# LINCOLN ELECTRIC HOLDINGS INC (LECO) FY 2023 MD&A Verbatim Item 7 Management's Discussion and Analysis from LINCOLN ELECTRIC HOLDINGS INC's 10-K for fiscal year 2023. SEC filing source: https://www.sec.gov/Archives/edgar/data/59527/000005952724000008/leco-20231231x10k.htm Accession: 0000059527-24-000008 Filing date: 2024-02-27 Report date: 2023-12-31 Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Confidence: high Company profile: /company/LECO/ All MD&A years: /company/LECO/mda/ Previous year: /company/LECO/mda/fy2022/ (FY 2022) Next year: /company/LECO/mda/fy2024/ (FY 2024) 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. 17 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 and improve the quality and productivity of welding applications. In addition, the Company actively protects its innovations with patents and trade secrets globally. The Company believes its significant investment in research and development, its highly trained technical sales force and its extensive distributor network provide a competitive advantage in the marketplace. The Company’s products are sold globally. 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: [[GREPCENT_TABLE]] [["","\u25cf","general fabrication,"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","energy (oil and gas, power generation and process industries),"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","heavy industries (heavy fabrication, ship building and maintenance and repair),"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","automotive and transportation, and"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","construction and infrastructure."]] [[/GREPCENT_TABLE]] 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 46 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 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. 18 Table of Contents ​ 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, adjusted return on invested capital and average operating working capital to sales. These measures are reviewed at monthly, quarterly and annual intervals and are 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, 2023 and 2022. For a comparison of the Company’s results of operations, liquidity and capital resources for the fiscal years ended December 31, 2022 and 2021, 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, 2022, which was filed with the SEC on February 21, 2023. 19 Table of Contents ​ Results of Operations The following table shows the Company’s results of operations: ​ [[GREPCENT_TABLE]] [["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","Year Ended December 31,"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","Favorable (Unfavorable)"],["\u200b","2023","\u200b","2022","\u200b","2023 vs. 2022","\u200b"],["\u200b","Amount","","% of Sales","","Amount","","% of Sales","","$","","%"],["Net sales","$","4,191,636","\u200b","\u200b","\u200b","\u200b","$","3,761,211","","\u200b","\u200b","$","430,425","","11.4","%"],["Cost of goods sold","","2,726,191","\u200b","","\u200b","\u200b","","2,480,451","","\u200b","\u200b","","(245,740)","","(9.9)","%"],["Gross profit","","1,465,445","\u200b","","35.0","%","","1,280,760","","34.1","%","","184,685","","14.4","%"],["Selling, general & administrative expenses","","758,910","\u200b","","18.1","%","","656,636","","17.5","%","","(102,274)","","(15.6)","%"],["Rationalization and asset impairment charges","","(11,314)","\u200b","","(0.3)","%","","11,788","","0.3","%","","23,102","","196.0","%"],["Operating income","","717,849","\u200b","","17.1","%","","612,336","","16.3","%","","105,513","","17.2","%"],["Interest expense, net","","44,371","\u200b","","\u200b","\u200b","","29,500","","\u200b","\u200b","","(14,871)","","(50.4)","%"],["Other income","","13,388","\u200b","","\u200b","\u200b","","9,991","","\u200b","\u200b","","3,397","","34.0","%"],["Income before income taxes","","686,866","\u200b","","16.4","%","","592,827","","15.8","%","","94,039","","15.9","%"],["Income taxes","","141,618","\u200b","","\u200b","\u200b","","120,603","","\u200b","\u200b","","(21,015)","","(17.4)","%"],["Effective tax rate","","20.6","%","","\u200b","\u200b","","20.3","%","\u200b","\u200b","","(0.3)","%","\u200b","\u200b"],["Net income","$","545,248","\u200b","","13.0","%","$","472,224","","12.6","%","$","73,024","","15.5","%"],["Diluted earnings per share","$","9.37","\u200b","\u200b","\u200b","\u200b","$","8.04","","","\u200b","$","1.33","","16.5","%"]] [[/GREPCENT_TABLE]] ​ 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, 2023 on a consolidated basis: ​ [[GREPCENT_TABLE]] [["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","","\u200b","","Change in Net Sales due to:","\u200b","","\u200b"],["\u200b","\u200b","Net Sales","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","Foreign","\u200b","Net Sales","\u200b"],["\u200b","","2022","","Volume","","Acquisitions","","Price","","Exchange","","2023"],["Lincoln Electric Holdings, Inc.","\u200b","$","3,761,211","\u200b","$","85,686","\u200b","$","276,571","\u200b","$","64,146","","$","4,022","\u200b","$","4,191,636","\u200b"],["% Change","\u200b","\u200b","\u200b","\u200b","","","\u200b","","","\u200b","","","","","\u200b","\u200b","","","\u200b"],["Lincoln