<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, 1998 Commission File No. 0-1402
LINCOLN ELECTRIC HOLDINGS, INC.
AS SUCCESSOR TO THE LINCOLN ELECTRIC COMPANY
(Exact name of registrant as specified in its charter)
Ohio 34-1860551
(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
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.
The aggregate market value of the common shares held by non-affiliates as of
February 28, 1999 was $759,693,140 (affiliates, for this purpose, have been
deemed to be Directors of the Company and Executive Officers, and certain
significant shareholders).
The number of shares outstanding of the registrant's common shares as of
February 28, 1999 was 45,776,824.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the registrant's proxy statement for the annual meeting of
shareholders to be held on May 4, 1999 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 Lincoln Electric Holdings, Inc., the
publicly-held parent of The Lincoln Electric Company, and other Lincoln Electric
subsidiaries. The Lincoln Electric Company began operations in 1895 and was
incorporated under the laws of the State of Ohio in 1906. During 1998, The
Lincoln Electric Company reorganized into a holding company structure and
Lincoln Electric Holdings, Inc. became the publicly-held parent of Lincoln
Electric subsidiaries worldwide, including The Lincoln Electric Company.
The Company is 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 94% of the Company's net
sales in 1998.
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 and retailers. 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, Germany, Indonesia, Ireland, Italy, the Netherlands, Norway, People's
Republic of China, Spain and Turkey. In addition, the Company added
manufacturing capacity in the Philippines in 1999. 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
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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 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 1998 were all Company-sponsored. These
activities were primarily related to the development of new products. 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, 1998 was
approximately 6,400.
The table below sets forth consolidated net sales by product line for the most
recent three years:
<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS) 1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Arc Welding and Other Welding Products $1,118,169 $1,082,054 $1,031,271
94% 93% 93%
All Other 68,510 77,013 77,873
6% 7% 7%
---------- ---------- ----------
$1,186,679 $1,159,067 $1,109,144
========== ========== ==========
</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.
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In addition to the principal facilities in Ohio, the Company operates two other
manufacturing locations in the United States and 17 manufacturing locations in
14 foreign countries, the locations of which are as follows:
<TABLE>
<CAPTION>
<S> <C>
United States: Gainesville, Georgia; Monterey Park, California.
Australia: Sydney.
Canada: Toronto; Mississauga.
England: Sheffield.
France: Grand-Quevilly.
Germany: Essen.
Indonesia: Cikarang.
Ireland: Rathnew.
Italy: Pianoro; Milano; Celle Ligure.
Mexico: Mexico City.
Netherlands: Nijmegen.
Norway: Andebu.
People's Republic of China: Shanghai.
Spain: Barcelona.
Turkey: Istanbul.
</TABLE>
In addition, the Company opened a manufacturing joint venture in the Philippines
in 1999 and is in the process of opening a second Mexican facility in Torreon,
Mexico.
All properties relating to the Company's Cleveland, Ohio headquarters and
manufacturing facilities are 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, 1998, $4.9 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 is a defendant or co-defendant in ten lawsuits filed against the
Company 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 earthquake of January 1994. 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 complaints includes a fraud claim, as well as a
claim under California's Unfair Business Practices Act. The latter claim demands
restitution of all amounts paid by purchasers for the Company's E70T-4
electrode, with interest, plus a permanent injunction requiring the Company to
inspect all steel-framed buildings in "Greater Los Angeles" and to remove and
replace any E70T-4 welds.
As previously reported, the Company has also been a defendant or co-defendant in
ten other similar cases involving steel-framed buildings in Greater Los Angeles
following the Northridge earthquake. Five of those cases were voluntarily
dismissed and the Company has settled the five other cases.
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The Company is co-defendant in twelve cases involving twelve 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.
Claims pending against the Company alleging asbestos induced illness total
approximately 16,800. 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.
The Company is also a co-defendant in several cases alleging that exposure to
welding fumes generally impaired the respiratory system of various plaintiffs.
The plaintiffs seek compensatory and punitive damages for unspecified sums.
The Company, together with hundreds of other co-defendants, is a defendant in
state court in Morris County, Texas, in litigation on behalf of 359 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 ("St. Paul"), in which St. Paul and the
Company disagree about the allocation among various liability insurance policies
of defense and indemnity costs of welding fume cases. Following the April, 1998
trial of the Company's case against St. Paul, the United States District Court
for the Northern District of Ohio (Akron) ordered St. Paul to pay the Company
compensatory damages plus prejudgment interest for misallocating past expenses
related to welding fume cases. Additionally, the Court held that the Company may
utilize St. Paul occurrence-based policies sold prior to 1985 for defense and
verdict costs of various pending and potential future fume cases. St. Paul is
appealing the decision to the U.S. Court of Appeals for the Sixth Circuit.
EXECUTIVE OFFICERS OF THE REGISTRANT
- ------------------------------------
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------ --- ---------------------------------------------------------------------
<S> <C> <C>
Anthony A. Massaro 55 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.
John M. Stropki 48 Executive Vice President, President North America since 1995; Senior
Vice President, Sales 1994-1995; General Sales Manager 1992-1994.
H. Jay Elliott 57 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.
</TABLE>
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<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------ --- ---------------------------------------------------------------------
<S> <C> <C>
Frederick G. Stueber 45 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 66 Senior Vice President, Engineering and Marketing since 1997; Vice
President of the Company since 1996; CEO, Managing Director LEC
(Australia) Pty. Ltd. 1988-1996.
James E. Schilling 62 Vice President, Corporate Development since 1999; Director, Business
Development since 1998; prior thereto, General Manager, Strategic
Management of CBS Corporation (Westinghouse Electric Corporation
prior to 1997) from 1993-1998.
Raymond S. Vogt 57 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.
</TABLE>
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, 1998.
PART II
Item 5. Market for the Registrant's Common Stock and Related Shareholder
----------------------------------------------------------------
Matters
-------
The Company's Common Shares (LECO) are traded on The Nasdaq Stock Market. The
number of record holders of Common Shares at December 31, 1998 was 2,601.
Quarterly high and low stock prices and dividends declared for the last two
years were:
<TABLE>
<CAPTION>
1998 1997
--------------------------------- ----------------------------------
Dividends Dividends
High Low Declared High Low Declared
---- --- -------- ---- --- --------
<S> <C> <C> <C> <C> <C> <C>
March 31 $24.19 $17.63 $0.10 $18.63 $15.75 $0.075
June 30 24.88 20.13 0.10 20.69 16.50 0.075
September 30 25.00 16.63 0.10 21.06 17.63 0.075
December 31 23.88 18.63 0.12 21.19 18.75 0.10
</TABLE>
All per share amounts have been adjusted for the reorganization, which had the
economic effect of a two-for-one stock split.
Source: The Nasdaq Stock Market
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Item 6. Selected Financial Data
-----------------------
<TABLE>
<CAPTION>
Year Ended December
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
(In thousands of dollars, except per share data)
<S> <C> <C> <C> <C> <C>
Net sales $1,186,679 $1,159,067 $1,109,144 $1,032,398 $ 906,604
Net income 93,719 85,414 74,253 61,475 48,008
Basic earnings per share $ 1.92 $ 1.73 $ 1.49 $ 1.32 $ 1.09
Diluted earnings per share 1.91 1.73 1.49 1.32 1.09
Cash dividends declared $ 0.42 $ 0.325 $ 0.24 $ 0.21 $ 0.19
========== ========== ========== ========== =========
Total assets $ 782,906 $ 712,190 $ 647,199 $ 617,760 $ 556,857
========== ========== ========== ========== =========
Long-term debt $ 46,766 $ 54,360 $ 64,148 $ 93,582 $ 194,831
========== ========== ========== =========== =========
</TABLE>
The per share amounts presented above reflect the corporate reorganization (see
Note B 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 94% of the Company's 1998 net sales. The Company also manufactures a
broad line of integral horsepower industrial electric motors.
For the fifth consecutive year, the Company reported its highest net sales and
net income in its history. This was due to increased sales volumes, improved
margins and continued cost control programs. Consolidated net sales increased
2.4% over 1997 to $1.187 billion. Net income increased 9.7% to $93.7 million or
$1.91 per share (diluted). 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 8.0% over 1997.
During July 1998, the Company began operations at its new electrode plant in the
People's Republic of China. In 1999, additional electrode manufacturing
facilities are planned to be operational in the Philippines and Mexico. The
Company believes that the high quality of its products, advanced engineering
expertise and its 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 $17.7 million in 1998, compared with
$16.5 million in 1997. Expenditures were primarily related to the development of
new products. The Company believes that over
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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.
REORGANIZATION
On May 19, 1998, shareholders approved a reorganization of the capital and
corporate structure of The Lincoln Electric Company (the "reorganization"). As a
result of the reorganization, a new holding company, Lincoln Electric Holdings,
Inc., was created. Each Common Share and each Class A Common Share (non-voting)
of The Lincoln Electric Company was converted into two voting common shares of
Lincoln Electric Holdings, Inc., which also had the economic effect of a
two-for-one stock split. The reorganization also resulted in the authorization
of 5,000,000 Preferred Shares, none of which were issued or outstanding at
December 31, 1998. The historical share and per share amounts disclosed in the
consolidated financial statements and this Management's Discussion and Analysis
of Financial Condition and Results of Operations are presented on a consistent
basis reflecting the effective two-for-one stock split.
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.
RESULTS OF OPERATIONS
The following table shows the Company's results of operations:
<TABLE>
<CAPTION>
Year ended December 31,
(Dollars in millions)
1998 1997 1996
----- ----- ----
Amount % of Sales Amount % of Sales Amount % of Sales
------ ---------- ------ ---------- ------ ----------
<S> <C> <C> <C> <C> <C> <C>
Net Sales $1,186.7 100.0% $1,159.1 100.0% $1,109.1 100.0%
Cost of Goods Sold 729.6 61.5% 718.4 62.0% 686.5 61.9%
-------- -------- -------- -------- -------- --------
Gross Profit 457.1 38.5% 440.7 38.0% 422.6 38.1%
Distribution Cost/Selling
General & Admin. Expense 309.7 26.1% 305.8 26.4% 310.3 28.0%
-------- -------- -------- -------- -------- --------
Operating Income 147.4 12.4% 134.9 11.6% 112.3 10.1%
Interest Income 4.1 0.3% 5.9 0.5% 2.9 0.3%
Other Income 1.2 0.1% 0.7 0.1% 10.4 0.9%
Interest (Expense) (5.6) (0.4%) (6.3) (0.5%) (7.7) (0.7%)
-------- -------- -------- -------- -------- --------
Income Before Income Taxes 147.1 12.4% 135.2 11.7% 117.9 10.6%
Income Taxes 53.4 4.5% 49.8 4.3% 43.6 3.9%
-------- -------- -------- -------- -------- --------
Net Income $ 93.7 7.9% $ 85.4 7.4% $ 74.3 6.7%
======== ======== ======== ======== ======== ========
</TABLE>
1998 COMPARED TO 1997
Net Sales. Net sales for 1998 increased 2.4% to $1,186.7 million from $1,159.1
million in 1997. Third party sales from U.S. operations increased by 2.1% to
$816.6 million from $799.5 million in 1997. U.S. domestic sales increased 4.3%
over 1997. Included in U.S. sales were international export sales of $92.5
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million for 1998, which decreased $13 million or 12.3% from $105.5 million in
1997. Non-U.S. third party sales increased 2.9% to $370.1 million from $359.6
million in 1997. Sales increases in the international regions were primarily
volume driven. The weakening of foreign currencies against the U.S. dollar
reduced non-U.S. sales by $18.4 million or 4.7%. Non-U.S. and export sales for
1998 amounted to 39.0% of the Company's total sales.
U.S. third party sales benefited from the strong U.S. economy in the first and
second quarters, and the third year of the SourceOne distributor incentive
program. The worldwide economic difficulties, particularly in Asia and in
Russia, Africa and the Middle East, were the primary reason for the drop in
exports of U.S.-made products. U.S. and world demand was lower in the third and
fourth quarters, compared with 1997 and the first half of 1998.
Gross Profit. Gross profit improved to $457.1 million in 1998 from $440.7
million in 1997. Gross profit as a percentage of sales was 38.5% in 1998,
compared with 38.0% in 1997. U.S. margins improved from volume efficiencies and
continued cost control efforts. Gross margins have improved primarily due to
increased plant utilization, favorable product mix and selected price increases.
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 negatively impacted margins.
Distribution Cost/Selling, General and Administrative (SG&A) Expenses.
Distribution cost/selling, general and administrative expenses were $309.7
million in 1998, or 26.1% of sales, as compared to $305.8 million, or 26.4% of
sales in 1997. Included in SG&A expenses are the costs related to the Company's
discretionary employee bonus program, net of hospitalization costs. The increase
in SG&A over last year is due to higher distribution and freight costs, higher
planned R&D spending, increased costs related to the U.S. and European
information technology initiatives and higher bonus expense. Increases in
distribution and freight costs were in line with higher sales volumes. The
strengthening U.S. dollar reduced SG&A costs for non-U.S. operations by $4.8
million.
