2013 Annual Report
TOGETHER WITH OUR CUSTOMERS,
Lincoln Electric puts the “we” in welding. We are the world
leader in the design, development and manufacture of arc
welding products, robotic arc welding systems and plasma
and oxyfuel cutting equipment, with a leading global position
in the brazing and soldering alloys market. Recognized as
The Welding Experts®, we use our expertise to develop
new technologies and applications
in partnership with
customers to make them more productive and successful.
We distinguish ourselves through an unwavering commitment
to our employees, a relentless drive to maximize shareholder
value and an enduring passion to make a positive impact on
our world.
Table of Contents
Financial Highlights
Shareholder Letter
Success Stories:
A Low-Temperature Solution
Defect-Free Pipe Welding
Automation Solves a Challenge
Improving Brazing Processes
Corporate Social Responsibility
Corporate Information
1
2
4
6
8
10
12
16
Net Sales
dollars in millions
2,853
2,853
2,695
2,070
1,729
Cash Provided by
Operations
dollars in millions
339
327
250
194
157
09 10 11 12 13
09 10 11 12 13
30% of Lincoln’s sales
in 2013 came
from new products
launched within the
past five years.
2013
2012
2011
$ 2,853
$ 2,853
$ 2,695
294
313 (2)
3.54
3.77
0.66
674
2.5
257
266 (3)
3.06
3.16
0.88
693
2.6
217
213 (4)
2.56
2.51
0.62
748
2.6
$ 2,152
$ 2,090
$ 1,977
1,531
339
18.9%
1,358
327
18.7%
1,193
194
16.9%
Financial Highlights
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)
(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 2013, special items include net rationalization and asset impairment charges of $8.5 ($7.6 after-tax or $0.09 per diluted share), a charge of $12.2 ($12.2 after-tax or $0.15 per diluted share) related to the devaluation of the Venezuelan
currency and a loss of $0.7 ($0.7 after-tax or $0.01 per diluted share) related to a loss on the sale of land. Associated with the impairment of long-lived assets and loss on the sale of land is an offsetting special item of $1.1 representing
portions attributable to non-controlling interests.
(3) 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.
(4) 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).
(5) Return on invested capital is defined as rolling 12 months of earnings excluding tax-effected interest divided by invested capital.
Total Equity
dollars in millions
Diluted Earnings
per share*
Return on Invested Capital
in percent
1,531
1,358
1,150
1,193
1,086
3.77
3.16
2.51
1.52
0.86
18.7 18.9
16.9
10.7
4.3
09 10 11 12 13
09 10 11 12 13
09 10 11 12 13
* 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. 2013 excludes net rationalization and asset impairment
charges, charges related to the devaluation of the Venezuelan currency and a loss on the sale of land partially offset by portions attributable to non-controlling interests. 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 settlement gain and a charge in noncontrolling interests associated with the pension settlement gain for a majority-
owned consolidated subsidiary.
1
To Our Shareholders,
Employees and Global Partners:
I am pleased to report that 2013 was another record-setting year for Lincoln Electric as we continued
to create value for our stakeholders. While the global environment remained challenging, we were able
to execute on our operational initiatives and focus on attractive sectors, high-growth applications
and strong customer partnerships to yield record results. This balanced approach has been a winning
formula and positions us well to further capitalize on our many long-term growth opportunities.
2013 Financial Highlights
While 2013 sales remained steady at $2.9 billion, we achieved
SAP during the year and we intend to expand upon this effort
in 2014. We continued to drive improvement with an increased
a record operating profit margin of 14.3%, up 160 basis points
emphasis on sustainability and by pursuing our environmental,
compared with 2012. On an adjusted basis excluding special
health and safety goals, as noted in this annual report. A highlight
items, operating profit was a record $428.4 million, or 15.0% of
of this effort is our Canadian operation, which became the first
sales. We also achieved record net income of $293.8 million, an
welding facility in the world to achieve ISO 50001 certification,
increase of 14.1% from 2012. Net income on an adjusted basis
recognizing it as a global leader in process capabilities, employee
was $313.2 million, an increase of 17.8% year-over-year. As a
engagement and environmental stewardship.
result, diluted earnings per share increased 15.7% to $3.54, and
increased 19.3% on an adjusted basis to $3.77.
We are also enhancing our ability to serve our global customers
through our “Us to Us” program, which is focused on enhancing
We also generated record cash flow from operations, up 3.5%
our capabilities to deliver our products worldwide. Our
to $338.9 million. Higher earnings and greater efficiency in
procurement teams are collaborating globally to identify and
operating working capital (17.6% of net sales) drove solid cash
develop efficiencies in our supply base. And, we are facilitating
flow and allowed us to further invest in our future, strengthen
these teams with tools such as SAP and our new GlobalLinc
our balance sheet, achieve a fully funded U.S. pension program
internal communications network, which allows our employees to
and accelerate returns to our shareholders. During the year, we
accelerate process excellence in our Company on a global scale.
returned a record $217 million to our shareholders, representing
nearly two-thirds of our cash flow from operations, through
$168 million in share repurchases and a 17.6% increase in
our dividend.
Investing in Innovation
Our innovation pipeline has never been more robust, as we
continue to invest in and develop proprietary technologies. We
have accelerated our R&D program into attractive areas including
Employees Drive Long-Term Success
Our success is driven by the strength of our global employees
alloy-based consumables, automation systems and laser
technologies. In 2013, we invested $42 million in our R&D efforts,
and the improvements they have achieved in our businesses
which contributed to the approximately 30% of sales during the
around the world, reflecting our ability to work as a team. We
year that came from new products launched within the last
are focused on providing value-added solutions to serve our
five years.
customers and driving excellence in processes. That focus is
fundamental to our 2020 Vision and Strategy for the Company,
which targets compounded annual growth of 10% in sales and
an average return on invested capital of 15% through 2020.
Among our key accomplishments in 2013, we expanded our
automation portfolio to meet the growing demand for automated
arc welding processes as customers seek to improve their
productivity and quality while addressing the challenge of a
We can point to many examples of progress and successful
shortage in skilled welders. Today, we offer the broadest portfolio
initiatives in 2013. As part of our multi-year deployment of a
of automation solutions and technical expertise for arc welding
standardized ERP system, we completed seven installations of
and cutting globally, and we expect to continue to build on
2
Our success is driven
by the strength of our
global employees and
the improvements they
have achieved in our
businesses around the
world, reflecting our ability
to work as a team.
Christopher L. Mapes, Chairman,
President and Chief Executive Officer
this position in the years ahead as we partner with our global
We believe this is the right formula to provide increasing value
customers to assist them in developing engineered solutions.
for all of our stakeholders in 2014 and beyond, and we will
We are also driving further productivity for customers through
our established base of Power Wave® welding equipment,
where we have introduced software modules that monitor weld
quality while instructing the operator on the sequence of welds
necessary to ensure proper production processes.
Additionally, we are leveraging open innovation with industry
and academic partners to accelerate innovation. One example
be steadfast in our pursuit of stronger year-over-year results
through our commitment to continuous improvement and
innovation. The hard work of our more than 10,000-person
team worldwide has made Lincoln Electric the global leader it
is today. We are thankful to our team, to our customers, and to
our shareholders and partners for their ongoing support.
is our participation with America Makes and other partners,
Sincerely,
where we are engaged in an incubator project that uses our
proprietary hotwire laser technology for additive manufacturing
applications with new alloys.
Christopher L. Mapes
Chairman, President and Chief Executive Officer
Excited About the Future
We are confident that our R&D investments and disciplined
acquisition strategy will position us well to capitalize on
the growing opportunities in our end markets. An ongoing
economic recovery combined with global investments in energy,
infrastructure development and automation of advanced
manufacturing will present substantial growth opportunities for
us throughout the world. We believe we have a strong portfolio
of solutions, industry-leading technologies, the global footprint
and technical expertise to serve these growing needs, along
with the financial flexibility to invest in new areas to build upon
our solid base.
We are excited about our future. By putting customers first
and addressing their challenges with innovative solutions, we
are driving measurable value, which we have highlighted in
this year’s annual report. We will continue to execute this value
proposition globally as we pursue our 2020 Vision and Strategy.
3
RELIABILITY
220%
increase in productivity
compared with traditional
method
4
WELDING | SucceSS Story
Lincoln Wire Provides a Cool Solution
for Natural Gas Storage
Collecting natural gas from
remote locations, and then
transporting and storing it, poses
many engineering and logistic
challenges requiring specialized
solutions and expertise.
Natural gas offers abundant reserves, low
consumables made of specialty alloys. By
prices and relatively clean emissions, and
working with the construction company
its demand as a preferred energy source
building the LNG tanks at Darwin to
continues to grow. To meet this demand,
understand their priorities and issues,
more than 280 liquefied natural gas (LNG)
Lincoln Electric Research & Development
projects are under consideration today.
and Application Engineering specialists
Operating off the northwest coast of
Australia, the Ichthys project is one of
helped design and demonstrate a more
efficient solution.
the largest LNG projects currently under
Following a series of rigorous welding
construction. At the site, subsea wells
and mechanical tests to ensure fit-for-use
collect natural gas which is transported
and low-temperature durability, Lincoln
550 miles through a subsea pipeline to
Electric’s new Metrode® brand Supercore™
the city of Darwin, at the tip of Australia’s
625 specialty alloy wire replaced the
Northern Territory. There, the gas is chilled
traditional stick electrode consumable.
to -196°C and held in large, specially
This conversion allowed the customer
engineered, multiwall and airtight tanks
to achieve a 220% improvement in
made of thick 9% nickel inner liner
productivity, significantly reduce man-
material that withstands low temperatures
hours and diminish waste while delivering
without becoming brittle.
high-quality, reliable welds that exceed
Until recently, achieving the stringent
weld metal requirements for tanks at
these temperatures was a time-intensive
process involving manual stick electrode
the weld requirements necessary for these
extreme low-temperature conditions.
62%
280+
Efficiency
Reduction in man-hours following
conversion to the Metrode®
Supercore™ 625 wire
LNG projects currently under
consideration globally to meet
growing demand
Specialty alloy wire runs longer
without requiring a stick reload
every 120mm
5
PARTNERS
5,500
welds across 40 miles of pipe
6
WELDING | SucceSS Story
Technology and Training Are Keys
to Success for Pipeline Project
When a leading global
engineering, procurement,
construction and installation
company faced many
challenging conditions during
the construction of a 40-mile
subsea gas pipeline, Lincoln
Electric was the right partner
to ensure that the welded units
of the pipeline were of the
highest quality.
From the training of welders to the
project in less than four months. They
fabrication and installation of the pipe,
welded 5,500 joints along 40 miles of
Lincoln Electric’s welding technology
pipe with zero defects.
and expertise helped ensure the
welding operation was energy-efficient
and productive.
Keys to the success of the project
were Lincoln Electric’s Power Wave®
inverter power source, utilizing custom-
Durable, defect-free products and
designed proprietary welding waveforms,
expert training were mission-critical to
and Lincoln’s specifically designed
the project as a result of the corrosive
high-performance solid wire welding
environment and severe operating
consumables. In addition, Lincoln’s
conditions of the underwater setting.
PowerConnect™ technology, which
There simply was no room for error.
compensates for varying input power
To prepare for work at the offshore
welding stations that would be used
for the project, a team of 30 skilled
welders underwent extensive scenario
while maintaining consistent output levels,
helped achieve energy cost savings of
approximately 10% when compared with
conventional solutions.
training with the engineering company’s
Finally, Production Monitoring™ 2 software
proprietary training system. Drawing
technology allowed operators to track
from the expertise they gained from
the usage of welding equipment, store
their training utilizing Lincoln Electric’s
welding data and analyze production
high-performance solutions, upgraded
performance based on their customized
technology and optimized processes and
parameters, leading to fewer weld defects
protocols, the 30 welders worked across
and maximizing productivity.
two shifts to successfully complete the
0 defects
Severe environment required a
defect-free pipeline
Custom
Lincoln’s customized 1mm
high-strength welding wire helped
achieve perfect quality while
meeting stringent requirements
10%
Energy savings vs.
conventional solutions
7
CUSTOM
8
48 hrs
ladders now ship within 48
hours of being ordered
WELDING | SucceSS Story
Lincoln Team Steps Up
to Ladder Maker’s Challenge
Just-in-time (JIT)
manufacturing reduces
inventory and warehouse
space requirements, improves
operational efficiencies and
increases levels of customer
service and responsiveness.
This requires agile manufacturing
welding system which can accommodate
processes to react in tight cycle times
multiple welding procedures, various
and flex to customers’ changing
types of tooling and the rotation and
requirements without sacrificing quality.
reorientation of parts in the arc welding
For JIT, automation is often the right fit.
process. This improved speed and
When a leading industrial metal ladder
manufacturer sought to improve
cycle times and order fill rates, JIT
efficiency for the customer, as two
product lines could now be manufactured
in one production cell.
manufacturing was the answer. The
Additionally, the process benefits from
solution had to accommodate small
flexible tooling that adjusts to multiple
batch sizes, quick turns and product
part sizes and weld positions, as well as
specifications ranging from 2- to 18-step
a sensor system that triggers the correct
tread configurations, while ensuring
production sequence by identifying the
consistently high quality standards.
assembled parts loaded and positioned
Partnering with the right experts would
in the tooling. Both finished quality and
be critical to ensuring success.
welding cycle times improved because
Lincoln Electric’s arc welding automation
engineering team, working closely with
the customer and a tooling specialist,
determined that a flexible automated
manufacturing process would address
the customer’s needs and allow
production of high-quality rolling
ladders on demand. The customized
solution leverages Lincoln Electric’s
pre-engineered System 55 robotic arc
of the error-free tooling concept. The
operator is now able to manufacture
a variety of ladders in a given shift,
optimizing operational efficiency, safety,
quality and speed. Today, the customer
produces on demand, ships within 48
hours and has been recognized by its
own customers for exceeding quality and
service standards.
On demand
Quality
0 inventory
Error-free tooling and an automated
system deliver high-quality ladders
made to order
New solution uses four welds
per tread vs. an industry
standard of two
Just-in-time manufacturing
eliminated the need for finished
goods inventory
9
IMPROVE
10
35%
reduction in appliance
failures
WELDING | SucceSS Story
Getting It Done –
Even in the Extremes
Ensuring that projects are
completed on schedule, safely
and reliably – regardless
of weather – is critical for
many industries including
construction, farming,
military, logistics, mining and
emergency services.