Electric Holdings, Inc.","\u200b","\u200b","\u200b","\u200b","","2.3","%","","7.4","%","","1.7","%","\u200b","0.1","%","\u200b","11.4","%"]] [[/GREPCENT_TABLE]] ​ Net sales increased primarily due to the benefit of acquisitions, higher demand levels and increased product pricing as a result of higher input costs. Gross Profit: Gross profit increased for the year ended December 31, 2023 primarily due to pricing actions taken to offset higher inputs costs and favorable segment mix, which offset the impact of acquisitions. Selling, General & Administrative ("SG&A") Expenses: SG&A expenses increased in 2023 as compared to 2022 primarily due to acquisitions and higher employee-related costs. Rationalization and asset impairment charges: In 2023, the Company recorded a gain of $11,314 primarily related to the sale of a property offset by rationalization and asset impairment charges within International Welding. 20 Table of Contents ​ Segment Results Net Sales: The table below summarizes the impacts of volume, acquisitions, price and foreign currency exchange rates on Net sales for the twelve months ended December 31, 2023: ​ [[GREPCENT_TABLE]] [["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","\u200b","","Change in Net Sales due to:","","","\u200b"],["\u200b","Net Sales","","\u200b","\u200b","","\u200b","\u200b","","\u200b","\u200b","","Foreign","","Net Sales"],["\u200b","2022","\u200b","Volume (1)","","Acquisitions (2)","","Price (3)","\u200b","Exchange","\u200b","2023","\u200b"],["Operating Segments","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Americas Welding","$","2,288,934","\u200b","$","109,860","\u200b","$","222,493","\u200b","$","37,125","","$","(2,866)","\u200b","$","2,655,546","\u200b"],["International Welding","\u200b","954,281","\u200b","","12,519","\u200b","","54,078","","\u200b","14,691","","\u200b","4,437","\u200b","","1,040,006","\u200b"],["The Harris Products Group","\u200b","517,996","\u200b","","(36,693)","\u200b","","\u2014","","\u200b","12,330","","\u200b","2,451","\u200b","","496,084","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["% Change","\u200b","","\u200b","","","\u200b","","","","\u200b","","","\u200b","","\u200b","","","\u200b"],["Americas Welding","\u200b","\u200b","\u200b","\u200b","4.8","%","","9.7","%","\u200b","1.6","%","\u200b","(0.1)","%","\u200b","16.0","%"],["International Welding","\u200b","\u200b","\u200b","\u200b","1.3","%","","5.7","%","\u200b","1.5","%","\u200b","0.5","%","\u200b","9.0","%"],["The Harris Products Group","\u200b","\u200b","\u200b","\u200b","(7.1)","%","","\u2014","\u200b","\u200b","2.4","%","\u200b","0.5","%","\u200b","(4.2)","%"]] [[/GREPCENT_TABLE]] ​ [[GREPCENT_TABLE]] [["(1)","Increase for Americas Welding due to higher volumes in all product groups. Increase for International Welding due to higher equipment volumes. Decrease for the Harris Products Group due to weakness in end markets."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["(2)","Increase for Americas Welding and International Welding due to the acquisitions discussed in Note 4 to the consolidated financial statements."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["(3)","Increase for all segments reflects increased product pricing to offset higher input costs."]] [[/GREPCENT_TABLE]] 21 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 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: ​ [[GREPCENT_TABLE]] [["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","","\u200b","\u200b","\u200b","\u200b","\u200b","","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","Favorable (Unfavorable)","","\u200b"],["\u200b","\u200b","Year Ended December 31,","\u200b","2023 vs. 2022","","\u200b"],["\u200b","","2023","","2022","","$","","%"],["Americas Welding:","","\u200b","","","\u200b","","\u200b","","","\u200b","","\u200b"],["Net sales","\u200b","$","2,655,546","\u200b","$","2,288,934","\u200b","$","366,612","\u200b","16.0","%","\u200b"],["Inter-segment sales","\u200b","","127,536","\u200b","","122,019","\u200b","","5,517","\u200b","4.5","%","\u200b"],["Total Sales","\u200b","$","2,783,082","\u200b","$","2,410,953","\u200b","$","372,129","\u200b","15.4","%","\u200b"],["Adjusted EBIT (4)","\u200b","$","538,269","\u200b","$","462,819","\u200b","$","75,450","\u200b","16.3","%","\u200b"],["As a percent of total sales (1)","\u200b","","19.3","%","","19.2","%","\u200b","\u200b","\u200b","0.1","%","\u200b"],["International Welding:","\u200b","","\u200b","\u200b","","","\u200b","\u200b","","\u200b","","\u200b","\u200b"],["Net sales","\u200b","$","1,040,006","\u200b","$","954,281","\u200b","$","85,725","\u200b","9.0","%","\u200b"],["Inter-segment sales","\u200b","","31,498","\u200b","","31,503","\u200b","\u200b","(5)","\u200b","\u2014","\u200b","\u200b"],["Total Sales","\u200b","$","1,071,504","\u200b","$","985,784","\u200b","$","85,720","\u200b","8.7","%","\u200b"],["Adjusted EBIT (5)","\u200b","$","136,497","\u200b","$","120,157","\u200b","$","16,340","\u200b","13.6","%","\u200b"],["As a percent of total sales (2)","\u200b","","12.7","%","","12.2","%","\u200b","\u200b","\u200b","0.5","%","\u200b"],["The Harris Products Group:","\u200b","","\u200b","\u200b","","","\u200b","\u200b","","\u200b","","\u200b","\u200b"],["Net