<PAGE> 1
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, 1997 Commission File No. 0-1402
THE LINCOLN ELECTRIC COMPANY
(Exact name of registrant as specified in its charter)
Ohio 34-0359955
(State of incorporation) (I.R.S. Employer Identification No.)
22801 St. Clair Avenue, Cleveland, Ohio 44117
(Address of principal executive offices) (Zip Code)
(216) 481-8100
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Shares, without par value
Class A Common Shares, without par value
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 X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K 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. [X]
The aggregate market value of the voting common stock held by non-affiliates as
of February 28, 1998 was $306,872,551 (affiliates, for this purpose, have been
deemed to be Directors of the Company, and certain significant shareholders).
The number of shares outstanding of the registrant's classes of common stock as
of February 28, 1998 were as follows:
<TABLE>
<S> <C>
Common Shares...................................10,773,834
Class A Common Shares...........................13,838,363
----------
Total outstanding shares...............24,612,197
</TABLE> ==========
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the registrant's proxy statement for the annual meeting of
shareholders to be held on April 30, 1998 are hereby incorporated by reference
into Part III.
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PART I
Item 1. Business
--------
As used in Item 1 of this report, the term "Company", except as otherwise
indicated by the context, means The Lincoln Electric Company and its
subsidiaries. The Lincoln Electric Company began operations in 1895 and was
incorporated under the laws of the State of Ohio in 1906. The Company is a
full-line manufacturer of welding and cutting products and integral horsepower
industrial electric motors. Welding products include arc welding power sources,
wire feeding systems, robotic welding packages, fume extraction equipment,
consumable electrodes and fluxes. The Company's welding product offering also
includes regulators and torches used in oxy-fuel welding and cutting. Sales of
welding products accounted for 93% of the Company's net sales in 1997.
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 machines for robotic applications, high
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 form for continuous feeding in mechanized welding,
and (3) cored electrodes produced in coil form for continuous feeding in
mechanized welding. The integral horsepower electric motors manufactured by the
Company range in size from 1/3 to 1,250 horsepower.
The Company's products are sold in both domestic and international markets. In
the domestic market, they are sold directly by the Company's own sales
organization as well as by distributors. In the international markets, the
Company's products are sold principally by foreign subsidiary companies. The
Company also has an international sales organization comprised of Company
employees and agents who sell products from the Company's various manufacturing
sites to distributors, agents, dealers and product users that operate in more
than eighty-six countries. The Company has manufacturing facilities located in
the United States, Australia, Canada, Mexico, England, France, Indonesia,
Ireland, Italy, the Netherlands, Norway and Spain. In addition, the Company is
adding manufacturing capacity in China and the Philippines. See Note G to the
consolidated financial statements with respect to geographic area information.
The Company is not dependent on a single customer or a few customers. The loss
of any one customer would not have a material adverse effect on its business.
The Company's business is not seasonal.
Conditions in the arc welding industry are highly competitive. The Company
believes that it is one of the world's largest manufacturers of consumables and
equipment in a field of three or four major competitors and numerous smaller
competitors. The Company continues to pursue strategies to heighten its
competitiveness in international markets. Competition in the electric arc
welding industry is on the basis of price, brand preference, product quality
and performance, warranty, delivery, service and technical support. All of
these factors have contributed to the Company's position as one of the leaders
in the industry.
Virtually all of the Company's products may be classified as standard commercial
articles and are manufactured for stock. The Company believes its products are
unique because of its highly trained technical sales force and the support of
its welding research and development staff which allow it to uniquely assist the
consumers of its products in optimizing their welding applications. The Company
utilizes this technical expertise to present its Guaranteed Cost Reduction
Program to end users in which the Company guarantees that the user will save
money in its manufacturing process when it utilizes the Company's products. This
allows the Company to introduce its products to new users and to establish and
maintain very close relationships with its consumers. This close relationship
between the technical sales
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force and the direct consumers, 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.
The principal raw materials essential to the Company's business are various
chemicals, steel, copper and aluminum, all of which are normally available for
purchase in the open market.
The Company's operations are not materially dependent upon patents, licenses,
franchises or concessions.
The Company's facilities are subject to environmental control regulations. To
date, compliance with these environmental regulations has not had a material
effect on the Company's earnings.
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 in non-U.S. activities, including
political uncertainty, import and export limitations, exchange controls and
currency fluctuations. The Company believes risks related to its foreign
operations are mitigated due to the political and economic stability of the
countries in which its largest foreign operations are located.
Research activities relating to the development of new products and the
improvement of existing products in 1997 were all Company-sponsored. These
activities were primarily related to the development of new products. The number
of professional employees engaged full-time in these research activities was
234. Refer to Note A to the consolidated financial statements with respect to
total costs of research and development.
The number of persons employed by the Company worldwide at December 31, 1997 was
approximately 6,100.
The table below sets forth consolidated net sales by product line for the most
recent three years:
<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS) 1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Arc Welding and Other Welding Products $1,082,054 $1,031,271 $ 956,642
93% 93% 93%
All Other 77,013 77,873 75,756
7% 7% 7%
---------- ---------- ----------
$1,159,067 $1,109,144 $1,032,398
========== ========== ==========
</TABLE>
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 223 acres, of which present manufacturing facilities
comprise an area of approximately 2,587,000 square feet. Current utilization of
existing facilities is high and the Company is adding capacity as necessary.
In addition to the principal facilities in Ohio, the Company operates two other
manufacturing locations in the United States and 13 manufacturing locations in
11 foreign countries, the locations of which are as follows:
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United States: Gainesville, Georgia; Monterey Park, California.
Australia: Sydney.
Canada: Toronto.
England: Sheffield.
France: Grand-Quevilly.
Indonesia: Cikarang.
Ireland: Rathnew.
Italy: Pianoro; Milano; Celle Ligure.
Mexico: Mexico City.
Netherlands: Nijmegen.
Norway: Andebu.
Spain: Barcelona.
In addition, the Company is in the process of establishing manufacturing joint
ventures in China and the Philippines.
All property relating to the Company's Cleveland, Ohio headquarters and
manufacturing facilities is owned outright by the Company. In addition, the
Company maintains operating leases for its distribution centers and many sales
offices throughout the world. See Note J to the consolidated financial
statements with respect to lease commitments. Most of the Company's foreign
subsidiaries own manufacturing facilities in the foreign country where they are
located. At December 31, 1997, $5.1 million of indebtedness was secured by
property, plant and equipment.
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, health, safety and environmental
claims and employment-related actions. Among such proceedings are the cases
described below.
The Company has been named a defendant or co-defendant in sixteen lawsuits
filed against the Company on or after May 1996 in the Superior Court of
California filed by building owners or insurers in Los Angeles County arising
from alleged property damage claimed to have been discovered after the
Northridge earthquake of January 1994 and in one lawsuit in which claimed
damage was discovered before that earthquake. Nine of the cases have been
reported previously. These cases include claims for compensatory damages and
punitive damages, often without specification of amount, relating to the sale
and use of the E70T-4 category of welding electrode.
One of the previously reported cases, PACIFIC DESIGN CENTER and AUTOMOBILE CLUB
OF CALIFORNIA V. THE LINCOLN ELECTRIC COMPANY, had been filed as a class action
by two building owners, purportedly on behalf of themselves and other building
owners in Los Angeles County, and sought damages said to be in excess of $1
billion. On January 30, 1998, the Los Angeles County Superior Court entered an
order dismissing the class allegations. The lawsuit remains pending as to the
two individual plaintiffs.
Previously reported coverage litigation between the Company and St. Paul Fire
and Marine Insurance Company relating to defense costs for the Los Angeles
County building litigation was dismissed in early 1998 after the parties reached
a satisfactory agreement.
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The Company is co-defendant in fourteen cases involving twenty-four plaintiffs
alleging that exposure to manganese contained in arc welding electrode products
caused the plaintiffs to develop a neurological condition known as manganism.
The plaintiffs seek compensatory and, in most instances, punitive damages,
usually for unspecified sums.
The Company is also one of several co-defendants in a case alleging that
exposure to welding fumes generally impaired the respiratory system of seven
plaintiffs. The plaintiffs seek compensatory and punitive damages for
unspecified sums.
Claims pending against the Company alleging asbestos induced illness total
approximately 15,500; 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. In early 1998, plaintiffs agreed to voluntarily
dismiss over 3,700 asbestos claims in West Virginia, previously reported as
pending.
The Company, together with hundreds of other co-defendants, is a defendant in
state court in Morris County, Texas, in litigation on behalf of 2,860 claimants,
all prior employees of a local pipe fabricator, alleging that occupational
exposures caused a wide variety of illnesses. The plaintiffs seek compensatory
and punitive damages of unspecified sums.
Defense and indemnity costs of the Company in product liability cases involving
injuries allegedly resulting from exposure to fumes and gases in the welding
environment may be affected by the outcome of pending litigation with the St.
Paul Fire and Marine Insurance Company, in which St. Paul Fire and Marine
Insurance Company and the Company disagree about the allocation among various
liability insurance policies of defense and indemnity costs of welding fume
cases. The dispute, LINCOLN ELECTRIC V. ST. PAUL FIRE AND MARINE INSURANCE
COMPANY, ET. AL., is proceeding in U.S. District Court for the Northern District
of Ohio. Trial is set for March, 1998.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
No matters were submitted to a vote of security holders during the quarter ended
December 31, 1997.
PART II
Item 5. Market for the Registrant's Common Stock and Related Shareholder Matters
------------------------------------------------------------------------
The Company's Common Shares (LECO) and Class A Common Shares (LECOA) are traded
on the Nasdaq Stock Market. The number of record holders of Common Shares and
Class A Common Shares at December 31, 1997 was 2,342 and 2,284, respectively.
Quarterly high and low stock prices and dividends declared for the last two
years were:
<TABLE>
<CAPTION>
1997
---------------------------------------------------
LECO LECOA Dividends
High Low High Low Declared
---- --- ---- --- --------
<S> <C> <C> <C> <C> <C>
March 31 $37.25 $31.50 $33.00 $28.50 $0.15
June 30 41.38 33.00 39.00 31.75 0.15
September 30 42.13 35.25 42.00 35.75 0.15
December 31 42.38 37.50 41.75 35.25 0.20
</TABLE>
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<TABLE>
<CAPTION>
1996
----------------------------------------------------
LECO LECOA Dividends
High Low High Low Declared
---- --- ---- --- --------
<S> <C> <C> <C> <C> <C>
March 31 $27.00 $23.25 $27.50 $22.25 $0.12
June 30 35.75 26.00 30.50 26.75 0.12
September 30 35.25 29.25 31.25 24.50 0.12
December 31 33.50 27.50 31.25 26.25 0.12
</TABLE>
- -----------------
Source: The Nasdaq Stock Market
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Item 6. Selected Financial Data
-----------------------
<TABLE>
<CAPTION>
Year Ended December 31
---------------------------------------------------------------------------------
1997 1996 1995 1994 1993
------------- ------------- ------------- ------------- -------------
(In thousands of dollars, except per share data)
<S> <C> <C> <C> <C> <C>
Net sales $ 1,159,067 $ 1,109,144 $ 1,032,398 $ 906,604 $ 845,999
Income (loss) before cumulative effect
of accounting change $ 85,414 $ 74,253 $ 61,475 $ 48,008 $ (40,536)
Cumulative effect of change in
accounting for income taxes 2,468
------------- ------------- ------------- ------------- -------------
Net income (loss) $ 85,414 $ 74,253 $ 61,475 $ 48,008 $ (38,068)
============= ============= ============= ============= =============
Basic earnings per share:
Income (loss) before cumulative effect
of accounting change $ 3.46 $ 2.99 $ 2.63 $ 2.19 $ (1.87)
Cumulative effect of change in
accounting for income taxes 0.12
------------- ------------- ------------- ------------- -------------
Net income (loss) $ 3.46 $ 2.99 $ 2.63 $ 2.19 $ (1.75)
============= ============= ============= ============= =============
Diluted earnings per share:
Income (loss) before cumulative effect
of accounting change $ 3.45 $ 2.99 $ 2.63 $ 2.19 $ (1.87)
Cumulative effect of change in
accounting for income taxes 0.12
------------- ------------- ------------- ------------- -------------
Net income (loss) $ 3.45 $ 2.99 $ 2.63 $ 2.19 $ (1.75)
============= ============= ============= ============= =============
Cash dividends declared $ 0.65 $ 0.48 $ 0.42 $ 0.38 $ 0.36
============= ============= ============= ============= =============
Total assets $ 712,190 $ 647,199 $ 617,760 $ 556,857 $ 559,543
============= ============= ============= ============= =============
Long-term debt $ 54,360 $ 64,148 $ 93,582 $ 194,831 $ 216,915
============= ============= ============= ============= =============
</TABLE>
Net income for the years ended December 31, 1994 and 1993 included after-tax
restructuring (income) expenses of $(2.7) million and $40.9 million,
respectively.
The earnings per share amounts presented above comply with Statement of
Financial Accounting Standards No. 128, Earnings Per Share. For further
discussion of earnings per share and the impact of Statement No. 128 see Note A
to the consolidated financial statements.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations
-------------
GENERAL
The Company is one of the world's largest designers and manufacturers of arc
welding and cutting products, manufacturing a full line of arc welding
equipment, consumable welding products and other welding products which
represented 93% of the Company's 1997 net sales. The Company also manufactures a
broad line of integral horsepower industrial electric motors.
For the fourth consecutive year, in 1997, the Company reported its highest net
sales and net income in its history. Excluding unusual charges in 1996, net
income grew at a rate of almost three times sales growth. This was due to
increased sales volumes, continued cost control programs and decreased net
interest costs. Consolidated net sales increased 4.5% over 1996 to $1.159
billion. In 1996, net sales included $14.3 million of incremental sales related
to industrial gas businesses sold in 1996. Net income increased 15.0%
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to $85.4 million or $3.46 per share (basic). Sales growth and market share gains
were experienced both in the U.S. and abroad. While non-U.S. sales grew slightly
in U.S. dollar terms, local currency sales rose 9.0% over 1996.
During October 1997, the Company began operations at its new electrode plant in
Indonesia. In 1998, additional electrode manufacturing facilities are planned
to be operational in China and the Philippines. The Company believes that the
high quality of its products, advanced engineering expertise and strong
distributor network, coupled with its large technically trained sales force,
has enabled the Company to continue to be a key participant in the global
marketplace.
The Company is one of only a few worldwide broad line manufacturers of both arc
welding equipment and consumable products. With highly competitive conditions in
the welding industry, the Company will continue to emphasize its status as a
single source supplier, which it believes is most capable of meeting the
broadest range of its customers' welding needs.
Research and development expenditures were $16.5 million in 1997 compared with
$17.8 million in 1996 excluding a $2.0 million charge for acquired in-process
research and development. Expenditures were primarily related to the development
of new products. The Company believes that over the past three years,
expenditures for research and development activities have been adequate to
maintain the Company's leadership position and to introduce new products at an
appropriate rate to sustain future growth.
RESULTS OF OPERATIONS
The following table shows the Company's results of operations for the years
ended December 31, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
Year ended December 31,
(Dollars in millions) 1997 1996 1995
----------------------- ---------------------- ----------------------
Amount % of Sales Amount % of Sales Amount % of Sales
------ ---------- ------ ---------- ------ ----------
<S> <C> <C> <C> <C> <C> <C>
Net Sales $1,159.1 100.0% $1,109.1 100.0% $1,032.4 100.0%
Cost of Goods Sold 718.4 62.0% 686.5 61.9% 634.6 61.5%
-------- ----- -------- ----- -------- -----
Gross Profit 440.7 38.0% 422.6 38.1% 397.8 38.5%
Distribution Cost/Selling
General & Admin. Expense 305.8 26.4% 310.3 28.0% 289.8 28.0%
-------- ----- -------- ----- -------- -----
Operating Income 134.9 11.6% 112.3 10.1% 108.0 10.5%
Interest Income 5.9 0.5% 2.9 0.3% 1.7 0.2%
Other Income 0.7 0.1% 10.4 0.9% 2.2 0.2%
Interest (Expense) (6.3) (0.5%) (7.7) (0.7%) (12.3) (1.2%)
-------- ----- -------- ----- -------- -----
Income Before Income Taxes 135.2 11.7% 117.9 10.6% 99.6 9.7%
Income Taxes 49.8 4.3% 43.6 3.9% 38.1 3.7%
-------- ----- -------- ----- -------- -----
Net Income $ 85.4 7.4% $ 74.3 6.7% $ 61.5 6.0%
======== ===== ======== ===== ======== =====
</TABLE>
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1997 COMPARED TO 1996
Net Sales. Net sales for 1997 increased 4.5% to $1,159.1 million from $1,109.1
million in 1996. Third party sales from U.S. operations increased by 6.2% to
$799.5 million from $753.0 million in 1996. U.S. sales for 1996 included $14.3
million of incremental sales related to industrial gas businesses which were
sold during 1996. For continuing businesses, U.S. sales increased 8.2% over
1996. Included in U.S. sales were international export sales of $105.5 million
for 1997, which increased $14.8 million or 16.3% from $90.7 million in 1996.
Non-U.S. third party sales increased 1.0% to $359.6 million from $356.1 million
in 1996. Net sales increases in all international regions were primarily volume
driven. The weakening of foreign currencies against the U.S. dollar reduced
non-U.S. sales by $28.6 million or 7.4%. Non-U.S. and export sales for 1997
amounted to 40.1% of the Company's total sales.
U.S. third party sales benefited from the strong U.S. economy, the second year
of the SourceOne distributor incentive program and continued growth in export
sales principally to the Russia, Africa and Middle East and Latin American
regions.
