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FOCUSED . INNOVATIVE . DRIVEN
LINCOLN ELECTRIC : 2015 ANNUAL REPORT
Our ‘2020 Vision & Strategy’ was launched in 2010 to mobilize
the organization around a single growth strategy focused on
innovation, operational excellence and financial discipline. It
leverages our core values, our brand and the industry’s best
technical, commercial and operational teams who are passionate
about innovative welding and cutting solutions and operational
excellence. Our 2020 initiatives and investments focus on
differentiating Lincoln Electric as a valued solutions provider
and a world-class operator who delivers best-in-class financial
performance and long-term value creation for our stakeholders.
We are Focused. Innovative. Driven.
2020 VISION & STRATEGY FINANCIAL GOALS
SALES CAGR
10%
2009–2020
ADJUSTED OPERATING
INCOME MARGIN
15%
Average 2009–2020
ROIC
15%
Average 2009–2020
AVERAGE OPERATING
WORKING CAPITAL RATIO
15%
At 2020
2015 FINANCIAL HIGHLIGHTS //
YEARS ENDED DECEMBER 31,
(dollars in millions, except per share amounts)
Net Sales
Net Income
Net Income excluding special items(1)
Diluted Earnings per Share
Diluted Earnings per Share excluding special items(1)
Cash Provided by Operations
Cash Dividends per Share of Common Stock(2)
Average Operating Working Capital Ratio(3)
Return on Invested Capital(1)
Current Ratio
Total Assets
Total Equity
2015
2014
2013
$ 2,536
127
$ 2,813
255
$ 2,853
294
260
1.70
3.48
311
1.16
17.1%
21.1%
2.5
306
3.18
3.82
402
0.92
17.1%
22.9%
2.2
313
3.54
3.77
339
0.80
17.6%
20.2%
2.5
$ 1,784
932
$ 1,939
$ 2,152
1,286
1,531
(1) Net Income excluding special items, Diluted Earnings per Share excluding special items and Return on Invested Capital 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. Please refer to the reconciliation tables of non-GAAP
results to our most closely comparable GAAP results on the “Non-GAAP Financial Measures” page.
(2) Reflects Board-approved annual dividend amounts.
(3) Average Operating Working Capital 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.
NET SALES AND OPERATING
INCOME MARGIN
($ in millions)
excluding special items1
15.0% 15.1%
14.7%
DILUTED EARNINGS
(per share)
excluding special items1
CASH PROVIDED
BY OPERATIONS
($ in millions)
CASH RETURNED TO
SHAREHOLDERS
($ in millions)
dividends and share repurchases
3
5
8
2
,
3
1
8
2
,
6
3
5
2
,
’13
’14
’15
7
7
3
.
2
8
3
.
8
4
3
.
’13
’14
’15
9
3
3
2
0
4
1
1
3
7
1
2
0
8
3
6
8
4
’13
’14
’15
’13
’14
’15
L I N C O L N E L E C T R I C : 2 0 1 5 A N N U A L R E P O R T
/ 0 1
The automation growth strategy continued to advance with the acquisition
of Wolf Robotics®.
A $30 million investment in a state-of-the-art welding technology center was
announced in 2015 and is expected to launch in 2017, marking the centennial
anniversary of Lincoln’s longest-running welding school in the U.S.
DEAR FELLOW SHAREHOLDERS,
In what proved to be a challenging year for many of the markets we serve, we
achieved solid results by focusing on long-term investments that advance our
‘2020 Vision and Strategy,’ while rapidly aligning our business to a compressing
demand environment.
SALES GROWTH RATE (CAGR)
($ in millions)
9
2
7
1
$
,
0
7
0
2
$
,
5
9
6
2
$
,
3
5
8
2
$
,
3
5
8
2
$
,
3
1
8
2
$
,
6
3
5
2
$
,
’09
’10
’11
’12
’13
’14
’15
ADJUSTED OPER ATING INCOME MARGIN1
%
0
7
.
%
1
9
.
%
0
1
1
.
%
1
3
1
.
%
0
5
1
.
%
1
5
1
.
%
7
4
1
.
2020 GOAL
10% CAGR
2009–2015
8% CAGR
excludes foreign exchange
& Venezuela results
2020 GOAL
15%
2009–2015 ACHIEVEMENT
12.1%
(Average)
We could not have achieved our 2015 results without
strong customer relationships across diverse geogra-
phies and end sectors, a great team, cost discipline,
the flexibility of our Incentive Management System,
and the innovative joining and cutting solutions we
continue to bring to market.
Today, we are well-positioned to navigate current con-
ditions while capitalizing on growth opportunities with
an innovative portfolio of solutions, a strong R&D and
M&A pipeline, unparalleled technical applications
expertise, and a solid balance sheet to continue to fund
our 2020 growth strategy and shareholder returns. We
are focused, innovative and driven.
2015 PERFORMANCE
2015 revenue declined to $2.5 billion as the dramatic
drop in oil and commodity prices impacted volumes
and a strong U.S. dollar significantly reduced the foreign
exchange translation of our international sales. While
a challenging environment, we operated safer, more
efficiently and achieved sales growth across several
product areas and end sectors. We also benefited from
price management and over $60 million of incremental
’09
’10
’11
’12
’13
’14
’15
sales from our acquisitions.
(1) Definitions and a reconciliation of non-GAAP results to our most closely comparable GAAP results are
included on the “Non-GAAP Financial Measures” page.
/ 0 2
The new INFERNO® by Harris uses the patented Perfect Flame® technology that
improves process control and brazing times by over 20%. Lincoln Electric’s new
product vitality index was 34% of sales in 2015 and 44% in equipment systems.
Visit http://lincolnelectricehs.com to learn about our environmental and safety
performance and EH&S 2020 goals.
Given the conditions, we rapidly deployed extensive
We follow a disciplined capital allocation strategy—
cost reduction actions to manage our margin perfor-
prioritizing growth investments and returns to share-
mance and cash flows, which were consistent with
holders through dividends and share repurchases. In
measures taken in 2008 and 2009. Our actions, com-
2015, our returns of cash to shareholders increased
bined with lower input costs, contributed to relatively
28% to a record $486 million from a 26% increase in
steady profit margin performance with an adjusted
our dividend payout rate and a record $399 million
operating income margin of 14.7%, versus 15.1% in 2014.
in share repurchases. The dividend increase marked
Our team’s hard work and the value of the structural
our 20th consecutive annual increase since our public
changes we have achieved highlight our ability to
offering in 1995 and supports our dividend payout target
manage margins and the attractive operating leverage
of 35% of adjusted net income through the cycle. Over
we are able to recognize through an economic cycle.
the past five years, we have successfully funded our
Our earnings per share (EPS) declined 47% to $1.70,
reflecting lower volumes, unfavorable foreign exchange
translation and special items. Excluding special items,
our adjusted EPS declined 9% to $3.48.
growth strategy while returning $1.3 billion to share-
holders and we are maintaining our commitment to
shareholders in 2016 with a 10.3% dividend increase
and a $400 million share repurchase target.
SOLID CASH GENERATION AND RECORD RETURNS
We generated solid cash flows from operations with
100% free cash flow conversion of our adjusted net
income. Aggressive management of working capital
under compressing conditions held our average oper-
ating working capital ratio steady at 17.1%. We believe
this performance ranks Lincoln among top-decile
performers within the industrials sector and demon-
strates our operational agility and focus on achieving
best-in-class financial performance.
INVESTING IN INNOVATION
Innovation is a cornerstone of our brand, our value
proposition and long-term growth prospects. In 2015,
we increased our R&D investment 9% and launched
over 100 new products worldwide—increasing our
new product vitality index of total sales to 34%, and
achieved a 44% index in equipment solutions. We con-
tinued to expand solutions in key strategic areas of
education, automation, alloys/aluminum and equip-
ment. In education, we launched our U/Linc™ welding
education curriculum package for welding instructors
We achieved top quartile return on invested capital
and expanded our training solutions with the VRTEX®
(ROIC) performance at 21.1%, on improved operational
Engage™ system and the REALWELD® educational
execution, by richening our sales mix with value-added
trainer. In automation, we launched the next-generation
solutions, and our disciplined acquisition program.
robotic 3-D plasma cutting solution, PythonX® II,
which replaces multiple fabrication machines with
one solution for structural steel applications. We also
L I N C O L N E L E C T R I C : 2 0 1 5 A N N U A L R E P O R T
/ 0 3
AVER AGE OPER ATING WORKING CAPITAL R ATIO
RETURN ON INVESTED CAPITAL 1
%
2
3
2
.
%
7
0
2
.
%
0
1
2
.
%
8
8
1
.
%
6
7
1
.
%
1
7
1
.
%
1
7
1
.
2015 ACHIEVEMENT
17.1%
2020 GOAL
15%
(by 12/31/2020)
2009–2015 ACHIEVEMENT
16.7%
2020 GOAL
15%
(Average)
%
3
6
.
%
6
0
1
.
%
6
6
1
.
%
3
9
1
.
%
2
0
2
.
%
9
2
2
.
%
1
1
2
.
’09
’10
’11
’12
’13
’14
’15
’09
’10
’11
’12
’13
’14
’15
expanded automation’s reach into low-volume, general
solutions, executing on our 2020 strategy, and main-
fabrication applications with our turnkey Auto-Mate®
taining a disciplined capital allocation strategy. By
and System 5 robotic cells. For customers requiring
leveraging a structure that simplifies our processes, we
advanced fabrication, tooling, part holding, manipulation
will not only gain operational efficiencies, but further
and laser welding and cutting solutions, we extended
accelerate innovation and commercialization efforts in
our capabilities and footprint with our Easom Automa-
our underdeveloped regions and applications. Ultimately,
tion and Wolf Robotics® acquisitions. To address the
we believe our team will be better positioned to make
rising use of alloys and aluminum, we launched new
a difference for our customers and maximize our
aluminum welding equipment systems and the new
growth opportunities.
Autodrive® SA aluminum servo torch for automated
applications. Additionally, our recent SWP™ acquisi-
DRIVEN TO WIN
tion in Australia provides alloy-based maintenance
While we anticipate challenging conditions to persist
and repair services for mining and energy applica-
in 2016, the fundamentals of our business are strong,
tions. As we seek to richen our mix, we have targeted
we maintain a solid portfolio of solutions, follow a
growth in equipment systems and expanded our light
disciplined capital allocation strategy and maintain a
industrial/first-time user offering with the new Square
solid balance sheet profile to continue to drive returns
Wave® TIG 200. For heavy duty users in construction
for our shareholders. We remain focused and passionate
and ship building, we launched our new Flextec® 350X
about welding and cutting and are excited about the
multi-process power source with our new proprietary
growth opportunities ahead. On behalf of the board of
CrossLinc™ technology, which uses a communication
directors and my colleagues at Lincoln Electric, thank
protocol that enables the user to make voltage adjust-
you for your support.
ments to the power source from a distance using a
common welding cable. These are just a few of the
Sincerely,
innovative products launched in 2015.
ORGANIZED TO DELIVER
We celebrated our 120th anniversary in 2015—a mile-
stone that reaffirms Lincoln’s pioneering and inventive
spirit, our commitment to the ‘arc,’ and our ability
to adapt. In early 2016, we adapted again to current
Christopher L. Mapes
conditions by realigning our organizational and lead-
Chairman, President & Chief Executive Officer
ership structure into three segments. Under this new
structure, we will continue to focus on our priorities:
our customers, delivering value through innovative
/ 0 4
NON-GAAP FINANCIAL MEASURES //
NON-GAAP FINANCIAL MEASURES
Adjusted Operating Income, Adjusted Operating Income Margin, Adjusted Net Income, Diluted Earnings per Share
excluding special items (Adjusted Diluted Earnings per Share), and Return on Invested Capital 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.
ADJUSTED OPERATING INCOME
The following table presents a reconciliation of Operating income as reported to Adjusted operating income for
the years ended December 31, 2009 to 2015:
YEAR ENDED DECEMBER 31,
($ in millions)
Operating income (as reported)
Special items (pre-tax):
Rationalization and asset impairment charges
Venezuela remeasurement losses
Pension settlement charges
Other
Adjusted operating income
Adjusted operating income margin
2015
2014
2013
2012
2011
2010
2009
$ 181.7
$ 373.7
$ 407.0
$ 362.1
$ 296.7
$ 186.4
$ 93.2
20.0
27.2
142.7
30.1
21.1
8.5
12.2
9.4
0.3
(0.4)
3.1
29.9
(2.1)
$ 371.6
$ 424.9
0.7
$ 428.4
1.4
$ 372.8
$ 297.0
$ 189.2
$ 121.0
14.7%
15.1% 15.0% 13.1% 11.0%
9.1%
7.0%
ADJUSTED NET INCOME AND ADJUSTED DILUTED EARNINGS PER SHARE
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 for the years ended December 31, 2009 to 2015:
YEAR ENDED DECEMBER 31,
($ in millions except per share amounts)
Net income (as reported)
Special items (after-tax):
Rationalization and asset impairment charges
Venezuela remeasurement losses
Pension settlement charges
Income tax impact from change in tax regulations
and audit settlements
Other
Adjusted net income
Diluted earnings per share as reported
Special items per share
Adjusted diluted earnings per share
2015
2014
2013
2012
2011
2010
2009
$ 127.5
$ 254.7
$ 293.8
$ 257.4
$ 217.2
$ 130.2
$ 48.6
18.2
27.2
87.3
30.9
21.1
7.6
12.2
7.4
0.2
(0.9)
3.6
23.8
(2.1)
(0.8)
(0.4)
$ 260.2
$ 1.70
1.78
$ 3.48
$ 305.9
$ 3.18
0.64
$ 3.82
$ 313.2
$ 3.54
0.23
$ 3.77
0.9
$ 265.8
$ 3.06
0.10
$ 3.16
(4.8)
$ 212.6
$ 2.56
(0.05)
$ 2.51
(5.1)
1.8
$ 129.6
$ 1.53
(0.01)
$ 1.52
2.9
$ 73.1
$ 0.57
0.29
$ 0.86
RETURN ON INVESTED CAPITAL (ROIC)
The following table presents calculations of ROIC for the years ended December 31, 2009 to 2015:
YEAR ENDED DECEMBER 31,
($ in millions)
Adjusted net income
Plus: Interest expense (after-tax)
Less: Interest income (after-tax)
Net operating profit after taxes
Invested capital
Return on invested capital
2015
2014
2013
2012
2011
2010
2009
$ 260.2
13.5
1.7
272.0
1,287.1
$ 305.9
6.4
1.9
310.5
1,356.4
$ 313.2
1.8
2.0
312.9
1,549.8
$ 265.8
2.6
2.5
265.9
1,378.6
$ 212.6
4.2
1.9
214.8
1,296.6
$ 129.6
4.2
1.5
132.3
1,247.2
$ 73.1
5.3
2.2
76.2
1,209.4
21.1%
22.9%
20.2%
19.3%
16.6%
10.6%
6.3%
Invested capital is defined as total debt plus total equity.
FORM 10-K
L I N C O L N E L E C T R I C : 2 0 15 A N N U A L R E P O R T
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, 2015
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, 2015 was $4,448,640,206 (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, 2015 was 70,693,389.
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 2016 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, plasma cutters, wire feeding systems, robotic welding packages, integrated
automation systems, fume extraction equipment, consumable electrodes, fluxes and welding accessories. 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,
Australia, Brazil, Canada, China, Colombia, France, Germany, India, Indonesia, Italy, Mexico, the Netherlands, Poland,
Portugal, Russia, Turkey, the United Kingdom and Venezuela.
As of December 31, 2015, the Company's business units were aligned into five operating segments. 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 primarily 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.
During the first quarter of 2016, the Company realigned its organizational and leadership structure. The new structure will
allow for further integration of operational and product development processes across regions and support growth strategies. In
accordance with this organizational change, beginning with quarterly reporting for the three months ended March 31, 2016, the
Company will report three operating segments as follows: Americas Welding, International Welding, and The Harris Products
Group.
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 38 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, 2015 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. An adverse change in demand could impact 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,
pandemic, 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, pandemic, 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.
As of December 31, 2015, we were a co-defendant in cases alleging asbestos induced illness involving claims by
approximately 8,415 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: 49,677 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 748 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. Even if
we are successful defending such claims or product liability coverage is adequate, claims of this nature could cause customers
to lose confidence in our products and our company. Warranty claims are not generally covered by insurance and we may incur
significant warranty costs in the future for which we would not be reimbursed.
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 or divestiture strategies, successfully integrate acquired businesses and
in certain cases we may be required to retain liabilities for certain matters.