Interest Income. Interest income decreased $1.8 million or 29.9% to $4.1 million
in 1998. The decline reflects reduced levels of cash investments due to
increased capital expenditures, purchases of treasury shares, an increase in the
shareholder dividend payout and the increased use of lower yielding, non-taxable
investments.
Interest Expense. Interest expense decreased $0.7 million or 10.6% to $5.6
million in 1998. The decline reflects lower debt levels due to scheduled debt
repayments.
Income Taxes. Income taxes in 1998 were $53.4 million on income before income
taxes of $147.1 million, an effective rate of 36.3%, as compared with income
taxes of $49.8 million in 1997 on income before income taxes of $135.2 million,
or an effective tax rate of 36.8%. The decrease in the effective tax rate
reflects the higher utilization of tax credits.
Net Income. Net income for 1998 was $93.7 million, as compared with net income
of $85.4 million in 1997, or an increase of 9.7%. The effect of exchange rate
movements on net income was not material for 1998 or 1997.
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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 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 $0.04 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
included net non-recurring charges of $10.9 million ($6.6 million after-tax, or
$0.13 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 $0.10 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
non-recurring items reduced 1996 net income by $1.5 million or $0.03 per share
(basic and diluted).
LIQUIDITY AND CAPITAL RESOURCES
During 1998, the Company reduced its debt levels by 8.5% from $66.3 million at
December 31, 1997 to $60.7 million at December 31, 1998. Total percent of debt
to total capitalization dropped to 11.0% at December 31, 1998 from 13.2% at
December 31, 1997. 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.
Cash provided from operations was $122.1 million in 1998, an increase of $33.2
million from $88.9 million in 1997. Reduced use of working capital in supporting
sales growth has resulted in improvements in working capital consumed over the
prior year.
Capital expenditures during 1998 were $81.4 million, a 118.3% increase from
1997. Capital spending for 1998 included plant modernization efforts in the
U.S., information technology initiatives in the U.S., Australia and Europe, and
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.
During 1998 the Company acquired a 75% interest in Indalco Alloys Inc. of
Canada, Uhrhan & Schwill GmbH of Germany and a 50% equity interest in AS Kaynak
of Turkey. The operating results of Indalco are included within those of the
Company beginning in March 1998, and for Uhrhan & Schwill, beginning in May
1998. Equity income (loss) from AS Kaynak was included in the Consolidated
Statement of Income beginning in July 1998. The results of acquired companies
for 1998 were not significant.
A total of $19.6 million in dividends was paid during 1998. In November 1998,
the quarterly dividend was increased from $0.10 per share to $0.12 per share.
This dividend was paid in January 1999.
NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging
Activities in June 1998. This Statement will become effective for the Company
for fiscal year 2000. The Company is evaluating the effect of this Statement on
its accounting and reporting policies, but does not presently expect adoption to
have a material impact on the Company's consolidated financial position or
results of operations.
INFORMATION SYSTEMS IMPLEMENTATIONS AND YEAR 2000 ISSUE
The Company is replacing many of its legacy Information Technology (IT) Systems
and believes with conversions to new software and computer systems, the Year
2000 Issue will be mitigated. Accordingly, all of the Company's business units
are actively involved in its Year 2000 conversion plan. The Company is utilizing
both internal and external resources to replace and test software.
11
<PAGE> 12
The Company is also replacing systems used in the manufacture and distribution
of its products and does not anticipate disruptions in the supply of products to
its customers. In addition, to assure continuous flow of products to end
customers, the Company has surveyed and is now assessing Year 2000 readiness on
the part of the Company's supply chain. The majority of the suppliers responding
to the Company's survey indicated that they were in the process of implementing
their own Year 2000 compliance programs. Based upon the outcome of the Company's
final assessment of its external supply chain components, business process and
systems contingency plans will be developed and implemented. Although plans have
not yet been developed, the Company anticipates these plans will include
identification of alternative suppliers and increasing inventory safety stocks.
The Company's Year 2000 readiness activities include IT areas such as business
systems, technical infrastructure and end-user computing and non-IT areas such
as manufacturing, warehousing and servicing equipment, environmental operations,
supplier base and end products. These activities require the identification of
affected systems and equipment, impact analysis, compliance strategy and
implementation and testing of remediation.
The Company has completed or is currently on schedule with various phases of its
compliance program and has made significant progress towards the completion of
its total planned efforts. The Company expects the Year 2000 compliance efforts
to be substantially completed by the second quarter of 1999.
The incremental cost of Information Systems expenditures, including system
enhancements and non-IT Year 2000 projects, is estimated at $65 million, of
which $55 million is expected to be capitalized. At December 31, 1998,
approximately $37 million has been capitalized and $8.2 million has been
expensed. Substantially all of the costs to be incurred relate to replacement
costs for hardware and software which will provide enhanced functionality over
current IT systems. Cash flows related to these costs have been and will
continue to be provided by funds generated from operations. The Company's total
project cost and estimated time to complete the project are based on presently
available information. The Company requires periodic project status reporting
and cost estimates are revised as information becomes available.
The Company plans to complete its IT Implementation and Year 2000 projects and
have all systems compliant before December 31, 1999. However, there are no
assurances that the systems of other companies on which the Company relies also
will be Year 2000 compliant. Disruptions caused by suppliers or customers would
impair the Company's ability to obtain materials and services for production or
the ability to sell to customers. If a disruption occurred, the Company would
experience lost sales and profits. The Company's assessment and remediation
program is addressing this uncertainty but its ability to ascertain the
readiness of its suppliers and customers is limited. Any failure by the Company
to meet its current timetable or by the Company's vendors or customers to
achieve Year 2000 compliance could have a material adverse effect on the
Company's systems, results of operations and financial condition.
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:
12
<PAGE> 13
* 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 and Note K to
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 (particularly where foreign
currencies have been significantly devalued) 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 deteriorated over the last 18
months and are now experiencing significant degrees of political and
economic instability, making international growth difficult.
* 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 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.
* 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.
Item 7a. Market Risk
-----------
The Company's primary financial market risks include fluctuations in currency
exchange rates, commodity prices and interest rates. The Company manages these
risks by using derivative financial instruments in accordance with established
policies and procedures. The Company does not enter into derivatives or other
financial instruments for trading or speculative purposes.
The Company enters into forward foreign exchange contracts principally to hedge
the currency fluctuations in transactions denominated in foreign currencies,
thereby limiting the Company's risk that would otherwise result from changes in
exchange rates. During 1998, the principal transactions hedged were short-term
13
<PAGE> 14
intercompany loans and intercompany purchases. The periods of the forward
foreign exchange contracts correspond to the periods of the hedged transactions.
Gains and losses on forward foreign exchange contracts and the offsetting losses
and gains on hedged transactions are reflected in the income statement. At
December 31, 1998 the Company had approximately $25 million notional amount of
foreign exchange contracts which hedged recorded balance sheet exposures or firm
commitments. The potential loss from a hypothetical 10% adverse change in
foreign currency rates on the Company's open foreign exchange contracts at
December 31, 1998 would not materially affect the Company's consolidated
financial position, results of operations or cash flows.
From time to time, the Company uses various hedging arrangements to manage the
Company's exposure to price risk from commodity purchases. The primary commodity
hedged is copper. These hedging arrangements have the effect of locking in for
specified periods (at predetermined prices or ranges of prices) the prices the
Company will pay for the volume to which the hedge relates. The potential loss
from a hypothetical 10% adverse change in commodity prices on the Company's open
commodity futures at December 31, 1998, would not materially affect the
Company's consolidated financial position, results of operations or cash flows.
The fair value of the Company's cash and short-term investment portfolio at
December 31, 1998, approximated carrying value due to its short-term duration.
Market risk was estimated as the potential decrease in fair value resulting from
a hypothetical 10% increase in interest rates for the issues contained in the
investment portfolio and was not materially different from the year-end carrying
value.
At December 31, 1998, the fair value of notes payable approximated carrying
value due to its short-term maturities. Market risk was estimated as the
potential increase in fair value resulting from a hypothetical 10% decrease in
the Company's weighted average short-term borrowing rate at December 31, 1998,
and was not materially different from the year-end carrying value.
The Company utilizes an interest rate swap as a hedge to effectively change the
characteristics of the interest rate of its 8.73% fixed rate debt without
actually changing the debt instrument. The swap involves the exchange of the
Company's 8.73% fixed rate debt for a floating rate based on a 3-month LIBOR
basket swap plus a spread of 381 basis points. Payments or receipts on the
agreement are recorded as adjustments to interest expense. A 1% increase in the
3-month LIBOR basket swap rate would increase the amount paid by approximately
$0.5 million. (See Note D to the Consolidated Financial Statements for further
discussion of Debt Instruments.)
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.
PART III
A definitive proxy statement will be filed pursuant to Regulation 14A of the
Securities Exchange Act prior to April 30, 1999. Therefore, information required
under this part, unless set forth below, is incorporated herein by reference
from such definitive proxy statement.
14
<PAGE> 15
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, 1998 and 1997
Consolidated Statements of Income - Years ended December 31, 1998, 1997
and 1996
Consolidated Statements of Shareholders' Equity - Years ended December
31, 1998, 1997 and 1996
Consolidated Statements of Cash Flows - Years ended December 31, 1998,
1997 and 1996
Notes to Consolidated Financial Statements - December 31, 1998
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
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
--------
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------------------------------------------------
<S> <C>
2 Agreement of Merger dated as of May 19, 1998 made by
and among Lincoln Electric Merger Co., The Lincoln
Electric Company, and Lincoln Electric Holdings, Inc.
(filed as Exhibit (2) to Form 8-K of Lincoln Electric
Holdings, Inc. dated June 2, 1998, SEC File No.
0-1402 and incorporated herein by reference and made
a part hereof).
3(a) Restated Articles of Incorporation of Lincoln
Electric Holdings, Inc. (filed as Exhibit (3)(a) to
Form 10-Q of Form 8-K of Lincoln Electric Holdings,
Inc. dated June 2, 1998, SEC File No. 0-1402 and
incorporated herein by reference and made a part
hereof).
</TABLE>
15
<PAGE> 16
Exhibit No. Description
----------- -----------------------------------------------------
3(b) Code of Regulations of Lincoln Electric Holdings,
Inc. (filed as Exhibit (3)(b) to Form 8-K of Lincoln
Electric Holdings, Inc. dated June 2, 1998, SEC File
No. 0-1402 and incorporated herein by reference and
made a part hereof).
10(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), as amended by letter dated November 11, 1998
filed herewith.
10(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); as amended by Amendment No.
2 dated May 8, 1998; and as further amended by
Amendment No. 3 dated October 23, 1998 filed
herewith.
10(c) Lincoln Electric Holdings, Inc. 1998 Stock Option
Plan (filed as Annex F to the Registration Statement
on Form S-4 of Lincoln Electric Holdings, Inc.,
Registration No. 333-50435, incorporated herein by
reference and made a part hereof).
10(d) 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) as
adopted and amended by Lincoln Electric Holdings,
Inc. pursuant to an Instrument of Adoption and
Amendment dated December 29, 1998 filed herewith.
10(e) 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).
16
<PAGE> 17
Exhibit No. Description
----------- -----------------------------------------------------
10(f) 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(g) 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); as amended by Amendment No. 4 dated as of
January 1, 1998; and as further amended by Amendment
No. 5 dated as of January 1, 1998 filed herewith.
10(h) 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(i) Description of Long Term Performance Plan (filed as
Exhibit 10(f) to Form 10-K of The Lincoln Electric
Company for the year ended December 31, 1997, SEC
File No. 0-1402 and incorporated herein by reference
and made a part hereof).
10(j) 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) as adopted by Lincoln Electric Holdings, Inc.
pursuant to an Instrument of Adoption dated December
29, 1998 filed herewith.
10(k) 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) as amended by Amendment No. 1 dated as of
December 29, 1998 filed herewith.
10(l) Summary of Employment Agreements filed herewith.
10(m) The Lincoln Electric Company Executive Benefit Plan
(filed as Exhibit 10(l) 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(n) Form of Severance Agreement (as entered into by the
Company and the following executive officers: Mssrs.
Massaro, Stropki, Elliott, Stueber and Vogt) (filed
as Exhibit 10 to Form 10-Q of Lincoln Electric
Holdings, Inc. for the nine months ended September
30, 1998, SEC File No. 0-1402 and incorporated herein
by reference and made a part hereof).
21 Subsidiaries of the Registrant.
17
<PAGE> 18
Exhibit No. Description
----------- -----------------------------------------------------
23 Consent of Independent Auditors.
24 Powers of Attorney
27 Financial Data Schedule.
(b) The Company did not file any reports on Form 8-K during the fourth
quarter of 1998.