Gross Profit. Gross profit improved to $440.7 million in 1997 from $422.6
million in 1996. Gross profit as a percentage of sales was 38.0% in 1997
compared with 38.1% in 1996. In the U.S., gross margins have benefited from
improved volume efficiencies. However, increased product liability and defense
costs and the absence of higher margin gas sales have caused U.S. margins to
decline slightly from 1996. Product liability costs increased in 1997 as a
result of the costs of defense and settlement of litigation. See "Item 3. Legal
Proceedings". Gross profit as a percentage of sales improved for the European
operations due to a more favorable product mix, product line rationalization
and higher capacity utilization. Lower export sales from Australia due to the
economic difficulties in Asia have negatively impacted margins.
Distribution Cost/Selling, General and Administrative (SG&A) Expenses.
Distribution cost/selling, general and administrative expenses were $305.8
million in 1997, or 26.4% of sales, as compared to $310.3 million, or 28.0% of
sales in 1996. SG&A expenses in 1997 included non-recurring charges of $3.5
million ($2.1 million after-tax, or $0.09 per share (basic and diluted))
principally relating to asset write-downs and redundancy costs in Europe.
Included in SG&A expenses are the costs related to the Company's discretionary
employee bonus program, net of hospitalization costs. SG&A expenses for 1996
include net non-recurring charges of $10.9 million ($6.6 million after-tax, or
$0.26 per share (basic and diluted)). The SG&A increase over 1996 (excluding
non-recurring charges) is principally the result of higher distribution and
freight costs and higher bonus expense. Increases in distribution and freight
costs were in line with higher sales volumes. The exclusion of the gas
distribution businesses incrementally reduced SG&A expenses by $6.4 million from
1996. Lower SG&A costs for non-U.S. operations were achieved through tighter
cost controls. In addition, the strengthening U.S. dollar reduced SG&A costs for
non-U.S. operations by $8.3 million.
Interest Income. Increased available cash for investment resulted in interest
income increasing $3.0 million or 107.5% from 1996.
Other Income. Other income in 1996 included a gain of $8.4 million ($5.1 million
after-tax, or $0.20 per share (basic and diluted)) relating to the sale of the
Company's gas distribution businesses.
Interest Expense. Interest expense decreased $1.4 million or 17.9% to $6.3
million in 1997. The decline reflects lower debt levels from annual debt
payments.
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Income Taxes. Income taxes in 1997 were $49.8 million on income before income
taxes of $135.2 million, an effective rate of 36.8%, as compared with income
taxes of $43.6 million in 1996 on income before income taxes of $117.9 million
or an effective tax rate of 37.0%. The decrease in the effective tax rate
reflects the utilization of non-U.S. tax loss carryforwards.
Net Income. Net income for 1997 was $85.4 million as compared with net income of
$74.3 million in 1996, or an increase of 15.0%. The net effect of the
non-recurring items reduced 1996 net income by $1.5 million or $0.06 per share
(basic and diluted).
1996 COMPARED TO 1995
Net Sales. Net sales for 1996 increased 7.4% to $1,109.1 million from $1,032.4
million in 1995. Third party sales from U.S. operations increased by 5.8% to
$753.0 million from $711.9 million in 1995. Included in U.S. sales were
international export sales of $90.7 million for 1996, which increased $8.9
million or 10.9% from $81.8 million in 1995. Non-U.S. third party sales
increased 11.1% to $356.1 million from $320.5 million in 1995. Net sales
increases in all international regions were principally volume driven. Changes
in foreign currencies against the U.S. dollar did not have a significant effect
on non-U.S. sales for 1996.
U. S. third party sales benefited from a strong SourceOne distributor program
and growth in export sales principally to the Russia, Africa and Middle East,
Asia Pacific and Latin American regions.
Non-U.S. third party sales increased in the Canadian, European, and Australian
markets. Both non-U.S. and export sales were improved through increased regional
sales focus and amounted to 40.3% of the Company's sales in 1996.
Gross Profit. Gross profit improved to $422.6 million in 1996 from $397.8
million in 1995. Gross profit as a percentage of sales was 38.1% in 1996. U.S.
gross profit as a percentage of sales showed a slight improvement as start-up
costs associated with the new motor facility tapered off. In addition,
cost-control programs and manufacturing efficiencies offset increased labor and
product liability defense costs. Non-U.S. gross profit as a percentage of sales
was negatively affected by market penetration strategies in developing markets,
as well as competitive pressures in the European and Australian markets.
Distribution Cost/Selling, General and Administrative (SG&A) Expenses.
Distribution cost/selling, general and administrative expenses were $310.3
million in 1996 as compared to $289.8 million in 1995; or 28.0% of sales in both
years. SG&A expenses for 1996 include non-recurring charges of $3.4 million
($2.1 million after-tax, or $0.08 per share (basic and diluted)) for the costs
of settling a class action lawsuit over performance awards under the Company's
1988 Incentive Equity Plan; a $2.0 million charge ($1.2 million after-tax, or
$0.05 per share (basic and diluted)) for acquired in-process research and
development relating to the acquisition of Electronic Welding Systems; and a
$5.5 million charge ($3.3 million after-tax, or $0.13 per share (basic and
diluted)) for executive retirement and severance costs. SG&A expenses for 1995
were affected by the devaluation of the Mexican peso resulting in a charge to
operations without tax benefit of approximately $2.3 million ($0.10 per share
(basic and diluted)) and a charge for $4.0 million ($2.5 million after-tax, or
$0.11 per share (basic and diluted)) for severance costs for retiring
executives. Excluding the one-time charges described above, SG&A expenses were
27.0% of sales in 1996 compared with 27.5% in 1995. The decrease in SG&A as a
percentage of sales was principally a result of cost-control programs to
maintain costs in certain areas while increasing sales volume. The increase in
SG&A expenses was attributable to higher freight costs on higher sales volume,
incremental promotional costs associated with
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the SourceOne distributor program and higher wage and salary costs. Included in
SG&A expenses were the costs related to the Company's discretionary employee
bonus program, net of hospitalization costs.
Other Income. Other income includes a gain of $8.4 million ($5.1 million
after-tax, or $0.20 per share (basic and diluted)) relating to the sale of the
Company's gas distribution businesses. The impact of this sale on future
operations is not significant.
Interest Expense, Net. Interest expense, net, was $4.8 million in 1996, a
decrease of 54.1% from $10.6 million in 1995. This decrease reflects the lower
debt levels as a result of the 1995 recapitalization and cash flow from
operations.
Income Taxes. Income taxes in 1996 were $43.6 million on income before income
taxes of $117.9 million, an effective rate of 37.0%, as compared with income
taxes of $38.1 million in 1995 on income before income taxes of $99.6 million or
an effective tax rate of 38.3%. The decrease in the effective tax rate was
principally due to an increase in the utilization of net operating loss
carryforwards by the Company's non-U.S. subsidiaries.
Net Income. Net income for 1996 was $74.3 million as compared with net income of
$61.5 million in 1995, or an increase of 20.8%. The net effect of the
non-recurring items as described above reduced 1996 net income by $1.5 million
or $0.06 per share (basic and diluted).
LIQUIDITY AND CAPITAL RESOURCES
During 1997, the Company reduced its debt levels by 14.2% from $77.3 million at
December 31, 1996 to $66.3 million at December 31, 1997. Total debt to total
capitalization improved to 13.2% at December 31, 1997 from 16.5% at December 31,
1996. Management anticipates that the Company will be able to satisfy cash
requirements for its ongoing businesses for the foreseeable future primarily
with cash generated by operations and, if necessary, borrowings under its
existing credit facilities. Initial capital for planned joint ventures in the
Asia Pacific region will be funded by available cash provided from operations.
Cash provided from operations was $88.9 million in 1997, a decline of $18.9
million from $107.8 million in 1996. The demands of increased sales volume has
led to an expansion of inventory and trade receivable levels from those of 1996.
Capital expenditures during 1997 were $37.3 million, a 6.2% reduction from 1996.
Capital expenditures for 1996 included the $5.5 million acquisition of
Electronic Welding Systems based in Italy. Capital spending for 1997 was for
plant modernization in the U.S. and for expanded capacity in Canada, Latin
America and Asia. The Company expects to continue to add capacity and modernize
facilities selectively in both the domestic and international markets.
Cash flows from investing activities for 1997 includes $21.9 million in net
purchases of marketable securities and other investments. For 1996, cash flows
from investing activities included the net cash proceeds of $17.4 million from
the sale of the gas distribution businesses during the third quarter 1996.
A total of $14.1 million in dividends was paid during 1997. In November 1997,
the quarterly dividend was increased from $0.15 per share to $0.20 per share.
This dividend was paid in January 1998.
11
<PAGE> 12
NEW ACCOUNTING PRONOUNCEMENTS
The earnings per share (EPS) amounts disclosed in this Annual Report comply with
Statement of Financial Accounting Standards No. 128, Earnings Per Share (SFAS
128), which was adopted in December 1997. SFAS 128 requires the presentation of
two earnings per share amounts: basic earnings per share and diluted earnings
per share. Basic earnings per share uses only the actual number of weighted
average shares outstanding for the denominator of the EPS calculation. Basic EPS
is calculated the same as the previous EPS amounts historically disclosed by the
Company. Diluted EPS includes the dilutive effect of employee stock options,
which are the Company's only type of dilutive security. Previously, the Company
was not required to incorporate stock options into EPS calculations because the
dilutive effect was not material. SFAS 128 requires presentation of diluted EPS
without regard to materiality. The dilutive effect of employee stock options
resulted in diluted EPS of $3.45 for 1997 compared with basic EPS of $3.46.
Stock options did not have a dilutive impact on EPS for 1996 or any other prior
period presented.
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
131, Disclosures About Segments of an Enterprise and Related Information. This
statement requires disclosure of selected financial and descriptive information
for each operating segment based on management's internal organizational
decision-making structure. Additional information is required on a company-wide
basis for revenues by product or service, revenues and identifiable assets by
geographic location and information about significant customers. As required by
the statement, the Company will begin presenting such information in its 1998
financial statements.
Also in June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130, Reporting Comprehensive Income. Statement No. 130 establishes new
standards for disclosure of changes in equity that are not related to
shareholder transactions. Such items are termed other comprehensive income, and
would include foreign currency translation adjustments and minimum pension
liability adjustments. Items of other comprehensive income are to be disclosed
in one of three formats: 1) below the total for net income in the income
statement, 2) in a separate financial statement, or 3) in the statement of
changes in shareholders' equity. As required by the statement, the Company will
begin presenting such information in its 1998 financial statements.
RECAPITALIZATION
Effective May 28, 1997, certain changes in the Company's capital structure were
implemented. Class B Common Shares were eliminated and the 486,772 outstanding
Class B Common Shares were converted into 282,747 Common Shares. Additionally,
the authorized capital was increased to 60 million Common Shares and 60 million
Class A Common Shares.
The Company completed its recapitalization in 1995 which included the
authorization of Class A Common Shares, a new class of non-voting common shares.
The recapitalization included a distribution payable on June 12, 1995, to
holders of record of the Company's outstanding voting common shares as of June
5, 1995, of a dividend of one Class A Common Share for each outstanding share of
the Company's voting common shares. Prior to the adoption of the
recapitalization, the Company had two authorized and outstanding classes of
voting common shares. As a result, the Company's authorized capital consisted of
two voting classes, the Common Shares, without par value (formerly the "Common
Stock"), and the Class B Common Shares, without par value (formerly the "Class A
Common Stock"), and one non-voting class, the Class A Common Shares (the new
"Class A Common Shares"). In addition, the recapitalization included an increase
in the total number of authorized common shares of all classes from 17 million
to 62 million shares
12
<PAGE> 13
consisting of 30 million Common Shares, 30 million Class A Common Shares and 2
million Class B Common Shares.
In 1995, the Company completed a public offering by selling 2,863,507 Class A
Common Shares and realized $81.2 million in proceeds, net of the underwriters'
discount. The proceeds from the offering were used to reduce debt which has
improved the Company's leverage and enhanced its financial position.
In December 1995, the Company entered into a new $200 million unsecured,
multi-currency Credit Agreement ("Credit Agreement"). The Credit Agreement
provides more favorable pricing levels and the financial covenants which require
interest coverage and funded debt-to-capital ratios are less restrictive, a
result of the Company's improved liquidity and financial position. See Note D to
the consolidated financial statements for additional information regarding the
terms and financial covenants of the Company's borrowing arrangements. At
December 31, 1997, no amounts were outstanding under the Credit Agreement.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
From time to time, information provided by the Company, statements by its
employees or information included in its filings with the Securities and
Exchange Commission (including those portions of this Management's Discussion
and Analysis that refer to the future) 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. Such
forward-looking statements, and the Company's future performance, operating
results, financial position and liquidity, are subject to a variety of factors
that could materially affect results, including:
- - Litigation. The Company, like other manufacturers, is subject to a variety
of lawsuits and potential lawsuits that arise in the ordinary course of
business. See "Item 3. Legal Proceedings" within this report. While product
liability costs have not generally been material to the Company's results
of operations, they have increased recently, particularly as a result of
litigation relating to Los Angeles buildings. See NOTE K of the
consolidated financial statements contained herein for further discussion
of litigation.
- - Competition. The Company operates in a highly competitive global
environment and is subject to a variety of competitive factors such as
pricing, the actions and strength of its competitors, and the Company's
ability to maintain its position as a recognized leader in welding
technology. The intensity of foreign competition is substantially affected
by fluctuations in the value of the United States dollar against other
currencies. The Company's competitive position could also be adversely
affected should new or emerging entrants become more active in the arc
welding business.
- - International Markets. The Company's long-term strategy is to increase its
share in growing international markets, particularly Asia, Latin America,
Central Europe and other developing markets. However, there can be no
certainty that the Company will be successful in its expansion efforts. The
Company is subject to the currency risks of doing business abroad, and
expansion poses challenging demands within the Company's infrastructure.
Further, many developing economies have a significant degree of political
and economic instability, which may adversely affect the Company's
international operations.
- - Cyclicality and Maturity of the Welding Industry. The United States arc
welding industry is both mature and cyclical. The growth of the domestic
arc welding industry has been and continues to be constrained by numerous
factors, including the substitution of plastics and other materials in
place of
13
<PAGE> 14
fabricated metal parts in many products and structures. Increased offshore
production of fabricated steel structures has also cut into the domestic
demand for arc welding products.
- - Operating Factors. The Company is highly dependent on its skilled workforce
and efficient production facilities, which could be adversely affected by
its labor relations, business interruptions at its domestic facilities and
short-term or long-term interruptions in the availability of supplies or
raw materials or in transportation of finished goods.
- - Information Systems Implementation and Year 2000 Issue. The Company is
presently replacing many of its legacy systems and believes that with
conversions to new software, the Year 2000 Issue will be mitigated.
However, if such modifications and conversions are not made, or are not
completed in a timely fashion, the Year 2000 Issue could have a material
impact on the operations of the Company.
The Company will utilize both internal and external resources to replace
and test software. The Company plans to complete its Information Systems
and Year 2000 project and have all systems compliant before December 31,
1999. However, there are no assurances that the systems of other companies
on which the Company's systems rely also will be timely converted or that
any such failure to convert by another company would not have an adverse
effect on the Company's systems. The total cost of the Information System
project is estimated at $30 million to $40 million and is being funded
through operating cash flows. Of the total project cost, approximately $25
million to $35 million will be capitalized. The Company's total project
cost and estimated time to complete the project are based on presently
available information.
- - Research and Development. The Company's continued success depends, in part,
on its ability to continue to meet customer welding needs through the
introduction of new products and the enhancement of existing product design
and performance characteristics. There can be no assurances that new
products or product improvements, once developed, will meet with customer
acceptance and contribute positively to the operating results of the
Company, or that product development will continue at a pace to sustain
future growth.
- - Motor Division. The Company has made substantial capital investments to
modernize and expand its production of electric motors. While management
believes that the profitability of this investment will improve, success is
largely dependent on increased market penetration.
Item 8. Financial Statements and Supplementary Data
-------------------------------------------
The response to this item is submitted in a separate section of this report
following the signature page.
Item 9. Changes in and Disagreements with Accountants on Accounting and
---------------------------------------------------------------
Financial Disclosure
--------------------
None.
14
<PAGE> 15
PART III
A definitive proxy statement will be filed pursuant to Regulation 14A of the
Securities Exchange Act prior to April 30, 1998. Therefore, information required
under this part, unless set forth below, is incorporated herein by reference
from such definitive proxy statement.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------- ----- -----------------------------------------------------------------
<S> <C> <C>
Anthony A. Massaro 54 Chairman of the Board since 1997; Chief Executive Officer since
1996; President and Chief Operating Officer since 1996;
Corporate Vice President and President Lincoln Europe
1994-1995; Director of International Operations 1993-1994;
prior thereto, a corporate officer with Westinghouse Electric
Corporation, served as Vice President and then as President and
a Member of the Management Committee with responsibilities
worldwide.
John M. Stropki 47 Executive Vice President, President North America since 1995;
Senior Vice President, Sales 1994-1995; General Sales Manager
1992-1994; District Manager 1986-1992.
H. Jay Elliott 56 Senior Vice President, Chief Financial Officer and Treasurer since
1996; Vice President, Chief Financial Officer, and Treasurer
1994-1996; International Chief Financial Officer 1993-1994;
prior thereto, Assistant Comptroller of The Goodyear Tire &
Rubber Company responsible at various times for Corporate
Strategic Planning, Finance Director of North American Tires
and International Vice President-Finance.
Frederick G. Stueber 44 Senior Vice President, General Counsel and Secretary since 1996;
Vice President, General Counsel and Secretary 1995-1996; prior
thereto, partner in the law firm of Jones, Day, Reavis & Pogue.
William J. Twyble 65 Senior Vice President, Engineering and Marketing since 1997; Vice
President of the Company since 1996; CEO, Managing Director LEC
(Australia) Pty. Ltd. 1988-1996.
