
December 31, 2017
, there were no transfers between Levels 1, 2 or 3.
The Company measures the fair value of marketable securities using Level 2 inputs based on quoted market prices for similar assets in active markets.
In connection with acquisitions, the Company recorded contingent considerations fair valued at
$7,086
as of
December 31, 2017
. Under the contingent consideration agreements the amounts to be paid are based upon actual financial results of the acquired entity for specified future periods. The fair value of the contingent considerations are a Level 3 valuation and fair valued using either a probability weighted discounted cash flow analysis or an option pricing model.
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
In connection with an acquisition, the Company obtained a controlling financial interest in the acquired entity and at the same time entered into a forward contract to obtain the remaining financial interest in the entity over a
three
-year period. The final payment associated with the forward contract was paid by the Company in the second quarter of 2017.
The deferred compensation liability is the Company’s obligation under its executive deferred compensation plan. The Company measures the fair value of the liability using the market values of the participants’ underlying investment fund elections.
The Company has various financial instruments, including cash and cash equivalents, short and long-term debt and forward contracts. While these financial instruments are subject to concentrations of credit risk, the Company has minimized this risk by entering into arrangements with a number of major banks and financial institutions and investing in several high-quality instruments. The Company does not expect any counterparties to fail to meet their obligations. The fair value of Cash and cash equivalents, Accounts receivable, Amounts due banks and Trade accounts payable approximated book value due to the short-term nature of these instruments at both
December 31, 2017
and
December 31, 2016
. Refer to Note 8 to the consolidated financial statements for the fair value estimate of debt.
NOTE 15 – INVENTORY
Inventories in the Consolidated Balance Sheet is comprised of the following components:
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2017
|
|
2016
|
Raw materials
|
$
|
97,577
|
|
|
$
|
76,811
|
|
Work-in-process
|
50,695
|
|
|
40,556
|
|
Finished goods
|
200,395
|
|
|
138,039
|
|
Total
|
$
|
348,667
|
|
|
$
|
255,406
|
|
The valuation of LIFO inventories is made at the end of each year based on inventory levels and costs at that time. Accordingly, interim LIFO calculations are based on management’s estimates of expected year-end inventory levels and costs. Actual year-end inventory levels and costs may differ from interim LIFO inventory valuations. At December 31,
2017
and
2016
, approximately
32%
and
40%
of total inventories, respectively, were valued using the LIFO method. The excess of current cost over LIFO cost was
$68,641
at
December 31, 2017
and
$61,329
at
December 31, 2016
.
NOTE 16 – LEASES
The Company leases sales offices, manufacturing facilities, warehouses and distribution centers, transportation equipment, office equipment and information technology equipment. Such leases, some of which are noncancelable and, in many cases, include renewals, expire at various dates. The Company pays most insurance, maintenance and taxes relating to leased assets. Rental expense was
$20,450
in
2017
,
$16,897
in
2016
and
$16,703
in
2015
.
At
December 31, 2017
, total future minimum lease payments for noncancelable operating leases were
$19,205
in
2018
,
$13,358
in
2019
,
$8,972
in
2020
,
$5,252
in
2021
,
$4,892
in
2022
and
$5,629
thereafter. Assets held under capital leases are included in property, plant and equipment and are immaterial.
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
NOTE 17 – 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 claimants in the asbestos cases seek compensatory and punitive damages, in most cases for unspecified amounts. The Company believes it has meritorious defenses to these claims and intends to contest such suits vigorously.
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.
Based on the Company's historical experience in litigating product liability claims, including a significant number of dismissals, summary judgments and defense verdicts in many cases and immaterial settlement amounts, as well as the Company's current assessment of the underlying merits of the claims and applicable insurance, the Company believes resolution of these claims and proceedings, individually or in the aggregate, will not have a material effect on the Company's consolidated financial statements.