sales","\u200b","$","496,084","\u200b","$","517,996","\u200b","$","(21,912)","\u200b","(4.2)","%","\u200b"],["Inter-segment sales","\u200b","","10,641","\u200b","","11,040","\u200b","\u200b","(399)","\u200b","(3.6)","%","\u200b"],["Total Sales","\u200b","$","506,725","\u200b","$","529,036","\u200b","$","(22,311)","\u200b","(4.2)","%","\u200b"],["Adjusted EBIT (6)","\u200b","$","74,144","\u200b","$","64,008","\u200b","$","10,136","\u200b","15.8","%","\u200b"],["As a percent of total sales (3)","\u200b","","14.6","%","","12.1","%","\u200b","\u200b","\u200b","2.5","%","\u200b"],["Corporate / Eliminations:","\u200b","","\u200b","\u200b","","","\u200b","\u200b","","\u200b","","\u200b","\u200b"],["Inter-segment sales","\u200b","$","(169,675)","\u200b","$","(164,562)","\u200b","$","(5,113)","\u200b","(3.1)","%","\u200b"],["Adjusted EBIT (7)","\u200b","","(17,536)","\u200b","","(10,033)","\u200b","\u200b","(7,503)","\u200b","(74.8)","%","\u200b"],["Consolidated:","\u200b","","\u200b","\u200b","","","\u200b","\u200b","","\u200b","","\u200b","\u200b"],["Net sales","\u200b","$","4,191,636","\u200b","$","3,761,211","\u200b","$","430,425","\u200b","11.4","%","\u200b"],["Net income","\u200b","$","545,248","\u200b","$","472,224","\u200b","$","73,024","\u200b","15.5","%","\u200b"],["As a percent of total sales","\u200b","","13.0","%","","12.6","%","\u200b","\u200b","\u200b","0.4","%","\u200b"],["Adjusted EBIT (8)","\u200b","$","731,374","\u200b","$","636,951","\u200b","$","94,423","\u200b","14.8","%","\u200b"],["As a percent of sales","\u200b","","17.4","%","","16.9","%","","\u200b","\u200b","0.5","%","\u200b"]] [[/GREPCENT_TABLE]] ​ [[GREPCENT_TABLE]] [["(1)","Increase for 2023 as compared to 2022 primarily driven by higher volumes and effective cost management, partially offset by the impact of acquisitions."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["(2)","Increase for 2023 as compared to 2022 primarily driven by higher volumes and effective cost management."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["(3)","Increase for 2023 compared to 2022 primarily reflects effective cost management and operational improvements."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["(4)","2023 excludes the amortization of step up in value of acquired inventories of $9,390 and Rationalization and asset impairment net charges of $468."]] [[/GREPCENT_TABLE]] 22 Table of Contents ​ 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. [[GREPCENT_TABLE]] [["(5)","2023 excludes pension settlement charges of $845, a gain on asset disposal of $1,646, the amortization of step up in value of acquired inventories of $2,862 and Rationalization and asset impairment net gains of $11,782 as discussed in Note 7 to the consolidated financial statements."]] [[/GREPCENT_TABLE]] 2022 excludes Rationalization and asset impairment charges of $11,681 related to impairment charges as discussed in Note 7 to the consolidated financial statements. [[GREPCENT_TABLE]] [["(6)","2022 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."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["(7)","2022 excludes acquisition transaction and integration costs of $6,003 as discussed in Note 4 to the consolidated financial statements."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["(8)","See non-GAAP Financial Measures for a reconciliation of Net income as reported and Adjusted EBIT."]] [[/GREPCENT_TABLE]] Non-GAAP Financial Measures The Company reviews Adjusted operating income, Adjusted EBIT, Adjusted net income, Adjusted effective tax rate, Adjusted diluted earnings per share, Adjusted return on invested capital, and Adjusted net operating profit after taxes, all non-GAAP financial measures, in assessing and evaluating the Company’s underlying operating performance. These non-GAAP financial measures exclude the impact of special items on the Company’s reported financial results. Non-GAAP financial measures should be read in conjunction with the generally accepted accounting principles in the United States ("GAAP") financial measures, as non-GAAP measures are a supplement to, and not a replacement for, GAAP financial measures. From time to time, management evaluates and discloses to investors the following non-GAAP measures: Free cash flow ("FCF"), defined as Net cash provided by operating activities less Capital expenditures (the Company considers FCF to be a liquidity measure that provides useful information to management and investors about how the amount of cash generated by our business, after the purchase of property and equipment, can be used for debt service, acquisitions, paying dividends and repurchasing our common shares); Cash conversion, defined as FCF divided by Adjusted net income; Organic sales, defined as sales excluding the effects of foreign currency and acquisitions. The following table presents a reconciliation of Operating income as reported to Adjusted operating income: ​ [[GREPCENT_TABLE]] [["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","","Year Ended December 31,"],["\u200b","","2023","","2022"],["Operating income as reported","\u200b","$","717,849","\u200b","$","612,336","\u200b"],["Special items (pre-tax):","\u200b","","","\u200b","","","\u200b"],["Rationalization and asset impairment charges (1)","\u200b","","(11,314)","\u200b","","11,788","\u200b"],["Acquisition transaction costs (2)","\u200b","","\u2014","\u200b","","6,003","\u200b"],["Amortization of step up in value of acquired inventories (3)","\u200b","","12,252","\u200b","","1,106","\u200b"],["Adjusted operating income","\u200b","$","718,787","\u200b","$","631,233","\u200b"]] [[/GREPCENT_TABLE]] ​ [[GREPCENT_TABLE]] [["(1)","2023 reflects a gain on the sale of a property of $36,187, offset by rationalization and asset impairment charges of $24,873 within International Welding. 