T h e
NEXT
LEVEL
2 0 1 4
ANNUAL REPORT
T
H
E
N
E
X
T
L
E
V
E
L
L
I
N
C
O
L
N
E
L
E
C
T
R
I
C
2
0
1
4
A
N
N
U
A
L
R
E
P
O
R
T
LINCOLN ELECTRIC HOLDINGS, INC.
22801 St. Clair Avenue | Cleveland, Ohio 44117-1199 | U.S.A.
96626_3RRD_Cover_ACG.indd 1-3
3/5/15 8:22 AM
The Next Level
For 120 years, Lincoln Electric has never accepted the status quo.
Standing still is not what we do, and it’s not who we are. Instead,
we take performance to THE NEXT LEVEL each year through
innovative solutions and processes, operational excellence and
our performance-driven culture. That’s what sets us apart as an
industry leader. Lincoln Electric’s track record of enhancing the
value delivered to customers, shareholders and employees creates
tremendous momentum as we continue to invest in and execute on
our 2020 Vision and Strategy and develop the next generation of
welders and welding technology.
OPERATING INCOME MARGIN
in percent*
DILUTED EARNINGS
per share*
0
.
5
1 1
.
3
1
1
.
5
1
0
.
1
1 1
.
9
7
7
.
3
2
8
.
3
6
1
.
3
1
5
.
2
2
5
.
1
10
11
12
13
14
10
11
12
13
14
ON THE COVER:
The PythonX® robotic CNC plasma cutting system from our recent Burlington Automation acquisition has
taken structural steel fabrication to THE NEXT LEVEL as the most productive fabrication machine in the
industry. By integrating multiple operations in one machine, PythonX® uses just 20% of the floor space and
20% of the processing time compared to traditional machines.
B OA R D O F D I R E C TO R S
HAROLD L. ADAMS
Chairman Emeritus and
ROBERT J. KNOLL
Former Partner,
Former Chairman, President
Deloitte & Touche LLP
G. RUSSELL LINCOLN
President of N.A.S.T. Inc.
GEORGE H. WALLS, JR.
HELLENE S. RUNTAGH
Former President and
Chief Executive Officer
of Berwind Group
Former Chief Deputy
Auditor,
State of North Carolina
and Chief Executive Officer
of RTKL Associates Inc.
CURTIS E. ESPELAND
Executive Vice President
and Chief Financial Officer,
Eastman Chemical Company
DAVID H. GUNNING
Lead Director
Former Vice Chairman
of Cleveland-Cliffs Inc
STEPHEN G. HANKS
Former President and
Chief Executive Officer,
Washington Group
International, Inc.
KATHRYN JO LINCOLN
Chair and Chief Investment
Officer of the Lincoln
Institute of Land Policy
WILLIAM E. MACDONALD, III
Former Vice Chairman of
National City Corporation
CHRISTOPHER L. MAPES
Chairman, President and
Chief Executive Officer
of the Company
PHILLIP J. MASON
Former President
of Ecolab, Inc. EMEA sector
C O M PA N Y O F F I C E R S A N D E X E C U T I V E M A N AG E M E N T
GEOFFREY P. ALLMAN*
STEVEN B. HEDLUND*
Senior Vice President,
Senior Vice President
President, Global
Automation
DAVID J. NANGLE*
Senior Vice President
President,
Harris Products Group
MICHELE R. KUHRT
VINCENT K. PETRELLA*
Senior Vice President, Tax
Executive Vice President,
GEORGE D. BLANKENSHIP*
DOUGLAS S. LANCE
Executive Vice President
Senior Vice President,
President, Lincoln Electric
North American Operations
Chief Financial Officer
and Treasurer
FREDERICK G. STUEBER*
Executive Vice President,
Executive Vice President,
Chief Executive Officer
CHRISTOPHER L. MAPES*
Chairman, President and
General Counsel
and Secretary
Corporate Controller
ANTHONY K. BATTLE
Senior Vice President,
Internal Audit
North America
GABRIEL BRUNO*
Chief Information Officer
THOMAS A. FLOHN*
Senior Vice President
President, Asia Pacific
Region
MATHIAS HALLMANN*
Senior Vice President
WILLIAM T. MATTHEWS
Senior Vice President,
Technology and
Research and Development
MICHAEL S. MINTUN
Senior Vice President,
North America Sales
President, Lincoln Electric
and Marketing
Europe
*Member, Management Committee
C O R P O R AT E I N FO R M AT I O N
Additional copies of Lincoln Electric’s
2014 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.shareowneronline.com
ANNUAL MEETING
The Annual Meeting of Lincoln Electric
Shareholders is scheduled to be held on
Thursday, April 23, 2015, 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, 2014
was 1,766.
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
96626_3RRD_Cover_ACG.indd 4-6
3/9/15 2:56 PM
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 per Share of Common Stock (5)
Average Operating Working Capital to Net Sales Ratio (6)
Current Ratio
Total Assets
Total Equity
Cash Provided by Operations
Return on Invested Capital (7)
201 4
$ 2,813
2013
$ 2,853
201 2
$ 2,853
255
306 (2)
3.18
3.82
0.92
16.5 %
2.2
294
313 (3)
3.54
3.77
0.80
17.6 %
2.5
257
266 (4)
3.06
3.16
0.68
18.8 %
2.6
$ 1,939
$ 2,152
$ 2,090
1,286
402
19.1 %
1,531
339
18.9 %
1,358
327
18.7 %
(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.
In 2014, special items include net rationalization and asset impairment charges of $30.1 ($30.9 after-tax or $0.39 per diluted share) and charges of $21.1 ($21.1 after-tax or $0.26 per diluted share) related to Venezuelan
remeasurement losses. Associated with the impairment of long-lived assets is an offsetting special item of $0.8 representing portions attributable to non-controlling interests.
(2)
(3) 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.
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)
(5) Reflects Board-approved annual dividend amounts.
(6) Average Operating Working Capital to Net Sales Ratio is defined as net operating working capital divided by annualized rolling three months of sales. Net operating working capital is defined as Accounts receivable
plus Inventory, less Trade accounts payable.
(7) Return on Invested Capital is defined as rolling 12 months of earnings excluding tax-effected interest divided by invested capital.
CASH PROVIDED BY OPERATIONS
dollars in millions
2
0
4
7
2
3
9
3
3
4
9
7 1
5
1
CASH RETURNED
TO SHAREHOLDERS
dividends and share repurchases
dollars in millions
0
8
3
7
1
2
4
5
1
7
8
9
8
RETURN ON
INVESTED CAPITAL
in percent
7
.
8
9 1
.
6
1
9
.
8
1
1
.
9
1
7
.
0
1
10
11
12
13
14
10
11
12
13
14
10
11
12
13
14
* Operating Income Margin and Diluted Earnings per Share exclude the effects of special items. 2014 excludes net rationalization and asset impairment charges and charges related to Venezuelan remeasurement losses.
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. 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 income related to a favorable adjustment for tax audit settlements. 2010 excludes net rationalization
gains, asset impairment charges, a net charge due to a change in functional currency for the Company’s Venezuelan operations to the U.S. dollar and the devaluation of Venezuelan currency and income due to a change
in applicable tax regulations. Diluted Earnings per Share also exclude the effects of special items attributable to non-controlling interests and have been retroactively adjusted in prior years to give effect to the
two-for-one stock split on May 31, 2011.
96626_3RRD_Rev1_1-4.pdf 1
1
3/9/15 3:10 PM
Dear Fellow Shareholders:
Innovation, putting customers first and diligent management
have defined Lincoln Electric’s success for 120 years.
Today more than ever, customers rely on our solutions to take their
businesses to the next level – ensuring a measurable difference in
D E F I N I N G T H E N E X T L E V E L
We recognize that our people drive these results and embody the unique
their operational efficiency, quality, safety and bottom-line results.
value proposition of the Lincoln Electric brand. Our ability to attract
Additionally, our shareholders expect us to deliver value that
and develop leading talent in the industry is a competitive advantage
balances both near- and long-term goals.
for the Company. As a result, we continue to invest in industry-leading
In 2014, we continued to take our business to the next level with
talent that can take us to the next level. In 2014, we expanded our
record results, while investing for future growth and returning
career planning and development programs, including our engineering
significant capital to our shareholders. Today, I am pleased to report
trainee program and professional application experts in China. We also
that we are pacing ahead of our 2020 Vision and Strategy targets,
established a global development program to ensure that we have the
which represent best-in-class financial performance and record
right future leaders for our organization.
returns for our shareholders.
R E C O R D 20 1 4 F I N A N C I A L P E R FO R M A N C E
While 2014 revenue held steady at $2.8 billion, we achieved record
Developing industry-leading talent is also critical for our customers.
In 2014, we accelerated our strategic investment in welding and
robotic education to help provide job-ready welders for advanced
manufacturing. Our multipronged approach included broadening our
results across key financial metrics. We benefited from our disciplined
education product portfolio by supplementing our innovative VRTEX®
acquisition program, continuous improvement initiatives and steady
virtual reality training solution with the acquisition of RealWeld®. This
expense control. Additionally, returns were enhanced through our
combination allows us to offer a more comprehensive training portfolio
accelerated share repurchase program and rising dividend payout.
that supports both virtual and live-arc capabilities to accelerate training
These achievements reflect the tremendous focus and energy of
time and increase certification rates.
our global team who navigated successfully through a difficult first
Additionally, we are providing educational institutions access to
quarter, dynamic market conditions and a challenging year-over-
Lincoln Electric’s expertise and the solutions students will use in the
year comparison from our Venezuelan business. Excluding the
industry. In 2014, we launched our Education Resource and Purchasing
impact from Venezuela, which operates under highly inflationary
Portal, which offers multimedia welding education materials and
conditions, we would have achieved a 160-basis-point improvement
lesson plans. We also continued our relationship as a leading partner
in our gross profit margin, a 130-basis-point improvement in our
to WorldSkills, which promotes the value of vocational skills to young
operating income margin (excluding special items) and a 10%
adults globally. This year, Lincoln Electric will again proudly serve as the
increase in earnings per share (excluding special items). All of these
exclusive welding competition sponsor for the WorldSkills international
results demonstrate the strength of our business model and our
finalist competition in São Paulo, Brazil.
ability to drive continuous improvement.
As a reflection of confidence in our strategy, financial strength
and cash flow generation, the Board of Directors raised the
ST R AT E G I C I N V E ST M E N T S
We lead by our actions in an industry that continues to evolve through
dividend 26% in 2014, marking its 11th consecutive annual increase.
innovation, with advances in software technology, new processes,
Additionally, we distributed $307 million, or 76% of cash flow
advanced robotics and specialty materials addressing customers’
from operations, through share repurchases in 2014, with another
challenging engineering requirements and complex applications. In
$400 million of share repurchases committed for the coming year.
2014, our internal R&D investments and disciplined acquisition program
These repurchases represent a cumulative five-year return to
continued to take us to the next level of advanced solutions. We
shareholders of approximately $1 billion by year-end 2015.
increased our mix of revenue from new solutions by 300 basis points
to 33% in 2014. These enhanced and newly developed technologies are
strengthening our leadership position in welding and cutting solutions
and are expanding our market presence for longer-term growth.
2
96626_3RRD_Rev1_1-4.pdf 2
3/9/15 3:10 PM
“WE LEAD BY OUR ACTIONS IN AN
INDUSTRY THAT CONTINUES TO
EVOLVE THROUGH INNOVATION”
The Next Level
AU TO M AT I O N
In automation, we offer a range of capabilities, from entry-level pre-engineered systems to
customized, full-line automated robotic solutions, and we continue to broaden the applications
we can address. The 2014 acquisition of Easom Automation Systems, based in Detroit, Michigan,
added capabilities for deeper penetration of underserved sectors such as the heavy fabrication
industry. Additionally, we continued to integrate Burlington Automation, which we acquired
in late 2013. Burlington has exceeded our performance expectations with strong demand for
its unique PythonX® robotic CNC plasma cutting system for structural steel, and we expect to
introduce this solution to various additional markets worldwide.
A L LOYS
We are extending our expertise in metallurgy and advanced fabrication technology as we continue
to innovate in this area across consumables, equipment systems and automation. Lincoln Electric
is a leading provider of aluminum solutions such as Gem-Pak® MIG wire bulk packaging, which
offers a unique feed system that ensures a consistent, high-speed flow that previously was
a challenge for aluminum materials. Additionally, we offer an advanced automation solution
designed by our Wayne Trail subsidiary that includes hydroforming, bending, cutting and welding
of aluminum-based automotive components. Given our product and process expertise in this
area, we are well-positioned to capitalize on the shift to aluminum in a variety of industries.
Other new alloy-related products in 2014 included our galvanized steel solution, Process Z™,
which incorporates a new custom wire and waveform for welding zinc-coated steels with 85% less
porosity than alternatives. We also launched our premium Excalibur® stick electrode consumable
for a variety of alloys, which offers extreme bendability for hard-to-reach areas, improved coating
integrity and 60% less moisture absorption than the competition.
H A R R I S P RO D U C T S G RO U P
A solid product pipeline, strong equipment sales and operational excellence delivered record
margins and returns for the Harris business in 2014. New products included the Inferno™ brazing
tip which produces a consistent “perfect flame,” reduces customers’ operational costs and
Record 2014
Performance
15.1%
Operating Income Margin
(excluding special items)
$3.82
Diluted Earnings per Share
(excluding special items)
$402 MILLION
Cash Provided by Operations
16.5%
Average Operating Working
Capital to Net Sales Ratio
$380 MILLION
Returns to Shareholders Through
Dividends and Share Repurchases
3
3/9/15 3:10 PM
96626_3RRD_Rev1_1-4.pdf 3
illustrates the value our development teams offer our customers. New
in internal customer service metrics from our “Us to Us” global initiative,
cored aluminum and silver products are expected to offer measurable
which utilizes the SAP infrastructure to improve intracompany supply
value as well in 2015 and drive continued growth in the business.
lead times and logistics. These initiatives are important drivers
I N T E R N AT I O N A L M A R K E T S
In 2014, we focused on enhancing our product and service offerings
in key international markets to maximize our competitive advantage
and long-term returns. In Europe, we successfully launched a next-
generation equipment platform for our proprietary Power Wave®
technology, allowing us to expand our customer base in the region with
double-digit percent unit volume growth. Our efforts have established
a new threshold for European performance, and we expect to build on
this base through growth in automation and alloys in the region.
Elsewhere throughout the world, we invested in various lean
programs in Latin America to drive efficiencies and ensure profitable
long-term growth as we continue to expand our market presence in
that region. In Asia, we are focused on stabilizing near-term margin
performance while we strategically reposition our business toward
highly engineered, niche solutions in specialty alloys, equipment
systems and automation. In China, we are aligning local consumable
capacity with this new strategy and have onboarded one of our largest
classes of engineers and technical experts in the region. These efforts
are key steps in driving improved financial performance for the long-term.
M A RG I N E X PA N S I O N
Maintaining the right platform, processes, technology and cost
structure will be essential to the success of our 2020 Vision and
behind the record average operating working capital to net sales ratio
performance that the organization has achieved in the last few years.
We continue to improve returns from our new automation portfolio
of welding and cutting solutions, and we recognize that there are
more opportunities to enhance customer experience, integration
and alignment in this area. In 2014, we designed new organizational
structures, aligned back office functions and added scale to what have
traditionally been niche local offerings. We expect these efforts will
enable us to maintain our competitive lead in this fast-growing segment
and further enhance long-term returns.
AC H I E V I N G O U R V I S I O N
As we celebrate our 120th anniversary, we are confident in our progress
toward the goals of our 2020 Vision and Strategy, which include a target
of 10% compound annual revenue growth, as well as 15% targets
for each of the following metrics: average operating income margin,
average return on invested capital, and average operating working
capital to net sales ratio.
Today, Lincoln Electric is stronger and better positioned than ever to
advance our industry, invent tomorrow’s welding and cutting solutions,
and continue to partner with customers to achieve their goals. We
thank our employees, customers, partners and shareholders for their
continued support of our strategy.