Richard C. Ulstad 58 Senior Vice President, Manufacturing since 1996; Senior Vice
President, Consumable Division 1994-1996; Vice
President-Manufacturing Electrode Division 1992-1994;
Superintendent-Electrode Division 1984-1992.
Dennis D. Crockett 55 Vice President, Consumable Research and Development since 1993;
Chief Engineer, Consumables Research and Development 1987-1993.
</TABLE>
15
<PAGE> 16
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------- ----- -----------------------------------------------------------------
<S> <C> <C>
Joseph G. Doria 48 Vice President of the Company since 1995; President, Lincoln
Electric Europe effective April 1998; President and Chief
Executive Officer, Lincoln Electric Co. of Canada 1992-1998;
Executive Vice President and Chief Operating Officer, Lincoln
Electric Co. of Canada 1990-1992.
Paul F. Fantelli 53 Vice President, Reliability and Quality since 1997; Vice President,
Business Development 1994-1997; Assistant to the Chief
Executive Officer 1992-1994; President and Chief Executive
Officer of Harris Calorific Division of The Lincoln Electric
Co. 1990-1992.
Ralph C. Fernandez 51 Vice President of the Company since 1997, President, Lincoln
Electric Latin America since 1996; Manager, International
Support and Assistant to the Chief Operating Officer 1995-1996;
Operations Manager 1995; prior thereto, President of WRS, a
subsidiary of Westinghouse Electric Corporation 1991-1994.
Michael J. F. Gillespie 56 Vice President of the Company since 1997, President, Lincoln
Electric Asia since 1996; prior thereto, Regional Director,
Asia Pacific Region of Esab AB, a manufacturer and distributor
of welding products.
Charles H. Murray 46 Vice President, Corporate Development effective April 1998, Vice
President of the Company since 1997; President, Lincoln
Electric Europe 1996-1998; Vice President - Sales, Lincoln
Electric Europe 1994-1995; Sales Manager, Lincoln Electric Co.
of Canada 1992-1994.
Ronald A. Nelson 48 Vice President, Materials and Service since 1997; Vice President,
Machine Research and Development 1994-1996; Chief Engineer-Machine
and Motor Division 1993-1994; Service Manager 1989-1993.
Gary M. Schuster 43 Vice President, Motor Division since 1995; General Manager, Motor
Division 1993-1995; Manager, Motor Transition Team 1993;
Manager, Factory of the Future 1991-1993; Assistant Manager,
Quality Assurance 1989-1991.
Richard J. Seif 50 Vice President, of the Company since 1994, President, Lincoln
Electric Co. of Canada effective April 1998; Vice President,
Marketing 1994-1998; Director of Marketing 1991-1994.
</TABLE>
16
<PAGE> 17
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------- ----- -----------------------------------------------------------------
<S> <C> <C>
S. Peter Ullman 48 Vice President of the Company since 1995; President and Chief
Executive Officer, Harris Calorific Division of The Lincoln
Electric Co. 1993-present; President and Chief Operating
Officer, Harris Calorific Division of The Lincoln Electric Co.
1992-1993; District Manager 1988-1992.
Raymond S. Vogt 56 Vice President, Human Resources since 1996; prior thereto, Vice
President, Human Resources, AM International 1995-1996; FMC
Corporation, Director of Human Resources, FMC Europe 1995;
Director, Human Resources, Food Machinery Group 1991-1995.
John H. Weaver 59 Vice President, President, Lincoln Russia, Africa and Middle East
since 1996; Vice President, Export Sales 1994-1996:
International Sales Manager 1987-1994.
</TABLE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
---------------------------------------------------------------
(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:
Consolidated Balance Sheets - December 31, 1997 and 1996
Consolidated Statements of Income - Years ended December 31, 1997, 1996
and 1995
Consolidated Statements of Shareholders' Equity - Years ended December
31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows - Years ended December 31, 1997,
1996 and 1995
Notes to Consolidated Financial Statements - December 31, 1997
Report of Independent Auditors
(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
17
<PAGE> 18
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. Description
----------- -----------------------------------------------------
3(a) Second Restated Articles of Incorporation of The
Lincoln Electric Company (filed as Exhibit (3)(i) to
Form 10-Q of The Lincoln Electric Company for the six
months ended June 30, 1997, SEC File No. 0-1402 and
incorporated herein by reference and made a part
hereof).
3(b) Second Restated Code of Regulations of The Lincoln
Electric Company (filed as Exhibit (3)(ii) to Form
10-Q of The Lincoln Electric Company for the six
months ended June 30, 1997, SEC File No. 0-1402 and
incorporated herein by reference and made a part
hereof).
4(a) Note Agreement dated November 20, 1991 between The
Prudential Insurance Company of America and the
Company (filed as Exhibit 4 to Form 10-K of The
Lincoln Electric Company for the year ended December
31, 1991, SEC File No. 0-1402 and incorporated by
reference and made a part hereof), as amended by
letter dated March 18, 1993; 8.98% Senior Note Due
November 26, 2003 (filed as Exhibit 4(a) to Form 10-K
of The Lincoln Electric Company for the year ended
December 31, 1992, SEC File No. 0-1402 and
incorporated herein by reference and made a part
hereof); as further amended by letter dated as of
November 19, 1993; 8.98% Senior Note Due November 26,
2003 (filed as Exhibit 4(a) to Form 10-K of The
Lincoln Electric Company for the year ended December
31, 1993, SEC File No. 0-1402 and incorporated herein
by reference and made a part hereof); as further
amended by letter dated October 31, 1994 (filed as
Exhibit 4(a) to Form 10-Q of The Lincoln Electric
Company for the period ended September 30, 1994, SEC
File No. 0-1402 and incorporated herein by reference
and made a part hereof); and as further amended by
letter dated December 20, 1995 (filed as Exhibit 4(a)
to Form 10-K of The Lincoln Electric Company for the
year ended December 31, 1995, SEC File No. 0-1402 and
incorporated herein by reference and made a part
hereof).
4(b) Credit Agreement dated December 20, 1995 among the
Company, the Banks listed on the signature page
thereof, and Society National Bank, as Agent (filed
as Exhibit 4(b) to Form 10-K of The Lincoln Electric
Company for the year ended December 31, 1995, SEC
File No. 0-1402 and incorporated herein by reference
and made a part hereof).
10(a) The Lincoln Electric Company 1988 Incentive Equity
Plan (filed as Exhibit 28 to the Form S-8
Registration Statement of The Lincoln Electric
Company, SEC File No. 33-25209 and incorporated
herein by reference and made a part hereof).
18
<PAGE> 19
Exhibit No. Description
----------- -----------------------------------------------------
10(b) Form of Indemnification Agreement (filed as Exhibit
10(b) to Form 10-K of the Lincoln Electric Company
for the year ended December 31, 1994, SEC File No.
0-1402 and incorporated herein by reference).
10(c) The Lincoln Electric Company Supplemental Executive
Retirement Plan, as amended (filed as Exhibit 10(c)
to Form 10-K of The Lincoln Electric Company for the
year ended December 31, 1995, SEC File No. 0-1402 and
incorporated herein by reference and made a part
hereof).
10(d) The Lincoln Electric Company Deferred Compensation
Plan, as amended (filed as Exhibit 10(d) to Form 10-K
of The Lincoln Electric Company for the year ended
December 31, 1995, SEC File No. 0-1402 and
incorporated herein by reference and made a part
hereof).
10(e) Description of Management Incentive Plan (filed as
Exhibit 10(e) to Form 10-K of The Lincoln Electric
Company for the year ended December 31, 1995, SEC
File No. 0-1402 and incorporated herein by reference
and made a part hereof).
10(f) Description of Long Term Performance Plan filed
herewith.
10(g) Description of Non-Employee Directors' Restricted
Stock Plan (filed as Exhibit 10(f) to Form 10-K of
The Lincoln Electric Company for the year ended
December 31, 1995 SEC File No. 0-1402 and
incorporated herein by reference and made a part
hereof).
10(h) The Lincoln Electric Company Non-Employee Directors'
Deferred Compensation Plan (filed as Exhibit 10(g) to
Form 10-K of The Lincoln Electric Company for the
year ended December 31, 1995, SEC File No. 0-1402 and
incorporated herein by reference and made a part
hereof).
10(i) Employment Agreement between the Company and Anthony
A. Massaro dated July 14, 1993, as amended on January
1, 1994 (filed as Exhibit 10(e) to Form 10-K of The
Lincoln Electric Company for the year ended December
31, 1994, SEC File No. 0-1402, and incorporated
herein by reference).
10(j) Employment Agreement between the Company and H. Jay
Elliott dated June 22, 1993 (filed as Exhibit 10(f)
to Form 10-K of The Lincoln Electric Company for the
year ended December 31, 1994, SEC File No. 0-1402,
and incorporated herein by reference).
19
<PAGE> 20
Exhibit No. Description
----------- -----------------------------------------------------
10(k) Employment Agreement between the Company and
Frederick G. Stueber dated February 22, 1995 (filed
as Exhibit 10(g) to Form 10-K of The Lincoln Electric
Company for the year ended December 31, 1994, SEC
File No. 0-1402, and incorporated herein by
reference).
10(l) The Lincoln Electric Company Executive Benefit Plan
filed herewith.
10(m) Employment Agreement between the Company and Raymond
S. Vogt dated January 29, 1996 filed herewith.
21 Subsidiaries of the Registrant.
23 Consent of Independent Auditors.
27 Financial Data Schedule.
(b) The Company did not file any reports on Form 8-K during the fourth
quarter of 1997.
(c) The exhibits which are listed under Item 14 (a) (3) are filed or
incorporated by reference herein.
(d) The financial statement schedule which is listed under item 14 (a) (2)
is filed hereunder.
Upon request, The Lincoln Electric Company will furnish to security holders
copies of any exhibit to the Form 10-K report upon payment of a reasonable fee.
Any requests should be made in writing to: Mr. H. Jay Elliott, Senior Vice
President, Chief Financial Officer and Treasurer, The Lincoln Electric Company,
22801 St. Clair Avenue, Cleveland, Ohio 44117, Phone: (216) 481-8100.
20
<PAGE> 21
SIGNATURES
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.
THE LINCOLN ELECTRIC COMPANY
------------------------------------
(Registrant)
By: /s/ H. JAY ELLIOTT
------------------------------------------
H. Jay Elliott, Senior Vice President,
Chief Financial Officer and Treasurer
(principal financial and accounting officer)
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 indicated on March 5, 1998.
/s/ ANTHONY A. MASSARO /s/ H. JAY ELLIOTT
- --------------------------- -------------------------------------
Anthony A. Massaro, Chairman H. Jay Elliott, Senior Vice President,
of the Board, President and Chief Financial Officer and Treasurer
Chief Executive Officer (principal financial and accounting officer)
(principal executive officer)
/s/ HARRY CARLSON /s/ KATHRYN JO LINCOLN
- --------------------------- -------------------------------------
Harry Carlson, Director Kathryn Jo Lincoln, Director
/s/ DAVID H. GUNNING /s/ HENRY L. MEYER III
- --------------------------- -------------------------------------
David H. Gunning, Director Henry L. Meyer III, Director
/s/ EDWARD E. HOOD, JR. /s/ LAWRENCE O. SELHORST
- --------------------------- -------------------------------------
Edward E. Hood, Jr., Director Lawrence O. Selhorst, Director
/s/ PAUL E. LEGO /s/ CRAIG R. SMITH
- --------------------------- -------------------------------------
Paul E. Lego, Director Craig R. Smith, Director
/s/ DAVID C. LINCOLN /s/ FRANK L. STEINGASS
- --------------------------- -------------------------------------
David C. Lincoln, Director Frank L. Steingass, Director
/s/ G. RUSSELL LINCOLN
- ---------------------------
G. Russell Lincoln, Director
21
<PAGE> 22
ANNUAL REPORT ON FORM 10-K
ITEM 8, ITEM 14(a)(1) AND (2) AND ITEM 14(d)
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
FINANCIAL STATEMENT SCHEDULES
YEAR ENDED DECEMBER 31, 1997
THE LINCOLN ELECTRIC COMPANY AND SUBSIDIARIES
22
<PAGE> 23
REPORT OF INDEPENDENT AUDITORS
Shareholders and Board of Directors
The Lincoln Electric Company
We have audited the consolidated financial statements of The Lincoln Electric
Company and subsidiaries listed in the accompanying Index to Financial
Statements at Item 14 (a)(1). Our audits also included the financial statement
schedule listed in the Index at Item 14 (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 generally accepted auditing
standards. 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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of The
Lincoln Electric Company and subsidiaries at December 31, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997, in conformity with 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.
ERNST & YOUNG LLP
Cleveland, Ohio
February 9, 1998
23
<PAGE> 24
THE LINCOLN ELECTRIC COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31
1997 1996
---------- ----------
(In thousands of dollars)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 46,562 $ 40,491
Marketable securities 10,194 109
Accounts receivable (less allowances of $3,071 in 1997;
$2,878 in 1996) 163,437 151,287
Inventories
Raw materials and in-process 80,606 79,100
Finished goods 97,962 91,555
-------- --------
178,568 170,655
Deferred income taxes 15,868 10,579
Other current assets 18,914 10,088
-------- --------
TOTAL CURRENT ASSETS 433,543 383,209
OTHER ASSETS
Goodwill 34,751 37,440
Other 41,861 25,311
-------- --------
76,612 62,751
PROPERTY, PLANT AND EQUIPMENT
Land 11,520 11,710
Buildings 111,353 114,640
Machinery, tools and equipment 349,085 335,738
-------- --------
471,958 462,088
Less: accumulated depreciation and amortization 269,923 260,849
-------- --------
202,035 201,239
-------- --------
TOTAL ASSETS $712,190 $647,199
======== ========
</TABLE>
24
<PAGE> 25
THE LINCOLN ELECTRIC COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31
1997 1996
--------- ---------
(In thousands of dollars,
except share data)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable to banks $ 1,968 $ 2,607
Trade accounts payable 52,497 58,157
Salaries, wages and amounts withheld 18,742 18,983
Taxes, including income taxes 40,284 36,297
Dividend payable 4,922 2,977
Other current liabilities 56,138 39,976
Current portion of long-term debt 9,971 10,528
--------- ---------
TOTAL CURRENT LIABILITIES 184,522 169,525
Long-term debt, less current portion 54,360 64,148
Deferred income taxes 11,024 3,643
Other long-term liabilities 25,113 18,107
SHAREHOLDERS' EQUITY
Common Shares, without par value -- at stated capital amount:
Authorized -- 60,000,000 shares in 1997 and 30,000,000 shares in 1996;
Outstanding -- 10,771,007 shares in 1997 and 10,484,247 shares in 1996 2,154 2,097
Class A Common Shares (non-voting), without par value --
at stated capital amount:
Authorized -- 60,000,000 shares in 1997 and 30,000,000 shares in 1996;
Outstanding -- 13,838,363 shares in 1997 and 13,837,697 shares in 1996 2,768 2,768
Class B Common Shares, without par value -- at stated capital amount:
Authorized -- none in 1997 and 2,000,000 in 1996;
Outstanding -- none in 1997 and 486,772 shares in 1996 -- 97
Additional paid-in capital 103,722 103,720
Retained earnings 359,639 290,252
Cumulative translation adjustment (31,112) (7,158)
--------- ---------
TOTAL SHAREHOLDERS' EQUITY 437,171 391,776
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 712,190 $ 647,199
========= =========
</TABLE>
See notes to these consolidated financial statements.
25
<PAGE> 26
THE LINCOLN ELECTRIC COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31
1997 1996 1995
----------- ----------- -----------
(In thousands of dollars, except per share data)
<S> <C> <C> <C>
Net sales $ 1,159,067 $ 1,109,144 $ 1,032,398
Cost of goods sold 718,385 686,545 634,551
----------- ----------- -----------
Gross profit 440,682 422,599 397,847
Distribution cost/selling, general & administrative expenses 305,820 310,258 289,812
----------- ----------- -----------
Operating income 134,862 112,341 108,035
Other income (expense):
Interest income 5,877 2,832 1,664
Other income 770 10,421 2,231
Interest expense (6,349) (7,731) (12,346)
----------- ----------- -----------
298 5,522 (8,451)
----------- ----------- -----------
Income before income taxes 135,160 117,863 99,584
Income taxes 49,746 43,610 38,109
----------- ----------- -----------
Net income $ 85,414 $ 74,253 $ 61,475
=========== =========== ===========
Basic earnings per share $ 3.46 $ 2.99 $ 2.63
=========== =========== ===========
Diluted earnings per share $ 3.45 $ 2.99 $ 2.63
=========== =========== ===========
</TABLE>
See notes to these consolidated financial statements.