(c) The exhibits which are listed under Item 14 (a) (3) are filed in a
separate section of the report following the signature page or
incorporated by reference herein.
(d) The financial statement schedule which is listed under item 14 (a) (2)
is filed in a separate section of the report following the signature
page.
Upon request, Lincoln Electric Holdings, Inc. 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, Lincoln Electric Holdings,
Inc., 22801 St. Clair Avenue, Cleveland, Ohio 44117; Phone: (216) 481-8100.
18
<PAGE> 19
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.
LINCOLN ELECTRIC HOLDINGS, INC.
-------------------------------
(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 1999.
<TABLE>
<S> <C>
/s/ ANTHONY A. MASSARO /s/ H. JAY ELLIOTT
- -------------------------------------- ----------------------------------------------
Anthony A. Massaro, Chairman of the H. Jay Elliott, Senior Vice President,
Board, President and Chief Executive Chief Financial Officer and Treasurer
Officer (principal executive officer) (principal financial and accounting officer)
/s/ JOHN M. STROPKI
- --------------------------------------
John M. Stropki, Director of the
Company, Executive Vice President,
President North America
/s/ URSULA M. BURNS /s/ G. RUSSELL LINCOLN
- -------------------------------------- ----------------------------------------------
Ursula M. Burns, Director G. Russell Lincoln, Director
/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/ CRAIG R. SMITH
- -------------------------------------- ----------------------------------------------
Edward E. Hood, Jr., Director Craig R. Smith, Director
/s/ PAUL E. LEGO /s/ FRANK L. STEINGASS
- -------------------------------------- ----------------------------------------------
Paul E. Lego, Director Frank L. Steingass, Director
/s/ DAVID C. LINCOLN
- --------------------------------------
David C. Lincoln, Director
</TABLE>
19
<PAGE> 20
ANNUAL REPORT ON FORM 10-K
ITEM 8, ITEM 14(a)(1) AND (2) AND ITEM 14(c) AND 14(d)
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
FINANCIAL STATEMENT SCHEDULES
CERTAIN EXHIBITS
YEAR ENDED DECEMBER 31, 1998
LINCOLN ELECTRIC HOLDINGS, INC. AND SUBSIDIARIES
20
<PAGE> 21
REPORT OF INDEPENDENT AUDITORS
Shareholders and Board of Directors
Lincoln Electric Holdings, Inc.
We have audited the consolidated financial statements of Lincoln Electric
Holdings, Inc. (successor to 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 Lincoln
Electric Holdings, Inc. and subsidiaries at December 31, 1998 and 1997, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1998, 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 2, 1999
21
<PAGE> 22
LINCOLN ELECTRIC HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31
1998 1997
----------- ----------
(In thousands of dollars)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 39,095 $ 46,562
Marketable securities 311 10,194
Accounts receivable (less allowances of $3,563 in 1998;
$3,071 in 1997) 167,830 163,437
Inventories
Raw materials and in-process 82,030 80,606
Finished goods 104,291 97,962
---------- ----------
186,321 178,568
Deferred income taxes 17,751 15,868
Other current assets 25,533 18,914
---------- ----------
TOTAL CURRENT ASSETS 436,841 433,543
PROPERTY, PLANT AND EQUIPMENT
Land 11,447 11,520
Buildings 115,538 111,353
Machinery, tools and equipment 424,307 349,085
---------- ----------
551,292 471,958
Less: accumulated depreciation and amortization 291,501 269,923
---------- ----------
259,791 202,035
OTHER ASSETS
Goodwill 35,747 34,751
Other 50,527 41,861
---------- ----------
86,274 76,612
TOTAL ASSETS $ 782,906 $ 712,190
========== ==========
</TABLE>
22
<PAGE> 23
LINCOLN ELECTRIC HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31
1998 1997
--------- ---------
(In thousands of dollars,
except share data)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable to banks $ 2,792 $ 1,968
Trade accounts payable 60,502 52,497
Salaries, wages and amounts withheld 19,366 18,742
Taxes, including income taxes 38,434 40,284
Dividend payable 5,770 4,922
Other current liabilities 57,147 56,138
Current portion of long-term debt 11,100 9,971
--------- ---------
TOTAL CURRENT LIABILITIES 195,111 184,522
Long-term debt, less current portion 46,766 54,360
Deferred income taxes 23,158 11,024
Other long-term liabilities 26,938 25,113
SHAREHOLDERS' EQUITY
Preferred Shares, without par value - at stated capital amount:
Authorized - 5,000,000 shares in 1998 and none in 1997;
Issued and Outstanding - none -- --
Common Shares, without par value - at stated capital amount:
Authorized - 120,000,000 shares in 1998 and 60,000,000 shares in 1997;
Issued - 49,283,950 shares in 1998 and 21,542,014 shares in 1997;
Outstanding - 48,083,246 shares in 1998 and 21,542,014 shares in 1997 4,928 2,154
Class A Common Shares (non-voting), without par value -
at stated capital amount:
Authorized - none in 1998 and 60,000,000 shares in 1997;
Issued and Outstanding - none in 1998 and 27,676,726 shares in 1997 -- 2,768
Additional paid-in capital 104,641 103,722
Retained earnings 432,283 359,639
Accumulated other comprehensive income (28,251) (31,112)
Treasury shares, at cost - 1,200,704 shares in 1998, none in 1997 (22,668) --
--------- ---------
TOTAL SHAREHOLDERS' EQUITY 490,933 437,171
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 782,906 $ 712,190
========= =========
</TABLE>
See notes to these consolidated financial statements.
23
<PAGE> 24
LINCOLN ELECTRIC HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31
1998 1997 1996
----------- ----------- -----------
(In thousands of dollars, except per share data)
<S> <C> <C> <C>
Net sales $ 1,186,679 $ 1,159,067 $ 1,109,144
Cost of goods sold 729,613 718,385 686,545
----------- ----------- -----------
Gross profit 457,066 440,682 422,599
Distribution cost/selling, general & administrative expenses 309,658 305,820 310,258
----------- ----------- -----------
Operating income 147,408 134,862 112,341
Other income (expense):
Interest income 4,119 5,877 2,832
Other income 1,213 770 10,421
Interest expense (5,676) (6,349) (7,731)
----------- ----------- -----------
(344) 298 5,522
----------- ----------- -----------
Income before income taxes 147,064 135,160 117,863
Income taxes 53,345 49,746 43,610
----------- ----------- -----------
Net income $ 93,719 $ 85,414 $ 74,253
=========== =========== ===========
Basic earnings per share $ 1.92 $ 1.73 $ 1.49
=========== =========== ===========
Diluted earnings per share $ 1.91 $ 1.73 $ 1.49
=========== =========== ===========
</TABLE>
See notes to these consolidated financial statements.
24
<PAGE> 25
LINCOLN ELECTRIC HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Accumulated
Class A Class B Additional Other
(In thousands of dollars, Common Common Common Paid-in Retained Comprehensive Treasury
except share data, Shares Shares Shares Capital Earnings Income Shares Total
===================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1996 $ 2,104 $ 2,776 $ 97 $ 102,652 $ 228,555 $ (6,238)$ -- $ 329,946
Comprehensive income:
Net income 74,253 74,253
Currency translation adjustment (920) (920)
---------
Total comprehensive income 73,333
Cash dividends declared -
$0.24 per share (11,931) (11,931)
Repurchase of Class B Shares (4) (4)
Shares issued to
non-employee directors 1 136 137
Shares repurchased under
Incentive Equity Plan (8) (8) (629) (625) (1,270)
Options issued in
settlement of litigation 1,565 1,565
- --------------------------------------------------------------------------------------------------------- ---------
BALANCE, DECEMBER 31, 1996 2,097 2,768 97 103,720 290,252 (7,158) -- 391,776
Comprehensive income:
Net income 85,414 85,414
Currency translation adjustment (23,954) (23,954)
---------
Total comprehensive income 61,460
Cash dividends declared -
$0.325 per share (16,027) (16,027)
Shares issued to
non-employee directors 1 112 113
Conversion of Class B Common
Shares to Common Shares 56 (97) (153) (194)
Exercise of non-qualified
stock options 43 43
- --------------------------------------------------------------------------------------------------------- ---------
BALANCE, DECEMBER 31, 1997 2,154 2,768 -- 103,722 359,639 (31,112) -- 437,171
Comprehensive income:
Net income 93,719 93,719
Currency translation adjustment 2,361 2,861
---------
Total comprehensive income 96,580
Cash dividends declared -
$0.42 per share (20,442) (20,442)
Shares issued to
now-employee directors 1 110 111
Purchase of shares for treasury (23,823) (23,823)
Exercise of non-qualified
stock options 3 4 1,635 (173) 1,155 2,624
Conversion of Class A Common
Shares to Common Shares 2,772 (2,772) (779) (779)
Retirement of Common Shares (2) (47) (460) (509)
- --------------------------------------------------------------------------------------------------------- ---------
BALANCE, DECEMBER 31, 1998 $ 4,928 $ -- $ -- $ 104,641 $ 432,283 $ (28,251)$ 22,668 $490,933
========================================================================================================= =========
</TABLE>
See notes to these consolidated financial statements.
25
<PAGE> 26
LINCOLN ELECTRIC HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31
1998 1997 1996
--------- --------- ---------
(In thousands of dollars)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 93,719 $ 85,414 $ 74,253
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 28,079 28,431 29,488
Deferred income taxes 10,199 987 (3,083)
(Gain) loss on sale of fixed assets and businesses (292) 166 (8,892)
Changes in operating assets and liabilities net of effects from
acquisitions:
(Increase) in accounts receivable (2,167) (22,089) (11,167)
(Increase) decrease in inventories (6,007) (18,361) 9,591
(Increase) decrease in other current assets (6,120) (10,115) 4,287
Increase (decrease) in accounts payable 5,768 (2,135) 2,834
(Decrease) increase in other current liabilities (1,467) 23,591 10,511
Gross change in other long-term assets and liabilities 1,770 1,135 (2,095)
Other, net (1,397) 1,886 2,106
--------- --------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 122,085 88,910 107,833
INVESTING ACTIVITIES
Capital expenditures (81,411) (37,296) (34,257)
Acquisitions of businesses and equity investments (10,820) -- (5,520)
Purchases of marketable securities and other investments (910) (66,260) --
Proceeds from sale of marketable securities 10,872 44,364 --
Proceeds from sale of fixed assets and businesses 4,577 909 22,375
--------- --------- ---------
NET CASH (USED) BY INVESTING ACTIVITIES (77,692) (58,283) (17,402)
FINANCING ACTIVITIES
Short-term borrowings - net (87) (524) (27,366)
Long-term borrowings - net (11,004) (10,230) (20,338)
Net (purchase) issuance of shares for treasury (22,668) -- --
Cash dividends paid (19,594) (14,082) (11,942)
Other 124 -- (1,138)
--------- --------- ---------
NET CASH (USED) BY FINANCING ACTIVITIES (53,229) (24,836) (60,784)
Effect of exchange rate changes on cash and cash equivalents 1,369 280 757
--------- --------- ---------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (7,467) 6,071 30,404
Cash and cash equivalents at beginning of year 46,562 40,491 10,087
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 39,095 $ 46,562 $ 40,491
========= ========= =========
</TABLE>
See notes to these consolidated financial statements.
26
<PAGE> 27
LINCOLN ELECTRIC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of dollars except per share data)
December 31, 1998
NOTE A - SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the
accounts of Lincoln Electric Holdings, Inc. and its wholly-owned and
majority-owned subsidiaries (the "Company") after elimination of all significant
intercompany accounts, transactions and profits. Minority ownership interest in
consolidated subsidiaries, which is not material, is recorded in Other Long-term
Liabilities in the Consolidated Balance Sheet.
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, 1998 and 1997, approximately 63% and
67%, respectively, of total inventories were valued using the LIFO method. The
excess of current cost over LIFO cost amounted to $50,240 at December 31, 1998
and $52,860 at December 31, 1997.
EQUITY INVESTMENTS: Investments in businesses in which the Company holds between
a 20% and 50% ownership interest are accounted for using the equity method of
accounting. Under the equity method, the investment is carried at cost plus the
Company's proportionate share of the net income or loss of the business since
the date of acquisition.
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.
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 $10,323 and $8,852
in 1998 and 1997, respectively.
LONG-LIVED ASSETS : The carrying value of long-lived assets 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.
27
<PAGE> 28
LINCOLN ELECTRIC HOLDINGS, INC. 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 and were
not material.
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.
RESEARCH AND DEVELOPMENT: Research and development costs, which are expensed as
incurred, were $17,719 in 1998, $16,547 in 1997 and $19,800 in 1996. 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.
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: The following table sets forth the computation of basic and
diluted earnings per share (dollars and shares in thousands, except per share
amounts). All periods presented have been adjusted for the reorganization (see
Note B), which had the economic effect of a two-for-one stock split.