Strategy, which includes a goal to achieve an average 15% operating
income margin through an economic cycle. We have hundreds of
Sincerely,
continuous improvement programs annually that target operational
efficiency, environmental, health and safety improvements, as well as
broad platform upgrades.
In 2014, we continued to invest in ways to leverage our global scale,
drive efficiencies and reduce costs. As we neared completion of our
global SAP installation, we realized a double-digit percent improvement
Christopher L. Mapes
Chairman, President and Chief Executive Officer
The Next Level:
ENVIRONMENTAL, HEALTH & SAFETY ACHIEVEMENTS IN 2014
Greenhouse
Gas Emissions 1
4.6%
IMPROVEMENT
Waste
Minimization 2
4.6%
IMPROVEMENT
Energy
Use 3
7.4%
REDUCTION
Workplace
Safety 4
20.9%
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 already fully recycled and 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.
4
96626_3RRD_Rev1_1-4.pdf 4
3/9/15 3:10 PM
FORM
10-K
2 0 1 4
ANNUAL REPORT
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, 2014
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, 2014 was $5,428,273,439 (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, 2014 was 76,997,161.
Part III of this Annual Report on Form 10-K incorporates by reference certain information from the registrant's definitive proxy statement
with respect to the registrant's 2015 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.
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 Asia Pacific Welding segment primarily includes welding
operations in China and Australia. The South America Welding segment primarily includes welding operations in Brazil,
Colombia and Venezuela. 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 37 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, 2014 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 allocating appropriate resources to address
such risks. We use the integrated risk framework of the Committee of Sponsoring Organizations to assess, manage and monitor
risks.
Management has identified and prioritized critical risks based on the severity and likelihood of each risk and assigned an
executive to address each major identified risk area and lead action plans to monitor and mitigate risks, where possible. Our
Board of Directors provides oversight of the ERM process and systematically reviews identified critical risks. The Audit
Committee also reviews major financial risk exposures and the steps management has taken to monitor and control them.
Our goal is to pro-actively manage risks in a structured approach and in conjunction with the strategic planning process, with
the intent to preserve and enhance shareholder value. However, these and other risks and uncertainties could cause our results
to vary materially from recent results or from our anticipated future results. The risk factors and uncertainties described below,
together with information incorporated by reference or otherwise included elsewhere in this Annual Report on Form 10-K,
should be carefully considered. 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 our financial condition, results of operations and access
to capital markets.
Our 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 our 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, 2014, we were a co-defendant in cases alleging asbestos induced illness involving claims by approximately
14,634 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: 42,296 of those
claims were dismissed, 22 were tried to defense verdicts, seven were tried to plaintiff verdicts (one of which was vacated on
appeal), one was resolved by agreement for an immaterial amount and 670 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.
Our ability to complete the divestiture of assets, or interests in assets, may be subject to factors beyond our control, and
in certain cases we may be required to retain liabilities for certain matters.
We may identify assets for strategic divestitures that would increase capital resources available for other activities and create
organizational and operational efficiencies. Various factors could materially affect our ability to dispose of such assets or
complete announced divestitures, including the receipt of approvals of governmental agencies or third parties and the
availability of purchasers willing to acquire the interests or purchase the assets on terms and at prices acceptable to us.
Sellers typically retain certain liabilities or indemnify buyers for certain matters. The magnitude of any such retained liability or
indemnification obligation may be difficult to quantify at the time of the transaction and ultimately may be material. Also, as is
typical in divestitures, third parties may be unwilling to release us from guarantees or other credit support provided prior to the
sale of the divested assets. As a result, after a divestiture, we may remain secondarily liable for the obligations guaranteed or
supported to the extent that the buyer of the assets fails to perform these obligations.
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.
5
Further, in the past decade, the arc welding industry in the United States and other developed countries has been subject to
increased levels of foreign competition as low cost imports have become more readily available. Our competitive position
could also be harmed if new or emerging competitors become more active in the arc welding business. For example, while
steel manufacturers traditionally have not been significant competitors in the domestic arc welding industry, some foreign
integrated steel producers manufacture selected consumable arc welding products. Our sales and results of operations, as well
as our plans to expand in some foreign countries, could be adversely affected by this practice.
The loss of any of our largest customers could adversely affect our revenue, gross margins and profit.
We have a large and varied customer base due, in part, to our extensive distribution channels in the industries and regions that
we serve. Although no individual customer currently accounts for more than ten percent of total net sales, there are customers
to which we sell a large amount of product. The loss of any of these customers could have an adverse affect 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. The share of sales and
profits we derive from our international operations and exports from the United States is significant. This trend increases our
exposure to the performance of many developing economies in addition to the developed economies outside of the United
States. If international economies were to experience significant slowdowns, it could adversely affect our financial condition,
results of operations and cash flows.
There are a number of risks in doing business internationally, which may impede our ability to achieve our strategic objectives
relating to our foreign operations. 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 settlements or license agreements, pay costly damage awards or face a temporary or permanent injunction
prohibiting us from manufacturing, marketing or selling certain of our products.
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 2014, 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 and 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 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 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
53 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
54 Executive Vice President, Chief Financial Officer and Treasurer since February 19, 2014;
Senior Vice President, Chief Financial Officer and Treasurer from October 7, 2005 to
February 19, 2014.
Frederick G. Stueber
61 Executive Vice President, General Counsel and Secretary since February 19, 2014; Senior
Vice President, General Counsel and Secretary from 1996 to February 19, 2014.
George D. Blankenship
52 Executive Vice President, President, Lincoln Electric North America since February 19, 2014;
Senior Vice President; President, Lincoln Electric North America from July 30, 2009 to
February 19, 2014; 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
47 Executive Vice President, Chief Information Officer since February 19, 2014; Vice President,
Chief Information Officer from May 1, 2012 to February 19, 2014; Vice President, Corporate
Controller from 2005 to May 1, 2012.
Gretchen A. Farrell
52 Executive Vice President, Chief Human Resources Officer since February 19, 2014; Senior
Vice President, Human Resources and Compliance from July 30, 2009 to February 19, 2014 ;
Vice President, Human Resources from May 5, 2005 to July 30, 2009.
Geoffrey P. Allman
44 Senior Vice President, Corporate Controller since January 14, 2014; Corporate Controller
from July 1, 2012 to January 14, 2014; Director, Regional Finance North America from
October 1, 2009 to June 30, 2012.
Thomas A. Flohn
54 Senior Vice President, President, Asia Pacific Region since February 19, 2014; Vice
President, Regional President, Lincoln Electric Asia Pacific Region from November 4, 2013
to January 14, 2014. 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
52 Senior Vice President, President, LE Europe since February 19, 2014; Vice President;
Steven B. Hedlund
President, Lincoln Electric Europe from November 4, 2013 to February 19, 2014. 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.
48 Senior Vice President and President, Global Automation since January 22, 2015; Senior Vice
President, Strategy & Business Development from February 19, 2014 to January 22, 2015;
Vice President, Strategy and Business Development from September 15, 2008 to February 19,
2014. 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
58 Senior Vice President, President, Harris Products Group since February 19, 2014; Vice
President, Group President of Brazing, Cutting and Retail Subsidiaries from January 12, 2006
to February 19, 2014.
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 47 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;
Ladson, South Carolina; Chattanooga, Tennessee; Detroit, Michigan.
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 some manufacturing facilities, 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.
As of December 31, 2014, the Company was a co-defendant in cases alleging asbestos induced illness involving claims by
approximately 14,634 plaintiffs, which is a net decrease of 124 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: 42,296 of those claims were dismissed, 22 were tried to defense verdicts, seven were tried to plaintiff
verdicts (one of which was vacated on appeal), one was resolved by agreement for an immaterial amount and 670 were decided
in favor of the Company following summary judgment motions.
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, 2014 was 1,766.
The total amount of dividends paid in 2014 was $73.3 million. During 2014, dividends were paid on January 15, April 15,
July 15 and October 15.
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
2014
2013
Stock Price
High
Low
Dividends
Declared
Stock Price
High
Low
Dividends
Declared
$
76.26
$
66.68
$
72.88
73.75
75.49
63.23
65.44
61.12
0.23
0.23
0.23
0.29
$
57.63
$
49.06
$
60.58
69.35
74.57
49.94
56.75
65.45
0.20
0.20
0.20
0.23
Issuer purchases of equity securities for the fourth quarter 2014 were:
Period
October 1-31, 2014
November 1-30, 2014
December 1-31, 2014
Total
Total Number of
Shares Repurchased
Average Price
Paid Per Share
$
86,845
229,247
495,576 (1)
811,668
69.02
74.01
70.25
71.18
Total Number of
Shares Repurchased
as Part of Publicly
Announced Plans or
Programs
Maximum Number of
Shares that May Yet be
Purchased Under the
Plans or Programs (2)
86,845
229,247
493,116
809,208
12,028,499
11,799,252
11,306,136
(1) Includes the surrender of 2,460 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 of the
Company’s common shares authorized to be repurchased to 45 million. Total shares purchased through the share
repurchase program were 33,693,864 shares at a cost of $899.6 million for a weighted average cost of $26.70 per share
through December 31, 2014.
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, 2010 and ending December 31, 2014.
This graph assumes that $100 was invested on December 31, 2009 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 Comparison
The Company's Common Shares, S&P 500 and S&P 400 Composite Indices
$300
$250
$200
$150
$100
$50
$0
The Company
S&P 500
S&P 400
2009
100
100
100
2010
124
115
126
2011
151
117
124
2012
191
136
146
2013
283
179
195
2014
278
204
214
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
$
2014 (1)
2,813,324
254,686
$
Year Ended December 31,
2012 (3)
2,853,367
$
$
2013 (2)
2,852,671
293,780
257,411
3.22
3.18
0.980
3.58
3.54
0.830
3.10
3.06
0.710
2011 (4)
2,694,609
217,186
$
2010 (5)
2,070,172
130,244
2.60
2.56
0.635
1.54
1.53
0.575
1,939,215
2,151,867
2,089,863
1,976,776
1,783,788
2,488
3,791
1,599
1,960
84,627
(1) Results for 2014 include net rationalization and asset impairment charges of $30,053 ($30,914 after-tax) which primarily include
$32,742 ($32,706 after-tax) in non-cash asset impairment charges partially offset by gains of $3,930 ($2,754 after-tax) related to the
sale of assets. Associated with the impairment of long-lived assets is an offsetting special item of $805 representing portions
attributable to non-controlling interests. Results also include charges of $21,133 ($21,133 after-tax) related to Venezuelan
remeasurement losses.
(2) Results for 2013 include net rationalization and asset impairment 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.
(3) Results for 2012 include net rationalization and asset impairment 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 a change in Venezuelan labor law, which provides for increased employee
severance obligations.
(4) Results for 2011 include net rationalization and asset impairment 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.
(5) Results for 2010 include net rationalization and asset impairment 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.
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
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 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 Asia Pacific Welding segment primarily includes welding
operations in China and Australia. The South America Welding segment primarily includes welding operations in Brazil,
Colombia and Venezuela. 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.
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 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 37 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 earnings before interest and income taxes, 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,
2014
2013
2012
Amount
$ 2,813,324
1,864,027
949,297
% of Sales
Amount
% of Sales
Amount
100.0% $ 2,852,671
100.0% $ 2,853,367
66.3%
33.7%
1,910,017
942,654
67.0%
33.0%
1,986,711
866,656
% of Sales
100.0%
69.6%
30.4%
545,497
19.4%
527,206
18.5%
495,221
17.4%
30,053
373,747
3,093
5,412
3,995
(10,434)
375,813
121,933
1.1%
13.3%
0.1%
0.2%
0.1%
(0.4%)
13.4%
4.3%
8,463
406,985
3,320
4,806
4,194
(2,864)
416,441
124,754
0.3%
14.3%
0.1%
0.2%
0.1%
(0.1%)
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%
253,880
9.0%
291,687
10.2%
257,216
9.0%
(806)
—
$
254,686
9.1% $
(2,093)
293,780
(0.1%)
10.3% $
(195)
257,411
—
9.0%
16
2014 Compared with 2013
Net Sales: Net sales for 2014 decreased 1.4% from 2013. The sales decrease reflects volume decreases of 2.0%, price
increases of 1.8%, increases from acquisitions of 1.5% and unfavorable impacts from foreign exchange of 2.6%. Sales
volumes decreased primarily as a result of softer volumes in South America Welding. Product pricing increased from prior
year levels, reflecting the highly inflationary environment in Venezuela partially offset by pricing declines in The Harris
Products Group due to decreases in the costs of silver and copper. Net sales for 2014 include $71,793 in sales from the
Company's Venezuelan operations compared with $109,139 in sales from the Company's Venezuelan operations in 2013.
Gross Profit: Gross profit increased 0.7% to $949,297 during 2014 compared with $942,654 in 2013. As a percentage of Net
sales, Gross profit increased to 33.7% in 2014 compared with 33.0% in 2013. The increase was the result of geographic mix
and operational improvements. Foreign currency exchange rates had a $28,377 unfavorable translation impact in 2014, which
includes $3,468 related to the liquidation of Venezuelan inventory valued at a historical exchange rate.
Selling, General & Administrative ("SG&A") Expenses: SG&A expenses increased 3.5% to $545,497 during 2014 compared
with $527,206 in 2013. The increase was primarily due to higher foreign exchange transaction losses of $16,472, incremental
SG&A expenses from acquisitions of $8,051 and higher bonus expense of $5,511, partially offset by lower foreign currency
translation of $14,627. Foreign exchange transaction losses in 2014 include a charge of $17,665 relating to a Venezuelan
remeasurement loss compared with a charge of $8,081 in 2013 due to the devaluation of the Venezuelan currency.
Rationalization and Asset Impairment Charges: In 2014, the Company recorded $30,053 in charges primarily related to non-
cash long-lived asset impairment charges partially offset by gains on the sale of assets. See "Rationalization and Asset
Impairments" for additional information.
Equity Earnings in Affiliates: Equity earnings in affiliates were $5,412 in 2014 compared with earnings of $4,806 in 2013.
The increase was primarily due to an increase in earnings in Turkey.
Interest Expense: Interest expense increased to $10,434 in 2014 from $2,864 in 2013. The increase was due to an adjustment
to the consideration expected to be paid to acquire additional ownership interests of a majority-owned subsidiary and the
accretion of the related liability.