26
<PAGE> 27
THE LINCOLN ELECTRIC COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Shares Class A Common Shares Class B Common Shares
(In thousands of dollars, --------------------- ---------------------- ---------------------
except share data) Shares Amount Shares Amount Shares Amount
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1995 10,514,324 $ 2,103 499,840 $ 100
Net Income
Cash Dividends Declared -
$.42 per share
Shares Issued Under
Incentive Equity Plan 2,500
Stock Dividend 11,016,664 $ 2,203
Shares Sold in Public Offering,
net of expenses 2,863,507 573
Repurchase of Class B Shares (12,723) (3)
Shares Issued to
Non-Employee Directors 4,163 1
Adjustment for the Year
- ----------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1995 10,520,987 2,104 13,880,171 2,776 487,117 97
Net Income
Cash Dividends Declared -
$.48 per share
Repurchase of Class B Shares (345) -
Shares Issued to
Non-Employee Directors 5,734 1
Shares Repurchased Under
Incentive Equity Plan (42,474) (8) (42,474) (8)
Options Issued in
Settlement of Litigation
Adjustment for the Year
- ----------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1996 10,484,247 2,097 13,837,697 2,768 486,772 97
Net Income
Cash Dividends Declared -
$.65 per share
Shares Issued to
Non-Employee Directors 3,347 1
Conversion of Class B Common
Shares to Common Shares 282,747 57 (486,772) (97)
Exercise of Non-Qualified
Stock Options 666 - 666 -
Adjustment for the Year
- ----------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1997 10,771,007 $ 2,154 13,838,363 $ 2,768 - $ -
- ----------------------------------------------------------------------------------------------------
<CAPTION>
Cumulative
(In thousands of dollars, Additional Retained Translation
except share data) Paid-in Capital Earnings Adjustment Total
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1995 $ 25,447 $ 176,965 $ (10,482) $ 194,133
Net Income 61,475 61,475
Cash Dividends Declared -
$.42 per share (9,885) (9,885)
Shares Issued Under
Incentive Equity Plan 99 99
Stock Dividend (2,203)
Shares Sold in Public Offering,
net of expenses 79,296 79,869
Repurchase of Class B Shares (111) (114)
Shares Issued to
Non-Employee Directors 124 125
Adjustment for the Year 4,244 4,244
- ----------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1995 102,652 228,555 (6,238) 329,946
Net Income 74,253 74,253
Cash Dividends Declared -
$.48 per share (11,931) (11,931)
Repurchase of Class B Shares (4) (4)
Shares Issued to
Non-Employee Directors 136 137
Shares Repurchased Under
Incentive Equity Plan (629) (625) (1,270)
Options Issued in
Settlement of Litigation 1,565 1,565
Adjustment for the Year (920) (920)
- ----------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1996 103,720 290,252 (7,158) 391,776
Net Income 85,414 85,414
Cash Dividends Declared -
$.65 per share (16,027) (16,027)
Shares Issued to
Non-Employee Directors 112 113
Conversion of Class B Common
Shares to Common Shares (153) (193)
Exercise of Non-Qualified
Stock Options 43 43
Adjustment for the Year (23,954) (23,954)
- ----------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1997 $ 103,722 $ 359,639 $ (31,112) $ 437,171
- ----------------------------------------------------------------------------------------
</TABLE>
See notes to these consolidated financial statements.
27
<PAGE> 28
THE LINCOLN ELECTRIC COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31
1997 1996 1995
----------- ----------- -----------
(In thousands of dollars)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 85,414 $ 74,253 $ 61,475
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 28,431 29,488 29,742
Deferred income taxes 987 (3,083) 2,810
Loss (gain) on sale of fixed assets and businesses 166 (8,892) (607)
Changes in operating assets and liabilities net of effects from
acquisitions:
(Increase) in accounts receivable (22,089) (11,167) (13,082)
Decrease (increase) in inventories (18,361) 9,591 (25,648)
Decrease (increase) in other current assets (10,115) 4,287 (2,879)
Increase (decrease) in accounts payable (2,135) 2,834 (1,375)
Increase in other current liabilities 23,591 10,511 11,045
Gross change in other noncurrent assets and liabilities 1,135 (2,095) 1,991
Other, net 1,886 2,106 1,984
----------- ----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 88,910 107,833 65,456
INVESTING ACTIVITIES
Capital expenditures (37,296) (39,777) (48,351)
Purchases of marketable securities and other investments (66,260) -- --
Proceeds from sale of marketable securities 44,364 -- --
Proceeds from sale of fixed assets and businesses 909 22,375 2,909
----------- ---------- -----------
NET CASH (USED) BY INVESTING ACTIVITIES (58,283) (17,402) (45,442)
FINANCING ACTIVITIES
Proceeds from the sale of Common Shares and Class A Common Shares -- -- 81,180
Short-term borrowings - net (526) (27,366) 11,749
Proceeds from long-term borrowings 84 5,461 204,476
Repayments on long-term borrowings (10,314) (25,799) (309,111)
Cash dividends paid (14,082) (11,942) (9,100)
Other -- (1,138) 562
-------------- ---------- ------------
NET CASH (USED) BY FINANCING ACTIVITIES (24,836) (60,784) (20,244)
Effect of exchange rate changes on cash and cash equivalents 280 757 (107)
------------ ------------ ------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 6,071 30,404 (337)
Cash and cash equivalents at beginning of year 40,491 10,087 10,424
---------- ---------- ----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 46,562 $ 40,491 $ 10,087
========= ========= =========
</TABLE>
See notes to these consolidated financial statements.
28
<PAGE> 29
THE LINCOLN ELECTRIC COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of dollars except per share data)
December 31, 1997
NOTE A -- SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the
accounts of The Lincoln Electric Company and its subsidiaries (the "Company")
after elimination of all significant intercompany accounts, transactions and
profits.
CASH EQUIVALENTS AND MARKETABLE SECURITIES: The Company considers all highly
liquid investments with a maturity of three months or less when purchased to be
cash equivalents. Investments with maturities between three and twelve months
are considered to be marketable securities classified as held-to-maturity.
Marketable securities are carried at cost, with realized gains and losses
recorded to income.
INVENTORIES: Inventories are valued at the lower of cost or market. For 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. At December 31, 1997 and 1996, approximately 67% and
64%, respectively, of total inventories were valued using the LIFO method. The
excess of current cost over LIFO cost amounted to $52,860 at December 31, 1997
and $53,660 at December 31, 1996.
PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment are stated at cost
and include improvements which significantly extend the useful lives of existing
plant and equipment. Depreciation and amortization are computed by both
accelerated and straight-line methods over useful lives ranging from 3 to 20
years for machinery, tools and equipment, and up to 50 years for buildings. Net
gains or losses related to asset dispositions are recognized in earnings in the
period in which dispositions occur.
The carrying value of property, plant and equipment is reviewed if facts and
circumstances indicate a potential impairment of carrying value utilizing
relevant cash flow and profitability information.
RESEARCH AND DEVELOPMENT: Research and development costs, which are expensed as
incurred, were $16,547 in 1997, $19,800 in 1996 and $19,736 in 1995. Included in
research and development costs for 1996 was $2,040 related to in-process
research and development acquired with the purchase of Electronic Welding
Systems.
GOODWILL: The excess of the purchase price over the fair value of net assets
acquired is amortized on a straight-line basis over periods not exceeding 40
years. Amounts are stated net of accumulated amortization of $8,852 and $7,960
in 1997 and 1996, respectively.
The carrying value of goodwill is reviewed if facts and circumstances indicate a
potential impairment of carrying value may have occurred utilizing relevant cash
flow and profitability information.
REVENUE RECOGNITION: The Company recognizes revenue at the time of product
shipment.
29
<PAGE> 30
THE LINCOLN ELECTRIC COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE A -- SIGNIFICANT ACCOUNTING POLICIES - (Continued)
TRANSLATION OF FOREIGN CURRENCIES: Asset and liability accounts are translated
into U.S. dollars using exchange rates in effect at the date of the consolidated
balance sheet; revenue and expense accounts are translated at monthly exchange
rates. Translation adjustments are reflected as a component of shareholders'
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.
Transaction gains and losses are included in the consolidated statements of
income in distribution cost/selling, general & administrative expenses. The
Company recorded transaction losses of $607 in 1997, $302 in 1996 and $1,930 in
1995.
FINANCIAL INSTRUMENTS: The Company, on a limited basis, uses forward exchange
contracts to hedge exposure to exchange rate fluctuations on certain
intercompany loans, purchase and sales transactions and other intercompany
commitments. Contracts are written on a short-term basis and are not held for
trading or speculation purposes. Gains and losses on all forward exchange
contracts are recognized in the consolidated statements of income.
ESTIMATES: The preparation of financial statements in conformity with generally
accepted accounting principles 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.
EARNINGS PER SHARE: In 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, Earnings per Share (SFAS
128). SFAS 128 replaced the calculation of primary and fully diluted earnings
per share with basic and diluted earnings per share. Unlike primary earnings per
share, basic earnings per share excludes any dilutive effects of options,
warrants and convertible securities. Diluted earnings per share is very similar
to the previously reported fully diluted earnings per share. Earnings per share
amounts for all periods have been presented, and where appropriate, restated to
conform to the SFAS 128 requirements. The following table sets forth the
computation of basic and diluted earnings per share:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Numerator:
Net income $ 85,414 $ 74,253 $ 61,475
========= ========= =========
Denominator:
Denominator for basic earnings per share --
weighted-average shares 24,692 24,862 23,350
Effect of dilutive securities --
employee stock options 74 -- --
--------- --------- ---------
Denominator for diluted earnings per share --
adjusted weighted-average shares 24,766 24,862 23,350
====== ====== ======
Basic earnings per share $ 3.46 $ 2.99 $ 2.63
Diluted earnings per share $ 3.45 $ 2.99 $ 2.63
</TABLE>
30
<PAGE> 31
THE LINCOLN ELECTRIC COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE A -- SIGNIFICANT ACCOUNTING POLICIES - (Continued)
OTHER: Included in distribution cost/selling, general & administrative expenses
are the costs related to the Company's discretionary employee bonus, net of
hospitalization costs ($74,953 in 1997; $66,681 in 1996; and $66,357 in 1995).
Certain reclassifications have been made to prior year financial statements to
conform to current year classifications.
NOTE B -- RECAPITALIZATION
Effective May 28, 1997, certain changes in the Company's capital structure were
implemented. Class B Common Shares were eliminated and the 486,772 outstanding
Class B Common Shares were converted into 282,747 Common Shares. Additionally,
the authorized capital was increased to 60 million Common Shares and 60 million
Class A Common Shares.
The Company completed a recapitalization in 1995 that included the authorization
of Class A Common Shares, which became a new class of non-voting common shares.
The recapitalization included a distribution payable on June 12, 1995, to
holders of record of the Company's outstanding voting common shares as of June
5, 1995, of a dividend of one Class A Common Share for each outstanding share of
the Company's voting common shares.
Prior to the recapitalization, the Company had two authorized and outstanding
classes of voting common shares. Following the recapitalization, the Company's
authorized capital consisted of two voting classes, the Common Shares, without
par value (formerly the "Common Stock"), and the Class B Common Shares, without
par value (formerly the "Class A Common Stock"), and one non-voting class, the
Class A Common Shares (the new "Class A Common Shares"). The recapitalization
included an increase in the total number of authorized common shares of all
classes from 17 million to 62 million shares consisting of 30 million Common
Shares, 30 million Class A Common Shares and 2 million Class B Common Shares.
On June 29, 1995, the Company sold in an underwritten public offering 2,796,914
Class A Common Shares for $28.35 per share, net of the underwriting discount.
The net proceeds of $79,292 were used to reduce debt of the Company. On August
2, 1995, the Company sold an additional 66,593 Class A Common Shares for $28.35
per share under an over-allotment provision of the Underwriting Agreement and
received additional net proceeds of $1,888 which were also used to reduce debt.
NOTE C -- STOCK PLANS
The Lincoln Electric Company 1988 Incentive Equity Plan ("Incentive Equity
Plan") provides for the award of stock options and the award or sale of Common
Shares and Class A Common Shares to officers and other key employees of the
Company and its subsidiaries. The following table summarizes the option activity
for 1997 and 1996 under the Incentive Equity Plan (no options were granted prior
to 1996):
31
<PAGE> 32
THE LINCOLN ELECTRIC COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE C -- STOCK PLANS - (Continued)
<TABLE>
<CAPTION>
Common Shares Class A Common Shares
---------------------------- --------------------------
Options Exercise Prices Options Exercise Prices
------- --------------- ------- ---------------
<S> <C> <C> <C> <C>
Balance, January 1, 1996 -- --
Granted 139,000 $ 30.00 306,590 $27.25 - $34.00
Exercised -- --
------- -------
Balance, December 31, 1996 139,000 30.00 306,590 27.25 - 34.00
Granted 48,250 38.38 48,250 35.25
Exercised (666) 30.00 (666) 27.25
Canceled -- (18,468) 30.00 - 34.00
------- -------
Balance, December 31, 1997 186,584 $30.00 - $38.38 335,706 $27.25 - $35.25
======= =======
Options exercisable at
December 31, 1997 45,657 $ 30.00 194,779 $27.25 - $35.25
====== =======
</TABLE>
Options for 167,590 Class A Common shares, at exercise prices of $30.00 to
$34.00 per share, were granted in 1996 to current employees in settlement of a
lawsuit over performance awards relating to prior years. The estimated fair
value of these options was charged to income in 1996. These options are
exercisable over five- and ten-year periods and are fully vested, non-qualified
and non-transferable.
All other options granted under the Incentive Equity Plan are outstanding for a
term of ten years from the date of grant and vest ratably over a period of three
years from the grant date. The exercise prices were equal to the fair market
value of the Common and Class A Shares at the date of grant. As permitted under
Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation ("SFAS 123"), the Company has continued to record stock-based
compensation in accordance with the intrinsic value method established by
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees, which measures compensation expense as the excess, if any, of the
market price at the date of grant over the exercise price of the options.
Accordingly, no compensation expense was recognized upon the award of these
stock options.
SFAS 123 requires pro forma disclosure of the effect on net income and earnings
per share when applying the fair value method of valuing stock-based
compensation. The following table sets forth the pro forma disclosure of net
income and earnings per share for 1997 and 1996 using the Black-Scholes option
pricing model. For purposes of this pro forma disclosure, the estimated fair
value of the options is amortized ratably over the vesting period of three years
from the date of grant.
<TABLE>
<CAPTION>
1997 1996
------------------------ -------------------------
Pro Forma As Reported Pro Forma As Reported
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Pro forma net income $ 84,740 $ 85,414 $ 74,092 $ 74,253
Pro forma basic earnings per share 3.43 3.46 2.98 2.99
Pro forma diluted earnings per share 3.42 3.45 2.98 2.99
</TABLE>
32
<PAGE> 33
THE LINCOLN ELECTRIC COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE C -- STOCK PLANS - (Continued)
In estimating the fair value of options granted, an expected option life of ten
years was used for all option grants in 1997 and 1996. The other assumptions
were as follows:
<TABLE>
<CAPTION>
1997 1996
-------------------- --------------------
Common Class A Common Class A
Shares Shares Shares Shares
------ ------ ------ ------
<S> <C> <C> <C> <C>
Expected volatility 25.4% 19.7% 31.4% 21.1%
Dividend yield 2.05% 2.22% 2.00% 2.10%
Risk-free interest rate 5.74% 5.74% 6.85% 6.85%
</TABLE>
Under the Incentive Equity Plan, 5,000 shares of restricted stock were issued to
an officer in 1995 with vesting over a six-year period. In 1997 and 1996, there
were no awards or sales of shares associated with the plan. At December 31,
1997, there were 762,726 Common Shares and 595,136 Class A Common Shares
reserved for future issuance under the Incentive Equity Plan.
The Lincoln Electric Company Employee Stock Ownership Plan (the "ESOP") was
established as a non-contributory profit-sharing plan to provide deferred
compensation benefits for all eligible employees. Restricted stock in the form
of Class B Common Shares were awarded through contributions to an employee stock
ownership trust. In 1997, 1996 and 1995, no shares were issued to the ESOP and
the Company has discontinued awards under this plan. In May 1997, the ESOP
received Common Shares in exchange for the Class B Common Shares the plan
previously held. The assets of the ESOP were subsequently merged during July
1997 with The Lincoln Electric Company Employee Savings Plan.
The Lincoln Non-Employee Directors' Restricted Stock Plan ("Non-Employee
Directors' Plan") was adopted in May 1995. The Non-Employee Directors' Plan
provides for distributions of $10 worth of Common Shares to each non-employee
Director as part of an annual retainer. Shares issued in connection with this
plan were 3,965 in 1997, 5,734 in 1996 and 4,163 in 1995. In 1997, 618 shares
were forfeited under the service requirements of the 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 $10 annually.
Under this plan, in 1997, there were 4,428 Common Shares and 2,248 Class A
Common Shares purchased, and in 1996, there were 2,799 Common Shares and 1,443
Class A Common Shares purchased. There were no purchases during 1995.
33
<PAGE> 34
THE LINCOLN ELECTRIC COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE D -- SHORT-TERM AND LONG-TERM DEBT
<TABLE>
<CAPTION>
December 31
1997 1996
------- -------
<S> <C> <C>
Short-term debt:
Notes payable to banks at interest rates from 4.5% to 8.75%
(3.64% to 10.25% in 1996) $ 1,968 $ 2,607
======= =======
Long-term debt:
8.73% Senior Note due 2003 (six equal annual principal
payments remaining) $56,250 $65,625
Other borrowings due through 2023, interest at 2.00% to 12.00% 8,081 9,051
------- -------
64,331 74,676
Less current portion 9,971 10,528
------- -------
Total $54,360 $64,148
======= =======
</TABLE>
Effective July 1997, the Company extended its $200 million unsecured,
multi-currency Credit Agreement to June 30, 2002. The terms of the Credit
Agreement provide for annual extensions. The interest rate on outstanding
borrowings is determined based upon defined leverage rates for the pricing
options selected. The interest rate can range from LIBOR plus 0.165% to LIBOR
plus 0.25% depending upon the defined leverage rate. The agreement also provides
for a facility fee ranging from 0.085% to 0.15% per annum based upon the daily
aggregate amount of the commitment. The Credit Agreement and the 8.73% Senior
Note due in 2003 contain financial covenants which require the same interest
coverage and funded debt-to-capital ratios.