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Numerator:
Net income $93,719 $85,414 $74,253
======= ======= =======
Denominator:
Denominator for basic earnings per share -
Weighted-average shares 48,935 49,384 49,723
Effect of dilutive securities -
Employee stock options 135 148 --
------- ------- -------
Denominator for diluted earnings per share -
Adjusted weighted-average shares 49,070 49,532 49,723
======= ======= =======
Basic earnings per share $ 1.92 $ 1.73 $ 1.49
Diluted earnings per share $ 1.91 $ 1.73 $ 1.49
</TABLE>
28
<PAGE> 29
LINCOLN ELECTRIC HOLDINGS, INC. 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, of $76,491 in 1998, $74,953 in 1997 and $66,681 in 1996.
NOTE B - SHAREHOLDERS' EQUITY
On May 19, 1998, shareholders approved a reorganization of the capital and
corporate structure of The Lincoln Electric Company (the "reorganization"). As a
result of the reorganization, a new holding company, Lincoln Electric Holdings,
Inc., was created. Each Common Share and each Class A Common Share (non-voting)
of The Lincoln Electric Company was converted into two voting common shares of
Lincoln Electric Holdings, Inc., which also had the economic effect of a
two-for-one stock split. The reorganization also resulted in the authorization
of 5,000,000 Preferred Shares, none of which were issued or outstanding at
December 31, 1998. The Preferred Shares were authorized to provide the Company
flexibility in future financing or acquisitions, and to render or discourage an
attempt by another person or entity to obtain control of the Company. The
Company's Articles of Incorporation allow the Board of Directors the discretion
to issue one or more series of Preferred Shares with terms that the Board feels
meets the needs of a particular transaction. Each issuance of Preferred Shares
may have distinct dividend rights, conversion rights and liquidation
preferences. The historical share and per share amounts disclosed in these
consolidated financial statements have been restated to reflect the share
conversion.
In September 1998, the Board of Directors authorized a share repurchase of up to
5,000,000 shares of the Company's outstanding Common Shares to satisfy
obligations under its stock plans. Through December 31, 1998, the Company
purchased 1,263,900 shares at an average cost of $18.85 per share.
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. Subsequent to the reorganization in 1998, the authorized
common capital consisted of 120,000,000 Common Shares.
NOTE C - STOCK PLANS
The 1998 Stock Option Plan ("Stock Option Plan") was adopted by the shareholders
to replace The Lincoln Electric Company 1988 Incentive Equity Plan ("Incentive
Equity Plan") which expired in May 1998. The Stock Option plan provides for the
grant of options for 5,000,000 shares of Company stock to key employees over a
ten-year period. The following table summarizes the option activity for the
three years ended December 31, 1998 under both the Stock Option Plan and the
Incentive Equity Plan:
29
<PAGE> 30
LINCOLN ELECTRIC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE C - STOCK PLANS - (Continued)
<TABLE>
<CAPTION>
OPTIONS EXERCISE PRICES
------- ---------------
<S> <C> <C>
Balance, January 1, 1996 --
Granted 891,180 $13.63 - $17.00
Exercised ---------
Balance, December 31, 1996 891,180 $13.63 - $17.00
Granted 193,000 $17.63 - $19.19
Exercised (2,664) $13.63 - $15.00
Canceled (36,936) $15.00 - $17.00
---------
Balance, December 31, 1997 1,044,580 $13.63 - $19.19
Granted 294,700 $22.375
Exercised (144,416) $13.63 - $17.00
Canceled (8,334) $13.63 - $19.19
---------
Balance, December 31, 1998 1,186,530 $13.63 - $22.38
=========
Options exercisable at December 31, 1998 654,466 $13.63 - $19.19
=========
</TABLE>
Included above are options for 335,180 shares, at exercise prices of $15.00 and
$17.00 per share, which 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. At December 31, 1998, there were 225,162 of these options
outstanding.
All other options granted under both the Stock Option Plan and the Incentive
Equity Plan are outstanding for a term of ten years from the date of grant.
Incentive Equity Plan options and 270,700 options granted under the Stock Option
Plan vest ratably over a period of three years from the grant date and options
totaling 24,000 shares granted in 1998 under the Stock Option Plan vest one year
from the grant date. The exercise prices of all options were equal to the fair
market value of the Company's 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 ("APB 25"). Under the intrinsic method, compensation expense is
measured 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 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 periods.
<TABLE>
<CAPTION>
1998 1997 1996
----- ----- ----
Pro Forma Reported Pro Forma Reported Pro Forma Reported
--------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Net income $ 92,763 $ 93,719 $ 84,740 $ 85,414 $ 74,092 $ 74,253
Basic earnings per share 1.90 1.92 1.72 1.73 1.49 1.49
Diluted earnings per share 1.89 1.91 1.71 1.73 1.49 1.49
</TABLE>
30
<PAGE> 31
LINCOLN ELECTRIC HOLDINGS, INC. 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 and the other weighted average assumptions were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Expected volatility 30.80% 22.55% 26.25%
Dividend yield 2.16% 2.14% 2.05%
Risk-free interest rate 4.66% 5.74% 6.85%
</TABLE>
For the three years ended December 31, 1998, there were no awards or sales of
shares associated with the Incentive Equity Plan. At December 31, 1998, there
were 4,705,300 Common Shares reserved for future issuance under the Stock Option
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 was awarded through contributions to an employee stock
ownership trust. In 1997 and 1996, no shares were issued to the ESOP and the
Company has since 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 in 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 ten thousand dollars worth of Common Shares to
each non-employee Director as part of an annual retainer. Shares issued in
connection with this plan were 5,654 in 1998, 7,930 in 1997 and 11,468 in 1996.
In 1997, 1,236 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 ten thousand
dollars annually. Under this plan, there were 7,619 shares purchased in 1998,
13,352 shares purchased in 1997, and 8,484 shares purchased in 1996.
NOTE D - SHORT-TERM AND LONG-TERM DEBT
<TABLE>
<CAPTION>
1997 1998
------- -------
<S> <C> <C>
Short-term debt:
Notes payable to banks at interest rates from 5.0% to 7.98%
(4.5% to 8.75% in 1997) $ 2,792 $ 1,968
======= =======
Long-term debt:
8.73% Senior Note due 2003 (five equal annual principal
payments remaining) $46,875 $56,250
Other borrowings due through 2023, interest at 2.00% to 12.00% 10,991 8,081
------- -------
57,866 64,331
Less current portion 11,100 9,971
------- -------
Total $46,766 $54,360
======= =======
</TABLE>
31
<PAGE> 32
LINCOLN ELECTRIC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE D - SHORT-TERM AND LONG-TERM DEBT - (Continued)
The Company's $200 million unsecured, multi-currency Credit Agreement expires
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 the London Interbank Offered Rate ("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 LIBOR 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, 1998 was 8.37%. 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 $46,875 at December 31, 1998. 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, 1998 are
$11,100 in 1999, $11,458 in 2000, $12,146 in 2001, $9,699 in 2002, $9,698 in
2003 and $3,765 thereafter.
Total interest paid was $5,593 in 1998, $6,329 in 1997 and $7,800 in 1996.
Weighted-average interest rates on notes payable to banks at December 31, 1998
and 1997 were 6.7% and 6.2%, respectively.
NOTE E - INCOME TAXES
The components of income before income taxes are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
U.S $ 123,586 $ 112,411 $ 94,951
Non-U.S 23,478 22,749 22,912
--------- --------- ---------
Total $ 147,064 $ 135,160 $ 117,863
========= ========= =========
Components of income tax expense (benefit) are as follows:
1998 1997 1996
--------- --------- ---------
Current:
Federal $ 26,724 $ 32,060 $ 33,484
Non-U.S 9,020 8,909 6,197
State and local 7,402 7,790 7,012
--------- --------- ---------
43,146 48,759 46,693
Deferred:
Federal 11,016 3,215 (2,735)
Non-U.S (817) (2,228) (348)
--------- --------- ---------
10,199 987 (3,083)
--------- --------- ---------
Total $ 53,345 $ 49,746 $ 43,610
========= ========= =========
</TABLE>
32
<PAGE> 33
LINCOLN ELECTRIC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE E - INCOME TAXES - (Continued)
The differences between total income tax expense and the amount computed by
applying the statutory Federal income tax rate to income before income taxes
were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C> <C>
Statutory rate of 35% applied to pre-tax income $ 51,472 $ 47,306 $ 41,252
Effect of state and local income taxes, net of Federal
tax benefit 4,811 5,063 4,558
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 (14) (1,281) (2,663)
Foreign sales corporation (1,975) (1,235) (1,220)
Other - net (949) (107) 1,683
-------- -------- --------
Total $ 53,345 $ 49,746 $ 43,610
======== ======== ========
Effective tax rate 36.3% 36.8% 37.0%
======== ======== ========
</TABLE>
Total income tax payments, net of refunds, were $44,432 in 1998, $44,648 in 1997
and $36,764 in 1996.
At December 31, 1998, certain non-U.S. subsidiaries have tax loss carryforwards
of approximately $41,806 which expire in various years from 1999 through 2008,
except for $18,200 for which there is no expiration date.
Significant components of deferred tax assets and liabilities at December 31,
1998 and 1997, are as follows:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Deferred tax assets:
Tax loss and credit carryforwards $ 15,199 $ 16,832
State income taxes 2,873 3,506
Inventory 5,022 4,635
Other accruals 11,516 13,861
Employee benefits 5,490 4,792
Pension obligations 4,049 3,224
Other 9,614 9,141
-------- --------
53,763 55,991
Valuation allowance (14,351) (14,760)
-------- --------
39,412 41,231
Deferred tax liabilities:
Property, plant and equipment (21,763) (19,519)
Pension obligations (12,779) (10,247)
Other (9,287) (5,605)
-------- --------
(43,829) (35,371)
-------- --------
Total ($ 4,417) $ 5,860
======== ========
</TABLE>
33
<PAGE> 34
LINCOLN ELECTRIC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE E - INCOME TAXES - (Continued)
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.
NOTE F - RETIREMENT ANNUITY AND GUARANTEED CONTINUOUS EMPLOYMENT PLANS
In February 1998, The FASB issued Statement of Financial Accounting Standards
No. 132, Employers' Disclosures about Pensions and Other Postretirement
Benefits. This statement amends and eliminates certain previously required
disclosures, as well as adding new disclosure. Statement No. 132 does not change
the way pension costs and liabilities are measured or recognized. The Company
has presented and, where necessary, amended its disclosure in these consolidated
financial statements to conform to Statement No. 132.
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. Also in 1997, the plan incorporated a feature in which participants could
elect to receive an annual Company contribution of 2% of their base pay in
exchange for forfeiting accelerated benefits under the pension plan.
The changes in the pension plans' benefit obligations were as follows:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Obligation at January 1 $ 394,104 $ 360,581
Service cost 13,013 11,319
Interest cost 28,180 26,906
Participant contributions 4,488 628
Plan amendments 883 2,130
Actuarial loss 19,184 17,877
Benefit payments (20,013) (20,617)
Settlements 178 --
Currency translation (1,313) (4,720)
--------- ---------
Obligation at December 31 $ 438,704 $ 394,104
========= =========
</TABLE>
34
<PAGE> 35
LINCOLN ELECTRIC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE F - RETIREMENT ANNUITY AND GUARANTEED CONTINUOUS EMPLOYMENT PLANS -
(Continued)
The changes in the fair values of the pension plans' assets were as follows:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Plan assets at January 1 $ 389,669 $ 345,547
Actual return on plan assets 42,598 53,414
Employer contributions 15,963 15,924
Participant contributions 4,488 628
Benefit payments (20,013) (20,617)
Currency translation (1,544) (5,227)
--------- ---------
Plan assets at December 31 $ 431,161 $ 389,669
========= =========
</TABLE>
The funded status of the pension plans at December 31, 1998 and 1997 was as
follows:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Plan assets in excess of (less than) projected
benefit obligations $ (7,543) $ (4,435)
Unrecognized net loss 18,322 7,502
Unrecognized prior service cost 11,041 11,396
Unrecognized transition (assets) obligation, net (2,176) (2,762)
-------- --------
Prepaid pension expense recognized in the balance sheet $ 19,644 $ 11,701
======== ========
</TABLE>
The net prepaid pension expense recognized in the consolidated balance sheets
was composed of:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Prepaid pension cost $ 27,581 $ 18,684
Accrued pension liability (10,164) (7,842)
Intangible asset 2,227 859
-------- --------
Prepaid pension expense recognized in the balance sheet $ 19,644 $ 11,701
======== ========
</TABLE>
A domestic non-qualified pension plan comprised the largest portion of the
pension plans in which the accumulated benefit obligation (ABO) exceeded plan
assets at December 31, 1998 and 1997. The aggregate ABO of such plans at
December 31, 1998 and 1997 was $9,872 and $7,265, respectively; the aggregate
fair value of plan assets was $0 and $1,594 at December 31, 1998 and 1997,
respectively.