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 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.
Additionally, from time to time 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, continue to enforce
the intellectual property rights on which our business depends or if third parties assert that we violate their intellectual
property rights, our revenues, gross margins and results of operations 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.
5
We rely upon patent, trademark, copyright and trade secret laws in the United States and similar laws in foreign countries, as
well as agreements with our employees, customers, suppliers and other third parties, to establish and maintain our intellectual
property rights. However, any of our intellectual property rights could be challenged, invalidated or circumvented, or our
intellectual property rights may not be sufficient to provide a competitive advantage. Further, the laws and their application in
certain foreign countries do not protect our proprietary rights to the same extent as U.S. laws. Accordingly, in certain countries,
we may be unable to protect our proprietary rights against unauthorized third-party copying or use, which could impact our
competitive position.
Further, third parties may claim that we or our customers are infringing upon their intellectual property rights. Even if we
believe that those claims are without merit, defending those claims and contesting the validity of patents can be time
consuming and costly. Claims of intellectual property infringement also might require us to redesign affected products, enter
into costly 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.
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 and improve our overall
competitiveness. Such rationalization activities could fail to deliver the desired competitive cost structure and could result in
disruptions in customer service. If our products, services, support and cost structure do not enable us to compete successfully
based on any of the criteria listed above, our operations, results and prospects could suffer.
Further, in the past decade, the arc welding industry in the United States and other developed countries has been subject to
increased levels of foreign competition as low cost imports have become more readily available. Our competitive position
could also be harmed if new or emerging competitors become more active in the arc welding business. For example, while
steel manufacturers traditionally have not been significant competitors in the domestic arc welding industry, some foreign
integrated steel producers manufacture selected consumable arc welding products. In addition, in certain markets of the world,
distributors manufacture and sell 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.
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.
6
In the future, the Company may need to deconsolidate its Venezuelan operations as a result of an inability to exchange bolivar-
denominated cash coupled with an acute degradation in the ability to make key operational decisions due to government
regulations in Venezuela. The Company monitors factors such as its ability to access various exchange mechanisms; the impact
of government regulations on the Company’s ability to manage its Venezuelan operation’s capital structure, purchasing, product
pricing, and labor relations; and the current political and economic situation within Venezuela. Based upon such factors as of
December 31, 2015, the Company continues to consolidate its Venezuelan subsidiary. As of December 31, 2015, the
Company's total investment in Venezuela was approximately $35,000, which includes intercompany payables.
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 and technical (including research and development) 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 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 2015, 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 global 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.
We also face risks arising from the imposition of exchange controls and currency devaluations. Exchange controls may limit
our ability to convert currencies into U.S. dollars or to remit dividend and other payments by our foreign subsidiaries within a
country imposing controls. Currency devaluations result in diminished value of funds denominated in the currency of the
country instituting the devaluation.
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.
7
We are subject to risks relating to our information technology systems.
The conduct and management of our business relies extensively on information technology systems, which contain confidential
information related to our customers, suppliers and employees and other proprietary business information. We maintain some
of these systems and are also dependent on a number of critical corporate infrastructure services provided by third parties
relating to, among other things, human resources, electronic communication services and finance functions. 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.
Furthermore, a security breach could result in unfavorable publicity, damage to our reputation, loss of our trade secrets and
other competitive information, allegations by our customers that we have not performed our contractual obligations, litigation
by affected parties and fines and other sanctions resulting from any related breaches of data privacy regulations. Any of these
could have an adverse effect on our results of operations and financial condition.
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. Some environmental laws impose strict, retroactive and
joint and several liability for the remediation of the release of hazardous substances, even for conduct that was lawful at the
time it occurred, or for the conduct of or conditions caused by prior operators, predecessors or third parties. Failure to comply
with environmental laws could expose us to penalties or clean-up costs, civil or criminal liability and sanctions on certain of
our activities, as well as damage to property or natural resources. These liabilities, sanctions, damages and remediation efforts
related to any non-compliance with such laws and regulations could negatively impact our ability to conduct our operations and
our financial condition and results of operations. In addition, there can be no assurances that we will not be adversely affected
by costs, liabilities or claims with respect to existing or subsequently acquired operations or under present laws and regulations
or those that may be adopted or imposed in the future.
Changes in environmental laws or regulations could result in higher expenses and payments, and uncertainty relating to
environmental laws or regulations may also affect how we conduct our operations and structure our investments and could limit
our ability to enforce our rights. Changes in environmental and climate change laws or regulations, including laws relating to
greenhouse gas emissions, could subject us to additional costs and restrictions, including increased energy and raw material
costs. If environmental laws or regulations are either changed or adopted and impose significant operational restrictions and
compliance requirements upon us or our products, they could negatively impact our business, capital expenditures, results of
operations, financial condition and competitive position.
It is our policy to apply strict standards for environmental protection to all of our operations inside and outside of 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.
We may incur additional restructuring charges as we continue to contemplate rationalization actions in an effort to
optimize our cost structure and may not achieve the anticipated savings and benefits of these actions.
Throughout 2015, we implemented rationalization plans and incurred employee severance and other related costs totaling
$13,719. For more information regarding our rationalization plans, refer to the rationalization and asset impairment related
disclosure under Note 6 to the Company's consolidated financial statements. We may take additional actions in the future to
further optimize our cost structure and improve the efficiency of our operations, which will reduce our profitability in the
periods incurred. As a result of these actions, we will likely continue to incur charges, which may include but are not be limited
to asset impairments, employee severance costs, charges for pension and other postretirement contractual benefits and pension
settlements, any of which could be significant, and could adversely affect our financial condition and results of operations. In
addition, we may not realize anticipated savings or benefits from past or future rationalization plans in full or in part or within
the time periods we expect. Failure to realize anticipated savings or benefits from our cost reduction actions could have a
material adverse effect on our business, financial condition, liquidity, results of operations and cash flows.
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
54 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
55 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
62 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
Gabriel Bruno
53 Executive Vice President, President, Americas Welding since February 18, 2016; Executive
Vice President, President, Lincoln Electric North America from February 19, 2014 to
February 18, 2016; 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.
48 Executive Vice President, Chief Human Resources Officer & Interim Chief Information
Officer since February 18, 2016; Executive Vice President, Chief Information Officer &
Interim Chief Human Resources Officer from March 7, 2015 to February 18, 2016; 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.
Geoffrey P. Allman
45 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
55 Senior Vice President, President, Asia Pacific Region since February 19, 2014; Vice
Mathias Hallmann
Steven B. Hedlund
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.
53 Senior Vice President, President, International Welding since February 9, 2016; Senior Vice
President, President, LE Europe from February 19, 2014 to February 9, 2016; Vice President;
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.
49 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
59 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 48 manufacturing facilities, including operations and joint ventures in 19 countries, the significant locations
(grouped by operating segment) of which are as follows:
North America Welding:
United States
Canada
Mexico
Europe Welding:
France
Germany
Italy
Netherlands
Poland
Portugal
Russia
Turkey
United Kingdom
Asia Pacific Welding:
China
India
Indonesia
Cleveland and Fort Loramie, Ohio; San Diego and Anaheim, California; Reno, Nevada;
Ladson, South Carolina; Chattanooga, Tennessee; Detroit, Michigan; Fort Collins, Colorado.
Toronto; Mississauga; Hamilton.
Mexico City; Torreon.
Grand-Quevilly.
Essen.
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:
Guarulhos.
Bogota.
Maracay.
United States
Brazil
Mexico
Poland
Mason, Ohio; Gainesville, Georgia; Santa Fe Springs, California.
Sao Paulo.
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, 2015, the Company was a co-defendant in cases alleging asbestos induced illness involving claims by
approximately 8,415 plaintiffs, which is a net decrease of 486 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: 49,677 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 748 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, 2015 was 1,741.
The total amount of dividends paid in 2015 was $87.0 million. During 2015, 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
2015
2014
Stock Price
High
Low
Dividends
Declared
Stock Price
High
Low
Dividends
Declared
$
72.50
$
63.90
$
71.15
62.94
62.95
60.85
51.74
49.71
0.29
0.29
0.29
0.32
$
76.26
$
66.68
$
72.88
73.75
75.49
63.23
65.44
61.12
0.23
0.23
0.23
0.29
Issuer purchases of equity securities for the fourth quarter 2015 were:
Period
October 1-31, 2015
November 1-30, 2015
December 1-31, 2015
Total
Total Number of
Shares Repurchased
Average Price
Paid Per Share
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)
821,060 (1) $
414,672
608,088 (1)
1,843,820
55.30
57.00
53.70
55.15
820,904
414,672
607,183
1,842,759
5,769,776
5,355,104
4,747,921
(1) The above share repurchases include the surrender of 156 and 905 shares in October and December, respectively, of the
Company's common shares in connection with the vesting of restricted awards.
(2) In 2013, the Company's Board of Directors authorized a new share repurchase program, which increased the total number
of the Company’s common shares authorized to be repurchased to 45 million shares. Total shares purchased through the
share repurchase program were 40,252,079 shares at a cost of $1.3 billion for a weighted average cost of $32.24 per share
through December 31, 2015.
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, 2011 and ending December 31, 2015.
This graph assumes that $100 was invested on December 31, 2010 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, is 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.
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
$
2015 (1)
2,535,791
127,478
$
Year Ended December 31,
2013 (3)
2,852,671
$
$
2014 (2)
2,813,324
254,686
293,780
2012 (4)
2,853,367
257,411
$
2011 (5)
2,694,609
217,186
1.72
1.70
1.190
1,784,171
350,347
3.22
3.18
0.980
3.58
3.54
0.830
3.10
3.06
0.710
2.60
2.56
0.635
1,939,215
2,151,867
2,089,863
1,976,776
2,488
3,791
1,599
1,960
(1) Results for 2015 include $13,719 ($11,943 after-tax) of rationalization charges and non-cash net impairment charges of $6,239
($6,239 after-tax). Results also include pension settlement charges of $142,738 ($87,310 after-tax) and charges of $27,214
($27,214 after-tax) related to Venezuelan remeasurement losses. Long-term debt in 2015 includes the issuance of Senior Unsecured
Notes in the aggregate principal amount of $350,000 through a private placement.
(2) Results for 2014 include $32,742 ($32,706 after-tax) of 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.
(3) Results for 2013 include $3,658 ($2,965 after-tax) of 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 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.
(4) Results for 2012 include $7,512 ($6,153 after-tax) of 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.
(5) 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.
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, plasma cutters, wire feeding systems, robotic welding packages, integrated
automation systems, fume extraction equipment, consumable electrodes, fluxes and welding accessories. 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,
Australia, Brazil, Canada, China, Colombia, France, Germany, India, Indonesia, Italy, Mexico, the Netherlands, Poland,
Portugal, Russia, Turkey, the United Kingdom and Venezuela.
As of December 31, 2015, the Company's business units were aligned into five operating segments. 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 primarily 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.
During the first quarter of 2016, the Company realigned its organizational and leadership structure. The new structure will
allow for further integration of operational and product development processes across regions and support growth strategies. In
accordance with this organizational change, beginning with quarterly reporting for the three months ended March 31, 2016, the
Company will report three operating segments as follows: Americas Welding, International Welding, and The Harris Products
Group.
15
The principal raw materials essential to the Company's business are steel, electronic components, engines, brass, copper, silver,
aluminum alloys and various chemicals, all of which are normally available for purchase in the open market.
The Company's facilities are subject to environmental regulations. To date, compliance with these environmental regulations
has not had a material adverse effect on the Company's earnings. The Company is ISO 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 38 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
Pension settlement 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,
2015
2014
2013
Amount
$ 2,535,791
1,694,647
841,144
% of Sales
Amount
% of Sales
Amount
100.0% $ 2,813,324
100.0% $ 2,852,671
66.8%
33.2%
1,864,027
949,297
66.3%
33.7%
1,910,017
942,654
% of Sales
100.0%
67.0%
33.0%
496,748
19.6%
545,497
19.4%
527,206
18.5%
19,958
142,738
181,700
2,714
3,015
4,182
0.8%
5.6%
7.2%
0.1%
0.1%
0.2%
(21,824)
(0.9%)
169,787
42,375
6.7%
1.7%
30,053
—
1.1%
—
8,463
—
0.3%
—
373,747
13.3%
406,985
14.3%
3,093
5,412
3,995
(10,434)
375,813
121,933
0.1%
0.2%
0.1%
(0.4%)
13.4%
4.3%
3,320
4,806
4,194
(2,864)
416,441
124,754
0.1%
0.2%
0.1%
(0.1%)
14.6%
4.4%
127,412
5.0%
253,880
9.0%
291,687
10.2%
(66)
—
$
127,478
5.0% $
(806)
254,686
—
9.1% $
(2,093)
293,780
(0.1%)
10.3%
16
2015 Compared with 2014
Net Sales: Net sales for 2015 decreased 9.9% from 2014. The sales decrease reflects volume decreases of 8.0%, price
increases of 4.0%, increases from acquisitions of 2.2% and unfavorable impacts from foreign exchange of 8.1%. Sales
volumes decreased as a result of softer demand associated with the current economic environment and weakness in oil & gas
and U.S. export markets. 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 2015 include $84,662 in sales from the Company's Venezuelan operations compared with $71,793 in sales from
the Company's Venezuelan operations in 2014.
Gross Profit: Gross profit decreased 11.4% to $841,144 during 2015 compared with $949,297 in 2014. As a percentage of Net
sales, Gross profit decreased to 33.2% in 2015 compared with 33.7% in 2014. The year ended December 31, 2015 includes
$22,880, or 0.9% of sales, of inventory charges reflecting remeasurement losses in Venezuela related to the adoption of a new
foreign exchange mechanism and higher warranty costs of $5,934. The year ended December 31, 2015 also includes a LIFO
credit of $11,545 compared with a charge of $429 in the prior year period. The prior year period also includes a gain of $3,946
from an insurance settlement. Foreign currency exchange rates had a $62,330 unfavorable translation impact in 2015.
Selling, General & Administrative ("SG&A") Expenses: SG&A expenses decreased 8.9% to $496,748 during 2015 compared
with $545,497 in 2014. The decrease was primarily due to lower bonus expense of $28,705 and lower foreign exchange
transaction losses of $17,030, partially offset by higher general and administrative spending of $24,720 and incremental SG&A
expenses from acquisitions of $8,780. Foreign exchange transaction losses in 2015 include a charge of $4,334, compared with
a charge of $17,665 in 2014, relating to Venezuelan foreign exchange remeasurement losses as a result of the adoption of a new
foreign exchange mechanism. Foreign currency exchange rates had a $33,229 favorable translation impact on SG&A expenses
in 2015.
Rationalization and Asset Impairment Charges: In 2015, the Company recorded $19,958 in charges primarily related to
employee severance and other related costs and non-cash goodwill and asset impairment charges. See "Rationalization and
Asset Impairments" for additional information.
Pension Settlement Charges: In 2015, the Company recorded non-cash pension settlement charges of $142,738, $87,310 after-
tax, primarily related to the purchase of a group annuity contract. See Note 11, "Retirement Annuity and Guaranteed
Continuous Employment Plans" for additional information.
Equity Earnings in Affiliates: Equity earnings in affiliates were $3,015 in 2015 compared with earnings of $5,412 in 2014.
The decrease was primarily due to a decrease in earnings in Turkey.
Interest Expense: Interest expense increased to $21,824 in 2015 from $10,434 in 2014. 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 interest
accrued on higher borrowings.
Income Taxes: The Company recorded $42,375 of tax expense on pre-tax income of $169,787, resulting in an effective tax rate
of 25.0% for 2015 compared with an effective income tax rate of 32.4% for 2014. The effective income tax rate is lower in
2015 as compared to 2014 primarily due to higher U.S. tax credits in 2015 and changes in the mix of earnings between tax rate
jurisdictions.
Net Income: Net income for 2015 was $127,478 compared with $254,686 in the prior year. Diluted earnings per share for
2015 were $1.70 compared with diluted earnings of $3.18 per share in 2014. Net income for 2015 includes non-cash pension
settlement charges of $87,310, non-cash Venezuelan remeasurement losses of $27,214 related to the adoption of a new foreign
exchange mechanism and net rationalization and asset impairment charges of $18,182. Foreign currency exchange rate
movements had an unfavorable translation effect of $11,390 on Net income for 2015.
