driving INNOVATION
investing in GROWTH
LINCOLN ELECTRIC HOLDINGS, INC.
22801 St. Clair Avenue
Cleveland, Ohio 44117-1199
U.S.A.
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OUR VISION
We are a global manufacturer and the market leader of the highest
quality welding, cutting, and joining products. Our enduring passion
for the development and application of our technologies allows us to
create complete solutions that make our customers more productive
and successful. We distinguish ourselves through an unwavering
commitment to our employees and a relentless drive to maximize
shareholder value.
WHO WE ARE + WHAT WE DO
Lincoln Electric is the world leader in the design, development
supported by its R&D centers around the world, including the
and manufacture of arc welding products, robotic arc-welding
David C. Lincoln Technology Center, the most advanced facility of
systems, and plasma and oxyfuel cutting equipment, and has
its kind in the welding industry.
a leading global position in the brazing and soldering alloys
Lincoln Electric’s products and welding solutions play an
market. Headquartered in Cleveland, Ohio, U.S.A., Lincoln
important role in the development of many industries and
has 45 manufacturing locations, including operations and joint
infrastructures around the world. Arc welding is the dominant
ventures in 19 countries, and a worldwide network of distributors
joining method for steel buildings and other industrial
and sales offices covering more than 160 countries.
construction, including oil and gas pipeline fabrication,
Recognized as The Welding Experts®, Lincoln provides
shipbuilding and oil refinery construction, construction
cutting-edge products and solutions, and has a long history of
equipment and farm equipment. Lincoln services a wide variety
being a pioneer in new technology for arc welding consumables
of industries that rely on arc welding, such as transportation,
and equipment. Lincoln operates the industry’s most extensive
power generation and all forms of metal fabrication.
and comprehensive research and product development program,
TABLE OF CONTENTS
Financial Highlights
Shareholder Letter
Industry Segments
Corporate Information
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FINANCIAL HIGHLIGHTS
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08 09 10 11 12
Net Sales
dollars in millions
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08 09 10 11 12
Diluted Earnings
per share*
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2
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Return on Invested Capital
in percent
7
5
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4
9
1
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08 09 10 11 12
08 09 10 11 12
Total Equity
dollars in millions
Cash Provided by Operations
dollars in millions
* Diluted earnings per share exclude the effects of special items and have been retroactively adjusted in prior years to give effect to the two-for-one stock split on May 31, 2011. 2012 excludes net rationalization
charges, asset impairment charges and a charge related to a change in Venezuelan labor laws. 2011 excludes net rationalization charges and a gain related to a favorable adjustment for tax audit settlements.
2010 excludes net rationalization gains, asset impairment charges, noncontrolling interest charges associated with a gain on disposal of assets, a net charge due to a change in functional currency for the
Company’s Venezuelan operation to the U.S. dollar and the devaluation of the Venezuelan currency and income due to a change in applicable tax regulations in the Asia Pacific Welding segment. 2009 excludes
rationalization and asset impairment charges, the gain on the sale of a property, a loss associated with the acquisition of a business in China and related disposal of an investment in Taiwan, a pension settle-
ment gain and a charge in noncontrolling interests associated with the pension settlement gain for a majority-owned consolidated subsidiary. 2008 excludes rationalization and asset impairment charges.
Year Ended December 31
(dollars in millions, except per share data)
Net Sales
Net Income
Net Income excluding special items (1)
Diluted Earnings per Share
Diluted Earnings per Share excluding special items (1)
Cash Dividends Paid per Share of Common Stock
Working Capital
Current Ratio
Total Assets
Total Equity
Cash Provided by Operations
Return on Invested Capital (5)
2012
2011
2010
$ 2,853
$ 2,695
$ 2,070
257
266 (2)
3.06
3.16
0.88
693
2.6
$ 2,090
1,358
327
18.7%
217
213 (3)
2.56
2.51
0.62
748
2.6
$ 1,977
1,193
194
16.9%
130
130 (4)
1.53
1.52
0.56
747
3.2
$ 1,784
1,150
157
10.7%
Per share amounts have been retroactively adjusted to give effect to the two-for-one stock split on May 31, 2011.
(1) Net Income excluding special items and Diluted Earnings per Share excluding special items are non-GAAP financial measures that management believes are important to investors to evaluate and compare the
Company’s financial performance from period to period. Management uses this information in assessing and evaluating the Company’s underlying operating performance. Non-GAAP financial measures should
be read in conjunction with the GAAP financial measures, as non-GAAP measures are a supplement to, and not a replacement for, GAAP financial measures.
(2) In 2012, special items include net rationalization charges of $7.5 ($6.2 after-tax or $0.07 per diluted share), asset impairment charges of $1.8 ($1.3 after-tax or $0.02 per diluted share) and a charge of $1.4
($0.9 after-tax or $0.01 per diluted share) related to a change in Venezuelan labor laws.
(3) In 2011, special items include net rationalization charges of $0.3 ($0.2 after tax) and a gain related to a favorable adjustment for tax audit settlements of $4.8 after-tax ($0.06 per diluted share).
(4) In 2010, special items include net rationalization gains of $1.3 ($1.7 after-tax or $0.02 per diluted share), asset impairment charges of $0.9 ($0.8 after-tax or $0.01 per diluted share), a net charge of
$1.8 after-tax ($0.02 per diluted share) in noncontrolling interests related to gains on the disposal of assets in a majority-owned consolidated subsidiary, a net charge due to a change in the functional currency
for the Company’s Venezuelan operation to the U.S. dollar and the devaluation of the Venezuelan currency of $3.1 ($3.6 after-tax or $0.04 per diluted share) and income due to a change in applicable tax
regulations of $5.1 after-tax ($0.06 per diluted share).
(5) Return on invested capital is defined as rolling 12 months of earnings excluding tax-effected interest divided by invested capital.
1
To Our Fellow
SHAREHOLDERS
Left to right:
Christopher L. Mapes, President and Chief Executive Officer
John M. Stropki, Executive Chairman
Vincent K. Petrella, SVP, Chief Financial Officer
Lincoln Electric continues to build on its long-standing track record of
returning exceptional value to shareholders. The Company generated solid
operating results in 2012 despite the weak macroeconomic environment in
many of our global markets. Our strong performance reflects the dedication
and talents of our entire team as they work tirelessly toward executing
our strategies and achieving our aggressive growth objectives. In addition,
our strong results and financial strength enabled the Board of Directors
to significantly increase the dividend and conduct a substantial share
repurchase program during the year.
As the theme of this year’s annual report highlights, we are unrelenting in our commitment to drive innovation and
invest in profitable growth. This past year, as has been the case in recent years, we continued our aggressive new product
development efforts. More than 50% of our 2012 equipment sales were derived from products developed during the
past five years. We will continue to invest heavily in our R&D activities, and our 2012 engineering training class was the
largest in our 118-year history, which bodes well for future innovation, successful new product launches and improved
customer support.
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Our steady pipeline of new products is a key contributor as
Previous acquisitions enhanced our capabilities in strategic
we continue to pursue our Vision 2020 goals of at least 10%
growth areas – including Torchmate® in cutting equipment;
compound annual growth and 15% return on invested capital
Arc Products® in automation systems; and Techalloy® in nickel
over the 10-year period that began in 2011. We are now two
alloy consumables.
years into the plan, and we are well ahead of the run rate that
All told, business portfolio additions completed during 2011
would be necessary to achieve those ambitious goals.
and 2012 contributed approximately $133 million in revenues
Another contributor to growth has been our targeted and
in 2012, and have added new highly skilled employees to our
disciplined acquisition strategy. Through recent acquisitions, we
expanding worldwide workforce. We will continue to pursue
have enhanced our product portfolio in many key high-growth
complementary acquisitions that will further strengthen our
areas, such as alloy-based consumables, automated systems
position and the value we provide customers in growth
and cutting equipment.
market segments.
In March 2012, we acquired California-based Weartech™
International, a leading producer of cobalt-based welding
2012: ANOTHER RECORD YEAR
consumables primarily for the high-growth energy and
process chemical segments. We expect strong growth in these
segments, and the Weartech product line has helped expand
Sales increased 5.9% to a record $2.9 billion, and net income
increased 18.5% to a record $257.4 million in 2012. Gross
profit margins increased to 30.4% in 2012 from 27.3% in 2011,
and our return on invested capital increased to 18.7% in 2012
from 16.9% for the previous year.
Through recent acquisitions, we have enhanced our product
portfolio in many key high-growth areas, such as alloy-based
consumables, automated systems and cutting equipment.
our relationships with key
global customers.
In May, we purchased Wayne
Trail Technologies™, an Ohio-based
manufacturer of automated systems
and tooling, serving a wide range of
applications in the metal processing
market, including laser welding and
cutting systems. The addition of Wayne
Trail has already bolstered our strong
position as a market leader in welding
automation in North America.
In November, we acquired the Burny-Kaliburn™ business
located near Charleston, South Carolina. Burny® produces
shape cutting control systems, and Kaliburn® designs and
manufactures shape cutting solutions. The acquisition
significantly expands Lincoln’s offerings of high-precision
cutting solutions to our global distributor partners and end-
user customers.
Most recently, in January 2013, we announced the
acquisition of Tennessee Rand™, a leader in the design
and manufacture of tooling and robotic systems for welding
applications, serving a wide base of automotive and metal
fabrication customers. Tennessee Rand, headquartered in
Chattanooga, Tennessee, is recognized as an industry leader in
tool design, system building and machining capabilities and has
a strong customer portfolio that will further expand our welding
automation business.
Our strong cash flow generation and healthy balance sheet
will enable us to consistently and opportunistically deploy our
cash in a disciplined approach to increase shareholder value, as
reflected by the 17.6% increase in the quarterly cash dividend
declared by the Board of Directors on December 5, 2012,
and the buyback of more than $81 million in common shares
throughout the year.
RECOGNITIONS FOR LEADERSHIP AND
EXCELLENCE
We are especially proud that our Mason, Ohio, Harris Products
Group facility was named by Industry Week as one of the top
manufacturing plants for 2012. The award recognizes the plant
for its successful transformation into a leaner, more efficient
operation. Internally, the plant also received our Chairman’s
Award for environmental health and safety excellence.
Congratulations to everyone at the plant for their
outstanding work.
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Globally, we continue to lead the way in the welding industry
strategic insight and operational expertise to his new role.
with our commitment to excellence, innovation and doing things
Chris is highly qualified to lead Lincoln to new levels of growth
the right way. We have a well-developed culture of continuous
and value creation, building on the strong global leadership
improvement, and almost 100% of our facilities around the
position and phenomenal success that the Company has
world are certified ISO 9001. More than 50% are certified
achieved during the past decade and throughout its
ISO 14001, and we are on an aggressive schedule to have the
118-year history.
remainder certified.
Our record in sustainability and the environment is another
area where we are achieving strong results. We continued
to reduce energy consumption and increase our reliance
on sustainable resources through more efficient lighting,
skylight installations, the use of more efficient gas burners on
combustion equipment, insulation projects and modern air
compressor replacements. Energy usage per hour worked was
reduced by 14% in 2012.
In recycling, our primary objective is to reduce, reuse and
recycle potential waste materials. We recycled 50% of
non-manufacturing wastes and 35% of all wastes in 2012,
a 26% improvement from 2011.
INDUSTRY OUTLOOK
AND VISION 2020 PROGRESS
While the global welding industry is changing rapidly, Lincoln
Electric remains the constant as the world leader in innovation
with a unique position to provide a full range of value and
service in close partnership with an expanding global customer
base. For customers with operations that extend to some of the
most remote regions of the earth, we often serve as the catalyst
for new technology. Our relationships with these customers
help them meet their objectives with state-of-the-art welding
equipment, products and services, consistent throughout all of
their locations.
As we move forward with our 10-year Vision 2020
plan, we are confident that we are on track to meet
our aggressive goals.
In this way, our business has become
much more value-driven, and we have seen
customers turn more and more to Lincoln
for product and technology support. Their
projects are getting more complicated,
and finding skilled people to execute those
projects is becoming more challenging. Our
established leadership and commitment
to drive automation, training, safety,
Safety of our people is our top priority, and we continue
to make significant improvements in this area. On a global
basis, our 2012 DART (Days Away, Restricted or Transferred)
rate improved 20% and marks the fifth consecutive year of
productivity improvement and quality advancement in welding
is playing an increasingly important role to strengthen our
relationships with these customers. No competitor can match
Lincoln’s expertise, global reach and overall capabilities in these
improvement. We continue to strive for zero incidents, and eight
critical areas.
facilities had zero DART incidents. Since the summer of 2008,
the people at our Harris Poland facility have worked more than
1.2 million hours with no DART incidents.
LEADERSHIP TRANSITION
On a macroeconomic level, although we remain cautious for
the near term, we are mildly optimistic that the global economy
could show moderate improvement in 2013. For the longer
term, we continue to reinforce our position and invest in growing
regions such as Asia and Latin America, and in other regions
Effective December 31, 2012, Christopher L. Mapes became
that are rebounding, such as North America.
President and Chief Executive Officer of the Company. Chris
As we move forward with our 10-year Vision 2020 plan, we
had served as Chief Operating Officer of the Company since
are confident that we are on track to meet our aggressive goals.
September 1, 2011, and has been a member of the Board
Even if global economic challenges continue, we expect to
of Directors since February 2010. He has been pivotal in the
remain ahead of schedule.
ongoing development and implementation of our global
Vision 2020 plan and brings outstanding leadership skills,
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We will continue to invest in new products and explore
For the past nine years I have been proud to help continue
attractive acquisitions to expand our portfolio and extend our
the Lincoln legacy as Chairman and CEO. I have been honored
global reach. We remain well-positioned to execute our long-
to work with the more than 10,000 dedicated and talented
term strategic objectives, achieve significant earnings growth
individuals of our global workforce, and privileged to serve
and deliver superior returns on invested capital, and we intend
our loyal shareholders. To all of you, I express my deepest
to continue our programs of creating additional value for
appreciation for your support for Lincoln Electric. As a fellow
shareholders through stock buybacks and dividend increases,
shareholder, I look forward to the future accomplishments of
when prudent.
Chris and his team.
Lincoln Electric holds an enviable position as the undisputed
leader in the global welding industry, and the vision and values
Sincerely,
established by John C. and James F. Lincoln more than 100
years ago have never been stronger. Our dedication to quality,
passion for providing value and unwavering commitment to our
customers, employees and shareholders is a time-tested formula
for success.
John M. Stropki
Executive Chairman
Lincoln Electric’s System 55 robotic welding
cell can be customized to meet unique
manufacturing needs. It offers the flexibility to
accommodate a wide variety of part sizes that
can be manufactured in one robotic work cell.
5
Driving Innovative Solutions in
GROWING GLOBAL MARKETS
Customers in a diverse range of markets rely on welding technology as a key
component in the success of their processes and products. Lincoln Electric
provides welding equipment, consumables, services and global capabilities to
help customers achieve their productivity, efficiency and performance goals.
In 2012, Lincoln continued its steady pace of new product introductions to
bring the latest welding technology to the marketplace. It also maintained its
leadership role in supporting training for the next generation of welders as
well as advancing automation solutions for the industry.
POWER GENERATION AND PROCESS
The world’s demand for energy and new power generation projects of all types are key drivers of growth in the global
welding industry. Lincoln’s strong offerings in equipment and consumables, combined with its global capabilities, position
the Company to capture growth in this market and meet its challenging requirements.
High-quality welding equipment and consumable products are essential for energy production ranging from gas-
powered to coal-fired, from nuclear to wind. For more than 100 years, Lincoln Electric’s industry-leading welding products
have been instrumental in the construction, maintenance and repair of power plants in the United States and other key
markets around the world. Today, Lincoln continues to gain share in the power generation market with innovative solutions
such as its Flextec® multi-process welders and Power Wave® systems.
The increasing popularity of natural gas as a clean and inexpensive source of energy, coupled with the dramatic
increase in natural gas drilling in the United States, is fueling demand for welding products from the drilling site to the
power plant. For example, the welding of tanks used in the transportation and storage of liquid natural gas requires robust
power sources and superior, quality-tested consumables.
In addition, the lower cost of natural gas as a feedstock for petrochemicals, fertilizers and industrial chemicals is
leading to a construction boom in the United States for large-scale plants and expansions in the chemical industry. These
plants will need many miles of pipe, along with pressure vessels and processing equipment, requiring welding products
that Lincoln can provide.
6
A resurgence in oil and gas production
around the world has led to strong
demand for welding products used in the
construction of new pipelines and the
rehabilitation of existing infrastructure.
Continued global growth is also expected in wind energy.
According to the Energy Information Administration, 44% of all
new electrical generating capacity in the United States comes
from wind energy. Demand for wind energy in Europe, Asia
and South America continues to be strong, as well. Wind tower
fabrication requires reliable power sources, consumables and
global technical support for welding. Lincoln Electric leads the
industry with high-technology equipment, specially engineered
consumables, unmatched application and process knowledge,
and globally available technical support and distribution.
Renewed interest in nuclear power is increasing the demand
for welding products designed to meet the rigorous needs of the
nuclear industry. Lincoln is a leading supplier for active nuclear
power plant projects in the United States, Asia and Europe,
with a host of welding equipment, consumables and application
knowledge specifically engineered for the construction,
maintenance and repair of nuclear power plants.
PIPELINES/PIPE MILLS
Strong market fundamentals, including a recovering economic
outlook and growing global demand for energy, have led to a
resurgence in oil and gas production in the United States and
around the world. As a result, rehabilitation of existing pipeline
infrastructure and construction of new cross-country and
sub-sea pipelines will
continue to increase. To
help customers meet that
demand, Lincoln Electric
offers a wide range of
equipment, consumables
and integrated solutions
designed specifically for
the pipeline industry.
Increasing global
demand for natural
gas has spurred new
exploration in areas previously left untouched due to their
remote locations. Some of these projects cross a variety of
terrains and altitudes, and face environmental barriers, creating
a wide array of challenges for construction and welding teams.
7
Lincoln offers a complete line of welding solutions that
meet the demands of these challenging pipeline projects.
These solutions include its FCAW-G Pipeliner® family of
electrodes for automated and semi-automatic pipe welding
applications; the Pipeliner® 80Ni1 for high-strength pipe
applications; and the Power Wave® S350 and STT® Module
and consumables for high-quality welds in both offshore and
onshore pipeline construction.
Lincoln is the world leader in single-arc and multiple-arc
welding solutions for pipe mills, with durable equipment, proven
consumables, industry-leading application knowledge and
technical support necessary to meet customer needs in this
challenging market.
Welding plays a vital role in the
construction, maintenance and repair of
drilling rigs, production platforms and
sub-sea infrastructure which must operate
in extremely harsh environments.
OFFSHORE
Oil and gas exploration and production projects are creating global
opportunities for Lincoln’s products and services in the offshore
market. Growth in offshore investment is expected to continue
in 2013 and well beyond, driven largely by Brazil, China and the
countries of Southeast Asia, which are working toward greater
energy independence. The market also is seeing renewed activity in
mature regions such as North America and Europe to support the
increasing needs for advanced sub-sea infrastructure.
Welding plays a vital role in the construction, maintenance
and repair of drilling rigs for exploration, production platforms
for extracting and processing oil and gas reserves, and sub-sea
infrastructure for safe delivery of the oil and gas. Each of these
types of operations must perform reliably in extremely harsh
environments.
Lincoln offers best-in-class, total package solutions that
provide consistency along each part of the supply chain
to meet this market’s demanding needs. These solutions
include equipment and consumables that offer a high level
of technical capability, such as Lincoln’s recently launched
submerged arc welding flux, Lincolnweld® 812-SRC™,
which is used for applications where mechanical and
metallurgical properties are of critical concern.
8
Reliance on arc welding is rising in the
global automotive industry, which is
experiencing record production levels.
The offshore segment’s technical needs
are continuing to be challenged as deep-water
exploration and production require new ideas and
proven leadership to execute. Lincoln is meeting
this challenge by investing in new solutions that
will continue to set the standard for best-in-class
performance and consistency. As an example,
Lincoln’s Techalloy® and Arc Products® acquisitions, which
Lincoln Electric is an equipment
sponsor for Target Chip Ganassi
Racing, a four-time IndyCar Series
Championship Team.
both occurred in 2011, expanded the Company’s capabilities
AUTOMOTIVE AND TRANSPORTATION
as a potential single-source supplier to customers requiring
advanced pipe shop welding equipment and consumable
solutions, including stainless and nickel-based products for
critical offshore installations.
HEAVY FABRICATION
Global light vehicle production hit a record high level in 2012,
despite a contraction in European production and slower growth
in China. Growth occurred in the United States, Mexico, India
and Southeast Asia, and global forecasts for 2013 call for
another record year.
One important trend in this industry is the increasing use of
Manufacturers of heavy equipment require cutting-edge welding
aluminum parts, which are arc-welded, to reduce the size and
products and processes to ensure top-quality performance and
weight of vehicles and improve their fuel economy. Reliance
to maintain their competitive advantage. Lincoln’s wide range
on automation is rising, and Lincoln is aggressively expanding
of robust power sources, consumables and industry-leading
its automation capabilities in Mexico and Brazil to better serve
application knowledge provide the benefits that manufacturers
automotive manufacturers.
need in the heavy fabrication market.
Lincoln offers advanced welding solutions designed to meet
In North America, 2012 was a strong year for many key
the needs of the automotive and transportation industries.
customers in this market. These manufacturers’ welding needs
Its new Power Wave® S500 and R500 units are based on the
continue to evolve and their power source requirements are
latest technologies and are sized as needed for the automotive
shifting to more energy-efficient and automated solutions.
Lincoln’s upgraded Power Wave® line and Flextec® models
offer these customers a complete range of inverter-based
power sources to meet their welding needs. These products
are also globally approved, allowing global manufacturers to
use the same types of equipment and processes in all of their
facilities around the world. Lincoln’s expanded line of UltraCore®
wire products are also well-suited for this market. Automation
solutions, such as the FANUC® robot/Power Wave® combination,
are growing in popularity, especially in North America.
industry, particularly for
automation and robotics.
New innovative welding
solutions such as
Rapid X™ are also well-
suited to this industry.
9
Lincoln’s innovative products have been
well-received by the global shipbuilding
industry because of their portability,
durability and versatility.
SHIPBUILDING
INVESTING IN TRAINING
Lincoln offers a wide range of rugged, reliable and portable
Lincoln Electric has long been a leader in supporting the training
equipment, a full spectrum of quality-tested consumables, and
of the next generation of welders. Since 1917, the Lincoln
industry-leading application knowledge and technical support
Electric Welding School has instructed more than 100,000 men
for the global shipbuilding market. New equipment products
and women in the various methods and techniques of safety
such as the Activ8® small portable feeder, the Flextec® 650
and arc welding processes. The James F. Lincoln Arc Welding
welder and the expanded UltraCore® gas shielded flux-cored
Foundation, created in 1936, is the only organization in the
line have been well-received by this industry due to their
United States solely dedicated to educating the public about the
portability, durability and versatility.
art and science of arc welding.
Understanding the global need for welders to be proficient in
the most advanced and efficient technology, Lincoln is actively
10
involved in developing training equipment and supporting
educators worldwide who are instructing the next generation
of welders. The VRTEX® family of virtual reality arc welding
(VRAW™) training products includes the VRTEX® 360 and the
new, easily portable VRTEX® Mobile, which is ideal for onsite
training and recruitment events. New welders can use these
interactive teaching tools in either a traditional classroom setting
or at an actual manufacturing facility. They allow students of any
age to learn and train in a safe, virtual environment with realistic
imagery and scenes, thanks to a specially equipped virtual
reality welding helmet and rich, vivid graphics.
Lincoln was proud to support the welding competitions at
the 2012 SkillsUSA National Leadership & Skills Conference
in Kansas City, Missouri. More than 15,000 people – including
nearly 6,000 students – participated in the week-long event,
which showcases the best career and technical students in the
nation. The students competed in 94 hands-on trade, technical
and leadership fields, including welding.
Ohio Governor John Kasich observes visiting middle-school
students demonstrating the VRTEX® 360 virtual reality welding
system. Governor Kasich visited Lincoln’s Euclid, Ohio plant in
February 2012.
GIVING BACK
As the global leader in the welding industry, Lincoln
recognizes its responsibility to provide assistance
when it can in times of crisis. The Company has
donated equipment and consumables to help the First
Response Team of America restore hope to victims and
communities in the aftermath of a number of disasters.
Above, First Response founder Tad Agoglia relies on
Lincoln equipment at a location struck by Hurricane
Sandy, which devastated portions of the U.S. East Coast
in October 2012.
Lincoln Electric’s engineering and sales trainee program
includes activities to support the communities where
we live and work. As part of our community involvement
program, our trainees last year logged in several days
volunteering at the Cleveland Foodbank, and along with
staff and other volunteers with Habitat for Humanity
(pictured above), helped construct a new house in a
Northeast Ohio community. Lincoln also donated safety
apparel and safety glasses to the non-profit organization.
In addition, our trainees volunteered at Habitat for
Humanity’s ReStore facility, which sells new and gently
used building materials to help raise money and divert
material away from landfills.
11
CORPORATE
INFORMATION
Additional copies of Lincoln Electric’s
2012 Annual Report and Form 10-K
may be obtained by contacting Investor
Relations at (216) 383-2534, sending
a fax to (216) 383-8220 or visiting our
website: www.lincolnelectric.com. This
Annual Report may also be obtained by
calling 1-888-400-7789.
Inquiries about dividends, shareholder
records, share transfers, changes in
ownership and address changes should
be directed to the Transfer Agent and
Registrar:
Mail
Wells Fargo Shareowner Services
P.O. Box 64854
St. Paul, Minnesota 55164-0854
Courier
Wells Fargo Shareowner Services
1110 Centre Pointe Curve
Mendota Heights, Minnesota
55120-4100
Direct
800-468-9716 or 651-450-4064
www.wellsfargo.com/shareownerservices
The Annual Meeting of Lincoln Electric
Shareholders is scheduled to be held
on Thursday, April 25, 2013, at
11:30 a.m., at Marriott Cleveland East,
26300 Harvard Road, Warrensville
Heights, Ohio 44122. The Company’s
Common Shares are traded on the
NASDAQ Stock Market under the stock
symbol “LECO.” The number of record
holders of Common Shares at
December 31, 2012 was 1,699.
For additional Company information,
contact:
Investor Relations
Lincoln Electric Holdings, Inc.
22801 St. Clair Avenue
Cleveland, Ohio 44117-1199 USA
Phone: (216) 383-2534
Fax: (216) 383-8220
12
BOARD OF DIRECTORS
front row:
Kathryn Jo Lincoln
Chair of the Lincoln Institute
of Land Policy
G. Russell Lincoln
President of N.A.S.T. Inc.
John M. Stropki
Executive Chairman
of the Company
Christopher L. Mapes
President and
Chief Executive Officer
of the Company
Harold L. Adams
Lead Director
Chairman Emeritus and
Former Chairman, President
and Chief Executive Officer of
RTKL Associates Inc.
back row:
William E. MacDonald, III
Former Vice Chairman of
National City Corporation
Robert J. Knoll
Former Partner,
Deloitte & Touche LLP
COMPANY OFFICERS
AND EXECUTIVE MANAGEMENT
Curtis E. Espeland
Senior Vice President and
Chief Financial Officer,
Eastman Chemical Company
George H. Walls, Jr.
Former Chief Deputy Auditor,
State of North Carolina
David H. Gunning
Former Vice Chairman of
Cleveland-Cliffs Inc
Hellene S. Runtagh
Former President and Chief
Executive Officer of Berwind Group
Stephen G. Hanks
Former President and
Chief Executive Officer,
Washington Group International, Inc.
Anthony K. Battle
Vice President, Internal Audit
George D. Blankenship*
Senior Vice President
President, Lincoln Electric
North America
Gabriel Bruno*
Vice President,
Chief Information Officer
Joseph G. Doria
Vice President
President, Lincoln Electric
Canada
Gretchen A. Farrell*
Senior Vice President,
Human Resources and
Compliance
*Member, Management Committee
Thomas A. Flohn*
Vice President
President, Lincoln Electric
Europe, Middle East and Africa
Steven B. Hedlund*
Vice President, Strategy and
Business Development
Michele R. Kuhrt
Vice President, Corporate Tax
Douglas S. Lance
Vice President, Operations
David M. LeBlanc*
Senior Vice President
President, Lincoln Electric
International
Christopher L. Mapes*
President and
Chief Executive Officer
William T. Matthews
Vice President,
Research and Development
Michael S. Mintun
Vice President, Sales and
Marketing, North America
David J. Nangle*
Vice President
President, Harris Products Group
Vincent K. Petrella*
Senior Vice President,
Chief Financial Officer and
Treasurer
John M. Stropki*
Executive Chairman
Frederick G. Stueber*
Senior Vice President,
General Counsel and Secretary
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2012
Commission file number 0-1402
LINCOLN ELECTRIC HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Ohio
(State or other jurisdiction of
incorporation or organization)
22801 St. Clair Avenue, Cleveland, Ohio
(Address of principal executive offices)
34-1860551
(I.R.S. Employer Identification No.)
44117
(Zip Code)
(216) 481-8100
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Common Shares, without par value
The NASDAQ Stock Market LLC
(Title of each class)
(Name of each exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes
No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data
File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange
Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
(Do not check if a smaller reporting company)
Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
No
The aggregate market value of the common shares held by non-affiliates as of June 30, 2012 was $3,558,724,932 (affiliates, for this purpose,
have been deemed to be Directors and Executive Officers of the Company and certain significant shareholders).
The number of shares outstanding of the registrant's common shares as of December 31, 2012 was 82,944,817.