2022 charges are primarily related to employee severance, gains or losses on the disposal of assets and other related costs and non-cash asset impairment charges."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["(2)","Costs related to acquisitions and included in Selling, general & administrative expenses."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["(3)","Costs related to acquisitions and included in Cost of goods sold."]] [[/GREPCENT_TABLE]] 23 Table of Contents ​ The following table presents the reconciliations of Net income as reported to Adjusted net income and Adjusted EBIT, Effective tax rate as reported to Adjusted effective tax rate and Diluted earnings per share as reported to Adjusted diluted earnings per share: ​ [[GREPCENT_TABLE]] [["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","","Year Ended December 31,"],["\u200b","","2023","","2022"],["Net income as reported","\u200b","$","545,248","","$","472,224","\u200b"],["Special items:","\u200b","","\u200b","","","","\u200b"],["Rationalization and asset impairment charges (1)","\u200b","","(11,314)","","","11,788","\u200b"],["Acquisition transaction costs (2)","\u200b","","\u2014","","","6,003","\u200b"],["Pension settlement net charges (3)","\u200b","","845","","","(4,273)","\u200b"],["Amortization of step up in value of acquired inventories (4)","\u200b","","12,252","","","1,106","\u200b"],["Gain on asset disposal (5)","\u200b","","(1,646)","","","\u2014","\u200b"],["Tax effect of Special items (6)","\u200b","","2,537","","","(1,192)","\u200b"],["Adjusted net income","\u200b","$","547,922","","$","485,656","\u200b"],["Interest expense, net","\u200b","","44,371","","","29,500","\u200b"],["Income taxes as reported","\u200b","","141,618","","","120,603","\u200b"],["Tax effect of Special items (6)","\u200b","","(2,537)","","","1,192","\u200b"],["Adjusted EBIT","\u200b","$","731,374","","$","636,951","\u200b"],["Effective tax rate as reported","\u200b","","20.6","%","","20.3","%"],["Net special item tax impact","\u200b","","(0.4)","%","","(0.2)","%"],["Adjusted effective tax rate","\u200b","","20.2","%","","20.1","%"],["Diluted earnings per share as reported","\u200b","$","9.37","","$","8.04","\u200b"],["Special items per share","\u200b","","0.04","","","0.23","\u200b"],["Adjusted diluted earnings per share","\u200b","$","9.41","","$","8.27","\u200b"]] [[/GREPCENT_TABLE]] ​ [[GREPCENT_TABLE]] [["(1)","2023 reflects a gain on the sale of a property of $36,187, offset by rationalization and asset impairment charges of $24,873 within International Welding. 2022 charges are primarily related to employee severance, gains or losses on the disposal of assets and other related costs and non-cash asset impairment charges."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["(2)","Costs related to acquisitions, as discussed in Note 4 to the consolidated financial statements, and are included in Selling, general & administrative."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["(3)","2023 charges related to pension settlement charges. 2022 net gains primarily related to the final settlement associated with the termination of a pension plan, as discussed in Note 11 to the consolidated financial statements."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["(4)","Costs related to acquisitions and included in Cost of goods sold."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["(5)","Gain on asset disposal and included in Other income."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["(6)","Includes the net tax impact of Special items recorded during the respective periods."]] [[/GREPCENT_TABLE]] 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 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. 24 Table of Contents ​ The Company continues to expand globally and periodically consider acquisitions 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 needing or requiring 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: ​ [[GREPCENT_TABLE]] [["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","","Year Ended December 31,"],["\u200b","\u200b","2023","","2022","","$ Change"],["Cash provided by operating activities (1)","\u200b","$","667,542","\u200b","$","383,386","\u200b","$","284,156"],["Cash used by investing activities (2)","\u200b","","(74,729)","\u200b","","(504,691)","\u200b","","429,962"],["Capital expenditures","\u200b","","(90,987)","\u200b","","(71,883)","\u200b","","(19,104)"],["Acquisition of businesses, net of cash acquired","\u200b","","(32,685)","\u200b","","(436,298)","\u200b","","403,613"],["Proceeds from the