These industries often rely on heavy-
alloys. Operators are now able to
duty commercial HVAC systems to
maintain a consistent and repeatable
reduce expensive down-time and
flame through the use of standardized
operating costs in the field by keeping
brazing equipment across each station
workers safe and comfortable with
– including new regulators, torches and
thermal management, humidity control
tips. This also allows for more effective
and ventilation to remove pollutants.
training on how to properly operate
One leading HVAC provider turned to
the equipment, apply heat and use the
Lincoln Electric’s Harris® team to help
brazing alloys in the process.
improve the brazing of materials in its
manufacturing process. Specifically,
the company was focused on quality
concerns associated with discoloration,
enhancing the productivity of new
operators and reducing appliance
failures caused by leaks.
Quality levels improved within one
month following the Harris® brazing
training and standardization of the
equipment, generating an immediate
$270,000 in annual savings.
Additionally, leak rates were reduced
significantly, resulting in a 35% reduction
The Harris team’s evaluation of the
in appliance failures. Looking ahead
customer’s brazing processes identified
to 2014, the Harris® team is working to
that more consistent heat input would
identify other process improvements to
eliminate discoloration associated with
achieve the ultimate goal of reducing
“hot flames,” improve cycle times that
appliance failures by 60%.
had been extended by “soft flames,”
and reduce leak rates that had resulted
from an inconsistent penetration of
20%
1 month
60%
Cost savings from reduced
appliance quality failures
Harris® brazing training was the key
to improved appliance performance
within one month
Targeted reduction in
appliance failures in 2014
11
LEADERSHIP
As the global leader in the arc welding and cutting industry, we continue to foster a culture of
continuous improvement, operational efficiency, individual achievement and integrity, while
we also work to improve our communities, support the manufacturing industries we serve and
develop the next generation of welders.
Living the Lincoln Legacy
Lincoln Electric’s founders, John C. and James F. Lincoln, believed providing innovative
products that deliver real value for customers – and rewarding employees for their
achievements – would create a business that would generate long-term value for all
of its stakeholders. For 119 years, their philosophy has passed the test through wars,
recessions, technological shifts and globalization. Today, our founding principles
remain as strong as ever, aligning well with the “people, planet and profit” pillars that
define modern sustainability efforts.
environmental, Health & Safety Improvements
Our commitment to maintaining the health and safety of our employees, customers
and neighbors, while preserving the integrity of the environment, extends across our
global network of 45 facilities. We strive to not only comply with but often exceed
local environmental, health and safety (EH&S) regulatory requirements. To do this, we
set rigorous annual goals that focus on continual improvement in conserving natural
resources, preventing emissions and other pollutants, conserving energy, minimizing
waste and protecting the safety and wellness of our employees and communities.
This effort includes our ongoing global investment in ISO 14001 environmental
management systems, which allow us to identify, implement and measure
Excellence
2013 Chairman’s Award for
EH&S Excellence: Lincoln Canada
received our premier North
American award for exceptional
EH&S performance, which included
earning ISO 50001 certification,
a global best-in-class energy
management system, recording no
DART4 incidents and achieving
a 22% reduction in energy
use in 2013
Sustainability Metrics
2013 vs. 2012 Percent change
Greenhouse gas emissions1:
Waste minimization2:
Energy use3:
Workplace safety4:
4% improvement
28% improvement
1% increase
18% improvement
1 Absolute metric tons of CO2 emissions from both direct (fuels) and indirect (energy) sources across our global manufacturing footprint. Improvement reflects
Scope 1 and 2 emissions as defined by 2006 IPCC guidelines.
2 Percent of all waste (manufacturing and non-manufacturing waste material) recycled across our global manufacturing footprint. This metric excludes metals
that are fully recycled or reused.
3 Absolute energy use (electricity, natural gas, coal, fuel oil and liquefied petroleum gas) in gigajoules (GJ) across our global manufacturing footprint.
4 Reflects a “Days Away, Restrictions or Transfers” (DART) rate that measures injury cases resulting in either missed work, restrictions in performing assigned tasks,
or a job transfer during recovery. DART is calculated as number of incidents per 200,000 hours worked and reflects incidences across our global footprint.
12
WELDING | cSr
Cleaner air
Safer
Our 2013 reduction in greenhouse
gas emissions is equivalent to taking
more than 2,300 cars off the road
We reduced our DART4 rate 18%
and seven of our facilities achieved
no DART incidents in 2013
VOCs
We reduced Volatile Organic
Compounds (VOCs) in our
equipment manufacturing process,
which eliminates hazardous
emissions and reduces energy use
by 84% in that process
improvements in resource efficiency, waste reduction and the
Additionally, a variety of employee development, wellness
resulting cost savings. In 2013, 57% of our applicable facilities
and engagement programs flourish throughout our
were ISO 14001 certified, and we will continue to expand this
global organization:
program in 2014.
• The Junior Board program gives tomorrow’s leaders
For the longer term, we are developing additional goals across
an opportunity to impact the business through various
our targeted metrics to highlight the results we expect to
executive-sponsored team projects.
achieve by more efficiently using natural resources, further
• Locally sponsored events and fundraisers help bring
reducing the environmental impact of our operations and
positive change to communities across our global footprint.
maintaining our focus on the safety of our employees worldwide.
• A growing number of Wellness Committee activities
engaging employees and encouraging
Achievement
Based on the philosophy of our founders, Lincoln Electric’s
management system encourages and rewards employee
engagement and achievement. We are continuing that legacy
with numerous Company- and employee-driven initiatives and
partnerships. In 2013, for example, we expanded our new global
intranet site, “GlobalLinc,” which provides forums for employees
to collaborate, report news, share best practices, access
promote healthy lifestyles through education, wellness fairs,
classes and charitable events.
• Employee-based groups such as “WELD” and “BBS”
focus on safety and wellness initiatives, influencing safety
practices, and generating awareness through newsletters
and volunteerism in their local communities.
Integrity and Good Governance Are Part
of our culture
Lincoln Electric maintains a proud tradition of good
information and ask questions on key topics across regions.
governance, ethical actions and integrity. Our Board is
We also are committed to cultivating a diverse work force
that not only reflects our values of respect, fairness and
nondiscrimination, but makes us a better supplier and partner
to the customers we serve globally. Goals and objectives to
committed to following the highest corporate governance
standards. We maintain a transparent workplace, welcoming
questions and concerns, with an open-door policy that extends
all the way to the Chairman.
support diversity are reviewed by our Board of Directors, and
Our employee base understands that everyone associated with
our Diversity Councils engage employees in inclusion and
Lincoln is expected to lead by example and diligently follow
community outreach programs.
our “Code of Corporate Conduct and Ethics,” which has been
translated into 12 languages. In 2013, 33,000 courses were
completed by our employees, covering awareness, training
and monitoring of ethical behaviors. We also offer toll-free
telephone hotline access across 24 countries available 24/7
and worldwide online access to report compliance concerns.
13
COMMUNITY
Sustainable Solutions
The Gem-Pak™ bulk packaging system
for aluminum wire is fully
recyclable and increases
productivity by improving
feedability and reducing
tangling.
Our inverter-based
welding equipment is up to
30% more energy efficient
than transformer-based
alternatives.
Lasers combined with our Power Wave®
technology can more than double the
amount of material deposited per hour
and reduce the energy
used in processing
parts by more than
30% compared with
other laser welding and
cladding techniques.
The Harris® ecoSMART®
boric acid-free flux
reduces toxicity in
customers’ brazing
operations.
Helping customers with their Sustainability Goals
Lincoln Electric is committed to helping customers address their environmental
and productivity goals, and our high-performance solutions play a key role
in environmentally friendly products such as wind turbines, solar panels and
reduced-weight vehicles. With an emphasis on efficiency, productivity and
ease-of-use, our R&D teams work to reduce the energy intensity of our systems,
increase recycled content, decrease weight and bulk, and improve welding
fumes and exhaust management.
Each year, we introduce many new products that help customers achieve
their sustainability goals. In 2013, we invested $42 million in research and
development globally, and approximately 30% of our sales revenue came from
new products launched from 2009-2013.
championing education and the Future of Welding
As the global leader in our industry, Lincoln Electric is uniquely positioned to
advance the future of welding through a variety of programs and initiatives.
•
Lincoln sponsors welding competitions for SkillsUSA® and was the exclusive
welding sponsor of the 2013 WorldSkills International® global competition in
Leipzig, Germany.
•
The Lincoln Electric Welding School provides free training programs to
qualified instructors to help them develop the next generation of welders.
• We work with skilled trade unions to “train the trainers” in welding, and
provide training programs, curriculum and welding solutions to community
colleges and skill centers.
•
The James F. Lincoln Arc Welding Foundation, created in 1936 to
encourage and stimulate scientific interest, study and education in the
development of the arc welding industry, publishes and distributes low-cost
training materials and books to educators and students. It also supports
professional, college and school shop award programs.
14
WELDING | cSr
Lincoln electric partnered with extollo International,
a nonprofit organization, by donating welding
equipment and educational curriculum to help
rebuild Haiti.
Volunteers from Lincoln Mexico performed craft activities using recycled materials
as part of the Mexico Teleton Foundation’s “Summer Telethon 2013” to raise money
for children’s rehabilitation centers.
•
As part of the U.S. Army’s “Training With Industry”
program, enlisted soldiers serve with us for one year to
learn welding technologies and business practices.
• Working with the United Nations Industrial Development
Organization (UNIDO), a welding training facility in
Liberia was equipped with Lincoln products and we
provided complimentary training to welding instructors
to help develop local skilled welders.
We also realize that the long-term success of advanced
manufacturing relies on skills in STEM subjects (science,
technology, engineering and mathematics). Welding is a
profession that incorporates a wide range of disciplines
including engineering, chemistry, metallurgy, sciences,
physics and business. To foster that understanding, in
2013, we sponsored 40 college interns who worked in
STEM-related functions at our headquarters. Additionally,
our management team helps non-profit organizations such
as MAGNET, WIRE-Net and the National Association of
Manufacturers (NAM) develop programs focused on STEM
education and vocational training. For younger students, we
have developed training materials for the National FFA that
emphasize STEM topics. We also supported the Boy Scouts of
America® in the development and roll-out of its welding merit
badge program and we will continue to develop curriculum to
support its expansion.
The Boy Scouts of America awarded Lincoln Electric with its prominent North Star Award for our
efforts in supporting the organization’s welding merit badge program, which launched in 2012.
revitalizing our communities
Every year, Lincoln Electric supports numerous non-profit
organizations and philanthropic events across our international
footprint and through the Lincoln Electric Foundation. Since 1952,
the Foundation has invested in improving the vibrancy of local
communities through grants for local schools, scholarships, youth
programs, arts and cultural initiatives, and health and human
services programs. Additionally, Lincoln Electric donates welding
and cutting equipment, as well as our technical expertise, to help
organizations achieve their mission of revitalizing communities and
enhancing skills through the use of metal fabrication and welding.
In 2013, our combined community outreach efforts represented
approximately $3 million in giving.
15
Board of Directors
front row:
ROBERT J. KnOLL
Former Partner,
Deloitte & Touche LLP
KATHRYn JO LInCOLn
Chair of the Lincoln Institute
of Land Policy
STEPHEn G. HAnKS
Former President and
Chief Executive Officer, Washington
Group International, Inc.
G. RuSSELL LInCOLn
President of N.A.S.T. Inc.
HAROLD L. ADAMS
Lead Director
Chairman Emeritus and
Former Chairman, President
and Chief Executive Officer of
RTKL Associates Inc.
back row:
CuRTIS E. ESPELAnD
Senior Vice President and
Chief Financial Officer,
Eastman Chemical Company
Company Officers and Executive Management
GEORGE H. WALLS, JR.
Former Chief Deputy Auditor,
State of North Carolina
CHRISTOPHER L. MAPES
Chairman, President and
Chief Executive Officer
of the Company
PHILLIP J. MASOn
Former President of Ecolab, Inc.
EMEA sector
DAvID H. GunnInG
Former Vice Chairman of
Cleveland-Cliffs Inc
WILLIAM E. MACDOnALD, III
Former Vice Chairman of
National City Corporation
HELLEnE S. RunTAGH
Former President and Chief
Executive Officer of Berwind Group
GEOFFREY P. ALLMAn
Senior Vice President,
Corporate Controller
AnTHOnY K. BATTLE
Senior Vice President,
Internal Audit
GEORGE D. BLAnKEnSHIP*
Executive Vice President
President, Lincoln Electric
North America
GABRIEL BRunO*
Executive Vice President,
Chief Information Officer
JOSEPH G. DORIA
Vice President
President, Lincoln Electric Canada
GRETCHEn A. FARRELL*
Executive Vice President,
Chief Human Resources Officer
THOMAS A. FLOHn*
Senior Vice President
President, Asia Pacific Region
MATHIAS HALLMAnn*
Senior Vice President
President, Lincoln Electric Europe
STEvEn B. HEDLunD*
Senior Vice President, Strategy and
Business Development
MICHELE R. KuHRT
Senior Vice President, Tax
DOuGLAS S. LAnCE
Senior Vice President, North
American Operations
CHRISTOPHER L. MAPES*
Chairman, President and
Chief Executive Officer
WILLIAM T. MATTHEWS
Senior Vice President,
Technology and
Research and Development
MICHAEL S. MInTun
Senior Vice President, North
America Sales and Marketing
DAvID J. nAnGLE*
Senior Vice President
President, Harris Products
Group
vInCEnT K. PETRELLA*
Executive Vice President,
Chief Financial Officer and
Treasurer
FREDERICK G. STuEBER*
Executive Vice President,
General Counsel and Secretary
16
*Member, Management Committee
A Note of Gratitude
We thank John Stropki,
former Chairman and Chief
Executive Officer, who retired
in 2013, for all he has done
during his 44-year career with
the Company. We wish the
best for him and his family.
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, 2013
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, 2013 was $4,591,044,854 (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, 2013 was 81,010,084.
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 21, 2014 with respect to the registrant's 2014 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 39 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, 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. 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:
•
•
•
•
•
•
•
•
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.
1
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
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, 2013 was approximately 10,000. See "Part I,
Item 1C" for information regarding the Company's executive officers, which is incorporated herein by reference.
2
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
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.
3
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.
Availability of and volatility in energy costs or raw material prices may adversely affect our performance.
In the normal course of business, we are exposed to market risks related to the availability of and price fluctuations in the
purchase of energy and commodities used in the manufacture of our products (primarily steel, brass, copper, silver, aluminum
alloys, electronic components, electricity and natural gas). The availability and prices for energy costs and raw materials,
including steel, nonferrous metals and chemicals, are subject to volatility and are influenced by worldwide economic
conditions, 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.
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, 2013, we were a co-defendant in cases alleging asbestos induced illness involving claims by approximately
14,601 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: 41,832 of those
claims were dismissed, 22 were tried to defense verdicts, seven were tried to plaintiff verdicts (one of which is being appealed),
one was resolved by agreement for an immaterial amount and 633 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.