Part III of this Annual Report on Form 10-K incorporates by reference certain information from the registrant's definitive proxy statement to
be filed on or about March 22, 2013 with respect to the registrant's 2013 Annual Meeting of Shareholders.
DOCUMENTS INCORPORATED BY REFERENCE
PART I
ITEM 1. BUSINESS
General
As used in this Annual Report on Form 10-K, the term "Company," except as otherwise indicated by the context, means
Lincoln Electric Holdings, Inc. and its wholly-owned and majority-owned subsidiaries for which it has a controlling interest.
The Lincoln Electric Company began operations in 1895 and was incorporated under the laws of the State of Ohio in 1906.
During 1998, The Lincoln Electric Company reorganized into a holding company structure, and Lincoln Electric Holdings, Inc.
became the publicly-held parent of Lincoln Electric subsidiaries worldwide, including The Lincoln Electric Company.
The Company is one of only a few worldwide broad-line manufacturers of welding, cutting and brazing products. Welding
products include arc welding power sources, wire feeding systems, robotic welding packages, fume extraction equipment,
consumable electrodes and fluxes. The Company's product offering also includes computer numeric controlled ("CNC")
plasma and oxy-fuel cutting systems and regulators and torches used in oxy-fuel welding, cutting and brazing. In addition, the
Company has a leading global position in the brazing and soldering alloys market.
The arc welding power sources and wire feeding systems manufactured by the Company range in technology from basic units
used for light manufacturing and maintenance to highly sophisticated robotic applications for high volume production welding
and fabrication. Three primary types of arc welding electrodes are produced: (1) coated manual or stick electrodes; (2) solid
electrodes produced in coil, reel or drum forms for continuous feeding in mechanized welding; and (3) cored electrodes
produced in coil form for continuous feeding in mechanized welding.
The Company has, through wholly-owned subsidiaries or joint ventures, manufacturing facilities located in the United States,
Brazil, Canada, China, Colombia, France, Germany, India, Indonesia, Italy, Mexico, the Netherlands, Poland, Portugal, Russia,
Turkey, the United Kingdom and Venezuela, of which 34 are ISO 9001 certified.
The Company has aligned its business units into five operating segments to enhance the utilization of the Company's
worldwide resources and global end user and sourcing initiatives. The operating segments consist of North America Welding,
Europe Welding, Asia Pacific Welding, South America Welding and The Harris Products Group. The North America Welding
segment includes welding operations in the United States, Canada and Mexico. The Europe Welding segment includes welding
operations in Europe, Russia and Africa. The other two welding segments include welding operations in Asia Pacific and South
America, respectively. The fifth segment, The Harris Products Group, includes the Company's global cutting, soldering and
brazing businesses as well as the retail business in the United States. See Note 5 to the Company's consolidated financial
statements for segment and geographic area information, which is incorporated herein by reference.
Customers
The Company's products are sold in both domestic and international markets. In North America, products are sold principally
through industrial distributors, retailers and also directly to users of welding products. Outside of North America, 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:
•
•
•
•
•
•
•
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general metal fabrication,
power generation and process industry,
structural steel construction (buildings and bridges),
heavy equipment fabrication (farming, mining and rail),
shipbuilding,
automotive,
pipe mills and pipelines, and
offshore oil and gas exploration and extraction.
The Company is not dependent on a single customer or a few customers and no individual customer currently accounts for
more than ten percent of total Net sales. However, the loss of a large customer could have an adverse effect on the Company's
business. The Company's operating results are sensitive to changes in general economic conditions. The arc welding and
cutting industry is generally a mature industry in developed markets such as North America and Western Europe, and is cyclical
in nature. Overall demand for arc welding and cutting products is largely determined by economic cycles and the level of
capital spending in manufacturing and other industrial sectors. The Company experiences some variability in reported period-
to-period results as demand for the Company's products are mildly seasonal with generally higher demand in the second and
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third quarters. See "Item 1A. Risk Factors" for further discussion regarding risks associated with customers, general economic
conditions and demand.
Competition
Conditions in the arc welding and cutting industry are highly competitive. The Company believes it is the world's largest
manufacturer of consumables and equipment with relatively few major broad-line competitors worldwide, but numerous
smaller competitors in specific geographic markets. The Company continues to pursue strategies to heighten its
competitiveness in domestic and international markets, which includes positioning low cost manufacturing facilities in most
geographical markets. Competition in the arc welding and cutting industry is based on brand preference, product quality, price,
performance, warranty, delivery, service and technical support. The Company believes its performance against these factors has
contributed to the Company's position as the leader in the industry.
Most of the Company's products may be classified as standard commercial articles and are manufactured for stock. The
Company believes it has a competitive advantage in the marketplace because of its highly trained technical sales force and the
support of its welding research and development staff to assist customers in optimizing their welding applications. This allows
the Company to introduce its products to new users and to establish and maintain close relationships with its customers. This
close relationship between the technical sales force and the direct customers, together with its supportive relationship with its
distributors, who are particularly interested in handling the broad range of the Company's products, is an important element of
the Company's market success and a valuable asset of the Company.
Raw Materials
The principal raw materials essential to the Company's business are steel, electronic components, engines, brass, copper, silver,
aluminum alloys and various chemicals, all of which are normally available for purchase in the open market.
Patents and Trademarks
The Company holds many valuable patents, primarily in arc welding, and has increased the application process as research and
development has progressed in both the United States and major international jurisdictions. The Company believes its
trademarks are an important asset and aggressively pursues brand management.
Environmental Regulations
The Company's facilities are subject to environmental regulations. To date, compliance with these environmental regulations
has not had a material adverse effect on the Company's earnings. The Company is ISO 14001 certified at most significant
manufacturing facilities in North America and Europe and is progressing towards certification at its remaining facilities
worldwide. In addition, the Company is ISO 9001 certified at nearly all facilities worldwide.
International Operations
The Company conducts a significant amount of its business and has a number of operating facilities in countries outside the
United States. As a result, the Company is subject to business risks inherent to non-U.S. activities, including political
uncertainty, import and export limitations, exchange controls and currency fluctuations.
Research and Development
Research activities, which the Company believes provide a competitive advantage, relate to the development of new products
and the improvement of existing products. Research activities are Company-sponsored. Refer to Note 1 to the Company's
consolidated financial statements with respect to total costs of research and development, which is incorporated herein by
reference.
Employees
The number of persons employed by the Company worldwide at December 31, 2012 was approximately 10,000. See "Part I,
Item 1C" for information regarding the Company's executive officers, which is incorporated herein by reference.
Website Access
The Company's website, www.lincolnelectric.com, is used as a channel for routine distribution of important information,
including news releases and financial information. The Company posts its filings as soon as reasonably practicable after they
are electronically filed with, or furnished to, the SEC, including annual, quarterly, and current reports on Forms 10-K, 10-Q,
and 8-K; proxy statements; and any amendments to those reports or statements. The Company also posts its Code of Corporate
Conduct and Ethics on its website. All such postings and filings are available on the Company's website free of charge. In
addition, this website allows investors and other interested persons to sign up to automatically receive e-mail alerts when news
releases and financial information is posted on the website. The SEC also maintains a website, www.sec.gov, that contains
reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. The
2
content on any website referred to in this Annual Report on Form 10-K is not incorporated by reference into this Annual Report
unless expressly noted.
ITEM 1A. RISK FACTORS
From time to time, information we provide, statements by our employees or information included in our filings with the SEC
may contain forward-looking statements that are not historical facts. Those statements are "forward-looking" within the
meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements generally can be identified by
the use of words such as "may," "will," "expect," "intend," "estimate," "anticipate," "believe," "forecast," "guidance" or words
of similar meaning. Actual results may differ materially from such statements due to a variety of factors that could adversely
affect the Company's operating results. Forward-looking statements, and our future performance, operating results, financial
position and liquidity, are subject to a variety of factors that could materially affect results, including those risks described
below. Any forward-looking statements made in this report or otherwise speak only as of the date of the statement, and, except
as required by law, we undertake no obligation to update those statements. Comparisons of results for current and any prior
periods are not intended to express any future trends or indications of future performance, unless expressed as such, and should
only be viewed as historical data.
In the ordinary course of our business, we face various strategic, operating, compliance and financial risks. These risks could
have a material impact on our business, financial condition, operating results and cash flows.
Our Enterprise Risk Management ("ERM") process seeks to identify and address significant risks. Our ERM process is a
company-wide initiative that is designed with the intent of prioritizing risks and assigning appropriate consideration for such
risks. We use the integrated risk framework of the Committee of Sponsoring Organizations to assess, manage and monitor
risks.
Management has identified and prioritized critical risks based on the severity and likelihood of each risk and assigned an
executive to address each major identified risk area and lead action plans to monitor and mitigate risks, where possible. Our
Board of Directors provides oversight of the ERM process and systematically reviews identified critical risks. The Audit
Committee also reviews major financial risk exposures and the steps management has taken to monitor and control them.
Our goal is to pro-actively manage risks in a structured approach and in conjunction with the strategic planning process, with
the intent to preserve and enhance shareholder value. However, these and other risks and uncertainties could cause our results
to vary materially from recent results or from our anticipated future results. The risk factors and uncertainties described below,
together with information incorporated by reference or otherwise included elsewhere in this Annual Report on Form 10-K,
should be carefully considered. Additional risks and uncertainties of which we are currently unaware or that we currently
believe to be immaterial may also adversely affect our business.
General economic and market conditions may adversely affect the Company's financial condition, results of operations
and access to capital markets.
The Company's operating results are sensitive to changes in general economic conditions. Further recessionary economic
cycles, higher interest rates, inflation, higher labor costs, trade barriers in the world markets, financial turmoil related to
sovereign debt and changes in tax laws or other economic factors affecting the countries and industries in which we do business
could adversely affect demand for the Company's products, thereby impacting our results of operations, collection of accounts
receivable and our expected cash flow generation from current and acquired businesses, which may adversely impact our
financial condition and access to capital markets.
Economic and supply disruptions associated with events beyond our control, such as war, acts of terror, political unrest,
public health concerns, labor disputes or natural disasters could adversely affect our supply chain and distribution
channels or result in loss of sales and customers.
Our facilities and operations, and the facilities and operations of our suppliers and customers, could be disrupted by events
beyond our control, such as war, political unrest, public health concerns, labor disputes or natural disasters. Any such
disruption could cause delays in the production and distribution of our products and the loss of sales and customers. Insurance
proceeds may not adequately compensate the Company for the losses.
3
Availability of and volatility in energy costs or raw material prices may adversely affect our performance.
In the normal course of business, we are exposed to market risks related to the availability of and price fluctuations in the
purchase of energy and commodities used in the manufacture of our products (primarily steel, brass, copper, silver, aluminum
alloys, electronic components, electricity and natural gas). The availability and prices for raw materials are subject to volatility
and are influenced by worldwide economic conditions, speculative action, world supply and demand balances, inventory levels,
availability of substitute materials, currency exchange rates, our competitors' production costs, anticipated or perceived
shortages and other factors. The price of steel used to manufacture our products has experienced periods of significant price
volatility and has been subject to periodic shortages due to global economic factors. We have also experienced substantial
volatility in prices for other raw materials, including nonferrous metals, chemicals and energy costs.
Increases in the cost of raw materials and components may adversely affect our profitability if we are unable to pass along to
our customers these cost increases in the form of price increases or otherwise reduce our cost of goods sold. Although most of
the raw materials and components used in our products are commercially available from a number of sources and in adequate
supply, any disruption in the availability of such raw materials and components, our inability to timely or otherwise obtain
substitutes for such items, or any deterioration in our relationships with or the financial viability of our suppliers could
adversely affect our business.
We are a co-defendant in litigation alleging asbestos induced illness. Liabilities relating to such litigation could reduce
our profitability and impair our financial condition.
At December 31, 2012, we were a co-defendant in cases alleging asbestos induced illness involving claims by approximately
15,050 plaintiffs. In each instance, we are one of a large number of defendants. The asbestos claimants allege that exposure to
asbestos contained in welding consumables caused the plaintiffs to develop adverse pulmonary diseases, including
mesothelioma and other lung cancers.
Since January 1, 1995, we have been a co-defendant in asbestos cases that have been resolved as follows: 41,161 of those
claims were dismissed, 20 were tried to defense verdicts, seven were tried to plaintiff verdicts (two of which are being
appealed), one was resolved by agreement for an immaterial amount and 612 were decided in favor of the Company following
summary judgment motions.
The long-term impact of the asbestos loss contingency, in the aggregate, on operating results, operating cash flows and access
to capital markets is difficult to assess, particularly since claims are in many different stages of development and we benefit
significantly from cost-sharing with co-defendants and insurance carriers. While we intend to contest these lawsuits
vigorously, and believe we have applicable insurance relating to these claims, there are several risks and uncertainties that may
affect our liability for personal injury claims relating to exposure to asbestos, including the future impact of changing cost
sharing arrangements or a change in our overall trial experience.
Asbestos use in welding consumables in the U.S. ceased in 1981.
We may incur material losses and costs as a result of product liability claims that may be brought against us.
Our business exposes us to potential product liability risks that are inherent in the design, manufacture, sale and application of
our products and the products of third-party suppliers that we utilize or resell. Our products are used in a variety of
applications, including infrastructure projects such as oil and gas pipelines and platforms, buildings, bridges and power
generation facilities, the manufacture of transportation and heavy equipment and machinery, and various other construction
projects. We face risk of exposure to product liability claims in the event that accidents or failures on these projects result, or
are alleged to result, in bodily injury or property damage. Further, our products are designed for use in specific applications,
and if a product is used inappropriately, personal injury or property damage may result.
The occurrence of defects in or failures of our products, or the misuse of our products in specific applications, could cause
termination of customer contracts, increased costs and losses to us, our customers and other end users. We cannot be assured
that we will not experience any material product liability losses in the future or that we will not incur significant costs to defend
those claims. Further, we cannot be assured that our product liability insurance coverage will be adequate for any liabilities
that we may ultimately incur or that product liability insurance will continue to be available on terms acceptable to us.
The cyclical nature and maturity of the arc welding and cutting industry in developed markets may adversely affect our
performance.
The arc welding and cutting industry is generally a mature industry in developed markets such as North America and Western
Europe and is cyclical in nature. Overall demand for arc welding and cutting products is largely determined by the level of
capital spending in manufacturing and other industrial sectors, and the welding industry has historically experienced
contraction during periods of slowing industrial activity. If economic, business and industry conditions deteriorate, capital
spending in those sectors may be substantially decreased, which could reduce demand for our products, our revenues and our
results of operations.
4
We may not be able to complete our acquisition strategy or successfully integrate acquired businesses.
Part of our business strategy is to pursue targeted business acquisition opportunities, including foreign investment
opportunities. For example, we have completed and continue to pursue acquisitions in emerging markets including, but not
limited to, Brazil, Russia, India and China in order to strategically position resources to increase our presence in growing
markets. We cannot be certain that we will be successful in pursuing potential acquisition candidates or that the consequences
of any acquisition would be beneficial to us. Future acquisitions may expose us to unexpected liabilities and involve the
expenditure of significant funds and management time. Further, we may not be able to successfully integrate any acquired
business with our existing businesses or recognize the expected benefits from any completed acquisition.
Depending on the nature, size and timing of future acquisitions, we may be required to raise additional financing, which may
not be available to us on acceptable terms. Our current operational cash flow is sufficient to fund our current acquisition plans,
but a significant acquisition could require access to the capital markets.
If we cannot continue to develop, manufacture and market products that meet customer demands, our revenues and
gross margins may suffer.
Our continued success depends, in part, on our ability to continue to meet our customers' needs for welding and cutting
products through the introduction of innovative new products and the enhancement of existing product design and performance
characteristics. We must remain committed to product research and development and customer service in order to remain
competitive. We cannot be assured that new products or product improvements, once developed, will meet with customer
acceptance and contribute positively to our operating results, or that we will be able to continue our product development
efforts at a pace to sustain future growth. Further, we may lose customers to our competitors if they demonstrate product
design, development or manufacturing capabilities superior to ours.
The competitive pressures we face could harm our revenue, gross margins and prospects.
We operate in a highly competitive global environment and compete in each of our businesses with other broad-line
manufacturers and numerous smaller competitors specializing in particular products. We compete primarily on the basis of
brand, product quality, price, performance, warranty, delivery, service and technical support. We have previously initiated, and
may in the future initiate significant rationalization activities to align our business to market conditions. Such rationalization
activities could fail to deliver the desired competitive cost structure and could result in disruptions in customer service. If our
products, services, support and cost structure do not enable us to compete successfully based on any of the criteria listed above,
our operations, results and prospects could suffer.
Further, in the past decade, the arc welding industry in the United States and other developed countries has been subject to
increased levels of foreign competition as low cost imports have become more readily available. Our competitive position
could also be harmed if new or emerging competitors become more active in the arc welding business. For example, while
steel manufacturers traditionally have not been significant competitors in the domestic arc welding industry, some foreign
integrated steel producers manufacture selected consumable arc welding products. Our sales and results of operations, as well
as our plans to expand in some foreign countries, could be adversely affected by this practice.
The loss of any of our largest customers could adversely affect our revenue, gross margins and profit.
We have a large and varied customer base due, in part, to our extensive distribution channels in the industries and regions that
we serve. Although no individual customer currently accounts for more than ten percent of total Net sales, there are customers
to which we sell a large amount of product. The loss of any of these customers could have an adverse effect on our revenue,
gross margins and profit.
We conduct our sales and distribution operations on a worldwide basis and maintain manufacturing facilities in a
number of foreign countries, which subjects us to risks associated with doing business outside the United States.
Our long-term strategy is to continue to increase our market share in growing international markets, particularly Asia (with
emphasis in China and India), Latin America, Eastern Europe, Russia and other developing markets.
The share of sales and profits we derive from our international operations and exports from the United States is significant and
growing. This trend increases our exposure to the performance of many developing economies in addition to the developed
economies outside of the United States. For example, during 2012, approximately 8% of our net sales were generated from
China and approximately 19% of our property, plant and equipment were located there. If the Chinese economy were to
experience a significant slowdown, it could adversely affect our financial condition, results of operations and cash flows.
There are a number of risks in doing business internationally, which may impede our ability to achieve our strategic objectives
relating to our foreign operations. Many developing countries have a significant degree of political and economic uncertainty
and social turmoil that may impede our ability to implement and achieve our international growth objectives. Conducting
business internationally subjects us to corporate governance and management challenges in consideration of the numerous U.S.
5
and foreign laws and regulations, including regulations relating to import-export control, technology transfer restrictions,
repatriation of earnings and funds, exchange controls, labor regulations, nationalization, anti-boycott provisions and anti-
bribery laws (such as the Foreign Corrupt Practices Act and the Organization for Economic Cooperation and Development
Convention). Failure by the Company or its sales representatives, agents or distributors to comply with these laws and
regulations could result in administrative, civil or criminal liabilities, all or any of which could negatively impact our business
and reputation. Our foreign operations also subject us to the risks of international terrorism and hostilities.
Our operations depend on maintaining a skilled workforce, and any interruption in our workforce could negatively
impact our results of operations and financial condition.
Our success depends in part on the efforts and abilities of our management team and key employees. Their skills, experience
and industry knowledge significantly benefit our operations and performance. Our future success will also depend on our
ability to identify, attract, and retain highly qualified managerial, technical (including research and development), sales and
marketing, and customer service personnel. Competition for these individuals is intense, and we may not succeed in
identifying, attracting, or retaining qualified personnel. With our strategy to expand internationally into developing markets,
we may incur additional risks as some developing economies lack a sufficiently trained labor pool.
Any interruption of our workforce, including interruptions due to unionization efforts, changes in labor relations or shortages of
appropriately skilled individuals could impact our results of operations and financial condition.
Our revenues and results of operations may suffer if we cannot continue to enforce the intellectual property rights on
which our business depends or if third parties assert that we violate their intellectual property rights.
We rely upon patent, trademark, copyright and trade secret laws in the United States and similar laws in foreign countries, as
well as agreements with our employees, customers, suppliers and other third parties, to establish and maintain our intellectual
property rights. However, any of our intellectual property rights could be challenged, invalidated or circumvented, or our
intellectual property rights may not be sufficient to provide a competitive advantage. Further, the laws and their application in
certain foreign countries do not protect our proprietary rights to the same extent as U.S. laws. Accordingly, in certain countries,
we may be unable to protect our proprietary rights against unauthorized third-party copying or use, which could impact our
competitive position.
Further, third parties may claim that we or our customers are infringing upon their intellectual property rights. Even if we
believe that those claims are without merit, defending those claims and contesting the validity of patents can be time-
consuming and costly. Claims of intellectual property infringement also might require us to redesign affected products, enter
into costly settlement or license agreements or pay costly damage awards, or face a temporary or permanent injunction
prohibiting us from manufacturing, marketing or selling certain of our products.
Our defined benefit pension plans are subject to financial market trends, such as changes in discount rates and actual
investment return on pension assets, which could adversely affect our results of operations and cash flows.
The performance of the financial markets and interest rates impact our funding obligations under our defined benefit pension
plans. Significant changes in discount rates, decreases in the fair value of plan assets and investment losses on plan assets may
increase our benefit obligations and adversely impact our results of operations, shareholders' equity and cash flows through our
annual measurement of plan assets and liabilities. For a discussion regarding how the financial statements have been affected
by significant changes in 2012, refer to the pension related disclosure under "Part II, Item 7 – Critical Accounting Policies" and
Note 11 to the Company's consolidated financial statements.
We are subject to changes in the U.S. regulatory environment, which could adversely affect our results of operations,
cash flows and financial condition.
Our businesses, results of operations or financial condition could be adversely affected if laws, regulations or standards relating
to us, our products or the markets in which we operate are newly implemented or changed. In March 2010, the Patient
Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (collectively,
“the Acts”) were signed into law. The Acts make broad-based changes to the U.S. health care system, which could significantly
affect the U.S. economy and our financial results. While the provisions of the Acts are not expected to have any significant
short-term impacts, the long-term potential impacts on our business and the consolidated financial statements are currently
uncertain. We are currently assessing the potential impact of the Acts.
A significant fluctuation between the U.S. dollar and other currencies could adversely impact our operating income.
Although our financial results are reported in U.S. dollars, a significant portion of our sales and operating costs are realized in
other currencies. Our profitability is affected by movements of the U.S. dollar against other foreign currencies in which we
generate revenues and incur expenses. Significant long-term fluctuations in relative currency values, in particular an increase
in the value of the U.S. dollar against foreign currencies, could have an adverse effect on our profitability and financial
condition.
6
Changes in tax rates or exposure to additional income tax liabilities could affect profitability.
Our business is subject to income taxes in the United States and various foreign jurisdictions. Domestic and international tax
liabilities are subject to the allocation of income among various tax jurisdictions. Our effective tax rate could be adversely
affected by changes in the mix among earnings in countries with differing statutory tax rates, changes in the valuation
allowances of deferred tax assets or changes in tax laws.
The amount of income taxes paid is subject to ongoing audits by United States federal, state and local tax authorities and by
foreign tax authorities. If these audits result in assessments different from amounts reserved, future financial results may
include unfavorable adjustments which could have a material adverse effect on our results of operations.
We are subject to risks relating to our information technology systems.
The conduct and management of our business relies extensively on information technology systems. If these systems are
damaged, cease to function properly or are subject to a cyber security breach, we may suffer an interruption in our ability to
manage and operate the business and our results of operations and financial condition could be adversely affected.
Our global operations are subject to increasingly complex environmental regulatory requirements.
We are subject to increasingly complex environmental regulations affecting international manufacturers, including those related
to air and water emissions, waste management and climate change.
There is a growing political and scientific belief that emissions of greenhouse gases ("GHG") alter the composition of the
global atmosphere in ways that are affecting the global climate. Various stakeholders, including legislators and regulators,
shareholders and non-governmental organizations, as well as companies in many business sectors, are considering ways to
reduce GHG emissions. These concerns may lead to international, national, regional or local legislative or regulatory responses
in the future. Such regulation could result in new or additional regulatory or product standard requirements for the Company's
global businesses. We are unable, at this time, to predict the significance of these requirements as the impact of any future GHG
legislative, regulatory or product standards is dependent on the timing and design of the mandates or standards. Furthermore,
the potential physical impacts of theorized climate change on the Company's customers, and therefore on the Company's
operations, are speculative and highly uncertain, and would be particular to the circumstances developing in various
geographical regions. These may include changes in weather patterns (including drought and rainfall levels), water availability,
storm patterns and intensities, and temperature levels. These potential physical effects may adversely impact the cost,
production, sales and financial performance of the Company's operations which we are unable, at this time, to predict.
It is our policy to apply strict standards for environmental protection to all of our operations inside and outside the United
States, even when we are not subject to local government regulations. We may incur substantial costs, including cleanup costs,
fines and civil or criminal sanctions, liabilities resulting from third-party property damage or personal injury claims, or our
products could be enjoined from entering certain jurisdictions, if we were to violate or become liable under environmental laws
or if our products become non-compliant with environmental laws.
We also face increasing complexity in our products design and procurement operations as we adjust to new and future
requirements relating to the design, production and labeling of our products that are sold worldwide in multiple jurisdictions.
The ultimate costs under environmental laws and the timing of these costs are difficult to predict, and liability under some
environmental laws relating to contaminated locations can be imposed retroactively and on a joint and several basis.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
7
ITEM 1C. EXECUTIVE OFFICERS OF THE REGISTRANT
EXECUTIVE OFFICERS OF THE REGISTRANT
Name
John M. Stropki, Jr.
Position
Age
62 Executive Chairman of the Board effective December 31, 2012; Chairman of the Board since
October 13, 2004 to December 31, 2012; Director since 1998; Chief Executive Officer and
President since June 3, 2004 to December 31, 2012; Chief Operating Officer from May 1,
2003 to June 3, 2004; Executive Vice President from 1995 to June 3, 2004; and President,
North America from 1996 to 2003.
Christopher L. Mapes
51 President and Chief Executive Officer effective December 31, 2012; Chief Operating Officer
from September 1, 2011 to December 31, 2012; Director since February 2010. Prior to his
service with the Company, Mr. Mapes was Executive Vice President of A.O. Smith
Corporation (a global manufacturer with a water heating and water treatment technologies
business and an electric motor and motor solutions business) a position he held from 2006
through August 2011, and the President of its Electrical Products unit, a position he held from
September 2004 through August 2011.
Vincent K. Petrella
52 Senior Vice President, Chief Financial Officer and Treasurer since October 7, 2005; Vice
President, Chief Financial Officer and Treasurer from February 4, 2004 to October 7, 2005;
and Vice President, Corporate Controller from 2001 to 2003.
Frederick G. Stueber
59 Senior Vice President, General Counsel and Secretary since 1996.
George D. Blankenship
50 Senior Vice President; President, Lincoln Electric North America since July 30, 2009; Senior
Vice President, Global Engineering from October 7, 2005 to July 30, 2009; Vice President,
Global Engineering from May 5, 2005 to October 7, 2005; President, Lincoln Electric North
America of The Lincoln Electric Company since July 30, 2009; Senior Vice President;
President, Lincoln Cleveland of The Lincoln Electric Company from January 8, 2008 to
July 30, 2009; Senior Vice President, U.S. Operations of The Lincoln Electric Company from
October 7, 2005 to January 8, 2008; Vice President, Cleveland Operations of The Lincoln
Electric Company from June 6, 2005 to October 7, 2005; and Vice President, Engineering and
Quality Assurance of The Lincoln Electric Company from 2000 to June 6, 2005.
Gabriel Bruno
45 Vice President, Chief Information Officer since May 1, 2012; Vice President, Corporate
Controller from 2005 to May 1, 2012.
Gretchen A. Farrell
50 Senior Vice President, Human Resources and Compliance since July 30, 2009; Vice
President, Human Resources from May 5, 2005 to July 30, 2009; and Vice President, Human
Resources of The Lincoln Electric Company since March 5, 2003.
Thomas A. Flohn
52 Vice President; President, Lincoln Electric Europe, Middle East & Africa (EMEA) since
July 1, 2010; Vice President; President, Lincoln Asia Pacific from January 1, 2005 to June 30,
2010; and Vice President of Sales and Marketing, Lincoln Electric Asia Pacific from May 1,
1999 to December 31, 2004.
Steven B. Hedlund
46 Vice President, Strategy and Business Development since September 15, 2008. Prior to his
service with the Company, Mr. Hedlund was the Vice President, Growth and Innovations with
Master Lock, LLC (a security products company) from June 1, 2005 to July 1, 2008.
David M. LeBlanc
48 Senior Vice President; President, Lincoln Electric International since July 30, 2009; Vice
President; President, Lincoln Electric Europe and Russia from March 10, 2008 to July 30,
2009; Vice President; President, Lincoln Electric Europe from September 1, 2005 to
March 10, 2008; and Vice President; President, Lincoln Electric Latin America from
January 1, 2002 to August 31, 2005.
The Company has been advised that there is no arrangement or understanding among any one of the officers listed and any
other persons pursuant to which he or she was elected as an officer. The executive officers are elected by the Board of Directors
normally for a term of one year and/or until the election of their successors.
ITEM 2. PROPERTIES
The Company's corporate headquarters and principal United States manufacturing facilities are located in the Cleveland, Ohio
area. Total Cleveland area property consists of 233 acres, of which present manufacturing facilities comprise an area of
approximately 2,940,000 square feet.
8
The Company has 45 manufacturing facilities, including operations and joint ventures in 19 countries, the locations (grouped
by operating segment) of which are as follows:
North America Welding:
United States
Canada
Mexico
United Kingdom
Europe Welding:
France
Germany
Italy
Netherlands
Poland
Portugal
Russia
Turkey
United Kingdom
Asia Pacific Welding:
China
India
Indonesia
Cleveland and Fort Loramie, Ohio; San Diego and Anaheim, California; Reno, Nevada;
Baltimore, Maryland; Ladson, South Carolina; Chattanooga, Tennessee.