sale of property, plant and equipment","\u200b","\u200b","49,494","\u200b","\u200b","3,331","\u200b","\u200b","46,163"],["Cash (used by) provided by financing activities (3)","\u200b","","(412,392)","\u200b","","133,725","\u200b","","(546,117)"],["(Payments on) proceeds from short-term borrowings","\u200b","","(79,873)","\u200b","","34,351","\u200b","","(114,224)"],["(Payments on) proceeds from long-term borrowings","\u200b","\u200b","(8,109)","\u200b","\u200b","405,444","\u200b","\u200b","(413,553)"],["Purchase of shares for treasury","\u200b","","(198,765)","\u200b","","(181,293)","\u200b","","(17,472)"],["Cash dividends paid to shareholders","\u200b","","(148,010)","\u200b","","(130,724)","\u200b","","(17,286)"],["Increase in Cash and cash equivalents (4)","\u200b","","196,637","\u200b","","4,192","\u200b","","192,445"]] [[/GREPCENT_TABLE]] ​ [[GREPCENT_TABLE]] [["(1)","Cash provided by operating activities increased for the twelve months ended December 31, 2023 compared with the twelve months ended December 31, 2022 primarily due to increased earnings and improved working capital."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["(2)","Cash used by investing activities decreased for the twelve months ended December 31, 2023 compared with the twelve months ended December 31, 2022 primarily due to less acquisition activity in 2023. The Company currently anticipates capital expenditures of $90,000 to $110,000 in 2024. 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\u2019s facilities."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["(3)","Cash used by financing activities increased in the twelve months ended December 31, 2023 compared with the twelve months ended December 31, 2022 primarily due to increased payments on short- and long-term borrowings as compared with the prior year."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["(4)","Cash and cash equivalents increased 99.7%, or $196,637, to $393,787 during the twelve months ended December 31, 2023, from $197,150 as of December 31, 2022. The increase was predominantly due to higher cash provided by operating activities in 2023."]] [[/GREPCENT_TABLE]] The Company paid $148,010 and $130,724 in cash dividends to its shareholders in the twelve months ended December 31, 2023 and 2022, respectively. In January 2024, the Company paid a cash dividend of $0.71 per share, or $40,453, to shareholders of record on December 31, 2023, which reflects a 11% increase in the Company’s dividend payout rate. ​ 25 Table of Contents ​ Working Capital Ratios ​ [[GREPCENT_TABLE]] [["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","2023","","2022"],["Average operating working capital to Net sales (1) (2)","","17.1","%","20.9","%"],["Days sales in Inventories (3)","","104.6","","132.5","\u200b"],["Days sales in Accounts receivable","","50.0","","57.0","\u200b"],["Average days in Trade accounts payable","","47.6","","57.0","\u200b"]] [[/GREPCENT_TABLE]] ​ [[GREPCENT_TABLE]] [["(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."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["(2)","In 2022, Average operating working capital excluding Fori would have been 18.6% as a percent of Net Sales."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["(3)","In order to minimize supply chain disruptions in serving customers due to the impacts of the COVID-19 pandemic, the Company increased inventories relative to expected Net sales resulting in higher Days sales in Inventories in 2022."]] [[/GREPCENT_TABLE]] 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, 2023 and 2022, the total amount of debt outstanding was $1,105,210 and $1,203,879, respectively, while the fair value of long-term debt, including the current portion, was approximately $1,013,795 and $1,009,020, respectively, which was determined using available market information and methodologies requiring judgment. The carrying value of this debt at such dates was $1,102,771 and $1,121,435, 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, 2023, 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 10.4 years, respectively. 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 26 Table of Contents ​ 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, 2023, the Company was in compliance with all of its covenants. 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. On March 8, 2023, the Credit Agreement was amended to replace the LIBOR rate to a term secured overnight finance rate (“SOFR”); as such, the interest rate on borrowings is based on SOFR plus a spread of 0.85% to 1.85% based on (1) the Company’s net leverage ratio and (2) a credit spread adjustment. 