4
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.
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.
5
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 2013, approximately 8% of our net sales were generated from
China and approximately 17% 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.
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.
In particular, the economic and political environment in Venezuela exposes us to various risks. Currency exchange restrictions
limit our ability to convert bolivars to U.S. dollars, which impacts our ability to repatriate earnings and to purchase goods and
services necessary to operate our Venezuelan business. The restrictions could cause a slowdown, temporary shutdown or
complete shutdown of operations at our Venezuelan subsidiary, which could negatively affect our earnings and cash flows.
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.
6
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 2013, 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. New or revised laws, regulations or
standards could increase our cost of doing business or restrict our ability to operate our business or execute our strategies.
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.
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 significant cyber security breach, we may suffer an interruption in our
ability to manage and operate the business and our results of operations and financial condition could be adversely affected.
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.
7
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.
8
ITEM 1C. EXECUTIVE OFFICERS OF THE REGISTRANT
EXECUTIVE OFFICERS OF THE REGISTRANT
Name
Christopher L. Mapes
Position
Age
52 Chairman of the Board effective December 21, 2013. President and Chief Executive Officer
effective December 31, 2012; Chief Operating Officer from September 1, 2011 to December
31, 2012; Director since February 2010. Prior to his service with the Company, Mr. Mapes
was an Executive Vice President of A.O. Smith Corporation (a global manufacturer with a
water heating and water treatment technologies business) a position he held from 2004
through August 2011, and the President of its former Electrical Products unit, a position he
held from September 2004 through August 2011.
Vincent K. Petrella
Frederick G. Stueber
53 Senior Vice President, Chief Financial Officer and Treasurer since October 7, 2005.
60 Senior Vice President, General Counsel and Secretary since 1996.
George D. Blankenship
51 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; 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.
Gabriel Bruno
46 Vice President, Chief Information Officer since May 1, 2012; Vice President, Corporate
Controller from 2005 to May 1, 2012.
Gretchen A. Farrell
51 Senior Vice President, Human Resources and Compliance since July 30, 2009; Vice
President, Human Resources from May 5, 2005 to July 30, 2009.
Thomas A. Flohn
53 Vice President, Regional President, Lincoln Electric Asia Pacific Region since November 4,
2013. Vice President; President, Lincoln Electric Europe, Middle East & Africa (EMEA)
from July 1, 2010 to November 4, 2013; Vice President; President, Lincoln Asia Pacific from
January 1, 2005 to June 30, 2010.
Mathias Hallmann
51 Vice President; President, Lincoln Electric Europe since November 4, 2013. Prior to his
service with the Company, Mr. Hallmann was Chief Executive Officer of Bohler Welding
Holding GmbH (a leading manufacturer and provider of auxiliary materials and consumables
for industrial welding and soldering applications) from December 2008 to March 2012, and
its Chief Operating Officer from April 2008 to November 2008.
Steven B. Hedlund
47 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 J. Nangle
57 Vice President, Group President of Brazing, Cutting and Retail Subsidiaries since January 12,
2006.
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.
9
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.
The Company has 48 manufacturing facilities, including operations and joint ventures in 19 countries, the significant locations
(grouped by operating segment) of which are as follows:
North America Welding:
United States
Canada
Mexico
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; Hamilton.
Mexico City; Torreon.
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.
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.
10
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, 2013, the Company was a co-defendant in cases alleging asbestos induced illness involving claims by
approximately 14,601 plaintiffs, which is a net decrease of 455 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: 41,832 of those claims were dismissed, 22 were tried to defense verdicts, seven were tried to plaintiff
verdicts (one of which is being appealed), one was resolved by agreement for an immaterial amount and 633 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
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. The Company has elected to deposit the entire amount of the dispute in order to suspend the continuing
accrual of a 5% interest charge. 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.
11
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, 2013 was 1,719.
The total amount of dividends paid in 2013 was $49.3 million. During 2013, dividends were paid on April 15, July 15 and
October 15. The dividend that the Company would normally have paid 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:
First quarter
Second quarter
Third quarter
Fourth quarter
2013
2012
Stock Price
High
Low
Dividends
Declared
Stock Price
High
Low
Dividends
Declared
$
57.63
$
49.06
$
60.58
69.35
74.57
49.94
56.75
65.45
0.20
0.20
0.20
0.23
$
47.87
$
38.96
$
50.36
46.11
49.00
41.42
37.83
37.63
0.17
0.17
0.17
0.20
Issuer purchases of equity securities for the fourth quarter 2013 were:
Period
October 1-31, 2013
November 1-30, 2013
December 1-31, 2013
Total
Total Number of
Shares Repurchased
Average Price
Paid Per Share
162,100
$
270,847
334,584 (1)
767,531
67.84
71.26
71.56
70.67
Total Number of
Shares Repurchased
as Part of Publicly
Announced Plans or
Programs
162,100
270,847
315,525
748,472
Maximum Number of
Shares that May Yet be
Purchased Under the
Plans or Programs (2)
16,257,131
15,986,284
15,670,759
(1) The above share repurchases include the surrender of 19,059 shares of the Company's common shares in connection with
the vesting of restricted shares granted pursuant to the Company's 2006 Equity and Performance Incentive Plan.
(2) On July 26, 2013, the Company announced a new share repurchase program, which increased the total number the
Company’s common shares authorized to be repurchased to 45 million shares of the Company's common stock. Total
shares purchased through the share repurchase program were 29,329,241 shares at a cost of $594.9 million for a weighted
average cost of $20.28 per share through December 31, 2013.
12
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, 2009 and ending December 31, 2013.
This graph assumes that $100 was invested on December 31, 2008 in each of the Company's common shares, the S&P 500 and
the S&P 400. A peer-group index for the welding industry, in general, 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.
Five Year Performance Caparison
The Company's Common Shares, S&P 500 and S&P 400 Composite Indices
$350
$300
$250
$200
$150
$100
$50
$0
The Company
S&P 500
S&P 400
2008
100
100
100
2009
107
126
137
2010
133
145
173
2011
162
148
170
2012
205
171
200
2013
303
226
267
13
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
2013 (1)
2012 (2)
Year Ended December 31,
2011 (3)
2010 (4)
2009 (5)
$
2,852,671
293,780
$
2,853,367
257,411
$
2,694,609
217,186
$
2,070,172
130,244
$
1,729,285
48,576
3.58
3.54
0.830
2,151,867
3,791
3.10
3.06
0.710
2,089,863
1,599
2.60
2.56
0.635
1,976,776
1,960
1.54
1.53
0.575
1,783,788
84,627
0.57
0.57
0.545
1,705,292
87,850
(1) Results for 2013 include rationalization and asset impairment net charges of $8,463 ($7,573 after-tax) which include $3,658
($2,965 after-tax) in rationalization charges and impairment charges net of gains on disposals of $4,805 ($4,608 after-tax). Results
also include a charge of $12,198 ($12,198 after-tax) related to the devaluation of the Venezuelan currency and a loss of $705 ($705
after-tax) related to a loss on the sale of land. Associated with the impairment of long-lived assets and loss on the sale of land is an
offsetting special item of $1,068 representing portions attributable to non-controlling interests.
(2) 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 disposal and 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.
(3) 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.
(4) 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.
(5) 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).
14
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, 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. 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.
15
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.
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
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
Net income
Year Ended December 31,
2013
2012
2011
Amount
% of Sales
Amount
% of Sales
Amount
% of Sales
$ 2,852,671
100.0% $ 2,853,367
100.0% $ 2,694,609
100.0%
1,910,017
942,654
67.0%
33.0%
1,986,711
866,656
69.6%
30.4%
1,957,872
736,737
72.7%
27.3%
527,206
18.5%
495,221
17.4%
439,775
16.3%
8,463
406,985
3,320
4,806
4,194
0.3%
14.3%
0.1%
0.2%
0.1%
(2,864)
(0.1%)
416,441
124,754
14.6%
4.4%
9,354
362,081
3,988
5,007
2,685
(4,191)
369,570
112,354
0.3%
12.7%
0.1%
0.2%
0.1%
(0.1%)
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%
291,687
10.2%
257,216
9.0%
217,013
8.1%
(2,093)
(0.1%)
$
293,780
10.3% $
(195)
257,411
—
9.0% $
(173)
217,186
—
8.1%
16
2013 Compared with 2012
Net Sales: Net sales for 2013 remained flat with 2012. The sales change reflects volume decreases of 2.7%, price increases of
0.1%, increases from acquisitions of 3.2% and unfavorable impacts from foreign exchange of 0.6%. Sales volumes decreased
as a result of soft demand in both domestic and international markets. Product pricing increased from prior year levels
reflecting the highly inflationary environment in Venezuela offset by pricing declines in The Harris Products Group segment
due to significant decreases in the costs of silver and copper. Net sales for 2013 include $109,139 in sales from the Company's
Venezuelan operations.
Gross Profit: Gross profit increased 8.8% to $942,654 during 2013 compared with $866,656 in 2012. As a percentage of Net
sales, Gross profit increased to 33.0% in 2013 compared with 30.4% in 2012. The increase was the result of geographic mix
and pricing stability in the wake of lower year over year input costs. The current period includes incremental costs of $4,117
due to the devaluation of the Venezuelan currency and charges of $2,521 for inventory write-downs, partially offset by a gain of
$1,672 from insurance proceeds associated with a fire at a manufacturing operation. In the prior year 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
$5,622 unfavorable translation impact in 2013.
Selling, General & Administrative ("SG&A") Expenses: SG&A expenses increased 6.5% to $527,206 during 2013 compared
with $495,221 in 2012. The increase was primarily due to incremental SG&A expenses from acquisitions of $18,620, general
and administrative spending primarily related to additional employee compensation costs of $17,160 and higher foreign
exchange transaction losses of $3,280, which include a charge of $8,081 due to the devaluation of the Venezuelan currency,
partially offset by foreign currency translation of $3,264, lower bonus expense of $3,112 and lower U.S. retirement costs of
$1,415.
Rationalization and Asset Impairment Charges: In 2013, the Company recorded $8,463 in charges primarily related to asset
impairments and rationalization actions. See "Rationalization and Asset Impairments" for additional information.
Equity Earnings in Affiliates: Equity earnings in affiliates were $4,806 in 2013 compared with earnings of $5,007 in 2012.
The decrease was due to decreased earnings in Chile of $161 and Turkey of $40.
Interest Expense: Interest expense decreased to $2,864 in 2013 from $4,191 in 2012, primarily as a result of lower levels of
debt in the current period.
Income Taxes: The Company recorded $124,754 of tax expense on pre-tax income of $416,441, resulting in an effective tax
rate of 30.0% for 2013. 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 30.4% for 2012 was 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.
Net Income: Net income for 2013 was $293,780 compared with $257,411 in the prior year. Diluted earnings per share for
2013 were $3.54 compared with diluted earnings of $3.06 per share in 2012. Net income for 2013 included $25,614, or $0.31
per diluted share, from the Company's Venezuelan operations. Foreign currency exchange rate movements had an unfavorable
translation effect of $1,572 and $2,879 on Net income for 2013 and 2012, respectively.
17
Segment Results
Net Sales: The table below summarizes the impacts of volume, acquisitions, price and foreign currency exchange rates on Net
sales for the twelve months ended December 31, 2013:
Net Sales
2012
Volume
Acquisitions
Price
Foreign
Exchange
Net Sales
2013
Change in Net Sales due to:
Operating Segments
North America Welding
$
1,580,818
$ (22,962)
$
91,442
$
7,785
$
(4,314)
$ 1,652,769
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
452,227
324,482
161,483
334,357
2,853,367
(18,518)
(48,964)
13,269
1,276
$ (75,899)
$
—
—
—
—
91,442
(5,696)
(4,947)
29,730
(24,748)
2,124
$
1,535
(4,289)
(8,587)
(2,708)
$ (18,363)
429,548
266,282
195,895
308,177
$ 2,852,671
$
(1.5%)
(4.1%)
(15.1%)
8.2%
0.4%
(2.7%)
5.8%
—
—
—
—
3.2%
0.5%
(1.3%)
(1.5%)
18.4%
(7.4%)
0.1%
(0.3%)
0.3%
(1.3%)
(5.3%)
(0.8%)
(0.6%)
4.6%
(5.0%)
(17.9%)
21.3%
(7.8%)
—
Net sales volumes for 2013 decreased for all operating segments except for the South America Welding and The Harris
Products Group segments, as a result of soft demand in both domestic and international markets. Net sales volumes in the
South America Welding segment increased as a result of improved demand in the South American markets. Net sales volumes
in The Harris Products Group segment increased as a result of improved sales volumes on equipment. Product pricing in the
North America Welding segment increased slightly due to the realization of price increases and improved pricing management.
Product pricing in the Europe Welding segment decreased due to declining raw material costs. Product pricing decreased for
the Asia Pacific Welding segment due to lower raw material costs and competitive pricing conditions. Product pricing in the
South America Welding segment reflects a highly 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 Robolution GmbH
("Robolution") in November 2013, Burlington Automation Corporation ("Burlington") in November 2013, Tennessee Rand,
Inc. ("Tenn Rand") in December 2012, Kaliburn, Burny and Cleveland Motion Control businesses (collectively, "Kaliburn") in
November 2012, Wayne Trail Technologies, Inc. ("Wayne Trail") in May 2012 and Weartech International, Inc. ("Weartech") in
March 2012 (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 Europe Welding segment, decreased due to a stronger
U.S. dollar.
18
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 2013 by segment compared with 2012:
Twelve Months Ended
December 31,
2013
2012
$ Change
% Change
North America Welding:
Net sales
Inter-segment sales
Total Sales
EBIT, as adjusted
As a percent of total sales
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
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
1,652,769
127,254
1,780,023
318,507
17.9%
429,548
19,911
449,459
36,247
8.1%
266,282
14,906
281,188
1,815
0.6%
195,895
233
196,128
57,306
29.2%
308,177
9,605
317,782
27,826
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
1,580,818
131,062
1,711,880
293,070
17.1%
452,227
16,048
468,275
37,299
8.0%
324,482
14,829
339,311
7,247
2.1%
161,483
38
161,521
18,301
11.3%
334,357
8,549
342,906
29,477
71,951
(3,808)
68,143
25,437
(22,679)
3,863
(18,816)
(1,052)
(58,200)
77
(58,123)
(5,432)
34,412
195
34,607
39,005
(26,180)
1,056
(25,124)
(1,651)
As a percent of total sales
8.8%
8.6%
4.6%
(2.9%)
4.0%
8.7%
0.8%
(5.0%)
24.1%
(4.0%)
(2.8%)
0.1%
(17.9%)
0.5%
(17.1%)
(75.0%)
(1.5%)
21.3%
513.2%
21.4%
213.1%
17.9%
(7.8%)
12.4%
(7.3%)
(5.6%)
0.2%
EBIT, as adjusted as a percent of total sales increased for all segments, except for the Asia Pacific Welding segment, in 2013 as
compared with 2012. The North America Welding segment increase is primarily due to improved pricing management and
lower material costs. The increase at the Europe Welding segment is primarily due to cost control on volume decreases of
4.1%. The Asia Pacific Welding segment decrease is due to lower profitability in China and Australia due to weaker demand.