Toronto; Mississauga.
Mexico City; Torreon.
Port Talbot, Wales.
Grand-Quevilly.
Essen.
Genoa; Corsalone.
Nijmegen.
Bielawa; Dzierzoniow.
Lisbon.
Mtsensk.
Istanbul.
Sheffield and Chertsey, England.
Shanghai; Jinzhou; Nanjing; Zhengzhou; Luan County.
Chennai.
Cikarang.
South America Welding:
Brazil
Colombia
Venezuela
The Harris Products Group:
Sao Paulo.
Bogota.
Maracay.
United States
Brazil
Mexico
Poland
Mason, Ohio; Gainesville, Georgia; Santa Fe Springs, California.
Guarulhos.
Tijuana.
Dzierzoniow.
All properties relating to the Company's Cleveland, Ohio headquarters and manufacturing facilities are owned by the Company.
Most of the Company's foreign subsidiaries own manufacturing facilities in the country where they are located. The Company
believes that its existing properties are in good condition and are suitable for the conduct of its business. At December 31,
2012, $0.2 million of indebtedness under capital leases was secured by property with a book value of $0.4 million.
In addition, the Company maintains operating leases for many of its distribution centers and sales offices throughout the world.
See Note 16 to the Company's consolidated financial statements for information regarding the Company's lease commitments.
ITEM 3. LEGAL PROCEEDINGS
The Company is subject, from time to time, to a variety of civil and administrative proceedings arising out of its normal
operations, including, without limitation, product liability claims, regulatory claims and health, safety and environmental
claims. Among such proceedings are the cases described below.
At December 31, 2012, the Company was a co-defendant in cases alleging asbestos induced illness involving claims by
approximately 15,050 plaintiffs, which is a net decrease of three claims from those previously reported. In each instance, the
Company is one of a large number of defendants. The asbestos claimants seek compensatory and punitive damages, in most
cases for unspecified sums. Since January 1, 1995, the Company has been a co-defendant in other similar cases that have been
resolved as follows: 41,161 of those claims were dismissed, 20 were tried to defense verdicts, seven were tried to plaintiff
verdicts (two of which are being appealed), one was resolved by agreement for an immaterial amount and 612 were decided in
favor of the Company following summary judgment motions.
In July 2012, the Company received a Notice of Reassessment from the Canada Revenue Agency (the “CRA”) for 2004 to
2011, which would disallow the deductibility of inter-company dividends. These adjustments would increase Canadian federal
9
and provincial tax due. The Company disagrees with the position taken by the CRA and believes it is without merit. The
Company will vigorously contest the assessment through the Tax Court of Canada. A trial date has not yet been scheduled. In
connection with the litigation process, the Company is required to deposit no less than one-half of the tax and interest assessed
by the CRA, of which a payment was made in September 2012 and the balance of the tax and interest assessment was made in
the quarter ended December 31, 2012. Any Canadian tax ultimately due will be creditable in the parent company's U.S. federal
tax return. The Company expects to be able to utilize the full amount of foreign tax credits generated in the statutorily allowed
carry-back and carry-forward periods. Accordingly, should the Company not prevail in this dispute, the income statement
charge will approximate the deficiency interest, net of tax. The Company believes it will prevail on the merits of the tax
position. In accordance with prescribed recognition and measurement thresholds, no income tax accrual has been made for any
uncertain tax positions related to the CRA reassessment. An unfavorable resolution of this matter could have a material effect
on the Company's financial statements in the period in which a judgment is reached.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
The Company's common shares are traded on The NASDAQ Global Select Market under the symbol "LECO." The number of
record holders of common shares at December 31, 2012 was 1,699.
The total amount of dividends paid in 2012 was $73.1 million. During 2012, dividends were paid quarterly on January 13,
April 13, July 13 and October 15. The December dividend that the Company would normally pay in January 2013 was paid on
December 28, 2012.
Quarterly high and low stock prices and dividends declared per share for the last two years were:
2012
2011
Stock Price
High
Low
Dividends
Declared
Stock Price
High
Low
Dividends
Declared
$
47.87
$
38.96
$
0.170
$
38.50
$
32.69
$
50.36
46.11
49.00
41.42
37.83
37.63
0.170
0.170
0.200
39.62
39.18
40.10
32.30
27.47
26.84
0.155
0.155
0.155
0.170
First quarter
Second quarter
Third quarter
Fourth quarter
Issuer purchases of equity securities for the fourth quarter 2012 were:
Period
October 1-31, 2012
November 1-30, 2012
December 1-31, 2012
Total
Total Number of
Shares Repurchased
Average Price
Paid Per Share
— $
271,518 (1)
184,000
455,518
—
44.74
47.36
45.80
Total Number of
Shares Repurchased
as Part of Publicly
Announced Plans or
Programs
—
253,400
184,000
437,400
Maximum Number of
Shares that May Yet be
Purchased Under the
Plans or Programs (2)
3,779,773
3,526,373
3,342,373
(1) The above share repurchases include the surrender of 18,118 shares of the Company's common stock to satisfy minimum income tax
withholding requirements related to the vesting of 45,460 restricted shares granted pursuant to the Company's 2006 Equity and
Performance Incentive Plan.
(2) The Company's Board of Directors authorized a share repurchase program for up to 30 million shares of the Company's common stock.
Total shares purchased through the share repurchase program were 26,657,627 shares at a cost of $430.1 million for a weighted average
cost of $16.13 per share through December 31, 2012.
10
The following line graph compares the yearly percentage change in the cumulative total shareholder return on the Company's
common stock against the cumulative total return of the S&P Composite 500 Stock Index ("S&P 500") and the S&P 400
MidCap Index ("S&P 400") for the five-year calendar period commencing January 1, 2008 and ending December 31, 2012.
This graph assumes that $100 was invested on December 31, 2007 in each of the Company's common stock, the S&P 500 and
the S&P 400. A peer-group index for the welding industry, in general, was not readily available because the industry is
comprised of a large number of privately held competitors and competitors that are smaller parts of large publicly traded
companies.
The Company
S&P 500
S&P 400
2007
100
100
100
2008
2009
73
63
64
78
80
88
2010
97
92
111
2011
118
94
109
2012
149
109
128
11
ITEM 6. SELECTED FINANCIAL DATA
(Dollars in thousands, except per share amounts)
Net sales
Net income
Basic earnings per share
Diluted earnings per share
Cash dividends declared per share
Total assets
Long-term debt
$
2012 (1)
2,853,367
257,411
$
2011 (2)
2,694,609
Year Ended December 31,
2010 (3)
2,070,172
$
$
217,186
130,244
3.10
3.06
0.710
2.60
2.56
0.635
1.54
1.53
0.575
2009 (4)
1,729,285
$
48,576
0.57
0.57
0.545
2008 (5)
2,479,131
212,286
2.49
2.47
0.510
2,089,863
1,976,776
1,783,788
1,705,292
1,718,805
1,599
1,960
84,627
87,850
91,537
(1) Results for 2012 include rationalization and asset impairment net charges of $9,354 ($7,442 after-tax) which include $7,512
($6,153 after-tax) in rationalization charges and asset disposals, impairment charges of $1,842 ($1,289 after-tax). Results also
include a charge of $1,381 ($906 after-tax) related to the change in Venezuelan labor law, which provides for increased employee
severance obligations.
(2) Results for 2011 include rationalization and asset impairment net charges of $282 ($237 after-tax) resulting from rationalization
activities primarily initiated in 2009 and a gain of $4,844 related to a favorable adjustment for tax audit settlements.
(3) Results for 2010 include rationalization and asset impairment net gains of $384 ($894 after-tax) which include net gains of $3,684
($3,725 after-tax) related to the sale of property and asset disposals, impairment charges of $883 ($801 after-tax) and $2,417
($2,030 after-tax) in rationalization charges. Results also include a net charge of $3,123 ($3,560 after-tax) related to the change in
functional currency and devaluation of the Venezuelan currency, income of $5,092 was recognized due to an adjustment in tax
liabilities for a change in applicable tax regulations, a gain of $108 after-tax in non-controlling interests related to the impairment of
assets for a majority-owned consolidated subsidiary and a charge of $1,890 after-tax in non-controlling interests related to gains on
the disposal of assets in a majority-owned consolidated subsidiary.
(4) Results for 2009 include rationalization and asset impairment net charges of $29,897 ($23,789 after-tax). The net charges include
rationalization charges of $26,957 ($21,529 after-tax) and impairment charges of $2,940 ($2,260 after-tax) for certain indefinite-
lived intangible assets. Results also include a loss of $7,943 ($7,943 after-tax) associated with the acquisition of a business in China
and the related disposal of an interest in Taiwan, a pension settlement gain of $2,144 ($2,144 after-tax), a charge of $601 after-tax
in non-controlling interests associated with the pension settlement gain for a majority-owned consolidated subsidiary and a gain on
the sale of a property by the Company's joint venture in Turkey of $5,667 ($5,667 after-tax).
(5) Results for 2008 include a charge of $2,447 ($1,698 after-tax) relating to the Company's rationalization programs that began in the
fourth quarter 2008. Results for 2008 also include $16,924 ($16,615 after-tax) in asset impairment charges including $13,194 of
goodwill and $2,388 of long-lived assets related to two businesses in China (with no tax benefit) as well as an impairment charge of
$1,342 ($1,033 after-tax) for intangible assets.
12
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
"Selected Financial Data," 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.
The Company is one of only a few worldwide broad-line manufacturers of welding, cutting and brazing products. Welding
products include arc welding power sources, wire feeding systems, robotic welding packages, fume extraction equipment,
consumable electrodes and fluxes. The Company's product offering also includes CNC plasma and oxy-fuel cutting systems,
regulators and torches used in oxy-fuel welding, cutting and brazing. In addition, the Company has a leading global position in
the brazing and soldering alloys market.
The Company invests in the research and development of arc welding products in order to continue its market leading product
offering. The Company continues to invest in technologies that improve the quality and productivity of welding products. In
addition, the Company continues to actively increase its patent application process in order to secure its technology advantage
in the United States and other major international jurisdictions. The Company believes its significant investment in research
and development and its highly trained technical sales force coupled with its extensive distributor network provide a
competitive advantage in the marketplace.
The Company's products are sold in both domestic and international markets. In North America, products are sold principally
through industrial distributors, retailers and also directly to users of welding products. Outside of North America, the Company
has an international sales organization comprised of Company employees and agents who sell products from the Company's
various manufacturing sites to distributors and product users.
The Company's major end-user markets include:
•
•
•
•
•
•
•
•
general metal fabrication,
power generation and process industry,
structural steel construction (buildings and bridges),
heavy equipment fabrication (farming, mining and rail),
shipbuilding,
automotive,
pipe mills and pipelines, and
offshore oil and gas exploration and extraction.
The Company has, through wholly-owned subsidiaries or joint ventures, manufacturing facilities located in the United States,
Brazil, Canada, China, Colombia, France, Germany, India, Indonesia, Italy, Mexico, the Netherlands, Poland, Portugal, Russia,
Turkey, the United Kingdom and Venezuela.
The Company has aligned its business units into five operating segments to enhance the utilization of the Company's
worldwide resources and global end user and sourcing initiatives. The operating segments consist of North America Welding,
Europe Welding, Asia Pacific Welding, South America Welding and The Harris Products Group. The North America Welding
segment includes welding operations in the United States, Canada and Mexico. The Europe Welding segment includes welding
operations in Europe, Russia and Africa. The other two welding segments include welding operations in Asia Pacific and South
America, respectively. The fifth segment, The Harris Products Group, includes the Company's global cutting, soldering and
brazing businesses as well as the retail business in the United States. See Note 5 to the Company's consolidated financial
statements for segment and geographic area information, which is incorporated herein by reference.
The principal raw materials essential to the Company's business are steel, electronic components, engines, brass, copper, silver,
aluminum alloys 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 9001 certified at nearly all facilities
worldwide. In addition, 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.
13
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, 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 net income; adjusted diluted earnings per share;
operating cash flows; and capital expenditures, including applicable ratios such as return on invested capital and average
operating working capital to sales. These measures are reviewed at monthly, quarterly and annual intervals and compared with
historical periods, as well as objectives established by the Board of Directors of the Company.
Results of Operations
The following table shows the Company's results of operations:
Net sales
Cost of goods sold
Gross profit
Selling, general & administrative
expenses
Rationalization and asset impairment
charges (gains)
Operating income
Interest income
Equity earnings in affiliates
Other income
Interest expense
Income before income taxes
Income taxes
Net income including non-controlling
interests
Non-controlling interests in
subsidiaries' (loss) earnings
Net income
Year Ended December 31,
2012
2011
2010
Amount
% of Sales
Amount
% of Sales
Amount
% of Sales
$ 2,853,367
100.0% $ 2,694,609
100.0% $ 2,070,172
100.0%
1,986,711
866,656
69.6%
30.4%
1,957,872
736,737
72.7%
27.3%
1,506,353
563,819
72.8%
27.2%
495,221
17.4%
439,775
16.3%
377,773
18.2%
9,354
362,081
3,988
5,007
2,685
0.3%
12.7%
0.1%
0.2%
0.1%
(4,191)
(0.1%)
369,570
112,354
13.0%
3.9%
282
—
296,680
11.0%
3,121
5,385
2,849
(6,704)
301,331
84,318
0.1%
0.2%
0.1%
(0.2%)
11.2%
3.1%
(384)
186,430
2,381
3,171
1,817
(6,691)
187,108
54,898
—
9.0%
0.1%
0.2%
0.1%
(0.3%)
9.0%
2.7%
257,216
9.0%
217,013
8.1%
132,210
6.4%
(195)
—
$
257,411
9.0% $
(173)
217,186
—
1,966
8.1% $
130,244
0.1%
6.3%
14
2012 Compared with 2011
Net Sales: Net sales for 2012 increased 5.9% from 2011. The sales increase reflects volume increases of 1.3%, price increases
of 1.7%, increases from acquisitions of 4.9% and unfavorable impacts from foreign exchange of 2.0%. Sales volumes
increased because of growth in the domestic markets offset by lower demand in the international markets. Product pricing
increased from prior year levels due to the realization of price increases implemented in response to increases in raw material
costs.
Gross Profit: Gross profit increased 17.6% to $866,656 during 2012 compared with $736,737 in 2011. As a percentage of Net
sales, Gross profit increased to 30.4% in 2012 compared with 27.3% in 2011. The increase was the result of pricing increases
and operating leverage partially offset by lower margins from the acquisitions of Kaliburn, Burny and Cleveland Motion
Control businesses (collectively, "Kaliburn"), Wayne Trail Technologies, Inc. (“Wayne Trail”), Weartech International, Inc.
(“Weartech”), Techalloy Company, Inc. and certain assets of its parent company, Central Wire Industries Ltd. (collectively,
"Techalloy") and OOO Severstal-metiz: welding consumables ("Severstal"). In the current period, the Company recorded
charges of $2,334 related to the initial accounting for recent acquisitions and charges of $1,039 due to a change in Venezuelan
labor law, which provides for increased employee severance obligations. Foreign currency exchange rates had a $13,166
unfavorable translation impact in 2012.
Selling, General & Administrative ("SG&A") Expenses: SG&A expenses increased 12.6% to $495,221 during 2012 compared
with $439,775 in 2011. The increase was primarily due to higher bonus expense of $20,439, incremental SG&A expenses from
acquisitions of $15,403, higher general and administrative spending primarily related to additional employee compensation
costs of $12,692, higher U.S. retirement costs of $3,986 and higher legal expenses of $2,142 partially offset by foreign
currency translation of $8,821.
Rationalization and Asset Impairment Charges (Gains): In 2012, the Company recorded $9,354 in charges primarily related to
rationalization actions initiated in 2012. See "Rationalization and Asset Impairments" for additional information.
Interest Income: Interest income increased to $3,988 in 2012 from $3,121 in 2011. The increase was largely due to
international entities earning more favorable interest rates.
Equity Earnings in Affiliates: Equity earnings in affiliates were $5,007 in 2012 compared with earnings of $5,385 in 2011.
The decrease was due to a decrease in earnings of $542 in Chile being partially offset by an increase in earnings of $164 in
Turkey.
Interest Expense: Interest expense decreased to $4,191 in 2012 from $6,704 in 2011, primarily as a result of lower levels of
debt in the current period.
Income Taxes: The Company recorded $112,354 of tax expense on pre-tax income of $369,570, resulting in an effective tax
rate of 30.4% for 2012. The effective income tax rate is lower than the Company's statutory rate primarily due to income
earned in lower tax rate jurisdictions and the utilization of foreign tax loss carry-forwards for which valuation allowances had
been previously provided.
The effective income tax rate of 28.0% for 2011 was lower than the Company's statutory rate primarily due to income earned in
lower tax rate jurisdictions, the utilization of foreign tax loss carry-forwards for which valuation allowances had been
previously provided and a tax benefit of $4,844 for tax audit settlements.
Net Income: Net income for 2012 was $257,411 compared with $217,186 in the prior year. Diluted earnings per share for
2012 were $3.06 compared with diluted earnings of $2.56 per share in 2011. Foreign currency exchange rate movements had
an unfavorable translation effect of $2,879 and a favorable translation effect of $2,948 on Net income for 2012 and 2011,
respectively.
15
Segment Results
Net Sales: The table below summarizes the impacts of volume, acquisition, price and foreign currency exchange rates on Net
sales for the twelve months ended December 31, 2012:
Net Sales
2011
Volume
Acquisitions
Price
Foreign
Exchange
Net Sales
2012
Change in Net Sales due to:
Operating Segments
North America Welding
$
1,309,499
$ 112,898
$ 124,830
$
37,124
$
(3,533)
$ 1,580,818
Europe Welding
Asia Pacific Welding
South America Welding
The Harris Products Group
Consolidated
% Change
North America Welding
Europe Welding
Asia Pacific Welding
South America Welding
The Harris Products Group
Consolidated
508,692
376,276
156,684
343,458
(36,199)
(54,289)
(1,284)
13,683
8,322
—
—
—
4,874
1,646
15,584
(13,427)
(33,462)
849
(9,501)
(9,357)
452,227
324,482
161,483
334,357
$
2,694,609
$
34,809
$ 133,152
$
45,801
$ (55,004)
$ 2,853,367
8.6%
(7.1%)
(14.4%)
(0.8%)
4.0%
1.3%
9.5%
1.6%
—
—
—
4.9%
2.8%
1.0%
0.4%
9.9%
(3.9%)
1.7%
(0.3%)
(6.6%)
0.2%
(6.1%)
(2.7%)
(2.0%)
20.7%
(11.1%)
(13.8%)
3.1%
(2.6%)
5.9%
Net sales volumes for 2012 increased for the North America Welding and The Harris Products Group segments because of
growth within the domestic markets. Volume decreases for the Europe Welding, Asia Pacific Welding and South America
Welding segments are the result of softening demand in these international markets. Product pricing increased for all operating
segments from prior year levels, except for The Harris Products Group segment, due to the realization of price increases
implemented in response to increases in raw material costs. Product pricing in the South America Welding segment reflects a
higher inflationary environment, particularly in Venezuela. Product pricing decreased for The Harris Products Group segment
because of significant decreases in the costs of silver and copper as compared to the prior year period. The increase in Net
sales from acquisitions was due to the acquisitions of Kaliburn in November 2012, Wayne Trail in May 2012, Weartech in
March 2012, Techalloy in July 2011, Applied Robotics, Inc. (d/b/a Torchmate) ("Torchmate") in July 2011 and SSCO
Manufacturing, Inc. (d/b/a Arc Products) ("Arc Products") in January 2011 in the North America Welding segment and the
acquisition of Severstal in March 2011 in the Europe Welding segment (see the "Acquisitions" section below for additional
information regarding the acquisitions). With respect to changes in Net sales due to foreign exchange, all segments, except for
the Asia Pacific Welding segment, decreased due to a stronger U.S. dollar.
16
Earnings Before Interest and Income Taxes (“EBIT”), as Adjusted: Segment performance is measured and resources are
allocated based on a number of factors, the primary profit measure being EBIT, as adjusted. The following table presents
EBIT, as adjusted for 2012 by segment compared with 2011:
Twelve Months Ended
December 31,
2012
2011
$ Change
% Change
North America Welding:
Net sales
$ 1,580,818
$1,309,499
Inter-segment sales
131,062
136,314
Total Sales
$ 1,711,880
$1,445,813
EBIT, as adjusted
$
293,070
$ 227,924
As a percent of total sales
17.1%
15.8%
Europe Welding:
Net sales
Inter-segment sales
Total Sales
EBIT, as adjusted
As a percent of total sales
Asia Pacific Welding:
Net sales
Inter-segment sales
Total Sales
EBIT, as adjusted
As a percent of total sales
South America Welding:
Net sales
Inter-segment sales
Total Sales
EBIT, as adjusted
As a percent of total sales
The Harris Products Group:
Net sales
Inter-segment sales
Total Sales
EBIT, as adjusted
$
$
$
$
$
$
$
$
$
$
$
$
452,227
$ 508,692
16,048
17,422
468,275
$ 526,114
37,299
$
36,171
8.0%
6.9%
324,482
$ 376,276
14,829
15,614
339,311
$ 391,890
7,247
$
2,629
2.1%
0.7%
161,483
$ 156,684
38
494
161,521
$ 157,178
18,301
$
12,895
11.3%
8.2%
334,357
$ 343,458
8,549
8,496
342,906
$ 351,954
29,477
$
25,151
As a percent of total sales
8.6%
7.1%
271,319
(5,252)
266,067
65,146
(56,465)
(1,374)
(57,839)
1,128
(51,794)
(785)
(52,579)
4,618
4,799
(456)
4,343
5,406
(9,101)
53
(9,048)
4,326
20.7%
(3.9%)
18.4%
28.6%
1.3%
(11.1%)
(7.9%)
(11.0%)
3.1%
1.1%
(13.8%)
(5.0%)
(13.4%)
175.7%
1.4%
3.1%
(92.3%)
2.8%
41.9%
3.1%
(2.6%)
0.6%
(2.6%)
17.2%
1.5%
EBIT, as adjusted and as a percent of total sales increased for all segments in 2012 as compared with 2011. The North America
Welding segment growth is primarily due to improved leverage on an 8.6% increase in volumes and price increases of 2.8%.
The increase at the Europe Welding segment is primarily due to improved product mix. The Asia Pacific Welding segment
increase is due to improved profitability resulting from prior rationalization actions in Australia and improved product mix.
The South America Welding segment increase is a result of product pricing increases of 9.9% exceeding inflationary costs. The
Harris Products Group segment growth is primarily a result of improved product mix on equipment sales volume.
In 2012, EBIT, as adjusted, for the North America Welding, Europe Welding and Asia Pacific Welding segments excluded
special item charges of $827, $3,534 and $4,993, respectively, primarily related to employee severance and other costs
associated with the consolidation of manufacturing operations. The South America Welding segment EBIT, as adjusted,
17
excluded a special item charge of $1,381, related to a change in Venezuelan labor law, which provides for increased employee
severance obligations.
In 2011, EBIT, as adjusted, for the Europe Welding and Asia Pacific Welding segments excluded special items net charges of
$188 and $93, respectively, primarily related to employee severance and other costs associated with the consolidation of
manufacturing operations. The Europe Welding segment special items also include a loss of $204 on the sale of assets at a
rationalized operation. The Asia Pacific Welding segment special items also include a gain of $203 on the sale of assets at a
rationalized operation.
2011 Compared with 2010
Net Sales: Net sales volume for 2011 increased for all operating segments as a result of higher demand levels from expanding
industrial economies associated with the improved global economy and modest market share gains. Product pricing increased
for all operating segments due to the realization of price increases implemented in response to increases in raw material costs.
Product pricing in the South America Welding segment reflected a higher inflationary environment, particularly in Venezuela.
Product pricing increased in The Harris Products Group segment due to the pass-through effect of higher commodity costs,
particularly silver and copper. The increase in Net sales from acquisitions was due to the acquisitions of Arc Products in
January 2011, Techalloy and Torchmate in July 2011 in the North America Welding segment and the acquisitions of Severstal in
March 2011 and Mezhgosmetiz-Mtsensk OAO ("MGM") in October 2010 in the Europe Welding segment (see the
"Acquisitions" section below for additional information regarding the acquisitions). With respect to changes in Net sales due to
foreign exchange, all segments increased due to a weaker U.S. dollar.
Gross Profit: Gross profit increased 30.7% to $736,737 during 2011 compared with $563,819 in 2010. As a percentage of Net
sales, Gross profit increased slightly to 27.3% in 2011 compared with 27.2% in 2010. The increase was the result of pricing
increases and operating leverage offset by rising material costs and lower margins from the acquisitions of MGM, Severstal and
Techalloy. In the prior year, the South America Welding segment recorded charges of $5,755 resulting from the change in
functional currency and related devaluation of the Venezuelan currency. Foreign currency exchange rates had an $11,125
favorable translation impact in 2011.
Selling, General & Administrative ("SG&A") Expenses: SG&A expenses increased 16.4% to $439,775 during 2011 compared
with $377,773 in 2010. The increase was primarily due to higher bonus expense of $30,714, higher selling, administrative and
research and development expenses of $15,546, incremental SG&A expenses from acquisitions of $8,600, higher foreign
currency translation of $7,257 and higher foreign exchange transaction losses of $4,531 partially offset by lower legal expenses
of $4,124. In the prior year period, the South America Welding segment recorded a gain of $2,632 resulting from the change in
Venezuela's functional currency to the U.S. dollar and the devaluation of the bolivar.
Rationalization and Asset Impairment Charges (Gains): In 2011, the Company recorded $282 in charges primarily related to
rationalization actions initiated in 2009. See "Rationalization and Asset Impairments" for additional information.
Interest Income: Interest income increased to $3,121 in 2011 from $2,381 in 2010. The increase was largely due to interest
income received on a sales tax refund.
Equity Earnings (Loss) in Affiliates: Equity earnings in affiliates were $5,385 in 2011 compared with earnings of $3,171 in
2010. The increase was due to an increase in earnings of $1,895 in Turkey and an increase of $319 in Chile.
Interest Expense: Interest expense remained flat at $6,704 in 2011 as compared to $6,691 in 2010, primarily as a result of
higher interest rates offset by lower levels of debt in the current period.
Income Taxes: The Company recorded $84,318 of tax expense on pre-tax income of $301,331, resulting in an effective tax rate
of 28.0% for 2011. The effective income tax rate is lower than the Company's statutory rate primarily due to income earned in
lower tax rate jurisdictions, the utilization of foreign tax loss carry-forwards for which valuation allowances had been
previously provided and a tax benefit of $4,844 for tax audit settlements.
The effective income tax rate of 29.3% for 2010 was primarily due to income earned in lower tax rate jurisdictions and the
utilization of foreign tax loss carry-forwards for which valuation allowances had been previously provided.
Net Income: Net income for 2011 was $217,186 compared with $130,244 in the prior year. Diluted earnings per share for
2011 were $2.56 compared with diluted earnings of $1.53 per share in 2010. Foreign currency exchange rate movements had a
favorable translation effect of $2,948 and $762 on Net income for 2011 and 2010, respectively.
18
Segment Results
Net Sales: The table below summarizes the impacts of volume, acquisition, price and foreign currency exchange rates on Net
sales for the twelve months ended December 31, 2011:
Net Sales
2010
Volume
Acquisitions
Price
Foreign
Exchange
Net Sales
2011
Change in Net Sales due to:
Operating Segments
North America Welding
$ 1,013,193
$
194,618
$
Europe Welding
Asia Pacific Welding
South America Welding
The Harris Products Group
Consolidated
% Change
North America Welding
Europe Welding
Asia Pacific Welding
South America Welding
The Harris Products Group
Consolidated
359,925
324,092
117,419
255,543
42,376
26,198
24,209
18,625
$
54,452
66,425
—
—
—
41,839
20,390
3,305
11,618
65,753
$
5,397
$ 1,309,499
19,576
22,681
3,438
3,537
508,692
376,276
156,684
343,458
$ 2,070,172
$
306,026
$
120,877
$
142,905
$
54,629
$ 2,694,609
19.2%
11.8%
8.1%
20.6%
7.3%
14.8%
5.4%
18.5%
—
—
—
5.8%
4.1%
5.7%
1.0%
9.9%
25.7%
6.9%
0.5%
5.4%
7.0%
2.9%
1.4%
2.6%
29.2%
41.3%
16.1%
33.4%
34.4%
30.2%
Net sales volume for 2011 increased for all operating segments as a result of higher demand levels from expanding industrial
economies associated with the improved global economy and modest market share gains. Product pricing increased for all
operating segments due to the realization of price increases implemented in response to increases in raw material costs.
Product pricing in the South America Welding segment reflected a higher inflationary environment, particularly in Venezuela.
Product pricing increased in The Harris Products Group segment due to the pass-through effect of higher commodity costs,
particularly silver and copper. The increase in Net sales from acquisitions was due to the acquisitions of Arc Products in
January 2011, Techalloy and Torchmate in July 2011 in the North America Welding segment and the acquisitions of Severstal in
March 2011 and Mezhgosmetiz-Mtsensk OAO ("MGM") in October 2010 in the Europe Welding segment (see the
"Acquisitions" section below for additional information regarding the acquisitions). With respect to changes in Net sales due to
foreign exchange, all segments increased due to a weaker U.S. dollar.