In August 1997, the Company entered into an interest rate swap agreement to
convert its fixed rate 8.73% Senior Note due 2003 to a floating rate based on a
3-month London Interbank Offered Rate basket swap plus a spread of 381 basis
points. The agreement caps the floating rate, including the spread, at 10%. The
floating rate in effect at December 31, 1997 was 8.04%. The arrangement provides
for the receipt or payment of interest, on a quarterly basis, through the loan
expiration date. The notional value of the agreement, which decreases in future
years with annual debt payments, was $56,250 at December 31, 1997. Net receipts
or payments under the agreement are recognized as an adjustment to interest
expense.
Maturities of long-term debt for the five years succeeding December 31, 1997 are
$9,971 in 1998, $10,185 in 1999, $9,701 in 2000, $11,255 in 2001, $9,759 in 2002
and $13,460 thereafter.
Total interest paid was $6,329 in 1997, $7,800 in 1996 and $12,606 in 1995.
Weighted-average interest rates on notes payable to banks at December 31, 1997
and 1996 were 6.2% and 6.1%, respectively.
34
<PAGE> 35
THE LINCOLN ELECTRIC COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE E -- INCOME TAXES
The components of income before income taxes were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
U.S. $ 112,411 $ 94,951 $ 80,351
Non-U.S. 22,749 22,912 19,233
--------- --------- --------
Total $ 135,160 $ 117,863 $ 99,584
========= ========= ========
Components of income tax expense (benefit) were as follows:
1997 1996 1995
-------- -------- --------
Current:
Federal $ 32,060 $ 33,484 $ 24,605
Non-U.S. 8,909 6,197 5,465
State and local 7,790 7,012 5,229
--------- --------- ---------
48,759 46,693 35,299
Deferred:
Federal 3,215 (2,735) 2,576
Non-U.S. (2,228) (348) 234
--------- --------- ---------
987 (3,083) 2,810
--------- --------- ---------
Total $ 49,746 $ 43,610 $ 38,109
========= ========= =========
</TABLE>
The differences between total income tax expense and the amount computed by
applying the statutory Federal income tax rate to income before income taxes are
as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Statutory rate of 35% applied to pre-tax income $ 47,306 $ 41,252 $ 34,854
Effect of state and local income taxes, net of Federal
tax benefit 5,063 4,558 3,399
Taxes in excess of (less than) the U.S. tax rate on non-
U.S. earnings, including utilization of tax loss
carryforwards and losses with no benefit (1,281) (2,663) (605)
Foreign sales corporation (1,235) (1,220) (961)
Other - net (107) 1,683 1,422
--------- --------- ---------
Total $ 49,746 $ 43,610 $ 38,109
========= ========= =========
</TABLE>
Total income tax payments, net of refunds, were $44,648 in 1997, $36,764 in 1996
and $22,428 in 1995.
At December 31, 1997, certain non-U.S. subsidiaries had tax loss carryforwards
of approximately $45,300 which expire in various years from 1998 through 2007,
except for $18,600 for which there is no expiration date.
35
<PAGE> 36
THE LINCOLN ELECTRIC COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE E -- INCOME TAXES - (Continued)
Significant components of the Company's deferred tax assets and liabilities at
December 31, 1997 and 1996, are as follows:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Deferred tax assets:
Tax loss and credit carryforwards $ 16,832 $ 16,106
State income taxes 3,506 2,256
Inventory 4,635 262
Other accruals 13,861 7,677
Employee benefits 4,792 5,912
Pension obligations 3,224 3,975
Other 9,141 11,965
-------- --------
55,991 48,153
Valuation allowance (14,760) (16,161)
-------- --------
41,231 31,992
Deferred tax liabilities:
Fixed assets (19,519) (16,526)
Pension obligations (10,247) (6,838)
Other (5,605) (1,692)
-------- --------
(35,371) (25,056)
-------- --------
Total $ 5,860 $ 6,936
======== ========
</TABLE>
The decrease in the valuation allowance was primarily due to the realization of
loss carryforwards.
The Company does not provide deferred income taxes on unremitted earnings of
non-U.S. subsidiaries as such funds are deemed permanently reinvested in
properties, plant and working capital. It is not practicable to calculate the
deferred taxes associated with the remittance of these investments.
36
<PAGE> 37
THE LINCOLN ELECTRIC COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE F -- RETIREMENT ANNUITY AND GUARANTEED CONTINUOUS EMPLOYMENT PLANS
The Company and its subsidiaries maintain a number of defined benefit and
defined contribution plans to provide retirement benefits for employees in the
United States as well as employees outside the U.S. These plans are maintained
and contributions are made in accordance with the Employee Retirement Income
Security Act of 1974, 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 supplemental employee
retirement plan for certain key employees. Substantially all U.S. employees are
covered under a 401(k) savings plan in which they may invest 1% or more of
eligible compensation, limited to maximum amounts as determined by the Internal
Revenue Service. In 1997, the plan began providing for Company matching
contributions of 25% of the first 6% of employee compensation contributed to the
plan.
A summary of the components of total pension expense is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
U.S. Plans:
Service cost - benefits earned during the year $ 9,565 $ 9,417 $ 7,375
Interest cost on projected benefit obligation 24,359 23,250 21,847
Actual return on plan assets (50,006) (23,169) (37,696)
Net amortization and deferral 23,299 266 17,819
-------- -------- --------
Net pension cost of defined benefit plans 7,217 9,764 9,345
Defined contribution plans 1,678 149 154
-------- -------- --------
Total U.S. plans 8,895 9,913 9,499
Non-U.S. Plans:
Service cost - benefits earned during the year 1,754 1,639 1,476
Interest cost on projected benefit obligation 2,547 2,477 2,291
Actual return on plan assets (3,858) (3,733) (3,186)
Net amortization and deferral 671 804 374
-------- -------- --------
Net pension cost of defined benefit plans 1,114 1,187 955
Defined contribution plans 577 690 687
-------- -------- --------
Total Non-U.S. plans 1,691 1,877 1,642
-------- -------- --------
Total pension expense $ 10,586 $ 11,790 $ 11,141
======== ======== ========
</TABLE>
37
<PAGE> 38
THE LINCOLN ELECTRIC COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE F -- RETIREMENT ANNUITY AND GUARANTEED CONTINUOUS EMPLOYMENT PLANS -
(Continued)
The funded status of the U.S. and non-U.S. plans at December 31, 1997 and 1996
is as follows:
<TABLE>
<CAPTION>
U.S. Non-U.S.
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Actuarial present value of accumulated benefit obligations:
Vested $ 305,007 $ 275,052 $ 32,720 $ 32,247
Nonvested 6,222 4,480 1,203 1,249
--------- --------- --------- ---------
$ 311,229 $ 279,532 $ 33,923 $ 33,496
========= ========= ========= =========
Actuarial present value of projected benefit obligations $ 356,704 $ 323,673 $ 37,400 $ 36,908
Plan assets at fair value 350,862 304,017 38,807 41,530
--------- --------- --------- ---------
Plan assets in excess of (less than) projected
benefit obligations (5,842) (19,656) 1,407 4,622
Unrecognized net (gain) loss 6,111 14,966 1,391 (1,897)
Unrecognized prior service cost 10,994 9,590 402 477
Unrecognized transition assets, net of amortization (1,897) (2,214) (865) (1,226)
Minimum liability (859) (474) -- --
--------- --------- --------- ---------
Prepaid pension expense recognized in the balance sheet $ 8,507 $ 2,212 $ 2,335 $ 1,976
========= ========= ========= =========
</TABLE>
Assumptions used in accounting for the defined benefit plans as of December 31,
1997 and 1996 for the U.S. and non-U.S. plans were as follows:
<TABLE>
<CAPTION>
U.S. Plans Non-U.S. Plans
---------------- -----------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted-average discount rates 7.3% 7.6% 7.0% 7.7%
Projected rates of increase in compensation 5.3% 5.3% 4.2% 4.7%
Expected rates of return on plan assets 9.0% 9.0% 7.9% 8.1%
</TABLE>
U.S. plan assets consist of fixed income and equity securities. Non-U.S. plan
assets are invested in non-U.S. insurance contracts and non-U.S. equity and
fixed income securities.
The Company does not have, and does not provide for, any postretirement or
postemployment benefits other than pensions.
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.
38
<PAGE> 39
THE LINCOLN ELECTRIC COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE G -- INDUSTRY AND GEOGRAPHIC SEGMENT INFORMATION
The Company's primary business is the design, manufacture and sale, in the U.S.
and international markets of arc, cutting and other welding products. The
Company also designs, manufactures and sells integral horsepower industrial
electric motors. Financial information by geographic areas follows:
<TABLE>
<CAPTION>
United Other
States Europe Countries Eliminations Total
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
1997:
Net sales to unaffiliated
customers $ 799,442 $ 204,858 $ 154,767 $ -- $1,159,067
Inter-geographic sales 65,812 11,475 8,033 (85,320) --
---------- ---------- ---------- ---------- ----------
Total $ 865,254 $ 216,333 $ 162,800 $ (85,320) $1,159,067
========== ========== ========== ========== ==========
Operating income $ 111,296 $ 9,974 $ 14,149 $ (557) $ 134,862
Identifiable assets 489,431 163,519 96,850 (37,610) 712,190
1996:
Net sales to unaffiliated
customers $ 752,952 $ 219,436 $ 136,756 $ -- $1,109,144
Inter-geographic sales 55,942 10,786 9,219 (75,947) --
---------- ---------- ---------- ---------- ----------
Total $ 808,894 $ 230,222 $ 145,975 $ (75,947) $1,109,144
========== ========== ========== ========== ==========
Operating income $ 90,271 $ 9,993 $ 12,431 $ (354) $ 112,341
Identifiable assets 416,911 183,938 87,808 (41,458) 647,199
1995:
Net sales to unaffiliated
customers $ 711,940 $ 201,672 $ 118,786 $ -- $1,032,398
Inter-geographic sales 53,347 15,662 9,092 (78,101) --
---------- ---------- ---------- ---------- ----------
Total $ 765,287 $ 217,334 $ 127,878 $ (78,101) $1,032,398
========== ========== ========== ========== ==========
Operating income $ 87,044 $ 11,350 $ 10,246 $ (605) $ 108,035
Identifiable assets 404,972 188,906 80,594 (56,712) 617,760
</TABLE>
Intercompany sales between geographic regions are accounted for at prices
comparable to normal, customer sales and are eliminated in consolidation.
Export sales (excluding intercompany sales) from the United States were $105,464
in 1997, $90,706 in 1996 and $81,770 in 1995.
39
<PAGE> 40
THE LINCOLN ELECTRIC COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE H -- ACQUISITION AND DIVESTITURES
In July 1996, the Company acquired Electronic Welding Systems (EWS), a designer
and supplier of welding power supplies and plasma cutting equipment, based in
Italy. The acquisition was accounted for as a purchase. The results of
operations of EWS, which are not material, are included in the Consolidated
Statement of Income from the date of acquisition. The net cost of the
acquisition, $5,520, net of cash received, is included in capital expenditures
in the Consolidated Statement of Cash Flows for the year ended December 31,
1996.
Also during 1996, the Company sold its Louisiana and Alaska gas distribution
businesses for net cash proceeds of $17,343. The Company realized a gain on
disposal of these businesses of $8,365 ($5,093 after-tax, or $0.20 per share
(basic and diluted)), which is included in other income. The results of
operations from these businesses were not material to the Company for the years
ended December 31, 1996 and 1995.
NOTE I -- FAIR VALUES OF FINANCIAL INSTRUMENTS
The Company has various financial instruments, including cash, cash equivalents,
marketable securities, short and long-term debt, forward contracts, and an
interest rate swap. The Company has determined the estimated fair value of these
financial instruments by using available market information and appropriate
valuation methodologies which require judgment.
The Company enters into forward exchange contracts to hedge foreign currency
transactions on a continuing basis for periods consistent with its committed
exposures. This hedging minimizes the impact of foreign exchange rate movements
on the Company's operating results. The total notional value of forward currency
exchange contracts at December 31, 1997 was $26,896.
The carrying amounts and estimated fair value of the Company's significant
financial instruments at December 31, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
---------------------- -------------------------
Carrying Fair Carrying Fair
Amounts Value Amounts Value
------- ----- ------- -----
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 46,562 $ 46,562 $ 40,491 $ 40,491
Marketable securities 10,194 10,197 109 109
Notes payable to banks 1,968 1,968 2,607 2,607
Long-term debt (including current portion) 64,331 67,464 74,676 77,061
</TABLE>
NOTE J -- OPERATING LEASES
The Company leases sales offices, warehouses and distribution centers, office
equipment and data processing equipment. Such leases, some of which are
noncancelable and, in many cases, include renewals, expire at various dates. The
Company pays most maintenance, insurance and taxes relating to leased assets.
Rental expense was $7,851 in 1997, $8,345 in 1996 and $8,852 in 1995.
40
<PAGE> 41
THE LINCOLN ELECTRIC COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE J -- OPERATING LEASES - (Continued)
At December 31, 1997, total minimum lease payments for noncancelable operating
leases are as follows:
<TABLE>
<S> <C>
1998 $ 5,741
1999 4,905
2000 3,653
2001 1,756
2002 755
Thereafter 1,811
-------
Total $18,621
=======
</TABLE>
NOTE K -- CONTINGENCIES
The Company is subject to a variety of civil and administrative proceedings
arising out of its normal operations, including those relating to product
liability claims, health, safety and environmental claims and employment-related
actions.
The Company has been named a defendant or co-defendant in sixteen lawsuits
filed against the Company during or after May 1996 in the Superior Court of
California by building owners or insurers in Los Angeles County arising from
alleged property damage claimed to have been discovered after the Northridge,
California, earthquake of January 1994 and in one lawsuit in which claimed
damage was discovered before that earthquake. The cases generally include
allegations that a certain type of welding electrode manufactured by the
Company and others was defective for use in "moment resisting" steel frame
buildings in seismically sensitive areas.
During September 1997, the Company settled one lawsuit of this type, SAINT
JOHN'S MEDICAL PLAZA V. DILLINGHAM CONSTRUCTION ET.AL., which had been set for
trial in October. The Company paid $6.0 million to settle this case. There was
no significant effect on results of operations for the year, due to existing
reserves and applicable insurance. Another previously reported case, PACIFIC
DESIGN CENTER, had been filed as a purported class action on behalf of steel
frame building owners in Los Angeles County, and asserted damages in excess of
$1 billion. On January 30, 1998, class action allegations in that case were
dismissed. The case remains pending as to the two individual plaintiffs.
The Company is unable to make a meaningful estimate of the amount or range of
possible losses that could result from an unfavorable outcome of the remaining
pending or future steel frame building cases. The Company's results of
operations or cash flows in one or more interim or annual periods could be
materially affected by unfavorable results in one or more of these cases.
Management believes the Company has substantial defenses and intends to contest
such suits vigorously, that the Company has applicable insurance and that other
potential defendants and their respective insurers will be identified as the
lawsuits proceed. Based on information known to the Company, and subject to the
factors and contingencies noted herein, management believes the outcome of the
Company's litigation should not have a material adverse effect upon the
consolidated financial position of the Company. However, if the Company is
unsuccessful in defending or otherwise satisfactorily resolving this litigation,
and if insurance coverage is unavailable or inadequate, then the litigation
could have a material adverse impact on the Company's financial position.
41
<PAGE> 42
THE LINCOLN ELECTRIC COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE L -- QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
1997 MAR 31 JUN 30 SEP 30 DEC 31
---- ------ ------ ------ ------
<S> <C> <C> <C> <C>
Net sales $280,721 $299,635 $291,567 $287,144
Gross profit 107,763 114,003 110,523 108,393
Income before income taxes 33,857 36,040 33,776 31,487
Net income 21,049 22,651 21,510 20,204
Basic earnings per share $ 0.85 $ 0.92 $ 0.87 $ 0.82
Diluted earnings per share $ 0.85 $ 0.91 $ 0.87 $ 0.82
1996 MAR 31 JUN 30 SEP 30 DEC 31
---- ------ ------ ------ ------
Net sales $278,712 $284,508 $270,947 $274,977
Gross profit 106,554 109,757 104,012 102,276
Income before income taxes 26,751 32,121 31,103 27,888
Net income 16,557 20,223 19,671 17,802
Basic earnings per share $ 0.67 $ 0.81 $ 0.79 $ 0.72
Diluted earnings per share $ 0.67 $ 0.81 $ 0.79 $ 0.72
</TABLE>
42
<PAGE> 43
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
THE LINCOLN ELECTRIC COMPANY AND SUBSIDIARIES
(In thousands of dollars)
<TABLE>
<CAPTION>
Additions
---------------------------
(1)
Charged
Balance at Charged to to other Balance
beginning costs and accounts (2) at end
Description of period expenses (describe) Deductions of period
----------- --------- -------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended December 31, 1997 $2,878 $ 1,022 $ (455) $ 374 $3,071
Year ended December 31, 1996 $3,916 $ 193 $ (127) $1,104 (3) $2,878
Year ended December 31, 1995 $4,251 $ 944 $ 194 $1,473 $3,916
</TABLE>
(1) -- Currency translation adjustment.
(2) -- Uncollectible accounts written-off, net of recoveries.
(3) -- Includes balance of $363 at the dates of disposition relating to the gas
distribution businesses.
43
<PAGE> 44
INDEX TO EXHIBITS
Exhibit No. Description
- --------------- ------------------------------------------------------------
3(a) Second Restated Articles of Incorporation of The Lincoln
Electric Company (filed as Exhibit (3)(i) to Form 10-Q of
The Lincoln Electric Company for the six months ended June
30, 1997, SEC File No. 0-1402 and incorporated herein by
reference and made a part hereof).
3(b) Second Restated Code of Regulations of The Lincoln Electric
Company (filed as Exhibit (3)(ii) to Form 10-Q of The
Lincoln Electric Company for the six months ended June 30,
1997, SEC File No. 0-1402 and incorporated herein by
reference and made a part hereof).