The South America Welding segment increase is a result of improved pricing management and manufacturing costs in Brazil
and Colombia, and pricing increases as a result of the highly inflationary economy in Venezuela. The Harris Products Group
segment growth is primarily a result of improved product mix on equipment sales volume.
19
In 2013, EBIT, as adjusted, for the North America Welding, Europe Welding and Asia Pacific Welding segments excluded
special item charges of $1,052, $2,045 and $922, respectively, primarily related to employee severance and other costs
associated with the consolidation of manufacturing operations. The Asia Pacific Welding segment EBIT, as adjusted, also
excluded charges of $4,444 related to impairment of long-lived assets and a charge of $705 related to a loss on the sale of land.
The South America Welding segment EBIT, as adjusted, excluded special item charges of $12,198, related to the devaluation of
the Venezuelan currency.
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,
excluded a special item charge of $1,381, related to a change in Venezuelan labor law, which provides for increased employee
severance obligations.
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, Wayne Trail, 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 2012, 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: 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.
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.
20
Segment Results
Net Sales: The table below summarizes the impacts of volume, acquisitions, price and foreign currency exchange rates on Net
sales for the twelve months ended December 31, 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
$ 2,694,609
$
(36,199)
(54,289)
(1,284)
13,683
34,809
8,322
—
—
—
133,152
$
4,874
1,646
15,584
(13,427)
45,801
$
(33,462)
849
(9,501)
(9,357)
$ (55,004)
452,227
324,482
161,483
334,357
$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.
21
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
Inter-segment sales
Total Sales
EBIT, as adjusted
As a percent of total sales
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
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
1,580,818
131,062
1,711,880
293,070
17.1%
452,227
16,048
468,275
37,299
8.0%
324,482
14,829
339,311
7,247
2.1%
161,483
38
161,521
18,301
11.3%
334,357
8,549
342,906
29,477
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
1,309,499
136,314
1,445,813
227,924
15.8%
508,692
17,422
526,114
36,171
6.9%
376,276
15,614
391,890
2,629
0.7%
156,684
494
157,178
12,895
8.2%
343,458
8,496
351,954
25,151
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
As a percent of total sales
8.6%
7.1%
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 as a percent of total sales increased for all segments in 2012 as compared with 2011. The North America
Welding segment growth was 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 was primarily due to improved product mix. The Asia Pacific Welding segment
increase was due to improved profitability resulting from prior rationalization actions in Australia and improved product mix.
The South America Welding segment increase was a result of product pricing increases of 9.9% exceeding inflationary cost.
The Harris Products Group segment growth was primarily a result of improved product mix on equipment sales volume.
22
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,
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 item 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.
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 and asset impairment charges
Loss on the sale of land
Venezuela currency devaluation
Venezuela statutory severance obligation
Adjusted operating income
Year Ended December 31,
2013
2012
2011
$
406,985
$
362,081
$
296,680
8,463
705
12,198
—
428,351
$
9,354
—
—
282
—
—
1,381
372,816
$
—
296,962
$
Special items included in Operating income during 2013 include net rationalization and asset impairment charges of $8,463
primarily related to employee severance and other costs associated with the consolidation of manufacturing operations and
impairment of long-lived assets and a loss on the sale of land of $705. Special items for 2013 also include charges of $12,198
related to the devaluation of the Venezuelan currency.
Special items included in Operating income during 2012 include net rationalization and asset impairment charges of $9,354
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 and a 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.
23
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 and asset impairment charges
Loss on the sale of land
Venezuela currency devaluation
Venezuela statutory severance obligation
Adjustment for tax audit settlements
Non-controlling interests 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,
2013
2012
2011
$
293,780
$
257,411
$
217,186
7,573
705
12,198
—
—
(1,068)
313,188
3.54
0.23
3.77
$
$
$
7,442
—
—
906
—
—
265,759
3.06
0.10
3.16
$
$
$
237
—
—
—
(4,844)
—
212,579
2.56
(0.05)
2.51
$
$
$
Net income for 2013 includes net rationalization and asset impairment charges of $7,573 primarily related to employee
severance and other costs associated with the consolidation of manufacturing operations and impairment of long-lived assets
and a loss on the sale of land of $705. Associated with the impairment of long-lived assets and loss on the sale of land is an
offsetting special item of $1,068 attributable to non-controlling interests. Special items for 2013 also include charges of
$12,198 related to the devaluation of the Venezuelan currency. Adjusted net income for 2013 includes $37,812, or $0.46 per
diluted share, from the Company's Venezuelan operations.
Net income for 2012 includes net rationalization and asset impairment charges of $7,442 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 and a 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.
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.
24
The following table reflects changes in key cash flow measures:
Year Ended December 31,
$ Change
2013
2012
2011
2013 vs. 2012
2012 vs. 2011
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
Excess tax benefit from stock-based compensation
Purchase of shares for treasury
Cash dividends paid to shareholders
Transactions with non-controlling interests
Other financing activities
Increase (decrease) in Cash and cash equivalents
$
338,894
(129,500)
(76,015)
(53,161)
1,393
(1,717)
(194,184)
(1,451)
(389)
20,297
10,602
(167,879)
(49,277)
(6,087)
—
13,361
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)
1,246
—
(63,370)
8,981
(1,032)
11,351
2,916
(36,997)
(51,935)
—
3,346
(5,092)
$
11,410
$
57,971
(23,300)
81,441
6
(176)
22,654
3,082
84,381
1,521
2,783
(86,861)
23,835
(6,087)
—
133,966
(56,675)
13,098
(68,373)
141
(1,541)
(153,468)
(13,514)
(83,738)
7,425
4,903
(44,021)
(21,177)
—
(3,346)
Cash and cash equivalents increased 4.7%, or $13,361, to $299,825 during the twelve months ended December 31, 2013, from
$286,464 as of December 31, 2012. This increase was predominantly due to cash provided by operating activities offset by
capital expenditures of $76,015, cash used in the acquisition of businesses, net of cash acquired of $53,161, purchases of
common shares for treasury of $167,879 and cash dividends paid to shareholders of $49,277. Additionally, in the twelve
months ended December 31, 2012 a deposit of $89,448 for tax and interest assessed by the Canada Revenue Agency (“CRA”)
was made, which did not recur in the current period.
Cash provided by operating activities increased $11,410 for the twelve months ended December 31, 2013 compared with the
twelve months ended December 31, 2012. The increase was predominantly due to increased Net income for the twelve months
ended December 31, 2013, compared with the twelve months ended December 31, 2012 and a deposit of $89,448 for tax and
interest assessed by the CRA made in 2012, which did not recur in the current period, offset by a slight improvement in net
operating working capital requirements in the twelve months ended December 31, 2013 as compared to a significant
improvement in the twelve months ended December 31, 2012. Net operating working capital, defined as the sum of Accounts
receivable and Total inventory less Trade accounts payable, decreased $8,667 in 2013 compared with a decrease of $102,155 in
2012. Net operating working capital to sales, defined as net operating working capital divided by annualized rolling three
months of Net sales, decreased to 17.6% at December 31, 2013 compared with 18.8% at December 31, 2012. Days sales in
inventory decreased to 93.2 days at December 31, 2013 from 94.3 days at December 31, 2012. Accounts receivable days
decreased to 50.3 days at December 31, 2013 from 51.8 days at December 31, 2012. Average days in accounts payable
increased to 45.5 days at December 31, 2013 from 43.9 days at December 31, 2012.
Cash used by investing activities in the twelve months ended December 31, 2013 compared with the twelve months ended
December 31, 2012 decreased by $57,971. The decrease was predominantly due to a decrease in the acquisition of businesses
of $81,441 offset by an increase in capital expenditures of $23,300. The Company anticipates capital expenditures of $60,000
to $80,000 in 2014. 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 decreased $22,654 in the twelve months ended December 31, 2013 compared with the twelve
months ended December 31, 2012. The decrease was predominantly due to lower net payments of long-term borrowings of
$84,381, lower cash dividends paid to shareholders of $23,835 offset by higher purchases of common shares for treasury of
$86,861.
25
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
requires funding. If additional acquisitions providing appropriate financial benefits become available, additional expenditures
may be made.
The Company's debt levels decreased from $20,275 at December 31, 2012 to $19,087 at December 31, 2013. Debt to total
invested capital decreased to 1.2% at December 31, 2013 from 1.5% at December 31, 2012.
The Company paid $49,277 in cash dividends to its shareholders in the twelve months ended December 31, 2013.
The Company has a share repurchase program for up to 45 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 twelve months ended December 31, 2013, the Company purchased 2,671,614 shares
at a cost of $164,755. As of December 31, 2013, 15,670,759 shares remained available for repurchase under the stock
repurchase program.
The Company made voluntary contributions to its U.S. defined benefit plans of $75,216, $60,277 and $30,000 in 2013, 2012
and 2011, respectively. The Company expects to voluntarily contribute approximately $20,000 to its U.S. plans in 2014. Based
on current pension funding rules, the Company does not anticipate that contributions to the plans would be required in 2014.
Canada - Notice of Reassessment
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 $58,824 plus approximately $16,022 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 in 2012 and is recorded as a non-current asset as of December 31, 2013. 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 2013, the Company recorded rationalization and asset impairment net charges of $8,463 resulting from rationalization
activities primarily initiated in 2012 and the third quarter 2013. The 2013 net charges include $3,658 primarily related to
employee severance and other related costs and $4,961 in asset impairment charges, partially offset by gains from sales of
assets of $156.
In 2012, the Company recorded rationalization and asset impairment net charges of $9,354 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 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.
Fair values of impaired assets were determined using projected discounted cash flows.
Acquisitions
During November 2013, the Company completed the acquisition of Robolution. Robolution, based outside of Frankfurt,
Germany, is a leading European provider of robotic arc welding systems. The acquisition added to the Company's growing
automation business and will enable the Company to seamlessly support automation customers across three continents.
26
During November 2013, the Company acquired an ownership interest in Burlington. Burlington, based in Hamilton, Ontario,
Canada, is a leader in the design and manufacture of 3D robotic plasma cutting systems whose products are sold under the
brand name Python X®. The acquisition broadens the Company's portfolio of automated cutting and welding process solutions.
Combined revenues for Robolution and Burlington in 2013 were approximately $35,000. The Company acquired Robolution
and Burlington for approximately $54,023 in cash, net of cash acquired, and assumed debt and a $17,225 liability to acquire the
remaining financial interest in Burlington. The fair value of net assets acquired was $30,051, resulting in goodwill of $41,197.
The purchase price allocations are preliminary and subject to final opening balance sheet adjustments. In addition, during 2013
the Company acquired a greater interest in its majority-owned joint venture, Lincoln Electric Heli (Zhengzhou) Welding
Materials Company Ltd.
On December 31, 2012, the Company completed the acquisition of the privately-held automated systems and tooling
manufacturer, 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
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 $144,423 in cash, net of cash
acquired, and assumed debt. The fair value of net assets acquired was $73,257, resulting in goodwill of $71,166.
On July 29, 2011, the Company acquired substantially all of the assets of Techalloy. Techalloy, based in Baltimore, Maryland,
is a 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 is a 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.
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.
27
Debt
At December 31, 2013 and 2012, the fair value of long-term debt, including the current portion, was approximately $4,212 and
$1,919, 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, 2013, 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 $14,581 and $18,220 at December 31, 2013 and
2012, respectively, and represent the borrowings of foreign subsidiaries at weighted average interest rates of 11.3% and 11.3%,
respectively.
Contractual Obligations and Commercial Commitments
The Company's contractual obligations and commercial commitments as of December 31, 2013 are as follows:
Payments Due By Period
Total
2014
2015 to
2016
2017 to
2018
2019 and
Beyond
Long-term debt, including current portion
$
2,722
$
Interest on long-term debt
Capital lease obligations
Short-term debt
Interest on short-term debt
Operating leases
Purchase commitments(1)
Total
311
236
14,581
1,019
48,170
$
644
107
72
14,581
1,019
13,263
164,232
231,271
$
160,987
190,673
$
$
854
104
127
—
—
$
450
$
54
37
—
—
18,631
2,983
22,699
$
9,708
175
10,424
$
774
46
—
—
—
6,568
87
7,475
_______________________________________________________________________________
(1) Purchase commitments include contractual obligations for raw materials and services.
As of December 31, 2013, there was $25,907 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 $20,000 to the U.S. pension plans in 2014.
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, 2013, there were
2,315,239 common shares available for future grant under all plans.
28
Under these plans, options, restricted shares and restricted stock units granted were 357,494 in 2013, 567,023 in 2012 and
648,561 in 2011. The Company issued shares of common stock from treasury upon all exercises of stock options and the
granting of restricted stock awards in 2013, 2012 and 2011.
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 2013, 2012 and 2011 was $9,734, $8,961 and $6,610, respectively. The related tax
benefit for 2013, 2012 and 2011 was $3,727, $3,409 and $2,515, respectively. As of December 31, 2013, total unrecognized
stock-based compensation expense related to non-vested stock options, restricted shares and restricted stock units was $21,633,
which is expected to be recognized over a weighted average period of approximately 3.3 years.
The aggregate intrinsic value of options outstanding and exercisable which would have been received by the optionees had all
awards been exercised at December 31, 2013, was $85,404 and $76,076, respectively. The total intrinsic value of awards
exercised during 2013, 2012 and 2011 was $20,297, $18,776 and $10,028 respectively.
Product Liability Costs
Product liability costs have historically been significant particularly with respect to asbestos 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 $767 in 2013 compared with 2012 primarily due to
reduced trial activity.
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 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 July 2013, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2013-11,
"Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar
Tax Loss, or a Tax Credit Carryforward Exists." ASU 2013-11 requires an entity to present an unrecognized tax benefit in the
financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss or a tax credit
carryforward, with limited exceptions. The amendments are effective for fiscal years, and interim periods within those years,
beginning after December 15, 2013. Early adoption and retrospective application is permitted. The Company is currently
evaluating the impact of the adoption of ASU 2013-11, but does not expect it will have a significant impact on the Company's
financial statements.