Income Taxes: The Company recorded $121,933 of tax expense on pre-tax income of $375,813, resulting in an effective tax
rate of 32.4% for 2014. 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 30.0% for 2013 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 2014 was $254,686 compared with $293,780 in the prior year. Diluted earnings per share for
2014 were $3.18 compared with diluted earnings of $3.54 per share in 2013. Net income for 2014 included a loss of $8,238, or
$0.10 per diluted share, from the Company's Venezuelan operations compared with Net income of $25,614, or $0.31 per diluted
share, from the Company's Venezuelan operations in 2013. Foreign currency exchange rate movements had an unfavorable
translation effect of $8,258 and $1,572 on Net income for 2014 and 2013, 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, 2014:
Net Sales
2013
Volume
Acquisitions
Price
Foreign
Exchange
Net Sales
2014
Change in Net Sales due to:
Operating Segments
North America Welding
$
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
429,548
266,282
195,895
308,177
4,335
8,107
(17,516)
(59,554)
6,722
$
42,184
$
13,247
$ (11,611)
$ 1,700,924
—
—
—
—
(3,722)
1,351
57,461
(18,411)
(8,158)
(6,317)
(45,207)
(2,258)
425,775
243,800
148,595
294,230
$
2,852,671
$ (57,906)
$
42,184
$
49,926
$ (73,551)
$ 2,813,324
0.3%
1.9%
(6.6%)
(30.4%)
2.2%
(2.0%)
2.6%
—
—
—
—
1.5%
0.8%
(0.9%)
0.5%
29.3%
(6.0%)
1.8%
(0.7%)
(1.9%)
(2.4%)
(23.1%)
(0.7%)
(2.6%)
2.9%
(0.9%)
(8.4%)
(24.1%)
(4.5%)
(1.4%)
Net sales volumes for 2014 decreased for South America Welding due to the lack of available raw materials in Venezuela and
Asia Pacific Welding due to lower demand. North America Welding, Europe Welding and The Harris Products Group
increased as a result of stronger end market demand in those geographies. Product pricing in North America Welding increased
slightly due to the realization of price increases. Product pricing in South America Welding reflects a highly inflationary
environment, particularly in Venezuela. Product pricing decreased for The Harris Products Group because of decreases in the
costs of silver and copper. The increase in Net sales from acquisitions was due to the acquisitions of Easom Automation
Systems, Inc. ("Easom") in October 2014, Robolution GmbH ("Robolution") in November 2013 and Burlington Automation
Corporation ("Burlington") in November 2013 (see Note 3 to the consolidated financial statements for additional information
regarding the acquisitions). With respect to changes in Net sales due to foreign exchange, all segments 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 2014 by segment compared with 2013:
Twelve Months Ended
December 31,
2014
2013
$ 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
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
1,700,924
124,732
1,825,656
335,465
18.4%
425,775
19,586
445,361
48,822
11.0%
243,800
14,820
258,620
1,321
0.5%
148,595
144
148,739
15,953
10.7%
294,230
8,210
302,440
28,563
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
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
48,155
(2,522)
45,633
16,958
(3,773)
(325)
(4,098)
12,575
(22,482)
(86)
(22,568)
(494)
(47,300)
(89)
(47,389)
(41,353)
(13,947)
(1,395)
(15,342)
737
As a percent of total sales
9.4%
8.8%
2.9%
(2.0%)
2.6%
5.3%
0.5%
(0.9%)
(1.6%)
(0.9%)
34.7%
2.9%
(8.4%)
(0.6%)
(8.0%)
(27.2%)
(0.1%)
(24.1%)
(38.2%)
(24.2%)
(72.2%)
(18.5%)
(4.5%)
(14.5%)
(4.8%)
2.6%
0.6%
EBIT, as adjusted as a percent of total sales increased for North America Welding in 2014 as compared with 2013 due to
operational improvements and lower pension expense, partially offset by higher SG&A expenses. The increase for Europe
Welding is primarily due to volume increases, lower manufacturing costs and improved product mix, partially offset by higher
SG&A expenses. The South America Welding decrease was a result of lower volumes related to disruptions of manufacturing
operations due to the lack of available raw materials in Venezuela and higher SG&A expenses due to foreign exchange losses in
Venezuela.
19
In 2014, EBIT, as adjusted, excluded net charges primarily related to employee severance and other costs associated with the
consolidation of manufacturing operations. Asia Pacific Welding EBIT, as adjusted, also excluded charges of $32,742 related
to impairment of long-lived assets and a gain of $3,930 related to the sale of assets. South America Welding EBIT, as adjusted,
excluded special item charges of $21,133, related to the adoption of a new foreign exchange mechanism in the first quarter.
In 2013, EBIT, as adjusted, excluded special item charges primarily related to employee severance and other costs associated
with the consolidation of manufacturing operations. Asia Pacific Welding 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. South America Welding
EBIT, as adjusted, excluded special item charges of $12,198, related to the devaluation of the Venezuelan currency.
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 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 2013 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. 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 $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.
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, 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
(18,518)
(48,964)
13,269
1,276
—
—
—
—
(5,696)
(4,947)
29,730
(24,748)
1,535
(4,289)
(8,587)
(2,708)
429,548
266,282
195,895
308,177
$ 2,853,367
$ (75,899)
$
91,442
$
2,124
$ (18,363)
$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 South America Welding and The Harris Products
Group, as a result of soft demand in both domestic and international markets. Net sales volumes in South America Welding
increased as a result of improved demand in the South American markets. Net sales volumes in The Harris Products Group
increased as a result of improved sales volumes on equipment. Product pricing in North America Welding increased slightly
due to the realization of price increases and improved pricing management. Product pricing in Europe Welding decreased due
to declining raw material costs. Product pricing decreased for Asia Pacific Welding due to lower raw material costs and
competitive pricing conditions. Product pricing in South America Welding reflects a highly inflationary environment,
particularly in Venezuela. Product pricing decreased for The Harris Products Group 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 in November 2013, 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
Note 3 to the consolidated financial statements for additional information regarding the acquisitions). With respect to changes
in Net sales due to foreign exchange, all segments, except for Europe Welding, 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 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 Asia Pacific Welding, in 2013 as compared
with 2012. The North America Welding increase was primarily due to improved pricing management and lower material costs.
The increase at Europe Welding was primarily due to cost control on volume decreases of 4.1%. The Asia Pacific Welding
decrease was due to lower profitability in China and Australia due to weaker demand. The South America Welding increase
was 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 growth was primarily a result of improved
product mix on equipment sales volume.
22
In 2013, EBIT, as adjusted, for North America Welding, Europe Welding and Asia Pacific Welding 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. Asia Pacific Welding 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. South America Welding EBIT, as
adjusted, excluded special item charges of $12,198, related to the devaluation of the Venezuelan currency.
In 2012, EBIT, as adjusted, for North America Welding, Europe Welding and Asia Pacific Welding 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. South America Welding 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.
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 in the United States ("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 foreign exchange losses
Venezuela statutory severance obligation
Year Ended December 31,
2014
2013
2012
$
373,747
$
406,985
$
362,081
30,053
—
21,133
—
8,463
705
12,198
—
9,354
—
—
1,381
Adjusted operating income
$
424,933
$
428,351
$
372,816
Special items included in Operating income during 2014 include net rationalization and asset impairment charges of $30,053
primarily consisting of non-cash asset impairment charges of $32,742 offset by gains of $3,930 related to the sale of assets.
Special items for 2014 also include Venezuelan remeasurement losses of $21,133 related to the adoption of a new foreign
exchange mechanism in the first quarter.
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 a change
in Venezuelan labor law, which provides for increased employee severance obligations.
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 foreign exchange losses
Venezuela statutory severance obligation
Special items attributable to non-controlling interests
Adjusted net income
Diluted earnings per share as reported
Special items per share
Adjusted diluted earnings per share
Year Ended December 31,
2014
2013
2012
$
254,686
$
293,780
$
257,411
30,914
—
21,133
—
(805)
305,928
3.18
0.64
3.82
$
$
$
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
$
$
$
Net income for 2014 includes net rationalization and asset impairment charges of $30,914 primarily consisting of non-cash
asset impairment charges of $32,706 partially offset by gains of $2,754 related to the sale of assets. Associated with the
impairment of long-lived assets is an offsetting special item of $805 attributable to non-controlling interests. Special items for
2014 also include Venezuelan remeasurement losses of $21,133 related to the adoption of a new foreign exchange mechanism
in the first quarter. Adjusted net income for 2014 includes $13,279, or $0.17 per diluted share, from the Company's Venezuelan
operations.
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 a change in Venezuelan labor law,
which provides for increased employee severance obligations.
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, borrowings under its existing credit
facilities and raising debt in capital markets.
24
The following table reflects changes in key cash flow measures:
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:
Proceeds from (payments on) short-term
borrowings, net
Proceeds from (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
(Decrease) increase in Cash and cash equivalents
Year Ended December 31,
$ Change
$
$
2014
401,702
(78,985)
(72,990)
(24,230)
17,457
778
(314,355)
$
2013
338,894
(129,500)
(76,015)
(53,161)
1,393
(1,717)
(194,184)
2012
327,484
(187,471)
(52,715)
(134,602)
1,387
(1,541)
(216,838)
2014 vs. 2013
62,808
$
2013 vs. 2012
11,410
$
50,515
3,025
28,931
16,064
2,495
(120,171)
57,971
(23,300)
81,441
6
(176)
22,654
47,876
(1,451)
(4,533)
49,327
3,082
5,455
9,116
5,967
(307,178)
(73,261)
(2,330)
(21,446)
(389)
20,297
10,602
(167,879)
(49,277)
(6,087)
13,361
(84,770)
18,776
7,819
(81,018)
(73,112)
—
(74,637)
5,844
(11,181)
(4,635)
(139,299)
(23,984)
3,757
84,381
1,521
2,783
(86,861)
23,835
(6,087)
Cash and cash equivalents decreased 7.2%, or $21,446, to $278,379 during the twelve months ended December 31, 2014, from
$299,825 as of December 31, 2013. This decrease was predominantly due to increases in purchases of common shares for
treasury to $307,178 and cash dividends paid to shareholders of $73,261.
Cash provided by operating activities increased $62,808 for the twelve months ended December 31, 2014 compared with the
twelve months ended December 31, 2013. The increase was predominantly due to a decrease of $51,284 in pension
contributions and payments and a refund of a Canadian tax deposit of $50,282 in 2014. Net operating working capital is
defined as the sum of Accounts receivable and Total inventory less Trade accounts payable. Net operating working capital to
sales, defined as net operating working capital divided by annualized rolling three months of Net sales, decreased to 16.5% at
December 31, 2014 compared with 17.6% at December 31, 2013. Days sales in inventory decreased to 92.3 days at
December 31, 2014 from 93.2 days at December 31, 2013. Accounts receivable days decreased to 45.7 days at December 31,
2014 from 50.3 days at December 31, 2013. Average days in accounts payable decreased to 45.0 days at December 31, 2014
from 45.5 days at December 31, 2013.
Cash used by investing activities decreased by $50,515 in the twelve months ended December 31, 2014 compared with the
twelve months ended December 31, 2013. The decrease was predominantly due to a decrease in the acquisition of businesses
of $28,931 and an increase in proceeds from the sale of property, plant and equipment of $16,064. The Company anticipates
capital expenditures of $65,000 to $75,000 in 2015. 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 increased $120,171 in the twelve months ended December 31, 2014 compared with the
twelve months ended December 31, 2013. The increase was predominantly due to higher cash dividends paid to shareholders
of $23,984 and higher purchases of common shares for treasury of $139,299 partially offset by higher proceeds from short-term
borrowings of $49,327. The Company currently anticipates share repurchases of approximately $400,000 in 2015.
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 increased from $19,087 at December 31, 2013 to $70,654 at December 31, 2014. Debt to total
invested capital increased to 5.2% at December 31, 2014 from 1.2% at December 31, 2013.
The Company paid $73,261 and $49,277 in cash dividends to its shareholders in the twelve months ended December 31, 2014
and 2013, respectively.
The Company has a share repurchase program for up to 45 million of the Company's common shares. At management's
discretion, the Company repurchases its common shares from time to time in the open market, depending on market conditions,
stock price and other factors. During the twelve months ended December 31, 2014, the Company purchased a total of 4.4
million shares at a cost of $307,178. As of December 31, 2014, 11.3 million shares remained available for repurchase under the
stock repurchase program.
The Company made voluntary contributions to its U.S. defined benefit plans of $21,175, $75,216 and $60,277 in 2014, 2013
and 2012, respectively. The Company expects to voluntarily contribute $21,000 to U.S. plans in 2015. Based on current
pension funding rules, the Company does not anticipate that contributions to the plans would be required in 2015.
Canada - Notice of Reassessment
As discussed in Note 12 to the consolidated financial statements, in July 2012, the Company received a Notice of Reassessment
(the "Reassessments") from the Canada Revenue Agency (the “CRA”) in respect to its 2004 to 2010 taxation years to disallow
the deductibility of inter-company dividends. The Company appealed the Reassessments to the Tax Court of Canada. As part
of the appeals process to the Tax Court of Canada, the Company had elected to deposit the entire amount of the dispute in order
to suspend continuing interest charges.
In September 2014, the Department of Justice Canada consented to a judgment, wholly in the Company's favor. In vacating the
reassessment, this tax litigation is concluded. In December 2014 the Company received a partial refund of the cash deposit
with a value of $50,282. The Company also received interest on the deposit of $1,236. The Company expects the balance of
the cash deposit of $27,068, recorded in Other current assets as of December 31, 2014, plus 1% annual interest to be received
in the first quarter of 2015.
Rationalization and Asset Impairments
In 2014, the Company recorded net rationalization and asset impairment charges of $30,053 resulting from rationalization
activities primarily initiated in the third quarter 2014. The 2014 net charges include $1,241 primarily related to employee
severance and other related costs and $32,742 in asset impairment charges, partially offset by gains from sales of assets of
$3,930.
In 2013, the Company recorded net rationalization and asset impairment charges of $8,463 resulting from rationalization
activities primarily initiated in 2012 and the third quarter of 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 $156.
In 2012, the Company recorded net rationalization and asset impairment charges of $9,354 resulting from rationalization
activities primarily initiated 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.
Fair values of impaired assets were determined using projected discounted cash flows.
Acquisitions
Refer to Note 3 to the consolidated financial statements for a discussion of the Company's recent acquisitions.
26
Debt
At December 31, 2014 and 2013, the fair value of long-term debt, including the current portion, was approximately $9,323 and
$4,212, 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 $400,000 through the Amended and Restated Credit Agreement (the “Credit
Agreement”), which was entered into on September 12, 2014. 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, 2014, the Company was in compliance with all of its
covenants and had $50,000 in outstanding borrowings under the Credit Agreement, which was recorded in Amounts due banks.
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 $61,155 and $14,581 at December 31, 2014 and
2013, respectively. Amounts due banks included the outstanding borrowings under the Credit Agreement and the borrowings
of foreign subsidiaries at weighted average interest rates of 3.1% and 11.3% at December 31, 2014 and 2013, respectively.
Contractual Obligations and Commercial Commitments
The Company's contractual obligations and commercial commitments as of December 31, 2014 are as follows:
Payments Due By Period
Total
2015
2016 to
2017
2018 to
2019
2020 and
Beyond
Long-term debt, including current portion
$
9,301
$
6,938
$
1,751
$
196
$
Interest on long-term debt
Capital lease obligations
Short-term debt
Interest on short-term debt
Operating leases
Purchase commitments(1)
Total
963
198
61,155
903
44,396
162,021
278,937
$
760
76
61,155
903
12,372
159,428
241,632
$
159
109
—
—
23
13
—
—
18,567
2,491
23,077
$
$
9,551
102
9,885
$
416
21
—
—
—
3,906
—
4,343
_______________________________________________________________________________
(1) Purchase commitments include contractual obligations for raw materials and services.
As of December 31, 2014, there was $18,389 of tax liabilities related to unrecognized tax benefits and a $21,839 liability for
deferred compensation. Because of the high degree of uncertainty regarding the timing of future cash outflows associated with
these liabilities, the Company is unable to estimate the years in which settlement will occur. See Note 12 and Note 14 to the
Company's consolidated financial statements for further discussion. Additionally, in connection with prior acquisitions, there
were liabilities with fair values as of December 31, 2014 of $6,912 for a contingent consideration arrangement and $25,268 for
a forward contract to acquire an additional ownership interest in a majority owned subsidiary. The amount of future cash flows
associated with these liabilities will be contingent upon actual results of the acquired entities. See Note 14 to the Company’s
consolidated financial statements for further discussion.
The Company expects to voluntarily contribute $21,000 to the U.S. defined benefit plans in 2015.
27
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, 2014, there were
2,330,493 common shares available for future grant under all plans.
Under these plans, options, restricted shares and restricted stock units granted were 22,909 in 2014, 357,494 in 2013 and
567,023 in 2012. The Company issued common shares from treasury upon all exercises of stock options and the granting of
restricted stock awards in 2014, 2013 and 2012.
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 2014, 2013 and 2012 was $8,416, $9,734 and $8,961, respectively with a related tax
benefit of $3,222, $3,727 and $3,409, respectively. As of December 31, 2014, total unrecognized stock-based compensation
expense related to non-vested stock options, restricted shares and restricted stock units was $12,452, which is expected to be
recognized over a weighted average period of approximately 3.0 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, 2014, was $65,873 and $64,161, respectively. The total intrinsic value of options
exercised during 2014, 2013 and 2012 was $14,647, $26,288 and $25,936 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.
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
Refer to Note 1 to the consolidated financial statements for a discussion of new accounting pronouncements.