35
<PAGE> 36
LINCOLN ELECTRIC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE F - RETIREMENT ANNUITY AND GUARANTEED CONTINUOUS EMPLOYMENT PLANS -
(Continued)
A summary of the components of total pension expense was as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Service cost - benefits earned during the year $ 13,013 $ 11,319 11,056
Interest cost on projected benefit obligation 28,180 26,906 25,727
Expected return on plan assets (34,494) (30,286) (28,232)
Amortization of transition (asset) obligation (452) (472) (255)
Amortization of prior service cost 1,123 775 2,673
Amortization of net loss (gain) 318 89 (18)
-------- -------- --------
Net pension cost of defined benefit plans 7,688 8,331 10,951
Settlement, curtailments and special termination benefits 178 393 1,876
Defined contribution plans 2,090 2,255 839
-------- -------- --------
Total pension expense $ 9,956 $ 10,979 $ 13,666
======== ======== ========
</TABLE>
Weighted average assumptions used in accounting for the defined benefit plans as
of December 31, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Discount rate 7.0% 7.2%
Rate of increase in compensation 4.9% 5.2%
Expected return on plan assets 8.9% 8.9%
</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.
NOTE G - SEGMENT INFORMATION
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 has presented all periods in these consolidated
financial statements in conformity with this statement.
36
<PAGE> 37
LINCOLN ELECTRIC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE G - SEGMENT INFORMATION - (Continued)
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. The Company manages its operations by geographic location, and
has three reportable segments: operations located in the United States, Europe
and all other foreign countries. Each operating unit is managed separately
because each faces a distinct economic environment, a different customer base,
and a varying level of competition and market sophistication. Segment
performance and resource allocation is measured based on income before interest
and income taxes. The accounting policies of the reportable segments are the
same as those described in the summary of significant accounting policies.
Financial information for the reportable segments follows:
<TABLE>
<CAPTION>
United Other
States Europe Countries Eliminations Consolidated
------ ------ --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
1998:
Net sales to unaffiliated customers $ 816,562 $ 208,782 $ 161,335 $ -- $1,186,679
Inter-segment sales 69,586 9,775 12,030 (91,391)
---------- ---------- ---------- ---------- ----------
Total $ 886,148 $ 218,557 $ 173,365 $ (91,391) $1,186,679
========== ========== ========== ========== ==========
Income before interest and income taxes $ 125,693 $ 14,935 $ 10,191 $ (2,198) $ 148,621
Interest income 4,119
Interest expense (5,676)
----------
Income before income taxes $ 147,064
==========
Total assets $ 542,462 $ 186,666 $ 119,344 $ (65,566) $ 782,906
Capital expenditures,
excluding acquisitions 52,632 11,109 19,542 (1,872) 81,411
Depreciation and amortization 18,431 6,704 3,485 (541) 28,079
1997:
Net sales to unaffiliated customers $ 799,442 $ 204,858 $ 154,767 $ -- $1,159,067
Inter-segment sales 65,812 11,475 8,033 (85,320) --
---------- ---------- ---------- ---------- ----------
Total $ 865,254 $ 216,333 $ 162,800 $ (85,320) $1,159,067
========== ========== ========== ========== ==========
Income before interest and income taxes $ 112,565 $ 10,014 $ 14,427 $ (1,374) $ 135,632
Interest income 5,877
Interest expense (6,349)
----------
Income before income taxes $ 135,160
==========
Total assets $ 489,431 $ 163,519 $ 96,850 $ (37,610) $ 712,190
Capital expenditures,
excluding acquisitions 23,632 5,264 8,418 (18) 37,296
Depreciation and amortization 18,812 7,713 2,376 (470) 28,431
</TABLE>
37
<PAGE> 38
LINCOLN ELECTRIC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE G - SEGMENT INFORMATION - (Continued)
<TABLE>
<CAPTION>
United Other
States Europe Countries Eliminations Consolidated
------ ------ --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
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
========== ========== ========== ========== ==========
Income before interest and income taxes $ 101,236 $ 10,264 $ 12,867 $ (1,605) $ 122,762
Interest income 2,832
Interest expense (7,731)
----------
Income before income taxes $ 117,863
==========
Total assets $ 416,911 $ 183,938 $ 87,808 (41,458) $ 647,199
Capital expenditures,
excluding acquisitions 25,613 6,500 3,267 (1,123) 34,257
Depreciation and amortization 20,176 7,601 2,166 (455) 29,488
</TABLE>
Intercompany sales between reportable segments 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 $92,461 in
1998, $105,464 in 1997 and $90,706 in 1996. No individual customer comprised
more than 10% of the Company's total revenues for the three years ended December
31, 1998.
The geographic split of the Company's revenues, based on customer location, and
property, plant and equipment was as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
United States $ 724,101 $ 693,979 $ 662,246
Foreign countries 462,578 465,088 446,898
----------- ----------- -----------
Total $ 1,186,679 $ 1,159,067 $ 1,109,144
=========== =========== ===========
Property, plant and equipment:
United States $ 174,188 $ 138,935 $ 132,631
Foreign countries 89,375 65,454 71,326
Eliminations (3,772) (2,354) (2,718)
----------- ----------- -----------
Total $ 259,791 $ 202,035 $ 201,239
=========== =========== ===========
</TABLE>
Revenues derived from customers and property, plant and equipment in any
individual foreign country were not material for disclosure.
NOTE H - ACQUISITIONS AND DIVESTITURES
During the first quarter of 1998 the Company's Canadian subsidiary acquired a
75% interest in Indalco Alloys, Inc. of Canada. The purchase price was not
significant. Indalco is a premier supplier of aluminum welding wire and related
products. The acquisition was accounted for as a purchase.
38
<PAGE> 39
LINCOLN ELECTRIC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE H - ACQUISITIONS AND DIVESTITURES - (Continued)
In April 1998, a German subsidiary of the Company purchased the assets and
business of Uhrhan & Schwill GmbH, located in Germany, a leader in the design
and installation of welding systems for pipe mills. The purchase price was not
significant.
In July 1998, a French subsidiary of the Company acquired a 50% equity interest
in AS Kaynak, a market leading welding products manufacturing subsidiary of
Eczacibasi Holdings, headquartered in Istanbul, Turkey. The purchase price was
not significant. The Company accounts for its investment in AS Kaynak under the
equity method. Equity earnings (losses) of this investment were not material and
are recorded under the caption Other Income in the Consolidated Statement of
Income.
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 purchase price was
not significant.
The results of operations, which were not material, of the aforementioned
acquisitions were included in the consolidated statements of income from their
respective dates of acquisition.
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 $0.10 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 year
ended December 31, 1996.
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 was $24,592 at December 31, 1998 and $26,896 at December 31,
1997, which approximated fair value.
The carrying amounts and estimated fair value of the Company's significant
financial instruments at December 31, 1998 and 1997 were as follows:
39
<PAGE> 40
LINCOLN ELECTRIC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE I - FAIR VALUES OF FINANCIAL INSTRUMENTS - (Continued)
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
-------------------------- --------------------------
Carrying Fair Carrying Fair
Amounts Value Amounts Value
------- ----- ------- -----
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 39,095 $ 39,095 $ 46,562 $ 46,562
Marketable securities 311 311 10,194 10,197
Notes payable to banks 2,792 2,792 1,968 1,968
Long-term debt (including current portion) 57,866 59,911 64,331 67,464
</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 $7,297 in 1998, $7,851 in 1997 and $8,345 in 1996.
At December 31, 1998, total minimum lease payments for noncancelable operating
leases were as follows:
<TABLE>
<S> <C>
1999 $ 6,237
2000 4,916
2001 2,525
2002 1,238
2003 813
Thereafter 712
-------
Total $16,441
=======
</TABLE>
NOTE K - CONTINGENCIES
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.
The Company is a defendant or co-defendant in ten lawsuits filed against the
Company 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 earthquake of January 1994. 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 complaints includes a fraud claim, as well as a
claim under California's Unfair Business Practices Act. The latter claim
demands, inter alia, restitution of all amounts paid by the purchasers for the
Company's E70T-4 electrode, with interest, plus a permanent injunction requiring
the Company to inspect all steel-framed buildings in "Greater Los Angeles" and
to remove and replace any E70T-4 welds.
40
<PAGE> 41
LINCOLN ELECTRIC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE K - CONTINGENCIES - (Continued)
The Company has also been a defendant or co-defendant in ten other similar cases
involving steel-framed buildings in Greater Los Angeles following the Northridge
earthquake. Five of those cases were voluntarily dismissed and the Company has
settled the five other cases.
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.
NOTE L - QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
1998 MAR 31 JUN 30 SEP 30 DEC 31
---- ------ ------ ------ ------
<S> <C> <C> <C> <C>
Net sales $302,962 $310,930 $288,106 $284,681
Gross profit 117,083 120,554 111,189 108,240
Income before income taxes 38,081 40,567 36,737 31,679
Net income 23,730 25,245 23,294 21,450
Basic earnings per share $ 0.48 $ 0.51 $ 0.47 $ 0.45
Diluted earnings per share $ 0.48 $ 0.51 $ 0.47 $ 0.44
1997 MAR 31 JUN 30 SEP 30 DEC 31
---- ------ ------ ------ ------
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 $ 0.42 $ 0.46 $ 0.44 $ 0.41
Diluted earnings per share $ 0.42 $ 0.46 $ 0.44 $ 0.41
</TABLE>
Note: The quarterly earnings per share (EPS) amounts are each calculated
independently. Therefore, the sum of the quarterly EPS amounts for 1998 do not
equal the totals for the year due to share transactions which occurred during
1998.
41
<PAGE> 42
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
LINCOLN ELECTRIC HOLDINGS, INC. 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, 1998 $3,071 $ 794 $ (12) $ 290 $3,563
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
</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.
42
<PAGE> 43
INDEX TO EXHIBITS
Exhibit No. Description
2 Agreement of Merger dated as of May 19, 1998 made by and among
Lincoln Electric Merger Co., The Lincoln Electric Company, and
Lincoln Electric Holdings, Inc. (filed as Exhibit (2) to Form
8-K of Lincoln Electric Holdings, Inc. dated June 2, 1998, SEC
File No. 0-1402 and incorporated herein by reference and made
a part hereof).
3(a) Restated Articles of Incorporation of Lincoln Electric
Holdings, Inc. (filed as Exhibit (3)(a) to Form 10-Q of Form
8-K of Lincoln Electric Holdings, Inc. dated June 2, 1998, SEC
File No. 0-1402 and incorporated herein by reference and made
a part hereof).
3(b) Code of Regulations of Lincoln Electric Holdings, Inc. (filed
as Exhibit (3)(b) to Form 8-K of Lincoln Electric Holdings,
Inc. dated June 2, 1998, SEC File No. 0-1402 and incorporated
herein by reference and made a part hereof).
10(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), as
amended by letter dated November 11, 1998 filed herewith.
10(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); as amended by Amendment No. 2 dated
May 8, 1998; and as further amended by Amendment No. 3 dated
October 23, 1998 filed herewith.
<PAGE> 44
Exhibit No. Description
10(c) Lincoln Electric Holdings, Inc. 1998 Stock Option Plan (filed
as Annex F to the Registration Statement on Form S-4 of
Lincoln Electric Holdings, Inc., Registration No. 333-50435,
incorporated herein by reference and made a part hereof).
10(d) 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) as
adopted and amended by Lincoln Electric Holdings, Inc.
pursuant to an Instrument of Adoption and Amendment dated
December 29, 1998 filed herewith.
10(e) 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(f) 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(g) 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); as amended by Amendment No. 4 dated as of
January 1, 1998; and as further amended by Amendment No. 5
dated as of January 1, 1998 filed herewith.
10(h) 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(i) Description of Long Term Performance Plan (filed as Exhibit
10(f) to Form 10-K of The Lincoln Electric Company for the
year ended December 31, 1997, SEC File No. 0-1402 and
incorporated herein by reference and made a part hereof).
10(j) 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) as adopted by Lincoln Electric Holdings, Inc. pursuant
to an Instrument of Adoption dated December 29, 1998 filed
herewith.
10(k) 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) as amended by Amendment No. 1 dated as of
December 29, 1998 filed herewith.
10(l) Summary of Employment Agreements filed herewith.
<PAGE> 45
Exhibit No. Description
10(m) The Lincoln Electric Company Executive Benefit Plan (filed as
Exhibit 10(l) 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(n) Form of Severance Agreement (as entered into by the Company
and the following executive officers: Mssrs. Massaro, Stropki,
Elliott, Stueber and Vogt) (filed as Exhibit 10 to Form 10-Q
of Lincoln Electric Holdings, Inc. for the nine months ended
September 30, 1998, SEC File No. 0-1402 and incorporated
herein by reference and made a part hereof).