4(a) Note Agreement dated November 20, 1991 between The
Prudential Insurance Company of America and the Company
(filed as Exhibit 4 to form 10-K of The Lincoln Electric
Company for the year ended December 31, 1991, SEC File No.
0-1402 and incorporated by reference and made a part
hereof), as amended by letter dated March 18, 1993; 8.98%
Senior Note Due November 26, 2003 (filed as Exhibit 4(a) to
Form 10-K of The Lincoln Electric Company for the year ended
December 31, 1992, SEC File No. 0-1402 and incorporated
herein by reference and made a part hereof); as further
amended by letter dated as of November 19, 1993; 8.98%
Senior Note Due November 26, 2003 (filed as Exhibit 4(a) to
Form 10-K of The Lincoln Electric Company for the year ended
December 31, 1993, SEC File No. 0-1402 and incorporated
herein by reference and made a part hereof); as further
amended by letter dated October 31, 1994 (filed as Exhibit
4(a) to Form 10-Q of The Lincoln Electric Company for the
period ended September 30, 1994, SEC File No. 0-1402 and
incorporated herein by reference and made a part hereof);
and as further amended by letter dated December 20, 1995
(filed as Exhibit 4(a) to Form 10-K of The Lincoln Electric
Company for the year ended December 31, 1995, SEC File No.
0-1402 and incorporated herein by reference and made a part
hereof).
4(b) Credit Agreement dated December 20, 1995 among the Company,
the Banks listed on the signature page thereof, and Society
National Bank, as Agent (filed as Exhibit 4(b) to Form 10-K
of The Lincoln Electric Company for the year ended December
31, 1995, SEC File No. 0-1402 and incorporated herein by
reference and made a part hereof).
10(a) The Lincoln Electric Company 1988 Incentive Equity Plan
(filed as Exhibit 28 to the Form S-8 Registration Statement
of The Lincoln Electric Company, SEC File No. 33-25209 and
incorporated herein by reference and made a part hereof).
10(b) Form of Indemnification Agreement (filed as Exhibit 10(b) to
Form 10-K of The Lincoln Electric Company for the year ended
December 31, 1994, SEC File No. 0-1402 and incorporated
herein by reference).
<PAGE> 45
INDEX TO EXHIBITS
Exhibit No. Description
- --------------- ------------------------------------------------------------
10(c) The Lincoln Electric Company Supplemental Executive
Retirement Plan, as amended (filed as Exhibit 10(c) to Form
10-K of The Lincoln Electric Company for the year ended
December 31, 1995, SEC File No. 0-1402 and incorporated
herein by reference and made a part hereof).
10(d) The Lincoln Electric Company Deferred Compensation Plan, as
amended (filed as Exhibit 10(d) to Form 10-K of The Lincoln
Electric Company for the year ended December 31, 1995, SEC
File No. 0-1402 and incorporated herein by reference and
made a part hereof).
10(e) Description of Management Incentive Plan (filed as Exhibit
10(e) to Form 10-K of The Lincoln Electric Company for the
year ended December 31, 1995, SEC File No. 0-1402 and
incorporated herein by reference and made a part hereof).
10(f) Description of Long Term Performance Plan filed herewith.
10(g) Description of Non-Employee Directors' Restricted Stock Plan
(filed as Exhibit 10(f) to Form 10-K of The Lincoln Electric
Company for the year ended December 31, 1995, SEC File No.
0-1402 and incorporated herein by reference and made a part
hereof).
10(h) The Lincoln Electric Company Non-Employee Directors'
Deferred Compensation Plan (filed as Exhibit 10(g) to Form
10-K of The Lincoln Electric Company for the year ended
December 31, 1995, SEC File No. 0-1402 and incorporated
herein by reference and made a part hereof).
10(i) Employment Agreement between the Company and Anthony A.
Massaro dated July 14, 1993, as amended on January 1, 1994
(filed as Exhibit 10(e) to Form 10-K of The Lincoln Electric
Company for the year ended December 31, 1994, SEC File No.
0-1402, and incorporated herein by reference).
10(j) Employment Agreement between the Company and H. Jay Elliott
dated June 22, 1993 (filed as Exhibit 10(f) to Form 10-K of
The Lincoln Electric Company for the year ended December 31,
1994, SEC File No. 0-1402, and incorporated herein by
reference).
<PAGE> 46
INDEX TO EXHIBITS
Exhibit No. Description
- --------------- ------------------------------------------------------------
10(k) Employment Agreement between the Company and Frederick G.
Stueber dated February 22, 1995 (filed as Exhibit 10(g) to
Form 10-K of The Lincoln Electric Company for the year ended
December 31, 1994, SEC File No. 0-1402, and incorporated
herein by reference).
10(l) The Lincoln Electric Company Executive Benefit Plan filed
herewith.
10(m) Employment Agreement between the Company and Raymond S.
Vogt dated January 29, 1996 filed herewith.
21 Subsidiaries of the Registrant.
23 Consent of Independent Auditors.
27 Financial Data Schedule.
<PAGE> 1
Exhibit 10(f)
LONG TERM PERFORMANCE PLAN
The Company has adopted a Long Term Performance Plan in which the Company's
senior management participates. Pursuant to this Plan, awards are made based on
the level of achievement of pre-determined long-term financial performance
targets established by the Chairman, CEO and the Compensation Committee of the
Board of Directors. The current award provides for a three-year performance
period and is based on growth in net income for the Company over that period.
Each participant's award, when combined with stock option grants during that
period, approximately equals the average value of long-term incentives provided
to similar positions at comparable companies. Actual awards are determined
based on a review by the Chairman, CEO and the Compensation Committee and are
paid in cash.
<PAGE> 1
Exhibit 10(l)
THE LINCOLN ELECTRIC COMPANY
EXECUTIVE BENEFIT PLAN
EFFECTIVE NOVEMBER 1, 1997
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
ARTICLE 1
DEFINITIONS
-----------
ARTICLE 2
SELECTION, ENROLLMENT AND ELIGIBILITY
-------------------------------------
<S> <C> <C> <C>
2.1 Selection by Compensation Committee.........................................................6
2.2 Enrollment Requirements.....................................................................6
2.3 Eligibility; Commencement of Participation..................................................6
ARTICLE 3
VESTING ACCOUNT BALANCE
3.1 Vesting in Change in Control Benefit........................................................6
3.2 Forfeiture..................................................................................7
3.3 Account Balance.............................................................................7
ARTICLE 4
BENEFITS
--------
4.1 Change in Control Benefit...................................................................7
4.2 Withholding and Payroll Taxes...............................................................7
ARTICLE 5
BENEFICIARY
-----------
5.1 Beneficiary.................................................................................8
5.2 Beneficiary Designation; Change.............................................................8
5.3 Acknowledgment..............................................................................8
5.4 No Beneficiary Designation..................................................................8
5.5 Discharge of Obligations....................................................................8
ARTICLE 6
TERMINATION, AMENDMENT OR
MODIFICATION OF THE PLAN
------------------------
6.1 Termination, Amendment or Modification Prior to One Year Before Change
in Control..................................................................................8
6.2 Termination, Amendment or Modification Within One Year Before Change in .....................
Control or Following Change in Control......................................................9
6.3 Termination of Plan Agreement...............................................................9
ARTICLE 7
OTHER BENEFITS AND AGREEMENTS
-----------------------------
7.1 Coordination with Other Benefits............................................................9
</TABLE>
-I-
<PAGE> 3
<TABLE>
<CAPTION>
ARTICLE 8
TRUSTS
------
<S> <C> <C> <C>
8.1 Establishment of the Trusts.................................................................9
8.2 Interrelationship of the Plan and the Trusts...............................................10
8.3 Accounts...................................................................................10
ARTICLE 9
INSURANCE POLICIES
------------------
9.1 Policies...................................................................................11
9.2 Documents Required by Insurer..............................................................11
ARTICLE 10
ADMINISTRATION
--------------
10.1 Administrator Duties.......................................................................12
10.2 Agents.....................................................................................12
10.3 Binding Effect of Decisions................................................................12
10.4 Indemnity of Administrator.................................................................12
10.5 Employer Information.......................................................................12
ARTICLE 11
CLAIMS PROCEDURES
-----------------
11.1 Presentation of Claim......................................................................13
11.2 Notification of Decision...................................................................13
11.3 Review of a Denied Claim...................................................................13
11.4 Decision on Review.........................................................................14
11.5 Legal Action...............................................................................14
ARTICLE 12
MISCELLANEOUS
-------------
12.1 Unsecured General Creditor.................................................................14
12.2 Employer's Liability.......................................................................14
12.3 Nonassignability...........................................................................14
12.4 Not a Contract of Employment...............................................................15
12.5 Furnishing Information.....................................................................15
12.6 Terms......................................................................................15
12.7 Captions...................................................................................15
12.8 Governing Law..............................................................................15
12.9 Validity...................................................................................15
12.10 Notice.....................................................................................15
12.11 Successors.................................................................................16
12.12 Spouse's Interest..........................................................................16
12.13 Incompetent................................................................................16
12.14 Distribution in the Event of Taxation......................................................16
</TABLE>
-II-
<PAGE> 4
THE LINCOLN ELECTRIC COMPANY
EXECUTIVE BENEFIT PLAN
Effective November 1, 1997
PURPOSE
The purpose of this Plan is to provide specified benefits
for the purpose of motivating and retaining a select group of management and
highly compensated employees who contribute materially to the continued growth,
development, and future success of The Lincoln Electric Company, an Ohio
corporation (the "Company"). The Plan generally is intended to provide benefits
to covered employees in the event of a "Change in Control" of the Company (as
defined herein) and is not intended to constitute an "employee pension benefit
plan" within the meaning of Section (3)(2) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"). Benefits, if payable under the Plan,
will be payable generally prior to termination of employment.
ARTICLE 1
DEFINITIONS
-----------
For purposes hereof, unless otherwise clearly apparent from
the context, the following phrases or terms shall have the following indicated
meaning:
1.1 "Administrative Account" shall mean an account established in accordance
with Section 8.3(a)(ii) below.
1.2 "Administrator" shall mean the administrative committee appointed to manage
and administer the Plan in accordance with the provisions of Article 10 below.
1.3 "Beneficiary" shall mean one or more persons, trusts, estates or other
entities, designated in accordance with Article 5 below, that are entitled to
receive benefits under this Plan upon the death of a Participant.
1.4 "Beneficiary Designation Form" shall mean the form established from time to
time by the Administrator that a Participant completes, signs and returns to the
Administrator to designate one or more Beneficiaries.
1.5 "Board" shall mean the Board of Directors of the Company.
1.6 "Change in Control" shall mean the occurrence of any of the following:
-1-
<PAGE> 5
(a) Any "person", as such term is used in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), other than
a Permitted Holder, is or becomes the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of securities of the
Company representing 20 percent or more of the combined voting power of the
Company's then outstanding securities;
(b) During any period of two consecutive years (not including any
period prior to the Effective Date), individuals who at the beginning of such
period constitute the Board, and any new director (other than a director
designated by a person who has entered into an agreement with the Company to
effect a transaction described in Subsection (a), (c) or (d) of this Section)
whose election by the Board or nomination for election by the Company's
shareholders was approved by a vote of at least two-thirds (2/3) of the
directors then still in office who either were directors at the beginning of the
period or whose election or nomination for election was previously so approved,
cease for any reason to constitute at least a majority thereof;
(c) The shareholders of the Company approve a merger or consolidation
of the Company with any other corporation, other than a Permitted Transaction.
(d) The shareholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by the
Company of all or substantially all of the Company's assets;
(e) The Company voluntarily files a petition for bankruptcy under
federal bankruptcy law, or an involuntary bankruptcy petition is filed against
the Company under federal bankruptcy law, which involuntary petition is not
dismissed within 120 days of the filing;
(f) The Company makes a general assignment for the benefit of
creditors; or
(g) The Company seeks or consents to the appointment of a trustee,
receiver, liquidator or similar person.
1.7 "Change in Control Benefit" shall mean the benefit set forth in Section 4.1
below.
1.8 "Claimant" shall have the meaning set forth in Section 11.1 below.
1.9 "Code" shall mean the Internal Revenue Code of 1986, as amended from time to
time.
1.10 "Compensation Committee" shall mean the Compensation Committee of the
Board.
-2-
<PAGE> 6
1.11 "Company" shall mean initially The Lincoln Electric Company, an Ohio
corporation, and, following a Permitted Transaction in which the Company becomes
a direct or indirect subsidiary of a Successor Public Company, such Successor
Public Company.
1.12 "Disability" shall mean a period of disability during which a Participant
qualifies for benefits under the Employer's long-term disability program by
which the Participant is covered.
1.13 "Effective Date" shall mean November 1, 1997.
1.14 "Employer" shall mean the Company and any other subsidiary that adopts the
Plan with the consent of the Company.
1.15 "Forfeiture" shall mean a forfeiture of a Participant's rights to benefits
under this Plan as set forth in Section 3.2 below.
1.16 "Insurer" shall mean the insurance company or companies that issue one or
more Policies.
1.17 "Lincoln Family" shall mean: any person who is a descendant of, or who is
related by blood or marriage to a descendant of, James F. Lincoln or John C.
Lincoln, any trusts or similar arrangements for any of the foregoing (and any
trustee or other fiduciary for the same in their capacity as such), any
foundations established by any of the foregoing (and any trustee or other
fiduciary for the same in their capacity as such), any estate of any of the
foregoing (and any executor or administrator thereof in their capacity as such),
and any entity (other than the Company) in which a majority of the voting
interests are owned by any of the foregoing.
1.18 "Participant" shall mean any employee of an Employer (a) who is selected to
participate in the Plan, (b) who elects to participate in the Plan, (c) who
signs a Plan Agreement and a Beneficiary Designation Form, (d) whose signed Plan
Agreement and Beneficiary Designation Form are accepted by the Administrator,
and (e) whose Plan Agreement has not terminated.
1.19 "Participant's Account" shall mean an account established at the direction
of the Compensation Committee for a Participant in a Trust in accordance with
Section 8.3(a)(i) below.
1.20 "Permitted Holder" shall mean any of the following:
(a) the Company or any wholly owned subsidiary of the Company;
(b) any trustee or other fiduciary holding securities under
any employee benefit plan of the Company or any of the Company's subsidiaries;
or
(c) the Lincoln Family.
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<PAGE> 7
1.21 "Permitted Transaction" shall mean any of the following:
(a) a merger or consolidation that results in the voting
securities of the Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being changed into voting
securities of the voting securities of the surviving entity of such merger) more
than 80 percent of the combined voting power of the voting securities of such
surviving entity outstanding immediately after such merger or consolidation;
(b) a merger or consolidation that is effected to implement a
recapitalization of the Company (for example, without limitation, the changing
of nonvoting securities into voting securities, the reduction or increase in the
number of existing securities, or the changing of existing securities into
securities of one or more different classes of securities) in which no person,
other than a Permitted Holder, owns more than 20 percent of the combined voting
power of the Company's outstanding securities immediately following such
recapitalization; or
(c) a merger or consolidation that causes the Company to
become a direct or indirect subsidiary of an entity (a "Successor Public
Company") in which no person, other than a Permitted Holder, holds more than 20
percent of the combined voting power of such Successor Public Company's
outstanding securities immediately following such merger or consolidation, and
the security holders of the Company immediately before such merger or
consolidation are the only security holders of the Successor Public Company
immediately following such merger or consolidation.
1.22 "Plan" shall mean The Lincoln Electric Company Executive Benefit Plan,
which is defined by this instrument and by each Plan Agreement, all as may be
amended from time to time.
1.23 "Plan Agreement" shall mean a written agreement, as may be amended from
time to time, which is entered into by and between an Employer and a
Participant. Each Plan Agreement executed by a Participant shall provide for the
entire benefit to which such Participant is entitled under the Plan, and the
Plan Agreement bearing the latest date of acceptance by the Administrator shall
govern such entitlement.
1.24 "Plan Year" shall, for the first Plan Year, begin on November 1, 1997, and
end on December 31, 1997. For each Plan Year thereafter, the Plan Year shall
begin on January 1 of each year and continue through December 31 of that year.
1.25 "Policy" or "Policies" shall mean the policy or policies issued in the name
of the Trustee in accordance with the terms and conditions of this Plan and each
respective Plan Agreement.
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<PAGE> 8
1.26 "Reserve Account" shall mean an account established in accordance with
Section 8.3(a)(iii) below.
1.27 "Retirement," "Retires" or "Retired" shall mean a Participant's severance
from employment from all Employers for any reason other than a leave of absence,
death or Disability on or after the Participant's attaining age 60, or with the
consent of the Compensation Committee on or after the Participant's attaining
age 55.
1.28 "Successor Public Company" shall have the meaning set forth in Section 1.20
hereof.
1.29 "Supplemental Retirement Plans" shall mean The Lincoln Electric Company
Supplemental Executive Retirement Plan and The Lincoln Electric Company Deferred
Compensation Plan.
1.30 "Termination of Employment" shall mean the ceasing of employment with all
Employers, voluntarily or involuntarily, for any reason other than Retirement,
Disability, death or an authorized leave of absence.
1.31 "Trust" or "Trusts" shall mean (as applicable) one or more of the trusts
established pursuant to one or more of the sequentially numbered Trust
Agreements for The Lincoln Electric Company Executive Benefit Plan, between the
Company and the Trustee, as amended from time to time.
1.32 "Trustee" shall mean the trustee named in a Trust and any successor
trustee.
1.33 "Vesting Date" shall mean the date upon which a Participant becomes 100%
vested in his or her Change in Control Benefit in accordance with Section 3.1
below.