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
2014. The Company believes the following accounting policies are some of the more critical judgment areas affecting its
financial condition and results of operations.
28
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, regulatory
claims and health, safety and environmental claims, some of which relate to cases alleging asbestos induced illnesses. The
costs associated with these claims are predominantly defense costs, which are recognized in the periods incurred. Insurance
reimbursements mitigate these costs and, where reimbursements are probable, they are recognized in the applicable period.
With respect to costs other than defense costs (i.e., for liability and/or settlement or other resolution), reserves are recorded
when it is probable that the contingencies will have an unfavorable outcome. The Company accrues its best estimate of the
probable costs, after a review of the facts with management and counsel and taking into account past experience. If an
unfavorable outcome is determined to be reasonably possible but not probable, or if the amount of loss cannot be reasonably
estimated, disclosure 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 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 $22,351, $7,759 and
$4,608 in 2014, 2013 and 2012, respectively.
Venezuela – Highly Inflationary Economy
Venezuela is a highly inflationary economy under U.S. GAAP. As a result, the financial statements of the Company's
Venezuelan operation are reported under highly inflationary accounting rules as of January 1, 2010. Under highly inflationary
accounting, the financial statements of the Company's Venezuelan operation have been remeasured into the Company's
reporting currency and exchange gains and losses from the re-measurement of monetary assets and liabilities are reflected in
current earnings. 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. In 2013, 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 Venezuela government announced the formation of the National Center of Foreign Trade (“CENCOEX”)
to replace the Commission for the Administration of Currency Exchange (“CADIVI”). Effective January 24, 2014, the
exchange rate applicable to the settlement of certain transactions through CENCOEX, including payments of dividends and
royalties, changed to utilize the Complementary System of Foreign Currency Administration ("SICAD") auction-based
exchange rate (the "SICAD I rate") as opposed to the official rate. Further, in January 2014, the Venezuelan government also
enacted the "Fair Prices Law" limiting prices and establishing a maximum profit margin on goods and services. In February
2014, the government announced a new market based foreign exchange system, the SICAD II. The exchange rate established
through SICAD II fluctuates daily and is significantly higher than both the official rate and the SICAD I rate.
29
As of March 31, 2014, the Company determined that the rate used in remeasuring the Venezuelan operation's financial
statements into U.S. dollars would change to the SICAD I rate as future remittances for dividend payments could be transacted
at the SICAD I rate. As of March 31, 2014, the SICAD I rate was 10.7 bolivars to the U.S. dollar, which resulted in a
remeasurement loss on the bolivar-denominated monetary net asset position of $17,665 which was recorded in Selling, general
& administrative expenses in the three months ended March 31, 2014. Additionally, the Company incurred higher Cost of
goods sold of $3,468 during the second quarter of 2014 related to the adoption of the SICAD I rate.
The SICAD I rate is determined by periodic auctions which may result in additional losses or gains on a remeasurement of the
bolivar-denominated monetary net asset position. In February 2015, the Venezuelan government announced a new exchange
market called the Marginal Currency System (“SIMADI”), which will replace the SICAD II exchange and allow for trading
based on supply and demand. An initial exchange rate for the SIMADI market was established at approximately 170.0 bolivars
to the U.S. dollar. While there remains considerable uncertainty as to the nature and volume of transactions that will flow
through the various currency exchange mechanisms, the Company determined that the SICAD I rate remained the most
appropriate exchange rate for the Company to utilize in remeasuring the Venezuelan operation's financial statements into U.S.
dollars as of December 31, 2014. As of December 31, 2014, the SICAD I rate was 12.0 bolivars to the U.S dollar. If in the
future the Company were to convert bolivars at a rate other than the SICAD I rate the Company may realize additional losses or
gains to earnings.
At December 31, 2014, the amount of bolivar requests awaiting government approval to be paid in U.S. dollars at the SICAD I
rate include $8,446 for dividend payments, of which $4,386 have been outstanding for more than a year, and $7,904 to be paid
at the official rate, of which $7,661 have been outstanding for more than a year.
In the 2014, the Company’s Venezuela operations contributed $71,793 to Net sales for the Company. Net income included a
loss of $8,238, or $0.10 per diluted share from Venezuela. Adjusted net income for the 2014 included $13,279, or $0.17 per
diluted share, from Venezuela. Future impacts to earnings of applying highly inflationary accounting for Venezuela on the
Company’s consolidated financial statements will be dependent upon the applied currency exchange mechanisms, the
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 liability
position was $1,264 at December 31, 2014, which includes $2,124 of cash and cash equivalents and the bolivar-denominated
monetary net asset position was $38,633 at December 31, 2013, which includes $50,642 of cash and cash equivalents.
The Company’s ability to effectively manage sales and profit levels in Venezuela will be impacted by several factors. In
addition to those factors previously mentioned, these include the Company’s ability to mitigate the effect of any potential future
devaluation and Venezuelan government price or exchange controls. For example, a future devaluation in the Venezuelan
currency to the SIMADI rate would result in the Company realizing additional charges of approximately $22,000 to Cost of
goods sold based on December 31, 2014 inventory levels and gains of approximately $1,000 to Selling, general and
administrative expenses based upon the December 31, 2014 bolivar-denominated monetary net liability position. The various
restrictions on the distribution of foreign currency by the Venezuelan government could also affect the Company’s ability to
pay obligations and maintain normal productions levels in Venezuela.
Deferred Income Taxes
Deferred income taxes are recognized at currently enacted tax rates for temporary differences between the GAAP and income
tax basis of assets and liabilities and operating loss and tax credit carry-forwards. The Company 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 $16,032 that are not expected to be permanently reinvested were not significant. At December 31, 2014, the
Company had approximately $94,797 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, 2014, a valuation
allowance of $48,840 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.
30
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 relate 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 7.3% and 7.4% at December 31, 2014 and 2013, 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 2014, investment returns were 11.5% compared
with a return of 12.4% in 2013. A 25 basis point change in the expected return on plan assets would increase or decrease
pension expense by approximately $2,100.
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 an equivalent quality. The Company determined this rate
to be 4.1% at December 31, 2014 and 4.7% at December 31, 2013. A 10 basis point change in the discount rate would increase
or decrease pension expense by approximately $1,200.
Pension expense relating to the Company's defined benefit plans was $12,395, $29,908 and $36,258 in 2014, 2013 and 2012,
respectively. The Company expects 2015 defined benefit pension expense to increase by a range of approximately $10,000 to
$12,000.
The Accumulated other comprehensive loss, excluding tax effects, recognized on the Consolidated Balance Sheet was $314,411
as of December 31, 2014 and $256,260 as of December 31, 2013. The increase is primarily the result of actuarial losses
recorded during the year. Actuarial losses arising during 2014 are primarily attributable to a lower discount rate and the
adoption of new mortality tables.
The Company made voluntary contributions to its U.S. defined benefit plans of $21,175, $75,216 and $60,277 in 2014, 2013
and 2012, respectively. The Company expects to voluntarily contribute $21,000 to the U.S. plans in 2015. Based on current
pension funding rules, the Company does not anticipate that contributions to the plans would be required in 2015.
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 $71,311 at December 31, 2014 and $70,882 at December 31, 2013.
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.
31
Goodwill and Intangibles
The Company performs an annual impairment test of goodwill and indefinite-lived intangible assets in the fourth quarter using
the same dates each year or more frequently if changes in circumstances or the occurrence of events indicate potential
impairment. The fair value of each indefinite-lived intangible asset is compared to its carrying value and an impairment charge
is recorded if the carrying value exceeds the fair value. Goodwill is tested by comparing the fair value of each reporting unit
with its carrying value. If the carrying value of the reporting unit exceeds its fair value, the implied value of goodwill is
compared to its carrying value and impairment is recognized to the extent that the carrying value exceeds the implied fair value.
Fair values are determined using established business valuation multiples and models developed by the Company that
incorporate allocations of certain assets and cash flows among reporting units, estimates of market participant assumptions of
future cash flows, future growth rates and the applicable discount rates to value estimated cash flows. Changes in economic
and operating conditions impacting these assumptions could result in asset impairments in future periods.
The fair value of goodwill for all of the Company's operating business units exceeded its carrying value by at least 10% as of
the testing date during the fourth quarter of 2014. 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.
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.
During 2014, the Company identified long-lived assets for planned divestiture. In anticipation of the divestiture, the Company
reviewed the carrying values and future cash flows of certain long-lived assets for potential impairment. The Company
determined that for certain assets, including the planned divestiture, the carrying values of the assets exceeded the fair values
resulting in non-cash impairment charges of $32,617 recorded in Rationalization and asset impairment charges. As of
December 31, 2014, the assets identified for divestiture were classified as held for sale.
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 common shares, 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 an 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, 2014, a 10% change in commodity prices, and a 100 basis point increase in
effective interest rates. The contractual derivative, borrowing and investment arrangements in effect at December 31, 2014
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.
32
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, 2014, the Company hedged certain third-party and inter-company purchases and sales. At
December 31, 2014, the Company had foreign exchange contracts with a notional value of approximately $87,999, which
includes net investment hedges. At December 31, 2014, a hypothetical 10% weakening of the U.S. dollar would not materially
affect the Company's financial statements.
Commodity Price Risk
From time to time, the Company uses various hedging arrangements to manage exposures to price risk from commodity
purchases. These hedging arrangements have the effect of fixing 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, 2014 would not materially affect the Company's financial statements.
Interest Rate Risk
The Company's debt portfolio contains variable rate debt, inherently exposing the Company to interest rate risk. A hypothetical
1.0% increase in interest rates would not materially affect the Company's financial statements. The Company uses interest rate
derivatives to manage interest rate risk. The Company had no interest rate derivatives outstanding during 2014 or 2013.
The Company's return on cash and cash equivalents are also subject to interest rate risk. As of December 31, 2014, the
Company had $278,379 in cash and cash equivalents. A hypothetical change of 1.0% in interest rates would not materially
affect the Company's financial statements. The fair value of the Company's Cash and cash equivalents at December 31, 2014
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, 2014 based on the 2013 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, 2014.
The effectiveness of the Company's internal control over financial reporting as of December 31, 2014 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.
33
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 2014 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 2015 proxy statement pursuant to Regulation 14A of the Exchange Act prior to April 30,
2015.
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 2015 proxy statement.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference from the 2015 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 2015 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 2015 proxy statement.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this item is incorporated by reference from the 2015 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, 2014 and 2013
Consolidated Statements of Income – Years ended December 31, 2014, 2013 and 2012
Consolidated Statements of Comprehensive Income – Years ended December 31, 2014, 2013 and 2012
Consolidated Statements of Equity – Years ended December 31, 2014, 2013 and 2012
Consolidated Statements of Cash Flows – Years ended December 31, 2014, 2013 and 2012
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 Code of Regulations of Lincoln Electric Holdings, Inc. (filed as Exhibit 3.1 to Form 8-
K of Lincoln Electric Holdings, Inc. filed on April 29, 2014, SEC file No. 0-1402 and incorporated herein by
reference and made a part hereof).
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 Credit Agreement, dated as of September 12, 2014, 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 (filed as Exhibit 10.1 to Form 8-K of Lincoln Electric Holdings, Inc. filed on September
17, 2014, 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).
Amendment No. 3 to the 2006 Stock Plan for Non-Employee Directors dated February 17, 2015.
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).
37
Exhibit No.
10.26*
Description
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).
10.27*
10.28*
10.29*
10.30*
10.31*
10.32*
10.33*
10.34*
21
23
24
31.1
31.2
32.1
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).
Form of Restricted Stock Unit Agreement for Executive Officers (for awards granted on or after December 16,
2013) (filed as Exhibit 10.33 to Form 10-K of Lincoln Electric Holdings, Inc. for the year ended December 31,
2013, SEC File No. 0-1402 and incorporated herein by reference and made a part hereof).
Subsidiaries of the Registrant.
Consent of Independent Registered Public Accounting Firm.
Powers of Attorney.
Certification by the Chairman, President and Chief Executive Officer pursuant to Rule 13a-14(a) of the
Securities Exchange Act of 1934.
Certification by the Executive 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
101.SCH
XBRL Instance Document
XBRL Taxonomy Extension Schema Document
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB
101.PRE
101.DEF
XBRL Taxonomy Extension Label Linkbase Document
XBRL Taxonomy Extension Presentation Linkbase Document
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
Executive Vice President, Chief Financial
Officer and Treasurer
(principal financial and accounting officer)
February 20, 2015
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,
Chairman, President and Chief Executive Officer
(principal executive officer)
February 20, 2015
/s/ VINCENT K. PETRELLA
Vincent K. Petrella,
Executive Vice President, Chief Financial Officer and
Treasurer (principal financial and accounting officer)
February 20, 2015
/s/ VINCENT K. PETRELLA
Vincent K. Petrella as
Attorney-in-Fact for
Harold L. Adams, Director
February 20, 2015
/s/ VINCENT K. PETRELLA
Vincent K. Petrella as
Attorney-in-Fact for
David H. Gunning, Director
February 20, 2015
/s/ VINCENT K. PETRELLA
Vincent K. Petrella as
Attorney-in-Fact for
Robert J. Knoll, Director
February 20, 2015
/s/ VINCENT K. PETRELLA
Vincent K. Petrella as
Attorney-in-Fact for
Kathryn Jo Lincoln, Director
February 20, 2015
/s/ VINCENT K. PETRELLA
Vincent K. Petrella as
Attorney-in-Fact for
Phillip J. Mason, Director
February 20, 2015
/s/ VINCENT K. PETRELLA
Vincent K. Petrella as
Attorney-in-Fact for
George H. Walls, Jr., Director
February 20, 2015
/s/ VINCENT K. PETRELLA
Vincent K. Petrella as
Attorney-in-Fact for
Curtis E. Espeland, Director
February 20, 2015
/s/ VINCENT K. PETRELLA
Vincent K. Petrella as
Attorney-in-Fact for
Stephen G. Hanks, Director
February 20, 2015
/s/ VINCENT K. PETRELLA
Vincent K. Petrella as
Attorney-in-Fact for
G. Russell Lincoln, Director
February 20, 2015
/s/ VINCENT K. PETRELLA
Vincent K. Petrella as
Attorney-in-Fact for
William E. MacDonald, III, Director
February 20, 2015
/s/ VINCENT K. PETRELLA
Vincent K. Petrella as
Attorney-in-Fact for
Hellene S. Runtagh, Director
February 20, 2015
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, 2014 and 2013, 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, 2014. 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, 2014 and 2013, and the consolidated results of
their operations and their cash flows for each of the three years in the period ended December 31, 2014, 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, 2014, based on
criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (2013 framework) and our report dated February 20, 2015 expressed an unqualified opinion thereon.
Cleveland, Ohio
February 20, 2015
/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,
2014, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (2013 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, 2014, 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, 2014 and 2013, 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, 2014 of Lincoln Electric Holdings, Inc. and subsidiaries and our report dated February 20, 2015
expressed an unqualified opinion thereon.
Cleveland, Ohio
February 20, 2015
/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 $7,734 in
2014; $8,398 in 2013)
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,
2014
2013
$
278,379
$
299,825
321,862
367,134
109,210
40,927
180,703
330,840
9,164
158,432
112,478
38,963
198,522
349,963
10,922
102,931
1,098,677
1,130,775
46,553
361,846
694,203
1,102,602
665,393
437,209
1,240
27,481
132,361
179,517
31,119
2,940
28,671
403,329
1,939,215
$
$
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
2,151,867
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
Accrued bonuses
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 2014 and 2013;
outstanding – 76,997,161 shares in 2014 and 81,010,084 shares in 2013
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Treasury shares, at cost – 21,584,273 shares in 2014 and 17,571,350 shares in 2013
Total Shareholders' Equity
Non-controlling interests
Total Equity
TOTAL LIABILITIES AND EQUITY
See notes to these consolidated financial statements.