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, 2023, the Company was in compliance with all of its covenants and had no of outstanding borrowings under the Credit Agreement. The Company has other lines of credit and debt agreements totaling $89,145. As of December 31, 2023, the Company was in compliance with all of its covenants and had $2,435 outstanding at December 31, 2023. Return on Invested Capital The Company reviews return on invested capital ("ROIC") in assessing and evaluating the Company’s underlying operating performance. Adjusted ROIC is a non-GAAP financial measure that the Company believes is a meaningful metric to investors in evaluating the Company’s financial performance and may be different than the method used by other companies to calculate ROIC. Adjusted ROIC is defined as rolling 12 months of Adjusted net income excluding tax-effected interest income and expense divided by invested capital. Invested capital is defined as total debt, which includes Amounts due banks, Current portion of long-term debt and Long-term debt, less current portions, plus Total equity. ​ 27 Table of Contents ​ The following table presents the reconciliation of ROIC and Adjusted ROIC to net income: ​ [[GREPCENT_TABLE]] [["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Return on Invested Capital","","2023","","2022"],["Net income as reported","\u200b","$","545,248","\u200b","$","472,224","\u200b"],["Plus: Interest expense (after-tax)","\u200b","","38,050","\u200b","","23,276","\u200b"],["Less: Interest income (after-tax)","\u200b","","5,033","\u200b","","1,202","\u200b"],["Net operating profit after taxes","\u200b","$","578,265","\u200b","$","494,298","\u200b"],["Special items:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Rationalization and asset impairment charges","\u200b","\u200b","(11,314)","\u200b","\u200b","11,788","\u200b"],["Acquisition transaction costs","\u200b","\u200b","\u2014","\u200b","\u200b","6,003","\u200b"],["Pension settlement net charges","\u200b","\u200b","845","\u200b","\u200b","(4,273)","\u200b"],["Amortization of step up in value of acquired inventories","\u200b","\u200b","12,252","\u200b","\u200b","1,106","\u200b"],["Gain on asset disposal","\u200b","\u200b","(1,646)","\u200b","\u200b","\u2014","\u200b"],["Tax effect of Special items (1)","\u200b","\u200b","2,537","\u200b","\u200b","(1,192)","\u200b"],["Adjusted net operating profit after taxes","\u200b","$","580,939","\u200b","$","507,730","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Invested Capital","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Short-term debt","\u200b","$","2,439","\u200b","$","93,483","\u200b"],["Long-term debt, less current portion","\u200b","\u200b","1,102,771","\u200b","\u200b","1,110,396","\u200b"],["Total debt","\u200b","\u200b","1,105,210","\u200b","\u200b","1,203,879","\u200b"],["Total equity","\u200b","\u200b","1,308,852","\u200b","\u200b","1,034,041","\u200b"],["Invested capital","\u200b","$","2,414,062","\u200b","$","2,237,920","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Return on invested capital as reported","\u200b","\u200b","24.0","%","\u200b","22.1","%"],["Adjusted return on invested capital","\u200b","","24.1","%","","22.7","%"]] [[/GREPCENT_TABLE]] ​ [[GREPCENT_TABLE]] [["(1)","Includes the net tax impact of Special items recorded during the respective periods."]] [[/GREPCENT_TABLE]] The tax effect of Special items impacting pre-tax income was calculated as the pre-tax amount multiplied by the applicable tax rate. The applicable tax rate reflects the taxable jurisdiction and nature of each Special item. Contractual and Other Obligations The Company’s cash requirements for contractual and other obligations as of December 31, 2023 are as follows: ​ [[GREPCENT_TABLE]] [["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","Payments Due By Period"],["\u200b","","","","\u200b","\u200b","","2025 to","","2027 to","","2029 and"],["\u200b","Total","\u200b","2024","\u200b","2026","\u200b","2028","\u200b","Beyond"],["Long-term debt, including current portion (Note 9)","$","1,100,009","\u200b","$","4","\u200b","$","500,005","\u200b","$","100,000","\u200b","$","500,000"],["Interest on long-term debt (Note 9)","","258,448","\u200b","","23,135","\u200b","","43,120","\u200b","","39,970","\u200b","","152,223"],["Amounts due banks (Note 9)","\u200b","2,435","\u200b","\u200b","2,435","\u200b","\u200b","\u2014","\u200b","\u200b","\u2014","\u200b","\u200b","\u2014"],["Operating leases (Note 17)","","61,229","\u200b","","14,574","\u200b","","20,808","\u200b","","11,200","\u200b","","14,647"],["Purchase commitments (1)","","107,903","\u200b","","106,869","\u200b","","1,000","\u200b","","34","\u200b","","\u2014"],["Transition Tax (2)","","5,788","\u200b","","\u2014","\u200b","","5,788","\u200b","","\u2014","\u200b","","\u2014"],["Total","$","1,535,812","\u200b","$","147,017","\u200b","$","570,721","\u200b","$","151,204","\u200b","$","666,870"]] [[/GREPCENT_TABLE]] ​ [[GREPCENT_TABLE]] [["","(1)","Purchase commitments include contractual obligations for raw materials and services."