17
Europe Welding
Asia Pacific Welding
South America Welding
The Harris Products Group
Consolidated
Consolidated (excluding
Venezuela)
% Change
North America Welding
Europe Welding
Asia Pacific Welding
South America Welding
The Harris Products Group
Consolidated
Consolidated (excluding
Venezuela)
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, 2015:
Net Sales
2014
Volume
Acquisitions
Price
Foreign
Exchange
Net Sales
2015
Change in Net Sales due to:
Operating Segments
North America Welding
$
1,700,924
$(129,921)
$
57,333
$
14,944
425,775
243,800
148,595
(18,179)
(49,501)
(24,240)
294,230
2,813,324
(2,168)
$(224,009)
2,741,531
$(211,098)
$
$
$
$
—
5,295
—
—
62,628
(2,285)
(2,511)
116,765
(15,746)
$ 111,167
$ (32,923)
(68,487)
(10,468)
(103,106)
(12,335)
$(227,319)
$1,610,357
336,824
186,615
138,014
263,981
$2,535,791
62,628
$
(2,598)
$(139,334)
$2,451,129
(7.6%)
(4.3%)
(20.3%)
(16.3%)
(0.7%)
(8.0%)
3.4%
—
2.2%
—
—
2.2%
0.9%
(0.5%)
(1.0%)
78.6%
(5.4%)
4.0%
(1.9%)
(16.1%)
(4.3%)
(69.4%)
(4.2%)
(8.1%)
(5.3%)
(20.9%)
(23.5%)
(7.1%)
(10.3%)
(9.9%)
(7.7%)
2.3%
(0.1%)
(5.1%)
(10.6%)
Net sales volumes for 2015 decreased for all operating segments due to softer demand associated with the current economic
environment and weakness in oil & gas and U.S. export markets. The decrease in net sales volumes in Asia Pacific Welding is
also due to continued strategic repositioning in the market. 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 as compared to the prior year period. The increase in Net sales from acquisitions
was due to the acquisition of Rimrock Holdings Corporation and Easom Automation Systems, Inc. ("Easom") within North
America Welding (see Note 3 to the consolidated financial statements for a discussion of the Company's recent 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 2015 by segment compared with 2014:
Twelve Months Ended
December 31,
2015
2014
$ 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
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
1,610,357
100,770
1,711,127
306,746
17.9%
336,824
15,922
352,746
31,317
8.9%
186,615
10,510
197,125
7,392
3.7%
138,014
174
138,188
5,569
4.0%
263,981
9,312
273,293
27,882
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
1,700,924
124,732
1,825,656
335,465
18.4%
(90,567)
(23,962)
(114,529)
(28,719)
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
(88,951)
(3,664)
(92,615)
(17,505)
(57,185)
(4,310)
(61,495)
6,071
(10,581)
30
(10,551)
(10,384)
(30,249)
1,102
(29,147)
(681)
As a percent of total sales
10.2%
9.4%
(5.3%)
(19.2%)
(6.3%)
(8.6%)
(0.5%)
(20.9%)
(18.7%)
(20.8%)
(35.9%)
(2.1%)
(23.5%)
(29.1%)
(23.8%)
459.6%
3.2%
(7.1%)
20.8%
(7.1%)
(65.1%)
(6.7%)
(10.3%)
13.4%
(9.6%)
(2.4%)
0.8%
EBIT, as adjusted as a percent of total sales decreased for North America Welding in 2015 as compared with 2014 due to
volume decreases. The decrease in Europe Welding is primarily due to unfavorable foreign exchange translation. The Asia
Pacific Welding increase was due to lower raw material costs and operational efficiencies partially offset by volume decreases.
The South America Welding decrease was a result of lower margins in Venezuela, as well as lower volumes and unfavorable
foreign exchange translation in the segment.
19
In 2015, EBIT, as adjusted, excluded net charges of $3,298 and $1,507 in North America Welding and Europe Welding,
respectively, primarily related to employee severance and other related costs. North America Welding special items also
include non-cash charges of $6,315 related to the impairment of goodwill and non-cash charges of $3,417 related to the
impairment of long-lived assets. Asia Pacific Welding special items reflect net charges of $5,432 primarily related to employee
severance and other costs and adjustments to reclassify a potential divestiture that was previously held-for-sale. South America
Welding special items reflect Venezuelan foreign exchange remeasurement losses of $27,214 related to the adoption of a new
foreign exchange mechanism. In addition to special items listed above, 2015 EBIT, as adjusted excludes non-cash pension
settlement charges of $142,738 primarily related to the purchase of a group annuity contract.
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.
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 operations 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.
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 acquisition of
$8,051 and higher bonus expense of $5,511. 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 a devaluation of the Venezuelan
currency. Foreign currency exchange rates had a $14,627 favorable translation impact on SG&A expenses in 2014.
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 sales 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.
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 compared with an effective tax rate of 30.0% for 2013. The effective income tax rate is lower in 2013
as compared with 2014 primarily due to income earned in lower tax rate jurisdictions.
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 for 2014.
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, 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
429,548
266,282
195,895
4,335
8,107
(17,516)
(59,554)
The Harris Products Group
Consolidated
308,177
$ 2,852,671
6,722
$ (57,906)
(3,722)
1,351
57,461
(18,411)
49,926
$ (11,611)
(8,158)
(6,317)
(45,207)
(2,258)
$ (73,551)
$1,700,924
425,775
243,800
148,595
294,230
$2,813,324
$
42,184
$
13,247
—
—
—
—
42,184
42,184
$
$
$
$
$ 2,743,532
$
(3,840)
(3,997)
$ (36,348)
$2,741,531
Consolidated (excluding
Venezuela)
% Change
North America Welding
Europe Welding
Asia Pacific Welding
South America Welding
The Harris Products Group
Consolidated
Consolidated (excluding
Venezuela)
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%)
(0.1%)
1.5%
(0.1%)
(1.3%)
(0.1%)
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 and strategic repositioning in the market. 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
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, Robolution GmbH ("Robolution") and Burlington Automation Corporation
("Burlington") within North America Welding (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.
21
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. The South America Welding 2013 results include the effect of the highly inflationary environment in Venezuela.
22
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 2013, EBIT, as adjusted, excluded special items 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.
Non-GAAP Financial Measures
The Company reviews Adjusted operating income, Adjusted net income, Adjusted diluted earnings per share and Return on
invested capital, all non-GAAP financial measures, in assessing and evaluating the Company's underlying operating
performance. These non-GAAP financial measures exclude the impact of special items on the Company's reported financial
results. Non-GAAP financial measures should be read in conjunction with the generally accepted accounting principles in the
United States ("GAAP") financial measures, as non-GAAP measures are a supplement to, and not a replacement for, GAAP
financial measures. From time to time management evaluates and discloses to investors the non-GAAP measure Free cash flow
("FCF"). FCF is defined as Net cash provided by operating activities less Capital expenditures.
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
Venezuela remeasurement losses
Pension settlement charges
Loss on the sale of land
Adjusted operating income
Year Ended December 31,
2015
2014
2013
$
181,700
$
373,747
$
406,985
19,958
27,214
142,738
—
30,053
21,133
—
—
8,463
12,198
—
705
$
371,610
$
424,933
$
427,646
Special items included in Operating income during 2015 include net rationalization and asset impairment charges which
primarily consist of employee severance and other related costs of $13,719, a non-cash goodwill impairment charge of $6,315
and net non-cash asset impairment charges. Special items for 2015 also include pension settlement charges and Venezuelan
foreign exchange remeasurement losses related to the adoption of a new foreign exchange mechanism.
Special items included in Operating income during 2014 include net rationalization and asset impairment charges 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 related to the adoption of a new foreign exchange mechanism.
Special items included in Operating income during 2013 include net rationalization and asset impairment charges primarily
related to employee severance and other costs associated with the consolidation of manufacturing operations and impairment of
long-lived assets. Special items for 2013 also include charges related to the devaluation of the Venezuelan currency and a loss
on the sale of land.
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
Venezuela remeasurement losses
Pension settlement charges
Loss on the sale of land
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,
2015
2014
2013
$
127,478
$
254,686
$
293,780
18,182
27,214
87,310
—
—
260,184
1.70
1.78
3.48
$
$
$
30,914
21,133
—
—
(805)
305,928
3.18
0.64
3.82
$
$
$
7,573
12,198
—
705
(1,068)
313,188
3.54
0.23
3.77
$
$
$
Net income for 2015 includes net rationalization and asset impairment which primarily consist of employee severance and
other related costs of $11,943, a non-cash goodwill impairment charge of $6,315 and net non-cash asset impairment charges.
Special items for 2015 also include pension settlement charges and Venezuelan remeasurement losses related to the adoption of
a new foreign exchange mechanism. Adjusted net income for 2015 includes $3,209, or $0.05 per diluted share, from the
Company's Venezuelan operations.
Net income for 2014 includes net rationalization and asset impairment charges 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 related to the adoption of a new foreign exchange mechanism. 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 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. 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 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.
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.
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 United States, 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.
24
The following table reflects changes in key cash flow measures:
Year Ended December 31,
$ Change
Cash provided by operating activities
Cash used by investing activities:
Capital expenditures
Acquisition of businesses, net of cash acquired
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
Increase (decrease) in Cash and cash equivalents
$
$
2015
310,858
(85,352)
(50,507)
(37,076)
(169,908)
$
2014
401,702
(78,985)
(72,990)
(24,230)
(314,355)
2013
338,894
(129,500)
(76,015)
(53,161)
(194,184)
2015 vs. 2014
$
2014 vs. 2013
62,808
(90,844) $
(6,367)
22,483
(12,846)
144,447
50,515
3,025
28,931
(120,171)
(34,229)
47,876
(1,451)
(82,105)
49,327
350,835
5,996
1,974
(399,494)
(86,968)
25,804
5,455
9,116
5,967
(307,178)
(73,261)
(21,446)
(389)
20,297
10,602
(167,879)
(49,277)
13,361
345,380
(3,120)
(3,993)
(92,316)
(13,707)
5,844
(11,181)
(4,635)
(139,299)
(23,984)
Cash and cash equivalents increased 9.3%, or $25,804, to $304,183 during the twelve months ended December 31, 2015, from
$278,379 as of December 31, 2014. This increase was predominantly due to the cash provided from operating activities and
proceeds from the issuance of Senior Unsecured Notes (the "Notes") of $350,000 (see the "Debt" section below for additional
information) partially offset by purchases of common shares for treasury of $399,494. At December 31, 2015, $223,567 of
Cash and cash equivalents was held by international subsidiaries and may be subject to U.S. income taxes and foreign
withholding taxes if repatriated to the U.S.
Cash provided by operating activities decreased $90,844 for the twelve months ended December 31, 2015 compared with the
twelve months ended December 31, 2014. The decrease was predominantly due to higher contributions to U.S. pension plans
of $25,949, lower cash refunds from a Canadian tax deposit of $25,306 and lower earnings offset by less investment in net
operating working capital of $63,604. 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, remained consistent at 17.1% at December 31, 2015 compared with 17.1% at
December 31, 2014. Days sales in inventory decreased to 89.2 days at December 31, 2015 from 94.7 days at December 31,
2014. Accounts receivable days decreased to 46.9 days at December 31, 2015 from 47.8 days at December 31, 2014. Average
days in accounts payable decreased to 38.7 days at December 31, 2015 from 46.6 days at December 31, 2014.
Cash used by investing activities increased by $6,367 in the twelve months ended December 31, 2015 compared with the
twelve months ended December 31, 2014. The increase was predominantly due to an increase in the acquisition of businesses
of $12,846 and a decrease in proceeds from the sale of property, plant and equipment of $15,147 offset by a decrease in capital
expenditures of $22,483. The Company anticipates capital expenditures of $65,000 to $75,000 in 2016. Anticipated capital
expenditures reflect investments for capital maintenance to improve operational effectiveness and the Company's continuing
international expansion. Management critically evaluates all proposed capital expenditures and requires each project to
increase efficiency, reduce costs, promote business growth, or to improve the overall safety and environmental conditions of the
Company's facilities.
Cash used by financing activities decreased $144,447 in the twelve months ended December 31, 2015 compared with the
twelve months ended December 31, 2014. The decrease was predominantly due to proceeds from the Notes of $350,000 offset
by increased net payments of short-term borrowings of $82,105, higher purchases of common shares for treasury of $92,316
and higher cash dividends paid to shareholders of $13,707.
The Company's debt levels increased from $70,654 at December 31, 2014 to $354,625 at December 31, 2015 due to the
issuance of the Notes. Debt to total invested capital increased to 27.6% at December 31, 2015 from 5.2% at December 31,
2014.
The Company paid $86,968 and $73,261 in cash dividends to its shareholders in the twelve months ended December 31, 2015
and 2014, respectively.
25
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, 2015, the Company purchased a total of 6.6
million shares at a cost of $399,494. As of December 31, 2015, 4.7 million shares remained available for repurchase under the
stock repurchase program. The Company currently anticipates share repurchases of approximately $400,000 in 2016.
The Company made voluntary contributions to its U.S. defined benefit plans of $47,124, $21,175 and $75,216 in 2015, 2014
and 2013, respectively. The Company expects to voluntarily contribute $20,000 to U.S. plans in 2016. Based on current
pension funding rules, the Company does not anticipate that contributions to the plans would be required in 2016.
Canada - Notice of Reassessment
In July 2012, the Company received a Notice of Reassessment (the "Reassessments") from the Canada Revenue Agency 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. In
the first quarter of 2015, the Company received a refund of $24,976 which was substantially all of the remaining cash deposit.
The Company also received interest on the deposit of $1,596.
Rationalization and Asset Impairments
In 2015, the Company recorded net rationalization and asset impairment charges of $19,958 resulting from rationalization
activities. The 2015 net charges include $13,719 primarily related to employee severance and other related costs and $6,315 in
an impairment charge to the carrying value of goodwill
In 2014, the Company recorded net rationalization and asset impairment charges of $30,053 resulting from rationalization
activities. 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. 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.
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.
Debt
At December 31, 2015 and 2014, the fair value of long-term debt, including the current portion, was approximately $342,602
and $9,323, 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.
Senior Unsecured Notes
On April 1, 2015, the Company entered into a Note Purchase Agreement pursuant to which it agreed to issue the Notes in the
aggregate principal amount of $350,000 through a private placement. At December 31, 2015, $349,147, net of debt issuance
costs of $853, was outstanding and recorded in Long-term debt, less current portion. The proceeds are being used for general
corporate purposes. The Notes have maturities ranging from 10 to 30 years with a weighted average effective interest rate of
3.5%, excluding accretion of original issuance costs, and an average tenure of 19 years. Interest is payable semi-annually. The
Notes contain certain affirmative and negative covenants. As of December 31, 2015, the Company was in compliance with all
of its debt covenants.
26
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, 2015, the Company was in compliance with all of its
covenants and had no outstanding borrowings under the Credit Agreement. The Credit Agreement has a five-year term and
may be increased, subject to certain conditions, by an additional amount up to $100,000. The interest rate on borrowings is
based on either LIBOR or the prime rate, plus a spread based on the Company’s leverage ratio, at the Company’s election.
Short-term Borrowings
The Company's short-term borrowings included in Amounts due banks were $2,822 and $61,155 at December 31, 2015 and
2014, respectively. Amounts due banks included the outstanding borrowings under the Credit Agreement and the borrowings
of foreign subsidiaries at weighted average interest rates of 24.1% and 3.1% at December 31, 2015 and 2014, respectively.
Return on Invested Capital
The Company reviews return on invested capital ("ROIC") in assessing and evaluating the Company's underlying operating
performance. ROIC is a non-GAAP financial measure that the Company believes is a meaningful metric to investors in
evaluating the Company’s financial performance and may be different than the method used by other companies to calculate
ROIC. ROIC is defined as rolling 12 months of Adjusted net income excluding tax-effected interest income and expense
divided by invested capital. Invested capital is defined as total debt, which includes Amounts due banks, Current portion of
long-term debt and Long-term debt, less current portions, plus Total equity.
ROIC for the years ended December 31, 2015, 2014 and 2013 were as follows:
Return on Invested Capital
Adjusted net income (1)
Plus: Interest expense (after-tax)
Less: Interest income (after-tax)
Net operating profit after taxes
Invested capital
Return on invested capital
2015
2014
2013
$
260,184
$
305,928
$
313,188
13,469
1,675
271,978
1,287,073
6,439
1,909
310,458
1,356,435
1,767
2,049
312,906
1,549,775
21.1%
22.9%
20.2%
_______________________________________________________________________________
(1) See “Non-GAAP Financial Measures” section for a tabular reconciliation of Net income to Adjusted net income.