In March 2013, the FASB issued ASU No. 2013-05, "Foreign Currency Matters (Topic 830): Parent's Accounting for the
Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or
of an Investment in a Foreign Entity." ASU 2013-05 clarifies the applicable guidance for the release of the cumulative
translation adjustment under current U.S. GAAP by emphasizing that the accounting for the release of the cumulative
translation adjustment into net income for sales or transfers of a controlling financial interest within a foreign entity is the same
irrespective of whether the sale or transfer is of a subsidiary or a group of assets that is a nonprofit activity or business. When a
reporting entity ceases to have a controlling financial interest in a subsidiary or group of assets that is a nonprofit activity or a
business within a foreign entity, the parent is required to apply the guidance in Subtopic 830-30 to release any related
cumulative translation adjustment into net income. The amendments are effective prospectively for fiscal years (and interim
reporting periods within those years) beginning after December 15, 2013. The Company is currently evaluating the impact of
the adoption of ASU 2013-05 on the Company's financial statements.
29
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
2013. The Company believes the following accounting policies are some of the more critical judgment areas affecting its
financial condition and results of operations.
Legal and Tax Contingencies
The Company, like other manufacturers, is subject from time to time to a variety of civil and administrative proceedings arising
in the ordinary course of business. Such claims and litigation include, without limitation, product liability claims 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 the "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 $7,759, $4,608 and
$4,904 in 2013, 2012 and 2011, respectively.
30
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. On February 8, 2013, the Venezuelan government announced the devaluation of its currency relative to the
U.S. dollar. Effective February 13, 2013 the official rate moved from 4.3 to 6.3 bolivars to the U.S. dollar. The devaluation of
the bolivar resulted in a foreign currency transaction loss of $8,081 in Selling, general & administrative expenses and higher
Cost of goods sold of $4,117 due to the liquidation of inventory valued at the historical exchange rate. In January 2014, the
Venezuelan government announced the formation of the National Center of Foreign Trade ("CENCOEX") to replace the
Commission for the Administration of Currency Exchange ("CADIVI"). In addition, the government announced the
CENCOEX would utilize the rate used in the SICAD auction-based exchange rate program (the "SICAD rate") for certain
transactions as opposed to the official rate. Transactions executed at the SICAD rate most recently used a rate of 11.7 bolivars
to the U.S. dollar. In February 2014, the government announced a new foreign exchange system, SICAD 2, which is expected
to use a currency mechanism based on bond swaps. At this time, the Company expects to continue to use the official rate of 6.3
bolivars to the U.S. dollar to translate its Venezuelan subsidiary's financial results. The Company will continue to assess the
information available relative to Venezuelan exchange rates, however, the future impact on the Company's financial statements
is uncertain.
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 $38,633 at December 31, 2013, which includes $50,642 of cash and cash
equivalents, and $31,545 at December 31, 2012, which includes $32,610 of cash and cash equivalents. 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. For example, a future
devaluation in the Venezuelan currency to a rate of 12.6 would result in the Company realizing additional charges of
approximately $3,000 to Cost of goods sold based on current inventory levels and $20,000 to Selling, general and
administrative expenses based upon the current bolivar-denominated monetary net asset position. Additionally, the various
restrictions on the distribution of foreign currency by the Venezuelan government could affect the Company's ability to pay
obligations and maintain normal production levels in Venezuela.
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 $8,354 that are not expected to be permanently reinvested were not significant. At December 31,
2013, the Company had approximately $102,128 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, 2013, a valuation
allowance of $49,684 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.
31
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 7.4% and 7.7% at December 31, 2013 and 2012, 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 2013, investment returns were 12.4% compared
with a return of 11.1% in 2012. A 25 basis point change in the expected return on plan assets would increase or decrease
pension expense by approximately $1,900.
Another significant element in determining the Company's pension expense is the discount rate for plan liabilities. To develop
the discount rate assumption, 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 4.7% at
December 31, 2013 and 3.8% at December 31, 2012. 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 $29,908, $36,258 and $26,370 in 2013, 2012 and 2011,
respectively. The Company expects 2014 defined benefit pension expense to decrease by a range of approximately $15,000 to
$18,000.
The Accumulated other comprehensive loss, excluding tax effects, recognized on the Consolidated Balance Sheet was $256,260
as of December 31, 2013 and $417,967 as of December 31, 2012. The decrease is primarily the result of actuarial gains
recorded during the year. Actuarial gains arising during 2013 are primarily attributable to a higher discount rate.
The Company made voluntary contributions to its U.S. defined benefit plans of $75,216, $60,277 and $30,000 in 2013, 2012
and 2011, respectively. The Company expects to voluntarily contribute $20,000 to its U.S. plans in 2014. Based on current
pension funding rules, the Company does not anticipate that contributions to the plans would be required in 2014.
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 $70,882 at December 31, 2013 and $72,173 at December 31, 2012.
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.
32
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 20% as of
the testing date during the fourth quarter of 2013. 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.
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, 2013, 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, 2013 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, 2013, the Company hedged certain third-party and inter-company purchases and sales. At
December 31, 2013, the Company had foreign exchange contracts with a notional value of approximately $36,880. At
December 31, 2013, a hypothetical 10% weakening of the U.S. dollar would not materially affect the Company's financial
statements.
33
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, 2013 would not materially affect the Company's financial statements.
Interest Rate Risk
As of December 31, 2013, 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, 2013 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.
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, 2013 based on the 1992 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, 2013.
The effectiveness of the Company's internal control over financial reporting as of December 31, 2013 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 2013 that materially affected, or are reasonably likely to materially affect, the Company's internal control over financial
reporting.
ITEM 9B. OTHER INFORMATION
None.
34
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The Company is expected to file its 2014 proxy statement pursuant to Regulation 14A of the Exchange Act prior to April 30,
2014.
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 2014 proxy statement.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference from the 2014 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 2014 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 2014 proxy statement.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this item is incorporated by reference from the 2014 proxy statement.
35
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, 2013 and 2012
Consolidated Statements of Income – Years ended December 31, 2013, 2012 and 2011
Consolidated Statements of Comprehensive Income – Years ended December 31, 2013, 2012 and 2011
Consolidated Statements of Equity – Years ended December 31, 2013, 2012 and 2011
Consolidated Statements of Cash Flows – Years ended December 31, 2013, 2012 and 2011
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.
(a)(3) Exhibits
Exhibit No.
3.1
3.2
10.1
10.2*
10.3*
10.4*
10.5*
10.6*
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).
36
Exhibit No.
10.7*
10.8*
10.9*
10.10*
10.11*
10.12*
10.13*
10.14*
10.15*
10.16*
10.17*
10.18*
10.19*
10.20*
10.21*
10.22*
10.23*
10.24*
10.25*
Description
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).
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).
37
Exhibit No.
10.26*
10.27*
10.28*
10.29*
10.30*
10.31*
10.32*
Description
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).
Form of Amendment to Restricted Shares Agreement for Executive Officers (for awards granted prior to
December 2013) (filed as Exhibit 10.1 to Form 8-K of Lincoln Electric Holdings, Inc. filed on December 20,
2013, SEC File No. 0-1402 and incorporated herein by reference and made a part hereof).
Form of Amendment to Restricted Stock Unit Agreement for Executive Officers (for awards granted prior to
December 2013) (filed as Exhibit 10.2 to Form 8-K of Lincoln Electric Holdings, Inc. filed on December 20,
2013, SEC File No. 0-1402 and incorporated herein by reference and made a part hereof).
10.33*
Form of Restricted Stock Unit Agreement for Executive Officers (for awards granted on or after December 16,
2013) (filed herewith).
21
23
24
31.1
31.2
32.1
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.
101.INS
XBRL Instance Document
101.SCH
XBRL Taxonomy Extension Schema Document
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB
101.PRE
XBRL Taxonomy Extension Label Linkbase Document
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.
38
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 21, 2014
39
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 21, 2014
/s/ VINCENT K. PETRELLA
Vincent K. Petrella,
Senior Vice President, Chief Financial Officer and
Treasurer (principal financial and accounting officer)
February 21, 2014
/s/ VINCENT K. PETRELLA
Vincent K. Petrella as
Attorney-in-Fact for
Harold L. Adams, Director
February 21, 2014
/s/ VINCENT K. PETRELLA
Vincent K. Petrella as
Attorney-in-Fact for
David H. Gunning, Director
February 21, 2014
/s/ VINCENT K. PETRELLA
Vincent K. Petrella as
Attorney-in-Fact for
Robert J. Knoll, Director
February 21, 2014
/s/ VINCENT K. PETRELLA
Vincent K. Petrella as
Attorney-in-Fact for
Kathryn Jo Lincoln, Director
February 21, 2014
/s/ VINCENT K. PETRELLA
Vincent K. Petrella as
Attorney-in-Fact for
Phillip J. Mason, Director
February 21, 2014
/s/ VINCENT K. PETRELLA
Vincent K. Petrella as
Attorney-in-Fact for
George H. Walls, Jr., Director
February 21, 2014
/s/ VINCENT K. PETRELLA
Vincent K. Petrella as
Attorney-in-Fact for
Curtis E. Espeland, Director
February 21, 2014
/s/ VINCENT K. PETRELLA
Vincent K. Petrella as
Attorney-in-Fact for
Stephen G. Hanks, Director
February 21, 2014
/s/ VINCENT K. PETRELLA
Vincent K. Petrella as
Attorney-in-Fact for
G. Russell Lincoln, Director
February 21, 2014
/s/ VINCENT K. PETRELLA
Vincent K. Petrella as
Attorney-in-Fact for
William E. MacDonald, III, Director
February 21, 2014
/s/ VINCENT K. PETRELLA
Vincent K. Petrella as
Attorney-in-Fact for
Hellene S. Runtagh, Director
February 21, 2014
40
[THIS PAGE INTENTIONALLY LEFT BLANK]
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, 2013 and 2012, 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, 2013. 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, 2013 and 2012, and the consolidated results of
their operations and their cash flows for each of the three years in the period ended December 31, 2013, 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, 2013, based on
criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (1992 framework) and our report dated February 21, 2014 expressed an unqualified opinion thereon.
Cleveland, Ohio
February 21, 2014
/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,
2013, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (1992 framework) (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, 2013, 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, 2013 and 2012, 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, 2013 of Lincoln Electric Holdings, Inc. and subsidiaries and our report dated February 21, 2014
expressed an unqualified opinion thereon.
Cleveland, Ohio
February 21, 2014
/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 $8,398 in
2013; $8,654 in 2012)
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
Prepaid pensions
Equity investments in affiliates
Intangibles, net
Goodwill
Long-term investments
Deferred income taxes
Other non-current assets
Total Other Assets
TOTAL ASSETS
December 31,
2013
2012
$
299,825
$
286,464
367,134
360,662
112,478
38,963
198,522
349,963
10,922
102,931
119,963
41,805
203,122
364,890
16,670
104,130
1,130,775
1,132,816
48,369
373,373
723,715
1,145,457
661,452
484,005
36,116
26,618
147,012
174,715
32,763
3,556
116,307
537,087
44,510
343,867
732,461
1,120,838
634,602
486,236
—
24,606
132,902
132,903
31,187
44,639
104,574
470,811
$
2,151,867
$
2,089,863
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 2013 and 2012;
outstanding – 81,010,084 shares in 2013 and 82,944,817 shares in 2012
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Treasury shares, at cost – 17,571,350 shares in 2013 and 15,636,617 shares in 2012
Total Shareholders' Equity
Non-controlling interests
Total Equity
TOTAL LIABILITIES AND EQUITY
See notes to these consolidated financial statements.
F-4
December 31,
2013
2012
$
$
14,581
212,799
68,263
29,613
46,109
10,564
18,619
24,319
31,335
715
456,917
3,791
26,999
48,103
36,149
49,220
164,262
18,220
209,647
68,698
29,420
45,505
3,639
—
26,335
38,347
456
440,267
1,599
216,189
8,349
35,550
29,588
291,275
—
—
9,858
240,519
1,908,462
(151,941)
(480,296)
1,526,602
4,086
9,858
205,124
1,682,668
(235,400)
(319,877)
1,342,373
15,948
1,530,688
1,358,321
$
2,151,867
$
2,089,863
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
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
Net income
Basic earnings per share
Diluted earnings per share
Cash dividends declared per share
Year Ended December 31,
2013
2012
2011
$
2,852,671
$
2,853,367
$
2,694,609
1,910,017
942,654
527,206
8,463
406,985
1,986,711
866,656
495,221
9,354
362,081
1,957,872
736,737
439,775
282
296,680
3,320
4,806
4,194
(2,864)
9,456
416,441
124,754
291,687
(2,093)
293,780
3.58
3.54
0.830
$
$
$
$
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
$
$
$
$
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
$
$
$
$
See notes to these consolidated financial statements.
F-5
LINCOLN ELECTRIC HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
Net income including non-controlling interests
Other comprehensive income, net of tax:
Unrealized gain (loss) on derivatives designated and qualifying as cash
flow hedges, net of tax of $(141) in 2013; $(201) in 2012; $264 in 2011
Defined pension plan activity, net of tax of $60,556 in 2013; $(3,492)
in 2012; $(47,413) in 2011
Currency translation adjustment
Transactions with non-controlling interests
Other comprehensive income (loss)
Comprehensive income
Comprehensive (loss) income attributable to non-controlling interests
Comprehensive income attributable to shareholders
$
Year Ended December 31,
2013
2012
2011
$
291,687
$
257,216
$
217,013
289
(832)
1,264
101,151
(19,955)
155
81,640
373,327
(3,912)
377,239
$
(6,475)
19,635
—
12,328
269,544
(348)
269,892
(79,936)
(26,773)
—
(105,445)
111,568
315
$
111,253
See notes to these consolidated financial statements.
F-6
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LINCOLN ELECTRIC HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income
Non-controlling interests in subsidiaries' loss
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
Depreciation and amortization
Equity (earnings) loss in affiliates, net
Deferred income taxes
Stock-based compensation
Pension expense
Pension contributions and payments
Other, net
Changes in operating assets and liabilities, net of effects from acquisitions:
(Increase) decrease in accounts receivable
Decrease (increase) in inventories
Decrease (increase) in other current assets
Increase in accounts payable
(Decrease) 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
Excess tax benefit from stock-based compensation
Purchase of shares for treasury
Cash dividends paid to shareholders
Transactions with non-controlling interests
Other financing activities
NET CASH USED BY FINANCING ACTIVITIES
Effect of exchange rate changes on cash and cash equivalents
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
Cash and cash equivalents at beginning of year
Year Ended December 31,
2013
2012
2011
$
293,780
$
257,411
$
217,186
(2,093)
291,687
5,092
68,883
(1,660)
17,817
9,734
29,774
(87,356)
1,910
(5,437)
13,310
2,811
794
(7,785)
(680)
338,894
(76,015)
(53,161)
1,393
(1,717)
(195)
257,216
1,740
65,334
160
(2,137)
8,961
35,515
(69,646)
2,688
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
26,370
(36,322)
991
(67,518)
(51,679)
(2,857)
8,672
20,838
(3,842)
193,518
(65,813)
(66,229)
1,246
—
(129,500)
(187,471)
(130,796)
1,230
(2,164)
(517)
61
(450)
20,297
10,602
(167,879)
(49,277)
(6,087)
—
(194,184)
(1,849)
13,361
286,464
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
361,101
CASH AND CASH EQUIVALENTS AT END OF YEAR
$
299,825
$
286,464
$
See notes to these consolidated financial statements.