19
Earnings Before Interest and Income Taxes (“EBIT”), as Adjusted: Segment performance is measured and resources are
allocated based on a number of factors, the primary profit measure being EBIT, as adjusted. The following table presents
EBIT, as adjusted for 2011 by segment compared with 2010:
Twelve Months Ended
December 31,
2011
2010
$ Change
% Change
North America Welding:
Net sales
$ 1,309,499
$1,013,193
Inter-segment sales
136,314
108,849
Total Sales
$ 1,445,813
$1,122,042
EBIT, as adjusted
$
227,924
$ 162,192
As a percent of total sales
15.8%
14.5%
Europe Welding:
Net sales
Inter-segment sales
Total Sales
EBIT, as adjusted
As a percent of total sales
Asia Pacific Welding:
Net sales
Inter-segment sales
Total Sales
EBIT, as adjusted
As a percent of total sales
South America Welding:
Net sales
Inter-segment sales
Total Sales
EBIT, as adjusted
As a percent of total sales
The Harris Products Group:
Net sales
Inter-segment sales
Total Sales
EBIT, as adjusted
$
$
$
$
$
$
$
$
$
$
$
$
508,692
$ 359,925
17,422
13,330
526,114
$ 373,255
36,171
$
17,023
6.9%
4.6%
376,276
$ 324,092
15,614
12,546
391,890
$ 336,638
2,629
$
1,752
0.7%
0.5%
156,684
$ 117,419
494
1,216
157,178
$ 118,635
12,895
$
7,554
8.2%
6.4%
343,458
$ 255,543
8,496
6,641
351,954
$ 262,184
25,151
$
12,311
As a percent of total sales
7.1%
4.7%
296,306
27,465
323,771
65,732
148,767
4,092
152,859
19,148
52,184
3,068
55,252
877
39,265
(722)
38,543
5,341
87,915
1,855
89,770
12,840
29.2%
25.2%
28.9%
40.5%
1.3%
41.3%
30.7%
41.0%
112.5%
2.3%
16.1%
24.5%
16.4%
50.1%
0.2%
33.4%
(59.4%)
32.5%
70.7%
1.8%
34.4%
27.9%
34.2%
104.3%
2.4%
EBIT, as adjusted and as a percent of total sales increased for all segments in 2011 as compared with 2010. The North America
Welding segment growth was primarily due to improved leverage on a 19.2% increase in volumes and price increases of 4.1%.
The increase at the Europe Welding segment was primarily due to improved leverage on 11.8% increase in volumes and price
increases of 5.7%. The Asia Pacific Welding segment increase was due to improved leverage on an 8.1% increase in volumes.
The South America Welding segment increase was a result of product pricing increases of 9.9% exceeding increasing
inflationary costs and improved leverage on a 20.6% increase in volumes. The Harris Products Group segment growth was
primarily due to improved leverage on a 14.8% increase in volumes and price increases of 6.9% exceeding increasing raw
material costs.
20
In 2011, EBIT, as adjusted, for the Europe Welding and Asia Pacific Welding segments excluded special items net charges of
$188 and $93, respectively, primarily related to employee severance and other cost associated with the consolidation of
manufacturing operations. The Europe Welding segment special items also include a loss of $204 on the sale of assets at a
rationalized operation. The Asia Pacific Welding segment special items also include a gain of $203 on the sale of assets at a
rationalized operation.
In 2010, EBIT, as adjusted, for the Europe Welding and Asia Pacific Welding segments excluded special items net charges of
$1,990 and $427, respectively, primarily related to employee severance and other cost associated with the consolidation of
manufacturing operations. The Europe Welding segment special items also include a charge of $496 in related asset
impairments. The Asia Pacific Welding segment special items also include a gain of $4,555 on the disposal of assets at a
rationalized operation. EBIT, as adjusted, for the South America Welding segment excluded special item net charges of $3,123
related to the change in functional currency and devaluation of the Venezuelan currency. EBIT, as adjusted, for The Harris
Products Group segment excluded a net charge of $871 related to environmental costs associated with the sale of property at a
rationalized operation.
Non-GAAP Financial Measures
The Company reviews Adjusted operating income, Adjusted net income and Adjusted diluted earnings per share, 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 ("GAAP") financial measures, as non-GAAP
measures are a supplement to, and not a replacement for, GAAP financial measures.
The following table presents a reconciliation of Operating income as reported to Adjusted operating income:
Operating income as reported
Special items (pre-tax):
Rationalization charges (gains)
Impairment charges
Venezuela statutory severance obligation
Venezuela – functional currency change and devaluation
Year Ended December 31,
2012
2011
2010
$
362,081
$
296,680
$
186,430
7,512
1,842
1,381
—
282
—
—
—
(1,267)
883
—
3,123
Adjusted operating income
$
372,816
$
296,962
$
189,169
Special items included in Operating income during 2012 include net rationalization charges of $7,512, primarily related to
employee severance and other costs associated with the consolidation of manufacturing operations initiated in 2012, partially
offset by gains on the disposal of assets at rationalized operations, asset impairment charges of $1,842 and a net charge of
$1,381 related to the change in Venezuelan labor law, which provides for increased employee severance obligations.
Special items included in Operating income during 2011 include net rationalization and asset impairment charges of $282,
primarily related to employee severance and other costs associated with the consolidation of manufacturing operations resulting
from actions initiated in 2009.
Special items included in Operating income during 2010 include net rationalization gains of $1,267 primarily related to gains
on the disposal of assets at rationalized operations offset by charges associated with the consolidation of manufacturing
operations initiated in 2009, asset impairment charges of $883 and a net charge of $3,123 related to the change in functional
currency for the Company's operation in Venezuela to the U.S. dollar and the devaluation of the Venezuelan currency. The net
charge of $3,123 relating to the Venezuelan operations is recorded as an increase in Cost of goods sold of $5,755 and a
reduction in SG&A expenses of $2,632.
21
The following table presents reconciliations of Net income and Diluted earnings per share as reported to Adjusted net income
and Adjusted diluted earnings per share:
Net income as reported
Special items (after-tax):
Rationalization charges (gains)
Impairment charges
Venezuela statutory severance obligation
Venezuela – functional currency change and devaluation
Income from tax adjustment resulting from change in
applicable tax regulations
Adjustment for tax audit settlements
Non-controlling interests charges associated with special
items
Adjusted net income
Diluted earnings per share as reported
Special items per share
Adjusted diluted earnings per share
Year Ended December 31,
2012
2011
2010
$
257,411
$
217,186
$
130,244
6,153
1,289
906
—
—
—
—
$
$
$
265,759
3.06
0.10
3.16
$
$
$
237
—
—
—
—
(4,844)
—
212,579
2.56
(0.05)
2.51
$
$
$
(1,695)
801
—
3,560
(5,092)
—
1,782
129,600
1.53
(0.01)
1.52
Net income for 2012 includes net rationalization charges of $6,153, primarily related to employee severance and other costs
associated with the consolidation of manufacturing operations initiated in 2012 partially offset by gains on the disposal of
assets at rationalized operations, asset impairment charges of $1,289 and a net charge of $906 related to the change in
Venezuelan labor law, which provides for increased employee severance obligations.
Net income for 2011 includes net rationalization and asset impairment charges of $237 primarily related to employee severance
and other costs associated with the consolidation of manufacturing operations resulting from actions initiated in 2009. Special
items for 2011 also include a gain of $4,844 related to a favorable adjustment for tax audit settlements.
The Company's 2010 rationalization activities to align the business to current market conditions resulted in net gains of $1,695
primarily related to the sale of property and asset disposals and asset impairment charges of $801. Net income also includes a
net charge of $3,560 related to the change in functional currency and devaluation of the Venezuelan currency, income of $5,092
due to an adjustment in tax liabilities for a change in applicable tax regulations, a gain of $108 in non-controlling interests
related to the impairment of assets for a majority-owned consolidated subsidiary and a charge of $1,890 in non-controlling
interests related to the disposal of assets for a majority-owned consolidated subsidiary.
Liquidity and Capital Resources
The Company's cash flow from operations can be cyclical. Operational cash flow is a key driver of liquidity, providing cash
and access to capital markets. In assessing liquidity, the Company reviews working capital measurements to define areas for
improvement. Management anticipates the Company will be able to satisfy cash requirements for its ongoing businesses for
the foreseeable future primarily with cash generated by operations, existing cash balances and, if necessary, borrowings under
its existing credit facilities.
22
The following table reflects changes in key cash flow measures:
Year Ended December 31,
$ Change
2012
2011
2010
2012 vs. 2011
2011 vs. 2010
Cash provided by operating activities
$
Cash used by investing activities:
Capital expenditures
Acquisition of businesses, net of cash acquired
Proceeds from the sale of property, plant and
equipment
Other investing activities
Cash used by financing activities:
(Payments) proceeds on short-term borrowings,
net
Payments on long-term borrowings, net
Proceeds from exercise of stock options
Tax benefit from exercise of stock options
Purchase of shares for treasury
Cash dividends paid to shareholders
Other financing activities
Decrease in Cash and cash equivalents
327,484
(187,471)
(52,715)
(134,602)
1,387
(1,541)
(216,838)
(4,533)
(84,770)
18,776
7,819
(81,018)
(73,112)
—
(74,637)
$
$
193,518
(130,796)
(65,813)
(66,229)
$
156,978
(69,400)
(60,565)
(18,856)
$
133,966
(56,675)
13,098
(68,373)
36,540
(61,396)
(5,248)
(47,373)
1,246
—
(63,370)
8,981
(1,032)
11,351
2,916
(36,997)
(51,935)
3,346
(5,092)
10,021
—
(109,507)
141
(1,541)
(153,468)
(18,599)
(8,580)
3,508
1,210
(39,682)
(47,364)
—
(21,943)
(13,514)
(83,738)
7,425
4,903
(44,021)
(21,177)
(3,346)
(8,775)
—
46,137
27,580
7,548
7,843
1,706
2,685
(4,571)
3,346
Cash and cash equivalents decreased 20.7%, or $74,637, to $286,464 as of December 31, 2012, from $361,101 as of
December 31, 2011. This decrease was predominantly due to the Company's repayment of the $80,000 senior unsecured note
at maturity, cash used in the acquisition of businesses of $134,602, purchases of common shares for treasury of $81,018, cash
dividends paid to shareholders of $73,112 and a $89,448 deposit for tax and interest assessed by the Canada Revenue Agency
(“CRA”) offset by cash provided by operating activities. This compares with a decrease of 1.4%, or $5,092, in Cash and cash
equivalents during 2011.
Cash provided by operating activities for 2012 increased $133,966 from 2011. The increase was predominantly due to lower
net operating working capital requirements and increased Net income for the year ended December 31, 2012, compared with
the year ended December 31, 2011, offset by the $89,448 deposit for tax and interest assessed by the CRA. Net operating
working capital, defined as the sum of Accounts receivable and Total inventory less Trade accounts payable, decreased
$102,155 in 2012 compared with an increase of $110,525 in 2011. Net operating working capital to sales, defined as net
operating working capital divided by annualized rolling three months of Net sales, decreased to 18.8% at December 31, 2012
compared with 21.0% at December 31, 2011. Days sales in inventory increased to 94.3 days at December 31, 2012 from
92.5 days at December 31, 2011. Accounts receivable days decreased to 51.8 days at December 31, 2012 from 53.5 days at
December 31, 2011. Average days in accounts payable increased to 43.9 days at December 31, 2012 from 35.1 days at
December 31, 2011.
Cash used by investing activities increased by $56,675 for 2012 compared with 2011. This reflects a decrease in capital
expenditures of $13,098 from 2011 and an increase in the acquisition of businesses of $68,373 from 2011. The Company
anticipates capital expenditures of $60,000 in 2013. Anticipated capital expenditures reflect investments for capital
maintenance, to improve operational effectiveness and the Company's continuing international expansion. Management
critically evaluates all proposed capital expenditures and requires each project to increase efficiency, reduce costs, promote
business growth, or to improve the overall safety and environmental conditions of the Company's facilities.
Cash used by financing activities for 2012 increased $153,468 from 2011. The increase was predominantly due to higher net
payments of long-term borrowings of $83,738, due primarily to the Company's repayment of the $80,000 senior unsecured
note, higher purchases of common shares for treasury of $44,021 and higher cash dividends paid to shareholders of $21,177,
including the December dividend payment of $16,533 that would generally be paid in January 2013.
The Company continues to expand globally and periodically looks at transactions that would involve significant investments.
The Company can fund its global expansion plans with operational cash flow, but a significant acquisition may require access
to capital markets, in particular, the long-term debt market, as well as the syndicated bank loan market. The Company's
financing strategy is to fund itself at the lowest after-tax cost of funding. Where possible, the Company utilizes operational
cash flows and raises capital in the most efficient market, usually the U.S., and then lends funds to the specific subsidiary that
23
requires funding. If additional acquisitions providing appropriate financial benefits become available, additional expenditures
may be made.
The Company's debt levels decreased from $103,378 at December 31, 2011 to $20,275 at December 31, 2012. Debt to total
invested capital decreased to 1.5% at December 31, 2012 from 8.0% at December 31, 2011. The decrease was predominantly
due to the repayment of the Company's $80,000 senior unsecured note on March 12, 2012.
The Company paid $73,112 in cash dividends to its shareholders in the year ended December 31, 2012.
The Company has a share repurchase program for up to 30 million shares of the Company's common stock. At management's
discretion, the Company repurchases its common stock from time to time in the open market, depending on market conditions,
stock price and other factors. During the year ended December 31, 2012, the Company purchased 1,779,384 shares at a cost of
$80,178. As of December 31, 2012, 3,342,373 shares remained available for repurchase under the stock repurchase program.
The Company made voluntary contributions to its U.S. defined benefit plans of $60,277, $30,000 and $41,500 in 2012, 2011
and 2010, respectively. The Company expects to voluntarily contribute approximately $103,000 to its U.S. plans in 2013.
Based on current pension funding rules, the Company does not anticipate that contributions to the plans would be required in
2013.
As discussed in Note 12 to the consolidated financial statements, in July 2012, the Company received a Notice of Reassessment
from the CRA for 2004 to 2011, which would disallow the deductibility of inter-company dividends. These adjustments would
increase Canadian federal and provincial tax due by $62,120 plus approximately $17,156 of interest, net of tax. The Company
disagrees with the position taken by the CRA and believes it is without merit. The Company will vigorously contest the
assessment through the Tax Court of Canada. A trial date has not yet been scheduled. In connection with the litigation process,
the Company is required to deposit no less than one half of the tax and interest assessed by the CRA. The Company has elected
to deposit the entire amount of the dispute in order to suspend the continuing accrual of a 5% interest charge. Additionally,
deposited amounts will earn interest of approximately 1% due upon a favorable outcome. A deposit was made and is recorded
as a non-current asset as of December 31, 2012. Although the Company believes it will prevail on the merits of the tax
position, the ultimate outcome of the assessment remains uncertain.
Rationalization and Asset Impairments
In 2012, the Company recorded rationalization and asset impairment net charges of $9,354 for the year ended December 31,
2012 resulting from rationalization activities primarily initiated in 2012. The Company initiated a number of rationalization
activities in 2012 to align its business to current market conditions. The 2012 net charges include $7,512 primarily related to
employee severance and other related costs, partially offset by gains from sales of assets at rationalized operations and $1,842
in asset impairment charges.
In 2011, the Company recorded rationalization and asset impairment net charges of $282 for the year ended December 31, 2011
resulting from rationalization activities primarily initiated in the third and second quarters of 2009. The Company initiated a
number of rationalization activities in 2009 to align its business to current market conditions. The 2011 net charges include
$259 primarily related to employee severance and other related costs and $23 in asset impairment charges.
In 2010, the Company recorded rationalization and asset impairment net gains of $384 resulting from rationalization activities
primarily initiated in the third and second quarters of 2009. The 2010 net gains include $4,555 primarily related to asset
disposals offset by charges of $2,417 primarily related to employee severance and other related costs, $871 related to
environmental costs associated with the sale of property and $883 in asset impairment charges.
Fair values of impaired assets were determined using projected discounted cash flows.
Acquisitions
On December 31, 2012, the Company completed the acquisition of the privately-held automated systems and tooling
manufacturer, Tennessee Rand, Inc. ("Tenn Rand"). Tenn Rand, based in Chattanooga, Tennessee, is a leader in the design and
manufacture of tooling and robotic systems for welding applications. The acquisition added tool design, system building and
machining capabilities that will enable the Company to further expand its welding automation business. Annual sales for Tenn
Rand at the date of acquisition were approximately $35,000.
On November 13, 2012, the Company completed the acquisition of Kaliburn from ITT Corporation. Kaliburn, headquartered
in Ladson, South Carolina, is a designer and manufacturer of shape cutting solutions, producer of shape cutting control systems
and manufacturer of web tension transducers and engineered machine systems. The acquisition added to the Company's cutting
business portfolio. Annual sales for Kaliburn as of the date of acquisition were approximately $36,000.
On May 17, 2012, the Company completed the acquisition of Wayne Trail. Wayne Trail, based in Ft. Loramie, Ohio, is a
manufacturer of automated systems and tooling, serving a wide range of applications in the metal processing market. The
24
acquisition added to the Company’s welding and automated solutions portfolio. Annual sales for Wayne Trail at the date of
acquisition were approximately $50,000.
On March 6, 2012, the Company completed the acquisition of Weartech. Weartech, based in Anaheim, California, is a producer
of cobalt-based hard facing and wear-resistant welding consumables. The acquisition added to the Company’s consumables
portfolio. Sales for Weartech during 2011 were approximately $40,000.
The Company acquired Tenn Rand, Kaliburn, Wayne Trail and Weartech for approximately $143,504 in cash, net of cash
acquired, and assumed debt. The fair value of net assets acquired was $75,764, resulting in goodwill of $67,740. Some of the
purchase price allocations are preliminary and subject to final opening balance sheet adjustments.
On July 29, 2011, the Company acquired substantially all of the assets of Techalloy. Techalloy, based in Baltimore, Maryland,
was a privately-held manufacturer of nickel alloy and stainless steel welding consumables. The acquisition added to the
Company's consumables portfolio. Annual sales for Techalloy at the date of acquisition were approximately $70,000.
On July 29, 2011, the Company acquired substantially all of the assets of Torchmate. Torchmate, based in Reno, Nevada,
provides a wide selection of computer numeric controlled plasma cutter and oxy-fuel cutting systems. The acquisition added to
the Company's plasma and oxy-fuel cutting product offering. Annual sales for Torchmate at the date of acquisition were
approximately $13,000.
On March 11, 2011, the Company completed the acquisition of Severstal. Severstal is a leading manufacturer of welding
consumables in Russia and was a subsidiary of OAO Severstal, one of the world's leading vertically integrated steel and mining
companies. This acquisition expanded the Company's capacity and distribution channels in Russia and the Commonwealth of
Independent States ("CIS"). Sales for Severstal during 2010 were approximately $40,000.
On January 31, 2011, the Company acquired substantially all of the assets of Arc Products. Arc Products was a privately-held
manufacturer of orbital welding systems and welding automation components based in Southern California. Orbital welding
systems are designed to automatically weld pipe and tube in difficult to access locations and for mission-critical applications
requiring high weld integrity and sophisticated quality monitoring capabilities. The acquisition will complement the
Company's ability to serve global customers in the nuclear, power generation and process industries worldwide. Sales for Arc
Products during 2010 were not significant.
The Company acquired Techalloy, Torchmate, Severstal and Arc Products for approximately $65,321 in cash and assumed debt
and a contingent consideration liability fair valued at $3,806. The contingent consideration is based upon estimated sales at the
related acquisition for the five-year period ending December 31, 2015 and will be paid in 2016 based on actual sales during the
five-year period. The fair value of net assets acquired was $46,837, resulting in goodwill of $22,290.
On October 29, 2010, the Company acquired all of the outstanding stock of MGM, a privately-held welding wire manufacturer
based in the Orel region of Russia, for approximately $28,500 in cash and assumed debt. This acquisition represented the
Company's first manufacturing operation in Russia as well as established distribution channels to serve the growing Russian
and CIS welding markets. Annual sales for MGM at the date of acquisition were approximately $30,000.
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.
Debt
During March 2002, the Company issued Senior Unsecured Notes (the "Notes") totaling $150,000 with original maturities
ranging from five to ten years and a weighted-average interest rate of 6.1%. The proceeds were used for general corporate
purposes, including acquisitions, and were generally invested in short-term, highly liquid investments. The Company repaid
the $40,000 Series A Notes in March 2007, the $30,000 Series B Notes in March 2009 and the $80,000 Series C Notes in
March 2012.
The Company has no interest rate swaps outstanding at December 31, 2012.
At December 31, 2012 and 2011, the fair value of long-term debt, including the current portion, was approximately $1,919 and
$84,110, respectively, which was determined using available market information and methodologies requiring judgment. Since
considerable 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.
Revolving Credit Agreement
The Company has a line of credit totaling $300,000 through the Amended and Restated Credit Agreement (the “Credit
Agreement”), which was entered into on July 26, 2012. 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
25
liens, investments, distributions, mergers and acquisitions, dispositions of assets, transactions with affiliates and a fixed charges
coverage ratio and total leverage ratio. As of December 31, 2012, the Company was in compliance with all of its covenants and
had no outstanding borrowings under 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
LIBOR or the prime rate, plus a spread based on the Company’s leverage ratio, at the Company’s election.
Short-term Borrowings
The Company's short-term borrowings included in "Amounts due banks" were $18,220 and $19,922 at December 31, 2012 and
2011, respectively, and represent the borrowings of foreign subsidiaries at weighted average interest rates of 11.3% and 11.6%,
respectively.
Contractual Obligations and Commercial Commitments
The Company's contractual obligations and commercial commitments as of December 31, 2012 are as follows:
Payments Due By Period
Total
2013
2014 to
2015
2016 to
2017
2018 and
Beyond
Long-term debt, including current portion
$
1,788
$
366
$
622
$
188
$
Interest on long-term debt
Capital lease obligations
Short-term debt
Interest on short-term debt
Operating leases
Purchase commitments(1)
Total
160
267
18,220
844
46,219
155,480
38
93
18,220
844
12,624
154,823
49
95
—
—
30
79
—
—
16,257
482
10,256
158
$
222,978
$
187,008
$
17,505
$
10,711
$
612
43
—
—
—
7,082
17
7,754
_______________________________________________________________________________
(1) Purchase commitments include contractual obligations for raw materials and services.
As of December 31, 2012, there was $25,255 of tax liabilities related to unrecognized tax benefits. 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 with the respective taxing authorities. See Note 12 to the Company's consolidated
financial statements for further discussion.
The Company expects to voluntarily contribute approximately $103,000 to the U.S. pension plans in 2013.
Stock-Based Compensation
On April 28, 2006, the shareholders of the Company approved the 2006 Equity and Performance Incentive Plan, as amended
("EPI Plan"), which replaced the 1998 Stock Plan, as amended and restated in May 2003. The EPI Plan provides for the
granting of options, appreciation rights, restricted shares, restricted stock units and performance-based awards up to an
additional 6,000,000 of the Company's common shares. In addition, on April 28, 2006, the shareholders of the Company
approved the 2006 Stock Plan for Non-Employee Directors, as amended ("Director Plan"), which replaced the Stock Option
Plan for Non-Employee Directors adopted in 2000. The Director Plan provides for the granting of options, restricted shares
and restricted stock units up to an additional 600,000 of the Company's common shares. At December 31, 2012, there were
2,517,228 common shares available for future grant under all plans.
Under these plans, options, restricted shares and restricted stock units granted were 567,023 in 2012, 648,561 in 2011 and
603,874 in 2010. The Company issued shares of common stock from treasury upon all exercises of stock options and the
granting of restricted stock awards in 2012, 2011 and 2010.
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 or restricted stock units ultimately
forfeited because recipients fail to meet vesting requirements. Total stock-based compensation expense recognized in the
Consolidated Statements of Income for 2012, 2011 and 2010 was $8,961, $6,610 and $8,213, respectively. The related tax
benefit for 2012, 2011 and 2010 was $3,409, $2,515 and $3,112, respectively. As of December 31, 2012, total unrecognized
stock-based compensation expense related to non-vested stock options, restricted shares and restricted stock units was $23,718,
which is expected to be recognized over a weighted average period of approximately 37 months.
26
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, 2012, was $54,178 and $47,464, respectively. The total intrinsic value of awards
exercised during 2012, 2011 and 2010 was $18,776, $10,028 and $4,270 respectively.
Product Liability Costs
Product liability costs have historically been significant particularly with respect to welding fume claims. Costs incurred are
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. Product liability costs decreased $2,922 in 2012 compared with 2011 primarily due to
reduced trial activity.
The long-term impact of the welding fume loss contingency, in the aggregate, on operating results, operating cash flows and
access to capital markets is difficult to assess, particularly since claims are in many different stages of development and 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
New Accounting Standards to be Adopted:
In February 2013, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No.
2013-02, “Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive
Income.” ASU 2013-02 requires an entity to provide information about the amounts reclassified out of accumulated other
comprehensive income by component. In addition, an entity is required to present, either on the face of the statement where net
income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the
respective line items of net income but only if the amount reclassified is required under U.S. GAAP to be reclassified to net
income in its entirety in the same reporting period. For other amounts, an entity is required to cross-reference to other
disclosures required under U.S. GAAP that provide additional detail about those amounts. The amendments are effective
prospectively for reporting periods beginning after December 15, 2012. The Company is currently evaluating the impact of the
adoption of ASU 2013-02 on the Company's financial statements.
In July 2012, the FASB issued ASU No. 2012-02, “Intangibles - Goodwill and Other (Topic 350): Testing Indefinite-Lived
Intangible Assets for Impairment.” ASU 2012-02 permits an entity first to assess qualitative factors to determine whether it is
more likely than not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to
perform the quantitative impairment test in accordance with Subtopic 350-30, Intangibles - Goodwill and Other - General
Intangibles Other than Goodwill. The more-likely-than-not threshold is defined as having a likelihood of more than 50 percent.
In accordance with this update, an entity will have an option not to calculate annually the fair value of an indefinite-lived
intangible asset if the entity determines that it is not more likely than not that the asset is impaired. The amendments are
effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. The Company
is currently evaluating the impact of the adoption of ASU 2012-02 on the Company's financial statements.
In December 2011, the FASB issued ASU No. 2011-11, "Balance Sheet (Topic 210): Disclosures about Offsetting Assets and
Liabilities." ASU 2011-11 requires an entity to disclose information about financial instruments and derivative instruments that
are subject to offsetting, master netting or other similar arrangements, to illustrate the effect or potential effect of those
arrangements on the Company's financial position. In January 2013, the FASB issued ASU No. 2013-01, “Balance Sheet
(Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities,” which clarifies the scope of ASU
2011-11. The amendments are effective for annual periods beginning on or after January 1, 2013 and interim periods within
those annual periods. The amendments should be applied retrospectively for all prior periods presented. The Company is
currently evaluating the impact of the adoption of ASU 2011-11 on the Company's financial statements.
Critical Accounting Policies
The Company's consolidated financial statements are based on the selection and application of significant accounting policies,
which require management to make estimates and assumptions. These estimates and assumptions are reviewed periodically by
management and compared to historical trends to determine the accuracy of estimates and assumptions used. If warranted,
these estimates and assumptions may be changed as current trends are assessed and updated. Historically, the Company's
estimates have been determined to be reasonable. No material changes to the Company's accounting policies were made during
2012. The Company believes the following are some of the more critical judgment areas in the application of its accounting
policies that affect its financial condition and results of operations.
27
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 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 is 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 reserves for estimated income tax exposures for many jurisdictions. Exposures are settled primarily
through the completion of audits within each individual tax jurisdiction or the closing of a statute of limitation. Exposures can
also be affected by changes in applicable tax law or 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 income tax exposures;
however, actual results may materially differ from these estimates. See Note 12 to the Company's consolidated financial
statements and "Item 3. Legal Proceedings" section of this Annual Report on Form 10-K for further discussion of tax
contingencies.
Translation of Foreign Currencies
Asset and liability accounts are translated into U.S. dollars using exchange rates in effect at the dates of the Consolidated
Balance Sheets; revenue and expense accounts are translated at average monthly exchange rates. Translation adjustments are
reflected as a component of Total equity. For subsidiaries operating in highly inflationary economies, both historical and
current exchange rates are used in translating balance sheet accounts, and translation adjustments are included in Net income.
Foreign currency transaction losses are included in "Selling, general & administrative expenses" and were $4,608, $4,904 and
$118 in 2012, 2011 and 2010, respectively.
Venezuela – Highly Inflationary Economy
Venezuela is a highly inflationary economy under U.S. GAAP. As a result, the financial statements of the Company's
Venezuelan operation are reported under highly inflationary accounting rules as of January 1, 2010. Under highly inflationary
accounting, the financial statements of the Company's Venezuelan operation have been remeasured into the Company's
reporting currency and exchange gains and losses from the re-measurement of monetary assets and liabilities are reflected in
current earnings. In remeasuring the financial statements, the official exchange rate for non-essential goods of 4.3 (the "Non-
Essential Rate") is used as this is the rate expected to be applicable to dividend repatriations.
Future impacts to earnings of applying highly inflationary accounting for Venezuela on the Company's consolidated financial
statements will be dependent upon movements in the applicable exchange rates between the bolivar and the U.S. dollar and the
amount of monetary assets and liabilities included in the Company's Venezuelan operation's balance sheet. The bolivar-
denominated monetary net asset position was $31,545 at December 31, 2012 and $6,826 at December 31, 2011. The increased
exposure was due to the limited opportunities to convert bolivars into U.S. dollars.
The Company's ability to effectively manage sales and profit levels in Venezuela will be impacted by several factors. These
include, but are not limited to, the Company's ability to mitigate the effect of any potential devaluation and Venezuelan
government price exchange controls. If in the future the Company were to convert bolivars at a rate other than the official
exchange rate or the official exchange rate is revised, the Company may realize a loss to earnings.
In 2010, the Company participated in Venezuelan sovereign debt offerings as a means of converting bolivars to U.S. dollars.