Contractual Obligations and Commercial Commitments
The Company's contractual obligations and commercial commitments as of December 31, 2015 are as follows:
Long-term debt, including current portion
$
Interest on long-term debt
Capital lease obligations
Short-term debt
Interest on short-term debt
Operating leases
Purchase commitments(1)
Total
Payments Due By Period
2016
2017 to
2018
2019 to
2020
2021 and
Beyond
$
1,400
$
630
$
200
$
12,649
62
2,822
341
12,160
124,228
24,733
24,679
44
—
—
15,357
909
5
—
—
8,582
195
350,315
173,907
—
—
—
5,584
—
Total
352,545
235,968
111
2,822
341
41,683
125,332
$
758,802
$
153,662
$
41,673
$
33,661
$
529,806
_______________________________________________________________________________
(1) Purchase commitments include contractual obligations for raw materials and services.
27
As of December 31, 2015, there was $14,332 of tax liabilities related to unrecognized tax benefits and a $23,201 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, 2015 of $9,184 for a contingent consideration arrangement and $26,484 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 $20,000 to the U.S. defined benefit plans in 2016.
Stock-Based Compensation
On April 23, 2015, the shareholders of the Company approved the 2015 Equity and Incentive Compensation Plan ("Employee
Plan"), which replaced the 2006 Equity and Performance Incentive Plan, as amended ("EPI Plan"). The Employee Plan
provides for the granting of options, appreciation rights, restricted shares, restricted stock units and performance-based awards
up to an additional 5,400,000 of the Company's common shares. In addition, on April 23, 2015, the shareholders of the
Company approved the 2015 Stock Plan for Non-Employee Directors ("2015 Director Plan"), which replaced the 2006 Stock
Plan for Non-Employee Directors ("2006 Director Plan"). The 2015 Director Plan provides for the granting of options,
restricted shares and restricted stock units up to an additional 300,000 of the Company's common shares. At December 31,
2015, there were 5,600,763 common shares available for future grant under all plans.
Under these plans, options, restricted shares and restricted stock units granted were 411,406 in 2015, 22,909 in 2014 and
357,494 in 2013. The Company issued common shares from treasury upon all exercises of stock options and the granting of
restricted stock awards in 2015, 2014 and 2013.
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 2015, 2014 and 2013 was $7,932, $8,416 and $9,734, respectively, with a related tax
benefit of $3,037, $3,222 and $3,727, respectively. As of December 31, 2015, total unrecognized stock-based compensation
expense related to non-vested stock options, restricted shares and restricted stock units was $15,371, which is expected to be
recognized over a weighted average period of approximately 2.9 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, 2015 was $30,121 and $30,121, respectively. The total intrinsic value of options
exercised during 2015, 2014 and 2013 was $6,879, $14,647 and $26,288 respectively.
Product Liability Costs
Product liability 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.
28
Critical Accounting Policies and Estimates
The Company's consolidated financial statements are based on the selection and application of significant accounting policies,
which require management to make estimates and assumptions. These estimates and assumptions are reviewed periodically by
management and compared to historical trends to determine the accuracy of estimates and assumptions 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
2015. The Company believes the following accounting policies are some of the more critical judgment areas affecting its
financial condition and results of operations.
Legal and Tax Contingencies
The Company, like other manufacturers, is subject from time to time to a variety of civil and administrative proceedings arising
in the ordinary course of business. Such claims and litigation include, without limitation, product liability claims, regulatory
claims and health, safety and environmental claims, some of which relate to cases alleging asbestos induced illnesses. The
costs associated with these claims are predominantly defense costs, which are recognized in the periods incurred. Insurance
reimbursements mitigate these costs and, where reimbursements are probable, they are recognized in the applicable period.
With respect to costs other than defense costs (i.e., for liability and/or settlement or other resolution), reserves are recorded
when it is probable that the contingencies will have an unfavorable outcome. The Company accrues its best estimate of the
probable costs after a review of the facts with management and counsel and taking into account past experience. If an
unfavorable outcome is determined to be reasonably possible but not probable, or if the amount of loss cannot be reasonably
estimated, disclosure would be provided for material claims or litigation. Many of the current cases are in differing procedural
stages and information on the circumstances of each claimant, which forms the basis for judgments as to the validity or ultimate
disposition of such actions, varies greatly. Therefore, in many situations a range of possible losses cannot be made. Reserves
are adjusted as facts and circumstances change and related management assessments of the underlying merits and the likelihood
of outcomes change. Moreover, reserves only cover identified and/or asserted claims. Future claims could, therefore, give rise
to increases to such reserves.
The Company is subject to taxation from U.S. federal, state, municipal and international jurisdictions. The calculation of
current income tax expense is based on the best information available and involves significant management judgment. The
actual income tax liability for each jurisdiction in any year can in some instances be ultimately determined several years after
the financial statements are published.
The Company maintains 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.
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 $6,023, $22,351 and
$7,759 in 2015, 2014 and 2013, respectively.
29
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 remeasurement 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 rate") as opposed to the official rate. Further, in January 2014, the Venezuelan government 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 fluctuated daily and was significantly higher than both the official rate and the SICAD rate.
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 rate as future remittances for dividend payments could be transacted at
the SICAD rate. As of March 31, 2014, the SICAD 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 rate.
In February 2015, the Venezuelan government eliminated the SICAD II rate and announced a new exchange market called the
Marginal Currency System ("SIMADI"), which allows for trading based on supply and demand. At September 30, 2015, the
Company determined that the rate used in remeasuring the Venezuelan operation's financial statements into U.S. dollars would
change to the SIMADI rate as it most appropriately approximates the rates used to transact business in its Venezuelan
operations. At September 30, 2015, the SIMADI rate was 199.4 bolivars to the U.S. dollar, resulting in a remeasurement
charge on the bolivar-denominated monetary net liability position of $4,334. This foreign exchange loss was recorded in
Selling, general & administrative expenses during the three months ended September 30, 2015. Additionally, the Company
recorded lower of cost or net realizable value inventory adjustments of $22,880 within Cost of goods sold, related to the
adoption of the SIMADI rate. As of December 31, 2015, the SIMADI rate was 198.7 bolivars to the U.S dollar. If the
Company were to convert bolivars at a rate other than the SIMADI rate, the Company may realize additional losses or gains to
earnings.
At December 31, 2015, the amount of bolivar requests awaiting government approval to be paid in U.S. dollars at the SIMADI
rate include $1,550 for dividend payments, of which $510 have been outstanding for more than a year, and $7,871 to be paid at
the official rate, all of which have been outstanding for more than a year.
In 2015, the Company’s Venezuela operations contributed $84,662 to Net sales for the Company. Net income included a loss
of $24,005, or $0.32 per diluted share from Venezuela. Adjusted net income for 2015 included $3,209, or $0.05 per diluted
share, from Venezuela. In 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 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 asset position was $32 at December 31, 2015, which includes $642 of cash and cash equivalents and the bolivar-
denominated monetary net liability position was $1,264 at December 31, 2014, which includes $2,124 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. 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
production levels in Venezuela.
30
In the future, the Company may need to deconsolidate its Venezuelan operations as a result of an inability to exchange bolivar-
denominated cash coupled with an acute degradation in the ability to make key operational decisions due to government
regulations in Venezuela. The Company monitors factors such as its ability to access various exchange mechanisms; the impact
of government regulations on the Company’s ability to manage its Venezuelan operation’s capital structure, purchasing, product
pricing and labor relations; and the current political and economic situation within Venezuela. Based upon such factors as of
December 31, 2015, the Company continues to consolidate its Venezuelan subsidiary. As of December 31, 2015, the
Company's total investment in Venezuela was approximately $35,000, which includes intercompany payables.
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 that are not expected to be permanently reinvested were not significant. At December 31, 2015, the Company
had approximately $92,537 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, 2015, a valuation
allowance of $51,294 was recorded against these deferred tax assets based on this assessment. The Company believes it is
more likely than not that the tax benefit of the remaining net deferred tax assets will be realized. The amount of net deferred
tax assets considered realizable could be increased or reduced in the future if the Company's assessment of future taxable
income or tax planning strategies changes.
Pensions
The Company maintains a number of defined benefit ("Pension") 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 6.3% and 7.3% at December 31, 2015 and 2014, 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 2015, investment returns were 0.9% compared with
a return of 11.5% in 2014. A 25 basis point change in the expected return on plan assets would increase or decrease pension
expense by approximately $2,000.
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 4.5% at December 31, 2015 and 4.1% at December 31, 2014. A 10 basis point change in the discount rate would increase
or decrease pension expense by approximately $1,500.
Pension expense relating to the Company's defined benefit plans was $162,815, $12,395 and $29,908 in 2015, 2014 and 2013,
respectively. Pension expense in 2015 includes $142,738 in settlement charges. The Company expects 2016 defined benefit
pension expense, excluding the effect of settlements, to decrease by a range of approximately $1,000 to $3,000.
The Accumulated other comprehensive loss, excluding tax effects, recognized on the Consolidated Balance Sheet was $154,756
as of December 31, 2015 and $314,411 as of December 31, 2014. The decrease is primarily the result of pension settlement
charges recorded in 2015 related to the purchase of a group annuity contract. Refer to Note 11 to the Consolidated Financial
Statements for additional information.
31
The Company made voluntary contributions to its U.S. defined benefit plans of $47,124, $21,175 and $75,216 in 2015, 2014
and 2013, respectively. The Company expects to voluntarily contribute $20,000 to the U.S. plans in 2016. Based on current
pension funding rules, the Company does not anticipate that contributions to the plans would be required in 2016.
Inventories
Inventories are valued at the lower of cost or net realizable value. Fixed manufacturing overhead costs are allocated to
inventory based on normal production capacity and abnormal manufacturing costs are recognized as period costs. 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 $59,765 at December 31, 2015 and $71,311 at
December 31, 2014.
The Company reviews the net realizable value of inventory on an on-going basis, with consideration given to deterioration,
obsolescence and other factors. If actual market conditions differ from those projected by management, and the Company's
estimates prove to be inaccurate, write-downs of inventory values and adjustments to Cost of goods sold may be required.
Historically, the Company's reserves have approximated actual experience.
Accounts Receivable
The Company maintains an allowance for doubtful accounts for estimated losses from the failure of its customers to make
required payments for products delivered. The Company estimates this allowance based on the age of the related receivable,
knowledge of the financial condition of customers, review of historical receivables and reserve trends and other pertinent
information. If the financial condition of customers deteriorates or an unfavorable trend in receivable collections is
experienced in the future, additional allowances may be required. Historically, the Company's reserves have approximated
actual experience.
Long-Lived Assets
The Company periodically evaluates whether current facts or circumstances indicate that the carrying value of its depreciable
long-lived assets to be held and used may not be recoverable. If such circumstances are determined to exist, an estimate of
undiscounted future cash flows produced by the long-lived asset, or the appropriate grouping of assets, is compared to the
carrying value to determine whether impairment exists. If an asset is determined to be impaired, a loss is recognized to the
extent that carrying value exceeds fair value. Fair value is measured based on quoted market prices in active markets, if
available. If quoted market prices are not available, the estimate of fair value is based on various valuation techniques,
including the discounted value of estimated future cash flows.
Due to the presence of impairment indicators during the third quarter of 2015, the Company performed an impairment test of
certain long-lived assets of a business unit. The Company determined that for certain long-lived assets the carrying value of the
assets exceeded the fair value, resulting in a $3,417 non-cash impairment charge. This result was considered a possible
indication of goodwill impairment, therefore, the Company performed an interim goodwill impairment test, using a
combination of income and market valuation approaches, resulting in a $6,315 non-cash impairment charge to the carrying
value of goodwill.
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 techniques 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 reporting units exceeded its carrying value by at least 20% as of the testing
date during the fourth quarter of 2015. 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.
32
Stock-Based Compensation
The Company uses 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, 2015, 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, 2015
were compared to the hypothetical foreign exchange, commodity price, or interest rates in the sensitivity analysis to determine
the effect on income before taxes, interest expense, or accumulated other comprehensive loss. The analysis takes into
consideration any offset that would result from changes in the value of the hedged asset or liability.
Foreign Currency Exchange Risk
The Company enters into forward foreign exchange contracts principally to hedge the currency fluctuations in transactions
denominated in foreign currencies, thereby limiting the Company's risk that would otherwise result from changes in exchange
rates. At December 31, 2015, the Company hedged certain third-party and inter-company purchases and sales. At
December 31, 2015, the Company had foreign exchange contracts with a notional value of approximately $30,388. At
December 31, 2015, 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, 2015 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 2015 or 2014.
The Company's return on cash and cash equivalents are also subject to interest rate risk. As of December 31, 2015, the
Company had $304,183 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, 2015
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.
33
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, 2015 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, 2015.
The effectiveness of the Company's internal control over financial reporting as of December 31, 2015 has been audited by
Ernst & Young LLP, an independent registered public accounting firm, as stated in their report, which is included elsewhere in
this Annual Report on Form 10-K and is incorporated herein by reference.
Changes in Internal Control Over Financial Reporting
There have been no changes in the Company's internal control over financial reporting that occurred during the fourth quarter
of 2015 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 2016 proxy statement pursuant to Regulation 14A of the Exchange Act prior to April 29,
2016.
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 2016 proxy statement.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference from the 2016 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 2016 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 2016 proxy statement.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this item is incorporated by reference from the 2016 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, 2015 and 2014
Consolidated Statements of Income – Years ended December 31, 2015, 2014 and 2013
Consolidated Statements of Comprehensive Income – Years ended December 31, 2015, 2014 and 2013
Consolidated Statements of Equity – Years ended December 31, 2015, 2014 and 2013
Consolidated Statements of Cash Flows – Years ended December 31, 2015, 2014 and 2013
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
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).
3.2
10.1
10.2
10.3*
10.4*
10.5*
10.6*
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).
Note Purchase Agreement, dated as of April 1, 2015, by and among Lincoln Electric Holdings, Inc., The
Lincoln Electric Company, Lincoln Electric International Holding Company, J.W. Harris Co., Inc., Lincoln
Global, Inc., Techalloy, Inc., Wayne Trail Technologies, Inc. and the purchasers party thereto (filed as Exhibit
10.1 to Form 8-K of Lincoln Electric Holdings, Inc. filed on April 2, 2015, SEC File No. 0-1402 and
incorporated herein by reference and made a part hereof).
Supplemental Executive Retirement Plan (Amended and Restated as of December 31, 2008) (filed as
Exhibit 10.1 to Form 8-K of Lincoln Electric Holdings, Inc. filed on January 7, 2009, SEC File No. 0-1402 and
incorporated herein by reference and made part hereof).
Deferred Compensation Plan for Certain Retention Agreements and Other Contractual Arrangements
(Amended and Restated as of January 1, 2004) (filed as Exhibit 10(i) to Form 10-K of Lincoln Electric
Holdings, Inc. for the year ended December 31, 2003, SEC File No. 0-1402 and incorporated herein by
reference and made a part hereof).
Non-Employee Directors' Deferred Compensation Plan (Amended and Restated as of December 31, 2008)
(filed as Exhibit 10.3 to Form 8-K of Lincoln Electric Holdings, Inc. filed on January 7, 2009, SEC File
No. 0-1402 and incorporated herein by reference and made a part hereof).
2005 Deferred Compensation Plan for Executives (Amended and Restated as of January 1, 2016) (filed
herewith).
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*
Description
Form of Severance Agreement (as entered into by the Company and its executive officers) (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).
2006 Equity and Performance Incentive Plan (Restated as of March 3, 2011) (filed as Annex A to the Lincoln
Electric Holdings, Inc. proxy statement filed on 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 December 15, 2014 (filed as
Exhibit 10.20 to Form 10-K of Lincoln Electric Holdings, Inc. for the year ended December 31, 2014, SEC file
No. 0-1402 and incorporated herein by reference and made a part hereof).
2015 Equity and Incentive Compensation Plan (filed as Appendix B to the Lincoln Electric Holdings, Inc.
definitive proxy statement filed on March 18, 2015, SEC File No. 0-1402, and incorporated herein by reference
and made a part hereof).
2015 Stock Plan for Non-Employee Directors (filed as Appendix C to the Lincoln Electric Holdings, Inc.
definitive proxy statement filed on March 18, 2015, 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 before December 2010) (filed as
Exhibit 10.4 to Form 10-Q of Lincoln Electric Holdings, Inc. for the three months ended September 30, 2010,
SEC File No. 0-1402 and incorporated herein by reference and made a part hereof).
Form of 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 (for awards made prior to December 2013)
(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 Amendment to Restricted Stock Unit Agreement for Executive Officers (for awards made 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 made on or after December 2013 -
October 2015) (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).