F-4
December 31,
2014
2013
$
61,155
$
202,482
14,581
212,799
64,718
29,634
18,626
2,971
22,329
29,955
26,468
27,070
7,011
68,263
29,613
46,109
10,564
18,619
30,206
24,319
1,129
715
492,419
456,917
2,488
32,803
40,761
25,571
59,392
3,791
26,999
48,103
36,149
49,220
161,015
164,262
—
—
9,858
258,816
2,086,174
(288,622)
(783,677)
1,282,549
3,232
1,285,781
1,939,215
$
9,858
240,519
1,908,462
(151,941)
(480,296)
1,526,602
4,086
1,530,688
2,151,867
$
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,
$
2014
2,813,324
1,864,027
$
2013
2,852,671
1,910,017
$
2012
2,853,367
1,986,711
949,297
545,497
30,053
373,747
3,093
5,412
3,995
(10,434)
2,066
375,813
121,933
253,880
(806)
254,686
3.22
3.18
0.98
$
$
$
$
942,654
527,206
8,463
406,985
3,320
4,806
4,194
(2,864)
9,456
416,441
124,754
291,687
(2,093)
293,780
3.58
3.54
0.83
$
$
$
$
866,656
495,221
9,354
362,081
3,988
5,007
2,685
(4,191)
7,489
369,570
112,354
257,216
(195)
257,411
3.10
3.06
0.71
$
$
$
$
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 $(121) in 2014; $(141) in 2013; $(201) in
2012
Defined pension plan activity, net of tax of $(20,951) in 2014; $60,556
in 2013; $(3,492) in 2012
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,
2014
253,880
$
2013
291,687
$
2012
257,216
$
(378)
289
(832)
(37,200)
(98,365)
(4)
(135,947)
117,933
(72)
118,005
$
101,151
(19,955)
155
81,640
373,327
(3,912)
377,239
$
(6,475)
19,635
—
12,328
269,544
(348)
269,892
See notes to these consolidated financial statements.
F-6
.
C
N
I
,
S
G
N
I
D
L
O
H
C
I
R
T
C
E
L
E
N
L
O
C
N
I
L
Y
T
I
U
Q
E
F
O
S
T
N
E
M
E
T
A
T
S
D
E
T
A
D
I
L
O
S
N
O
C
)
s
t
n
u
o
m
a
e
r
a
h
s
r
e
p
t
p
e
c
x
e
,
s
d
n
a
s
u
o
h
t
n
I
(
l
a
t
o
T
-
n
o
N
g
n
i
l
l
o
r
t
n
o
c
s
t
s
e
r
e
t
n
I
y
r
u
s
a
e
r
T
s
e
r
a
h
S
d
e
t
a
l
u
m
u
c
c
A
r
e
h
t
O
e
v
i
s
n
e
h
e
r
p
m
o
C
)
s
s
o
L
(
e
m
o
c
n
I
d
e
n
i
a
t
e
R
s
g
n
i
n
r
a
E
l
a
n
o
i
t
i
d
d
A
n
I
-
d
i
a
P
l
a
t
i
p
a
C
n
o
m
m
o
C
s
e
r
a
h
S
n
o
m
m
o
C
s
e
r
a
h
S
g
n
i
d
n
a
t
s
t
u
O
2
4
2
,
3
9
1
,
1
$
6
9
2
,
6
1
$
)
8
2
5
,
8
4
2
(
$
)
1
8
8
,
7
4
2
(
$
3
9
3
,
4
8
4
,
1
$
4
0
1
,
9
7
1
$
8
5
8
,
9
$
7
5
7
,
3
8
1
1
0
2
,
1
3
r
e
b
m
e
c
e
D
t
a
e
c
n
a
l
a
B
6
1
2
,
7
5
2
)
5
9
1
(
1
1
4
,
7
5
2
e
m
o
c
n
i
t
e
N
)
5
7
4
,
6
(
)
2
3
8
(
5
3
6
,
9
1
)
6
3
1
,
9
5
(
9
8
6
,
5
3
)
8
1
0
,
1
8
(
)
3
5
1
(
7
8
6
,
1
9
2
1
2
3
,
8
5
3
,
1
8
4
9
,
5
1
)
3
9
0
,
2
(
1
5
1
,
1
0
1
9
8
2
)
5
5
9
,
9
1
(
)
6
8
9
,
7
6
(
3
5
1
,
1
4
)
3
9
0
,
6
(
)
9
7
8
,
7
6
1
(
0
8
8
,
3
5
2
8
8
6
,
0
3
5
,
1
)
0
0
2
,
7
3
(
)
8
7
3
(
)
5
6
3
,
8
9
(
)
4
7
9
,
6
7
(
8
7
5
,
3
2
)
0
7
2
,
2
(
)
8
7
1
,
7
0
3
(
)
9
1
8
,
1
(
)
0
5
9
,
7
(
)
6
0
8
(
6
8
0
,
4
4
3
7
9
6
6
,
9
)
8
1
0
,
1
8
(
)
7
7
8
,
9
1
3
(
)
0
0
4
,
5
3
2
(
0
6
4
,
7
)
9
7
8
,
7
6
1
(
)
6
9
2
,
0
8
4
(
)
1
4
9
,
1
5
1
(
5
5
1
1
5
1
,
1
0
1
9
8
2
)
6
3
1
,
8
1
(
)
5
7
4
,
6
(
)
2
3
8
(
8
8
7
,
9
1
)
0
0
2
,
7
3
(
)
8
7
3
(
)
9
9
0
,
9
9
(
)
6
3
1
,
9
5
(
0
8
7
,
3
9
2
8
6
6
,
2
8
6
,
1
)
6
8
9
,
7
6
(
6
8
6
,
4
5
2
2
6
4
,
8
0
9
,
1
)
4
7
9
,
6
7
(
)
2
8
7
(
)
4
(
7
9
7
,
3
)
8
7
1
,
7
0
3
(
0
2
0
,
6
2
4
2
1
,
5
0
2
8
5
8
,
9
5
8
9
)
7
9
7
,
1
(
5
4
9
,
2
8
t
i
f
e
n
e
b
d
e
n
i
f
e
d
m
o
r
f
s
t
n
u
o
m
a
d
e
z
i
n
g
o
c
e
r
n
U
x
a
t
f
o
t
e
n
,
s
n
a
l
p
n
o
i
s
n
e
p
d
e
t
a
n
g
i
s
e
d
s
e
v
i
t
a
v
i
r
e
d
n
o
)
s
s
o
l
(
n
i
a
g
d
e
z
i
l
a
e
r
n
U
x
a
t
f
o
t
e
n
,
s
e
g
d
e
h
w
o
l
f
h
s
a
c
s
a
g
n
i
y
f
i
l
a
u
q
d
n
a
e
r
a
h
s
r
e
p
1
7
.
0
$
–
d
e
r
a
l
c
e
d
s
d
n
e
d
i
v
i
d
h
s
a
C
s
n
a
l
p
t
i
f
e
n
e
b
r
e
d
n
u
s
e
r
a
h
s
f
o
e
c
n
a
u
s
s
I
t
n
e
m
t
s
u
j
d
a
n
o
i
t
a
l
s
n
a
r
t
y
c
n
e
r
r
u
C
y
r
u
s
a
e
r
t
r
o
f
s
e
r
a
h
s
f
o
e
s
a
h
c
r
u
P
2
1
0
2
,
1
3
r
e
b
m
e
c
e
D
t
a
e
c
n
a
l
a
B
e
m
o
c
n
i
t
e
N
d
e
t
a
n
g
i
s
e
d
s
e
v
i
t
a
v
i
r
e
d
n
o
)
s
s
o
l
(
n
i
a
g
d
e
z
i
l
a
e
r
n
U
x
a
t
f
o
t
e
n
,
s
e
g
d
e
h
w
o
l
f
h
s
a
c
s
a
g
n
i
y
f
i
l
a
u
q
d
n
a
t
i
f
e
n
e
b
d
e
n
i
f
e
d
m
o
r
f
s
t
n
u
o
m
a
d
e
z
i
n
g
o
c
e
r
n
U
x
a
t
f
o
t
e
n
,
s
n
a
l
p
n
o
i
s
n
e
p
e
r
a
h
s
r
e
p
3
8
.
0
$
–
d
e
r
a
l
c
e
d
s
d
n
e
d
i
v
i
d
h
s
a
C
s
n
a
l
p
t
i
f
e
n
e
b
r
e
d
n
u
s
e
r
a
h
s
f
o
e
c
n
a
u
s
s
I
t
n
e
m
t
s
u
j
d
a
n
o
i
t
a
l
s
n
a
r
t
y
c
n
e
r
r
u
C
y
r
u
s
a
e
r
t
r
o
f
s
e
r
a
h
s
f
o
e
s
a
h
c
r
u
P
s
t
s
e
r
e
t
n
i
g
n
i
l
l
o
r
t
n
o
c
-
n
o
n
h
t
i
w
s
n
o
i
t
c
a
s
n
a
r
T
F-7
3
9
6
,
3
3
2
0
7
,
1
9
1
5
,
0
4
2
1
8
7
,
9
1
)
4
8
4
,
1
(
7
8
7
)
2
2
7
,
2
(
8
5
8
,
9
0
1
0
,
1
8
3
1
0
2
,
1
3
r
e
b
m
e
c
e
D
t
a
e
c
n
a
l
a
B
5
8
3
)
8
9
3
,
4
(
d
e
t
a
n
g
i
s
e
d
s
e
v
i
t
a
v
i
r
e
d
n
o
)
s
s
o
l
(
n
i
a
g
d
e
z
i
l
a
e
r
n
U
x
a
t
f
o
t
e
n
,
s
e
g
d
e
h
w
o
l
f
h
s
a
c
s
a
g
n
i
y
f
i
l
a
u
q
d
n
a
t
i
f
e
n
e
b
d
e
n
i
f
e
d
m
o
r
f
s
t
n
u
o
m
a
d
e
z
i
n
g
o
c
e
r
n
U
x
a
t
f
o
t
e
n
,
s
n
a
l
p
n
o
i
s
n
e
p
e
m
o
c
n
i
t
e
N
e
r
a
h
s
r
e
p
8
9
.
0
$
–
d
e
r
a
l
c
e
d
s
d
n
e
d
i
v
i
d
h
s
a
C
s
n
a
l
p
t
i
f
e
n
e
b
r
e
d
n
u
s
e
r
a
h
s
f
o
e
c
n
a
u
s
s
I
t
n
e
m
t
s
u
j
d
a
n
o
i
t
a
l
s
n
a
r
t
y
c
n
e
r
r
u
C
y
r
u
s
a
e
r
t
r
o
f
s
e
r
a
h
s
f
o
e
s
a
h
c
r
u
P
s
t
s
e
r
e
t
n
i
g
n
i
l
l
o
r
t
n
o
c
-
n
o
n
h
t
i
w
s
n
o
i
t
c
a
s
n
a
r
T
.
s
t
n
e
m
e
t
a
t
s
l
a
i
c
n
a
n
i
f
d
e
t
a
d
i
l
o
s
n
o
c
e
s
e
h
t
o
t
s
e
t
o
n
e
e
S
1
8
7
,
5
8
2
,
1
$
2
3
2
,
3
$
)
7
7
6
,
3
8
7
(
$
)
2
2
6
,
8
8
2
(
$
4
7
1
,
6
8
0
,
2
$
6
1
8
,
8
5
2
$
8
5
8
,
9
$
7
9
9
,
6
7
4
1
0
2
,
1
3
r
e
b
m
e
c
e
D
t
a
e
c
n
a
l
a
B
LINCOLN ELECTRIC HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended December 31,
2014
2013
2012
$
254,686
$
293,780
$
257,411
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
Foreign exchange loss (gain)
Other, net
Changes in operating assets and liabilities, net of effects from acquisitions:
Decrease (increase) in accounts receivable
(Increase) decrease 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
NET CASH USED BY FINANCING ACTIVITIES
Effect of exchange rate changes on cash and cash equivalents
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
Cash and cash equivalents at beginning of year
(806)
253,880
(2,093)
291,687
29,574
69,607
(1,848)
17,887
8,416
12,395
(36,072)
13,586
4,509
5,876
(5,718)
32,081
2,135
(3,736)
(870)
5,092
68,883
(1,660)
17,817
9,734
29,774
(87,356)
(3,976)
5,886
(5,437)
13,310
2,811
794
(7,785)
(680)
401,702
338,894
(72,990)
(24,230)
17,457
778
(78,985)
11,124
(12,226)
48,978
8,754
(3,299)
9,116
5,967
(307,178)
(73,261)
(2,330)
(314,355)
(29,808)
(21,446)
299,825
(76,015)
(53,161)
1,393
(1,717)
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
(195)
257,216
1,740
65,334
160
(2,137)
8,961
35,515
(69,646)
3,506
(818)
57,759
28,286
(9,506)
16,110
21,887
(86,883)
327,484
(52,715)
(134,602)
1,387
(1,541)
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
286,464
(129,500)
(187,471)
CASH AND CASH EQUIVALENTS AT END OF YEAR
$
278,379
$
299,825
$
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 $22,351, $7,759 and
$4,608 in 2014, 2013 and 2012, 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. In 2013, 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 Venezuela government announced the formation of the National Center of Foreign Trade (“CENCOEX”)
to replace the Commission for the Administration of Currency Exchange (“CADIVI”). Effective January 24, 2014, the
exchange rate applicable to the settlement of certain transactions through CENCOEX, including payments of dividends and
royalties, changed to utilize the Complementary System of Foreign Currency Administration ("SICAD") auction-based
exchange rate (the "SICAD I rate") as opposed to the official rate. Further, in January 2014, the Venezuelan government also
enacted the "Fair Prices Law" limiting prices and establishing a maximum profit margin on goods and services. In February
2014, the government announced a new market based foreign exchange system, the SICAD II. The exchange rate established
through SICAD II fluctuates daily and is significantly higher than both the official rate and the SICAD I rate.
F-9
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
As of March 31, 2014, the Company determined that the rate used in remeasuring the Venezuelan operation's financial
statements into U.S. dollars would change to the SICAD I rate as future remittances for dividend payments could be transacted
at the SICAD I rate. As of March 31, 2014, the SICAD I rate was 10.7 bolivars to the U.S. dollar, which resulted in a
remeasurement loss on the bolivar-denominated monetary net asset position of $17,665 which was recorded in Selling, general
& administrative expenses in the three months ended March 31, 2014. Additionally, the Company incurred higher Cost of
goods sold of $3,468 during the second quarter of 2014 related to the adoption of the SICAD I rate.
The SICAD I rate is determined by periodic auctions which may result in additional losses or gains on a remeasurement of the
bolivar-denominated monetary net asset position. In February 2015, the Venezuelan government announced a new exchange
market called the Marginal Currency System (“SIMADI”), which will replace the SICAD II exchange and allow for trading
based on supply and demand. An initial exchange rate for the SIMADI market was established at approximately 170.0 bolivars
to the U.S. dollar. While there remains considerable uncertainty as to the nature and volume of transactions that will flow
through the various currency exchange mechanisms, the Company determined that the SICAD I rate remained the most
appropriate exchange rate for the Company to utilize in remeasuring the Venezuelan operation's financial statements into U.S.
dollars as of December 31, 2014. As of December 31, 2014, the SICAD I rate was 12.0 bolivars to the U.S dollar. If in the
future the Company were to convert bolivars at a rate other than the SICAD I rate the Company may realize additional losses or
gains to earnings.
Future impacts to earnings of applying highly inflationary accounting for Venezuela on the Company’s consolidated financial
statements will be dependent upon the applied currency exchange mechanisms, the 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 liability position was $1,264 at December 31, 2014, which
includes $2,124 of cash and cash equivalents and the bolivar-denominated monetary net asset position was $38,633 at
December 31, 2013, which includes $50,642 of cash and cash equivalents.
Cash Equivalents
The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash
equivalents.
Accounts Receivable
The Company maintains an allowance for doubtful accounts for estimated losses from the failure of its customers to make
required payments for products delivered. The Company estimates this allowance based on the age of the related receivable,
knowledge of the financial condition of customers, review of historical receivables and reserve trends and other pertinent
information. If the financial condition of customers deteriorates or an unfavorable trend in receivable collections is experienced
in the future, additional allowances may be required. Historically, the Company's reserves have approximated actual
experience.