The conversion of bolivars to U.S. dollars through Venezuelan sovereign debt offerings generated foreign currency transaction
losses as the debt was purchased at the Non-Essential Rate and subsequently sold at a discount. During 2010, the Company
acquired $7,672 of Venezuelan sovereign debt at the Non-Essential Rate, which was immediately sold at a discount for $6,022.
28
The sale of the Venezuelan sovereign debt resulted in a loss of $1,650 recognized in Selling, general & administrative expenses.
In 2012 and 2011, the Company was not successful in utilizing this vehicle as a means of converting bolivars to U.S. dollars.
The devaluation of the bolivar and the change to the U.S. dollar as the functional currency resulted in a foreign currency
transaction gain of $2,632 in "Selling, general & administrative expenses" and higher "Cost of goods sold" of $5,755 due to the
liquidation of inventory valued at the historical exchange rate for the year ended December 31, 2010.
On February 8, 2013, the Venezuelan government announced the devaluation of its currency relative to the U.S. dollar. The
Non-Essential Rate moved from 4.3 to 6.3 bolivars to one U.S. dollar. The devaluation of the bolivar is expected to result in a
foreign currency transaction charge of approximately $8,500 in Selling, general & administrative expenses. This charge will be
recognized during the first quarter of 2013. The impact of selling inventories carried at the previous exchange rate is expected
to decrease gross profit by approximately $4,000 in 2013. These charges will be recognized during the first half of 2013. The
Company also expects that its Venezuelan subsidiary's results of operations will decrease significantly in 2013 due to the new
exchange rate.
Deferred Income Taxes
Deferred income taxes are recognized at currently enacted tax rates for temporary differences between the financial reporting
and income tax bases of assets and liabilities and operating loss and tax credit carry-forwards. The Company does not provide
deferred income taxes on unremitted earnings of certain non-U.S. subsidiaries, which are deemed permanently reinvested. It is
not practicable to calculate the deferred taxes associated with the remittance of these earnings. Deferred income taxes
associated with earnings of $3,776 that are not expected to be permanently reinvested were not significant. At December 31,
2012, the Company had approximately $170,175 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 liabilities, tax
planning strategies, and projected future taxable income in making this assessment. At December 31, 2012, a valuation
allowance of $38,799 was recorded against these 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.
Pensions
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.
A substantial portion of the Company's pension amounts relates to its defined benefit plan in the United States. The fair value
of plan assets is determined at December 31 of each year.
A significant element in determining the Company's pension expense is the expected return on plan assets. At the end of each
year, the expected return on plan assets is determined based on the weighted average expected return of the various asset
classes in the plan's 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
Company determined this rate to be 7.7% and 7.9% at December 31, 2012 and 2011, respectively. The assumed long-term rate
of return on assets is applied to the market value of plan assets. This produces the expected return on plan assets included in
pension expense. The difference between this expected return and the actual return on plan assets is deferred and amortized
over the average remaining service period of active employees expected to receive benefits under the plan. The amortization of
the net deferral of past losses will increase future pension expense. During 2012, investment returns were 11.1% compared
with a return of 4.1% in 2011. A 25 basis point change in the expected return on plan assets would increase or decrease pension
expense by approximately $1,800.
Another significant element in determining the Company's pension expense is the discount rate for plan liabilities. To develop
the discount rate assumption to be used, the Company refers to the yield derived from matching projected pension payments
with maturities of a portfolio of available non-callable bonds rated AA- or better. The Company determined this rate to be
3.8% at December 31, 2012 and 4.2% at December 31, 2011. A 10 basis point change in the discount rate would increase or
decrease pension expense by approximately $1,100.
Pension expense relating to the Company's defined benefit plans was $36,258, $26,370 and $29,123 in 2012, 2011 and 2010,
respectively. The Company expects 2013 defined benefit pension expense to increase by approximately $200 to $500.
29
The Accumulated other comprehensive loss, excluding tax effects, recognized on the Consolidated Balance Sheet was $417,967
as of December 31, 2012 and $408,000 as of December 31, 2011. The increase is primarily the result of an increase in actuarial
losses. Actuarial losses arising during 2012 are primarily attributable to a lower discount rate.
The Company made voluntary contributions to its U.S. defined benefit plans of $60,277, $30,000 and $41,500 in 2012, 2011
and 2010, respectively. The Company expects to voluntarily contribute $103,000 to its U.S. plans in 2013. Based on current
pension funding rules, the Company does not anticipate that contributions to the plans would be required in 2013.
Inventories
Inventories are valued at the lower of cost or market. Fixed manufacturing overhead costs are allocated to inventory based on
normal production capacity and abnormal manufacturing costs are recognized as period costs. For most domestic inventories,
cost is determined principally by the last-in, first-out ("LIFO") method, and for non-U.S. inventories, cost is determined by the
first-in, first-out ("FIFO") method. 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 costs and inventory levels may differ from interim LIFO inventory valuations. The
excess of current cost over LIFO cost was $72,173 at December 31, 2012 and $78,292 at December 31, 2011.
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.
Accounts Receivable
The Company maintains an allowance for doubtful accounts for estimated losses from the failure of its customers to make
required payments for products delivered. The Company estimates this allowance based on the age of the related receivable,
knowledge of the financial condition of customers, review of historical receivables and reserve trends and other pertinent
information. If the financial condition of customers deteriorates or an unfavorable trend in receivable collections is
experienced in the future, additional allowances 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 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 dates 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. Goodwill is tested by comparing the fair value of each reporting unit
with its carrying value. If the carrying value of the reporting unit exceeds its fair value, the implied value of goodwill is
compared to its carrying value and impairment is recognized to the extent that the carrying value exceeds the implied fair value.
Fair values are determined using established business valuation multiples and models developed by the Company that
incorporate allocations of certain assets and cash flows among reporting units, estimates of market participant assumptions of
future cash flows, future growth rates and the applicable discount rates to value estimated cash flows. Changes in economic
and operating conditions impacting these assumptions could result in asset impairments in future periods.
The fair value of goodwill for all of the Company's operating business units exceeded its carrying value by at least 10% as of
the testing date during the fourth quarter of 2012. Key assumptions in estimating the reporting unit's fair value include
assumed market participant assumptions of revenue growth, operating margins and the rate used to discount future cash flows.
Actual revenue growth and operating margins below the assumed market participant assumptions or an increase in the discount
rate would have a negative impact on the fair value of the reporting unit that could result in a goodwill impairment charge in a
future period.
30
Stock-Based Compensation
The Company utilizes the Black-Scholes option pricing model for estimating fair values of options. The Black-Scholes model
requires assumptions regarding the volatility of the Company's stock, the expected life of the stock award and the Company's
dividend yield. The Company utilizes historical data in determining these assumptions. An increase or decrease in the
assumptions or economic events outside of management's control could have a direct impact on the Black-Scholes model.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's primary financial market risks include fluctuations in currency exchange rates, commodity prices and interest
rates. The Company manages these risks by using derivative financial instruments in accordance with established policies and
procedures. The Company does not enter into derivatives or other financial instruments for trading or speculative purposes.
Included below is a sensitivity analysis based upon a hypothetical 10% weakening or strengthening in the U.S. dollar compared
to foreign currency exchange rates at December 31, 2012, a 10% change in commodity prices, and a 100 basis point increase in
effective interest rates under the Company's current borrowing arrangements. The contractual derivative and borrowing
arrangements in effect at December 31, 2012 were compared to the hypothetical foreign exchange, commodity price, or interest
rates in the sensitivity analysis to determine the effect on income before taxes, interest expense, or accumulated other
comprehensive loss. The analysis takes into consideration any offset that would result from changes in the value of the hedged
asset or liability.
Foreign Currency Exchange Risk
The Company enters into forward foreign exchange contracts principally to hedge the currency fluctuations in transactions
denominated in foreign currencies, thereby limiting the Company's risk that would otherwise result from changes in exchange
rates. At December 31, 2012, the Company hedged certain third-party and inter-company purchases and sales. At
December 31, 2012, the Company had foreign exchange contracts with a notional value of approximately $39,597. At
December 31, 2012, a hypothetical 10% weakening of the U.S. dollar would not materially affect the Company's financial
statements.
Commodity Price Risk
From time to time, the Company uses various hedging arrangements to manage exposures to price risk from commodity
purchases. These hedging arrangements have the effect of locking in for specified periods the prices the Company will pay for
the volume to which the hedge relates. A hypothetical 10% adverse change in commodity prices on the Company's open
commodity futures at December 31, 2012 would not materially affect the Company's financial statements.
Interest Rate Risk
As of December 31, 2012, the Company had no interest rate swaps outstanding. Additionally, the Company had no outstanding
borrowings under the Credit Agreement, therefore an interest rate increase would have no effect on interest expense.
The fair value of the Company's Cash and cash equivalents at December 31, 2012 approximated carrying value. The
Company's financial instruments are subject to concentrations of credit risk. The Company has minimized this risk by entering
into investments with a number of major banks and financial institutions and investing in high-quality instruments. The
Company does not expect any counter-parties to fail to meet their obligations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this item is submitted in a separate section of this Annual Report on Form 10-K following the signature page.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURES
None.
ITEM 9A. CONTROLS AND PROCEDURES
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
Under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial
Officer, the Company conducted an evaluation of disclosure controls and procedures, as such term is defined in Rule 13a-15(e)
of the Exchange Act. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the
Company's disclosure controls and procedures were effective as of the end of the period covered by this Annual Report on
Form 10-K.
31
Management's Report on Internal Control Over Financial Reporting
The Company's management is responsible for establishing and maintaining adequate internal control over financial reporting,
as such term is defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of the Company's
management, including the Chief Executive Officer and Chief Financial Officer, the Company conducted an evaluation of the
effectiveness of internal control over financial reporting as of December 31, 2012 based on the framework in "Internal Control
– Integrated Framework" issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on the
Company's evaluation under such framework, management concluded that the Company's internal control over financial
reporting was effective as of December 31, 2012.
The effectiveness of the Company's internal control over financial reporting as of December 31, 2012 has been audited by
Ernst & Young LLP, an independent registered public accounting firm, as stated in their report, which is included elsewhere in
this Annual Report on Form 10-K and is incorporated herein by reference.
Changes in Internal Control Over Financial Reporting
There have been no changes in the Company's internal control over financial reporting that occurred during the fourth quarter
of 2012 that materially affected, or are reasonably likely to materially affect, the Company's internal control over financial
reporting.
ITEM 9B. OTHER INFORMATION
None.
32
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The Company is expected to file its 2013 proxy statement pursuant to Regulation 14A of the Exchange Act prior to April 30,
2013.
Except for the information set forth within Part I, Item 1C section of this Annual Report on Form 10-K concerning our
Executive Officers, the information required by this item is incorporated by reference from the 2013 proxy statement.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference from the 2013 proxy statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
The information required by this item is incorporated by reference from the 2013 proxy statement.
For further information on the Company's equity compensation plans, see Note 1 and Note 9 to the Company's consolidated
financial statements.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this item is incorporated by reference from the 2013 proxy statement.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this item is incorporated by reference from the 2013 proxy statement.
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)(1) Financial Statements
The following consolidated financial statements of the Company are included in a separate section of this report following
the signature page and certifications:
Report of Independent Registered Public Accounting Firm
Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting
Consolidated Balance Sheets – December 31, 2012 and 2011
Consolidated Statements of Income – Years ended December 31, 2012, 2011 and 2010
Consolidated Statements of Comprehensive Income – Years ended December 31, 2012, 2011 and 2010
Consolidated Statements of Equity – Years ended December 31, 2012, 2011 and 2010
Consolidated Statements of Cash Flows – Years ended December 31, 2012, 2011 and 2010
Notes to Consolidated Financial Statements
(a)(2) Financial Statement Schedules
The following consolidated financial statement schedule of the Company is included in a separate section of this report
following the signature page:
Schedule II – Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange
Commission are not required under the related instructions or are inapplicable, and therefore, have been omitted.
33
(a)(3) Exhibits
Exhibit No.
3.1
3.2
10.1
10.2*
10.3*
10.4*
10.5*
10.6*
10.7*
10.8*
10.9*
10.10*
10.11*
10.12*
10.13*
10.14*
10.15*
Description
Amended and Restated Articles of Incorporation of Lincoln Electric Holdings, Inc. (filed as Exhibit 3.1 to
Form 8-K of Lincoln Electric Holdings, Inc. filed on September 27, 2011, SEC file No. 0-1402 and
incorporated herein by reference and made a part hereof).
Amended and Restated Code of Regulations of Lincoln Electric Holdings, Inc. (as Amended on November 3,
2009) (filed as Exhibit 3.2 to Form 10-Q of Lincoln Electric Holdings, Inc. for the three months ended
September 30, 2009, SEC File No. 0-1402 and incorporated herein by reference and made a part hereof).
Amended and Restated Credit Agreement, dated as of July 26, 2012, by and among Lincoln Electric Holdings,
Inc., The Lincoln Electric Company, Lincoln Electric International Holding Company, J.W. Harris Co., Inc.,
Techalloy, Inc., Wayne Trail Technologies, Inc., Lincoln Global, Inc., the Lenders and KeyBank National
Association, as Letter of Credit Issuer and Administrative Agent (filed as Exhibit 10.1 to Form 8-K of Lincoln
Electric Holdings, Inc. filed on July 31, 2012, SEC File No. 0-1402 and incorporated herein by reference and
made a part hereof).
1998 Stock Plan (Amended, Restated and Renamed as of May 1, 2003) (filed as Appendix B to the Lincoln
Electric Holdings, Inc. proxy statement dated March 31, 2003, SEC File No. 0-1402 and incorporated herein by
reference and made a part hereof).
Amendment No. 1 to the 1998 Stock Plan (Amended, Restated and Renamed Effective May 1, 2003) dated
October 20, 2006 (filed as Exhibit 10.6 to Form 10-K of Lincoln Electric Holdings, Inc. for the year ended
December 31, 2007, SEC File No. 0-1402 and incorporated herein by reference and made a part hereof).
1988 Incentive Equity Plan (filed as Exhibit 28 to the Form S-8 Registration Statement of The Lincoln Electric
Company, SEC File No. 33-25209 and incorporated herein by reference and made a part hereof) as adopted and
amended by Lincoln Electric Holdings, Inc. pursuant to an Instrument of Adoption and Amendment dated
December 29, 1998 (filed as Exhibit 10(d) to Form 10-K of Lincoln Electric Holdings, Inc. for the year ended
December 31, 1998, SEC File No. 0-1402 and incorporated herein by reference and made a part hereof).
Amendment No. 2 to the 1988 Incentive Equity Plan dated October 20, 2006 (filed as Exhibit 10.8 to Form 10-
K of Lincoln Electric Holdings, Inc. for the year ended December 31, 2007, SEC File No. 0-1402 and
incorporated herein by reference and made a part hereof).
Supplemental Executive Retirement Plan (Amended and Restated as of December 31, 2008) (filed as
Exhibit 10.1 to Form 8-K of Lincoln Electric Holdings, Inc. filed on January 7, 2009, SEC File No. 0-1402 and
incorporated herein by reference and made part hereof).
Deferred Compensation Plan for Certain Retention Agreements and Other Contractual Arrangements
(Amended and Restated as of January 1, 2004) (filed as Exhibit 10(i) to Form 10-K of Lincoln Electric
Holdings, Inc. for the year ended December 31, 2003, SEC File No. 0-1402 and incorporated herein by
reference and made a part hereof).
Non-Employee Directors' Deferred Compensation Plan (Amended and Restated as of December 31, 2008)
(filed as Exhibit 10.3 to Form 8-K of Lincoln Electric Holdings, Inc. filed on January 7, 2009, SEC File
No. 0-1402 and incorporated herein by reference and made a part hereof).
2005 Deferred Compensation Plan for Executives (Amended and Restated as of August 1, 2011) (filed as
Exhibit 10.1 to Form 8-K of Lincoln Electric Holdings, Inc. filed on August 4, 2011, SEC File No. 0-1402 and
incorporated herein by reference and made a part hereof).
Description of Management Incentive Plan (filed as Exhibit 10(e) to Form 10-K of The Lincoln Electric
Company for the year ended December 31, 1995, SEC File No. 0-1402 and incorporated herein by reference
and made a part hereof).
Description of Long-Term Performance Plan (filed as Exhibit 10(f) to Form 10-K of The Lincoln Electric
Company for the year ended December 31, 1997, SEC File No. 0-1402 and incorporated herein by reference
and made a part hereof).
Form of Severance Agreement (as entered into by the Company and the following executive officers:
Messrs. Stropki, Mapes, Petrella, Stueber, LeBlanc and Blankenship) (filed as Exhibit 10.1 to Form 10-Q of
Lincoln Electric Holdings, Inc. for the three months ended June 30, 2009, SEC File No. 0-1402 and
incorporated herein by reference and made a part hereof).
Stock Option Plan for Non-Employee Directors (filed as Exhibit 10(p) to Form 10-Q of Lincoln Electric
Holdings, Inc. for the three months ended March 31, 2000, SEC File No. 0-1402 and incorporated herein by
reference and made a part hereof).
Amendment No. 1 to the Stock Option Plan for Non-Employee Directors dated October 20, 2006 (filed as
Exhibit 10.26 to Form 10-K of Lincoln Electric Holdings, Inc. for the year ended December 31, 2007, SEC File
No. 0-1402 and incorporated herein by reference and made a part hereof).
Summary of Cash Long-Term Incentive Plan, as amended (filed as Exhibit 10.1 to Form 8-K of Lincoln
Electric Holdings, Inc. filed on April 6, 2005, SEC File No. 0-1402 and incorporated herein by reference and
made a part hereof).
34
10.16*
10.17*
10.18*
10.19*
10.20*
10.21*
10.22*
10.23*
10.24*
10.25*
10.26*
10.27*
10.28*
10.29*
10.30*
10.31*
21
23
24
31.1
31.2
32.1
101.INS
Letter Agreement between John M. Stropki, Jr. and Lincoln Electric Holdings, Inc. dated October 12, 2004
(filed as Exhibit 10.1 to Form 8-K of Lincoln Electric Holdings, Inc. filed on October 18, 2004, SEC File
No. 0-1402 and incorporated herein by reference and made a part hereof).
2006 Equity and Performance Incentive Plan (Restated as of March 3, 2011) (filed as Annex A to the Lincoln
Electric Holdings, Inc. proxy statement dated March 18, 2011, SEC File No. 0-1402 and incorporated herein by
reference and made a part hereof).
2006 Stock Plan for Non-Employee Directors (filed as Appendix C to the Lincoln Electric Holdings, Inc. proxy
statement dated March 28, 2006, SEC File No. 0-1402 and incorporated herein by reference and made a part
hereof).
Amendment No. 1 to the 2006 Stock Plan for Non-Employee Directors dated October 20, 2006 (filed as
Exhibit 10.2 to Form 10-Q of Lincoln Electric Holdings, Inc. for the three months ended March 31, 2007, SEC
file No. 0-1402 and incorporated herein by reference and made a part hereof).
Amendment No. 2 to the 2006 Stock Plan for Non-Employee Directors dated July 26, 2007 (filed as
Exhibit 10.1 to Form 10-Q of Lincoln Electric Holdings, Inc. for the three months ended September 30, 2007,
SEC file No. 0-1402 and incorporated herein by reference and made a part hereof).
2007 Management Incentive Compensation Plan (Amended and Restated as of December 31, 2008) (filed as
Exhibit 10.4 to Form 8-K of Lincoln Electric Holdings, Inc. filed on January 7, 2009, SEC File No. 0-1402 and
incorporated herein by reference and made a part hereof).
Form of Restricted Shares Agreement for Non-Employee Directors (filed as Exhibit 10.1 to Form 10-Q of
Lincoln Electric Holdings, Inc. for the three months ended September 30, 2010, SEC File No. 0-1402 and
incorporated herein by reference and made a part hereof).
Form of Restricted Shares Agreement for Executive Officers (filed as Exhibit 10.2 to Form 10-Q of Lincoln
Electric Holdings, Inc. for the three months ended September 30, 2010, SEC File No. 0-1402 and incorporated
herein by reference and made a part hereof).
Form of Stock Option Agreement for Non-Employee Directors (filed as Exhibit 10.3 to Form 10-Q of Lincoln
Electric Holdings, Inc. for the three months ended September 30, 2010, SEC File No. 0-1402 and incorporated
herein by reference and made a part hereof).
Form of Stock Option Agreement for Executive Officers (filed as Exhibit 10.4 to Form 10-Q of Lincoln
Electric Holdings, Inc. for the three months ended September 30, 2010, SEC File No. 0-1402 and incorporated
herein by reference and made a part hereof).
Form of Restricted Shares Agreement for Non-Employee Directors (for awards made on or after December 1,
2010) (filed as Exhibit 10.35 to Form 10-K of the Lincoln Electric Holdings, Inc. for the year ended
December 31, 2010, SEC File No. 0-1402 and incorporated herein by reference and made a part hereof).
Form of Restricted Shares Agreement for Executive Officers (for awards made on or after December 1, 2010)
(filed as Exhibit 10.36 to Form 10-K of the Lincoln Electric Holdings, Inc. for the year ended December 31,
2010, SEC File No. 0-1402 and incorporated herein by reference and made a part hereof).
Form of Stock Option Agreement for Executive Officers (for awards made on or after December 1, 2010) (filed
as Exhibit 10.37 to Form 10-K of the Lincoln Electric Holdings, Inc. for the year ended December 31, 2010,
SEC File No. 0-1402 and incorporated herein by reference and made a part hereof).
Form of Restricted Stock Unit Agreement for Executive Officers (filed as Exhibit 10.2 to Form 8-K of Lincoln
Electric Holdings, Inc. filed on August 4, 2011, SEC File No. 0-1402 and incorporated herein by reference and
made a part thereof).
Form of Officer Indemnification Agreement (effective February 23, 2012) (filed as Exhibit 10.1 to Form 8-K of
Lincoln Electric Holdings, Inc. filed on February 29, 2012, SEC File No. 0-1402 and incorporated herein by
reference and made a part hereof).
Form of Director Indemnification Agreement (effective February 23, 2012) (filed as Exhibit 10.1 to Form 8-K
of Lincoln Electric Holdings, Inc. filed on February 29, 2012, SEC File No. 0-1402 and incorporated herein by
reference and made a part hereof).
Subsidiaries of the Registrant.
Consent of Independent Registered Public Accounting Firm.
Powers of Attorney.
Certification by the President and Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities
Exchange Act of 1934.
Certification by the Senior Vice President, Chief Financial Officer and Treasurer pursuant to Rule 13a-14(a) of
the Securities Exchange Act of 1934.
Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
XBRL Instance Document
35
101.SCH
XBRL Taxonomy Extension Schema Document
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB
XBRL Taxonomy Extension Label Linkbase Document
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
*
Reflects management contract or other compensatory arrangement required to be filed as an exhibit pursuant to Item 15(b) of this
report.
36
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
LINCOLN ELECTRIC HOLDINGS, INC.
By:
/s/ VINCENT K. PETRELLA
Vincent K. Petrella
Senior Vice President, Chief Financial
Officer and Treasurer
(principal financial and accounting officer)
February 22, 2013
37
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated.
/s/ CHRISTOPHER L. MAPES
Christopher L. Mapes,
President and Chief Executive Officer
(principal executive officer)
February 22, 2013
/s/ JOHN M. STROPKI, JR.
John M. Stropki, Jr.,
Executive Chairman of the Board
February 22, 2013
/s/ VINCENT K. PETRELLA
Vincent K. Petrella as
Attorney-in-Fact for
Curtis E. Espeland
February 22, 2013
/s/ VINCENT K. PETRELLA
Vincent K. Petrella as
Attorney-in-Fact for
Stephen G. Hanks, Director
February 22, 2013
/s/ VINCENT K. PETRELLA
Vincent K. Petrella as
Attorney-in-Fact for
G. Russell Lincoln, Director
February 22, 2013
/s/ VINCENT K. PETRELLA
Vincent K. Petrella as
Attorney-in-Fact for
William E. MacDonald, III, Director
February 22, 2013
/s/ VINCENT K. PETRELLA
Vincent K. Petrella as
Attorney-in-Fact for
George H. Walls, Jr., Director
February 22, 2013
/s/ VINCENT K. PETRELLA
Vincent K. Petrella,
Senior Vice President, Chief Financial Officer and
Treasurer (principal financial and accounting officer)
February 22, 2013
/s/ VINCENT K. PETRELLA
Vincent K. Petrella as
Attorney-in-Fact for
Harold L. Adams, Director
February 22, 2013
/s/ VINCENT K. PETRELLA
Vincent K. Petrella as
Attorney-in-Fact for
David H. Gunning, Director
February 22, 2013
/s/ VINCENT K. PETRELLA
Vincent K. Petrella as
Attorney-in-Fact for
Robert J. Knoll, Director
February 22, 2013
/s/ VINCENT K. PETRELLA
Vincent K. Petrella as
Attorney-in-Fact for
Kathryn Jo Lincoln, Director
February 22, 2013
/s/ VINCENT K. PETRELLA
Vincent K. Petrella as
Attorney-in-Fact for
Hellene S. Runtagh, Director
February 22, 2013
38
The Board of Directors and Shareholders of Lincoln Electric Holdings, Inc.
Report of Independent Registered Public Accounting Firm
We have audited the accompanying consolidated balance sheets of Lincoln Electric Holdings, Inc. and subsidiaries as of
December 31, 2012 and 2011, and the related consolidated statements of income, comprehensive income, equity, and cash
flows for each of the three years in the period ended December 31, 2012. Our audits also included the financial statement
schedule listed in the Index as Item 15 (a) (2). These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial
position of Lincoln Electric Holdings, Inc. and subsidiaries at December 31, 2012 and 2011, and the consolidated results of
their operations and their cash flows for each of the three years in the period ended December 31, 2012, in conformity with
U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents fairly in all material respects, the information set forth
therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),
Lincoln Electric Holdings, Inc. and subsidiaries' internal control over financial reporting as of December 31, 2012, based on
criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission and our report dated February 22, 2013 expressed an unqualified opinion thereon.
Cleveland, Ohio
February 22, 2013
/s/ Ernst & Young LLP
F-1
The Board of Directors and Shareholders of Lincoln Electric Holdings, Inc.
Report of Independent Registered Public Accounting Firm
We have audited Lincoln Electric Holdings, Inc. and subsidiaries' internal control over financial reporting as of December 31,
2012, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (the COSO criteria). Lincoln Electric Holdings, Inc. and subsidiaries' management
is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of
internal control over financial reporting included in the accompanying Management's Report on Internal Control over Financial
Reporting in Item 9A. Our responsibility is to express an opinion on the company's internal control over financial reporting
based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal
control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and
operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Lincoln Electric Holdings, Inc. and subsidiaries maintained, in all material respects, effective internal control
over financial reporting as of December 31, 2012, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),
the consolidated balance sheets of Lincoln Electric Holdings, Inc. and subsidiaries as of December 31, 2012 and 2011, and the
related consolidated statements of income, comprehensive income, equity, and cash flows for each of the three years in the
period ended December 31, 2012 of Lincoln Electric Holdings, Inc. and subsidiaries and our report dated February 22, 2013
expressed an unqualified opinion thereon.
Cleveland, Ohio
February 22, 2013
/s/ Ernst & Young LLP
F-2
LINCOLN ELECTRIC HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
ASSETS
Current Assets
Cash and cash equivalents
Accounts receivable (less allowance for doubtful accounts of $8,654 in
2012; $7,079 in 2011)
Inventories
Raw materials
Work-in-process
Finished goods
Total inventory
Deferred income taxes
Other current assets
Total Current Assets
Property, Plant and Equipment
Land
Buildings
Machinery and equipment
Less accumulated depreciation
Property, Plant and Equipment, Net
Other Assets
Equity investments in affiliates
Intangibles, net
Goodwill
Long-term investments
Deferred income taxes
Other non-current assets
Total Other Assets
TOTAL ASSETS
December 31,
2012
2011
$
286,464
$
361,101
360,662
386,197
119,963
41,805
203,122
364,890
16,670
104,130
117,194
42,103
213,941
373,238
15,102
83,632
1,132,816
1,219,270
44,510
343,867
732,461
42,891
322,626
724,801
1,120,838
1,090,318
634,602
486,236
24,606
132,902
132,903
31,187
44,639
104,574
470,811
619,867
470,451
24,618
94,471
65,101
30,176
57,568
15,121
287,055
$
2,089,863
$
1,976,776
See notes to these consolidated financial statements.
F-3
LINCOLN ELECTRIC HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
LIABILITIES AND EQUITY
Current Liabilities
Amounts due banks
Trade accounts payable
Accrued employee compensation and benefits
Accrued expenses
Accrued taxes, including income taxes
Accrued pensions
Dividends payable
Customer advances
Other current liabilities
Current portion of long-term debt
Total Current Liabilities
Long-Term Liabilities
Long-term debt, less current portion
Accrued pensions
Deferred income taxes
Accrued taxes
Other long-term liabilities
Total Long-Term Liabilities
Shareholders' Equity
Preferred shares, without par value – at stated capital amount;
authorized – 5,000,000 shares; issued and outstanding – none
Common shares, without par value – at stated capital amount;
authorized – 240,000,000 shares; issued – 98,581,434 shares in 2012 and 2011;
outstanding – 82,944,817 shares in 2012 and 83,757,366 shares in 2011
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Treasury shares, at cost – 15,636,617 shares in 2012 and 14,824,068 shares in 2011
Total Shareholders' Equity
Non-controlling interests
Total Equity
TOTAL LIABILITIES AND EQUITY
See notes to these consolidated financial statements.