NOTE 18 – PRODUCT WARRANTY COSTS
The changes in product warranty accruals for
2017
,
2016
and
2015
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2017
|
|
2016
|
|
2015
|
Balance at beginning of year
|
|
$
|
21,053
|
|
|
$
|
19,469
|
|
|
$
|
15,579
|
|
Accruals for warranties
|
|
9,901
|
|
|
13,058
|
|
|
19,824
|
|
Settlements
|
|
(11,500
|
)
|
|
(11,434
|
)
|
|
(15,458
|
)
|
Foreign currency translation and other adjustments
(1)
|
|
2,575
|
|
|
(40
|
)
|
|
(476
|
)
|
Balance at end of year
|
|
$
|
22,029
|
|
|
$
|
21,053
|
|
|
$
|
19,469
|
|
(1) At December 31,
2017
, Foreign currency translation and other adjustments includes
$2,299
in an acquired liability related to the Air Liquide Welding acquisition as discussed in Note 3 to the consolidated financial statements.
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
NOTE 19 – QUARTERLY FINANCIAL DATA (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
(1)
|
|
Second
(2)
|
|
Third
(3)
|
|
Fourth
(4)
|
2017
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
580,897
|
|
|
$
|
626,858
|
|
|
$
|
669,491
|
|
|
$
|
747,185
|
|
Gross profit
|
|
203,856
|
|
|
217,488
|
|
|
219,516
|
|
|
239,466
|
|
Income before income taxes
|
|
77,900
|
|
|
83,966
|
|
|
130,642
|
|
|
73,728
|
|
Net income
|
|
55,844
|
|
|
61,352
|
|
|
106,126
|
|
|
24,181
|
|
Basic earnings per share
(5)
|
|
$
|
0.85
|
|
|
$
|
0.93
|
|
|
$
|
1.61
|
|
|
$
|
0.37
|
|
Diluted earnings per share
(5)
|
|
$
|
0.84
|
|
|
$
|
0.92
|
|
|
$
|
1.59
|
|
|
$
|
0.36
|
|
2016
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
550,772
|
|
|
$
|
592,418
|
|
|
$
|
567,646
|
|
|
$
|
563,828
|
|
Gross profit
|
|
189,102
|
|
|
202,927
|
|
|
199,812
|
|
|
197,457
|
|
Income before income taxes
|
|
73,182
|
|
|
45,758
|
|
|
80,296
|
|
|
78,152
|
|
Net income
|
|
53,638
|
|
|
31,317
|
|
|
60,049
|
|
|
53,395
|
|
Basic earnings per share
(5)
|
|
$
|
0.77
|
|
|
$
|
0.46
|
|
|
$
|
0.90
|
|
|
$
|
0.81
|
|
Diluted earnings per share
(5)
|
|
$
|
0.76
|
|
|
$
|
0.45
|
|
|
$
|
0.89
|
|
|
$
|
0.81
|
|
|
|
(1)
|
2017 includes special item charges of
$3,615
(
$2,734
after-tax) related to acquisition transaction costs.
|
|
|
(2)
|
2017 includes special item charges of
$4,498
(
$3,494
after-tax) related to acquisition transaction and integration costs.
|
2016 includes special item charges of
$34,348
(
$33,251
after-tax) primarily related to the loss on deconsolidation of Venezuelan subsidiary and a tax benefit of
$7,196
related to the reversal of an income tax valuation allowance as a result of a legal entity change to realign the Company's tax structure.
|
|
(3)
|
2017 includes special item charges of
$5,283
(
$3,260
after-tax) for pension settlement charges and acquisition-related items including
$2,314
(
$1,745
after-tax) in amortization of step up in value of acquired inventories,
$3,273
(
$2,229
after-tax) for acquisition transaction and integration costs and a
$51,585
bargain purchase gain.
|
|
|
(4)
|
2017 includes special item charges of
$2,867
(
$1,770
after-tax) for pension settlement charges,
$6,590
(
$6,198
after-tax) for rationalization and asset impairment charges,
$28,616
for the net impact of the U.S. Tax Act and acquisition-related items including
$2,264
(
$1,708
after-tax) in amortization of step up in value of acquired inventories,
$3,616
(
$3,102
after-tax) for acquisition transaction and integration costs and a
$1,935
adjustment to the bargain purchase gain.
|
|
|
(5)
|
The quarterly earnings per share ("EPS") amounts are each calculated independently. Therefore, the sum of the quarterly EPS amounts may not equal the annual totals.
|