Form of Restricted Share Agreement for Non-Employee Directors (filed as Exhibit 10.1 to Form 8-K of
Lincoln Electric Holdings, Inc. filed on July 29, 2015, SEC File No. 0-1402 and incorporated herein by
reference and made a part hereof).
10.21*
Form of Restricted Stock Unit Agreement for Executive Officers (for awards made on or after October 2015)
(filed herewith)
10.22*
Form of Performance Share Award Agreement for Executive Officers (filed herewith)
10.23*
10.24*
21
23
24
Form of Officer Indemnification Agreement (effective February 23, 2012) (filed as Exhibit 10.1 to Form 8-K of
Lincoln Electric Holdings, Inc. filed on February 29, 2012, SEC File No. 0-1402 and incorporated herein by
reference and made a part hereof).
Form of Director Indemnification Agreement (effective February 23, 2012) (filed as Exhibit 10.1 to Form 8-K
of Lincoln Electric Holdings, Inc. filed on February 29, 2012, SEC File No. 0-1402 and incorporated herein by
reference and made a part hereof).
Subsidiaries of the Registrant.
Consent of Independent Registered Public Accounting Firm.
Powers of Attorney.
37
Exhibit No.
31.1
31.2
32.1
Description
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
XBRL Instance Document
101.SCH
XBRL Taxonomy Extension Schema Document
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB
XBRL Taxonomy Extension Label Linkbase Document
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
*
Reflects management contract or other compensatory arrangement required to be filed as an exhibit pursuant to Item 15(b) of this
report.
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/ GEOFFREY P. ALLMAN
Geoffrey P. Allman
Senior Vice President, Corporate Controller
(principal accounting officer)
February 24, 2016
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 24, 2016
/s/ VINCENT K. PETRELLA
Vincent K. Petrella,
Executive Vice President, Chief Financial Officer and
Treasurer
(principal financial officer)
February 24, 2016
/s/ GEOFFREY P. ALLMAN
Geoffrey P. Allman,
Senior Vice President, Corporate Controller
(principal accounting officer)
February 24, 2016
/s/ GEOFFREY P. ALLMAN
Geoffrey P. Allman as
Attorney-in-Fact for
David H. Gunning, Director
February 24, 2016
/s/ GEOFFREY P. ALLMAN
Geoffrey P. Allman as
Attorney-in-Fact for
Michael F. Hilton, Director
February 24, 2016
/s/ GEOFFREY P. ALLMAN
Geoffrey P. Allman as
Attorney-in-Fact for
Kathryn Jo Lincoln, Director
February 24, 2016
/s/ GEOFFREY P. ALLMAN
Geoffrey P. Allman as
Attorney-in-Fact for
Phillip J. Mason, Director
February 24, 2016
/s/ GEOFFREY P. ALLMAN
Geoffrey P. Allman as
Attorney-in-Fact for
George H. Walls, Jr., Director
February 24, 2016
/s/ GEOFFREY P. ALLMAN
Geoffrey P. Allman as
Attorney-in-Fact for
Curtis E. Espeland, Director
February 24, 2016
/s/ GEOFFREY P. ALLMAN
Geoffrey P. Allman as
Attorney-in-Fact for
Stephen G. Hanks, Director
February 24, 2016
/s/ GEOFFREY P. ALLMAN
Geoffrey P. Allman as
Attorney-in-Fact for
G. Russell Lincoln, Director
February 24, 2016
/s/ GEOFFREY P. ALLMAN
Geoffrey P. Allman as
Attorney-in-Fact for
William E. MacDonald, III, Director
February 24, 2016
/s/ GEOFFREY P. ALLMAN
Geoffrey P. Allman as
Attorney-in-Fact for
Hellene S. Runtagh, Director
February 24, 2016
40
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, 2015 and 2014, 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, 2015. 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, 2015 and 2014, and the consolidated results of
their operations and their cash flows for each of the three years in the period ended December 31, 2015, 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, 2015, 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 24, 2016 expressed an unqualified opinion thereon.
Cleveland, Ohio
February 24, 2016
/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,
2015, 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, 2015, 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, 2015 and 2014, 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, 2015 of Lincoln Electric Holdings, Inc. and subsidiaries and our report dated February 24, 2016
expressed an unqualified opinion thereon.
Cleveland, Ohio
February 24, 2016
/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 $7,299 in
2015; $7,858 in 2014)
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
Property, plant 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,
2015
2014
$
304,183
$
278,379
264,715
337,664
87,919
39,555
148,456
275,930
—
91,167
935,995
45,775
362,325
696,849
112,408
41,156
187,493
341,057
9,164
129,938
1,096,202
46,553
371,400
711,737
1,104,949
1,129,690
693,626
411,323
38,201
27,241
120,719
187,504
32,093
8,683
22,412
436,853
690,944
438,746
1,240
27,481
132,689
180,127
31,119
2,940
28,671
404,267
$
1,784,171
$
1,939,215
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 2015 and 2014;
outstanding – 70,693,389 shares in 2015 and 76,997,161 shares in 2014
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Treasury shares, at cost – 27,888,045 shares in 2015 and 21,584,273 shares in 2014
Total Shareholders' Equity
Non-controlling interests
Total Equity
TOTAL LIABILITIES AND EQUITY
See notes to these consolidated financial statements.
F-4
December 31,
2015
2014
$
2,822
$
152,620
61,155
209,745
65,571
33,522
16,599
5,026
22,622
29,011
16,112
24,761
1,456
66,653
30,126
18,947
2,971
22,329
29,973
26,517
16,968
7,011
370,122
492,395
350,347
15,243
46,662
19,674
49,675
2,488
32,803
40,761
25,571
59,416
481,601
161,039
—
—
9,858
272,908
2,125,838
(296,267)
(1,180,750)
931,587
861
9,858
258,816
2,086,174
(288,622)
(783,677)
1,282,549
3,232
932,448
1,285,781
$
1,784,171
$
1,939,215
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
Pension settlement 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,
$
2015
2,535,791
1,694,647
$
2014
2,813,324
1,864,027
$
2013
2,852,671
1,910,017
942,654
527,206
8,463
—
949,297
545,497
30,053
—
373,747
406,985
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
$
$
$
$
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
841,144
496,748
19,958
142,738
181,700
2,714
3,015
4,182
(21,824)
(11,913)
169,787
42,375
127,412
(66)
127,478
1.72
1.70
1.19
$
$
$
$
$
$
$
$
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 (loss), net of tax:
Unrealized gain (loss) on derivatives designated and qualifying as cash
flow hedges, net of tax of $336 in 2015; $(121) in 2014; $(141) in 2013
Defined pension plan activity, net of tax of $61,538 in 2015; $(20,951)
in 2014; $60,556 in 2013
Currency translation adjustment
Transactions with non-controlling interests
Other comprehensive income (loss)
Comprehensive income
Comprehensive loss attributable to non-controlling interests
Comprehensive income attributable to shareholders
$
Year Ended December 31,
2015
127,412
$
2014
253,880
$
2013
291,687
$
557
(378)
289
98,117
(106,935)
(7)
(8,268)
119,144
(689)
119,833
$
(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
See notes to these consolidated financial statements.
F-6
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LINCOLN ELECTRIC HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended December 31,
2015
2014
2013
$
127,478
$
254,686
$
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 in affiliates, net
Deferred income taxes
Stock-based compensation
Pension expense and settlement charges
Pension contributions and payments
Other, net
Changes in operating assets and liabilities, net of effects from acquisitions:
Decrease (increase) in accounts receivable
Decrease (increase) in inventories
(Increase) decrease in other current assets
(Decrease) increase in accounts payable
Decrease 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
Other financing activities
NET CASH USED BY FINANCING ACTIVITIES
Effect of exchange rate changes on cash and cash equivalents
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
Cash and cash equivalents at beginning of year
401,702
338,894
(66)
127,412
6,269
64,007
(530)
(55,728)
7,932
162,815
(53,547)
958
56,741
56,067
(19,972)
(46,911)
(463)
5,808
310,858
(50,507)
(37,076)
2,310
(79)
(85,352)
12,505
(9,268)
(37,466)
357,780
(6,945)
5,996
1,974
(399,494)
(86,968)
(8,022)
(169,908)
(29,794)
25,804
278,379
(806)
253,880
29,574
69,607
(1,848)
17,887
8,416
12,395
(36,072)
18,095
5,876
(5,718)
32,081
2,135
(3,736)
(870)
(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
293,780
(2,093)
291,687
5,092
68,883
(1,660)
17,817
9,734
29,774
(87,356)
1,910
(5,437)
13,310
2,811
794
(7,785)
(680)
(76,015)
(53,161)
1,393
(1,717)
(129,500)
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
299,825
CASH AND CASH EQUIVALENTS AT END OF YEAR
$
304,183
$
278,379
$
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, plasma cutters, wire feeding systems, robotic welding packages, integrated automation systems, fume extraction
equipment, consumable electrodes, fluxes and welding accessories. 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 $6,023, $22,351 and
$7,759 in 2015, 2014 and 2013, 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 remeasurement 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 rate") as opposed to the official rate. Further, in January 2014, the Venezuelan government 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 fluctuated daily and was significantly higher than both the official rate and the SICAD rate.
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 rate as future remittances for dividend payments could be transacted at
the SICAD rate. As of March 31, 2014, the SICAD 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 rate.
F-9
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
In February 2015, the Venezuelan government eliminated the SICAD II rate and announced a new exchange market called the
Marginal Currency System (“SIMADI”), which allows for trading based on supply and demand. At September 30, 2015, the
Company determined that the rate used in remeasuring the Venezuelan operation's financial statements into U.S. dollars would
change to the SIMADI rate as it most appropriately approximates the rates used to transact business in its Venezuelan
operations. At September 30, 2015, the SIMADI rate was 199.4 bolivars to the U.S. dollar, resulting in a remeasurement charge
on the bolivar-denominated monetary net liability position of $4,334. This foreign exchange loss was recorded in Selling,
general & administrative expenses during the three months ended September 30, 2015. Additionally, the Company recorded a
lower of cost or net realizable value inventory adjustments of $22,880 within Cost of goods sold, related to the adoption of the
SIMADI rate. As of December 31, 2015, the SIMADI rate was 198.7 bolivars to the U.S dollar. If the Company were to
convert bolivars at a rate other than the SIMADI 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 asset position was $32 at December 31, 2015, including $642
of cash and cash equivalents and the bolivar-denominated monetary net liability position was $1,264 at December 31, 2014,
including $2,124 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 net realizable value. Fixed manufacturing overhead costs are allocated to
inventory based on normal production capacity and abnormal manufacturing costs are recognized as period costs. 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 net realizable 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 $19,072 at December 31, 2015 and $18,542 at December 31, 2014.
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 40 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.
F-10
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
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 techniques 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.
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 generally provided for periods up to three years from the date of sale. The
accrual for product warranty claims is included in Accrued expenses.
F-11
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
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 derivative instruments to manage exposures to interest rates, commodity prices and currency exchange rate
fluctuations on certain purchase and sales transactions, balance sheet and net investment exposures. 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.
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.
Cash flow hedges
Certain foreign currency forward contracts are qualified and designated as cash flow hedges (i.e., hedging the exposure to
variability in expected future cash flows). The effective portion of the fair value unrealized gain or loss on cash flow hedges
are reported as a component of Accumulated other comprehensive income ("AOCI") 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 recorded in Cost of goods sold or Sales for hedges of
purchases and sales, respectively, in the same period or periods during which the hedged transaction affects earnings. The
ineffective portion on cash flow hedges is recognized in current earnings.
Net investment hedges
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 fair value gains or losses are recognized in AOCI 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 gains or losses are subsequently reclassified to Selling, general,
and administrative expenses, as the underlying hedged investment is liquidated.
F-12
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
Derivatives not designated as hedging instruments
The Company has certain derivative instruments which are not designated as hedging instruments including foreign exchange
forward contracts and commodity price contracts. Foreign exchange forward contracts are held as economic hedges of certain
balance sheet exposures and qualify as fair value hedges (i.e., hedging the exposure to changes in the fair value of an asset or a
liability). The gains or losses on these contracts are recognized in Selling, general and administrative expenses, offsetting the
losses or gains on the exposures being hedged. Short-term commodity price contracts are not designated as hedges. Realized
and unrealized gains and losses on these contracts are recognized in Costs of goods sold.
Research and Development
Research and development costs are charged to Selling, general & administrative expenses as incurred and totaled $47,182,
$43,256 and $42,126 in 2015, 2014 and 2013, respectively.
Bonus
Included in Selling, general & administrative expenses are the costs related to the Company's discretionary employee bonus
programs, which for certain U.S.-based employees are net of hospitalization costs. Bonus costs were $98,651 in 2015,
$128,478 in 2014 and $123,571 in 2013.
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
New Accounting Pronouncements Adopted:
In November 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update ("ASU") No.
2015-17, "Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes." ASU 2015-17 requires deferred tax
liabilities and assets to be classified as non-current in a classified statement of financial position. The amendments may be
applied prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented. ASU 2015-17 is
effective for financial statements issued for fiscal years beginning after December 15, 2016 and interim periods within those
annual periods. ASU 2015-17 was early adopted by the Company effective October 1, 2015 to improve Company disclosures
and was applied prospectively. As such, prior periods have not been retrospectively adjusted.
In July 2015, the FASB issued ASU No. 2015-11, "Inventory (Topic 330): Simplifying the Measurement of Inventory." ASU
2015-11 applies to all inventory that is measured using the first-in, first-out and average cost valuation methods. ASU 2015-11
requires entities to measure inventory at lower of cost and net realizable value. Subsequent measurement is unchanged for
inventory measured using last-in, first-out or the retail inventory method. The amendments should be applied prospectively and
are effective for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods within
those fiscal years. ASU 2015-11 was early adopted by the Company effective July 1, 2015 and did not have a significant
impact on the Company's financial statements.
F-13
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
In April 2015, the FASB issued ASU 2015-03, "Interest - Imputation of Interest (Subtopic 835-30)." ASU 2015-03 requires
debt issuance costs related to a recognized debt liability to be presented in the balance sheet as a direct deduction from the
carrying amount of the debt liability, consistent with debt discounts. The recognition and measurement guidance for debt
issuance costs are not affected by the new amendment. The new guidance will be applied on a retrospective basis to each prior
reporting period presented. Upon transition, the Company is required to comply with applicable disclosures for a change in
accounting principle. The amendment is effective for financial statements issued for fiscal years beginning after December 15,
2015, and interim periods within those fiscal years. ASU 2015-03 was early adopted by the Company effective October 1, 2015
resulting in debt issuance costs being presented as a direct deduction to the Company's Long-term debt, less current portion in
the Consolidated Balance Sheet as of December 31, 2015. Refer to Note 8 - Debt for additional details. The Company has
applied the provisions of ASU 2015-15, "Interest - Imputation of Interest (Subtopic 835-30)" and presents costs associated with
its line of credit agreements as an asset in the Consolidated Balance Sheet.
New Accounting Pronouncements to be Adopted:
In September 2015, the FASB issued ASU No. 2015-16, "Business Combinations (Topic 805): Simplifying the Accounting for
Measurement-Period Adjustments." ASU 2015-16 requires an acquiring entity to recognize adjustments to provisional amounts
that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The
amendments also require an entity to record the effect on earnings of changes in depreciation, amortization, or other income
effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the
acquisition date. An entity must present separately on the face of the statement of operations or disclose in the notes the portion
of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if
the adjustment to the provisional amounts had been recognized as of the acquisition date. The amendments should be applied
prospectively and are effective for financial statements issued for fiscal years beginning after December 15, 2015, including
interim periods within those fiscal years.
In May 2015, the FASB issued ASU No. 2015-07, "Fair Value Measurement (Topic 820): Disclosures for Investments in
Certain Entities That Calculate Net Asset Value per Share." ASU 2015-07 removes the requirement to categorize within the
fair value hierarchy all investments for which fair value is measured using the net asset value per share practical expedient and
removes the requirement to make certain disclosures for these investments. The amendment should be applied retrospectively
and is effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within
those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact of the adoption of ASU
2015-07 on the Company's financial statement disclosures.
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. In August 2015, the FASB issued ASU 2015-14, "Revenue from Contracts with Customers (Topic 606):
Deferral of the Effective Date," which deferred the effective date of ASU 2014-09 to annual reporting periods beginning after
December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted as of annual reporting periods
beginning after December 15, 2016. The Company is currently evaluating the impact of the adoption of ASU 2014-09 on the
Company's financial statements.