ARTICLE 2
SELECTION, ENROLLMENT AND ELIGIBILITY
-------------------------------------
2.1 SELECTION BY COMPENSATION COMMITTEE. Participation in the Plan shall be
limited to a select group of management and highly compensated employees of the
Employers. From that group, the Compensation Committee shall select, in its sole
discretion, employees to participate in the Plan.
2.2 ENROLLMENT REQUIREMENTS. As a condition to participation, each selected
employee shall complete, execute and return to the Administrator a Plan
Agreement and a Beneficiary Designation Form. In addition, the Administrator, in
its sole discretion, shall establish from time to time such other enrollment
requirements as it determines are necessary.
2.3 ELIGIBILITY; COMMENCEMENT OF PARTICIPATION. Provided an employee selected to
participate in the Plan has met all enrollment requirements set forth in this
Plan and required by the Administrator, that employee shall commence
participation in the Plan on the date
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specified by the Compensation Committee. If a selected employee fails to meet
all such requirements prior to that date, that employee shall not be eligible to
participate in the Plan until the completion of those requirements.
ARTICLE 3
VESTING; ACCOUNT BALANCE
------------------------
3.1 VESTING IN CHANGE IN CONTROL BENEFIT. Subject to Section 3.2 below:
(a) General Rule. If a Participant has not forfeited his or her
benefits pursuant to Section 3.2(a) below prior to 90 days before a Change in
Control, the Participant shall become 100% vested in his or her Change in
Control Benefit on the date six months following the Change in Control (the
"Vesting Date").
(b) Early Vesting. If at any time on or after 90 days prior to a Change
in Control and prior to the Vesting Date a Participant Retires, dies, suffers a
Disability or experiences an involuntarily Termination of Employment, the
Participant (or the Participant's Beneficiary in the event of the Participant's
death) shall become 100% vested in his or her Change in Control Benefit on the
later of (i) the date of the Change in Control or (ii) the date of such
Retirement, death, Disability or involuntary Termination of Employment, and such
date (rather than the date six months following a Change in Control) shall be
considered the "Vesting Date" for purposes of this Plan.
3.2 FORFEITURE. Notwithstanding Section 3.1 above, a Participant shall forfeit
any right to benefits under this Plan if he or she:
(a) Retires, dies, suffers a Disability, or experiences any
Termination of Employment, in each case prior to 90 days before a Change in
Control, or receives a lump sum distribution from the Supplemental Retirement
Plans that permanently ends his or her participation in the Supplemental
Retirement Plans (a "Termination Distribution") at any time; or
(b) Experiences a voluntarily Termination of Employment at any
time on or after the date of a Change in Control and prior to the date six
months following the Change in Control.
3.3 ACCOUNT BALANCE. Within 60 days after the end of each Plan Year, each
Participant shall receive a statement setting forth the balance of his or her
Participant's Account as of the end of that Plan Year.
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ARTICLE 4
BENEFITS
--------
4.1 CHANGE IN CONTROL BENEFIT.
(a) Eligibility. On the Vesting Date, the Participant or the
Participant's Beneficiary, as the case may be, shall become entitled to the
Change in Control Benefit described in Section 4.1(b).
(b) Benefit and Payment. The "Change in Control Benefit" shall be a
dollar amount that is equal to the fair market value of the assets allocated to
and held in the Participant's Account as of the Vesting Date. This benefit shall
be paid to the Participant, or his or her Beneficiary, within 90 days of the
Vesting Date.
4.2 WITHHOLDING AND PAYROLL TAXES. The Trustee shall withhold from any and all
benefit payments made under this Article 4, all federal, state and local income,
employment and other taxes required to be withheld in connection with the
payment of benefits hereunder, in amounts to be determined in the sole
discretion of the Participant's Employer.
ARTICLE 5
BENEFICIARY
-----------
5.1 BENEFICIARY. Each Participant shall have the right, at any time, to
designate his or her Beneficiary (both primary as well as contingent) to receive
any benefits payable under the Plan to a Beneficiary upon the death of the
Participant.
5.2 BENEFICIARY DESIGNATION; CHANGE. A Participant shall designate his or her
Beneficiary by completing and signing a Beneficiary Designation Form, and
returning it to the Administrator. A Participant shall have the right to change
a Beneficiary by completing, signing and otherwise complying with the terms of
the Beneficiary Designation Form and the Administrator's rules and procedures,
as in effect from time to time. Upon the acceptance by the Administrator of a
new Beneficiary Designation Form, all Beneficiary designations previously filed
shall be cancelled. The Administrator shall be entitled to rely on the last
Beneficiary Designation Form filed by the Participant and accepted by the
Administrator before his or her death.
5.3 ACKNOWLEDGMENT. No designation or change in designation of a Beneficiary
shall be effective until received, accepted and acknowledged in writing by the
Administrator.
5.4 NO BENEFICIARY DESIGNATION. If a Participant fails to designate a
Beneficiary as provided in Sections 5.1, 5.2 and 5.3 above, or if all designated
Beneficiaries predecease the Participant or die prior to complete distribution
of the Participant's benefits, then the Participant's designated Beneficiary
shall be deemed to be his or her surviving spouse. If the
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Participant has no surviving spouse, the benefits remaining under the Plan to be
paid to a Beneficiary shall be payable to the executor or personal
representative of the Participant's estate.
5.5 DISCHARGE OF OBLIGATIONS. The payment of benefits under the Plan to a
Beneficiary shall fully and completely discharge all Employers and the
Administrator from all further obligations under this Plan with respect to the
Participant, and that Participant's Plan Agreement shall terminate upon such
full payment of benefits.
ARTICLE 6
TERMINATION, AMENDMENT OR
-------------------------
MODIFICATION OF THE PLAN
------------------------
6.1 TERMINATION, AMENDMENT OR MODIFICATION PRIOR TO ONE YEAR BEFORE CHANGE IN
CONTROL. The Company reserves, and delegates to the Compensation Committee, the
right to terminate, amend or modify the Plan or any related Plan Agreement, in
whole or in part. Notwithstanding the foregoing, no termination, amendment or
modification shall be effective to decrease or reduce a Participant's potential
benefits under this Plan below the balance in his or her Participant's Account
as of the effective date of the termination, amendment or modification.
6.2 TERMINATION, AMENDMENT OR MODIFICATION WITHIN ONE YEAR BEFORE CHANGE IN
CONTROL OR FOLLOWING CHANGE IN CONTROL. Within one year before a Change in
Control and thereafter, neither the Company, any subsidiary of the Company, any
Employer, any corporation, trust or other person that succeeds to all or any
substantial portion of the assets of the Company nor the Compensation Committee
shall have the right to terminate, amend or modify the Plan and/or any Plan
Agreement in effect prior to such Change in Control, and all benefits under the
Plan and any such Plan Agreement shall thereafter be paid in accordance with the
terms of the Plan and such Plan Agreement, as in effect immediately prior to
such Change in Control. If the Plan is terminated, amended, or modified within
one year before a Change in Control, such termination, amendment or modification
shall be considered void as of the date of the termination, amendment or
modification. Any provision of this Plan or any Plan Agreement to the contrary
shall be construed in accordance with this Section 6.2.
6.3 TERMINATION OF PLAN AGREEMENT. Absent the earlier termination, modification
or amendment of the Plan, or a Participant's Forfeiture of his or her benefits
under this Plan, the Plan Agreement of any Participant shall terminate upon the
full payment of the Change in Control Benefit provided under Article 4.
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ARTICLE 7
OTHER BENEFITS AND AGREEMENTS
-----------------------------
7.1 COORDINATION WITH OTHER BENEFITS. The benefits provided for a Participant
and Participant's Beneficiary under the Plan are in addition to any other
benefits available to such Participant under any other plan or program for
employees. The Plan shall supplement and shall not supersede, modify or amend
any other such plan or program except as may otherwise be expressly provided.
ARTICLE 8
TRUSTS
------
8.1 ESTABLISHMENT OF THE TRUSTS; PREMIUMS. The Company shall establish one or
more Trusts and the Employers shall, at least annually, transfer over to each
Trust such assets, if any, as the Company determines, in its sole discretion, to
contribute or cause to be contributed to such Trust prior to a Change in
Control. The Administrator may direct, prior to a Change in Control, payment of
any and all Policy premiums and other costs relating to insurance policies owned
by the Trusts. In addition, if a Trust incurs any tax liability, the Employers
shall contribute to such Trust sufficient funds to allow the Trustee to pay any
such tax liability. 8.2
8.2 INTERRELATIONSHIP OF THE PLAN AND THE TRUSTS. The provisions of the Plan and
each Plan Agreement shall govern the rights of a Participant to receive
distributions pursuant to the Plan. The provisions of a Trust shall govern the
rights of the Trustee, each Participant with a Participant's Account in such
Trust, and such Participant's Beneficiary as to the assets of the Trust. The
Employers shall at all times remain liable to carry out their obligations under
the Plan. The Employers and the Trustee shall cooperate with each other as is
necessary to minimize each Trust's tax liability.
8.3 ACCOUNTS.
(a) The Trustee shall establish and maintain the following separate
accounts for each Trust:
(i) A "Participant's Account" for each Participant selected by
the Compensation Committee (A) to which the Employers' contributions, or a
portion thereof, may be allocated and held, (B) to which the earnings on amounts
held pursuant to (A) shall be allocated and held, (C) to which amounts from the
Reserve Account may be allocated and held, and (D) to which the earnings on
amounts held pursuant to (C) shall be allocated and held, the assets of which
are to be used to pay the Change in Control Benefit in accordance with this Plan
and the Trust;
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<PAGE> 13
(ii) An "Administrative Account" for the administrative
expenses of the Trust to which a portion of the Employers' contributions and
earnings thereon and the Reserve Account and earnings and gains thereon may be
allocated to and held, the assets of which are to be used to pay the
administrative expenses, including all taxes, of the Trust in accordance with
the terms and provisions of this Plan and the Trust that are not paid directly
by the Employers; and
(iii) A "Reserve Account" for (A) the Employers' contributions
and earnings thereon prior to allocation to a Participant's Account or the
Administrative Account, (B) amounts that were held in Participants' Accounts
prior to Forfeiture, and (C) gains constituting the excess of the life insurance
proceeds of a Policy over the cash value thereof, which assets shall be
allocated to and held in the Reserve Account pending allocation or reallocation
to other Participants' Accounts or the Administrative Account.
(b) Prior to a Change in Control, the Administrator committee shall, in
its sole discretion, direct the Trustee in writing as to (i) the allocation of
the Employers' contributions to the Trusts, and to the accounts described in
Section 8.3(a) above, (ii) the allocation of the amounts that were held in
Participants' Accounts prior to Forfeiture, and (iii) the allocation of gains
allocated to Reserve Account in accordance with Section 2.5 of a Trust. Assets
in one Trust shall not be allocated to any other Trust. After a Change in
Control, the Trustee shall make such allocations in accordance with the terms of
the Plan and each Trust. Notwithstanding the foregoing, and except for a payment
of benefits in accordance with Article 4 or a Forfeiture of benefits, a
Participant's Account balance shall not be reduced.
(c) Each of the accounts described in Section 8.3(a) above shall
qualify for and be treated as a separate share under Code Section 663(c).
(d) Notwithstanding the foregoing, for purposes of this Plan, in the
event of the death of a person whose life is insured by a Policy, the excess of
the life insurance proceeds of the Policy over the cash value thereof on the
date of death of such person shall constitute a gain allocable to the Reserve
Account, and the addition to the cash value thereof shall constitute income
allocable to the Account to which such Policy has (except for the right to such
gain) been allocated.
ARTICLE 9
INSURANCE POLICIES
------------------
9.1 POLICIES. The Administrator may direct the Trustee in writing to acquire, by
purchase or transfer, one or more Policies in the Trustee's name. The Trustee
shall be the sole and absolute owner and beneficiary of each Policy, with all
rights of an owner and beneficiary, including without limitation, the right to
surrender Policies for their cash surrender values and to take one or more loans
against one or more Policies. Notwithstanding the foregoing, the Trustee shall
exercise its ownership rights in each Policy only in accordance with the terms
of this Plan, the respective Plan Agreements and the Trust.
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9.2 DOCUMENTS REQUIRED BY INSURER. The Trustee, the Participant's Employer and
the Participant shall sign such documents and provide such information as may be
required from time to time by the Insurer.
ARTICLE 10
ADMINISTRATION
--------------
10.1 ADMINISTRATOR DUTIES. This Plan shall be administered by the Administrator
which shall be appointed by the Board. Members of the Administrator committee
may be Participants under this Plan. The Administrator shall also have the sole
and absolute discretion and authority to (i) make, amend, interpret, and enforce
all appropriate rules and regulations for the administration of this Plan, and
(ii) interpret where necessary all provisions of this Plan (including, without
limitation, by supplying omissions from, correcting deficiencies in, or
resolving inconsistencies in, the language of this Plan), as may arise in
connection with the Plan. Any individual serving on the Administrator committee
who is a Participant shall not vote or act on any matter relating solely to
himself or herself. When making a determination or calculation, the
Administrator shall be entitled to rely on information furnished by a
Participant or the Company.
10.2 AGENTS. In the administration of this Plan, the Administrator committee
may, from time to time, employ agents and delegate to them such administrative
duties as it sees fit (including acting through a duly appointed representative)
and may from time to time consult with counsel who may be counsel to any
Employer.
10.3 BINDING EFFECT OF DECISIONS. The decision or action of the Administrator
with respect to any question arising out of or in connection with the
administration, interpretation and application of the Plan and the rules and
regulations promulgated hereunder shall be final and conclusive and binding upon
all persons having any interest in the Plan.
10.4 INDEMNITY OF ADMINISTRATOR. All Employers shall indemnify and hold harmless
the members of the Administrator committee and its delegates against any and all
claims, losses, damages, expenses or liabilities arising from any action or
failure to act with respect to this Plan, except in the case of willful
misconduct by the Administrator committee or any of its members.
10.5 EMPLOYER INFORMATION. To enable the Administrator to perform its functions,
each Employer shall supply full and timely information to the Administrator on
all matters relating to the compensation of its Participants, the date and
circumstances of the Retirement, Disability, death or Termination of Employment
of its Participants, and such other pertinent information as the Administrator
committee may reasonably require.
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ARTICLE 11
CLAIMS PROCEDURES
-----------------
11.1 PRESENTATION OF CLAIM. Any Participant or Beneficiary of a deceased
Participant (such Participant or Beneficiary being referred to below as a
"Claimant") may deliver to the Administrator a written claim for a determination
with respect to the amounts distributable to such Claimant from the Plan. If
such a claim relates to the contents of a notice received by the Claimant, the
claim must be made within 60 days after such notice was received by the
Claimant. All other claims must be made within 180 days of the date on which the
event that caused the claim to arise occurred. The claim must state with
particularity the determination desired by the Claimant.
11.2 NOTIFICATION OF DECISION. The Administrator shall consider a Claimant's
claim within 60 days of receipt of that claim, and shall notify the Claimant in
writing:
(a) that the Claimant's requested determination has been made, and that
the claim has been allowed in full; or
(b) that the Administrator has reached a conclusion contrary, in whole
or in part, to the Claimant's requested determination, and such notice must set
forth in a manner calculated to be understood by the Claimant:
(i) the specific reason(s) for the denial of the claim, or any
part of it;
(ii) the specific reference(s) to pertinent provisions of the
Plan upon which such denial was based;
(iii) a description of any additional material or information
necessary for the Claimant to perfect the claim, and an explanation of why such
material or information is necessary; and
(iv) an explanation of the claim review procedure set forth in
Section 11.3 below.
11.3 REVIEW OF A DENIED CLAIM. Within 60 days after receiving a notice from the
Administrator that a claim has been denied, in whole or in part, a Claimant (or
the Claimant's duly authorized representative) may file with the Administrator a
written request for a review of the denial of the claim. Thereafter, but not
later than 30 days after the review procedure began, the Claimant (or the
Claimant's duly authorized representative):
(a) may review pertinent documents;
(b) may submit written comments or other documents; and/or
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(c) may request a hearing, which the Administrator, in its sole
discretion, may grant.
11.4 DECISION ON REVIEW. The Administrator shall render its decision on review
promptly, and not later than 60 days after the filing of a written request for
review of the denial, unless a hearing is held or other special circumstances
require additional time, in which case the Administrator's decision must be
rendered within 120 days after such date. Such decision must be written in a
manner calculated to be understood by the Claimant, and it must contain:
(a) specific reasons for the decision;
(b) specific reference(s) to the pertinent Plan provisions upon which
the decision was based; and
(c) such other matters as the Administrator deems relevant.
11.5 LEGAL ACTION. A Claimant's compliance with the foregoing provisions of this
Article 11 is a mandatory prerequisite to a Claimant's right to commence any
legal action with respect to any claim for benefits under this Plan.
ARTICLE 12
MISCELLANEOUS
-------------
12.1 UNSECURED GENERAL CREDITOR. Participants and their Beneficiaries, heirs,
successors and assigns shall have no legal or equitable rights, interest or
claims in any property or assets of an Employer. Any and all of an Employer's
assets shall be, and remain, the general, unpledged and unrestricted assets of
the Employer. An Employer's obligation under the Plan shall be merely that of an
unfunded and unsecured promise to pay money in the future.
12.2 EMPLOYER'S LIABILITY. An Employer's liability for the payment of benefits
shall be defined only by the Plan and the Plan Agreement, as entered into
between the Employer and a Participant. An Employer shall have no obligation to
a Participant under the Plan except as expressly provided in the Plan and his or
her Plan Agreement.