F-4
December 31,
2012
2011
$
18,220
$
209,647
68,698
29,420
45,505
3,639
—
26,335
38,347
456
19,922
176,312
55,670
30,243
21,964
10,348
14,186
15,473
45,428
81,496
440,267
471,042
1,599
216,189
8,349
35,550
29,588
291,275
1,960
232,175
17,606
35,693
25,058
312,492
—
—
9,858
205,124
1,682,668
(235,400)
(319,877)
1,342,373
15,948
9,858
179,104
1,484,393
(247,881)
(248,528)
1,176,946
16,296
1,358,321
1,193,242
$
2,089,863
$
1,976,776
LINCOLN ELECTRIC HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
Net sales
Cost of goods sold
Gross profit
Selling, general & administrative expenses
Rationalization and asset impairment charges (gains)
Operating income
Other income (expense):
Interest income
Equity earnings in affiliates
Other income
Interest expense
Total other income (expense)
Income before income taxes
Income taxes
Net income including non-controlling interests
Non-controlling interests in subsidiaries' (loss) earnings
Net income
Basic earnings per share
Diluted earnings per share
Cash dividends declared per share
Year Ended December 31,
2012
2011
2010
$
2,853,367
$
2,694,609
$
2,070,172
1,986,711
1,957,872
1,506,353
866,656
495,221
9,354
362,081
3,988
5,007
2,685
(4,191)
7,489
369,570
112,354
257,216
(195)
257,411
3.10
3.06
0.710
$
$
$
$
736,737
439,775
282
296,680
3,121
5,385
2,849
(6,704)
4,651
301,331
84,318
217,013
(173)
217,186
2.60
2.56
0.635
$
$
$
$
563,819
377,773
(384)
186,430
2,381
3,171
1,817
(6,691)
678
187,108
54,898
132,210
1,966
130,244
1.54
1.53
0.575
$
$
$
$
See notes to these consolidated financial statements.
F-5
LINCOLN ELECTRIC HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands, except per share amounts)
Net income including non-controlling interests
Other comprehensive income, net of tax:
Unrealized (loss) gain on derivatives designated and qualifying as cash
flow hedges, net of tax of $(201) in 2012; $264 in 2011; $302 in 2010
Defined pension plan activity, net of tax of $3,492 in 2012; $47,413 in
2011; $893 in 2010
Currency translation adjustment
Other comprehensive income (loss)
Comprehensive income
Comprehensive (loss) income attributable to non-controlling interests
Comprehensive income attributable to shareholders
$
Year Ended December 31,
2012
2011
2010
$
257,216
$
217,013
$
132,210
(832)
1,264
292
(6,475)
19,635
12,328
269,544
(348)
269,892
(79,936)
(26,773)
(105,445)
111,568
315
(2,024)
9,874
8,142
140,352
2,652
$
111,253
$
137,700
See notes to these consolidated financial statements.
F-6
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LINCOLN ELECTRIC HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended December 31,
2012
2011
2010
CASH FLOWS FROM OPERATING ACTIVITIES
Net income
Non-controlling interests in subsidiaries' (loss) earnings
Net income including non-controlling interests
Adjustments to reconcile Net income including non-controlling interests to Net cash
provided by operating activities:
Rationalization and asset impairment charges (gains)
Depreciation and amortization
Equity loss (earnings) in affiliates, net
Deferred income taxes
Stock-based compensation
Amortization of terminated interest rate swaps
Pension expense
Pension contributions and payments
Other, net
Changes in operating assets and liabilities, net of effects from acquisitions:
Decrease (increase) in accounts receivable
Decrease (increase) in inventories
(Increase) decrease in other current assets
Increase in accounts payable
Increase in other current liabilities
Net change in other long-term assets and liabilities
NET CASH PROVIDED BY OPERATING ACTIVITIES
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures
Acquisition of businesses, net of cash acquired
Proceeds from sale of property, plant and equipment
Other investing activities
NET CASH USED BY INVESTING ACTIVITIES
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from short-term borrowings
Payments on short-term borrowings
Amounts due banks, net
Proceeds from long-term borrowings
Payments on long-term borrowings
Proceeds from exercise of stock options
Tax benefit from exercise of stock options
Purchase of shares for treasury
Cash dividends paid to shareholders
Other financing activities
NET CASH USED BY FINANCING ACTIVITIES
Effect of exchange rate changes on cash and cash equivalents
DECREASE IN CASH AND CASH EQUIVALENTS
Cash and cash equivalents at beginning of year
$
257,411
$
217,186
$
(195)
257,216
1,740
65,334
160
(2,137)
8,961
(430)
35,515
(69,646)
3,118
57,759
28,286
(9,506)
16,110
21,887
(86,883)
327,484
(52,715)
(134,602)
1,387
(1,541)
(173)
217,013
23
62,051
(1,971)
15,139
6,610
(1,867)
26,370
(36,322)
2,858
(67,518)
(51,679)
(2,857)
8,672
20,838
(3,842)
193,518
(65,813)
(66,229)
1,246
—
(187,471)
(130,796)
2,518
(4,293)
(2,758)
918
(85,688)
18,776
7,819
(81,018)
(73,112)
—
(216,838)
2,188
(74,637)
361,101
23,224
(15,446)
1,203
909
(1,941)
11,351
2,916
(36,997)
(51,935)
3,346
(63,370)
(4,444)
(5,092)
366,193
CASH AND CASH EQUIVALENTS AT END OF YEAR
$
286,464
$
361,101
$
See notes to these consolidated financial statements.
F-8
130,244
1,966
132,210
(4,391)
57,357
(600)
4,387
8,213
(1,867)
29,123
(47,205)
(1,491)
(47,958)
(28,912)
4,956
47,323
8,836
(3,003)
156,978
(60,565)
(18,856)
10,021
—
(69,400)
13,319
(12,896)
(19,022)
150
(8,730)
3,508
1,210
(39,682)
(47,364)
—
(109,507)
(14)
(21,943)
388,136
366,193
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Lincoln Electric Holdings, Inc. and its wholly-owned and
majority-owned subsidiaries for which it has a controlling interest (the "Company") after elimination of all inter-company
accounts, transactions and profits.
General Information
The Company is a manufacturer of welding, cutting and brazing products. Welding products include arc welding power sources,
wire feeding systems, robotic welding packages, fume extraction equipment, consumable electrodes and fluxes. The Company's
product offering also includes CNC plasma and oxy-fuel cutting systems, regulators and torches used in oxy-fuel welding,
cutting and brazing and consumables used in the brazing and soldering alloys market.
Translation of Foreign Currencies
Asset and liability accounts are translated into U.S. dollars using exchange rates in effect at the dates of the Consolidated
Balance Sheets; revenue and expense accounts are translated at average monthly exchange rates. Translation adjustments are
reflected as a component of Total equity. For subsidiaries operating in highly inflationary economies, both historical and
current exchange rates are used in translating balance sheet accounts, and translation adjustments are included in Net income.
The translation of assets and liabilities originally denominated in foreign currencies into U.S. dollars is for consolidation
purposes, and does not necessarily indicate that the Company could realize or settle the reported value of those assets and
liabilities in U.S. dollars. Additionally, such a translation does not necessarily indicate that the Company could return or
distribute the reported U.S. dollar value of the net equity of its foreign operations to shareholders.
Foreign currency transaction losses are included in Selling, general & administrative expenses and were $4,608, $4,904 and
$118 in 2012, 2011 and 2010, respectively.
Venezuela – Highly Inflationary Economy
Venezuela is a highly inflationary economy under U.S. generally accepted accounting principles ("GAAP"). As a result, the
financial statements of the Company's Venezuelan operation are reported under highly inflationary accounting rules as of
January 1, 2010. Under highly inflationary accounting, the financial statements of the Company's Venezuelan operation have
been remeasured into the Company's reporting currency and exchange gains and losses from the re-measurement of monetary
assets and liabilities are reflected in current earnings. In remeasuring the financial statements, the official exchange rate for
non-essential goods of 4.3 bolivars to the U.S. dollar (the "Non-Essential Rate") is used as this is the rate expected to be
applicable to dividend repatriations.
Future impacts to earnings of applying highly inflationary accounting for Venezuela on the Company's consolidated financial
statements will be dependent upon movements in the applicable exchange rates between the bolivar and the U.S. dollar and the
amount of monetary assets and liabilities included in the Company's Venezuelan operation's balance sheet. The bolivar-
denominated monetary net asset position was $31,545 at December 31, 2012 and $6,826 at December 31, 2011. The increased
exposure was due to the limited opportunities to convert bolivars into U.S. dollars.
In 2010, the Company participated in Venezuelan sovereign debt offerings as a means of converting bolivars to U.S. dollars.
The conversion of bolivars to U.S. dollars through Venezuelan sovereign debt offerings generated foreign currency transaction
losses as the debt was purchased at the Non-Essential Rate and subsequently sold at a discount. During 2010, the Company
acquired $7,672 of Venezuelan sovereign debt at the Non-Essential Rate, which was immediately sold at a discount for $6,022.
The sale of the Venezuelan sovereign debt resulted in a loss of $1,650 recognized in Selling, general and administrative
expenses.
The devaluation of the bolivar and the change to the U.S. dollar as the functional currency resulted in a foreign currency
transaction gain of $2,632 in Selling, general & administrative expenses and higher Cost of goods sold of $5,755 due to the
liquidation of inventory valued at the historical exchange rate for the year ended December 31, 2010.
On February 8, 2013, the Venezuelan government announced the devaluation of its currency relative to the U.S. dollar. The
Non-Essential Rate moved from 4.3 to 6.3 bolivars to one U.S. dollar. The devaluation of the bolivar is expected to result in a
foreign currency transaction charge of approximately $8,500 in Selling, general & administrative expenses. This charge will be
recognized during the first quarter of 2013. The impact of selling inventories carried at the previous exchange rate is expected
F-9
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
to decrease gross profit by approximately $4,000 in 2013. These charges will be recognized during the first half of 2013. The
Company also expects that its Venezuelan subsidiary's results of operations will decrease significantly in 2013 due to the new
exchange rate.
Cash Equivalents
The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash
equivalents.
Accounts Receivable
The Company maintains an allowance for doubtful accounts for estimated losses from the failure of its customers to make
required payments for products delivered. The Company estimates this allowance based on the age of the related receivable,
knowledge of the financial condition of customers, review of historical receivables and reserve trends and other pertinent
information. If the financial condition of customers deteriorates or an unfavorable trend in receivable collections is experienced
in the future, additional allowances may be required. Historically, the Company's reserves have approximated actual experience.
Inventories
Inventories are valued at the lower of cost or market. Fixed manufacturing overhead costs are allocated to inventory based on
normal production capacity and abnormal manufacturing costs are recognized as period costs. For most domestic inventories,
cost is determined principally by the last-in, first-out ("LIFO") method, and for non-U.S. inventories, cost is determined by the
first-in, first-out ("FIFO") method.
Reserves are maintained for estimated obsolescence or excess inventory equal to the difference between the cost of inventory
and the estimated market value based upon assumptions about future demand and market conditions. Historically, the
Company's reserves have approximated actual experience.
Equity Investments
Investments in businesses in which the Company does not have a controlling interest and holds between a 20% and 50%
ownership interest are accounted for using the equity method of accounting on a one-month lag basis. The Company's 50%
ownership interest in equity investments includes investments in Turkey and Chile. The amount of retained earnings that
represents undistributed earnings of 50% or less owned equity investments was $15,034 at December 31, 2012 and $15,190 at
December 31, 2011.
Property, Plant and Equipment
Property, plant and equipment are stated at cost and include improvements which significantly increase capacities or extend the
useful lives of existing plant and equipment. Depreciation and amortization are computed using a straight-line method over
useful lives ranging from three to 20 years for machinery, tools and equipment, and up to 50 years for buildings. Net gains or
losses related to asset dispositions are recognized in earnings in the period in which dispositions occur.
Routine maintenance, repairs and replacements are expensed as incurred. The Company capitalizes interest costs associated
with long-term construction in progress.
Goodwill and Intangibles
Goodwill is recorded when the cost of acquired businesses exceeds the fair value of the identifiable net assets acquired.
Intangible assets other than goodwill are recorded at fair value at the time acquired or at cost, if applicable. Intangible assets
that do not have indefinite lives are amortized in line with the pattern in which the economic benefits of the intangible asset are
consumed. If the pattern of economic benefit cannot be reliably determined, the intangible assets are amortized on a straight-
line basis over the shorter of the legal or estimated life.
Goodwill and indefinite-lived intangibles assets are not amortized, but are tested for impairment in the fourth quarter using the
same dates 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. Goodwill is tested by comparing the fair value of each reporting unit with its carrying
value. If the carrying value of the reporting unit exceeds its fair value, the implied value of goodwill is compared to its carrying
value and impairment is recognized to the extent that the carrying value exceeds the implied fair value.
F-10
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
Long-Lived Assets
The Company evaluates whether current facts or circumstances indicate that the carrying value of its depreciable long-lived
assets 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.
Fair Value Measurements
Financial assets and liabilities, such as the Company's defined benefit pension plan assets and derivative contracts, are valued at
fair value using the market and income valuation approaches. Fair value is defined as the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price).
The Company uses the market approach to value similar assets and liabilities in active markets and the income approach that
consists of discounted cash flow models that take into account the present value of future cash flows under the terms of the
contracts using current market information as of the reporting date. The following hierarchy is used to classify the inputs used
to measure fair value:
Level 1
Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets.
Level 2
Inputs to the valuation methodology include:
• Quoted prices for similar assets or liabilities in active markets;
• Quoted prices for identical or similar assets or liabilities in inactive markets;
• Inputs other than quoted prices that are observable for the asset or liability; and
• Inputs that are derived principally from or corroborated by observable market data by correlation or other
means.
If the asset or liability has a specific (contractual) term, the Level 2 input must be observable for substantially the
full term of the asset or liability.
Level 3
Inputs to the valuation methodology are unobservable and significant to the fair value measurement.
Product Warranties
The Company accrues for product warranty claims based on historical experience and the expected material and labor costs to
provide warranty service. Warranty services are provided for periods up to three years from the date of sale. The accrual for
product warranty claims is included in "Accrued expenses."
Revenue Recognition
Substantially all of the Company's revenues are recognized when the risks and rewards of ownership and title to the product
have transferred to the customer which generally occurs at point of shipment. 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.
For contracts accounted for under the percentage of completion method, revenue recognition is 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.
Distribution Costs
Distribution costs, including warehousing and freight related to product shipments, are included in "Cost of goods sold."
Stock-Based Compensation
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 or restricted stock units ultimately
forfeited because the recipients fail to meet vesting requirements.
Common stock issuable upon the exercise of employee stock options is excluded from the calculation of diluted earnings per
share when the calculation of option equivalent shares is anti-dilutive.
F-11
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
Financial Instruments
The Company uses forward contracts to hedge exposures to commodity prices and exchange rate fluctuations on certain purchase
and sales transactions and balance sheet exposures. Contracts are generally written on a short-term basis but may cover exposures
for up to two years and are not held for trading or speculative purposes. The Company uses interest rate swaps from time to time
to hedge changes in the fair value of debt. The Company recognizes derivative instruments as either assets or liabilities at fair
value. The accounting for changes in the fair value of derivative instruments depends on whether it has been designated and
qualifies as part of a hedging relationship and on the type of hedging relationship.
For derivative instruments that qualify as a fair value hedge (i.e., hedging the exposure to changes in the fair value of an asset
or a liability), the gain or loss on the derivative instrument, as well as the offsetting loss or gain on the hedged item are
recognized in earnings. For derivative instruments that qualify as a cash flow hedge (i.e., hedging the exposure to variability in
expected future cash flows), the effective portion of the unrealized gain or loss on the derivative instrument is reported as a
component of "Accumulated other comprehensive loss" with offsetting amounts recorded as "Other current assets," "Other non-
current assets," "Other current liabilities" or "Other long-term liabilities" depending on the position and the duration of the
contract. At settlement, the realized gain or loss is reflected in earnings in the same period or periods during which the hedged
transaction affects earnings. Any remaining gain or loss on the derivative instrument is recognized in earnings. For derivative
instruments not designated as hedges, the gain or loss from changes in the fair value of the instruments is recognized in
earnings. The Company does not hedge its net investments in foreign subsidiaries.
Advertising Costs
Advertising costs are charged to "Selling, general & administrative expenses" as incurred and totaled $12,376, $11,269 and
$9,222 in 2012, 2011 and 2010, respectively.
Research and Development
Research and development costs are charged to "Selling, general & administrative expenses" as incurred and totaled $37,305,
$32,834 and $29,489 in 2012, 2011 and 2010, respectively.
Bonus
Included in "Selling, general & administrative expenses" are the costs related to the Company's discretionary employee bonus
programs, which for certain U.S.- based employees are net of hospitalization costs. Bonus costs were $124,947 in 2012,
$104,361 in 2011 and $73,197 in 2010.
Income Taxes
Deferred income taxes are recognized at currently enacted tax rates for temporary differences between the financial reporting
and income tax basis of assets and liabilities and operating loss and tax credit carry-forwards. 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.
Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions in
certain circumstances that affect the amounts reported in the accompanying consolidated financial statements and notes. Actual
results could differ from these estimates.
Reclassification
Certain reclassifications have been made to prior year financial statements to conform to current year classifications.
New Accounting Pronouncements
New Accounting Standards Adopted:
In September 2011, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU")
No. 2011-08, "Intangibles – Goodwill and Other (Topic 350): Testing Goodwill for Impairment." ASU 2011-08 provides an
entity the option to first assess qualitative factors to determine whether the existence of events or circumstance leads to the
determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the entity
determines it is not more likely than not that the fair value is less than the carrying amount, then performing the two-step
impairment test is unnecessary. However, if the entity concludes otherwise, it is required to perform the first step of the two-
step impairment test. The amendments are effective for annual and interim goodwill impairment tests performed for fiscal
years beginning after December 15, 2011. ASU 2011-08 was adopted by the Company on January 1, 2012 and did not have a
significant impact on the Company's financial statements.
F-12
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
In June 2011, the FASB issued ASU No. 2011-05, “Comprehensive Income (Topic 220): Presentation of Comprehensive
Income.” This update provides amendments to Accounting Standards Codification (“ASC”) Topic 220, Comprehensive
Income. ASU 2011-05 provides an entity the option to present the total of comprehensive income, the components of net
income and the components of other comprehensive income either in a single continuous statement of comprehensive income
or in two separate but consecutive statements. Under both options, an entity is required to present each component of net
income along with total net income, each component of other comprehensive income along with a total for other comprehensive
income and a total amount for comprehensive income. Further, ASU 2011-05 requires the presentation on the face of the
financial statements items that are reclassified from other comprehensive income to net income in the statement(s) where the
components of net income and the components of other comprehensive income are presented. The amendment to present
reclassification adjustments was deferred when the FASB issued ASU 2011-12. ASU 2011-05 should be applied retrospectively
and is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The Company
adopted ASU 2011-05, excluding deferred portions, on January 1, 2012. Refer to the consolidated financial statements herein.
In May 2011, the FASB issued ASU No. 2011-04, "Fair Value Measurement (Topic 820): Amendments to Achieve Common
Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS's." ASU 2011-04 amends ASC Topic 820,
resulting in common fair value measurement and disclosure requirements in GAAP and International Financial Reporting
Standards ("IFRS"). Consequently, the amendments change the wording used to describe many of the requirements in GAAP
for measuring fair value and for disclosing information about fair value measurements. These amendments are to be applied
prospectively and are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011.
ASU 2011-04 was adopted by the Company on January 1, 2012 and did not have a significant impact on the Company's
financial statements.
New Accounting Standards to be Adopted:
In February 2013, the FASB issued ASU No. 2013-02, “Comprehensive Income (Topic 220): Reporting of Amounts Reclassified
Out of Accumulated Other Comprehensive Income.” ASU 2013-02 requires an entity to provide information about the amounts
reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present, either
on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated
other comprehensive income by the respective line items of net income but only if the amount reclassified is required under
U.S. GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts, an entity is required
to cross-reference to other disclosures required under U.S. GAAP that provide additional detail about those amounts. The
amendments are effective prospectively for reporting periods beginning after December 15, 2012. The Company is currently
evaluating the impact of the adoption of ASU 2013-02 on the Company's financial statements.
In July 2012, the FASB issued ASU No. 2012-02, “Intangibles - Goodwill and Other (Topic 350): Testing Indefinite-Lived
Intangible Assets for Impairment.” ASU 2012-02 permits an entity first to assess qualitative factors to determine whether it is
more likely than not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to
perform the quantitative impairment test in accordance with Subtopic 350-30, Intangibles - Goodwill and Other - General
Intangibles Other than Goodwill. The more-likely-than-not threshold is defined as having a likelihood of more than 50 percent.
In accordance with this update, an entity will have an option not to calculate annually the fair value of an indefinite-lived
intangible asset if the entity determines that it is not more likely than not that the asset is impaired. The amendments are
effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. The Company
is currently evaluating the impact of the adoption of ASU 2012-02 on the Company's financial statements.
In December 2011, the FASB issued ASU No. 2011-11, "Balance Sheet (Topic 210): Disclosures about Offsetting Assets and
Liabilities." ASU 2011-11 requires an entity to disclose information about financial instruments and derivative instruments that
are subject to offsetting, master netting or other similar arrangements, to illustrate the effect or potential effect of those
arrangements on the Company's financial position. In January 2013, the FASB issued ASU No. 2013-01, “Balance Sheet (Topic
210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities,” which clarifies the scope of ASU 2011-11.
The amendments are effective for annual periods beginning on or after January 1, 2013 and interim periods within those annual
periods. The amendments should be applied retrospectively for all prior periods presented. The Company is currently
evaluating the impact of the adoption of ASU 2011-11 on the Company's financial statements.
F-13
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
NOTE 2 - EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per share:
Numerator:
Net income
Denominator:
Year Ended December 31,
2012
2011
2010
$
257,411
$
217,186
$
130,244
Basic weighted average shares outstanding
Effect of dilutive securities - Stock options and awards
Diluted weighted average shares outstanding
83,087
1,088
84,175
Basic earnings per share
Diluted earnings per share
$
$
3.10
3.06
$
$
83,681
1,027
84,708
2.60
2.56
$
$
84,407
816
85,223
1.54
1.53
For the years ended December 31, 2012, 2011 and 2010, common shares subject to equity-based awards of 107,814, 626,135 and
1,504,346, respectively, were excluded from the computation of diluted earnings per share because the effect of their exercise
would be anti-dilutive.
NOTE 3 – ACQUISITIONS
On December 31, 2012, the Company completed the acquisition of the privately-held automated systems and tooling
manufacturer, Tennessee Rand, Inc. ("Tenn Rand"). Tenn Rand, based in Chattanooga, Tennessee, is a leader in the design and
manufacture of tooling and robotic systems for welding applications. The acquisition added tool design, system building and
machining capabilities that will enable the Company to further expand its welding automation business. Annual sales for Tenn
Rand in 2012 were approximately $35,000.
On November 13, 2012, the Company completed the acquisition of the Kaliburn, Burny and Cleveland Motion Control
businesses (collectively, "Kaliburn") from ITT Corporation. Kaliburn, headquartered in Ladson, South Carolina, is a designer
and manufacturer of shape cutting solutions, producer of shape cutting control systems and manufacturer of web tension
transducers and engineered machine systems. The acquisitions added to the Company's cutting business portfolio. Annual
sales for Kaliburn at the date of acquisition were approximately $36,000.
On May 17, 2012, the Company completed the acquisition of Wayne Trail Technologies, Inc. (“Wayne Trail”). Wayne Trail,
based in Ft. Loramie, Ohio, is a manufacturer of automated systems and tooling, serving a wide range of applications in the
metal processing market. The acquisition added to the Company’s welding and automated solutions portfolio. Annual sales for
Wayne Trail at the date of acquisition were approximately $50,000.
On March 6, 2012, the Company completed the acquisition of Weartech International, Inc. (“Weartech”). Weartech, based in
Anaheim, California, is a producer of cobalt-based hard facing and wear-resistant welding consumables. The acquisition added
to the Company’s consumables portfolio. Sales for Weartech during 2011 were approximately $40,000.
The Company acquired Tenn Rand, Kaliburn, Wayne Trail and Weartech for approximately $143,504 in cash, net of cash
acquired, and assumed debt. The fair value of net assets acquired was $75,764, resulting in goodwill of $67,740. Some of the
purchase price allocations are preliminary and subject to final opening balance sheet adjustments.
On July 29, 2011, the Company acquired substantially all of the assets of Techalloy Company, Inc. and certain assets of its
parent company, Central Wire Industries Ltd. (collectively, "Techalloy"). Techalloy, based in Baltimore, Maryland, was a
privately-held manufacturer of nickel alloy and stainless steel welding consumables. The acquisition added to the Company's
consumables portfolio. Annual sales for Techalloy at the date of acquisition were approximately $70,000.
On July 29, 2011, the Company acquired substantially all of the assets of Applied Robotics, Inc. (d/b/a Torchmate)
("Torchmate"). Torchmate, based in Reno, Nevada, provides a wide selection of computer numeric controlled plasma cutter
and oxy-fuel cutting systems. The acquisition added to the Company's plasma and oxy-fuel cutting product offering. Annual
sales for Torchmate at the date of acquisition were approximately $13,000.
On March 11, 2011, the Company completed the acquisition of OOO Severstal-metiz: welding consumables ("Severstal").
Severstal is a leading manufacturer of welding consumables in Russia and was a subsidiary of OAO Severstal, one of the
world's leading vertically integrated steel and mining companies. This acquisition expanded the Company's capacity and
distribution channels in Russia and the Commonwealth of Independent States ("CIS"). Sales for Severstal during 2010 were
approximately $40,000.
F-14
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
On January 31, 2011, the Company acquired substantially all of the assets of SSCO Manufacturing, Inc. (d/b/a Arc Products)
("Arc Products"). Arc Products was a privately-held manufacturer of orbital welding systems and welding automation
components based in Southern California. Orbital welding systems are designed to automatically weld pipe and tube in
difficult to access locations and for mission-critical applications requiring high weld integrity and sophisticated quality
monitoring capabilities. The acquisition will complement the Company's ability to serve global customers in the nuclear, power
generation and process industries worldwide. Sales for Arc Products during 2010 were not significant.
The Company acquired Techalloy, Torchmate, Severstal and Arc Products for approximately $65,321 in cash and assumed debt
and a contingent consideration liability fair valued at $3,806. The contingent consideration is based upon estimated sales at the
related acquisition for the five-year period ending December 31, 2015 and will be paid in 2016 based on actual sales during the
five-year period. The fair value of net assets acquired was $46,837, resulting in goodwill of $22,290.
On October 29, 2010, the Company acquired all of the outstanding stock of Mezhgosmetiz-Mtsensk OAO ("MGM"), a
privately-held welding wire manufacturer based in the Orel region of Russia, for approximately $28,500 in cash and assumed
debt. This acquisition represented the Company's first manufacturing operation in Russia as well as established distribution
channels to serve the growing Russian and CIS welding markets. Annual sales for MGM at the date of acquisition were
approximately $30,000.
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.
NOTE 4 – GOODWILL AND INTANGIBLES
The Company performs an annual impairment test of goodwill and indefinite-lived intangible assets in the fourth quarter using
the same dates 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. Goodwill is tested by comparing the fair value of each reporting unit
with its carrying value. If the carrying value of the reporting unit exceeds its fair value, the implied value of goodwill is
compared to its carrying value and impairment is recognized to the extent that the carrying value exceeds the implied fair value.
Fair values are determined using established business valuation multiples and models developed by the Company that
incorporate allocations of certain assets and cash flows among reporting units, estimates of market participant assumptions of
future cash flows, future growth rates and the applicable discount rates to value estimated cash flows. Changes in economic
and operating conditions impacting these assumptions could result in asset impairments in future periods. The Company's
annual impairment test of goodwill and indefinite-lived intangible assets in 2012 resulted in no impairment loss being
recognized.
The changes in the carrying amount of goodwill by reportable segment for the years ended December 31, 2012 and 2011 were
as follows:
North
America
Welding
Europe
Welding
Asia
Pacific
Welding
South
America
Welding
The Harris
Products
Group
Balance as of January 1, 2011
$
5,069
$
16,379
$
5,030
$
565
$
Additions and adjustments
Foreign currency translation
Balance as of December 31, 2011
Additions and adjustments
Foreign currency translation
13,478
(33)
18,514
67,740
23
9,543
(2,055)
23,867
66
1,424
—
178
5,208
—
40
—
(4)
561
—
53
Balance as of December 31, 2012
$
86,277
$
25,357
$
5,248
$
614
$
18,909
(1,247)
(711)
16,951
(1,109)
(435)
15,407
Consolidated
$
45,952
21,774
(2,625)
65,101
66,697
1,105
$
132,903
Additions to goodwill primarily reflect goodwill recognized in the acquisitions of Weartech, Wayne Trail, Kaliburn and Tenn
Rand in 2012 and the acquisitions of Arc Products, Severstal, Torchmate and Techalloy in 2011 (see Note 3). Reductions to
goodwill result from the tax benefit attributable to the amortization of tax deductible goodwill in excess of goodwill recorded
for financial reporting purposes.