F-14
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
NOTE 2 - EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per share:
Numerator:
Net income
Denominator:
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,
2015
2014
2013
$
127,478
$
254,686
$
293,780
74,111
743
74,854
$
$
1.72
1.70
$
$
79,185
911
80,096
3.22
3.18
$
$
81,978
1,064
83,042
3.58
3.54
For the years ended December 31, 2015, 2014 and 2013, common shares subject to equity-based awards of 522,471, 260,090 and
45,850, respectively, were excluded from the computation of diluted earnings per share because the effect of their exercise would
be anti-dilutive.
NOTE 3 – ACQUISITIONS
During August 2015, the Company acquired Specialised Welding Products ("SWP"). SWP, based in Melbourne, Australia, is a
provider of specialty welding consumables and fabrication, maintenance and repair services for alloy and wear resistant
products commonly used in mining and energy sector applications. The acquisition broadens the Company's presence and
specialty alloy offering in Australia and New Zealand.
Also in August 2015, the Company acquired Rimrock Holdings Corporation ("Rimrock"). Rimrock is a manufacturer of
industrial automation products and robotic systems with two divisions, Wolf Robotics LLC, based in Fort Collins, Colorado,
and Rimrock Corporation, based in Columbus, Ohio. Wolf Robotics integrates robotic welding and cutting systems
predominantly for heavy fabrication and transportation OEMs and suppliers. The acquisition advances the Company's
leadership position in automated welding and cutting solutions. Rimrock Corporation designs and manufactures automated
spray systems and turnkey robotic systems for the die casting, foundry and forging markets. The Company is currently
reviewing strategic options for Rimrock Corporation.
Combined annual revenues for SWP and Rimrock at the dates of acquisition were approximately $56,000.
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 enables the Company to better support automation customers across three
continents.
Also in 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.
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-15
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, 2015 and 2014 were
as follows:
North
America
Welding
Europe
Welding
Asia
Pacific
Welding
South
America
Welding
The Harris
Products
Group
Balance as of December 31, 2013
$
130,439
$
24,430
$
5,359
$
562
$
Additions and adjustments
Foreign currency translation
Balance as of December 31, 2014
Additions and adjustments
Impairment charges
Foreign currency translation
18,014
(3,859)
144,594
19,700
(6,315)
(5,986)
Balance as of December 31, 2015
$
151,993
$
—
(7,700)
16,730
—
—
(2,384)
14,346
$
—
(97)
5,262
3,846
—
(109)
8,999
$
—
(106)
456
—
—
(114)
342
$
13,925
(381)
(459)
13,085
(301)
—
(960)
11,824
Consolidated
174,715
$
17,633
(12,221)
180,127
23,245
(6,315)
(9,553)
187,504
$
Additions to goodwill primarily reflect goodwill recognized in the acquisitions of Rimrock and SWP in 2015 and Easom in
2014 (see Note 3). During the third quarter of 2015, the Company determined that for certain long-lived assets of a business
unit, the carrying value of the assets exceeded the fair value resulting in impairment (see Note 6). This result was considered a
possible indication of goodwill impairment, therefore, the Company performed an interim goodwill impairment test, using a
combination of income and market valuation approaches resulting in a $6,315 non-cash impairment charge to the carrying value
of goodwill. The reductions to goodwill include the tax benefit attributable to the amortization of tax deductible goodwill in
excess of goodwill recorded for financial reporting purposes.
Gross carrying values and accumulated amortization of intangible assets other than goodwill by asset class as of December 31,
2015 and 2014 were as follows:
Intangible assets not subject to amortization
Trademarks and trade names
Intangible assets subject to amortization
Trademarks and trade names
Customer relationships
Patents
Other
Total intangible assets subject to amortization
December 31, 2015
December 31, 2014
Gross
Amount
Accumulated
Amortization
Gross
Amount
Accumulated
Amortization
$
$
$
15,919
36,754
77,590
24,208
54,586
193,138
$
$
$
$
$
18,243
33,932
6,884
29,279
88,338
16,273
34,064
77,671
24,195
54,992
190,922
$
$
14,253
26,935
6,509
26,809
74,506
Increases in gross intangible assets primarily reflect the acquisitions of Rimrock and SWP in 2015. During the third quarter of
2015, the Company recognized non-cash impairment charges of $3,417 related to trademarks and trade names, customer
relationships and other definite lived intangible assets (see Note 6). All impairment charges have been recorded within
Rationalization and asset impairment charges.
F-16
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
During 2015, the Company acquired intangible assets, either individually or as part of a group of assets, with an initial purchase
price allocation and weighted-average lives as follows:
Acquired intangible assets not subject to amortization
Trademarks and trade names
Acquired intangible assets subject to amortization
Trademarks and trade names
Customer relationships
Patents
Other
Total acquired intangible assets subject to amortization
Year Ended December 31, 2015
Purchase Price
Allocation
Weighted
Average Life
$
$
615
2,155
4,479
2,377
2,694
11,705
10
10
20
11
Aggregate amortization expense was $13,296, $13,869 and $13,342 for 2015, 2014 and 2013, respectively. Estimated annual
amortization expense for intangible assets for each of the next five years is $13,950 in 2016, $12,790 in 2017, $11,928 in 2018,
$10,788 in 2019 and $10,360 in 2020.
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. As of December 31, 2015, the Company's business units
were aligned into five operating segments. The operating segments consists of North America Welding, Europe Welding, Asia
Pacific Welding, South America Welding and The Harris Products Group. The North America Welding segment primarily
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.
During the first quarter of 2016, the Company realigned its organizational and leadership structure. The new structure will
allow for further integration of operational and product development processes across regions and support growth strategies. In
accordance with this organizational change, beginning with quarterly reporting for the three months ended March 31, 2016, the
Company will report three operating segments as follows: Americas Welding, International Welding, and The Harris Products
Group.
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. EBIT is defined as Operating income plus Equity earnings in
affiliates and Other income. Segment EBIT is adjusted for special items as determined by management such as the impact of
rationalization activities, certain asset impairment charges and gains or losses on disposals of assets. The accounting principles
applied at the operating segment level are generally the same as those applied at the consolidated financial statement level with
the exception of LIFO. Segment assets include inventories measured on a FIFO basis while consolidated inventories include
inventories reported on a LIFO basis. Segment and consolidated income before interest and income taxes include the effect of
inventories reported on a LIFO basis. At December 31, 2015, 2014 and 2013, approximately 40%, 40% and 38%, respectively,
of total inventories were valued using the LIFO method. LIFO is used for certain domestic inventories included in North
America Welding. Inter-segment sales are recorded at agreed upon prices that approximate arm's length prices and are
eliminated in consolidation. Corporate-level expenses are allocated to the operating segments.
F-17
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, 2015
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
$
1,610,357
100,770
1,711,127
306,746
155,757
150,989
$
$
$
$
$
$
$
336,824
15,922
352,746
31,317
1,507
29,810
$
$
$
$
186,615
10,510
197,125
7,392
5,432
1,960
$
$
$
$
$
$
$
138,014
174
138,188
5,569
27,214
263,981
9,312
273,293
27,882
—
(21,645) $
27,882
$
$
$
$
— $
2,535,791
(136,688) $
—
(136,688) $
2,535,791
(99) $
— $
(99) $
378,807
189,910
188,897
2,714
(21,824)
$
169,787
Total assets
$
1,101,056
$
298,825
$
239,382
$
82,575
$
143,905
$
(81,572) $
1,784,171
Equity investments in affiliates
Capital expenditures
Depreciation and amortization
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
—
31,578
44,344
23,450
6,508
8,296
—
5,480
7,026
3,791
4,214
1,765
—
2,727
2,596
— $
— $
(20) $
27,241
50,507
64,007
$
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
—
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
Total assets
$
1,048,412
$
403,094
$
325,656
$
169,027
$
162,496
$
43,182
Equity investments in affiliates
Capital expenditures
Depreciation and amortization
—
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) $
F-18
$
$
3,320
(2,864)
416,441
2,151,867
26,618
76,015
68,883
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
In 2015, special items in North America Welding, Europe Welding and Asia Pacific Welding include rationalization charges
primarily related to employee severance and other related costs. North America Welding special items also include charges of
$3,417 related to the impairment of long-lived assets and $6,315 related to the impairment to the carrying value of goodwill.
Special items in 2015 also include pension settlement charges of $142,738, primarily related to the purchase of a group annuity
contract. South America Welding special items reflect Venezuelan foreign exchange remeasurement losses related to the
adoption of a new foreign exchange mechanism.
In 2014, special items include net rationalization charges primarily related to employee severance and other costs associated
with the consolidation of manufacturing operations. Asia Pacific Welding special items also include net charges of $32,742
related to the impairment of long-lived assets partially offset by gains of $3,293 related to the sale of assets. South America
Welding special items also include Venezuelan foreign exchange remeasurement losses of $21,133 related to the adoption of a
new foreign exchange mechanism.
In 2013, special items in North America Welding, Europe Welding and Asia Pacific Welding reflect rationalization charges
primarily related to employee severance and other costs associated with the consolidation of manufacturing operations. Asia
Pacific Welding 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. South America Welding special items represent a charge related to the devaluation of the
Venezuelan foreign currency.
Export sales (excluding inter-company sales) from the United States were $175,049 in 2015, $210,325 in 2014 and $260,195 in
2013. No individual customer comprised more than 10% of the Company's total revenues for any of the three years ended
December 31, 2015.
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,
2015
2014
2013
1,387,882
$
1,417,750
$
1,350,309
137,101
1,010,808
190,035
1,205,539
219,490
1,282,872
2,535,791
$
2,813,324
$
2,852,671
December 31,
2015
2014
2013
173,974
$
171,746
$
53,673
184,045
(369)
411,323
$
57,783
209,640
(423)
438,746
$
162,357
83,416
238,685
(453)
484,005
$
$
$
$
NOTE 6 – RATIONALIZATION AND ASSET IMPAIRMENTS
The Company recorded rationalization net charges of $19,958, $30,053 and $8,463 for the years ended December 31, 2015,
2014 and 2013, respectively. The 2015 net charges include $13,719 primarily related to employee severance and other related
costs and $6,239 in asset impairment charges. A description of each restructuring plan and the related costs follows:
North America Welding Plans:
During 2015, the Company initiated a rationalization plan within North America Welding that includes a voluntary separation
incentive program covering certain U.S.-based employees. The Company recorded rationalization charges of $3,298 for the
year ended December 31, 2015 related to the program, which represent employee severance and other related costs. The
Company does not expect further costs associated with these actions to be material as they were substantially completed and
paid during 2015.
F-19
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
Due to the presence of impairment indicators during 2015, the Company performed an impairment test of certain long-lived
assets of a business unit. The Company determined that for certain long-lived assets the carrying value of the assets exceeded
the fair value, resulting in a $3,417 non-cash impairment charge. This result was considered a possible indication of goodwill
impairment, therefore, the Company performed an interim goodwill impairment test, using a combination of income and market
valuation approaches, resulting in a $6,315 non-cash impairment charge to the carrying value of goodwill.
Europe Welding Plans:
During 2015, the Company initiated a rationalization plan within Europe Welding. The plan includes headcount restructuring to
better align the cost structures with economic conditions and operating needs. During the year ended December 31, 2015, the
Company recorded charges relating to the Europe Welding plans of $1,507, which represent employee severance and other
related costs. The Company does not expect further costs associated with these actions to be material as they were substantially
completed and paid during 2015.
Asia Pacific Welding Plans:
During 2014, the Company identified net assets within the segment for planned divestiture which were classified as held for
sale. During 2015, the Company initiated a rationalization plan to restructure headcount and better align the cost structures
with economic conditions and operating needs. As part of this plan, the net assets held for sale were reclassified as held for use
as the sale was no longer deemed probable. During the year ended December 31, 2015, the Company recorded net charges
relating to these actions of $5,421, which primarily represent employee severance and other related costs partially offset by
costs and adjustments to reclassify a potential divestiture that was previously held-for-sale. The Company does not expect
additional charges related to the completion of these actions to be material. At December 31, 2015, liabilities relating to the
Asia Pacific Welding plan of $7,440 were recognized in Other current liabilities.
The following tables summarize the activity related to the rationalization liabilities by segment for the year ended December 31,
2015:
North
America
Welding
Europe
Welding
Asia
Pacific
Welding
South
America
Welding
Balance at December 31, 2013
Payments and other adjustments
Charged (credited) to expense
Balance at December 31, 2014
Payments and other adjustments
Charged (credited) to expense
Balance at December 31, 2015
$
$
$
466
$
(398)
(68)
— $
(3,231)
3,298
$
$
2,435
(3,041)
911
305
(1,654)
1,507
$
375
(191)
(184)
Consolidated
3,276
(4,212)
1,241
— $
(582)
582
— $
— $
(1,474)
8,914
—
—
305
(6,359)
13,719
7,665
67
$
158
$
7,440
$
— $
The Company believes the rationalization actions will positively impact future results of operations and will not have a material
effect on liquidity and sources and uses of capital. The Company continues evaluating its cost structure and additional
rationalization actions may result in charges in future periods.
F-20
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
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, 2015
and 2014:
Unrealized gain
(loss) on
derivatives
designated and
qualifying as
cash flow
hedges
Defined benefit
pension plan
activity
Currency
translation
adjustment
Total
Balance at December 31, 2013
Other comprehensive income (loss) before
reclassification
Amounts reclassified from AOCI
Net current-period other comprehensive income
(loss)
Balance at December 31, 2014
Other comprehensive income (loss) before
reclassification
Amounts reclassified from AOCI
Net current-period other comprehensive income
(loss)
Balance at December 31, 2015
$
$
$
369
$
(160,693)
$
8,383
$
(151,941)
(720)
342 1
(378)
(9)
979
(422) 1
557
548
$
$
(48,803) 2
11,603 2
(37,200)
(197,893)
(1,632) 2
99,749 2
98,117
(99,776)
$
$
(99,103) 3
—
(99,103)
(90,720)
(106,319) 3
—
(106,319)
(197,039)
$
$
(148,626)
11,945
(136,681)
(288,622)
(106,972)
99,327
(7,645)
(296,267)
_______________________________________________________________________________
1 During 2015, this AOCI reclassification is a component of Net sales of $(1,191) (net of tax of $(547)) and Cost of goods sold of
$771 (net of tax of $549); during 2014, the reclassification is a component of Net sales of $(80) (net of tax of $(65)), Cost of goods
sold of $422 (net of tax of $205). (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 $61,538 and $(20,951) during the
years ended December 31, 2015 and 2014, respectively). (See Note 11 - Retirement and Postretirement Benefit Plans for additional
details.)
3 The Other comprehensive income before reclassifications excludes $(623) and $734 attributable to Non-controlling interests in the
years ended December 31, 2015 and 2014, respectively. The reclassified AOCI component is included in the computation of Non-
controlling interests. (See Consolidated Statements of Equity for additional details.)
F-21
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, 2015 and 2014, debt consisted of the following:
December 31,
2015
2014
Long-term debt
Senior Unsecured Notes due through 2045, interest at 3.2% to 4.0% (net of debt
issuance costs of $853 at December 31, 2015)
$
349,147
$
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 24.1% (3.1% in 2014)
Current portion long-term debt
Total short-term debt
Total debt
111
2,545
351,803
1,456
350,347
2,822
1,456
4,278
$
354,625
$
—
198
9,301
9,499
7,011
2,488
61,155
7,011
68,166
70,654
At December 31, 2015 and 2014, the fair value of long-term debt, including the current portion, was approximately $342,602
and $9,323, 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.
Senior Unsecured Notes
On April 1, 2015, the Company entered into a Note Purchase Agreement pursuant to which it agreed to issue Senior Unsecured
Notes (the "Notes") in the aggregate principal amount of $350,000 through a private placement. At December 31, 2015,
$349,147, net of debt issuance costs of $853, was outstanding and recorded in Long-term debt, less current portion. The
proceeds are being used for general corporate purposes. The Notes, as shown in the table below, have maturities ranging from
10 to 30 years with a weighted average effective interest rate of 3.5%, excluding accretion of original issuance costs, and an
average tenure of 19 years. Interest is payable semi-annually. The Notes contain certain affirmative and negative covenants.
As of December 31, 2015, the Company was in compliance with all of its debt covenants.
The maturity and interest rates of the Notes are as follows:
Series A
Series B
Series C
Series D
Revolving Credit Agreement
Amount
Maturity Date
Interest Rate
$
100,000
100,000
50,000
100,000
August 20, 2025
August 20, 2030
April 1, 2035
April 1, 2045
3.15%
3.35%
3.61%
4.02%
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, 2015, the Company was in compliance with all of its
covenants and had no outstanding borrowings under the Credit Agreement. The Credit Agreement has a five-year term and may
be increased, subject to certain conditions, by an additional amount up to $100,000. The interest rate on borrowings is based on
either LIBOR or the prime rate, plus a spread based on the Company’s leverage ratio, at the Company’s election.