F-8
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 computer numeric controlled ("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 $7,759, $4,608 and
$4,904 in 2013, 2012 and 2011, 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. On February 8, 2013, the Venezuelan government announced the
devaluation of its currency relative to the U.S. dollar. Effective February 13, 2013 the official rate moved from 4.3 to 6.3
bolivars to the U.S. dollar. The devaluation of the bolivar resulted in a foreign currency transaction loss of $8,081 in Selling,
general & administrative expenses and higher Cost of goods sold of $4,117 due to the liquidation of inventory valued at the
historical exchange rate.
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 $38,633 at December 31, 2013, which includes $50,642 of cash and cash
equivalents and $31,545 at December 31, 2012, which includes $32,610 of cash and cash equivalents. The increased exposure
was due to the limited opportunities to convert bolivars into U.S. dollars.
Cash Equivalents
The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash
equivalents.
F-9
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
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. 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 $16,694 at December 31, 2013 and $15,034 at December 31, 2012.
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.
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 2013 resulted in no impairment loss being
recognized.
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, balance sheet and net investment 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.
Research and Development
Research and development costs are charged to Selling, general & administrative expenses as incurred and totaled $42,126,
$37,305 and $32,834 in 2013, 2012 and 2011, 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 $123,571 in 2013,
$124,947 in 2012 and $104,361 in 2011.
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 to be Adopted:
In July 2013, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2013-11,
"Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar
Tax Loss, or a Tax Credit Carryforward Exists." ASU 2013-11 requires an entity to present an unrecognized tax benefit in the
financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss or a tax credit
carryforward, with limited exceptions. The amendments are effective for fiscal years, and interim periods within those years,
beginning after December 15, 2013. Early adoption and retrospective application is permitted. The Company is currently
evaluating the impact of the adoption of ASU 2013-11, but does not expect it will 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 March 2013, the FASB issued ASU No. 2013-05, "Foreign Currency Matters (Topic 830): Parent's Accounting for the
Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or
of an Investment in a Foreign Entity." ASU 2013-05 clarifies the applicable guidance for the release of the cumulative
translation adjustment under current U.S. GAAP by emphasizing that the accounting for the release of the cumulative
translation adjustment into net income for sales or transfers of a controlling financial interest within a foreign entity is the same
irrespective of whether the sale or transfer is of a subsidiary or a group of assets that is a nonprofit activity or business. When a
reporting entity ceases to have a controlling financial interest in a subsidiary or group of assets that is a nonprofit activity or a
business within a foreign entity, the parent is required to apply the guidance in Subtopic 830-30 to release any related
cumulative translation adjustment into net income. The amendments are effective prospectively for fiscal years (and interim
reporting periods within those years) beginning after December 15, 2013. The Company is currently evaluating the impact of
the adoption of ASU 2013-05 on the Company's financial statements.
NOTE 2 - EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per share:
Numerator:
Net income
Denominator:
Basic weighted average shares outstanding
Effect of dilutive securities - Stock options and awards
Diluted weighted average shares outstanding
Basic earnings per share
Diluted earnings per share
Year Ended December 31,
2013
2012
2011
$
293,780
$
257,411
$
217,186
81,978
1,064
83,042
$
$
3.58
3.54
$
$
83,087
1,088
84,175
3.10
3.06
$
$
83,681
1,027
84,708
2.60
2.56
For the years ended December 31, 2013, 2012 and 2011, common shares subject to equity-based awards of 45,850, 107,814 and
626,135, respectively, were excluded from the computation of diluted earnings per share because the effect of their exercise would
be anti-dilutive.
NOTE 3 – ACQUISITIONS
During November 2013, the Company completed the acquisition of Robolution GmbH ("Robolution"). Robolution, based
outside of Frankfurt, Germany, is a leading European provider of robotic arc welding systems. The acquisition added to the
Company's growing automation business and will enable the Company to seamlessly support automation customers across
three continents.
During November 2013, the Company acquired an ownership interest in Burlington Automation Corporation ("Burlington").
Burlington, based in Hamilton, Ontario, Canada, is a leader in the design and manufacture of 3D robotic plasma cutting systems
whose products are sold under the brand name Python X®. The acquisition broadens the Company's portfolio of automated
cutting and welding process solutions.
Combined revenues for Robolution and Burlington in 2013 were approximately $35,000. The Company acquired Robolution
and Burlington for approximately $54,023 in cash, net of cash acquired, and assumed debt and a $17,225 liability to acquire the
remaining financial interest in Burlington. The fair value of net assets acquired was $30,051, resulting in goodwill of $41,197.
The purchase price allocations are preliminary and subject to final opening balance sheet adjustments. In addition, during 2013
the Company acquired a greater interest in its majority-owned joint venture, Lincoln Electric Heli (Zhengzhou) Welding
Materials Company Ltd.
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.
F-13
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
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 $144,423 in cash, net of cash
acquired, and assumed debt. The fair value of net assets acquired was $73,257, resulting in goodwill of $71,166.
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, is a
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.
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 is a 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.
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.
F-14
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
NOTE 4 – GOODWILL AND INTANGIBLES
The changes in the carrying amount of goodwill by reportable segments for the years ended December 31, 2013 and 2012 were
as follows:
North
America
Welding
Europe
Welding
Asia
Pacific
Welding
South
America
Welding
The Harris
Products
Group
Consolidated
Balance at December 31, 2011
$
18,514
$
23,867
$
5,208
$
561
$
Additions and adjustments
Foreign currency translation
Balance as of December 31, 2012
Additions and adjustments
Foreign currency translation
67,740
23
86,277
44,446
(284)
Balance as of December 31, 2013
$
130,439
$
66
1,424
25,357
—
(927)
24,430
—
40
5,248
—
111
$
5,359
$
—
53
614
—
(52)
562
$
16,951
(1,109)
(435)
15,407
(1,027)
(455)
13,925
$
$
65,101
66,697
1,105
132,903
43,419
(1,607)
174,715
Additions to goodwill primarily reflect goodwill recognized in the acquisitions of Robolution and Burlington in 2013 and the
acquisitions of Weartech, Wayne Trail, Kaliburn and Tenn Rand in 2012 (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.
Gross and net intangible assets other than goodwill by asset class as of December 31, 2013 and 2012 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
14
20
14
December 31, 2013
Gross
Amount
Accumulated
Amortization
Indefinite
Lived Assets
Total Intangible,
Net
$
$
38,566
74,935
23,861
49,578
186,940
Gross
Amount
30,611
63,906
20,882
44,769
160,168
$
$
$
$
$
$
11,898
16,837
6,205
23,298
58,238
$
$
18,310
—
—
—
18,310
$
$
44,978
58,098
17,656
26,280
147,012
December 31, 2012
Accumulated
Amortization
Indefinite
Lived Assets
Total Intangible,
Net
9,493
12,099
5,103
18,847
45,542
$
$
18,276
—
—
—
18,276
$
$
39,394
51,807
15,779
25,922
132,902
Additions to gross and net intangible assets primarily reflect assets and related amortization recognized in the acquisitions of
Robolution and Burlington in 2013 and the acquisitions of Weartech, Wayne Trail, Kaliburn and Tenn Rand in 2012. Aggregate
amortization expense was $13,342, $10,641 and $6,661 for 2013, 2012 and 2011, respectively. Estimated annual amortization
expense for intangible assets for each of the next five years is $15,745 in 2014, $15,337 in 2015, $14,367 in 2016, $12,228 in
2017 and $11,484 in 2018.
F-15
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
NOTE 5 – SEGMENT INFORMATION
The Company's primary business is the design and manufacture of arc welding and cutting products, manufacturing a broad line
of arc welding equipment, consumable welding products and other welding and cutting products. 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, 2013, 2012 and 2011, approximately 38%, 34% and 31%,
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:
North
America
Welding
Europe
Welding
Asia
Pacific
Welding
South
America
Welding
The Harris
Products
Group
Corporate /
Eliminations
Consolidated
$
1,652,769
127,254
1,780,023
318,507
1,052
317,455
$
$
$
$
$
$
$
429,548
19,911
449,459
36,247
2,045
34,202
$
$
$
$
$
$
$
266,282
14,906
281,188
1,815
6,071
(4,256) $
195,895
233
196,128
57,306
12,198
45,108
$
$
$
$
308,177
9,605
317,782
27,826
—
27,826
$
$
$
$
— $
2,852,671
(171,909) $
—
(171,909) $
2,852,671
(4,350) $
437,351
— $
21,366
(4,350) $
415,985
Total assets
$
1,048,412
$
403,094
$
325,656
$
169,027
$
162,496
$
43,182
—
41,181
39,086
23,315
10,305
10,933
—
2,073
13,559
3,303
20,840
1,893
—
3,931
3,636
— $
(2,315) $
(224) $
Total assets
$
980,093
$
451,654
$
350,189
$
134,650
$
195,881
$
(22,604) $
2,089,863
$
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
—
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
For the Year Ended
December 31, 2013
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, 2012
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, 2011
Net sales
Inter-segment sales
Total
EBIT, as adjusted
Special items charge (gain)
EBIT
Interest income
Interest expense
Income before income taxes
$
$
3,320
(2,864)
416,441
2,151,867
26,618
76,015
68,883
$
$
3,121
(6,704)
301,331
1,976,776
24,618
65,813
62,051
Total assets
$
771,315
$
436,327
$
380,282
$
110,781
$
181,916
$
96,155
Equity investments in affiliates
Capital expenditures
Depreciation and amortization
—
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) $
F-17
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
In 2013, special items include net charges of $1,052, $2,045 and $922 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 Asia Pacific Welding segment special items also include charges of $4,444
related to impairment of long-lived assets and a charge of $705 related to a loss on the sale of land. The South America
Welding segment special items represent charges of $12,198 related to the devaluation of the Venezuelan currency.
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.
Export sales (excluding inter-company sales) from the United States were $260,195 in 2013, $268,331 in 2012 and $242,380 in
2011. No individual customer comprised more than 10% of the Company's total revenues for any of the three years ended
December 31, 2013.
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,
2013
2012
2011
1,350,309
$
1,283,066
$
1,092,838
219,490
1,282,872
229,996
1,340,305
286,121
1,315,650
2,852,671
$
2,853,367
$
2,694,609
December 31,
2013
2012
2011
162,357
$
170,831
$
83,416
238,685
(453)
484,005
$
92,744
223,050
(389)
486,236
$
149,637
96,374
224,801
(361)
470,451
$
$
$
$
F-18
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
NOTE 6 – RATIONALIZATION AND ASSET IMPAIRMENTS
The Company recorded rationalization net charges of $8,463, $9,354 and $282 for the years ended December 31, 2013, 2012
and 2011, respectively. The 2013 net charges include $3,658 primarily related to employee severance and $4,961 in asset
impairment charges, partially offset by gains of $156 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 include consolidating its Oceanside, California operations and its Reno, Nevada operations to another facility in Reno,
Nevada and consolidating its Baltimore, Maryland manufacturing operations into its current manufacturing operations in
Cleveland, Ohio. These actions impacted 72 employees within the North America Welding segment. During the year ended
December 31, 2013, the Company recorded charges of $1,052, which represent employee severance and other related costs. At
December 31, 2013, a liability relating to these actions of $466 was recognized in Other current liabilities, which will be
substantially paid in 2014. Additional charges related to the completion of this plan are expected to be immaterial.
Europe Welding Plans:
During 2013, the Company announced a rationalization plan within the Europe Welding segment to relocate the manufacturing
of certain consumable products from its Portuguese operations to current facilities in Italy. These actions impacted 56
employees within the Europe Welding segment. During the year ended December 31, 2013, the Company recorded charges of
$1,832 related to these activities. The amount represents employee severance and other related costs of $1,599 and asset
impairment charges of $233. At December 31, 2013, a liability relating to these actions of $1,209 was recognized in Other
current liabilities. The Company expects to incur additional charges in the range of $400 to $700 related to the completion of
this plan.
During 2012, the Company initiated various rationalization plans within the Europe Welding segment. Plans for the segment
include the consolidation of manufacturing facilities in Russia, relocation of its Italian machine manufacturing operations to
current facilities in Poland and headcount restructuring 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 impacted 285
employees within the Europe Welding segment. During the year ended December 31, 2013, the Company recorded net charges
of $213 related to these activities. The amount represents employee severance and other related costs and asset impairment
charges, partially offset by a gain on sale of assets. At December 31, 2013, a liability relating to these actions of $1,226 was
recognized in Other current liabilities, which will be substantially paid in 2014. Additional charges related to the completion of
this plan are expected to be immaterial.
Asia Pacific Welding Plans:
During 2012, the Company initiated various rationalization plans within the Asia Pacific Welding segment. These included the
rationalization of the Australian manufacturing operations and headcount reductions 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 impacted 268 employees within the Asia Pacific Welding segment. During the year ended December 31, 2013,
the Company recorded net charges of $922, which represent employee severance and other related costs of $841 and asset
impairment charges of $235, partially offset by gains of $154 from the sale of assets. At December 31, 2013, a liability relating
to these actions of $375 was recognized in Other current liabilities, which will be substantially paid in 2014. Additional
charges related to the completion of this plan are expected to be immaterial.
The Company continues evaluating its cost structure and additional rationalization actions may result in charges in future
periods.
During 2013, the Company recorded long-lived asset impairment charges of $4,444 in Rationalization and asset impairment
charges. The charge is the result of the Company removing capacity to align itself with current market conditions and improve
operating efficiency.