F-15
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
Gross and net intangible assets other than goodwill by asset class as of December 31, 2012 and 2011 were as follows:
Trademarks and trade names
Customer relationships
Patents
Other
Total
Trademarks and trade names
Customer relationships
Patents
Other
Total
Weighted
Average Life
12
16
19
14
December 31, 2012
Gross
Amount
Accumulated
Amortization
Indefinite
Lived Assets
Total Intangible,
Net
$
$
30,611
63,906
20,882
44,769
160,168
Gross
Amount
18,559
40,818
18,677
33,148
111,202
$
$
$
$
$
$
9,493
12,099
5,103
18,847
45,542
$
$
18,276
—
—
—
18,276
$
$
39,394
51,807
15,779
25,922
132,902
December 31, 2011
Accumulated
Amortization
Indefinite
Lived Assets
Total Intangible,
Net
8,020
7,875
3,927
14,990
34,812
$
$
18,081
—
—
—
18,081
$
$
28,620
32,943
14,750
18,158
94,471
Additions to gross and net intangible assets primarily reflect assets and related amortization recognized in the acquisitions of
Weartech, Wayne Trail, Kaliburn and Tenn Rand in 2012. Aggregate amortization expense was $10,641, $6,661 and $5,390 for
2012, 2011 and 2010, respectively. Estimated annual amortization expense for intangible assets for each of the next five years
is $12,282 in 2013, $10,512 in 2014, $10,099 in 2015, $9,320 in 2016 and $8,816 in 2017.
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. The Company also has a
leading global position in the brazing and soldering alloys market. The Company has aligned its business units into five
operating segments to enhance the utilization of the Company's worldwide resources and global end user and sourcing
initiatives. The operating segments consist of North America Welding, Europe Welding, Asia Pacific Welding, South America
Welding and The Harris Products Group. The North America Welding segment includes welding operations in the United
States, Canada and Mexico. The Europe Welding segment includes welding operations in Europe, Russia, Africa and the
Middle East. The other two welding segments include welding operations in Asia Pacific and South America, respectively.
The fifth segment, The Harris Products Group, includes the Company's global cutting, soldering and brazing businesses as well
as the retail business in the United States.
Segment performance is measured and resources are allocated based on a number of factors, the primary profit measure being
earnings before interest and income taxes ("EBIT"), as adjusted. 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 are reported on a LIFO basis. Segment and consolidated income before interest and
income taxes are reported on a LIFO basis. At December 31, 2012, 2011 and 2010, approximately 34%, 31% and 30%,
respectively, of total inventories were valued using the LIFO method. LIFO is used for certain domestic inventories included in
the North America Welding segment. 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 on a basis that
management believes to be reasonable. Certain corporate-level expenses may not be allocated to the operating segments and
are reported as Corporate/Eliminations.
F-16
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:
For the Year Ended
December 31, 2012
Net sales
Inter-segment sales
Total
EBIT, as adjusted
Special items charge (gain)
EBIT
Interest income
Interest expense
Income before income taxes
North
America
Welding
Europe
Welding
Asia
Pacific
Welding
South
America
Welding
The Harris
Products
Group
Corporate /
Eliminations
Consolidated
$
1,580,818
131,062
1,711,880
293,070
827
292,243
$
$
$
$
$
$
$
452,227
16,048
468,275
37,299
3,534
33,765
$
$
$
$
324,482
14,829
339,311
7,247
4,993
2,254
$
$
$
$
161,483
38
161,521
18,301
1,381
16,920
$
$
$
$
334,357
8,549
342,906
29,477
—
29,477
$
$
$
$
— $
2,853,367
(170,526) $
—
(170,526) $
2,853,367
(4,886) $
380,508
— $
10,735
(4,886) $
369,773
3,988
(4,191)
$
369,570
Total assets
$
980,093
$
451,654
$
350,189
$
134,650
$
195,881
$
(22,604) $
2,089,863
—
36,834
33,479
21,798
5,372
11,008
—
8,833
15,102
2,808
899
1,878
—
831
3,934
— $
(54) $
(67) $
24,606
52,715
65,334
$
1,309,499
136,314
1,445,813
227,924
—
227,924
$
$
$
$
$
$
$
508,692
17,422
526,114
36,171
392
35,779
$
$
$
$
376,276
15,614
391,890
2,629
(110)
2,739
$
$
$
$
156,684
494
157,178
12,895
—
12,895
$
$
$
$
343,458
8,496
351,954
25,151
—
25,151
$
$
$
$
— $
2,694,609
(178,340) $
—
(178,340) $
2,694,609
426
$
305,196
— $
282
426
$
304,914
Total assets
$
771,315
$
436,327
$
380,282
$
110,781
$
181,916
$
96,155
—
31,826
29,237
20,500
8,566
11,736
—
21,498
14,663
4,118
2,314
2,033
—
1,792
4,714
— $
(183) $
(332) $
$
1,013,193
108,849
1,122,042
162,192
—
162,192
$
$
$
$
$
$
$
359,925
13,330
373,255
17,023
2,486
14,537
$
$
$
$
324,092
12,546
336,638
1,752
(3,741)
5,493
$
$
$
$
117,419
1,216
118,635
7,554
3,123
4,431
$
$
$
$
255,543
6,641
262,184
12,311
871
11,440
$
$
$
$
— $
2,070,172
(142,582) $
—
(142,582) $
2,070,172
(6,675) $
194,157
— $
2,739
(6,675) $
191,418
Equity investments in affiliates
Capital expenditures
Depreciation and amortization
For the Year Ended
December 31, 2011
Net sales
Inter-segment sales
Total
EBIT, as adjusted
Special items charge (gain)
EBIT
Interest income
Interest expense
Income before income taxes
Equity investments in affiliates
Capital expenditures
Depreciation and amortization
For the Year Ended
December 31, 2010
Net sales
Inter-segment sales
Total
EBIT, as adjusted
Special items charge (gain)
EBIT
Interest income
Interest expense
Income before income taxes
Total assets
$
611,725
$
413,789
$
350,975
$
94,836
$
193,474
$
118,989
Equity investments in affiliates
Capital expenditures
Depreciation and amortization
—
25,746
27,652
19,194
10,373
9,527
—
22,973
13,542
3,715
3,573
1,564
—
884
5,012
— $
(2,984) $
60
$
F-17
$
$
$
$
3,121
(6,704)
301,331
1,976,776
24,618
65,813
62,051
2,381
(6,691)
187,108
1,783,788
22,909
60,565
57,357
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
In 2012, special items include net charges of $827, $3,637 and $3,151 for rationalization actions in the North America Welding,
Europe Welding and Asia Pacific Welding segments, respectively, primarily related to employee severance and other costs
associated with the consolidation of manufacturing operations. The Europe Welding segment special items also include a gain
of $103 on the sale of assets. The Asia Pacific Welding segment special items also include a charge of $1,842 related to asset
impairments. The South America Welding segment special item represents a charge of $1,381 related to a change in
Venezuelan labor law, which provides for increased employee severance obligations.
In 2011, special items include net charges of $188 and $93 for rationalization actions in the Europe Welding and Asia Pacific
Welding segments, respectively, primarily related to employee severance and other costs associated with the consolidation of
manufacturing operations. The Europe Welding and Asia Pacific Welding segments special items also include a loss of $204
and a gain of $203, respectively, on the sale of assets at rationalized operations.
In 2010, special items include a charge of $1,990 for rationalization actions and $496 in related asset impairment charges for
the Europe Welding segment. The Asia Pacific Welding segment includes a gain of $4,555 related to the disposal of assets, a
charge of $427 for rationalization actions and $387 in asset impairment charges. The South America Welding segment includes
a net charge of $3,123 related to the change in functional currency and devaluation of the Venezuelan currency. The Harris
Products Group segment includes a net charge of $871 related to environmental costs associated with the sale of property at a
rationalized operation.
Export sales (excluding inter-company sales) from the United States were $268,331 in 2012, $242,380 in 2011 and $197,057 in
2010. No individual customer comprised more than 10% of the Company's total revenues for any of the three years ended
December 31, 2012.
The geographic split of the Company's net sales, based on the location of the customer, and property, plant and equipment were
as follows:
Net sales:
United States
China
Other foreign countries
Total
Property, plant and equipment, net:
United States
China
Other foreign countries
Eliminations
Total
Year Ended December 31,
2012
2011
2010
$
1,283,066
$
1,092,838
$
229,996
1,340,305
286,121
1,315,650
825,371
250,981
993,820
$
2,853,367
$
2,694,609
$
2,070,172
December 31,
2012
2011
2010
$
170,831
$
149,637
$
149,185
92,744
223,050
(389)
486,236
$
96,374
224,801
(361)
470,451
$
87,722
242,084
(425)
478,566
$
NOTE 6 – RATIONALIZATION AND ASSET IMPAIRMENTS
The Company recorded rationalization net charges of $9,354 and $282 for the years ended December 31, 2012 and 2011,
respectively, and net gains of $384 for the year ended December 31, 2010. The 2012 net charges include $7,615 primarily
related to employee severance and $1,842 in asset impairment charges, partially offset by gains of $103 related to sale of assets.
A description of each restructuring plan and the related costs follows:
North America Welding Plans:
During 2012, the Company initiated various rationalization plans within the North America Welding segment. Plans for the
segment are to consolidate its Oceanside, California operations and its Reno, Nevada operations to another facility in Reno,
Nevada and to consolidate its Baltimore, Maryland manufacturing operations into its current manufacturing operations in
Cleveland, Ohio. These actions are expected to impact 72 employees within the North America Welding segment. During the
year ended December 31, 2012, the Company recorded charges of $827 related to these activities. Charges represent employee
F-18
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
severance and other related costs. The Company expects additional charges in the range of $1,400 to $1,700 related to the
completion of these activities.
Europe Welding Plans:
During 2012, the Company initiated various rationalization plans within the Europe Welding segment. Plans for the segment
are to consolidate manufacturing facilities in Russia, relocate its Italian machine manufacturing operations to current facilities
in Poland and to restructure headcount at various other manufacturing operations within the segment to better align the cost
structure and capacity requirements with current economic needs and conditions. These actions are expected to impact 285
employees within the Europe Welding segment. During the year ended December 31, 2012, the Company recorded charges of
$3,534 related to these activities. Charges represent employee severance and other related costs of $3,637, partially offset by
gains from the sale of assets at rationalized operations of $103. At December 31, 2012, a liability relating to these actions of
$1,836 was recognized in Other current liabilities, which will be substantially paid in 2013. The Company expects to incur
additional charges in the range of $50 to $100 related to the completion of this plan.
Asia Pacific Welding Plans:
During 2012, the Company initiated various rationalization plans within the Asia Pacific Welding segment. Plans for the
segment are to rationalize its Australian manufacturing operations and to restructure headcount at various other manufacturing
operations within the segment to better align the cost structure and capacity requirements with current economic needs and
conditions. These actions are expected to impact 268 employees within the Asia Pacific Welding segment. During the year
ended December 31, 2012, the Company recorded charges of $4,993 related to these activities. Charges represent employee
severance and other related costs of $3,151 and asset impairment charges of $1,842. At December 31, 2012, a liability relating
to these actions of $1,044 was recognized in Other current liabilities, which are expected to be substantially paid in 2013. The
Company expects additional charges up to $500 related to the completion of these activities.
2009 Plans:
During 2009, the Company initiated rationalization actions including the consolidation of certain manufacturing operations in
the Europe Welding, Asia Pacific Welding and The Harris Products Group segments. At December 31, 2012, a liability relating
to these actions of $177 was recognized in Other current liabilities. The Company does not expect further costs associated with
these actions in 2013 as they were substantially completed in 2010 and are expected to be paid in 2013.
The Company continues evaluating its cost structure and additional rationalization actions may result in charges in future
periods. The following tables summarize the activity related to the rationalization liabilities by segment for the years ended
December 31, 2012 and 2011:
North
America
Welding
Europe
Welding
Asia
Pacific
Welding
The Harris
Products
Group
Consolidated
Balance at December 31, 2011
Payments and other adjustments
Charged to expense
Balance at December 31, 2012
$
$
— $
(827)
827
— $
173
(1,797)
3,637
2,013
$
$
$
— $
(2,107)
3,151
1,044
Asia
Pacific
Welding
90
(183)
93
$
$
$
82
(82)
—
— $
255
(4,813)
7,615
3,057
The Harris
Products
Group
Consolidated
$
930
(848)
—
82
$
1,431
(1,435)
259
255
173
$
— $
Europe
Welding
411
(404)
166
Balance at December 31, 2010
Payments and other adjustments
Charged to expense
Balance at December 31, 2011
$
$
F-19
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
NOTE 7 – ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME
The components of Accumulated other comprehensive loss are as follows:
Defined benefit pension plans, net of tax
Currency translation adjustment
December 31,
$
2012
(261,844) $
26,364
2011
(255,369)
6,576
Unrealized gain on derivatives designated and qualifying as
cash flow hedges, net of tax
80
Total Accumulated other comprehensive loss
$
(235,400) $
912
(247,881)
The balance of Accumulated other comprehensive (loss) income in non-controlling interests relates to foreign currency
translation and amounted to $1,042 and $1,798 at December 31, 2012 and 2011, respectively.
NOTE 8 – DEBT
At December 31, 2012 and 2011, debt consisted of the following:
December 31,
2012
2011
Long-term debt
Senior Unsecured Notes due 2012, interest at 6.36%
$
— $
80,358
Capital leases due through 2017, interest at 1.12% to 8.63%
Other borrowings due through 2023, interest up to 4.25%
Less current portion
Total long-term debt
Short-term debt
Amounts due banks, interest at 11.32% (11.61% in 2011)
Current portion long-term debt
Total short-term debt
Total debt
267
1,788
2,055
456
1,599
18,220
456
18,676
$
20,275
$
901
2,197
83,456
81,496
1,960
19,922
81,496
101,418
103,378
Senior Unsecured Notes
During March 2002, the Company issued Senior Unsecured Notes (the "Notes") totaling $150,000 with original maturities
ranging from five to ten years and a weighted-average interest rate of 6.1%. The proceeds were used for general corporate
purposes, including acquisitions, and were generally invested in short-term, highly liquid investments. The Company repaid
the $40,000 Series A Notes in March 2007, the $30,000 Series B Notes in March 2009 and the $80,000 Series C Notes in March
2012.
At December 31, 2012 and 2011, the fair value of long-term debt, including the current portion, was approximately $1,919 and
$84,110, respectively, which was determined using available market information and methodologies requiring judgment. Since
considerable 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.
Revolving Credit Agreement
The Company has a line of credit totaling $300,000 through the Amended and Restated Credit Agreement (the “Credit
Agreement”), which was entered into on July 26, 2012. The Credit Agreement contains customary affirmative, negative and
financial covenants for credit facilities of this type, including limitations on the Company and its subsidiaries with respect to
liens, investments, distributions, mergers and acquisitions, dispositions of assets, transactions with affiliates and a fixed charges
coverage ratio and total leverage ratio. As of December 31, 2012, the Company was in compliance with all of its covenants and
had no outstanding borrowings under 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
LIBOR or the prime rate, plus a spread based on the Company’s leverage ratio, at the Company’s election.
F-20
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
Capital Leases
At December 31, 2012 and 2011, $267 and $901 of capital lease indebtedness was secured by property, plant and equipment,
respectively.
Other
Maturities of long-term debt, including payments under capital leases and amounts due banks, for the five years succeeding
December 31, 2012 are $18,679 in 2013, $408 in 2014, $309 in 2015, $133 in 2016, $134 in 2017 and $612 thereafter. Total
interest paid was $4,423 in 2012, $6,979 in 2011 and $7,446 in 2010. The primary difference between interest expense and
interest paid is the amortization of the gains on terminated interest rate swaps.
The Company's short-term borrowings included in "Amounts due banks" were $18,220 and $19,922 at December 31, 2012 and
2011, respectively, and represent the borrowings of foreign subsidiaries at weighted average interest rates of 11.3% and 11.6%,
respectively.
NOTE 9 – STOCK PLANS
On April 28, 2006, the shareholders of the Company approved the 2006 Equity and Performance Incentive Plan, as amended
("EPI Plan"), which replaced the 1998 Stock Plan, as amended and restated in May 2003. The EPI Plan provides for the
granting of options, appreciation rights, restricted shares, restricted stock units and performance-based awards up to an
additional 6,000,000 of the Company's common shares. In addition, on April 28, 2006, the shareholders of the Company
approved the 2006 Stock Plan for Non-Employee Directors, as amended ("Director Plan"), which replaced the Stock Option
Plan for Non-Employee Directors adopted in 2000. The Director Plan provides for the granting of options, restricted shares and
restricted stock units up to an additional 600,000 of the Company's common shares. At December 31, 2012, there were
2,517,228 common shares available for future grant under all plans.
Stock Options
The following table summarizes stock option activity for each of the three years ended December 31, 2012, under all Plans:
2012
2011
2010
Year Ended December 31,
Weighted
Average
Exercise
Price
Options
Balance at beginning of year
3,632,463
$
Options granted
Options exercised
Options canceled
Balance at end of year
Exercisable at end of year
412,980
(962,029)
(22,470)
3,060,944
2,208,455
26.05
47.66
19.52
24.07
30.98
27.19
Weighted
Average
Exercise
Price
23.99
35.34
19.82
26.62
26.05
23.73
Options
3,779,824
$
459,263
(572,795)
(33,829)
3,632,463
2,677,071
Weighted
Average
Exercise
Price
22.28
31.29
13.49
27.84
23.99
22.40
Options
3,596,884
$
491,010
(260,084)
(47,986)
3,779,824
2,749,168
Options granted under both the EPI 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 2012, 2011 and 2010.
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, 2012 were as follows:
Year Ended December 31,
2012
2011
2010
Expected volatility
Dividend yield
Risk-free interest rate
Expected option life (years)
45.67%
1.66%
0.70%
4.5
41.92%
1.63%
0.80%
4.3
Weighted average fair value per option granted during the year
$
15.87
$
10.97
$
42.15%
2.02%
1.64%
4.9
10.01
F-21
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
The following table summarizes non-vested stock options for the year ended December 31, 2012:
Balance at beginning of year
Granted
Vested
Forfeited
Balance at end of year
Year Ended December 31, 2012
Number of
Options
Weighted
Average Fair
Value at Grant
Date
$
929,382
412,980
(470,243)
(19,630)
852,489
10.78
15.87
10.19
19.60
13.63
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, 2012 was $54,178 and $47,464, respectively. The total intrinsic value of awards
exercised during 2012, 2011 and 2010 was $18,776, $10,028 and $4,270, respectively.
The following table summarizes information about awards outstanding as of December 31, 2012:
Outstanding
Exercisable
Number of
Stock
Options
449,884
$
1,389,730
1,221,330
3,060,944
Weighted
Average
Exercise
Price
18.59
27.79
39.18
Number of
Stock
Options
449,884
$
1,284,025
474,546
2,208,455
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Life (years)
18.59
27.50
34.50
2.4
6.5
8.0
6.5
Exercise Price Range
Under $19.99
$20.00 - $32.99
Over $33.00
Restricted Share Awards
The following table summarizes restricted share award activity for each of the three years ended December 31, 2012, under all
Plans:
2012
2011
2010
Year Ended December 31,
Weighted
Average
Grant Date
Fair Value
28.06
47.81
32.10
—
28.49
$
Shares
379,233
20,099
(62,524)
—
336,808
Weighted
Average
Grant Date
Fair Value
27.36
35.55
26.97
24.67
28.06
$
Shares
523,730
22,779
(159,842)
(7,434)
379,233
Weighted
Average
Grant Date
Fair Value
26.61
31.05
31.07
—
27.36
$
Shares
435,770
112,864
(24,904)
—
523,730
Balance at beginning of year
Shares granted
Shares vested*
Shares forfeited
Balance at end of year
_______________________________________________________________________________
*
Includes shares vested but not exercisable
Restricted share awards are valued at the quoted market price on the grant date. The majority of restricted share awards vest
over a period of three to five years. The Company issued shares of common stock from treasury upon the granting of restricted
share awards in 2012, 2011 and 2010. Under the EPI Plan, the Company issued 82,992 restricted shares at a weighted average
market price of $30.97 per share in 2010. The Company issued 20,099 restricted shares at a weighted average market price of
$47.81 per share, 22,779 restricted shares at a weighted average market price of $35.55 per share and 29,872 restricted shares at
a weighted average market price of $31.28 per share under the Director Plan in 2012, 2011 and 2010, respectively. The
remaining weighted average life of all non-vested restricted share awards is 1.8 years as of December 31, 2012.
F-22
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
The following table summarizes non-vested restricted share awards for the year ended December 31, 2012:
Balance at beginning of year
Granted
Vested
Balance at end of year
Restricted Stock Units ("RSUs")
Year Ended December 31, 2012
Number of
Restricted
Shares
Weighted
Average
Fair Value
at Grant Date
355,933
$
20,099
(57,944)
318,088
28.18
47.81
31.93
28.74
The following table summarizes restricted stock unit activity for the years ended December 31, 2012 and 2011, under all Plans:
Non-vested at beginning of year
Units granted
Units vested
Units forfeited
Non-vested at end of year
Year Ended December 31,
2012
2011
Weighted
Average
Grant Date
Fair Value
34.55
47.97
33.06
35.55
40.83
Units
166,519
$
133,944
(10,499)
(1,295)
288,669
Weighted
Average
Grant Date
Fair Value
—
34.55
—
—
34.55
Units
— $
166,519
—
—
166,519
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 will issue shares of common stock from treasury upon the vesting of RSUs and any earned dividend equivalents.
Conversion of 10,499 RSUs to common stock in 2012 were deferred as part of the 2005 Deferred Compensation Plan for
Executives (the "2005 Plan"). As of December 31, 2012, 10,713 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. Under
the EPI Plan, the Company issued 133,944 and 166,519 restricted stock units at a weighted average market price of $47.97 and
$34.55 per share in 2012 and 2011, respectively. Restricted stock units were not granted prior to 2011. The remaining
weighted average life of all non-vested RSUs is 4.3 years as of December 31, 2012.
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 or restricted stock units ultimately
forfeited because recipients fail to meet vesting requirements. Total stock-based compensation expense recognized in the
Consolidated Statements of Income for 2012, 2011 and 2010 was $8,961, $6,610 and $8,213, respectively. The related tax
benefit for 2012, 2011 and 2010 was $3,409, $2,515 and $3,112, respectively. As of December 31, 2012, total unrecognized
stock-based compensation expense related to non-vested stock options, restricted shares and restricted stock units was $23,718,
which is expected to be recognized over a weighted average period of approximately 37 months.
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 4,908 in 2012, 4,466 in 2011 and 4,240 in 2010.
NOTE 10 – COMMON STOCK REPURCHASE PROGRAM
The Company has a share repurchase program for up to 30 million shares of the Company's common stock. At management's
discretion, the Company repurchases its common stock from time to time in the open market, depending on market conditions,
stock price and other factors. During the year ended December 31, 2012, the Company purchased 1,779,384 shares at an
average cost per share of $45.06. As of December 31, 2012, 3,342,373 shares remained available for repurchase under the
stock repurchase program. The treasury shares have not been retired.
F-23
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
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.
Defined Benefit Plans
The defined benefit plans generally provide benefits based upon years of service and compensation. The plans are funded
except for a domestic non-qualified pension plan for certain key employees and certain foreign plans. The 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
Change in benefit obligations
Benefit obligations at beginning of year
$
991,979
$
851,948
December 31,
2012
2011
Service cost
Interest cost
Plan participants' contributions
Plan amendments
Actuarial loss
Benefits paid
Settlement/curtailment
Currency translation
Benefit obligations at end of year
Change in plan assets
Fair value of plan assets at beginning of year
Actual return on plan assets
Employer contributions
Plan participants' contributions
Benefits paid
Settlement
Currency translation
Fair value of plan assets at end of year
Funded status at end of year
Unrecognized actuarial net loss
Unrecognized prior service cost
Unrecognized transition assets, net
Net amount recognized
21,538
41,584
334
(3,681)
70,015
(86,722)
(3,946)
2,624
1,033,725
749,456
83,156
68,029
334
(85,238)
(3,798)
1,958
813,897
(219,828)
422,042
(4,101)
26
17,331
44,161
365
—
121,800
(40,345)
(2,434)
(847)
991,979
726,474
29,470
33,994
365
(37,960)
(2,415)
(472)
749,456
(242,523)
408,474
(515)
41
$
198,139
$
165,477
The Company's U.S. defined benefit plans were amended to allow participants, including those with deferred vested pension
benefits, additional payment options including a lump sum and a five year payment option. Increased benefits paid primarily
reflect the disbursements related to deferred vested participants taking lump sum payment options.
F-24
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
The after-tax amounts of unrecognized actuarial net loss, prior service costs and transition assets included in Accumulated other
comprehensive loss at December 31, 2012 were $264,514, $(2,690) and $20, respectively. The actuarial loss represents
changes in the estimated obligation not yet recognized in the Consolidated Income Statement. Actuarial losses arising during
2012 are primarily attributable to a lower discount rate. 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 2013 are
$32,314, $(615) and $4, respectively.
Amounts Recognized in Consolidated Balance Sheets
Accrued pension liability, current
Accrued pension liability, long-term
Accumulated other comprehensive loss, excluding tax effects
Net amount recognized in the balance sheets
Components of Pension Cost for Defined Benefit Plans
December 31,
2012
2011
$
$
(3,639) $
(216,189)
417,967
(10,348)
(232,175)
408,000
198,139
$
165,477
Service cost
Interest cost
Expected return on plan assets
Amortization of prior service cost
Amortization of net loss
Settlement/curtailment loss
Year Ended December 31,
2012
2011
2010
$
21,538
$
17,331
$
41,584
(58,754)
(90)
31,085
895
44,161
(57,405)
(62)
21,816
529
15,371
42,730
(50,424)
(44)
20,830
660
Pension cost for defined benefit plans
$
36,258
$
26,370
$
29,123
Pension costs in 2012 for the Company's defined benefit plans increased as a result of an increase in amortization of net loss
and settlement loss partially offset by an increase in expected return on plan assets. The higher settlement loss includes a
charge of $742 related to the rationalization of the Company's Australia manufacturing operations.
Pension Plans with Accumulated Benefit Obligations in Excess of Plan Assets
U.S. pension plans
Projected benefit obligation
Accumulated benefit obligation
Fair value of plan assets
Non-U.S. pension plans
Projected benefit obligation
Accumulated benefit obligation
Fair value of plan assets
December 31,
2012
2011
$
956,837
$
905,541
755,491
$
76,884
$
70,492
58,403
921,469
883,157
696,802
70,507
66,332
52,652
The total accumulated benefit obligation for all plans was $976,033 as of December 31, 2012 and $949,489 as of December 31,
2011.
F-25
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
Contributions to Plans
The Company expects to contribute approximately $103,000 to its defined benefit plans in the United States in 2013. The
actual amounts to be contributed in 2013 will be determined at the Company's discretion.
Benefit Payments for Plans
Benefits expected to be paid for the U.S. plans are as follows:
Estimated Payments
2013
2014
2015
2016
2017
2018 through 2022
$
53,513
61,080
62,051
58,608
62,361
311,135
Assumptions
Weighted average assumptions used to measure the benefit obligation for the Company's significant defined benefit plans as of
December 31, 2012 and 2011 were as follows:
Discount rate
Rate of increase in compensation
December 31,
2012
2011
3.8%
4.0%
4.2%
4.0%
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, 2012 were as follows:
Discount rate
Rate of increase in compensation
Expected return on plan assets
December 31,
2012
2011
2010
4.2%
4.0%
7.7%
5.3%
4.0%
7.9%
5.8%
4.0%
7.9%
To develop the discount rate assumption to be used for U.S. plans, the Company refers to the yield derived from matching
projected pension payments with maturities of a portfolio of available non-callable bonds rated AA- or better. 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.
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 60% to 70% equity securities and 30% to 40% debt securities.
F-26
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
The following table sets forth, by level within the fair value hierarchy, the pension plans' assets as of December 31, 2012:
Corporate stock (1)
Cash and cash equivalents
Corporate and other obligations (2)
Common trusts and 103-12 investments (3)
Private equity funds (4)
Total assets at fair value
Pension Plans' Assets at Fair Value as of December 31, 2012
Quoted Prices
in
Active Markets
for Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
$
107,763
$
— $
— $
107,763
5,170
—
—
—
—
412
673,469
—
—
—
—
27,083
5,170
412
673,469
27,083
$
112,933
$
673,881
$
27,083
$
813,897
The following table sets forth, by level within the fair value hierarchy, the pension plans' assets as of December 31, 2011:
Corporate stock (1)
Cash and cash equivalents
Insurance company nonpooled separate account (5)
Cash and cash equivalents
Corporate and other obligations
Common trusts and 103-12 investments (3)
Private equity funds (4)
Total assets at fair value
Pension Plans' Assets at Fair Value as of December 31, 2011
Quoted Prices
in
Active Markets
for Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
$
94,407
$
1,582
— $
—
— $
—
—
—
—
—
15,371
8,288
611,361
—
650
—
—
17,797
Total
94,407
1,582
15,371
8,938
611,361
17,797
$
95,989
$
635,020
$
18,447
$
749,456
_______________________________________________________________________________
(1) This investment category includes publicly traded equity investments directly held by the plans. Investments are valued at the
unadjusted quoted close prices reported on the reporting date.
(2) This investment category is composed of publicly traded bonds and asset backed securities which are valued at the quoted closing
market prices on the reporting date.
(3) Common trusts and 103-12 investments 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 net asset value ("NAV") as determined by their custodian. NAV represent the 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.
(4) Private equity funds consist of four funds seeking capital appreciation by investing in private equity investment partnerships and
venture capital companies. 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.
(5) The insurance company nonpooled separate account is focused on capital preservation and invests in fixed-income securities and
money market instruments. The account is composed of publicly traded and privately held corporate bonds, money market and
mortgage backed assets. Publicly traded bonds, money market and mortgage backed securities are valued at the closing market
price on the reporting date. Privately held bonds are valued at fair value as determined by the fund directors and general partners.