F-22
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
Short-term Borrowings
The Company's short-term borrowings included in Amounts due banks were $2,822 and $61,155 at December 31, 2015 and
2014, respectively. Amounts due banks included the outstanding borrowings under the Credit Agreement and the borrowings of
foreign subsidiaries at weighted average interest rates of 24.1% and 3.1% at December 31, 2015 and 2014, respectively.
Capital Leases
At December 31, 2015 and 2014, $111 and $198 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, 2015 are $4,284 in 2016, $569 in 2017, $105 in 2018, $104 in 2019, $101 in 2020 and $350,315 thereafter. Total
interest paid was $5,631 in 2015, $2,190 in 2014 and $2,864 in 2013. The differences between interest expense and interest
paid in 2015 and 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, and the accrual of interest associated with the Notes in
2015.
NOTE 9 – STOCK PLANS
On April 23, 2015, the shareholders of the Company approved the 2015 Equity and Incentive Compensation Plan ("Employee
Plan"), which replaced the 2006 Equity and Performance Incentive Plan, as amended ("EPI Plan"). The Employee Plan
provides for the granting of options, appreciation rights, restricted shares, restricted stock units and performance-based awards
up to an additional 5,400,000 of the Company's common shares. In addition, on April 23, 2015, the shareholders of the
Company approved the 2015 Stock Plan for Non-Employee Directors ("2015 Director Plan"), which replaced the 2006 Stock
Plan for Non-Employee Directors ("2006 Director Plan"). The 2015 Director Plan provides for the granting of options,
restricted shares and restricted stock units up to an additional 300,000 of the Company's common shares. At December 31,
2015, there were 5,600,763 common shares available for future grant under all plans.
Stock Options
The following table summarizes stock option activity for the years ended December 31, 2015, 2014 and 2013, under all Plans:
2015
2014
2013
Year Ended December 31,
Weighted
Average
Exercise
Price
37.80
69.14
30.35
66.51
42.85
37.15
Options
2,087,193
$
323,130
(197,582)
(18,092)
2,194,649
1,807,427
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
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 Employee Plan and its predecessor plans may be outstanding for a maximum of 10 years from
the date of grant. The majority of options granted vest ratably over a period of three years from the grant date. The exercise
prices of all options were equal to the quoted market price of the Company's common shares at the date of grant. The Company
issued shares of common stock from treasury upon all exercises of stock options in 2015, 2014 and 2013. In 2015, 16,970
options were issued under the Employee Plan, 306,160 options were issued under the EPI Plan and all options issued in 2014
and 2013 were under the EPI Plan.
F-23
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
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, 2015 were as follows:
Year Ended December 31,
2015
2014
2013
Expected volatility
Dividend yield
Risk-free interest rate
Expected option life (years)
30.73%
1.48%
1.32%
4.5
32.21%
1.41%
1.61%
4.4
Weighted average fair value per option granted during the year
$
16.35
$
17.52
$
The following table summarizes non-vested stock options for the year ended December 31, 2015:
32.97%
1.40%
1.52%
4.4
18.14
Balance at beginning of year
Granted
Vested
Forfeited
Balance at end of year
Year Ended December 31, 2015
Number of
Options
Weighted
Average Fair
Value at Grant
Date
$
268,975
323,130
(189,681)
(15,202)
387,222
17.48
16.35
17.26
17.15
16.66
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, 2015 was $30,121 and $30,121, respectively. The total intrinsic value of awards
exercised during 2015, 2014 and 2013 was $6,879, $14,647 and $26,288, respectively. The total fair value of options that
vested during 2015, 2014 and 2013 was $3,273, $5,104 and $5,131, respectively.
The following table summarizes information about awards outstanding as of December 31, 2015:
Exercise Price Range
Under $29.99
$30.00 - $39.99
Over $40.00
Outstanding
Weighted
Average
Exercise
Price
Number of
Stock
Options
491,072
$
825,161
878,416
2,194,649
24.56
33.18
62.15
Weighted
Average
Remaining
Life (years)
3.5
Exercisable
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Life (years)
Number of
Stock
Options
491,072
$
4.4
8.0
5.7
825,161
491,194
1,807,427
24.56
33.18
56.40
3.5
4.4
7.3
5.0
F-24
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
Restricted Share Awards ("RSAs")
The following table summarizes restricted share award activity for the years ended December 31, 2015, 2014 and 2013, under
all Plans:
2015
2014
2013
Year Ended December 31,
Weighted
Average
Grant Date
Fair Value
60.14
53.94
49.37
64.61
61.84
Shares
$
49,490
20,476
(20,745)
(4,592)
44,629
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
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 2015, 2014 and 2013. Restricted shares
issued in 2015 were under the 2015 Director Plan and all restricted shares issued in 2014 and 2013 were under the the 2006
Director Plan. The remaining weighted average vesting period of all non-vested RSAs is 2.1 years as of December 31, 2015.
Restricted Stock Units ("RSUs")
The following table summarizes restricted stock unit activity for the years ended December 31, 2015, 2014 and 2013, under all
Plans:
2015
2014
2013
Year Ended December 31,
Weighted
Average
Grant Date
Fair Value
49.34
68.82
37.21
57.98
59.10
$
Units
241,496
67,800
(76,996)
(10,768)
221,532
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
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 18,022 RSUs to common shares in 2015 were deferred as part of the 2005 Deferred Compensation Plan for
Executives (the "2005 Plan"). As of December 31, 2015, 66,024 RSUs, including related dividend equivalents, have been
deferred under the 2005 Plan. These units are reflected within dilutive shares in the calculation of earnings per share. In 2015,
4,915 RSUs were issued under the Employee Plan, 62,885 RSUs were issued under the EPI plan and all RSUs issued in 2014
and 2013 were under the the EPI Plan. The remaining weighted average vesting period of all non-vested RSUs is 3.2 years as
of December 31, 2015.
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 2015, 2014 and 2013 was $7,932, $8,416 and $9,734, respectively. The related tax
benefit for 2015, 2014 and 2013 was $3,037, $3,222 and $3,727, respectively. As of December 31, 2015, total unrecognized
stock-based compensation expense related to non-vested stock options, restricted shares and restricted stock units was $15,371,
which is expected to be recognized over a weighted average period of approximately 2.9 years.
F-25
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
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 16,012 in 2015, 5,511 in 2014 and 4,653 in 2013.
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, 2015, the Company purchased a total of 6.6 million shares
at an average cost per share of $60.70. As of December 31, 2015, 4.7 million shares remained available for repurchase under
the stock repurchase program. The treasury shares have not been retired.
NOTE 11 – RETIREMENT ANNUITY AND GUARANTEED CONTINUOUS EMPLOYMENT PLANS
The Company maintains a number of defined benefit and defined contribution plans to provide retirement benefits for
employees. These plans are maintained and contributions are made in accordance with the Employee Retirement Income
Security Act of 1974 ("ERISA"), local statutory law or as determined by the Board of Directors. The plans generally provide
benefits based upon years of service and compensation. Pension plans are funded except for a domestic non-qualified pension
plan for certain key employees and certain foreign plans. The Company uses a December 31 measurement date for its plans.
The Company does not have, and does not provide for, any postretirement or postemployment benefits other than pensions and
certain non-U.S. statutory termination benefits.
F-26
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
Defined Benefit Plans
Contributions are made in amounts sufficient to fund current service costs on a current basis and to fund past service costs, if
any, over various amortization periods.
Obligations and Funded Status
Change in benefit obligations
Benefit obligations at beginning of year
Service cost
Interest cost
Plan participants' contributions
Plan amendments
Acquisitions
Actuarial (gain) loss
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
Acquisitions
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,
2015
2014
$
1,045,471
$
941,442
19,933
36,002
185
—
6,170
(42,640)
(32,217)
(463,943)
(10,792)
558,169
1,010,937
9,298
50,468
185
5,995
(30,358)
(462,601)
(7,823)
576,101
17,932
156,019
(1,304)
41
$
172,688
$
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
The actuarial gain arising during 2015 was primarily attributable to a higher discount rate. The actuarial loss during 2014 was
primarily attributable to a lower discount rate.
In August 2015, the Lincoln Electric Company, plan sponsor of the Lincoln Electric Retirement Annuity Program ("RAP") and
subsidiary of the Company, entered into an agreement to purchase a group annuity contract from The Principal Financial Group
("Principal"). Under the agreement, Principal assumed the obligation to pay future pension benefits for specified U.S. retirees
and surviving beneficiaries who retired on or before June 1, 2015 and are currently receiving payments from the RAP. The
transaction will not change the amount of the monthly pension benefit received by affected retirees and surviving beneficiaries.
The purchase was funded by existing plan assets and required no additional cash contribution. The Company recorded pension
settlement charges of $142,738 for the year ended December 31, 2015, primarily related to the purchase of the group annuity
contract.
F-27
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, 2015 were $101,288, $(1,548) and $36, 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 2016 are $10,367, $(398) 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,
2015
2014
$
$
$
38,201
(5,026)
(15,243)
154,756
172,688
$
1,240
(2,971)
(32,803)
314,411
279,877
Year Ended December 31,
2015
2014
2013
Service cost
Interest cost
Expected return on plan assets
Amortization of prior service cost
Amortization of net loss
Settlement/curtailment loss
$
19,933
$
19,062
$
36,002
(54,638)
(626)
19,406
142,738
42,485
(67,953)
(616)
17,644
1,773
Pension cost for defined benefit plans
$
162,815
$
12,395
$
23,188
37,225
(61,244)
(613)
30,929
423
29,908
The Company's defined benefit plans costs increased in 2015 primarily as a result of pension settlement charges related to the
purchase of the group annuity contract.
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,
2015
2014
$
$
16,822
$
15,223
—
3,393
$
2,831
34,066
30,202
11,638
5,573
3,372
The total accumulated benefit obligation for all plans was $523,728 as of December 31, 2015 and $1,003,296 as of
December 31, 2014.
Contributions to Plans
The Company expects to contribute $20,000 to the defined benefit plans in the United States in 2016. The actual amounts to be
contributed in 2016 will be determined at the Company's discretion.
F-28
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
2016
2017
2018
2019
2020
2021 through 2025
Assumptions
$
31,461
31,195
25,629
30,671
27,385
164,307
Weighted average assumptions used to measure the benefit obligation for the Company's significant defined benefit plans as of
December 31, 2015 and 2014 were as follows:
Discount Rate
Rate of increase in compensation
December 31,
2015
2014
4.5%
2.7%
4.1%
2.8%
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, 2015 were as follows:
Discount rate
Rate of increase in compensation
Expected return on plan assets
December 31,
2015
2014
2013
4.0%
2.7%
6.3%
4.7%
4.1%
7.3%
3.8%
4.1%
7.4%
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. The target allocation for plan assets is 45% to 55% equity securities and 45% to 55% debt securities.
F-29
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, 2015:
Cash and cash equivalents
Equity securities (1)
Fixed income securities (2)
U.S. government bonds
Corporate debt and other obligations
Common trusts and 103-12 investments (3)
Cash and cash equivalents
Common trusts and 103-12 investments
Private equity funds (4)
Total assets at fair value
Pension Plans' Assets at Fair Value as of December 31, 2015
Quoted Prices
in Active Markets
for Identical
Assets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
$
5,740
$
3,569
11,603
—
—
—
—
— $
— $
—
—
120,470
5,841
388,477
—
—
—
—
—
—
40,401
$
20,912
$
514,788
$
40,401
$
Total
5,740
3,569
11,603
120,470
5,841
388,477
40,401
576,101
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 (2)
U.S. government bonds
Corporate debt and other obligations
Common trusts and 103-12 investments (3)
Cash and cash equivalents
Common trusts and 103-12 investments
Private equity funds (4)
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
_______________________________________________________________________________
(1) Equity securities are primarily comprised of corporate stock and mutual funds directly held by the plans. Equity securities are
valued using the closing price reported on the active market on which the individual securities are traded.
(2) Fixed income securities are primarily comprised of governmental and corporate bonds directly held by the plans. Governmental
and corporate bonds are valued using both market observable inputs for similar assets that are traded on an active market and the
closing price on the active market on which the individual securities are traded.
(3) 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.
(4) Private equity funds consist of four funds seeking capital appreciation by investing in private equity investment partnerships and
venture capital companies. Funds are comprised of unrestricted and restricted publicly traded securities and privately held
securities. Unrestricted securities are valued at the closing market price on the reporting date. Restricted securities may be valued at
a discount from such closing public market price, depending on facts and circumstances. Privately held securities are valued at fair
value as determined by the fund directors and general partners.
F-30
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, 2015:
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
38,015
(2,253)
4,639
40,401
1,111
$
$
$
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 $1,703, $3,012 and $2,329
in 2015, 2014 and 2013, respectively. The projected benefit obligation associated with this plan is also included in the pension
disclosure shown above and was $14,643, $17,953 and $22,877 at December 31, 2015, 2014 and 2013, 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. During the third
quarter 2015, the Company suspended the 401(k) match provision as part of the Company's actions to reduce costs in light of
existing market conditions.
The plan also includes a feature in which all participants hired after November 1, 1997 receive an annual Company contribution
of 2% of their base pay. The plan allowed employees hired before November 1, 1997, at their election, to receive this
contribution in exchange for forfeiting certain benefits under the pension plan. In 2006, the plan was amended to include a
feature in which all participants receive an annual Company contribution ranging from 4% to 10% of base pay based on years
of service.
The annual costs recognized for defined contribution plans were $10,082, $11,088 and $10,812 in 2015, 2014 and 2013,
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 $830, $1,068 and $1,048 in 2015, 2014 and 2013, 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-31
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, 2015 were as follows:
U.S.
Non-U.S.
Total
Year Ended December 31,
2015
2014
2013
$
$
118,037
51,750
169,787
$
$
303,933
71,880
375,813
$
$
281,724
134,717
416,441
The components of income tax expense (benefit) for the three years ended December 31, 2015 were as follows:
Current:
Federal
Non-U.S.
State and local
Deferred:
Federal
Non-U.S.
State and local
Total
Year Ended December 31,
2015
2014
2013
$
$
60,500
28,046
9,557
98,103
(47,902)
(3,362)
(4,464)
(55,728)
42,375
$
$
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
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, 2015 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
Venezuela devaluation
Manufacturing deduction
U.S. tax cost (benefit) of foreign source income
Other
Total
Effective tax rate
Year Ended December 31,
2015
$
59,426
$
1,868
2,184
(8,499)
11,396
(9,207)
(8,754)
(6,039)
42,375
$
$
2014
131,534
6,694
11,674
(16,950)
5,603
(7,316)
(514)
(8,792)
121,933
$
$
2013
145,754
7,124
1,735
(20,214)
1,126
(6,386)
745
(5,130)
124,754
24.96%
32.45%
29.96%
The 2015 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 $101,939 in 2015, $119,102 in 2014 and $84,567 in 2013.
F-32
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, 2015 and 2014, 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,
2015
2014
$
44,925
$
1,607
17,874
21,859
2,477
3,795
92,537
(51,294)
41,243
33,627
16,105
10,770
9,897
8,800
79,199
(37,956) $
$
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)
At December 31, 2015, certain subsidiaries had tax loss carry-forwards of approximately $78,237 that will expire in various
years from 2016 through 2032, plus $82,049 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, 2015, a valuation
allowance of $51,294 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 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 $940 for the year ended December 31, 2015 and $1,406 for the year ended December 31, 2014 for interest
and penalties. For those same years, the Company's accrual for interest and penalties related to unrecognized tax benefits
totaled $6,080 and $8,019, respectively.
F-33
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
The following table summarizes the activity related to unrecognized tax benefits:
Balance at beginning of year
Increase related to current year tax provisions
Increase (decrease) related to prior years' tax positions
Decrease related to settlements with taxing authorities
Resolution of and other decreases in prior years' tax liabilities
Other
Balance at end of year
2015
2014
$
18,389
$
1,021
317
(157)
(3,323)
(1,915)
14,332
$
$
25,907
700
(848)
(1,216)
(3,727)
(2,427)
18,389
The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate was $8,369 at
December 31, 2015 and $9,132 at December 31, 2014.
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 2011. 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 $2,312 in prior years' unrecognized tax benefits in 2016.