Inventories
Inventories are valued at the lower of cost or market. Fixed manufacturing overhead costs are allocated to inventory based on
normal production capacity and abnormal manufacturing costs are recognized as period costs. For most domestic inventories,
cost is determined principally by the last-in, first-out ("LIFO") method, and for non-U.S. inventories, cost is determined by the
first-in, first-out ("FIFO") method.
Reserves are maintained for estimated obsolescence or excess inventory equal to the difference between the cost of inventory
and the estimated market value based upon assumptions about future demand and market conditions. Historically, the
Company's reserves have approximated actual experience.
Equity Investments
Investments in businesses in which the Company does not have a controlling interest and holds between a 20% and 50%
ownership interest are accounted for using the equity method of accounting. 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 $18,542 at December 31, 2014 and $16,694 at December 31, 2013.
F-10
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
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.
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.
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
Level 2
Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets.
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.
F-11
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
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.
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 income 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 that qualify as a net investment hedge (i.e., hedging the foreign currency exposure of a net investment in a foreign
operation), the effective portion of the gain or loss on this derivative instrument is recognized in 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. The gain or loss is subsequently
reclassified to Selling, general, and administrative expenses, as the underlying hedged investment is liquidated. 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 $43,256,
$42,126 and $37,305 in 2014, 2013 and 2012, respectively.
F-12
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
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 $128,478 in 2014,
$123,571 in 2013 and $124,947 in 2012.
Income Taxes
Deferred income taxes are recognized at currently enacted tax rates for temporary differences between the GAAP and income
tax basis of assets and liabilities and operating loss and tax credit carry-forwards. 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
In May 2014, the FASB issued ASU No. 2014-09, "Revenue from Contracts with Customers (Topic 606)." ASU 2014-09
requires an entity to recognize revenue in a manner that depicts the transfer of promised goods or services to customers in an
amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To
achieve that core principle, the amendment provides five steps that an entity should apply when recognizing revenue. The
amendment also specifies the accounting of some costs to obtain or fulfill a contract with a customer and expands the disclosure
requirements around contracts with customers. An entity can either adopt this amendment retrospectively to each prior
reporting period presented or retrospectively with the cumulative effect of initially applying the update recognized at the date of
initial application. The amendment is effective for annual reporting periods beginning after December 15, 2016. Early
adoption is not permitted. The Company is currently evaluating the impact of the adoption of ASU 2014-09 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,
2014
2013
2012
$
254,686
$
293,780
$
257,411
79,185
911
80,096
3.22
3.18
$
$
81,978
1,064
83,042
3.58
3.54
$
$
83,087
1,088
84,175
3.10
3.06
$
$
For the years ended December 31, 2014, 2013 and 2012, common shares subject to equity-based awards of 260,090, 45,850 and
107,814, respectively, were excluded from the computation of diluted earnings per share because the effect of their exercise would
be anti-dilutive.
F-13
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
NOTE 3 – ACQUISITIONS
During October 2014, the Company acquired substantially all of the assets of Easom Automation Systems, Inc. ("Easom").
Easom, based in Detroit, Michigan, is an integrator and manufacturer of automation and positioning solutions, serving heavy
fabrication, aerospace and automotive OEMs and suppliers. The acquisition advances the Company's leadership position in
automated welding and cutting solutions. Easom has annual sales of approximately $30,000. In addition, during 2014, the
Company acquired the remaining interest in its majority-owned joint venture, Harris Soldas Especiais S.A.
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 better 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. In addition, during 2013, the
Company acquired a greater interest in its majority-owned joint venture, Lincoln Electric Heli (Zhengzhou) Welding Materials
Company Ltd.
During 2012, the Company completed the acquisitions of Tennessee Rand, Inc. ("Tenn Rand"), Kaliburn, Burny and Cleveland
Motion Control businesses (collectively, "Kaliburn"), Wayne Trail Technologies, Inc. (“Wayne Trail”), and Weartech
International, Inc. (“Weartech”).
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.
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.
Wayne Trail, based in Fort 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.
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.
Combined annual revenues for Tenn Rand, Kaliburn, Wayne Trail and Weartech at the dates of acquisition were approximately
$161,000.
Pro forma information related to these acquisitions has not been presented because the impact on the Company's Consolidated
Statements of Income is not material. Acquired companies are included in the Company's consolidated financial statements as
of the date of acquisition.
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, 2014 and 2013 were
as follows:
North
America
Welding
Europe
Welding
Asia
Pacific
Welding
South
America
Welding
The Harris
Products
Group
Balance at December 31, 2012
$
86,277
$
25,357
$
5,248
$
614
$
Additions and adjustments
Foreign currency translation
Balance as of December 31, 2013
Additions and adjustments
Foreign currency translation
44,446
(284)
130,439
18,014
(3,859)
Balance as of December 31, 2014
$
144,594
$
—
(927)
24,430
—
(7,700)
16,730
$
—
111
5,359
(610)
(97)
4,652
$
—
(52)
562
—
(106)
456
$
15,407
(1,027)
(455)
13,925
(381)
(459)
13,085
Consolidated
132,903
$
43,419
(1,607)
174,715
17,023
(12,221)
179,517
$
Additions to goodwill primarily reflect goodwill recognized in the acquisitions of Easom in 2014 and Robolution and
Burlington in 2013 (see Note 3). The 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 and amounts reclassified as held for sale
assets attributable to a planned divestiture.
Gross and net intangible assets other than goodwill by asset class as of December 31, 2014 and 2013 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
13
December 31, 2014
Gross
Amount
Accumulated
Amortization
Indefinite
Lived Assets
Total Intangible,
Net
$
$
32,358
70,658
24,195
54,502
181,713
Gross
Amount
38,566
74,935
23,861
49,578
186,940
$
$
$
$
$
$
12,547
19,923
6,509
26,646
65,625
$
$
16,273
—
—
—
16,273
$
$
36,084
50,735
17,686
27,856
132,361
December 31, 2013
Accumulated
Amortization
Indefinite
Lived Assets
Total Intangible,
Net
11,898
16,837
6,205
23,298
58,238
$
$
18,310
—
—
—
18,310
$
$
44,978
58,098
17,656
26,280
147,012
Decreases in gross and net intangible assets primarily reflect amounts reclassified as held for sale assets attributable to a
planned divestiture and the impairment of intangible assets in 2014 (see Note 6). The Company recognized non-cash
impairment losses of $10,484 within Rationalization and asset impairment charges, related to customer relationships, definite
and indefinite lived trademarks and other definite lived intangible assets. Aggregate amortization expense was $13,869,
$13,342 and $10,641 for 2014, 2013 and 2012, respectively. Estimated annual amortization expense for intangible assets for
each of the next five years is $13,837 in 2015, $13,482 in 2016, $12,581 in 2017, $11,939 in 2018 and $11,320 in 2019.
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 Asia Pacific Welding segment primarily includes welding operations in China and Australia. The South
America Welding segment primarily includes welding operations in Brazil, Colombia and Venezuela. 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 include inventories reported on a LIFO basis. Segment and consolidated income before
interest and income taxes include the effect of inventories reported on a LIFO basis. At December 31, 2014, 2013 and 2012,
approximately 40%, 38% and 34%, 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. Certain corporate-level expenses are allocated
to the operating segments.
F-16
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
Financial information for the reportable segments follows:
For the Year Ended
December 31, 2014
Net sales
Inter-segment sales
Total
EBIT, as adjusted
Special items charge (gain)
EBIT
Interest income
Interest expense
Income before income taxes
North
America
Welding
Europe
Welding
Asia
Pacific
Welding
South
America
Welding
The Harris
Products
Group
Corporate /
Eliminations
Consolidated
$
1,700,924
124,732
1,825,656
335,465
(68)
335,533
$
$
$
$
$
$
$
425,775
19,586
445,361
48,822
904
47,918
$
$
$
$
$
$
$
243,800
14,820
258,620
1,321
28,635
$
$
$
148,595
144
148,739
15,953
21,715
294,230
8,210
302,440
28,563
—
(27,314) $
(5,762) $
28,563
$
$
$
$
— $
2,813,324
(167,492) $
—
(167,492) $
2,813,324
4,216
$
434,340
— $
51,186
4,216
$
383,154
3,093
(10,434)
$
375,813
Total assets
$
1,111,065
$
359,337
$
284,573
$
138,114
$
147,990
$
(101,864) $
1,939,215
Equity investments in affiliates
Capital expenditures
Depreciation and amortization
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
—
51,691
43,659
23,902
5,619
10,823
—
3,959
9,799
3,579
10,896
2,085
—
825
3,512
— $
— $
(271) $
27,481
72,990
69,607
$
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
$
$
3,320
(2,864)
416,441
2,151,867
26,618
76,015
68,883
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) $
$
1,580,818
131,062
1,711,880
293,070
827
292,243
$
$
$
$
$
$
$
452,227
16,048
468,275
37,299
3,534
33,765
$
$
$
$
324,482
14,829
339,311
7,247
4,993
2,254
$
$
$
$
161,483
38
161,521
18,301
1,381
16,920
$
$
$
$
334,357
8,549
342,906
29,477
—
29,477
$
$
$
$
— $
2,853,367
(170,526) $
—
(170,526) $
2,853,367
(4,886) $
380,508
— $
10,735
(4,886) $
369,773
3,988
(4,191)
$
369,570
Total assets
$
980,093
$
451,654
$
350,189
$
134,650
$
195,881
$
(22,604) $
2,089,863
Equity investments in affiliates
Capital expenditures
Depreciation and amortization
—
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
F-17
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
In 2014, special items include net gains of $68 and $184 in the North America Welding and Asia Pacific Welding segments,
and net charges of $911 and $582 in the Europe Welding and South America 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 $32,742 related to impairment of long-lived assets and a gain of $3,923
related to the sale of assets. The South America Welding segment special items also include Venezuelan foreign exchange
remeasurement losses of $21,133 related to the adoption of a new foreign exchange mechanism in the first quarter.
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 the 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 represents a charge 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 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.
Export sales (excluding inter-company sales) from the United States were $210,325 in 2014, $260,195 in 2013 and $268,331 in
2012. No individual customer comprised more than 10% of the Company's total revenues for any of the three years ended
December 31, 2014.
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,
2014
2013
2012
1,417,750
$
1,350,309
$
1,283,066
190,035
1,205,539
2,813,324
$
219,490
1,282,872
2,852,671
$
229,996
1,340,305
2,853,367
December 31,
2014
2013
2012
171,746
$
162,357
$
56,247
209,640
(424)
437,209
$
83,416
238,685
(453)
484,005
$
170,831
92,744
223,050
(389)
486,236
$
$
$
$
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 $30,053, $8,463 and $9,354 for the years ended December 31, 2014, 2013
and 2012, respectively. The 2014 net charges include $1,241 primarily related to employee severance and $32,742 in asset
impairment charges, partially offset by gains of $3,930 related to the 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. During the year ended December 31, 2014, the Company recorded credits of $68, which represent employee
severance and other related costs. The Company does not expect further costs associated with these actions as they were
substantially completed and paid during 2014.
Europe Welding Plans:
During 2014, the Company initiated a rationalization plan within the Europe Welding segment. The plan includes headcount
restructuring to better align the cost structure with current economic conditions and operating needs. These actions impacted 16
employees within the Europe Welding segment. During the year ended December 31, 2014, the Company recorded charges of
$701 which represent employee severance costs.
During 2013, the Company initiated a rationalization plan within the Europe Welding segment to consolidate certain
consumable manufacturing operations. During the year ended December 31, 2014, the Company recorded net charges of $347
which primarily represent employee severance costs.
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. During the year ended
December 31, 2014, the Company recorded net credits of $144 related to these activities.
At December 31, 2014, liabilities relating to the Europe Welding plans were immaterial. Additional charges related to the
completion of these plans are expected to be immaterial.
Asia Pacific Welding Plans:
During 2014, the Company identified assets within the segment for planned divestiture. In anticipation of the divestiture, the
Company reviewed the carrying values and future cash flows of certain long-lived assets and indefinite-lived intangible assets
for potential impairment. The Company determined that for certain assets, including the planned divestiture, the carrying
values of the assets exceeded the fair values resulting in non-cash impairment charges of $32,617 recorded in Rationalization
and asset impairment charges. This result was considered a possible indication of goodwill impairment. As such, the Company
performed a goodwill impairment test for the Asia Pacific reporting unit ahead of the annual impairment tests, which resulted in
no impairment to the carrying value of goodwill. As of December 31, 2014, the assets identified for divestiture were classified
as held for sale. As of December 31, 2014, $30,437 and $11,345 of assets and liabilities held for sale were recorded in Other
current assets and Other current liabilities, respectively.
During 2012, the Company initiated various rationalization plans within the Asia Pacific Welding segment. Plans for the
segment include the rationalization of its Australian manufacturing operations 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. During the year ended December 31, 2014, the Company recorded net gains of $3,982, which primarily
represent a gain of $3,911 on the sale of real estate, a net reversal of $184 of previously accrued costs and $125 in asset
impairment charges. Additional charges related to the completion of this plan are expected to be immaterial.
South America Welding Plans:
During 2014, the Company initiated a rationalization plan within the South America Welding segment to restructure headcount
to better align the cost structure with current economic conditions and operating needs. These actions impacted 15 employees
within the South America Welding segment. During the year ended December 31, 2014, the Company recorded net charges of
$582, which primarily represents employee severance and other related costs. The Company does not expect further costs
associated with these actions as they were substantially completed and paid during 2014.
The Company continues evaluating its cost structure and additional rationalization actions may result in charges in future
periods.
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 year ended December 31,
2014:
North
America
Welding
Europe
Welding
Asia
Pacific
Welding
South America
Welding
Balance at December 31, 2012
Payments and other adjustments
Charged (credited) to expense
Balance at December 31, 2013
Payments and other adjustments
Charged (credited) to expense
Balance at December 31, 2014
$
$
$
— $
(586)
1,052
466
$
(398)
(68)
$
$
2,013
(1,343)
1,765
2,435
(3,041)
911
$
$
1,044
(1,510)
841
375
(191)
(184)
— $
305
$
— $
— $
Consolidated
3,057
(3,439)
3,658
— $
—
—
— $
(582)
582
3,276
(4,212)
1,241
305
NOTE 7 – ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) ("AOCI")
The following tables set forth the total changes in AOCI by component, net of taxes, for the years ended December 31, 2014
and 2013:
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, 2012
Other comprehensive income (loss) before
reclassification
Amounts reclassified from AOCI
Net current-period other comprehensive income
(loss)
Balance at December 31, 2013
Other comprehensive income (loss) before
reclassification
Amounts reclassified from AOCI
Net current-period other comprehensive income
(loss)
Balance at December 31, 2014
$
$
$
80
$
(261,844)
$
26,364
$
(235,400)
(681)
970 1
289
369
(720)
342 1
(378)
(9)
$
$
82,050 2
19,101 2
101,151
(160,693)
(48,803) 2
11,603 2
(37,200)
(197,893)
$
$
(17,981) 3
—
(17,981)
8,383
(99,103) 3
—
(99,103)
(90,720)
$
$
63,388
20,071
83,459
(151,941)
(148,626)
11,945
(136,681)
(288,622)
_______________________________________________________________________________
1 During 2014, this AOCI reclassification is a component of Net sales of $(80) (net of tax of $(65)) and Cost of goods sold of $422
(net of tax of $205); during 2013, the 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. (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 $(20,951) and $60,556 during the
years ended December 31, 2014 and 2013, respectively). (See Note 11 - Retirement and Postretirement Benefit Plans for additional
details.)