21 Subsidiaries of the Registrant.
23 Consent of Independent Auditors.
24 Powers of Attorney
27 Financial Data Schedule.
<PAGE> 1
Exhibit 10(a)
[PRUDENTIAL LOGO] P. Scott von Fischer, CFA
Senior Vice President
Corporate Finance
Prudential Capital Group
Two Prudential Plaza, Suite 5600, Chicago IL 60601-6716
Tel 312 540-4225 Fax 312 540-4222
[email protected]
November 11, 1998
The Lincoln Electric Company
22801 St. Clair Avenue
Cleveland, Ohio 44117
Attention: Chief Financial Officer
Re: Amendment to Note Agreement
Ladies and Gentlemen:
Reference is made to that certain Note Agreement dated November 20,
1991 (as amended from time to time, the "Note Agreement") between The Lincoln
Electric Company, an Ohio corporation (the "Company"), and The Prudential
Insurance Company of America ("Prudential"), pursuant to which the Company
issued and sold and Prudential purchased the Company's 8.73% senior note in the
original principal amount of $75,000,000, due November 26, 2003 (the "Note").
Unless otherwise defined herein, capitalized terms used herein shall have the
meanings assigned to such terms in the Note Agreement.
The Company has advised Prudential that the Company and the Company's
sole shareholder, Lincoln Electric Holdings, Inc. ("Holdings"), intend to
consummate a reorganization of the corporate structure of the Company and its
Subsidiaries (the "Reorganization") substantially on the terms described in the
Proxy Statement/Prospectus of the Company dated April 20, 1998, as in effect on
such date, and in the supplemental materials provided by the Company to
Prudential prior to the Amendment Effective Date (as defined in Section 4
hereof) related thereto (collectively, the "Reorganization Documents").
Pursuant to the Reorganization, the Company may transfer to Holdings
and/or certain subsidiaries of Holdings (other than Subsidiaries) all of the
capital stock of the subsidiaries listed on Schedule I attached hereto (the
"Disposed Subsidiaries") and all of the assets held by the Disposed
Subsidiaries, whether by asset transfer, merger, consolidation or otherwise,
substantially on the terms set forth in the Reorganization Documents.
Pursuant to the Company's request, the banks party to the Credit
Agreement are willing to permit the Reorganization upon the terms set forth in
Amendment No. 3 to Credit Agreement attached hereto as Schedule II.
<PAGE> 2
The Lincoln Electric Company
November 11, 1998
Page 2
In order to effect the Reorganization, the Company has requested that
Prudential enter into this agreement. Consequently, pursuant to the request of
the Company and in accordance with the provisions of paragraph 11C of the Note
Agreement, Prudential and the Company agree as follows:
SECTION 1. Amendment. On the Amendment Effective Date, the Note
Agreement is hereby amended as follows:
1.1 References to Bank Agreement and Credit Agreement. Paragraph 10B of
the Note Agreement is amended to delete the defined term "Bank Agreement" and
"Credit Agreement" appearing therein and to substitute therefor the following
definition:
"Bank Agreement" and "Credit Agreement" shall mean and refer
to that certain Credit Agreement dated as of December 20, 1995 among
the Company, the banks listed therein and KeyBank National Association
(f/k/a Society National Bank), as agent, as amended by Amendments No.1,
2 and 3 thereto as in effect on the date of the effectiveness of the
amendment to this Agreement dated November 11, 1998.
1.2 Consent to Amendment. Prudential hereby expressly consents to the
Amendment No. 3 to Credit Agreement in the form attached as Schedule II hereto.
1.3 Addendum to Exhibit E. The Note Agreement is hereby amended to add
to Exhibit E attached thereto Amendment No. 3 to the Credit Agreement attached
hereto as Schedule II.
SECTION 2. Effect of Changes to Credit Agreement. All references herein
to the Credit Agreement and the Company's compliance with the terms thereof as
required under the Note Agreement shall be based upon the Credit Agreement as in
effect on the Amendment Effective Date without giving effect to any other
amendment, waiver or other modification of the Credit Agreement unless the
Company shall have obtained the written consent of the Required Holder(s) to any
such amendment, waiver or modification. No termination of the Credit Agreement
in whole or in part shall affect the continued applicability of the sections of
the Credit Agreement referred to herein.
SECTION 3. Representations and Warranties. The Company hereby
represents and warrants that this letter is a legally valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms except as enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws now or hereafter in effect relating
to creditors' rights generally or general principles of equity. The Company
represents and warrants that the Reorganization Documents do not contain any
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements contained therein not misleading (any interim
financial information is subject to changes resulting from audits and year-end
adjustments).
<PAGE> 3
The Lincoln Electric Company
November 11, 1998
Page 3
SECTION 4. Conditions Precedent. This letter shall become effective
only on the first date on which all of the following conditions precedent shall
have been satisfied (the "Amendment Effective Date"):
(i) Prudential shall have received a duly executed counterpart of
this letter signed by the Company and Prudential; and
(ii) Prudential shall have received a copy of the duly executed
Amendment No. 3 to Credit Agreement which shall be in full
force and effect.
SECTION 5. Governing Law. This letter shall be governed by the internal
laws and decisions of the State of Ohio.
SECTION 6. Miscellaneous. Except as specifically set forth in this
letter, the Company's obligations under the Note Agreement and the Note are
neither altered nor amended, and all terms and conditions of the Note Agreement
and the Note remain in full force and effect. Upon the effectiveness of this
letter, each reference to the Note Agreement and the Note shall mean and be a
reference to the Note Agreement and the Note as amended by this letter. This
letter may be executed in any number of counterparts and by the parties hereto
in separate counterparts, each of which when so executed and delivered shall be
deemed to be an original, but all of which taken together shall constitute one
and the same agreement.
Sincerely,
THE PRUDENTIAL INSURANCE
COMPANY OF AMERICA
By /s/ P. Scott von Fischer
--------------------------------
Vice President
Acknowledged and Agreed:
THE LINCOLN ELECTRIC COMPANY
By: A.A. Massaro
-------------------------
Its Chairman and CEO
By: H. Jay Elliot
-------------------------
Its: Senior Vice President,
Chief Financial Officer
and Treasurer
<PAGE> 4
SCHEDULE I
DISPOSED SUBSIDIARIES
Lincoln Electric International Holding Co.
ASIA
Nippon Lincoln Electric K.K.
Lincoln Electric Asia Pacific Pte. Ltd.
PT L.E. Dharma Indonesia
Lincoln Electric Shanghai Holdings Pte. Ltd.
PT L.E. Austenite Indonesia
LE (Shanghai) Welding Co. Ltd.
Lincoln Electric Philippines Inc.
AUSTRALIA
The Lincoln Electric Company (Australia) Pty. Ltd.
The Lincoln Electric Company (New Zealand) Limited
Liquidarc Pty. Limited
EUROPE
Harris Calorific GmbH
Harris Calorific Limited
Harris Calorific SRL
Lincoln Electric Europe, Ltd (to be liquidated)
Lincoln Electric France SA
Lincoln Electric Italia SRL
Lincoln Electric (U.K.) Ltd
Lincoln KD S.A.
Lincoln Electric Norge AS
Lincoln Electric Europe BV
Lincoln Smitweld Belgium SA
Lincoln Smitweld BV
Lincoln Smitweld GmbH
Lincoln Electric Sverige AB
Sacit SRL
<PAGE> 5
Lincoln Electric Company BV (to be liquidated)
Lincoln Electric Company GmbH (to be liquidated)
Askaynek (Turkey)
LATIN AMERICA
Champion Internacional S.A. de C.V.
Hirax Participacoes Ltda (to be liquidated)
Lincoln Electric do Brasil Ltda.
Lincoln do Brasil Industries E Comercio Ltda (to be liquidated)
Lincoln Electric Mexicana, S.A. de C.V.
Gardell Corporation (to be liquidated)
NORTH AMERICA
Harris Calorific Division ("Harris")
Lincoln Electric Company of Canada Limited ("Lincoln Canada")
Seal-Seat Division Assets ("Seal Seat")
Lincoln Venezuela Inc. (to be liquidated)
Lincoln Electric GmbH Inc. (to be liquidated)
Indalco Alloy
OTHERS
Any Subsidiaries (other than any Subsidiaries listed above (the "Listed
Subsidiaries")) existing on the date (the "Amendment Date") of effectiveness of
Amendment No. 3 to the Credit Agreement dated as of October 23, 1998 among the
Company, the Banks and the Agent which, in the aggregate, do not, and would not,
constitute a "Significant Subsidiary" and (ii) any Subsidiary created after the
Amendment Date to facilitate the consummation of the Reorganization (but only so
long as the Company and its Subsidiaries transfer no assets (other than the
assets held by any Listed Subsidiary) to any such Subsidiary), including any
such Subsidiary to which all the welding technology held by the Company, Harris
and Seal Seat, along with the names "Lincoln", "Harris" and "Seal Seat", may
be transferred.
<PAGE> 6
SCHEDULE II
[EXECUTION COPY]
AMENDMENT NO. 3 TO CREDIT AGREEMENT
AMENDMENT dated as of October 23, 1998 (this "Amendment") among THE
LINCOLN ELECTRIC COMPANY (the "Company"), the BANKS listed on the signature
pages hereof (the "Banks") and KEYBANK NATIONAL ASSOCIATION, as Agent (the
"Agent").
WITNESSETH:
WHEREAS, the parties hereto have heretofore entered into a Credit
Agreement dated as of December 20, 1995 (as amended from time to time, the
"Credit Agreement"); and
WHEREAS, Lincoln Electric Holdings, Inc. ("Holdings") and the Company
intend to consummate a reorganization of the corporate structure of the Company
and its Subsidiaries (the "Reorganization") substantially on the terms described
in the Proxy Statement/Prospectus of the Company dated April 20, 1998, as in
effect on such date, and in the supplemental materials provided by the Company
to the Banks prior to the Amendment Effective Date (as defined in Section 8
hereof) related thereto (collectively, the "Reorganization Documents"); and
WHEREAS, pursuant to the Reorganization, the Company may transfer to
Holdings and/or to certain subsidiaries of Holdings (other than Subsidiaries)
all of the capital stock of the Subsidiaries listed on Schedule I hereto (the
"Disposed Subsidiaries") and all of the assets held by the Disposed
Subsidiaries, whether by asset transfer, merger, consolidation or otherwise,
substantially on the terms set forth in the Reorganization Documents; and
WHEREAS, the parties hereto desire to amend the Credit Agreement as set
forth below to permit such transfers;
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. Definitions; References. Unless otherwise specifically
defined herein, each term used herein which is defined in the Credit Agreement
shall have the meaning assigned to such term in the Credit Agreement. Each
reference to "hereof", "hereunder", "herein" and "hereby" and each other similar
reference and each reference to "this Credit Agreement" and each other similar
reference
<PAGE> 7
contained in the Credit Agreement shall from and after the Amendment Effective
Date refer to the Credit Agreement as amended hereby.
SECTION 2. Additional Definitions. New definitions of "Disposed
Subsidiaries", "Reorganization" and "Reorganization Documents" are added in
alphabetical order in Section 1.01 of the Credit Agreement, to read in their
entirety as follows:
"Disposed Subsidiaries" means the Subsidiaries listed on Schedule I to
this Agreement.
"Reorganization" means the reorganization of the corporate structure of
the Company and its Subsidiaries substantially on the terms set forth in the
Reorganization Documents.
"Reorganization Documents" means the Proxy Statement/Prospectus of the
Company dated April 20, 1998, as in effect on such date, and the supplemental
materials provided by the Company to the Banks prior to the date of
effectiveness of Amendment No.3 to this Agreement dated as of October 23,1998
among the Company, the Banks and the Agent.
SECTION 3. Amendment to the Conduct of Business and Maintenance of
Existence Covenant. The proviso set forth in Section 5.04 of the Credit
Agreement is hereby amended to read in its entirety as follows: "provided that
nothing in this Section 5.04 shall prohibit (i) the merger or consolidation of
any Disposed Subsidiary with or into Holdings or any of its subsidiaries (other
than the Company and its Subsidiaries) in order to consummate the
Reorganization, (ii) the merger of a Subsidiary into the Company or the merger
or consolidation of a Subsidiary with or into another Person (other than any
such merger or consolidation described in clause (i) of this proviso) if the
corporation surviving such consolidation or merger is a Subsidiary and if, in
each case, after giving effect thereto, no Default shall have occurred and be
continuing, (iii) the termination of the corporate existence of any Disposed
Subsidiary in connection with the Reorganization or (iv) the termination of the
corporate existence of any Subsidiary (other than as permitted by clause (iii)),
so long as such Subsidiary is not a Significant Subsidiary and so long as the
Company in good faith determines that such termination is in the best interest
of the Company and is not otherwise materially disadvantageous to the interests
of the Banks hereunder."