In July 2012, the Company received a Notice of Reassessment (the "Reassessments") from the Canada Revenue Agency 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. In
the first quarter of 2015, the Company received a refund of $24,976 which was substantially all of the remaining cash deposit.
The Company also received interest on the deposit of $1,596.
NOTE 13 – DERIVATIVES
The Company uses derivative investments to manage exposures to currency exchange rates, interest rates and commodity prices
arising in the normal course of business. Both at inception and on an ongoing basis, the derivative instruments that qualify for
hedge accounting are assessed as to their effectiveness, when applicable. Hedge ineffectiveness was immaterial for the three
years ended December 31, 2015.
The Company is subject to the credit risk of the counterparties to derivative instruments. Counterparties include a number of
major banks and financial institutions. None of the concentrations of risk with any individual counterparty was considered
significant at December 31, 2015. 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 $30,388 at December 31, 2015 and $27,265 at December 31, 2014.
Net investment hedges
The Company had foreign currency forward contracts that were qualified and designated as net investment hedges. The dollar
equivalent gross notional amount of these short-term contracts was $60,734 at December 31, 2014.
F-34
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
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
$267,626 at December 31, 2015 and $280,949 at December 31, 2014.
The Company had short-term silver forward contracts with notional amounts of $2,804 at December 31, 2015. At
December 31, 2014, the Company had short-term silver and copper forward contracts with notional amounts of $4,467 and
$1,066, respectively.
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, 2015
December 31, 2014
Other
Current
Assets
Other
Current
Liabilities
Other
Current
Assets
Other
Current
Liabilities
$
$
178
$
—
625
40
731
$
—
468
$
1,091
2,303
8
482
47
843
$
3,042
$
2,088
$
935
469
3,638
69
5,111
The effects of undesignated derivative instruments on the Company's Consolidated Statements of Income for the years ended
December 31, 2015 and 2014 consisted of the following:
Derivatives by hedge designation
Not designated as hedges:
Classification of gains (losses)
Year Ended December 31,
2015
2014
Foreign exchange contracts
Selling, general & administrative expenses
$
18,875
$
Commodity contracts
Cost of goods sold
440
(10,427)
702
The effects of designated cash flow hedges on AOCI and the Company's Consolidated Statements of Income for the years
ended December 31, 2015 and 2014 consisted of the following:
Total gain (loss) recognized in AOCI, net of tax
Foreign exchange contracts
Net investment contracts
December 31,
2015
2014
$
$
(551) $
$
1,099
(9)
—
The Company expects a loss of $551 related to existing contracts to be reclassified from AOCI, net of tax, to earnings over the
next 12 months as the hedged transactions are realized.
Derivative type
Foreign exchange contracts
Gain (loss) reclassified from AOCI to:
Sales
Cost of goods sold
Year Ended December 31,
2015
2014
$
(1,191) $
771
(80)
422
F-35
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
NOTE 14 – FAIR VALUE
The following table provides a summary of fair value assets and liabilities as of December 31, 2015 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, 2015
Quoted Prices in
Active Markets for
Identical Assets or
Liabilities
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable
Inputs (Level 3)
$
$
$
$
$
$
$
803
40
843
3,034
8
9,184
26,484
23,201
— $
—
— $
— $
—
—
—
—
$
$
$
803
40
843
3,034
8
—
—
23,201
61,911
$
— $
26,243
$
—
—
—
—
—
9,184
26,484
—
35,668
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)
$
$
$
$
950
$
$
$
47
1,091
2,088
4,573
69
469
6,912
25,268
21,839
— $
—
— $
— $
— $
—
—
—
—
—
59,130
$
— $
950
$
$
$
47
1,091
2,088
4,573
69
469
—
—
21,839
26,950
$
—
—
—
—
—
—
—
6,912
25,268
—
32,180
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, 2015, there were no transfers between Levels 1, 2 or 3.
In connection with acquisitions, the Company recorded contingent considerations fair valued at $9,184 as of December 31,
2015. Under the contingent consideration agreements the amounts to be paid are based upon actual financial results of the
acquired entity for specified future periods. The fair value of the contingent considerations are a Level 3 valuation and fair
valued using a probability weighted discounted cash flow analysis.
F-36
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
In connection with an acquisition, the Company obtained a controlling financial interest in the acquired entity and at the same
time entered into a 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 $26,484 as of December 31, 2015. The change
in the liability from December 31, 2014 was primarily the result of a $7,140 payment to acquire an additional financial interest
in the entity offset by additional accruals of $12,142 for the twelve months ended December 31, 2015. 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 14.1% as a risk
adjusted cost of capital.
The deferred compensation liability is the Company's obligation under its executive deferred compensation plan. The Company
measures the fair value of the liability using the market values of the participants' underlying investment fund elections.
The Company has various financial instruments, including cash and cash equivalents, short and long-term debt and forward
contracts. While these financial instruments are subject to concentrations of credit risk, the Company has minimized this risk
by entering into arrangements with a number of major banks and financial institutions and investing in several high-quality
instruments. The Company does not expect any counterparties to fail to meet their obligations. The fair value of Cash and cash
equivalents, Accounts receivable, Amounts due banks and Trade accounts payable approximated book value due to the short-
term nature of these instruments at both December 31, 2015 and December 31, 2014. See Note 8 for the fair value estimate of
debt.
NOTE 15 – INVENTORY
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. At December 31, 2015 and
2014, approximately 40% of total inventories were valued using the LIFO method. The excess of current cost over LIFO cost
was $59,765 at December 31, 2015 and $71,311 at December 31, 2014.
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 $16,703 in 2015, $18,103 in 2014 and $18,642 in 2013.
At December 31, 2015, total future minimum lease payments for noncancelable operating leases were $12,160 in 2016, $8,735
in 2017, $6,623 in 2018, $5,025 in 2019, $3,557 in 2020 and $5,584 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 would be provided for material claims or litigation. Many of the
current cases are in differing procedural stages and information on the circumstances of each claimant, which forms the basis
for judgments as to the validity or ultimate disposition of such actions, varies greatly. Therefore, in many situations a range of
possible losses cannot be made. Reserves are adjusted as facts and circumstances change and related management assessments
of the underlying merits and the likelihood of outcomes change. Moreover, reserves only cover identified and/or asserted
claims. Future claims could, therefore, give rise to increases to such reserves.
F-37
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
Based on the Company's historical experience in litigating product liability claims, including a significant number of dismissals,
summary judgments and defense verdicts in many cases and immaterial settlement amounts, as well as the Company's current
assessment of the underlying merits of the claims and applicable insurance, the Company believes resolution of these claims
and proceedings, individually or in the aggregate, will not have a material effect on the Company's consolidated financial
statements.
NOTE 18 – PRODUCT WARRANTY COSTS
The changes in product warranty accruals for 2015, 2014 and 2013 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,
2015
2014
2013
15,579
$
15,180
$
19,824
(15,458)
(476)
19,469
$
12,368
(11,495)
(474)
15,579
$
15,304
12,786
(12,794)
(116)
15,180
$
$
2015
Net sales
Gross profit
Income (loss) before income taxes
Net income (loss)
Basic earnings (loss) per share
Diluted earnings (loss) per share
2014
Net sales
Gross profit
Income before income taxes
Net income
Basic earnings per share
Diluted earnings per share
First
Second
Third
Fourth
$
657,900
$
664,740
$
645,166
$
220,390
92,707
68,354
0.90
0.89
685,062
226,336
82,426
56,453
0.70
0.69
$
$
$
$
$
225,781
94,434
70,898
0.95
0.94
728,531
250,267
114,866
77,332
0.97
0.96
$
$
$
$
$
198,894
(88,526)
(60,466)
(0.82) $
(0.82) $
715,777
$
241,609
77,785
45,689
0.58
0.57
$
$
$
$
$
$
$
567,985
196,079
71,172
48,692
0.68
0.68
683,954
231,085
100,736
75,212
0.97
0.96
The quarter ended December 31, 2015 includes net rationalization charges of $434 ($450 after-tax) primarily related to
employee severance and other related costs. Special items also include pension settlement charges of $6,407 ($3,969 after-tax)
and Venezuelan foreign exchange remeasurement losses of $708 related to the adoption of a new foreign exchange mechanism.
The quarter ended September 30, 2015 includes net rationalization and asset impairment charges of $18,285 ($16,832 after-tax)
primarily related to employee severance and other costs. Impairment charges include a non-cash charge to the carrying value of
goodwill of $6,315 and non-cash long-lived asset impairment charges of $3,417. Special items also include pension settlement
charges of $136,331 ($83,341 after-tax) primarily related to the purchase of a group annuity contract and Venezuelan foreign
exchange remeasurement losses of $26,506 related to the adoption of a new foreign exchange mechanism.
The quarter ended June 30, 2015 includes net rationalization charges of $1,239 ($900 after-tax) primarily related to employee
severance and other costs.
The quarter ended December 31, 2014 includes net rationalization and asset impairment charges of $166 ($167 after-tax)
primarily related to employee severance and other costs associated with the consolidation of manufacturing operations.
F-38
LINCOLN ELECTRIC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
The quarter ended September 30, 2014 includes net rationalization and asset impairment charges of $29,068 ($30,056 after-tax).
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 and charges of
$3,468 related to a Venezuelan remeasurement loss.
The quarter ended March 31, 2014 includes net rationalization and asset impairment charges of $17 ($7 after-tax) primarily
related to employee severance and other costs associated with the consolidation of manufacturing operations and charges of
$17,665 related to a Venezuelan remeasurement loss.
The quarterly earnings per share ("EPS") amounts are each calculated independently. Therefore, the sum of the quarterly EPS
amounts may not equal the annual totals.
F-39
SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS
LINCOLN ELECTRIC HOLDINGS, INC.
(In thousands)
Description
Allowance for doubtful accounts:
Balance at
Beginning
of Period
Charged to
Costs and
Expenses
Additions
(1)
Charged
(Credited) to
Other Accounts
(2)
Deductions
Balance at End
of Period
Year Ended December 31, 2015
$
7,858
$
1,969
$
Year Ended December 31, 2014
Year Ended December 31, 2013
8,398
8,654
2,064
2,671
(1,046) $
(867)
49
1,482
$
1,737
2,976
7,299
7,858
8,398
(1) Currency translation adjustment.
(2) Uncollectible accounts written-off, net of recoveries.
F-40
The Company's subsidiaries and joint ventures are listed in the following table:
LINCOLN ELECTRIC HOLDINGS, INC.
SUBSIDIARIES OF THE REGISTRANT
Name
A. B. Arriendos S.A.
Arc Products, Inc.
Burlington Automation Corporation
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
Rimrock Corporation
Rimrock Holdings Corporation
Robolution GmbH
Smart Force, LLC
Specialised Welding Products Pty. Ltd.
SWP N.Z. Limited
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
Wolf Robotics, LLC
Wolf Robotics do Brasil Sistemas Ltda.
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
United States
United States
Germany
United States
Australia
New Zealand
United States
Singapore
United States
Singapore
Australia
New Zealand
South Africa
China
China
Germany
United States
United States
United Kingdom
United States
United States
Brazil
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 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),
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),
Form S-8 Registration Statement of Lincoln Electric Holdings, Inc. for the 2015 Equity and Incentive Compensation Plan
(Form S-8 No. 333-203602),
Form S-8 Registration Statement of Lincoln Electric Holdings, Inc. for the 2015 Stock Plan for Non-employee Directors
(Form S-8 No. 333-203603), and
Form S-8 Registration Statement of Lincoln Electric Holdings, Inc. for The Lincoln Electric Company Employee Savings Plan
(As Amended and restated Effective January 1, 2010), as amended (Form S-8 No. 333-203604);
of our reports dated February 24, 2016, 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, 2015.
Cleveland, Ohio
February 24, 2016
/s/ Ernst & Young LLP
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, Frederick G. Stueber and Geoffrey P. Allman, 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, 2015 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/ Curtis E. Espeland
/s/ David H. Gunning
Curtis E. Espeland, Director
David H. Gunning, Director
February 17, 2016
February 17, 2016
February 17, 2016
/s/ Stephen G. Hanks
/s/ Michael F. Hilton
/s/ G. Russell Lincoln
Stephen G. Hanks, Director
Michael F. Hilton, Director
G. Russell Lincoln, Director
February 17, 2016
February 17, 2016
February 17, 2016
/s/ Kathryn Jo Lincoln
/s/ William E. MacDonald, III
/s/ Phillip J. Mason
Kathryn Jo Lincoln, Director
William E. MacDonald, III, Director
Phillip J. Mason, Director
February 17, 2016
February 17, 2016
February 17, 2016
/s/ Hellene S. Runtagh
/s/ George H. Walls, Jr.
Hellene S. Runtagh, Director
George H. Walls, Jr., Director
February 17, 2016
February 17, 2016
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 24, 2016
/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 24, 2016
/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,
2015, 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 24, 2016
/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
CORPORATE INFORMATION
BOARD OF DIRECTORS
Curtis E. Espeland
Executive Vice President and
Chief Financial Officer,
Eastman Chemical Company
David H. Gunning
Lead Director
Former Vice Chairman,
Cliffs Natural Resources, Inc.
Stephen G. Hanks
Former President and
Chief Executive Officer,
Washington Group International, Inc.
Michael F. Hilton
President and Chief Executive Officer,
Nordson Corporation
G. Russell Lincoln
President, N.A.S.T. Inc.
COMPANY OFFICERS AND
EXECUTIVE MANAGEMENT
Geoffrey P. Allman*
Senior Vice President
Corporate Controller
Anthony K. Battle
Senior Vice President, Internal Audit
and Chief Compliance Officer
George D. Blankenship*
Executive Vice President
President, Americas Welding
Gabriel Bruno*
Executive Vice President
Chief Human Resources Officer and
Interim Chief Information Officer
Thomas A. Flohn*
Senior Vice President
President, Asia Pacific Region
Kathryn Jo Lincoln
Chair and Chief Investment Officer,
Lincoln Institute of Land Policy
Mathias Hallmann*
Senior Vice President
President, International Welding
William E. MacDonald, III
Former Vice Chairman,
National City Corporation
Christopher L. Mapes
Chairman, President and
Chief Executive Officer,
Lincoln Electric
Phillip J. Mason
Former President,
Ecolab EMEA sector
Hellene S. Runtagh
Former President and
Chief Executive Officer,
Berwind Group
George H. Walls, Jr.
Former Chief Deputy Auditor,
State of North Carolina
Steven B. Hedlund*
Senior Vice President
President, Global Automation
Michele R. Kuhrt
Senior Vice President, Tax
Douglas S. Lance
Senior Vice President
North American Operations
Christopher L. Mapes*
Chairman, President and
Chief Executive Officer
William T. Matthews
Senior Vice President, Technology
and Research and Development
Michael S. Mintun
Senior Vice President
North America Sales and Marketing
David J. Nangle*
Senior Vice President
President, Harris Products Group
Vincent K. Petrella*
Executive Vice President
Chief Financial Officer and Treasurer
Frederick S. Stueber*
Executive Vice President
General Counsel and Secretary
*Member of the Management Committee
CORPORATE INFORMATION
For additional corporate information
and copies of Lincoln Electric’s 2015
Annual Report and Form 10-K, please
contact Amanda Butler in Investor
Relations at (216) 383-2534, email:
Amanda_Butler@lincolnelectric.com,
22801 St. Clair Avenue, Cleveland,
Ohio 44117-1199 USA, or visit
www.lincolnelectric.com.
Transfer Agent and Registrar
Inquiries about dividends, share-
holder records, share transfers,
changes in ownership and address
changes should be directed to:
Mail
Wells Fargo Shareowner Services
PO Box 64854
St. Paul, Minnesota 55164-0856
Courier
Wells Fargo Shareowner Services
1110 Centre Point Curve, Suite 101
Mendota Heights, Minnesota
55120-4100
Direct
(800) 468-9716 or (651) 450-4064
www.shareowneronline.com
Independent Registered Public
Accounting Firm
Ernest & Young LLP
Annual Meeting
Thursday, April 21, 2016
11:00 a.m. Eastern Time
Marriott Cleveland East
26300 Harvard Road
Warrensville Heights, Ohio 44122
Stock Information
The Company’s stock is traded
on the NASDAQ Stock Market
(“NASDAQ”) under the symbol LECO.
Number of record holders of common
shares at December 31, 2015: 1,741.
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L I N C O L N E L E C T R I C H O L D I N G S , I N C .
22801 ST. CLAIR AVENUE
CLEVELAND, OHIO 44117-1199 U.S.A.
WWW.LINCOLNELECTRIC.COM