F-19
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
The following tables summarize the activity related to the rationalization liabilities by segment for the years ended
December 31, 2013 and 2012:
Balance at December 31, 2011
Payments and other adjustments
Charged to expense
Balance at December 31, 2012
Payments and other adjustments
Charged to expense
Balance at December 31, 2013
North
America
Welding
Europe
Welding
Asia
Pacific
Welding
The Harris
Products
Group
Consolidated
$
$
$
— $
(827)
827
— $
(586)
1,052
$
$
173
(1,797)
3,637
2,013
(1,343)
1,765
— $
(2,107)
3,151
1,044
(1,510)
841
$
$
82
(82)
—
— $
—
—
466
$
2,435
$
375
$
— $
255
(4,813)
7,615
3,057
(3,439)
3,658
3,276
NOTE 7 – ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME ("AOCI")
The following tables set forth the total changes in AOCI by component, net of taxes, for the years ended December 31, 2013
and 2012:
Unrealized
(loss) gain on
derivatives
designated and
qualifying as
cash flow
hedges
Defined benefit
pension plan
activity
Currency
translation
adjustment
Total
Balance at December 31, 2011
Other comprehensive income (loss) before
reclassification
Amounts reclassified from AOCI
Net current-period other comprehensive income
(loss)
Balance at December 31, 2012
Other comprehensive income (loss) before
reclassification
Amounts reclassified from AOCI
Net current-period other comprehensive income
(loss)
Balance at December 31, 2013
$
$
$
912
$
(255,369)
$
6,576
$
(247,881)
(1,997)
1,165 1
(26,373) 2
19,898 2
(832)
80
(681)
970 1
289
369
$
$
(6,475)
(261,844)
82,050 2
19,101 2
101,151
(160,693)
$
$
19,555 3
233 3
19,788
26,364
(19,316) 3
1,335 3
(17,981)
8,383
$
$
(8,815)
21,296
12,481
(235,400)
62,053
21,406
83,459
(151,941)
_______________________________________________________________________________
1 During the 2013 period, this AOCI reclassification is a component of Net sales of $619 (net of tax of $99), Cost of goods sold of
$418 (net of tax of $295) and SG&A of $(67) with no tax effect; during the 2012 period, the reclassification is a component of Net
sales of $931 (net of tax of $157) and Cost of goods sold of $234 (net of tax of $169). (See Note 13 - Derivatives for additional
details.)
2 This AOCI component is included in the computation of net periodic pension costs (net of tax of $60,556 and $(3,492) during the
years ended December 31, 2013 and 2012, respectively). (See Note 11 - Retirement and Postretirement Benefit Plans for additional
details.)
3 The Other comprehensive income before reclassifications excludes $(1,819) and $(153) attributable to Non-controlling interests in
the years ended December 31, 2013 and 2012, respectively. The reclassified AOCI component is included in the computation of
Non-controlling interests. (See Consolidated Statements of Equity for additional details.)
F-20
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
NOTE 8 – DEBT
At December 31, 2013 and 2012, debt consisted of the following:
Long-term debt
Capital leases due through 2017, interest at 1.12% to 3.63%
Other borrowings due through 2023, interest up to 4.00%
Less current portion
Long-term debt, less current portion
Short-term debt
Amounts due banks, interest at 11.28% (11.32% in 2012)
Current portion long-term debt
Total short-term debt
Total debt
December 31,
2013
2012
$
$
236
4,270
4,506
715
3,791
14,581
715
15,296
19,087
$
$
267
1,788
2,055
456
1,599
18,220
456
18,676
20,275
At December 31, 2013 and 2012, the fair value of long-term debt, including the current portion, was approximately $4,212 and
$1,919, 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, 2013, 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.
Capital Leases
At December 31, 2013 and 2012, $236 and $267 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, 2013 are $15,297 in 2014, $535 in 2015, $446 in 2016, $285 in 2017, $202 in 2018 and $774 thereafter. Total
interest paid was $2,864 in 2013, $4,423 in 2012 and $6,979 in 2011. The primary difference between interest expense and
interest paid in 2012 and 2011 is the amortization of the gains on terminated interest rate swaps.
The Company's short-term borrowings included in Amounts due banks were $14,581 and $18,220 at December 31, 2013 and
2012, respectively, and represent the borrowings of foreign subsidiaries at weighted average interest rates of 11.3% and 11.3%,
respectively.
F-21
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
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, 2013, there were
2,315,239 common shares available for future grant under all plans.
Stock Options
The following table summarizes stock option activity for the years ended December 31, 2013, 2012 and 2011, under all Plans:
2013
2012
2011
Year Ended December 31,
Weighted
Average
Exercise
Price
Options
Balance at beginning of year
3,060,944
$
Options granted
Options exercised
Options canceled
Balance at end of year
Exercisable at end of year
273,105
(774,783)
(106,618)
2,452,648
1,837,014
30.98
70.88
26.20
40.54
36.52
29.93
Weighted
Average
Exercise
Price
26.05
47.66
19.52
24.07
30.98
27.19
Options
3,632,463
$
412,980
(962,029)
(22,470)
3,060,944
2,208,455
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
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 2013, 2012 and 2011.
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, 2013 were as follows:
Expected volatility
Dividend yield
Risk-free interest rate
Expected option life (years)
32.97%
1.40%
1.52%
4.4
45.67%
1.66%
0.70%
4.5
Weighted average fair value per option granted during the year
$
18.14
$
15.87
$
41.92%
1.63%
0.80%
4.3
10.97
Year Ended December 31,
2013
2012
2011
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 stock options for the year ended December 31, 2013:
Balance at beginning of year
Granted
Vested
Forfeited
Balance at end of year
Year Ended December 31, 2013
Number of
Options
Weighted
Average Fair
Value at Grant
Date
$
852,489
273,105
(410,542)
(99,418)
615,634
13.63
18.14
12.50
14.04
16.32
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, 2013 was $85,404 and $76,076, respectively. The total intrinsic value of awards
exercised during 2013, 2012 and 2011 was $20,297, $18,776 and $10,028, respectively.
The following table summarizes information about awards outstanding as of December 31, 2013:
Outstanding
Exercisable
Number of
Stock
Options
Weighted
Average
Exercise
Price
Number of
Stock
Options
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Life (years)
738,614
$
1,092,456
621,578
2,452,648
23.41
33.20
57.93
738,614
$
1,001,199
97,201
1,837,014
23.41
33.00
47.85
4.6
6.2
9.4
6.5
Exercise Price Range
Under $29.99
$30.00 - $39.99
Over $40.00
Restricted Share Awards ("RSAs")
The following table summarizes restricted share award activity for the years ended December 31, 2013, 2012 and 2011, under
all Plans:
2013
2012
2011
Year Ended December 31,
Weighted
Average
Grant Date
Fair Value
28.49
70.88
25.68
25.76
39.55
$
Shares
336,808
14,464
(224,021)
(11,935)
115,316
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
Balance at beginning of year
Shares granted
Shares vested*
Shares forfeited
Balance at end of year
_______________________________________________________________________________
*
Includes shares vested but not exercisable
RSAs are valued at the quoted market price on the grant date. The majority of RSAs vest over a period of three to five years.
The Company issued shares of common stock from treasury upon the granting of RSAs in 2013, 2012 and 2011. All restricted
shares issued in 2013, 2012 and 2011, were under the the Director Plan. The remaining weighted average life of all non-vested
RSAs is 1.8 years as of December 31, 2013.
F-23
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, 2013:
Balance at beginning of year
Shares granted
Shares vested
Shares forfeited
Balance at end of year
Restricted Stock Units ("RSUs")
Year Ended December 31, 2013
Number of Restricted
Shares
Weighted Average Fair
Value at Grant Date
318,088
$
14,464
(205,301)
(11,935)
115,316
28.74
70.88
25.80
25.76
39.55
The following table summarizes restricted stock unit activity for the years ended December 31, 2013, 2012 and 2011, under all
Plans:
2013
2012
2011
Year Ended December 31,
Weighted
Average
Grant Date
Fair Value
40.83
67.17
39.20
41.70
47.38
Units
288,669
$
69,925
(33,698)
(40,952)
283,944
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
—
—
Units
— $
166,519
—
—
166,519
34.55
Balance at beginning of year
Units granted
Units vested
Units forfeited
Balance at end of year
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 31,552 RSUs to common stock in 2013 were deferred as part of the 2005 Deferred Compensation Plan for
Executives (the "2005 Plan"). As of December 31, 2013, 43,012 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. All RSUs
issued in 2013, 2012 and 2011, were under the the EPI Plan. The remaining weighted average life of all non-vested RSUs is 4.1
years as of December 31, 2013.
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 2013, 2012 and 2011 was $9,734, $8,961 and $6,610, respectively. The related tax
benefit for 2013, 2012 and 2011 was $3,727, $3,409 and $2,515, respectively. As of December 31, 2013, total unrecognized
stock-based compensation expense related to non-vested stock options, restricted shares and restricted stock units was $21,633,
which is expected to be recognized over a weighted average period of approximately 3.3 years.
Lincoln Stock Purchase Plan
The 1995 Lincoln Stock Purchase Plan provides employees the ability to purchase open market shares on a commission-free
basis up to a limit of ten thousand dollars annually. Under this plan, 800,000 shares have been authorized to be purchased.
Shares purchased were 4,653 in 2013, 4,908 in 2012 and 4,466 in 2011.
F-24
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
NOTE 10 – COMMON STOCK REPURCHASE PROGRAM
The Company has a share repurchase program for up to 45 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, 2013, the Company purchased 2,671,614 shares at an
average cost per share of $61.67. As of December 31, 2013, 15,670,759 shares remained available for repurchase under the
stock repurchase program. The treasury shares have not been retired.
NOTE 11 – RETIREMENT ANNUITY AND GUARANTEED CONTINUOUS EMPLOYMENT PLANS
The Company maintains a number of defined benefit and defined contribution plans to provide retirement benefits for
employees. These plans are maintained and contributions are made in accordance with the Employee Retirement Income
Security Act of 1974 ("ERISA"), local statutory law or as determined by the Board of Directors. The plans generally provide
benefits based upon years of service and compensation. Pension plans are funded except for a domestic non-qualified pension
plan for certain key employees and certain foreign plans. The Company uses a December 31 measurement date for its plans.
The Company does not have, and does not provide for, any postretirement or postemployment benefits other than pensions and
certain non-U.S. statutory termination benefits.
F-25
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
Defined Benefit Plans
Contributions are made in amounts sufficient to fund current service costs on a current basis and to fund past service costs, if
any, over various amortization periods.
Obligations and Funded Status
Change in benefit obligations
Benefit obligations at beginning of year
Service cost
Interest cost
Plan participants' contributions
Plan amendments
Actuarial (gain) 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
December 31,
2013
2012
$
1,033,725
$
991,979
23,188
37,225
221
1,623
(91,851)
(59,296)
(1,390)
(2,003)
941,442
813,897
101,044
85,456
221
(57,644)
(1,390)
(1,589)
939,995
(1,447)
258,781
(2,547)
26
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
$
254,813
$
198,139
The actuarial gain arising during 2013 was primarily attributable to a higher discount rate. In 2012, 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. The decrease in benefits paid in 2013 primarily reflect
the disbursements related to deferred vested participants taking lump sum payment options in the prior period.
The after-tax amounts of unrecognized actuarial net loss, prior service costs and transition assets included in Accumulated other
comprehensive loss at December 31, 2013 were $162,983, $(2,307) and $17, respectively. The actuarial loss represents
changes in the estimated obligation not yet recognized in the Consolidated Income Statement. The pre-tax amounts of
unrecognized actuarial net loss, prior service credits and transition obligations expected to be recognized as components of net
periodic benefit cost during 2014 are $16,104, $(618) and $4, respectively.
F-26
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
Amounts Recognized in Consolidated Balance Sheets
Prepaid pensions
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
Service cost
Interest cost
Expected return on plan assets
Amortization of prior service cost
Amortization of net loss
Settlement/curtailment loss
Pension cost for defined benefit plans
December 31,
2013
2012
36,116
(10,564)
(26,999)
256,260
254,813
$
$
—
(3,639)
(216,189)
417,967
198,139
$
$
Year Ended December 31,
2013
2012
2011
$
$
$
23,188
37,225
(61,244)
(613)
30,929
$
21,538
41,584
(58,754)
(90)
31,085
423
29,908
$
895
36,258
$
17,331
44,161
(57,405)
(62)
21,816
529
26,370
The Company's defined benefit plans costs decreased in 2013 primarily as a result of a lower interest cost and a higher expected
return on plan assets.
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,
2013
2012
$
$
37,355
$
33,416
10,028
49,990
$
42,593
39,753
956,837
905,541
755,491
76,884
70,492
58,403
The total accumulated benefit obligation for all plans was $891,397 as of December 31, 2013 and $976,033 as of December 31,
2012.
Contributions to Plans
The Company expects to contribute approximately $20,000 to its defined benefit plans in the United States in 2014. The actual
amounts to be contributed in 2014 will be determined at the Company's discretion.
F-27
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
Benefit Payments for Plans
Benefits expected to be paid for the U.S. plans are as follows:
Estimated Payments
2014
2015
2016
2017
2018
2019 through 2023
Assumptions
$
61,755
53,992
61,654
59,570
58,422
307,094
Weighted average assumptions used to measure the benefit obligation for the Company's significant defined benefit plans as of
December 31, 2013 and 2012 were as follows:
Discount rate
Rate of increase in compensation
December 31,
2013
2012
4.7%
4.2%
3.8%
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, 2013 were as follows:
Discount rate
Rate of increase in compensation
Expected return on plan assets
December 31,
2013
2012
2011
3.8%
4.1%
7.4%
4.2%
4.0%
7.7%
5.3%
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-28
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, 2013:
Common trusts and 103-12 investments (1)
Cash and cash equivalents
Common trusts and 103-12 investments
Private equity funds (2)
Total assets at fair value
Pension Plans' Assets at Fair Value as of December 31, 2013
Quoted Prices
in Active Markets
for Identical
Assets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
$
$
— $
—
—
— $
4,686
$
— $
902,746
—
907,432
$
—
32,563
32,563
$
Total
4,686
902,746
32,563
939,995
The following table sets forth, by level within the fair value hierarchy, the pension plans' assets as of December 31, 2012:
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
Corporate stock (3)
Cash and cash equivalents
Corporate and other obligations (4)
Common trusts and 103-12 investments (1)
Private equity funds (2)
Total assets at fair value
— $
107,763
$
107,763
$
5,170
—
—
—
— $
—
412
673,469
—
—
—
—
27,083
$
112,933
$
673,881
$
27,083
$
5,170
412
673,469
27,083
813,897
_______________________________________________________________________________
(1) 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 represents 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.
(2) 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.
(3) 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.
(4) 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.