3 The Other comprehensive income before reclassifications excludes $734 and $(1,819) attributable to Non-controlling interests in
the years ended December 31, 2014 and 2013, 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, 2014 and 2013, debt consisted of the following:
Long-term debt
Capital leases due through 2019, interest at 0.3% to 8.0%
Other borrowings due through 2023, interest up to 18.0%
Less current portion
Long-term debt, less current portion
Short-term debt
Amounts due banks, interest at 3.1% (11.3% in 2013)
Current portion long-term debt
Total short-term debt
Total debt
December 31,
2014
2013
$
198
$
9,301
9,499
7,011
2,488
61,155
7,011
68,166
70,654
$
$
236
4,270
4,506
715
3,791
14,581
715
15,296
19,087
At December 31, 2014 and 2013, the fair value of long-term debt, including the current portion, was approximately $9,323 and
$4,212, 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 $400,000 through the Amended and Restated Credit Agreement (the “Credit
Agreement”), which was entered into on September 12, 2014. 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, 2014, the Company was in compliance with all of its
covenants and had $50,000 in outstanding borrowings under the Credit Agreement, which was recorded in Amounts due banks.
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 $61,155 and $14,581 at December 31, 2014 and
2013, respectively. Amounts due banks included the outstanding borrowings under the Credit Agreement and the borrowings of
foreign subsidiaries at weighted average interest rates of 3.1% and 11.3% at December 31, 2014 and 2013, respectively.
Capital Leases
At December 31, 2014 and 2013, $198 and $236 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, 2014 are $68,169 in 2015, $1,684 in 2016, $176 in 2017, $106 in 2018, $104 in 2019 and $416 thereafter. Total
interest paid was $2,190 in 2014, $2,864 in 2013 and $4,423 in 2012. The primary difference between interest expense and
interest paid in 2014 is due to an adjustment to the consideration expected to be paid to acquire additional ownership interests
of a majority-owned subsidiary and the accretion of the related liability. The difference in 2012 is due to the amortization of
gains on terminated interest rate swaps.
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, 2014, there were
2,330,493 common shares available for future grant under all plans.
Stock Options
The following table summarizes stock option activity for the years ended December 31, 2014, 2013 and 2012, under all Plans:
2014
2013
2012
Year Ended December 31,
Weighted
Average
Exercise
Price
36.52
69.61
27.63
47.21
37.80
33.89
Options
2,452,648
$
5,121
(329,986)
(40,590)
2,087,193
1,818,218
Weighted
Average
Exercise
Price
30.98
70.88
26.20
40.54
36.52
29.93
Options
3,060,944
$
273,105
(774,783)
(106,618)
2,452,648
1,837,014
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
Balance at beginning of year
Options granted
Options exercised
Options canceled
Balance at end of year
Exercisable at end of year
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 2014, 2013 and 2012.
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, 2014 were as follows:
Expected volatility
Dividend yield
Risk-free interest rate
Expected option life (years)
Weighted average fair value per option granted during the year
$
Year Ended December 31,
2014
2013
2012
32.21%
1.41%
1.61%
4.4
17.52
$
32.97%
1.40%
1.52%
4.4
18.14
$
45.67%
1.66%
0.70%
4.5
15.87
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, 2014:
Balance at beginning of year
Granted
Vested
Forfeited
Balance at end of year
Year Ended December 31, 2014
Number of
Options
Weighted
Average Fair
Value at Grant
Date
$
615,634
5,121
(326,596)
(25,184)
268,975
16.32
17.52
15.63
13.17
17.48
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, 2014 was $65,873 and $64,161, respectively. The total intrinsic value of awards
exercised during 2014, 2013 and 2012 was $14,647, $26,288 and $25,936, respectively. The total fair value of options that
vested during 2014, 2013 and 2012 was $5,104, $5,131 and $4,791, respectively.
The following table summarizes information about awards outstanding as of December 31, 2014:
Outstanding
Exercisable
Number of
Stock
Options
Weighted
Average
Exercise
Price
Number of
Stock
Options
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Life (years)
$
572,351
917,607
597,235
2,087,193
24.14
33.21
57.94
$
572,351
917,272
328,595
1,818,218
24.14
33.21
52.75
4.2
5.4
8.1
5.5
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, 2014, 2013 and 2012, under
all Plans:
2014
2013
2012
Year Ended December 31,
Weighted
Average
Grant Date
Fair Value
39.55
66.32
31.88
—
60.14
$
Shares
115,316
14,927
(80,753)
—
49,490
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
Balance at beginning of year
Shares granted
Shares vested
Shares forfeited
Balance at end of year
RSAs are valued at the quoted market price on the grant date. The majority of RSAs vest over a period of three to five years.
The Company issued common shares from treasury upon the granting of RSAs in 2014, 2013 and 2012. All restricted shares
issued in 2014, 2013 and 2012, were under the the Director Plan. The remaining weighted average life of all non-vested RSAs
is 1.8 years as of December 31, 2014.
F-23
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
Restricted Stock Units ("RSUs")
The following table summarizes restricted stock unit activity for the years ended December 31, 2014, 2013 and 2012, under all
Plans:
2014
2013
2012
Year Ended December 31,
Weighted
Average
Grant Date
Fair Value
47.38
70.71
36.59
52.19
49.34
$
Units
283,944
2,861
(40,035)
(5,274)
241,496
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
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 17,131 RSUs to common shares in 2014 were deferred as part of the 2005 Deferred Compensation Plan for
Executives (the "2005 Plan"). As of December 31, 2014, 46,375 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 2014, 2013 and 2012, were under the the EPI Plan. The remaining weighted average life of all non-vested RSUs is
3.2 years as of December 31, 2014.
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 2014, 2013 and 2012 was $8,416, $9,734 and $8,961, respectively. The related tax
benefit for 2014, 2013 and 2012 was $3,222, $3,727 and $3,409, respectively. As of December 31, 2014, total unrecognized
stock-based compensation expense related to non-vested stock options, restricted shares and restricted stock units was $12,452,
which is expected to be recognized over a weighted average period of approximately 3.0 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 5,511 in 2014, 4,653 in 2013 and 4,908 in 2012.
NOTE 10 – COMMON STOCK REPURCHASE PROGRAM
The Company has a share repurchase program for up to 45 million of the Company's common shares. At management's
discretion, the Company repurchases its common shares from time to time in the open market, depending on market conditions,
stock price and other factors. During the year ended December 31, 2014, the Company purchased a total of 4.4 million shares
at an average cost per share of $69.84. As of December 31, 2014, 11.3 million shares remained available for repurchase under
the stock repurchase program. The treasury shares have not been retired.
F-24
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
NOTE 11 – RETIREMENT ANNUITY AND GUARANTEED CONTINUOUS EMPLOYMENT PLANS
The Company maintains a number of defined benefit and defined contribution plans to provide retirement benefits for
employees. These plans are maintained and contributions are made in accordance with the Employee Retirement Income
Security Act of 1974 ("ERISA"), local statutory law or as determined by the Board of Directors. The plans generally provide
benefits based upon years of service and compensation. Pension plans are funded except for a domestic non-qualified pension
plan for certain key employees and certain foreign plans. The Company uses a December 31 measurement date for its plans.
The Company does not have, and does not provide for, any postretirement or postemployment benefits other than pensions and
certain non-U.S. statutory termination benefits.
Defined Benefit Plans
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 loss (gain)
Benefits paid
Settlements/curtailments
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,
2014
2013
$
941,442
$
1,033,725
19,062
42,485
215
45
117,881
(60,582)
(7,172)
(7,905)
1,045,471
939,995
108,060
27,550
215
(59,196)
—
(5,687)
1,010,937
(34,534)
316,296
(1,930)
45
279,877
$
$
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
254,813
The actuarial loss arising during 2014 was primarily attributable to a lower discount rate and the adoption of new mortality
tables for the Company's U.S. defined benefit plans.
F-25
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
The after-tax amounts of unrecognized actuarial net loss, prior service costs and transition assets included in Accumulated other
comprehensive loss at December 31, 2014 were $199,786, $(1,931) and $38, 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 2015 are $22,657, $(625) and $3, respectively.
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
December 31,
2014
2013
$
$
$
1,240
(2,971)
(32,803)
314,411
279,877
$
36,116
(10,564)
(26,999)
256,260
254,813
Year Ended December 31,
2014
2013
2012
Service cost
Interest cost
Expected return on plan assets
Amortization of prior service cost
Amortization of net loss
Settlement/curtailment loss
$
19,062
$
23,188
$
42,485
(67,953)
(616)
17,644
1,773
37,225
(61,244)
(613)
30,929
423
Pension cost for defined benefit plans
$
12,395
$
29,908
$
21,538
41,584
(58,754)
(90)
31,085
895
36,258
The Company's defined benefit plans costs decreased in 2014 primarily as a result of a lower amortization of net loss 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
December 31,
2014
2013
$
$
$
$
34,066
30,202
11,638
5,573
3,372
37,355
33,416
10,028
7,587
3,804
The total accumulated benefit obligation for all plans was $1,003,296 as of December 31, 2014 and $891,397 as of
December 31, 2013.
Contributions to Plans
The Company expects to contribute $21,000 to the defined benefit plans in the United States in 2015. The actual amounts to be
contributed in 2015 will be determined at the Company's discretion.
F-26
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
2015
2016
2017
2018
2019
2020 through 2024
Assumptions
$
65,434
72,631
65,459
63,777
64,457
317,919
Weighted average assumptions used to measure the benefit obligation for the Company's significant defined benefit plans as of
December 31, 2014 and 2013 were as follows:
Discount Rate
Rate of increase in compensation
December 31,
2014
2013
4.1%
2.8%
4.7%
4.2%
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, 2014 were as follows:
Discount rate
Rate of increase in compensation
Expected return on plan assets
December 31,
2014
2013
2012
4.7%
4.1%
7.3%
3.8%
4.1%
7.4%
4.2%
4.0%
7.7%
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 bonds rated AA or an equivalent quality. The expected long-term rate of return
assumption is based on the weighted average expected return of the various asset classes in the plans' portfolio and the targeted
allocation of plan assets. The asset class return is developed using historical asset return performance as well as current market
conditions such as inflation, interest rates and equity market performance. The rate of compensation increase is determined by
the Company based upon annual reviews.
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. During 2014, the Company changed the target allocation for plan assets to 45% to 55% equity securities and 45% to
55% debt securities. The Company expects a 100 basis point decrease in the expected rate of return on plan assets in 2015
related to this change.
F-27
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, 2014:
Cash and cash equivalents
Fixed income securities (1)
U.S. government bonds
Corporate debt and other obligations
Common trusts and 103-12 investments (2)
Cash and cash equivalents
Common trusts and 103-12 investments
Private equity funds (3)
Total assets at fair value
Pension Plans' Assets at Fair Value as of December 31, 2014
Quoted Prices
in Active Markets
for Identical
Assets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
$
4,873
$
— $
— $
4,873
27,305
—
—
—
—
—
212,326
7,499
720,919
—
—
—
—
—
38,015
27,305
212,326
7,499
720,919
38,015
$
32,178
$
940,744
$
38,015
$
1,010,937
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 (2)
Cash and cash equivalents
Common trusts and 103-12 investments
Private equity funds (3)
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
—
—
32,563
— $
907,432
$
32,563
$
Total
4,686
902,746
32,563
939,995
_______________________________________________________________________________
(1) Fixed income securities are primarily comprised of governmental and corporate bonds directly held by the plans. Governmental
and corporate bonds are valued using both market observable inputs for similar assets that are traded on an active market and the
closing price on the active market on which the individual securities are traded.
(2) Common trusts and 103-12 investments (collectively "Trusts") are comprised of a number of investment funds that invest in a
diverse portfolio of assets including equity securities, corporate and governmental bonds, equity and credit indexes, and money
markets. Trusts are valued at the 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.
(3) 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.
F-28
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, 2014:
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
32,563
(283)
5,735
38,015
4,887
$
$
$
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 $3,012, $2,329 and $2,254
in 2014, 2013 and 2012, respectively. The projected benefit obligation associated with this plan is also included in the pension
disclosure shown above and was $17,953, $22,877 and $25,646 at December 31, 2014, 2013 and 2012, respectively.
Defined Contribution Plans
Substantially all U.S. employees are covered under defined contribution plans. The Lincoln Electric Employee Savings Plan, a
401(k) savings plan which represents a majority of defined contribution plan expense, allows employees to 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 $11,088, $10,812 and $9,405 in 2014, 2013 and 2012,
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 $1,068, $1,048 and $942 in 2014, 2013 and 2012, 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-29
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, 2014 were as follows:
U.S.
Non-U.S.
Total
Year Ended December 31,
2014
2013
2012
$
$
303,933
71,880
375,813
$
$
281,724
134,717
416,441
$
$
243,382
126,188
369,570
The components of income tax expense (benefit) for the three years ended December 31, 2014 were as follows:
Current:
Federal
Non-U.S.
State and local
Deferred:
Federal
Non-U.S.
State and local
Total
Year Ended December 31,
2014
2013
2012
$
$
71,601
24,210
8,235
104,046
15,175
1,370
1,342
17,887
121,933
$
$
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
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, 2014 were as follows:
Statutory rate of 35% applied to pre-tax income
Effect of state and local income taxes, net of federal tax benefit
Asset impairments
Taxes less 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,
2014
131,534
6,694
11,674
(11,348)
(7,316)
(514)
(4,501)
(4,290)
121,933
$
$
2013
145,754
$
2012
129,350
$
7,124
1,735
(19,087)
(6,386)
745
(313)
(4,818)
124,754
$
5,598
645
(11,908)
(6,287)
(5,290)
(1,493)
1,739
112,354
$
32.45%
29.96%
30.40%
The 2014 effective tax rate is impacted by impairment charges, the geographic mix of earnings and taxes at lower rates in
foreign jurisdictions, including Canada, Mexico, Poland and the United Kingdom, as well as loss utilization in other foreign
jurisdictions. Total income tax payments, net of refunds, were $119,102 in 2014, $84,567 in 2013 and $78,506 in 2012.
F-30
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, 2014 and 2013, 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,
2014
2013
$
46,112
$
1,931
15,427
20,750
4,969
5,608
94,797
(48,840)
45,957
37,352
18,642
9,623
1,731
10,018
77,366
(31,409) $
$
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)
At December 31, 2014, certain subsidiaries had tax loss carry-forwards of approximately $103,036 that will expire in various
years from 2015 through 2030, plus $75,398 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, 2014, a valuation
allowance of $48,840 was recorded against certain deferred tax assets based on this assessment. The Company believes it is
more likely than not that the tax benefit of the remaining net deferred tax assets will be realized. The amount of net deferred
tax assets considered realizable could be increased or reduced in the future if the Company's assessment of future taxable
income or tax planning strategies changes.
The Company 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 $16,032 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 income of $1,406 for the year ended December 31, 2014 and an expense of $492 for the year ended
December 31, 2013 for interest and penalties. For those same years, the Company's accrual for interest and penalties related to
unrecognized tax benefits totaled $8,019 and $10,257, respectively.
F-31
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:
2014
2013
Balance at January 1
$
25,907
$
Increase related to current year tax provisions
(Decrease) 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
700
(848)
—
(1,216)
(3,727)
(2,427)
18,389
$
$
25,255
1,990
208
3,528
(95)
(3,491)
(1,488)
25,907
The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate was $9,132 at
December 31, 2014 and $13,739 at December 31, 2013.
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 2010. The Company is currently subject to various U.S. state audits and non-U.S. income tax audits.
The Company is generally not able to precisely estimate the ultimate settlement amounts or timing until after the close of an
audit. The Company evaluates its tax positions and establishes liabilities for uncertain tax positions that may be challenged by
local authorities and may not be fully sustained.
Unrecognized tax benefits are reviewed on an ongoing basis and are adjusted for changing facts and circumstances, including
progress of tax audits and closing of statutes of limitations. Based on information currently available, management believes
that additional audit activity could be completed and/or statutes of limitations may close relating to existing unrecognized tax
benefits. It is reasonably possible there could be a further reduction of $3,901 in prior years' unrecognized tax benefits in 2015.