Section 4. Amendment to the Merger Covenant. Section 5.10(b) of the
Credit Agreement is hereby amended by adding the following proviso at the end of
the first sentence thereof: "provided that any Borrower may transfer any
capital stock of any Disposed Subsidiary or any assets held by any Disposed
Subsidiary to Holdings or any of its subsidiaries (other than the Company or
any of its Subsidiaries) in order to consummate the Reorganization."
2
<PAGE> 8
SECTION 5. Addition of a Schedule. A Schedule I is hereby added to the
Credit Agreement, to read in its entirety as set forth on Schedule I hereto.
SECTION 6. Licensing Agreements; No Defaults. (a) Prior to or
simultaneously with the transfer of capital stock of a Disposed Subsidiary or
the transfer of all or substantially all of the assets of a Disposed Subsidiary
to Holdings or any of its subsidiaries (other than Subsidiaries), the Company
shall have entered into such licensing agreements and other agreements relating
to the use of the assets held by such Disposed Subsidiary as may be necessary
or desirable to ensure that the consummation of the Reorganization substantially
on the terms set forth in the Reorganization Documents will not have a material
adverse effect on the business, financial position, results of operations or
prospects of the Company and its Subsidiaries (other than Disposed
Subsidiaries), considered as a whole; provided that, in any event, prior to or
simultaneously with the transfer of ownership of the name "Lincoln" to Holdings
or any of its subsidiaries (other than Subsidiaries), the Company shall have
entered into a licensing agreement or other similar agreement granting the
Company and its Subsidiaries the use of the name "Lincoln"
(b) As of the Amendment Effective Date, no Default has occurred and is
continuing.
SECTION 7. Governing Law. This Amendment shall be governed by and
construed in accordance with the laws of the State of New York.
SECTION 8. Counterparts; Effectiveness. This Amendment may be signed in
any number of counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Amendment shall become effective on the date (the "Amendment Effective
Date") on which each of the following conditions shall be satisfied;
(i) the Agent shall have received duly executed counterparts hereof
signed by the Company and the Required Banks (or, in the case of any party as to
which an executed counterpart shall not have been received, the Agent shall
have received telegraphic, telex or other written confirmation from such party
of execution of a counterpart hereof by such party);
(ii) the Banks shall have received the pro forma consolidated statement
of financial condition of the Company and its Consolidated Subsidiaries at
December 31, 1997 and the pro forma consolidated statement of income of the
Company and its Consolidated Subsidiaries for the fiscal year then ended, in
each case adjusted to give effect to the Reorganization as if the Reorganization
had been consummated substantially on the terms set forth in the Reorganization
Documents on December 31, 1997, in the case of such pro forma statement of
financial condition and on January 1, 1997, in the case of such pro forma
consolidated statement of income;
3
<PAGE> 9
(iii) the fact that (x) on the basis of the pro forma consolidated
statement of financial condition described in clause (ii) above, the Company is
in compliance with the financial covenant set forth in Section 5.08 of the
Credit Agreement at June 30, 1998, after giving effect to any Debt outstanding
on the Amendment Effective Date and not reflected in such statement of financial
condition and (y) on the basis of the pro forma consolidated statement of income
described in clause (ii) above, the Company is in compliance with the financial
covenant set forth in Section 5.07 of the Credit Agreement for the period of
four consecutive fiscal quarters ended June 30, 1998;
(iv) receipt by the Agent of evidence reasonably satisfactory to it
that the Company and the Prudential Insurance Company of America shall have
entered into an amendment to the Note Agreement dated as of November 1, 1991
with respect to the $75,000,000 8.73% Senior Notes Due 2003 of the Company in
form and substance reasonably satisfactory to the Agent;
(v) receipt by the Agent of a duly executed Election to Terminate with
respect to each Disposed Subsidiary that is a Borrower immediately prior to the
effectiveness of this Amendment (each, a "Disposed Borrower"); and
(vi) the fact that all Loans of each Disposed Borrower outstanding
immediately prior to the effectiveness of this Amendment shall have been repaid
in full, together with all accrued and unpaid interest thereon and all amounts
payable to any Bank with respect thereto pursuant to Section 2.12 of the Credit
Agreement.
4
<PAGE> 10
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed.
THE LINCOLN ELECTRIC COMPANY
By _________________________________
Name:
Title:
By _________________________________
Name:
Title:
KEYBANK NATIONAL ASSOCIATION
By _________________________________
Title:
MORGAN GUARANTY TRUST
COMPANY OF NEW YORK
By _________________________________
Title:
BANK ONE (formerly known as NBD
Bank)
By ________________________________
Title:
<PAGE> 11
NATIONAL CITY BANK
By ________________________________
Title:
ABN AMRO BANK N.V.
By _______________________________
Title:
By _______________________________
Title:
BANK OF AMERICA NATIONAL
TRUST AND SAVINGS
ASSOCIATION, successor by merger to
BANK OF AMERICA ILLINOIS
By _______________________________
Title:
CIBC INC.
By ________________________________
Title:
<PAGE> 12
CREDIT LYONNAIS CAYMAN
ISLAND BRANCH
By ________________________________
Title:
CREDIT LYONNAIS CHICAGO
BRANCH
By _______________________________
Title:
PNC BANK, NATIONAL ASSOCIATION
By _______________________________
Title:
<PAGE> 13
SCHEDULE I
DISPOSED SUBSIDIARIES
Lincoln Electric International Holding Co.
ASIA
Nippon Lincoln Electric K.K.
Lincoln Electric Asia Pacific Pte. Ltd.
PT L.E. Dharma Indonesia
Lincoln Electric Shanghai Holdings Pte. Ltd.
PT L.E. Austenite Indonesia
LE (Shanghai) Welding Co. Ltd.
Union Electric Philippines Inc.
AUSTRALIA
The Lincoln Electric Company (Australia) Pty. Ltd.
The Lincoln Electric Company (New Zealand) Limited
Liquidarc Pty. Limited
EUROPE
Harris Calorific GmbH
Harris Calorific Limited
Harris Calorific SRL
Lincoln Electric Europe, Ltd (to be liquidated)
Lincoln Electric France SA
Lincoln Electric Italia SPL
Lincoln Electric (U.K.) Lid
Lincoln KD S.A.
Lincoln Electric Norge AS
Lincoln Electric Europe BV
Lincoln Smitweld Belgium SA
Lincoln Smitweld BV
Lincoln Smitweld GmbH
Lincoln Electric Sverige AB
Sacit SRL
<PAGE> 14
Lincoln Electric Company BV (to be liquidated)
Lincoln Electric Company GmbH (to be liquidated)
Askaynek (Turkey)
LATIN AMERICA
Champion Internacional S.A. de C.V.
Hirax Participacoes Lida (to be liquidated)
Lincoln Electric do Brasil Ltda.
Lincoln do Brasil Industries E Comercio Ltda (to be liquidated)
Lincoln Electric Mexicana, S.A. de C.V.
Gardell Corporation (to be liquidated)
NORTH AMERICA
Harris Calorific Division ("Harris")
Lincoln Electric Company of Canada Limited ("Lincoln Canada")
Seal-Seat Division Assets ("Seal Seat")
Lincoln Venezuela Inc. (to be liquidated)
Lincoln Electric GmbH Inc. (to be liquidated)
Indalco Allop
OTHERS
Any Subsidiaries (other than any Subsidiaries listed above (the "Listed
Subsidiaries")) existing on the date (the "Amendment Date") of effectiveness of
Amendment No.3 to the Credit Agreement dated as of October 23, 1998 among the
Company, the Banks and the Agent which, in the aggregate, do not, and would not,
constitute a "Significant Subsidiary" and (ii) any Subsidiary created after the
Amendment Date to facilitate the consummation of the Reorganization (but only so
long as the Company and its Subsidiaries transfer no assets (other than the
assets held by any Listed Subsidiary) to any such Subsidiary), including any
such Subsidiary to which all the welding technology held by Lincoln, Canada,
Harris and Seal Seat, along with the names "Lincoln", "Harris" and "Seal Seat",
may be transferred.
<PAGE> 15
ANNEX A
The Reorganization
I. The Reorganization will consist of a series of corporate transactions,
occurring over time, involving:
A. transfers, by The Lincoln Electric Company (the "Company") to its
sole shareholder, Lincoln Electric Holdings, Inc. ("Holdings"),
or to one or more subsidiaries of the Company, which, as part of
the Reorganization, will become subsidiaries of Holdings, of
assets that may include:
1. all of the Company's current foreign operations, whether
operated as divisions or subsidiaries, including one or more
subsidiaries that may be a Significant Subsidiary as defined
in the Credit Agreement;
2. all of the Company's operations relating to its Harris
business;
3. all of the Company's existing welding technology and the
name "Lincoln," other than rights granted to the Company
through an exclusive, perpetual and royalty-bearing license
of such technology and name in connection with the
Company's domestic welding business;
4. all of the Company's rights to future welding technology
research and developments, which will be licensed to the
Company on a royalty-bearing basis; and
5. all existing license arrangements with international
subsidiaries involving foreign technology or trademarks.
B. reorganizations of the Company's international holding company
subsidiaries and other subsidiaries that may include mergers or
dissolutions of subsidiaries, possibly including Significant
Subsidiaries, that may occur prior to or concurrent with the
transfers described in I.A.
<PAGE> 1
EXHIBIT 10(b)
AMENDMENT NO.2 TO CREDIT AGREEMENT
AMENDMENT dated as of May 8, 1998 (this "Amendment") among THE
LINCOLN ELECTRIC COMPANY (the "Company"), the BANKS listed on the signature
pages hereof (the "Banks") and KEYBANK NATIONAL ASSOCIATION, as Agent (the
"Agent").
WITNESSETH:
WHEREAS, the parties hereto have heretofore entered into a Credit
Agreement dated as of December 20, 1995 (as heretofore amended, the "Credit
Agreement"); and
WHEREAS, the Company intends to enter into a Merger Agreement (the
"Merger Agreement") with Lincoln Electric Merger Co., an Ohio corporation
("Merger Co.") and Lincoln Electric Holdings, Inc., an Ohio corporation
("Holdings"); and
WHEREAS, pursuant to such Merger Agreement, Merger Co. will merge with
and into the Company, with the Company as the survivor to such merger (the
"Merger");
WHEREAS, the parties hereto desire to amend the Credit Agreement as set
forth below to permit the consummation of the Merger;
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. Definitions; References. Unless otherwise specifically
defined herein, each term used herein which is defined in the Credit Agreement
shall have the meaning assigned to such term in the Credit Agreement. Each
reference to "hereof", "hereunder", "herein" and "hereby" and each other similar
reference and each reference to "this Agreement" and each other similar
reference contained in the Credit Agreement shall from and after the date hereof
refer to the Credit Agreement as amended hereby.
SECTION 2. Additional Definitions. New definitions of "Holdings",
"Merger", "Merger Agreement", "Merger Co." and "Merger Date" are added in
alphabetical order in Section 1.01 of the Credit Agreement, to read in their
entirety as follows:
"Holdings" means Lincoln Electric Holdings, Inc., an Ohio corporation,
and its successors.
<PAGE> 2
"Merger" means the merger of Merger Co. with and into the Company on
the terms set forth in the Merger Agreement.
"Merger Agreement" means a Merger Agreement to be entered into among
the Company, Holdings and Merger Co. substantially in the form provided by the
Company to the Banks prior to the effectiveness of Amendment No.2 to this
Agreement dated as of May 8, 1998 among the Company and the Banks, as such
Merger Agreement may be amended or waived from time to time with the prior
written consent of the Required Banks.
"Merger Co." means Lincoln Electric Merger Co., an Ohio corporation.
"Merger Date" means the date of consummation of the Merger on the terms
set forth in the Merger Agreement.
SECTION 3. Amendment to the Change of Control Event of Default. Section
6.01(k) of the Credit Agreement is amended to read in its entirety as follows:
"(k) (A) any person or group of persons (within the meaning of Section
13 or 14 of the Securities Exchange Act of 1934, as amended) shall have acquired
(i) prior to the Merger Date, beneficial ownership (within the meaning of Rule
13d-3 promulgated by the Securities and Exchange Commission under said Act) of
30% or more of the outstanding capital stock of the Company having voting power
in the general election of directors or (ii) on or after the Merger Date,
beneficial ownership of 30% (within the meaning of Rule 13d-3 promulgated by the
Securities and Exchange Commission under said Act) or more of the outstanding
capital stock of Holdings having voting power in the general election of
directors, but excluding (x) in the case of clauses (i) and (ii), any Person or
group of Persons who are officers, directors or employees of the Company or any
Subsidiary as of the date hereof or are related by blood or marriage to the
descendants of James F. or John C. Lincoln, and any trusts or similar
arrangements for any of the foregoing and any foundations established by any of
the foregoing and (y) in the case of clause (ii), pursuant to the Merger or (B)
at any time after the Merger Date, Holdings shall cease to own 100% of the
capital stock of the Company;"
SECTION 4. Governing Law. This Amendment shall be governed by and
construed in accordance with the laws of the State of New York.