12.3 NONASSIGNABILITY. Neither a Participant nor any other person shall have any
right to commute, sell, assign, transfer, pledge, anticipate, mortgage or
otherwise encumber, transfer, hypothecate or convey in advance of actual
receipt, the amounts, if any, payable hereunder, or any part thereof, which are,
and all rights to which are expressly declared to be unassignable and
non-transferable. No part of the amounts payable shall, prior to actual payment,
be subject to seizure or sequestration for the payment of any debts, judgments,
alimony or separate maintenance owed by a Participant or any other person, nor
be transferable by
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<PAGE> 17
operation of law in the event of a Participant's or any other person's
bankruptcy or insolvency or be transferable to a spouse as a result of a
property settlement or otherwise.
12.4 NOT A CONTRACT OF EMPLOYMENT. The terms and conditions of this Plan shall
not be deemed to constitute a contract of employment between any Employer and
the Participant. Such employment is hereby acknowledged to be an "at will"
employment relationship that can be terminated at any time for any reason, with
or without cause, unless expressly provided in a written employment agreement.
Nothing in this Plan shall be deemed to give a Participant the right to be
employed in the service of any Employer, or to interfere with the right of any
Employer to discipline or discharge the Participant at any time.
12.5 FURNISHING INFORMATION. A Participant will cooperate with the Administrator
by furnishing any and all information requested by the Administrator and take
such other actions as may be requested in order to facilitate the administration
of the Plan and the payments of benefits hereunder, including but not limited to
taking such physical examinations as the Administrator may deem necessary.
12.6 TERMS. Whenever any words are used herein in the singular or in the plural,
they shall be construed as though they were used in the plural or the singular,
as the case may be, in all cases where they would so apply.
12.7 CAPTIONS. The captions of the articles, sections and paragraphs of this
Plan are for convenience only and shall not control or affect the meaning or
construction of any of its provisions.
12.8 GOVERNING LAW. The provisions of this Plan shall be construed and
interpreted according to the laws of the State of Ohio.
12.9 VALIDITY. In case any provision of this Plan shall be illegal, invalid or
ineffective for any reason, said illegality, invalidity or ineffectiveness shall
not affect the remaining parts hereof, but this Plan shall be construed and
enforced as if such illegal, invalid and/or ineffective provision had never been
inserted herein.
12.10 NOTICE. Any notice or filing required or permitted to be given to the
Administrator under this Plan shall be sufficient if in writing and
hand-delivered, or sent by registered or certified mail or recognized overnight
courier, to the address below:
The Lincoln Electric Company
22801 St. Clair Avenue
Cleveland, Ohio 44117-1199
Attention: General Counsel
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Such notice shall be deemed given as of the date of delivery
or, if delivery is made by mail, as of the date shown on the postmark on the
receipt for registration or certification.
Any notice or filing required or permitted to be given to a
Participant under this Plan shall be sufficient if in writing and
hand-delivered, or sent by mail, to the last known address of the Participant.
12.11 SUCCESSORS. The provisions of this Plan shall bind and inure to the
benefit of the Participant's Employer and its successors and assigns and the
Participant, the Participant's Beneficiaries, and their permitted successors and
assigns.
12.12 SPOUSE'S INTEREST. The interest in the benefits hereunder of a spouse of a
Participant who has predeceased the Participant shall automatically pass to the
Participant and shall not be transferable by such spouse in any manner,
including but not limited to such spouse's will, nor shall such interest pass
under the laws of intestate succession.
12.13 INCOMPETENT. If the Administrator determines in its discretion that a
benefit under this Plan is to be paid to a minor, a person declared incompetent
or to a person incapable of handling the disposition of that person's property,
the Administrator may direct payment of such benefit to the guardian, legal
representative or person having the care and custody of such minor, incompetent
or incapable person. The Administrator may require proof of minority,
incompetency, incapacity or guardianship, as it may deem appropriate prior to
distribution of the benefit. Any payment of a benefit shall be a payment for the
account of the Participant and the Participant's Beneficiary, as the case may
be, and shall be a complete discharge of any liability under the Plan for such
payment amount.
12.14 DISTRIBUTION IN THE EVENT OF TAXATION. If, for any reason, all or any
portion of a Participant's benefit under this Plan becomes taxable to the
Participant prior to the Vesting Date, a Participant may petition the
Administrator, if prior to a Change in Control, or the Trustee, after a Change
in Control, for a distribution of assets sufficient to meet the Participant's
tax liability (including additions to tax, penalties and interest). Upon the
grant of such a petition, which grant shall not be unreasonably withheld, the
Trustee shall distribute to the Participant from the applicable Trust
immediately available funds in an amount equal to that Participant's federal,
state and local tax liability associated with such taxation, which liability
shall be measured by using that Participant's then current highest federal,
state and local marginal tax rate, plus the rates or amounts for the applicable
additions to tax, penalties and interest. If the petition is granted, the tax
liability distribution shall be made within 90 days of the date when the
Participant's petition is granted.
IN WITNESS WHEREOF the Company has signed this Plan document as of the
first day of November, 1997.
THE LINCOLN ELECTRIC COMPANY
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<PAGE> 19
By: Anthony A. Massaro
-----------------------------
Its: Chairman and CEO
---------------------------
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<PAGE> 1
Exhibit 10(m)
January 29, 1996
Mr. Raymond S. Vogt
21W701 Clifford Road
Glen Ellyn, IL 60137
Dear Ray:
It is certainly my pleasure to set forth in writing, the terms of our offer of
employment.
We are pleased to offer you the position of Vice President, Human Resources for
The Lincoln Electric Company. In this position, you will report to the President
and Chief Operating Officer.
The salary for this position is $131,000 per year. In addition, you will be
eligible to participate in the Lincoln Electric bonus program. The estimated
bonus for your position with our present program is $65,000 giving you an
estimated $196,000 of total compensation. This estimate will apply in 1997.
However, as we discussed, due to cash flow reasons, Lincoln will pay the
$131,000 annual salary in 1996 plus give you a $15,000 one-time up-front payment
upon your move to Cleveland. Thus, your bonus for 1996 will be a maximum of
$50,000.
As a full-time employee you will be eligible for coverage under our benefit
programs. These include, in addition to our incentive system, group medical
insurance, group life insurance, retirement annuity, vacation, 401(k), deferred
compensation, and our Supplemental Employee Retirement Plan, as well as stock
programs.
Your participation in our group medical plan is critically important unless you
are covered under certain types of a spousal program. Our employees may select
from one of the following plans: Blue Cross/Blue Shield (Super Blue),
QualChoice, HMO Health Ohio, or Kaiser. Family rates which will be effective
through February 29, 1996 vary from $357.42 to $460.00 per month, depending on
the plan and level of coverage selected. The company pays the monthly premiums
for you during the year, but at the end of each bonus year the total of the
premiums paid on your behalf is deducted from your year-end bonus on a pre-tax
basis. Included with this letter is a packet of material which describes our
various medical plans.
<PAGE> 2
Page 2
R. Vogt
January 29, 1996
Lincoln Electric will provide you with $10,000 of term life insurance. You may
however, optionally subscribe to an additional $40,000 of term life at your
expense at the rate available to other Lincoln employees. Our employees pay for
the accidental death and dismemberment provision of the company-paid life
insurance. In your case, should you elect the optional $40,000, the amount you
would pay monthly would be approximately $18.50.
You will also be included in a $750,000 accidental death insurance program with
lesser payments for other consequences as a result of an accident.
As you no doubt are aware, service and vesting credit with qualified plans is
not permissible. Therefore, you will participate in the Lincoln Electric
Retirement Annuity program in the same manner as other new employees of the
company. We will however, offer you participation in a non-qualified, non-funded
Supplemental Employee Retirement Plan (SERP), which includes a requirement of
forty years of service with the company and retirement at age 65 or later. With
respect to the latter, we will credit you with thirty years at your starting
date. The plan is designed to provide at age 65, 65% of the average income of
the three best years out of the previous seven. In general, the 65% will be made
up of: our qualified plan, social security and retirement benefits under any
retirement or annuity program provided by previous employers and our
non-qualified plan. The applicable terms and conditions of the plan as approved
by the Board of Directors in 1994 apply, and will be made available to you. You
will also be eligible to participate in the 401(k) Plan after one year, and in
the recently adopted deferred compensation program which allows for deferral of
up to 25% of your pay, inclusive of maxing out on the 401(k).
You will be entitled to five weeks of vacation during 1996.
The service credit will not apply to Quarter Century Club and service pin
entitlements.
Although we fully expect a long and productive relationship, you will be covered
by an executive severance pay of six months' salary if you are asked to leave
the company without cause. Lincoln will continue to maintain medical benefits
for you and your family for a period of twenty-four months or until you find
other employment, whichever occurs first.
In addition, the company will handle your relocation to Cleveland in the same
manner as we handle the transfer of our field employees. The details of our
relocation policy are enclosed.
Our offer of employment is contingent upon resolution of the following issues:
that you will not be in breach of any obligations of prior employers or other
third parties by entering into employment with The Lincoln Electric Company in
the position and manner discussed, and you agree that you will under no
circumstances use or disclose information which is confidential or proprietary
to your previous employers while in the employ of Lincoln Electric, and that you
<PAGE> 3
Page 3
R. Vogt
January 29, 1996
successfully complete an employment physical assessment evaluation.
We have included two copies each of this Employment Contract and our Employee's
Agreement. If you agree, Ray, and we hope you will, would you please sign one
copy of each and return them to me by February 15, 1995. You may also contact me
at (216) 383-8183 if you have any questions.
Very truly yours,
/s/ Anthony A. Massaro
Anthony A. Massaro
President - International
AAM/r
Enclosures
<PAGE> 4
EMPLOYEE'S AGREEMENT
In consideration of employment or continued employment by The Lincoln Electric
Company ("Lincoln Electric") and subject to the terms and conditions set forth
below (the "Agreement"), Raymond S. Vogt ("Employee") agrees as follows:
1. Employee agrees that trade secrets and confidential information of
Lincoln Electric, described in paragraph 3 of this Agreement, gained by
Employee during his/her association with Lincoln Electric, have been
developed by Lincoln Electric through substantial expenditures of time,
effort and money and constitute valuable and unique property of Lincoln
Electric.
2. Employee agrees that, in accordance with this restriction, but without
limiting its terms, he/she will not during the term of his/her
employment compete with Lincoln Electric, and for a period of two (2)
years thereafter, directly or indirectly engage in any of the following
activities:
(i) enter into or accept employment with any business which
competes with Lincoln's business; or,
(ii) solicit or induce or attempt to solicit or induce, directly or
indirectly, any employee(s) or consultant(s) of Lincoln
Electric to terminate their employment or other association
with Lincoln Electric.
For purposes of this Paragraph 2, Lincoln Electric's business is
defined as the development, testing, design, manufacture, and sale or
distribution of welding and cutting equipment, welding consumables,
including hardfacing, stainless and alloy electrode, industrial motors,
robotic and automated welding equipment, fume extraction equipment, and
related products(the "Products") and the methods or processes for the
formulation, testing, design and manufacture of said Products (the
"Methods" or "Processes").
3. Employee will keep in strict confidence, and will not, directly or
indirectly, at any time during or after his/her employment, disclose or
use (except when performing duties of employment hereunder) any trade
secret or confidential information of Lincoln Electric. Such
confidential information includes, without limitation: cost and price
information; sources of supply for capital equipment, components and
raw materials; technical information regarding the formulation,
development, testing, design, manufacture and use of Products, Methods,
Processes, machinery and equipment of Lincoln Electric; together with
any other information which would constitute a trade secret.
Employee agrees to return to Lincoln Electric at the end of his/her
employment any and all material, including, but not limited to,
technical or production documents and other documents or materials
described above belonging to Lincoln Electric, or which Employee may
have obtained from Lincoln Electric while employed by Lincoln Electric.
<PAGE> 5
Page 2.
4. Employee agrees to assign to Lincoln Electric his/her right to all
inventions, improvements, and discoveries, whether patentable or not,
made or conceived by him/her during the period of employment by Lincoln
Electric, or within one year after the termination of such employment,
whether made within or without the course of employment or on his/her
own time, relating in any way to the business of Lincoln Electric or
resulting directly or indirectly from employment by Lincoln Electric.
Employee represents that he/she has no agreement with any other person
or company to assign inventions or which would otherwise conflict with
this Agreement.
5. Employee will communicate to the President (or such other officer of
Lincoln Electric as he shall designate) all such inventions,
improvements, and discoveries and will assist Lincoln Electric in every
proper way, at its expense, to obtain a patent or patents thereon, if
patentable, in the United States and any other countries) and execute
such instruments and do all other things necessary to assign such
invention, improvement, or discovery to Lincoln Electric as its
exclusive property.
6. Employee has made no inventions prior to the date hereof which are
excluded from this agreement except:
(a)
--------------------------------------------------------------
(If none, write in word "none" and cross out ensuing
subparagraph {b}).
(b) Those set forth on the attached list signed by Employee and by
an officer of Lincoln Electric, a copy of which has been
delivered with his/her copy of this Agreement.
7. Employee agrees that he/she will not disclose or utilize any
information known to be a trade secret of previous employers or take
any action while in the employ of Lincoln Electric which would violate
any enforceable obligation he/she may have as the result of previous
employment. Employee hereby states that he/she possesses no drawings or
documents from prior employers which he/she should not have.
8. Employee acknowledges that:
(i) the obligations under this Agreement are reasonable in the
context of the nature of Lincoln Electric's business and the
competitive injuries likely to be sustained by Lincoln
Electric if Employee violated such obligations.
(ii) the remedy at law available to Lincoln Electric for breach of
any of Employee's obligations under this Agreement would be
inadequate, and consents that in addition to any other
remedies Lincoln Electric may have, temporary and permanent
injunctive relief may be granted in any proceeding brought to
enforce any provision in paragraphs 1 through 3, of this
Agreement, without the necessity of proof of actual damage.
<PAGE> 6
Page 3.
(iii) this Agreement is made in consideration of, and is adequately
supported by Lincoln Electric's agreement to continue to employ
Employee, which Employee acknowledges constitutes new and
sufficient consideration; and,
(iv) the employment relationship with Lincoln Electric is and,
following the execution of this Agreement, shall continue to be
terminable at anytime and for any reason by Lincoln Electric or
by Employee subject to terms of the Lincoln Electric Guaranteed
Employment Policy if applicable to Employee.
9. The failure of Lincoln Electric to enforce any provision of this
Agreement shall not be construed to be a waiver of such provision or of
its enforcement.
10. This Agreement supersedes all previous agreements, written or oral,
between Employee and Lincoln Electric. Changes in the duties of or
compensation for my employment shall not in any way affect this
Agreement which shall remain in full force and effect except as it may
be modified by a subsequent agreement in writing.
11. All provisions contained in this Agreement are severable and, if any
shall be held to be invalid by any competent court, this Agreement
shall be interpreted as if such provision was not contained herein.
12. This Agreement shall be governed by, and construed in accordance with,
the laws of the State of Ohio. Employee agrees that the state and
federal courts located in the State of Ohio shall have jurisdiction in
any proceeding arising out of this Agreement.
IN WITNESS WHEREOF, Employee having read and understood the foregoing
Provisions, has executed this Agreement as of this 9th day of February, 1995.
THE LINCOLN ELECTRIC COMPANY
By: /s/ Anthony A. Massaro /s/ Raymond S. Vogt
-------------------------------- ---------------------------------
[ Signature of Employee ]
<PAGE> 1
EXHIBIT (21)
THE LINCOLN ELECTRIC COMPANY AND SUBSIDIARIES
SUBSIDIARIES OF THE REGISTRANT
The Company's significant subsidiaries, all of which are included in its
consolidated financial statements, are listed in the following table:
<TABLE>
<CAPTION>
COUNTRY OF CONSOLIDATED
NAME INCORPORATION PERCENT OWNERSHIP
---- ------------- -----------------
<S> <C> <C>
Lincoln Electric (U.K.) Limited United Kingdom 100
Lincoln Electric Norge AS Norway 100
Lincoln Electric France S.A. France 100
Lincoln Smitweld B.V. The Netherlands 100
Lincoln-KD, S.A. Spain 100
Lincoln Electric Company Australia 100
(Australia) Proprietary Limited
Lincoln Electric Company of Canada 100
Canada Limited
Lincoln Electric Mexicana, S.A. de C.V. Mexico 100
Lincoln Electric Do Brasil Ltda. Brazil 100
</TABLE>
The Company has omitted the names of its subsidiaries which, considered in the
aggregate as a single subsidiary, would not constitute a "significant
subsidiary" within the meaning of Rule 1-02 contained in Regulation S-X.
<PAGE> 1
EXHIBIT (23)
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement of
The Lincoln Electric Company pertaining to The Lincoln Electric Company 1988
Incentive Equity Plan (Form S-8 No. 33-25209) of our report dated February 9,
1998, with respect to the consolidated financial statements and schedule of The
Lincoln Electric Company and subsidiaries included in the Annual Report (Form
10-K) for the year ended December 31, 1997.
ERNST & YOUNG LLP
Cleveland, Ohio
March 5, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 46,562
<SECURITIES> 10,194
<RECEIVABLES> 166,508
<ALLOWANCES> 3,071
<INVENTORY> 178,568
<CURRENT-ASSETS> 433,543
<PP&E> 471,958
<DEPRECIATION> 269,923
<TOTAL-ASSETS> 712,190
<CURRENT-LIABILITIES> 184,522
<BONDS> 54,360
0
0
<COMMON> 4,922
<OTHER-SE> 432,249
<TOTAL-LIABILITY-AND-EQUITY> 712,190
<SALES> 1,159,067
<TOTAL-REVENUES> 1,159,067
<CGS> 718,385
<TOTAL-COSTS> 718,385
<OTHER-EXPENSES> 299,173
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,349
<INCOME-PRETAX> 135,160
<INCOME-TAX> 49,746
<INCOME-CONTINUING> 85,414
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 85,414
<EPS-PRIMARY> 3.46
<EPS-DILUTED> 3.45
</TABLE>