In July 2012, the Company received a Notice of Reassessment (the "Reassessments") from the Canada Revenue Agency (the
“CRA”) in respect to its 2004 to 2010 taxation years to disallow the deductibility of inter-company dividends. The Company
appealed the Reassessments to the Tax Court of Canada. As part of the appeals process to the Tax Court of Canada, the
Company had elected to deposit the entire amount of the dispute in order to suspend continuing interest charges.
In September 2014, the Department of Justice Canada consented to a judgment, wholly in the Company's favor. In vacating the
reassessment, this tax litigation is concluded. In December 2014 the Company received a partial refund of the cash deposit
with a value of $50,282. The Company also received interest on the deposit of $1,236. The Company expects the balance of
the cash deposit of $27,068, recorded in Other current assets as of December 31, 2014, plus 1% annual interest to be received
in the first quarter of 2015.
NOTE 13 – DERIVATIVES
The Company uses derivatives to manage exposures to currency exchange rates, interest rates and commodity prices arising in
the normal course of business. Derivative contracts to hedge currency and commodity exposures are generally written on a
short-term basis but may cover exposures for up to two years while interest rate contracts may cover longer periods consistent
with the terms of the underlying debt. The Company does not enter into derivatives for trading or speculative purposes.
All derivatives are recognized at fair value on the Company's Consolidated Balance Sheets. The accounting for gains and
losses resulting from changes in fair value depends on the use of the derivative and whether it is designated and qualifies for
hedge accounting. The Company formally documents the relationship of the hedge with the hedged item as well as the risk-
management strategy for all designated hedges. Both at inception and on an ongoing basis, the hedging instrument is assessed
as to its effectiveness, when applicable. If and when a derivative is determined not to be highly effective as a hedge, the
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, 2014.
F-32
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
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, 2014. 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 $27,265 at December 31, 2014 and $36,880 at December 31, 2013. 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 has foreign currency forward contracts that qualify and are designated as net investment hedges. The dollar
equivalent gross notional amount of these short-term contracts was $60,734 at December 31, 2014. The effective portions of
the fair value gains or losses on these net investment hedges are recognized in AOCI and subsequently reclassified to Selling,
general and administrative expenses, as the underlying hedged investment is 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
$280,949 at December 31, 2014 and $186,158 at December 31, 2013. The fair value gains or losses from these contracts are
recognized in Selling, general and administrative expenses, offsetting the losses or gains on the exposures being hedged.
The Company has short-term silver and copper forward contracts with notional amounts of 275,000 troy ounces and 375,000
pounds, respectively, at December 31, 2014 and notional amounts of 290,000 troy ounces and 375,000 pounds, respectively, at
December 31, 2013. 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
Net investment Contracts
Not designated as hedging instruments:
Foreign exchange contracts
Commodity contracts
Total derivatives
December 31, 2014
December 31, 2013
Other
Current
Assets
Other
Current
Liabilities
Other
Current
Assets
Other
Current
Liabilities
$
$
461
1,091
482
47
2,081
$
$
935
469
3,638
69
5,111
$
$
706
—
766
262
1,734
$
$
219
—
228
47
494
The effects of undesignated derivative instruments on the Company's Consolidated Statements of Income for the years ended
December 31, 2014 and 2013 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,
2014
2013
Selling, general & administrative expenses
Cost of goods sold
$
(10,427) $
702
215
2,882
F-33
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
The effects of designated cash flow hedges on AOCI and the Company's Consolidated Statements of Income for the years
ended December 31, 2014 and 2013 consisted of the following:
Total (loss) gain recognized in AOCI, net of tax
Foreign exchange contracts
December 31,
2014
2013
$
(9) $
369
The Company expects a loss of $9 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,
2014
2013
(80) $
422
—
619
418
(67)
NOTE 14 – FAIR VALUE
The following table provides a summary of fair value assets and liabilities as of December 31, 2014 measured at fair value on a
recurring basis:
Description
Assets:
Foreign exchange contracts
Commodity contracts
Net investment contracts
Total assets
Liabilities:
Foreign exchange contracts
Commodity contracts
Net investment contracts
Contingent consideration
Forward contract
Deferred compensation
Total liabilities
Balance as of
December 31, 2014
Quoted Prices in
Active Markets for
Identical Assets or
Liabilities
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable
Inputs (Level 3)
$
$
$
$
943
47
1,091
2,081
4,573
69
469
6,912
25,268
21,839
59,130
$
$
$
$
— $
—
—
— $
— $
—
—
—
—
—
— $
943
47
1,091
2,081
4,573
69
469
—
—
21,839
26,950
$
$
$
$
—
—
—
—
—
—
—
6,912
25,268
—
32,180
F-34
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, 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
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, 2014, there were no transfers between Levels 1, 2 or 3.
In connection with an acquisition, the Company recorded a contingent consideration fair valued at $6,912 as of December 31,
2014, which reflects a $1,537 increase in the liability from December 31, 2013. 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 acquired entity. A liability was
recorded for the Canadian dollar denominated forward contract at a fair value of $25,268 as of December 31, 2014. The change
in the liability resulted in $8,244 being recognized in interest expense in the twelve months ended December 31, 2014. 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 rates of 3.5% reflective of the Company's cost of debt and 15.9% as a risk
adjusted cost of capital and annual earnings before interest and taxes with growth rates ranging from 16.5% to 37.8%.
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.
During 2014, the Company identified assets for planned divestiture. As of December 31, 2014, the assets identified for
divestiture were classified as held for sale and recorded at their fair value as determined using a Level 3 discounted cash flow
valuation model. As of December 31, 2014, $30,437 and $11,345 of assets and liabilities held for sale were recorded in Other
current assets and Other current liabilities, respectively.
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, 2014 and December 31, 2013. See Note 8 for the fair value
estimate of debt.
F-35
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, 2014 and
2013, approximately 40% and 38%, respectively, of total inventories were valued using the LIFO method. The excess of
current cost over LIFO cost was $71,311 at December 31, 2014 and $70,882 at December 31, 2013.
NOTE 16 – LEASES
The Company leases sales offices, manufacturing facilities, warehouses and distribution centers, transportation equipment,
office equipment and information technology equipment. Such leases, some of which are noncancelable and, in many cases,
include renewals, expire at various dates. The Company pays most insurance, maintenance and taxes relating to leased assets.
Rental expense was $18,103 in 2014, $18,642 in 2013 and $17,751 in 2012.
At December 31, 2014, total future minimum lease payments for noncancelable operating leases were $12,372 in 2015, $10,672
in 2016, $7,895 in 2017, $5,425 in 2018, $4,126 in 2019 and $3,906 thereafter. Assets held under capital leases are included in
property, plant and equipment and are immaterial.
NOTE 17 – CONTINGENCIES
The Company, like other manufacturers, is subject from time to time to a variety of civil and administrative proceedings arising
in the ordinary course of business. Such claims and litigation include, without limitation, product liability claims, regulatory
claims and health, safety and environmental claims, some of which relate to cases alleging asbestos induced illnesses. The
claimants in the asbestos cases seek compensatory and punitive damages, in most cases for unspecified amounts. The
Company believes it has meritorious defenses to these claims and intends to contest such suits vigorously.
The Company accrues its best estimate of the probable costs, after a review of the facts with management and counsel and
taking into account past experience. If an unfavorable outcome is determined to be reasonably possible but not probable, or if
the amount of loss cannot be reasonably estimated, disclosure 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-36
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 2014, 2013 and 2012 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,
2014
2013
2012
15,180
$
15,304
$
12,368
(11,676)
(474)
15,398
$
12,786
(12,794)
(116)
15,180
$
15,781
10,872
(11,477)
128
15,304
$
$
2014
Net sales
Gross profit
Income before income taxes
Net income
Basic earnings per share
Diluted earnings per share
2013
Net sales
Gross profit
Income before income taxes
Net income
Basic earnings per share
Diluted earnings per share
First
Second
Third
Fourth
$
685,062
$
728,531
$
715,777
$
226,336
82,426
56,453
0.70
0.69
718,573
226,572
90,679
66,806
0.81
0.80
$
$
$
$
$
250,267
114,866
77,332
0.97
0.96
727,432
240,338
106,534
72,606
0.88
0.87
$
$
$
$
$
241,609
77,785
45,689
0.58
0.57
691,875
232,697
97,840
66,044
0.81
0.80
$
$
$
$
$
$
$
$
$
$
683,954
231,085
100,736
75,212
0.97
0.96
714,791
243,047
121,388
88,324
1.09
1.07
The quarter ended December 31, 2014 includes net rationalization and impairment charges of $166 ($167 after-tax) primarily
related to employee severance and other costs associated with the consolidation of manufacturing operations in Europe Welding
and Asia Pacific Welding segments.
The quarter ended September 30, 2014 includes net rationalization and asset impairment charges of $29,068 ($30,056 after-tax),
respectively. The net impairment charges during the quarter primarily consist of non-cash asset impairment charges of $32,448
partially offset by a gain of $3,911 related to the sale of real estate at a rationalized operation. Associated with the impairment
of long-lived assets is an offsetting special item of $805 attributable to non-controlling interests.
The quarter ended June 30, 2014 includes net rationalization and asset impairment charges of $836 ($698 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 $3,468 related to a Venezuelan remeasurement
loss in the South America Welding segment.
The quarter ended March 31, 2014 includes net rationalization and asset impairment credits of $17 ($7 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 $17,665 related to a Venezuelan remeasurement
loss in the South America Welding segment.
The quarter ended December 31, 2013 includes net rationalization and asset impairment 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.
F-37
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
The quarter ended September 30, 2013 includes net rationalization and asset impairment 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 net rationalization 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 net rationalization and asset impairment 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.
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-38
SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS
LINCOLN ELECTRIC HOLDINGS, INC.
(In thousands)
Description
Allowance for doubtful accounts:
Additions
Balance at
Beginning
of Period
Charged to
Costs and
Expenses
(1)
Charged to
Other
Accounts
(2)
Deductions
Balance at End
of Period
Year Ended December 31, 2014
$
8,398
$
2,064
$
Year Ended December 31, 2013
Year Ended December 31, 2012
8,654
7,079
2,671
3,368
(867) $
49
68
1,861
$
2,976
1,861
7,734
8,398
8,654
(1) Currency translation adjustment.
(2) Uncollectible accounts written-off, net of recoveries.
F-39
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
Easom Automation Systems, Inc.
Electro-Arco S.A.
Harris Calorific GmbH
Harris Calorific International Sp. z o.o.
Harris Calorific S.r.l.
Harris Euro S.L.
Harris Soldas Especiais S.A.
Inversiones LyL S.A.
J.W. Harris Co., Inc.
Jinzhou Zheng Tai Welding and Metal Co., Ltd.
Kaliburn, Inc.
Kaynak Teknigi Sanayi ve Ticaret A.S.
Lincoln Canada Finance ULC
Lincoln Canada Holdings 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.
Exhibit 21
Country of
Incorporation
Chile
United States
Canada
United States
Portugal
Germany
Poland
Italy
Spain
Brazil
Chile
United States
China
United States
Turkey
Canada
Canada
Poland
Canada
India
United States
Brazil
The Netherlands
Spain
France
China
Luxembourg
Spain
United States
Italy
Japan
China
Luxembourg
China
Mexico
Mexico
Mexico
Name
Lincoln Electric Middle East FZE
Lincoln Electric North America, Inc.
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
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
United Arab Emirates
United States
Argentina
China
United Kingdom
United States
United States
The Netherlands
Colombia
Venezuela
United Kingdom
Russia
Russia
Russia
Indonesia
Germany
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
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 20, 2015, 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) of Lincoln Electric Holdings, Inc. for the year
ended December 31, 2014.
/s/ Ernst & Young LLP
Cleveland, Ohio
February 20, 2015
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, 2014 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 5, 2015
February 5, 2015
February 5, 2015
/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 5, 2015
February 5, 2015
February 5, 2015
/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 5, 2015
February 5, 2015
February 5, 2015
/s/ Phillip J. Mason
/s/ Hellene S. Runtagh
/s/ George H. Walls, Jr.
Phillip J. Mason, Director
Hellene S. Runtagh, Director
George H. Walls, Jr., Director
February 5, 2015
February 5, 2015
February 5, 2015
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 20, 2015
/s/ Christopher L. Mapes
Christopher L. Mapes
Chairman, 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 20, 2015
/s/ Vincent K. Petrella
Vincent K. Petrella
Executive 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,
2014, 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 20, 2015
/s/ Christopher L. Mapes
Christopher L. Mapes
Chairman, President and Chief Executive Officer
/s/ Vincent K. Petrella
Vincent K. Petrella
Executive Vice President, Chief Financial
Officer and Treasurer
The Next Level
For 120 years, Lincoln Electric has never accepted the status quo.
Standing still is not what we do, and it’s not who we are. Instead,
we take performance to THE NEXT LEVEL each year through
innovative solutions and processes, operational excellence and
our performance-driven culture. That’s what sets us apart as an
industry leader. Lincoln Electric’s track record of enhancing the
value delivered to customers, shareholders and employees creates
tremendous momentum as we continue to invest in and execute on
our 2020 Vision and Strategy and develop the next generation of
welders and welding technology.
OPERATING INCOME MARGIN
in percent*
DILUTED EARNINGS
per share*
0
.
5
1
.
5
1
1 1
.
3
1
0
.
1
1 1
.
9
7
7
.
3
2
8
.
3
6
1
.
3
1
5
.
2
2
5
.
1
10
11
12
13
14
10
11
12
13
14
ON THE COVER:
The PythonX® robotic CNC plasma cutting system from our recent Burlington Automation acquisition has
taken structural steel fabrication to THE NEXT LEVEL as the most productive fabrication machine in the
industry. By integrating multiple operations in one machine, PythonX® uses just 20% of the floor space and
20% of the processing time compared to traditional machines.
B OA R D O F D I R E C TO R S
C O R P O R AT E I N FO R M AT I O N
HELLENE S. RUNTAGH
Former President and
Chief Executive Officer
of Berwind Group
GEORGE H. WALLS, JR.
Former Chief Deputy
Auditor,
State of North Carolina
HAROLD L. ADAMS
Chairman Emeritus and
Former Chairman, President
and Chief Executive Officer
of RTKL Associates Inc.
CURTIS E. ESPELAND
Executive Vice President
and Chief Financial Officer,
Eastman Chemical Company
DAVID H. GUNNING
Lead Director
Former Vice Chairman
of Cleveland-Cliffs Inc
STEPHEN G. HANKS
Former President and
Chief Executive Officer,
Washington Group
International, Inc.
ROBERT J. KNOLL
Former Partner,
Deloitte & Touche LLP
G. RUSSELL LINCOLN
President of N.A.S.T. Inc.
KATHRYN JO LINCOLN
Chair and Chief Investment
Officer of the Lincoln
Institute of Land Policy
WILLIAM E. MACDONALD, III
Former Vice Chairman of
National City Corporation
CHRISTOPHER L. MAPES
Chairman, President and
Chief Executive Officer
of the Company
PHILLIP J. MASON
Former President
of Ecolab, Inc. EMEA sector
C O M PA N Y O F F I C E R S A N D E X E C U T I V E M A N AG E M E N T
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
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
President, Global
Automation
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
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
*Member, Management Committee
Additional copies of Lincoln Electric’s
2014 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.shareowneronline.com
ANNUAL MEETING
The Annual Meeting of Lincoln Electric
Shareholders is scheduled to be held on
Thursday, April 23, 2015, 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, 2014
was 1,766.
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
96626_3RRD_Cover_ACG.indd 4-6
3/9/15 2:56 PM
T h e
NEXT
LEVEL
2 0 1 4
ANNUAL REPORT
T
H
E
N
E
X
T
L
E
V
E
L
L
I
N
C
O
L
N
E
L
E
C
T
R
I
C
2
0
1
4
A
N
N
U
A
L
R
E
P
O
R
T
LINCOLN ELECTRIC HOLDINGS, INC.
22801 St. Clair Avenue | Cleveland, Ohio 44117-1199 | U.S.A.
96626_3RRD_Cover_ACG.indd 1-3
3/5/15 8:22 AM