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","(2)","Federal income taxes on the Company\u2019s transition tax pursuant to the U.S. Tax Act is payable over eight years. Amounts reflect the utilization of 2018 overpayments and foreign tax credits."]] [[/GREPCENT_TABLE]] 28 Table of Contents ​ As of December 31, 2023, there were $12,592 of tax liabilities related to unrecognized tax benefits and a $53,628 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 19, 2023, the shareholders of the Company approved the 2023 Equity and Incentive Compensation Plan ("2023 Employee Plan"), which replaced the 2015 Equity and Incentive Compensation Plan (“2015 Employee Plan”). The 2023 Employee Plan provides for the granting of options, appreciation rights, restricted shares, restricted stock units and performance-based awards up to an additional 2,025,000 of the Company’s common shares. In addition, on April 19, 2023, the shareholders of the Company approved the 2023 Stock Plan for Non-Employee Directors ("2023 Director Plan"), which replaced the 2015 Stock Plan for Non-Employee Directors (“2015 Director Plan”). The 2023 Director Plan provides for the granting of options, restricted shares and restricted stock units up to an additional 200,000 of the Company’s common shares. At December 31, 2023, there were 2,192,720 common shares available for future grant under all plans. Under these plans, the number of options, restricted shares and restricted stock units granted were 241,824 in 2023 and 284,946 in 2022. 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 2023 and 2022. Total stock-based compensation expense recognized in the Consolidated Statements of Income for 2023 and 2022 was $26,223 and $25,276, respectively, with a related tax benefit of $6,711 and $6,363, respectively. As of December 31, 2023, total unrecognized stock-based compensation expense related to non-vested stock options and restricted stock units was $17,254, which is expected to be recognized over a weighted average period of approximately one year. 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, 2023 was $99,884 and $82,057, respectively. The total intrinsic value of awards exercised during 2023 and 2022 was $35,414 and $7,082, 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 29 Table of Contents ​ 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 accounting policies were made during 2023. 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 the statute of limitations. Liabilities can be affected by changes in applicable tax law, regulations, tax rulings or such other factors, which may cause management to believe a revision of past estimates is appropriate. Management believes that an appropriate liability has been established for uncertain income tax positions; however, actual results may materially differ from these estimates. Refer to Note 13 to the consolidated financial statements for further discussion of uncertain income tax positions. Deferred Income Taxes Deferred income taxes are recognized at currently enacted tax rates for temporary differences between the GAAP and income tax basis of assets and liabilities and operating loss and tax credit carry-forwards. The Company will repatriate earnings for certain non-U.S. subsidiaries, which are subject to foreign withholding taxes. The Company considers any remaining earnings and outside basis in all other non-U.S. subsidiaries to be indefinitely reinvested and has not recorded any deferred taxes as such estimate is not practicable. At December 31, 2023, the Company had approximately $172,734 of gross deferred tax assets related to deductible temporary differences and tax loss and credit carry-forwards, which may reduce taxable income in future years. 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 30 Table of Contents ​ liabilities, tax planning strategies and projected future taxable income in making this assessment. At December 31, 2023, a valuation allowance of $36,876 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. Inventories Inventories are valued at the lower of cost or net realizable value. Fixed manufacturing overhead costs are allocated to inventory based on normal production capacity and abnormal manufacturing costs are recognized as period costs. Cost for a substantial portion of U.S. inventories is determined on a LIFO basis. LIFO was used for 37% and 38% of total inventories at December 31, 2023 and 2022, respectively. Cost of other inventories is determined by costing methods that approximate a FIFO basis. 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. The excess of current cost over LIFO cost was $129,946 at December 31, 2023 and $133,909 at December 31, 2022. The Company reviews the net realizable value of inventory on an on-going basis with consideration given to deterioration, obsolescence and other factors. If actual market conditions differ from those projected by management, and the Company’s estimates prove to be inaccurate, write-downs of inventory values and adjustments to Cost of goods sold may be required. Historically, the Company’s reserves have approximated actual experience. Long-Lived Assets The Company periodically evaluates whether current facts or circumstances indicate that the carrying value of its depreciable long-lived assets, including leases and intangible assets that do not have indefinite lives, to be held and used may not be recoverable. If such circumstances are determined to exist, an estimate of undiscounted future cash flows produced by the long-lived asset, or the appropriate grouping of assets, is compared to the carrying value to determine whether impairment exists. If an asset is determined to be impaired, a loss is recognized to the extent that carrying value exceeds fair value. Fair value is measured based on quoted market prices in active markets, if available. If quoted market prices are not available, the estimate of fair value is