F-29
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, 2013:
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
Private
Equity
Funds
27,083
2,186
3,294
32,563
3,035
$
$
$
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 $2,329, $2,254 and $2,110
in 2013, 2012 and 2011, respectively. The projected benefit obligation associated with this plan is also included in the pension
disclosure shown above and was $22,877, $25,646 and $23,930 at December 31, 2013, 2012 and 2011, 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 $10,812, $9,405 and $8,478 in 2013, 2012 and 2011,
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 $1,048, $972 and $966 in 2013, 2012 and 2011, 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.
F-30
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
NOTE 12 – INCOME TAXES
The components of income before income taxes for the three years ended December 31, 2013 were as follows:
U.S.
Non-U.S.
Total
Year Ended December 31,
2013
2012
2011
$
$
281,724
134,717
416,441
$
$
243,382
126,188
369,570
$
$
204,667
96,664
301,331
The components of income tax expense (benefit) for the three years ended December 31, 2013 were as follows:
Current:
Federal
Non-U.S.
State and local
Deferred:
Federal
Non-U.S.
State and local
Total
Year Ended December 31,
2013
2012
2011
$
$
58,099
40,348
8,490
106,937
21,946
(5,734)
1,605
17,817
124,754
$
$
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
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, 2013 were as follows:
Statutory rate of 35% applied to pre-tax income
Effect of state and local income taxes, net of federal tax benefit
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
Year Ended December 31,
2013
145,754
7,124
$
2012
129,350
5,598
$
2011
105,466
4,585
(17,352)
(6,386)
995
(313)
(5,068)
124,754
(11,263)
(6,287)
(4,766)
(1,493)
1,215
$
112,354
$
(13,637)
(5,330)
145
(5,103)
(1,808)
84,318
29.96%
30.40%
27.98%
$
$
The 2013 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 $84,567 in 2013, $78,506 in 2012 and $62,600 in 2011.
F-31
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, 2013 and 2012, were as follows:
Deferred tax assets:
Tax loss and credit carry-forwards
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
December 31,
2013
2012
$
$
51,762
1,277
15,709
18,909
4,643
9,828
102,128
(49,684)
52,444
38,653
24,014
7,311
7,315
8,777
86,070
(33,626) $
$
40,373
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
At December 31, 2013, certain subsidiaries had tax loss carry-forwards of approximately $121,044 that will expire in various
years from 2014 through 2030, except for $77,380 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, 2013, a valuation
allowance of $49,684 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 $8,354 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 $492 for the year ended December 31, 2013 and an expense of $893 for the year ended
December 31, 2012 for interest and penalties. For those same years, the Company's accrual for interest and penalties related to
unrecognized tax benefits totaled $10,257 and $10,295, respectively.
F-32
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
2013
2012
25,255
1,990
208
3,528
(95)
(3,491)
(1,488)
25,907
$
$
26,656
3,838
212
1,274
(940)
(5,964)
179
25,255
$
$
The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate was $13,739 at
December 31, 2013 and $14,839 at December 31, 2012.
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, an Indian tax audit for 2012 - 2013 and an
Indonesian tax audit for 2003 and 2005 - 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 $4,284 in prior years' unrecognized tax benefits in 2014.
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 $58,824 plus approximately $16,022 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 $84,128 as of December 31, 2013. 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.
F-33
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
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
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, 2013.
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, 2013. 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 $36,880 at December 31, 2013 and $39,597 at December 31, 2012. 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.
Net investment hedges
The Company had a foreign currency forward contract that qualified as a designated net investment hedge. No such contract
was outstanding as of December 31, 2013. The effective portion of the fair value gain or loss on these net investment hedges
were recognized in AOCI and subsequently reclassified to Selling, general and administrative expenses when the underlying
hedged investment was liquidated.
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
$186,158 at December 31, 2013 and $189,259 at December 31, 2012. 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 290,000 troy ounces and 375,000
pounds, respectively, at December 31, 2013 and short-term silver and copper forward contracts with notional amounts of
275,000 troy ounces and 375,000 pounds, respectively, at December 31, 2012. 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:
Foreign exchange contracts
Not designated as hedging instruments:
Foreign exchange contracts
Commodity contracts
Total derivatives
December 31, 2013
December 31, 2012
Other
Current
Assets
Other
Current
Liabilities
Other
Current
Assets
Other
Current
Liabilities
$
$
706
$
219
$
352
$
766
262
228
47
510
731
325
902
—
1,734
$
494
$
1,593
$
1,227
F-34
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
The effects of undesignated derivative instruments on the Company's Consolidated Statements of Income for the years ended
December 31, 2013 and 2012 consisted of the following:
Derivatives by hedge designation
Not designated as hedges:
Foreign exchange contracts
Commodity contracts
Classification of gains (losses)
Year Ended December 31,
2013
2012
Selling, general & administrative expenses
Cost of goods sold
$
$
215
2,882
3,711
(1,117)
The effects of designated cash flow hedges on AOCI and the Company's Consolidated Statements of Income for the years
ended December 31, 2013 and 2012 consisted of the following:
Total gain recognized in AOCI, net of tax
Foreign exchange contracts
December 31,
2013
2012
$
369
$
80
The Company expects a gain of $369 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
Net investment contracts
Gain (loss) reclassified from AOCI to:
Sales
Cost of goods sold
Selling, general & administrative expenses
$
Year Ended December 31,
2013
2012
$
619
418
(67)
931
234
—
NOTE 14 – FAIR VALUE
The following table provides a summary of fair value assets and liabilities as of December 31, 2013 measured at fair value on a
recurring basis:
Description
Assets:
Foreign exchange contracts
Commodity contracts
Total assets
Liabilities:
Foreign exchange contracts
Commodity contracts
Contingent consideration
Forward contract
Deferred compensation
Total liabilities
Balance as of
December 31, 2013
Quoted Prices in
Active Markets for
Identical Assets or
Liabilities
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable
Inputs (Level 3)
$
$
$
$
$
$
$
1,472
262
1,734
447
47
5,375
16,974
20,132
— $
—
— $
— $
—
—
—
—
42,975
$
— $
$
$
$
1,472
262
1,734
447
47
—
—
20,132
20,626
$
—
—
—
—
—
5,375
16,974
—
22,349
F-35
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
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 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
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, 2013, there were no transfers between Levels 1, 2 or 3.
In connection with an acquisition, the Company recorded a contingent consideration fair valued at $5,375 as of December 31,
2013, which reflects a $481 increase in the liability from December 31, 2012. 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
period. The fair value of the contingent consideration is a Level 3 valuation and fair valued using a probability weighted
discounted cash flow analysis.
In connection with an acquisition, the Company obtained a controlling financial interest in the acquired entity and at the same
time entered into a contract to obtain the remaining financial interest in the entity over a three-year period. The amount to be
paid to obtain the remaining financial interest will be based upon actual financial results of the entity. A liability was recorded
for the contract at a fair value of $16,974 as of December 31, 2013. The fair value of the contract is a Level 3 valuation and is
based on the present value of the expected future payments. The expected future payments are based on a multiple of forecast
earnings and cash flows over the three-year period ending December 31, 2016, present valued utilizing a risk based discount
rate. The present value calculations utilized an average discount rate of 16.3% and annual earnings growth rates ranging from
14.8% to 18.8%.
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, 2013 and December 31, 2012. See Note 8 for the fair value
estimate of debt.
F-36
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
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, 2013 and
2012, approximately 38% and 34%, respectively, of total inventories were valued using the LIFO method. The excess of
current cost over LIFO cost was $70,882 at December 31, 2013 and $72,173 at December 31, 2012.
NOTE 16 – LEASES
The Company leases sales offices, warehouses and distribution centers, transportation equipment, office equipment and
information technology equipment. Such leases, some of which are noncancelable and, in many cases, include renewals, expire
at various dates. The Company pays most insurance, maintenance and taxes relating to leased assets. Rental expense was
$18,642 in 2013, $17,751 in 2012 and $15,221 in 2011.
At December 31, 2013, total future minimum lease payments for noncancelable operating leases were $13,263 in 2014, $10,391
in 2015, $8,240 in 2016, $5,637 in 2017, $4,071 in 2018 and $6,568 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,
2013
2012
$
$
461
$
110
(100)
471
$
441
209
(163)
487
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.
The Company's accrual for contingent liabilities was $2,735 as of December 31, 2013 and $5,636 as of December 31, 2012.
The accrual is included in Other current liabilities.
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.
F-37
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
NOTE 18 – PRODUCT WARRANTY COSTS
The changes in product warranty accruals for 2013, 2012 and 2011 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,
2013
2012
2011
15,304
12,786
(12,794)
(116)
15,180
$
$
15,781
10,872
(11,477)
128
15,304
$
$
16,879
10,395
(11,260)
(233)
15,781
$
$
2013
Net sales
Gross profit
Income before income taxes
Net income
Basic earnings per share
Diluted earnings per share
2012
Net sales
Gross profit
Income before income taxes
Net income
Basic earnings per share
Diluted earnings per share
First
Second
Third
Fourth
$
718,573
$
727,432
$
691,875
$
226,572
90,679
66,806
0.81
0.80
727,122
215,265
92,919
64,243
0.77
0.76
$
$
$
$
$
240,338
106,534
72,606
0.88
0.87
744,045
224,997
98,157
66,319
0.80
0.79
$
$
$
$
$
232,697
97,840
66,044
0.81
0.80
697,552
213,362
90,889
64,765
0.78
0.77
$
$
$
$
$
$
$
$
$
$
714,791
243,047
121,388
88,324
1.09
1.07
684,648
213,032
87,605
62,084
0.75
0.74
The quarter ended December 31, 2013 includes rationalization and impairment net charges of $259 ($223 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 $705 related to a loss on the sale of land in the
Asia Pacific Welding segment. Associated with the loss on the sale of land is a charge of $47 attributable to non-controlling
interests.
The quarter ended September 30, 2013 includes rationalization and asset impairment net charges of $1,627 ($1,595 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 $4,675 ($4,503 after-tax) related to
impairment of long-lived assets in the Asia Pacific Welding segment. Associated with impairment of long-lived assets is a
charge of $1,021 attributable to non-controlling interests.
The quarter ended June 30, 2013 includes rationalization and asset impairment net charges of $851 ($579 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 charges of $2,538 related to devaluation of Venezuelan
currency in the South America Welding segment.
The quarter ended March 31, 2013 includes rationalization and asset impairment net charges of $1,051 ($673 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 charges of $9,660 related to devaluation of
Venezuelan currency in the South America Welding segment.
F-38
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 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-39
SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS
LINCOLN ELECTRIC HOLDINGS, INC.
(In thousands)
Description
Allowance for doubtful accounts:
Year Ended December 31, 2013
Year Ended December 31, 2012
Year Ended December 31, 2011
Additions
Balance at
Beginning
of Period
Charged to
Costs and
Expenses
(1)
Charged to
Other
Accounts
(2)
Deductions
Balance at End
of Period
$
$
8,654
7,079
7,855
$
2,671
3,368
2,173
$
49
68
(303)
$
2,976
1,861
2,646
8,398
8,654
7,079
(1) Currency translation adjustment.
(2) Uncollectible accounts written-off, net of recoveries.
F-40
The Company's subsidiaries and joint ventures are listed in the following table:
LINCOLN ELECTRIC HOLDINGS, INC.
SUBSIDIARIES OF THE REGISTRANT
Name
A. B. Arriendos S.A.
Arc Products, Inc.
Burlington Automation Corporation
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 Cutting Systems, Inc.
Lincoln Electric do Brasil Industria e Comercio Ltda.
Lincoln Electric Europe B.V.
Lincoln Electric Europe, S.L.
Lincoln Electric France S.A.S.
Lincoln Electric Heli (Zhengzhou) Welding Materials Company Ltd.
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.
Lincoln Electric Luxembourg S.ar.l.
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.
Exhibit 21
Country of
Incorporation
Chile
United States
Canada
Portugal
Germany
Poland
Italy
Spain
Brazil
Chile
United States
China
United States
Turkey
Canada
Poland
Canada
India
United States
Brazil
The Netherlands
Spain
France
China
Luxembourg
Spain
United States
Italy
Japan
China
Luxembourg
China
Mexico
Mexico
Mexico
United Arab Emirates
United States
Name
Lincoln Electric S.A.
Lincoln Electric (Tangshan) Welding Materials Co., Ltd.
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
Robolution GmbH
Smart Force, LLC
Techalloy, Inc.
Tennessee Rand, Inc.
Tenwell Development Pte. Ltd.
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
Wayne Trail Technologies, Inc.
Weartech International, Inc.
Weartech International Limited
Welding, Cutting, Tools & Accessories, LLC
Country of
Incorporation
Argentina
China
United Kingdom
United States
United States
The Netherlands
Colombia
Venezuela
United Kingdom
Russia
Russia
Russia
Indonesia
Germany
United States
United States
United States
Singapore
United States
Singapore
Australia
New Zealand
South Africa
China
China
Germany
United States
United States
United Kingdom
United States
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 21, 2014, 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, 2013.
/s/ Ernst & Young LLP
Cleveland, Ohio
February 21, 2014
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, 2013 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/ Christopher L. Mapes
Christopher L. Mapes, Director
/s/ Harold L. Adams
/s/ Curtis E. Espeland
Harold L. Adams, Director
Curtis E. Espeland, Director
February 21, 2014
February 21, 2014
February 21, 2014
/s/ David H. Gunning
/s/ Stephen G. Hanks
/s/ Robert J. Knoll
David H. Gunning, Director
Stephen G. Hanks, Director
Robert J. Knoll, Director
February 21, 2014
February 21, 2014
February 21, 2014
/s/ G. Russell Lincoln
/s/ Kathryn Jo Lincoln
/s/ William E. MacDonald, III
G. Russell Lincoln, Director
Kathryn Jo Lincoln, Director
William E. MacDonald, III, Director
February 21, 2014
February 21, 2014
February 21, 2014
/s/ Phillip J. Mason
Phillip J. Mason, Director
February 21, 2014
/s/ Hellene S. Runtagh
Hellene S. Runtagh, Director
/s/ George H. Walls, Jr.
George H. Walls, Jr., Director
February 21, 2014
February 21, 2014
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 21, 2014
/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 21, 2014
/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,
2013, 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 21, 2014
/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
Corporate Information
Additional copies of Lincoln Electric’s
2013 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.
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
ANNUAL MEETING
The Annual Meeting of Lincoln Electric Shareholders is
scheduled to be held on Thursday, April 24, 2014, at
11:00 a.m., at Marriott Cleveland East, 26300 Harvard
Road, Warrensville Heights, Ohio 44122.
STOCK INFORMATION
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, 2013 was 1,719.
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
www.lincolnelectric.com
20202 10103131Lincoln Electric Holdings, Inc. 22801 St. Clair Avenue | Cleveland, Ohio 44117-1199 | U.S.A.