F-27
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
The table below sets forth a summary of changes in the fair value of the Level 3 pension plans' assets for the year ended
December 31, 2012:
Balance at the beginning of year
Purchases, sales, issuances and settlements
Realized and unrealized gains
Balance at the end of year
The amount of total gains during the period attributable to
the change in unrealized gains relating to Level 3 net
assets still held at the reporting date
$
$
$
Supplemental Executive Retirement Plan
Insurance
Company
Nonpooled
Separate
Account
650
(650)
—
Private
Equity
Funds
Total
$
17,797
$
18,447
7,318
1,968
6,668
1,968
— $
27,083
$
27,083
— $
1,135
$
1,135
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 $2,254, $2,110 and $2,118
in 2012, 2011 and 2010, respectively. The projected benefit obligation associated with this plan is also included in the pension
disclosure shown above and was $25,646, $23,930 and $21,412 at December 31, 2012, 2011 and 2010, respectively.
Defined Contribution Plans
Substantially all U.S. employees are covered under a 401(k) savings plan in which they may invest 1% or more of eligible
compensation, limited to maximum amounts as determined by the IRS. For most participants the plan provides for Company
matching contributions of 35% of the first 6% of employee compensation contributed to the plan.
The plan also includes a feature in which all participants hired after November 1, 1997 receive an annual Company
contribution of 2% of their base pay. The plan allowed employees hired before November 1, 1997, at their election, to receive
this contribution in exchange for forfeiting certain benefits under the pension plan. In 2006, the plan was amended to include a
feature in which all participants receive an annual Company contribution ranging from 4% to 10% of base pay based on years
of service.
The annual costs recognized for defined contribution plans were $9,405, $8,478 and $7,039 in 2012, 2011 and 2010,
respectively.
Multi-Employer Plans
The Company participates in multi-employer plans for several of its operations in Europe. Costs for these plans are recognized
as contributions are funded. The Company's risk of participating in these plans is limited to the annual premium as determined
by the plan. The annual costs of these programs were $972, $966 and $1,052 in 2012, 2011 and 2010, 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.
NOTE 12 – INCOME TAXES
The components of income before income taxes for the three years ended December 31, 2012 were as follows:
U.S.
Non-U.S.
Total
Year Ended December 31,
2012
243,382
126,188
369,570
$
$
2011
204,667
96,664
301,331
$
$
2010
135,756
51,352
187,108
$
$
F-28
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
The components of income tax expense (benefit) for the three years ended December 31, 2012 were as follows:
Current:
Federal
Non-U.S.
State and local
Deferred:
Federal
Non-U.S.
State and local
Total
Year Ended December 31,
2012
2011
2010
$
$
72,809
33,510
8,172
114,491
(1,673)
(750)
286
(2,137)
112,354
$
$
42,510
19,970
6,699
69,179
12,140
2,768
231
15,139
84,318
$
$
30,642
15,532
4,337
50,511
6,802
(2,640)
225
4,387
54,898
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, 2012 were as follows:
Statutory rate of 35% applied to pre-tax income
Year Ended December 31,
2012
2011
$
129,350
$
105,466
$
Effect of state and local income taxes, net of federal tax benefit
5,598
4,585
Taxes (less) more than the U.S. tax rate on non-U.S. earnings, including
utilization of tax loss carry-forwards, losses with no benefit and changes
in non-U.S. valuation allowance
Manufacturing deduction
U.S. tax cost (benefit) of foreign source income
Resolution and adjustments to uncertain tax positions
Other
Total
Effective tax rate
(11,263)
(6,287)
(4,766)
(1,493)
1,215
$
112,354
$
(13,637)
(5,330)
145
(5,103)
(1,808)
84,318
$
2010
65,488
3,044
(1,417)
(3,900)
(3,282)
(3,204)
(1,831)
54,898
30.40%
27.98%
29.34%
The 2012 effective tax rate is impacted by the geographic mix of earnings and taxes at lower rates in foreign jurisdictions,
including Canada, Mexico, Poland and the U.K., as well as loss utilization in other foreign jurisdictions. Total income tax
payments, net of refunds, were $78,506 in 2012, $62,600 in 2011 and $40,970 in 2010.
F-29
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, 2012 and 2011, were as follows:
December 31,
2012
2011
Deferred tax assets:
Tax loss and credit carry-forwards
$
40,373
$
Inventory
Other accruals
Employee benefits
Pension obligations
Other
Deferred tax assets, gross
Valuation allowance
Deferred tax assets, net
Deferred tax liabilities:
Property, plant and equipment
Intangible assets
Inventory
Pension obligations
Other
Deferred tax liabilities
Total Deferred taxes
1,328
14,981
17,904
82,903
12,686
170,175
(38,799)
131,376
41,380
19,545
5,783
2,940
8,769
78,417
$
52,959
$
32,313
3,639
15,653
17,600
79,371
7,111
155,687
(31,713)
123,974
40,806
13,251
2,973
1,676
9,685
68,391
55,583
At December 31, 2012, certain subsidiaries had tax loss carry-forwards of approximately $132,868 that will expire in various
years from 2013 through 2030, except for $27,894 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, 2012, a valuation
allowance of $38,799 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 decreased in the future if the Company's assessment of future taxable
income or tax planning strategies changes.
The Company does not provide deferred income taxes on unremitted earnings of certain non-U.S. subsidiaries which are
deemed permanently reinvested. It is not practicable to calculate the deferred taxes associated with the remittance of these
earnings. Deferred income taxes associated with earnings of $3,776 that are not expected to be permanently reinvested were
not significant.
Unrecognized Tax Benefits
Liabilities for unrecognized tax benefits are classified as "Accrued taxes" non-current unless expected to be paid in one year.
The Company recognizes interest and penalties related to unrecognized tax benefits in "Income taxes." Current income tax
expense included an expense of $893 for the year ended December 31, 2012 and a benefit of $505 for the year ended
December 31, 2011 for interest and penalties. For those same years, the Company's accrual for interest and penalties related to
unrecognized tax benefits totaled $10,295 and $9,039, respectively.
F-30
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:
Balance at January 1
Increase related to current year tax provisions
Increase related to prior years' tax positions
Increase related to acquisitions
Decrease related to settlements with taxing authorities
Resolution of and other decreases in prior years' tax liabilities
Other
Balance at December 31
2012
2011
$
26,656
$
38,393
3,838
212
1,274
(940)
(5,964)
179
$
25,255
$
2,221
3,250
—
(3,424)
(13,460)
(324)
26,656
The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate was $14,839 at
December 31, 2012 and $17,325 at December 31, 2011.
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 2003. The Company is currently subject to various U.S. state audits and an Indonesian tax audit for 2003 - 2007.
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 $5,045 in prior years' unrecognized tax benefits in 2013.
In July 2012, the Company received a Notice of Reassessment from the Canada Revenue Agency (the “CRA”) for 2004 to
2011, which would disallow the deductibility of inter-company dividends. These adjustments would increase Canadian federal
and provincial tax due by $62,120 plus approximately $17,156 of interest, net of tax. The Company disagrees with the position
taken by the CRA and believes it is without merit. The Company will vigorously contest the assessment through the Tax Court
of Canada. A trial date has not yet been scheduled.
In connection with the litigation process, the Company is required to deposit no less than one-half of the tax and interest
assessed by the CRA. The Company has elected to deposit the entire amount of the dispute in order to suspend the continuing
accrual of a 5% interest charge. Additionally, deposited amounts will earn interest of approximately 1% due upon a favorable
outcome. A deposit was made and is recorded as a non-current asset valued at $89,220 as of December 31, 2012. Any
Canadian tax ultimately due will be creditable in the parent company's U.S. federal tax return. The Company expects to be able
to utilize the full amount of foreign tax credits generated in the statutorily allowed carry-back and carry-forward periods.
Accordingly, should the Company not prevail in this dispute, the income statement charge will approximate the deficiency
interest, net of tax.
The Company believes it will prevail on the merits of the tax position. In accordance with prescribed recognition and
measurement thresholds, no income tax accrual has been made for any uncertain tax positions related to the CRA reassessment.
An unfavorable resolution of this matter could have a material effect on the Company's financial statements in the quarter in
which a judgment is reached.
NOTE 13 – DERIVATIVES
The Company uses derivatives to manage exposures to currency exchange rates, interest rates and commodity prices arising in
the normal course of business. Derivative contracts to hedge currency and commodity exposures are generally written on a
short-term basis but may cover exposures for up to two years while interest rate contracts may cover longer periods consistent
with the terms of the underlying debt. The Company does not enter into derivatives for trading or speculative purposes.
All derivatives are recognized at fair value on the Company's Consolidated Balance Sheets. The accounting for gains and
losses resulting from changes in fair value depends on the use of the derivative and whether it is designated and qualifies for
hedge accounting. The Company formally documents the relationship of the hedge with the hedged item as well as the risk-
management strategy for all designated hedges. Both at inception and on an ongoing basis, the hedging instrument is assessed
as to its effectiveness, when applicable. If and when a derivative is determined not to be highly effective as a hedge, the
F-31
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
underlying hedged transaction is no longer likely to occur, or the derivative is terminated, hedge accounting is discontinued.
The cash flows from settled derivative contracts are recognized in operating activities in the Company's Consolidated
Statements of Cash Flows. Hedge ineffectiveness was immaterial for the three years ended December 31, 2012.
The Company is subject to the credit risk of the counterparties to derivative instruments. Counterparties include a number of
major banks and financial institutions. The Company manages individual counterparty exposure by monitoring the credit rating
of the counterparty and the size of financial commitments and exposures between the Company and the counterparty. None of
the concentrations of risk with any individual counterparty was considered significant at December 31, 2012. 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 $39,597 at December 31, 2012 and $65,721 at December 31, 2011. The
effective portions of the fair value gains or losses on these cash flow hedges are recognized in Accumulated other
comprehensive income ("AOCI") and subsequently reclassified to Cost of goods sold or Sales for hedges of purchases and
sales, respectively, as the underlying hedged transactions affected earnings.
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
economic hedges of certain balance sheet exposures. The dollar equivalent gross notional amount of these contracts was
$189,259 at December 31, 2012 and $161,026 at December 31, 2011. The fair value gains or losses from these contracts are
recognized in Selling, general and administrative expenses, offsetting the losses or gains on the exposures being hedged.
The Company has short-term silver and copper forward contracts with notional amounts of 275,000 troy ounces and 375,000
pounds, respectively, at December 31, 2012 and short-term silver forward contracts with notional amounts of 340,000 troy
ounces at December 31, 2011. Realized and unrealized gains and losses on these contracts were recognized in Cost of goods
sold.
Fair values of derivative instruments in the Company's Consolidated Balance Sheets follow:
Derivatives by hedge designation
Designated as hedging instruments:
December 31, 2012
December 31, 2011
Other
Current
Assets
Other
Current
Liabilities
Other
Current
Assets
Other
Current
Liabilities
Foreign exchange contracts
$
352
$
325
$
801
$
531
Not designated as hedging instruments:
Foreign exchange contracts
Commodity contracts
Total derivatives
510
731
902
—
726
1,559
1,026
—
$
1,593
$
1,227
$
3,086
$
1,557
The effects of undesignated derivative instruments on the Company's Consolidated Statements of Income for the years ended
December 31, 2012 and 2011 consisted of the following:
Derivatives by hedge designation
Not designated as hedges:
Classification of gains (losses)
Foreign exchange contracts
Selling, general & administrative expenses
$
Commodity contracts
Commodity contracts
Cost of goods sold
Other income
Year Ended December 31,
2012
2011
$
3,711
(1,117)
—
92
1,167
(12)
F-32
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
The effects of designated cash flow hedges on AOCI and the Company's Consolidated Statements of Income for the years
ended December 31, 2012 and 2011 consisted of the following:
Total gain recognized in AOCI, net of tax
Foreign exchange contracts
December 31,
2012
2011
$
80
$
912
The Company expects a gain of $80 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.
Derivative type
Foreign exchange contracts
Gain (loss) reclassified from AOCI to:
Sales
Cost of goods sold
Year Ended December 31,
2012
2011
$
$
931
234
(91)
(1,292)
NOTE 14 – FAIR VALUE
The following table provides a summary of fair value assets and liabilities as of December 31, 2012 measured at fair value on a
recurring basis:
Description
Assets:
Foreign exchange contracts
Commodity contracts
Total assets
Liabilities:
Foreign exchange contracts
Contingent consideration
Deferred compensation
Total liabilities
Balance as of
December 31, 2012
Quoted Prices in
Active Markets for
Identical Assets or
Liabilities
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable
Inputs (Level 3)
$
$
$
$
$
$
$
862
731
1,593
1,227
4,894
16,882
— $
—
— $
— $
—
—
$
$
$
862
731
1,593
1,227
—
16,882
23,003
$
— $
18,109
$
—
—
—
—
4,894
—
4,894
The following table provides a summary of fair value assets and liabilities as of December 31, 2011 measured at fair value on a
recurring basis:
Description
Assets:
Foreign exchange contracts
Commodity contracts
Total assets
Liabilities:
Foreign exchange contracts
Contingent consideration
Deferred compensation
Total liabilities
Balance as of
December 31, 2011
Quoted Prices in
Active Markets for
Identical Assets or
Liabilities
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable
Inputs (Level 3)
$
$
$
$
$
$
$
1,527
1,559
3,086
1,557
4,297
14,936
— $
—
— $
— $
—
—
$
$
$
1,527
1,559
3,086
1,557
—
14,936
20,790
$
— $
16,493
$
—
—
—
—
4,297
—
4,297
The Company's derivative contracts are valued at fair value using the market approach. The Company measures the fair value
of foreign exchange contracts using Level 2 inputs based on observable spot and forward rates in active markets. The Company
F-33
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
measures the fair value of commodity contracts using Level 2 inputs through observable market transactions in active markets
provided by financial institutions. During the year ended December 31, 2012, there were no transfers between Levels 1, 2 or 3.
In connection with an acquisition, the Company recorded a contingent consideration fair valued at $4,894 as of December 31,
2012, which reflects a $597 increase in the liability from December 31, 2011. The contingent consideration is based upon
estimated sales for the five-year period ending December 31, 2015 and will be paid in 2016 based on actual sales during the
five-year period. The fair value of the contingent consideration is a Level 3 valuation and fair valued using a probability
weighted discounted cash flow analysis. The discounted cash flow utilized weighted average inputs, including a risk based
discount rate of 9.7% and a compounded annual revenue growth rate of 33.7%. The discount rate was determined using
discount rates of 3.5% reflective of the Company's cost of debt and 14.1% as a risk adjusted cost of capital and the compounded
annual revenue growth rate was determined using various scenarios with growth ranging from remaining relatively flat to
growth rates of up to 66.2%.
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, 2012 and December 31, 2011. See Note 8 for the fair value
estimate of debt.
NOTE 15 – INVENTORY
For most domestic inventories, cost is determined principally by the LIFO method, and for non-U.S. inventories, cost is
determined by the FIFO method. 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. Because these estimates are subject to many factors beyond management's control, annual results
may differ from interim results as they are subject to the final year-end LIFO inventory valuation. At December 31, 2012 and
2011, approximately 34% and 31%, respectively, of total inventories were valued using the LIFO method. The excess of
current cost over LIFO cost was $72,173 at December 31, 2012 and $78,292 at December 31, 2011.
NOTE 16 – LEASES
The Company leases sales offices, warehouses and distribution centers, transportation equipment, office equipment and data
processing 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 $17,751 in
2012, $15,221 in 2011 and $14,155 in 2010.
At December 31, 2012, total future minimum lease payments for noncancelable operating leases were $12,624 in 2013, $9,385
in 2014, $6,872 in 2015, $5,695 in 2016, $4,561 in 2017 and $7,082 thereafter.
The following table summarizes assets held under capital leases and included in property, plant and equipment:
Buildings
Machinery and equipment
Less: accumulated depreciation
Net capital leases
NOTE 17 – CONTINGENCIES
December 31,
2012
2011
$
$
441
$
209
(163)
487
$
6,236
179
(2,494)
3,921
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 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.
F-34
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
The Company's accrual for contingent liabilities was $5,636 as of December 31, 2012 and $11,312 as of December 31, 2011.
The accrual is included in "Other current liabilities." The Company also recognized an asset for recoveries from insurance
carriers related to the insured claims outstanding of $1,311 as of December 31, 2012 and $4,516 as of December 31, 2011. The
asset is included in "Other current assets." The decrease in the accrual for contingent liabilities is primarily due to a payment
made in conjunction with the agreement entered into in January 2012 that provides for the dismissal with prejudice of
substantially all of the pending manganese claims. The decrease in the asset for recoveries from insurance carriers reflects the
collection of insurance receivables.
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 is 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 the carrying amount of product warranty accruals for 2012, 2011 and 2010 were as follows:
Balance at beginning of year
Accruals for warranties
Settlements
Foreign currency translation
Balance at end of year
NOTE 19 – QUARTERLY FINANCIAL DATA (UNAUDITED)
December 31,
2012
2011
2010
15,781
$
16,879
$
10,872
(11,477)
128
15,304
$
10,395
(11,260)
(233)
15,781
$
16,768
11,406
(11,065)
(230)
16,879
$
$
2012
Net sales
Gross profit
Income before income taxes
Net income
Basic earnings per share
Diluted earnings per share
2011
Net sales
Gross profit
Income before income taxes
Net income
Basic earnings per share
Diluted earnings per share
First
Second
Third
Fourth
$
727,122
$
744,045
$
697,552
$
215,265
92,919
64,243
0.77
0.76
599,179
161,438
60,537
46,910
0.56
0.55
$
$
$
$
$
224,997
98,157
66,319
0.80
0.79
699,293
195,504
81,494
57,013
0.69
0.68
$
$
$
$
$
213,362
90,889
64,765
0.78
0.77
701,624
185,452
75,873
55,530
0.66
0.66
$
$
$
$
$
$
$
$
$
$
F-35
684,648
213,032
87,605
62,084
0.75
0.74
694,513
194,343
83,427
57,733
0.69
0.68
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
The quarter ended December 31, 2012 includes rationalization and asset impairment net charges of $5,037 ($3,823 after-tax)
primarily related to employee severance and other costs associated with the consolidation of manufacturing operations in North
America Welding, Europe Welding and Asia Pacific Welding segments.
The quarter ended September 30, 2012 includes rationalization and asset impairment net charges of $3,059 ($2,704 after-tax)
primarily related to employee severance and other costs associated with the consolidation of manufacturing operations in North
America Welding, Europe Welding and Asia Pacific Welding segments.
The quarter ended June 30, 2012 includes rationalization net charges of $1,258 ($915 after-tax) primarily related to employee
severance and other costs associated with the consolidation of manufacturing operations in North America Welding, Europe
Welding and Asia Pacific Welding segments and a charge of $1,381 ($906 after-tax) related to a change in Venezuelan labor
law, which provides for increased employee severance obligations in the South America Welding segment.
The quarter ended June 30, 2011 includes rationalization and asset impairment net gains of $75 ($44 after-tax) primarily related
to the gain on sale of assets at rationalized operations in the Asia Pacific Welding segment resulting from actions initiated in
2009.
The quarter ended March 31, 2011 includes rationalization and asset impairment net charges of $357 ($281 after-tax) primarily
related to employee severance and other costs associated with the consolidation of manufacturing operations in the Europe
Welding and Asia Pacific Welding segments resulting from actions initiated in 2009 and a gain of $4,844 related to a favorable
adjustment for tax audit settlements in the North America Welding segment.
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.
F-36
SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS
LINCOLN ELECTRIC HOLDINGS, INC.
(In thousands)
Description
Allowance for doubtful accounts:
Additions
Balance at
Beginning
of Period
Charged to
Costs and
Expenses
(1)
Charged to
Other
Accounts
(2)
Deductions
Balance at End
of Period
Year Ended December 31, 2012
$
7,079
$
3,368
$
Year Ended December 31, 2011
Year Ended December 31, 2010
7,855
8,174
2,173
3,146
68
(303)
(425)
$
1,861
$
2,646
3,040
8,654
7,079
7,855
(1) Currency translation adjustment.
(2) Uncollectible accounts written-off, net of recoveries.
F-37
The Company's subsidiaries and joint ventures are listed in the following table:
LINCOLN ELECTRIC HOLDINGS, INC.
SUBSIDIARIES OF THE REGISTRANT
Exhibit 21
Country of
Incorporation
Percent
Ownership
Name
A. B. Arriendos S.A.
Arc Products, Inc.
Electro-Arco S.A.
Harris Calorific GmbH
Harris Calorific International Sp. z o.o.
Harris Calorific S.r.l.
Harris Euro S.L.
Harris Soldas Especiais S.A.
Inversiones LyL S.A.
J.W. Harris Co., Inc.
Jinzhou Zheng Tai Welding and Metal Co., Ltd.
Kaliburn, Inc.
Kaynak Teknigi Sanayi ve Ticaret A.S.
Lincoln Canada Finance ULC
Lincoln Electric Bester Sp. z o.o.
Lincoln Electric Company of Canada LP
Lincoln Electric Company (India) Private Limited
Lincoln Electric Company Nigeria Limited
Lincoln Electric do Brasil Industria e Comercio Ltda.
Lincoln Electric Europe B.V.
Lincoln Electric Europe, S.L.
Lincoln Electric France S.A.S.
Chile
United States
Portugal
Germany
Poland
Italy
Spain
Brazil
Chile
United States
China
United States
Turkey
Canada
Poland
Canada
India
Nigeria
Brazil
The Netherlands
Spain
France
Lincoln Electric Heli (Zhengzhou) Welding Materials Company Ltd.
China
Lincoln Electric Holdings S.ar.l.
Lincoln Electric Iberia, S.L.
Lincoln Electric International Holding Company
Lincoln Electric Italia S.r.l.
Lincoln Electric Japan K.K.
Lincoln Electric (Jinzhou) Welding Materials Co., Ltd.
Luxembourg
Spain
United States
Italy
Japan
China
Lincoln Electric Luxembourg S.ar.l.
Luxembourg
Lincoln Electric Management (Shanghai) Co., Ltd.
Lincoln Electric Manufactura, S.A. de C.V.
Lincoln Electric Maquinas, S. de R.L. de C.V.
Lincoln Electric Mexicana, S.A. de C.V.
Lincoln Electric Middle East FZE
Lincoln Electric North America, Inc.
Lincoln Electric S.A.
China
Mexico
Mexico
Mexico
United Arab Emirates
United States
Argentina
50
100
100
100
100
100
100
90
50
100
100
100
50
100
100
100
100
100
100
100
100
100
68
100
100
100
100
100
100
100
100
100
100
100
100
100
100
Country of
Incorporation
Percent
Ownership
Name
Lincoln Electric (Tangshan) Welding Materials Co., Ltd.
China
Lincoln Electric (U.K.) Ltd.
Lincoln Global Holdings LLC
Lincoln Global, Inc.
Lincoln Smitweld B.V.
Lincoln Soldaduras de Colombia Ltda.
Lincoln Soldaduras de Venezuela C.A.
Metrode Products Limited
OAO Mezhgosmetiz – Mtsensk
OOO Torgovyi Dom Mezhgosmetiz
OOO Severstal – metiz: Welding Consumables
PT Lincoln Electric Indonesia
Smart Force, LLC
Techalloy, Inc.
Tennessee Rand, Inc.
Tenwell Development Pte. Ltd.
Torchmate, Inc.
The Lincoln Electric Company
The Lincoln Electric Company (Asia Pacific) Pte. Ltd.
The Lincoln Electric Company (Australia) Proprietary Limited
The Lincoln Electric Company (New Zealand) Limited
The Lincoln Electric Company of South Africa (Pty) Ltd.
The Nanjing Lincoln Electric Co., Ltd.
The Shanghai Lincoln Electric Co., Ltd.
Uhrhan & Schwill Schweisstechnik GmbH
Vernon Tool Co., Ltd.
Wayne Trail Technologies, Inc.
Weartech International, Inc.
Weartech International Limited
Welding, Cutting, Tools & Accessories, LLC
United Kingdom
United States
United States
The Netherlands
Colombia
Venezuela
United Kingdom
Russia
Russia
Russia
Indonesia
United States
United States
United States
Singapore
United States
United States
Singapore
Australia
New Zealand
South Africa
China
China
Germany
United States
United States
United States
United Kingdom
United States
100
100
100
100
100
100
100
100
100
100
100
92
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
Exhibit 23
We consent to the incorporation by reference in the following registration statements:
Consent of Independent Registered Public Accounting Firm
Form S-8 Registration Statement of Lincoln Electric Holdings, Inc. for the Stock Option Plan for Non-Employee Directors
(Form S-8 No. 333-49976),
Form S-8 Registration Statement of Lincoln Electric Holdings, Inc. for the 1998 Stock Plan, including Post-Effective
Amendment No. 1 (Form S-8 No. 333-58305),
Form S-8 Registration Statement of Lincoln Electric Holdings, Inc. for The Lincoln Electric Company Employee Savings Plan
(Form S-8 Nos. 333-107114 and 333-132036),
Form S-8 Registration Statement of Lincoln Electric Holdings, Inc. (as successor to The Lincoln Electric Company) for The
Lincoln Electric Company Employee Savings Plan, including Post-Effective Amendment No. 1 (Form S-8 No. 033-64187),
Form S-8 Registration Statement of Lincoln Electric Holdings, Inc. (as successor to The Lincoln Electric Company) for The
Lincoln Electric Company 1988 Incentive Equity Plan (Form S-8 No. 033-25209), including Post-Effective Amendment No. 1
(Form S-8 No. 033-25210),
Form S-8 Registration Statement of Lincoln Electric Holdings, Inc. (as successor to The Lincoln Electric Company) for the
1995 Lincoln Stock Purchase Plan, including Post-Effective Amendment No. 1 (Form S-8 No. 033-64189),
Form S-8 Registration Statement of Lincoln Electric Holdings, Inc. for the 2006 Equity and Performance Incentive Plan
(Form S-8 No. 333-134212), and
Form S-8 Registration Statement of Lincoln Electric Holdings, Inc. for the 2006 Stock Plan for Non-Employee Directors
(Form S-8 No. 333-134210),
of our reports dated February 22, 2013, with respect to the consolidated financial statements and schedule of Lincoln Electric
Holdings, Inc. and subsidiaries, and the effectiveness of internal control over financial reporting of Lincoln Electric
Holdings, Inc. and subsidiaries, included in this Annual Report (Form 10-K) for the year ended December 31, 2012.
/s/ Ernst & Young LLP
Cleveland, Ohio
February 22, 2013
Exhibit 24
POWER OF ATTORNEY
Directors of Lincoln Electric Holdings, Inc.
Each of the undersigned Directors of Lincoln Electric Holdings, Inc. hereby appoints Christopher L. Mapes, Vincent K. Petrella
and Frederick G. Stueber, and each of them, as attorneys for the undersigned, for and in the name, place and stead of the
undersigned in the capacity specified, to prepare or cause to be prepared, to execute and to file with the Securities and
Exchange Commission under the Securities Exchange Act of 1934, as amended (the "Act"), an Annual Report on Form 10-K
for the year ended December 31, 2012 relating to Lincoln Electric Holdings, Inc., such other periodic reports as may be
required pursuant to the Act, amendments and exhibits to any of the foregoing and any and all other documents to be filed with
the Securities and Exchange Commission or elsewhere pertaining to such reports, with full power and authority to take any
other action deemed necessary or appropriate to effect the filing of the documents.
Executed the date set forth below.
/s/ John M. Stropki, Jr.
John M. Stropki, Jr., Director
/s/ Christopher L. Mapes
/s/ Harold L. Adams
Christopher L. Mapes, Director
Harold L. Adams, Director
February 21, 2013
February 21, 2013
February 21, 2013
/s/ Curtis E. Espeland
/s/ David H. Gunning
/s/ Stephen G. Hanks
Curtis E. Espeland, Director
David H. Gunning, Director
Stephen G. Hanks, Director
February 21, 2013
February 21, 2013
February 21, 2013
/s/ Robert J. Knoll
/s/ G. Russell Lincoln
/s/ Kathryn Jo Lincoln
Robert J. Knoll, Director
G. Russell Lincoln, Director
Kathryn Jo Lincoln, Director
February 21, 2013
February 21, 2013
February 21, 2013
/s/ William E. MacDonald, III
/s/ Hellene S. Runtagh
/s/ George H. Walls, Jr.
William E. MacDonald, III, Director
Hellene S. Runtagh, Director
George H. Walls, Jr., Director
February 21, 2013
February 21, 2013
February 21, 2013
Exhibit 31.1
I, Christopher L. Mapes, certify that:
CERTIFICATION
1.
I have reviewed this annual report on Form 10-K of Lincoln Electric Holdings, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the
period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably
likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent
functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal
control over financial reporting.
Date: February 22, 2013
/s/ Christopher L. Mapes
Christopher L. Mapes
President and Chief Executive Officer
Exhibit 31.2
I, Vincent K. Petrella, certify that:
CERTIFICATION
1.
I have reviewed this annual report on Form 10-K of Lincoln Electric Holdings, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the
period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably
likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent
functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal
control over financial reporting.
Date: February 22, 2013
/s/ Vincent K. Petrella
Vincent K. Petrella
Senior Vice President, Chief Financial
Officer and Treasurer
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
In connection with the Annual Report on Form 10-K of Lincoln Electric Holdings, Inc. (the "Company") for the year ended December 31,
2012, as filed with the Securities and Exchange Commission (the "Report"), each of the undersigned officers of the Company certifies,
pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to such officer's knowledge:
(1)
(2)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the
Company as of the dates and for the periods expressed in the Report.
Date: February 22, 2013
/s/ Christopher L. Mapes
Christopher L. Mapes
President and Chief Executive Officer
/s/ Vincent K. Petrella
Vincent K. Petrella
Senior Vice President, Chief Financial
Officer and Treasurer
driving INNOVATION
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LINCOLN ELECTRIC HOLDINGS, INC.
22801 St. Clair Avenue
Cleveland, Ohio 44117-1199
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