based on various valuation techniques, including the discounted value of estimated future cash flows. Goodwill and Intangibles The Company performs an annual impairment test of goodwill and indefinite-lived intangible assets in the fourth quarter using the same date each year or more frequently if changes in circumstances or the occurrence of events indicate potential impairment. The fair value of each indefinite-lived intangible asset is compared to its carrying value and an impairment charge is recorded if the carrying value exceeds the fair value. For goodwill, the Company first assesses qualitative factors to determine whether it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, and whether it is necessary to perform the quantitative goodwill impairment test. The quantitative test is only required if the Company concludes that it is more-likely-than-not that a reporting unit’s fair value is less than its carrying amount. The Company may also perform a quantitative test in instances where the more-likely-than-not threshold has not been met, including when general macroeconomic conditions or changes to the reporting unit warrant a refresh of the baseline used in a qualitative test. For quantitative testing, the Company compares the fair value of each reporting unit with its carrying amount. If the carrying amount exceeds the fair value, an impairment charge is recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value, not to exceed the total amount of goodwill allocated to that reporting unit. 31 Table of Contents ​ Fair values are determined using established business valuation techniques and models developed by the Company, estimates of market participant assumptions of future cash flows, future growth rates and discount rates to value estimated cash flows. Changes in economic and operating conditions, actual growth below the assumed market participant assumptions or an increase in the discount rate could result in an impairment charge in a future period. Acquisitions Upon acquisition of a business, the Company uses the income, market or cost approach (or a combination thereof) for the valuation as appropriate. The valuation inputs in these models and analyses are based on market participant assumptions. Market participants are considered to be buyers and sellers unrelated to the Company in the principal or most advantageous market for the asset or liability. Fair value estimates are based on a series of judgments about future events and uncertainties and rely on estimates and assumptions. Management values property, plant and equipment using the cost approach supported where available by observable market data, which includes consideration of obsolescence. Management values acquired intangible assets using the relief from royalty method or excess earnings method, forms of the income approach supported by observable market data for peer companies. The significant assumptions used to estimate the value of the acquired intangible assets include discount rates and certain assumptions that form the basis of future cash flows (such as revenue growth rates, customer attrition rates and royalty rates). Acquired inventories are marked to fair value. For certain items, the pre-acquisition carrying value is determined to be a reasonable approximation of fair value based on information available to the Company. Refer to Note 4 to the consolidated financial statements for additional details. Revenue Recognition Revenue is recognized when obligations under the terms of a contract are satisfied and control is transferred to the customer. Revenue is measured as the amount of consideration the Company expects to be entitled to in exchange for goods or services. Substantially all of the Company’s sales arrangements are short-term in nature involving a single performance obligation. The Company recognizes revenue when the performance obligation is satisfied and control of the product is transferred to the customer based upon shipping terms. In addition, certain customized automation performance obligations are accounted for over time. Under this method, revenue recognition is primarily based upon the ratio of costs incurred to date compared with estimated total costs to complete. The cumulative impact of revisions to total estimated costs is reflected in the period of the change, including anticipated losses. Less than 10% of the Company’s Net sales are recognized over time. The Company recognizes any discounts, credits, returns, rebates and incentive programs based on reasonable estimates as a reduction of sales to arrive at Net sales at the same time the related revenue is recorded. Taxes collected by the Company, including sales tax and value added tax, are excluded from Net sales. The Company recognizes freight billed as a component of Net sales and shipping costs as a component of Cost of goods sold when control transfers to the customer. Sales commissions are expensed when incurred because the amortization period is generally one year or less. These costs are recorded within Selling, general and administrative expenses in the Company’s Consolidated Statements of Income. Refer to Note 2 to the consolidated financial statements for additional details. ​