SECTION 5. Counterparts; Effectiveness. This Amendment may be signed in
any number of counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Amendment shall become effective as of the date hereof when the Agent shall
have received duly executed counterparts hereof signed by the Company and the
Required Banks (or, in the case of any party as to which an executed counterpart
shall not have been received, the Agent shall have received telegraphic, telex
or other written confirmation from such party of execution of a counterpart
hereof by such party).
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed as of the date first above written.
THE LINCOLN ELECTRIC COMPANY
By /s/ H. Jay Elliott
--------------------------------
Name:
Title:
KEYBANK NATIONAL ASSOCIATION
By /s/
---------------------------------
Title: Vice President
MORGAN GUARANTY TRUST
COMPANY OF NEW YORK
By
---------------------------------
Title:
NBD BANK
By
---------------------------------
Title:
NATIONAL CITY BANK
By
---------------------------------
Title:
<PAGE> 4
ABN AMRO BANK N.V.
By /s/ Roy D. Hasbrook
---------------------------------
Title: Roy D. Hasbrook
Group Vice President and
Director
By /s/ Louis K. McLinden, Jr.
---------------------------------
Title: Louis K. McLinden, Jr.
Vice President
BANK OF AMERICA NATIONAL
TRUST AND SAVINGS
ASSOCIATION, successor by merger to
BANK OF AMERICA ILLINOIS
By
---------------------------------
Title:
CIBC INC.
By
---------------------------------
Title:
<PAGE> 5
CREDIT LYONNAIS CAYMAN
ISLAND BRANCH
By
---------------------------------
Title:
CREDIT LYONNAIS CHICAGO
BRANCH
BY /s/ Lee E. Greve
---------------------------------
Title: LEE E. GREVE
FIRST VICE PRESIDENT
PNC BANK, NATIONAL ASSOCIATION
By
--------------------------------
Title:
<PAGE> 6
[EXECUTION COPY]
AMENDMENT NO. 3 TO CREDIT AGREEMENT
AMENDMENT dated as of October 23, 1998 (this "Amendment") among THE
LINCOLN ELECTRIC COMPANY (the "Company"), the BANKS listed on the signature
pages hereof (the "Banks") and KEYBANK NATIONAL ASSOCIATION, as Agent (the
"Agent").
WITNESSETH:
WHEREAS, the parties hereto have heretofore entered into a Credit
Agreement dated as of December 20, 1995 (as amended from time to time, the
"Credit Agreement"); and
WHEREAS, Lincoln Electric Holdings, Inc. ("Holdings") and the Company
intend to consummate a reorganization of the corporate structure of the Company
and its Subsidiaries (the "Reorganization") substantially on the terms described
in the Proxy Statement/Prospectus of the Company dated April 20, 1998, as in
effect on such date, and in the supplemental materials provided by the Company
to the Banks prior to the Amendment Effective Date (as defined in Section 8
hereof) related thereto (collectively, the "Reorganization Documents"); and
WHEREAS, pursuant to the Reorganization, the Company may transfer to
Holdings and/or to certain subsidiaries of Holdings (other than Subsidiaries)
all of the capital stock of the Subsidiaries listed on Schedule I hereto (the
"Disposed Subsidiaries") and all of the assets held by the Disposed
Subsidiaries, whether by asset transfer, merger, consolidation or otherwise,
substantially on the terms set forth in the Reorganization Documents; and
WHEREAS, the parties hereto desire to amend the Credit Agreement as set
forth below to permit such transfers;
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. Definitions; Reference. Unless otherwise specifically
defined herein, each term used herein which is defined in the Credit Agreement
shall have the meaning assigned to such term in the Credit Agreement Each
reference to "hereof", "hereunder", "herein" and "hereby" and each other
similar reference and each reference to "this Credit Agreement" and each other
similar reference contained in the Credit Agreement shall from and after the
Amendment Effective Date refer to the Credit Agreement as amended hereby.
<PAGE> 7
SECTION 2. Additional Definitions. New definitions of "Disposed
Subsidiaries", "Reorganization" and "Reorganization Documents" are added in
alphabetical order in Section 1.Ol of the Credit Agreement, to read in their
entirety as follows:
"Disposed Subsidiaries" means the Subsidiaries listed on Schedule I to
this Agreement.
"Reorganization" means the reorganization of the corporate structure of
the Company and its Subsidiaries substantially on the terms set forth in the
Reorganization Documents.
"Reorganization Documents" means the Proxy Statement/Prospectus of the
Company dated April 20, 1998, as in effect on such date, and the supplemental
materials provided by the Company to the Banks prior to the date of
effectiveness of Amendment NOT 3 to this Agreement dated as of October 23, 1998
among the Company, the Banks and the Agent.
SECTION 3. Amendment to the Conduct of Business and Maintenance of
Existence Covenant. The proviso set forth in Section 5.04 of the Credit
Agreement is hereby amended to read in its entirety as follows: ";provided that
nothing in this Section 5.04 shall prohibit (i) the merger or consolidation of
any Disposed Subsidiary with or into Holdings or any of its subsidiaries (other
than the Company and its Subsidiaries) in order to consummate the
Reorganization, (ii) the merger of a Subsidiary into the Company or the merger
or consolidation of a Subsidiary with or into another Person (other than any
such merger or consolidation described in clause (i) of this proviso) if the
corporation surviving such consolidation or merger is a Subsidiary and if in
each case, after giving effect thereto, no Default shall have occurred and be
continuing, (iii) the termination of the corporate existence of any Disposed
Subsidiary in connection with the Reorganization or (iv) the termination of the
corporate existence of any Subsidiary (other than as permitted by clause (iii)),
so long as such Subsidiary is not a Significant Subsidiary and so long as the
Company in good faith determines that such termination is in the best interest
of the Company and is not otherwise materially disadvantageous to the interests
of the Banks hereunder."
Section 4. Amendment to the Merger Covenant. Section 5.10(b) of the
Credit Agreement is hereby amended by adding the following proviso at the end of
the first sentence thereof: ";provided that any Borrower may transfer any
capital stock of any Disposed Subsidiary or any assets held by any Disposed
Subsidiary to Holdings or any of its subsidiaries (other than the Company or any
of its Subsidiaries) in order to consummate the Reorganization."
SECTION 5. Addition of a Schedule. A Schedule I is hereby added to the
Credit Agreement, to read in its entirety as set forth on Schedule I hereto.
SECTION 6. Licensing Agreements; No Defaults. (a) Prior to or
simultaneously with the transfer of capital stock of a Disposed Subsidiary or
the transfer of all or substantially all of the assets of a Disposed Subsidiary
to Holdings
2
<PAGE> 8
or any of its subsidiaries (other than Subsidiaries), the Company shall have
entered into such licensing agreements and other agreements relating to the use
of the assets held by such Disposed Subsidiary as may be necessary or desirable
to ensure that the consummation of the Reorganization substantially on the terms
set forth in the Reorganization Documents will not have a material adverse
effect on the business, financial position, results of operations or prospects
of the Company and its Subsidiaries (other than Disposed Subsidiaries),
considered as a whole; provided that, in any event, prior to or simultaneously
with the transfer of ownership of the name "Lincoln" to Holdings or any of its
subsidiaries (other than Subsidiaries), the Company shall have entered into a
licensing agreement or other similar agreement granting the Company and its
Subsidiaries the use of the name "Lincoln".
(b) As of the Amendment Effective Date, no Default has occurred and is
continuing.
SECTION 7. Governing Law. This Amendment shall be governed by and
construed in accordance with the laws of the State of New York.
SECTION 8. Counterparts; Effectiveness This Amendment may be signed in
any number of counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Amendment shall become effective on the date (the "Amendment Effective
Date") on which each of the following conditions shall be satisfied:
(i) the Agent shall have received duly executed counterparts hereof
signed by the Company and the Required Banks (or, in the case of any party as to
which an executed counterpart shall not have been received, the Agent shall have
received telegraphic, telex or other written confirmation from such party of
execution of a counterpart hereof by such party);
(ii) the Banks shall have received the pro forma consolidated statement
of financial condition of the Company and its Consolidated Subsidiaries at
December 31, 1997 and the pro forma consolidated statement of income of the
Company and its Consolidated Subsidiaries for the fiscal year then ended, in
each case adjusted to give effect to the Reorganization as if the Reorganization
had been consummated substantially on the terms set forth in the Reorganization
Documents on December 31, 1997, in the case of such pro forma statement of
financial condition and on January 1, 1997, in the case of such pro forma
consolidated statement of income;
(iii) the fact that (x) on the basis of the pro forma consolidated
statement of financial condition described in clause (ii) above, the Company is
in compliance with the financial covenant set forth in Section 5.08 of the
Credit Agreement at June 30, 1998, after giving effect to any Debt outstanding
on the Amendment Effective Date and not reflected in such statement of financial
condition and(y) on the basis of the pro forma consolidated statement of income
described in clause (ii) above, the Company is in compliance with the financial
covenant set forth in
3
<PAGE> 9
Section 5.07 of the Credit Agreement for the period of four consecutive fiscal
quarters ended June 30, 1998;
(iv) receipt by the Agent of evidence reasonably satisfactory to it
that the Company and the Prudential Insurance Company of America shall have
entered into an amendment to the Note Agreement dated as of November 1, 1991
with respect to the $75,000,000 8.73% Senior Notes Due 2003 of the Company in
form and substance reasonably satisfactory to the Agent;
(v) receipt by the Agent of a duly executed Election to Terminate with
respect to each Disposed Subsidiary that is a Borrower immediately prior to the
effectiveness of this Amendment (each, a "Disposed Borrower"); and
(vi) the fact that all Loans of each Disposed Borrower outstanding
immediately prior to the effectiveness of this Amendment shall have been repaid
in full, together with all accrued and unpaid interest thereon and all amounts
payable to any Bank with respect thereto pursuant to Section 2.12 of the Credit
Agreement.
4
<PAGE> 10
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed.
THE LINCOLN ELECTRIC COMPANY
By /s/ A. A. Massaro
----------------------------------
Name: A. A. Massaro
Title: Chairman and CEO
By /s/ H. Jay Elliott
----------------------------------
Name: H. Jay Elliott
Senior Vice President
Title: Chief Financial Officer and Treasurer
KEYBANK NATIONAL ASSOCIATION
By
------------------------------------
Title:
MORGAN GUARANTY TRUST
COMPANY OF NEW YORK
By
------------------------------------
Title:
BANK ONE (formerly known as NBD
Bank)
By
------------------------------------
Title:
<PAGE> 11
NATIONAL CITY BANK
By /s/
---------------------------------
Title:
ABN AMRO BANK N.V.
By
---------------------------------
Title:
By
---------------------------------
Title:
BANK OF AMERICA NATIONAL
TRUST AND SAVINGS
ASSOCIATION, successor by merger to
BANK OF AMERICA ILLINOIS
By
---------------------------------
Title:
CIBC INC.
By
---------------------------------
Title:
<PAGE> 12
CREDIT LYONNAIS CAYMAN
ISLAND BRANCH
By
------------------------------
Title:
CREDIT LYONNAIS CHICAGO
BRANCH
By
------------------------------
Title:
PNC BANK, NATIONAL ASSOCIATION
By /s/
------------------------------
Title:
<PAGE> 13
SCHEDULE I
DISPOSED SUBSIDIARIES
Lincoln Electric International Holding Co.
ASIA
Nippon Lincoln Electric K.K.
Lincoln Electric Asia Pacific Pte. Ltd.
PT L.E. Dharma Indonesia
Lincoln Electric Shanghai Holdings Pte. Ltd.
PT L.E. Austenite Indonesia
LE (Shanghai) Welding Co. Ltd.
Lincoln Electric Philippines Inc.
AUSTRALIA
The Lincoln Electric Company (Australia) Pty. Ltd.
The Lincoln Electric Company (New Zealand) Limited
Liquidarc Pty. Limited
EUROPE
Harris Calorific GmbH
Harris Calorific Limited
Harris Calorific SRL
Lincoln Electric Europe, Ltd (to be liquidated)
Lincoln Electric France SA
Lincoln Electric Italia SRL
Lincoln Electric (U.K.) Ltd
Lincoln KD S.A.
Lincoln Electric Norge AS
Lincoln Electric Europe BV
Lincoln Smitweld Belgium SA
Lincoln Smitweld BV
Lincoln Smitweld GmbH
Lincoln Electric Sverige AB
Sacit SRL
Lincoln Electric Company BV (to be liquidated)
<PAGE> 14
Lincoln Electric Company GmbH (to be liquidated)
Askaynek (Turkey)
LATIN AMERICA
Champion Internacional S.A. de C.V.
Hirax Participacoes Ltda (to be liquidated)
Lincoln Electric do Brasil Ltda.
Lincoln do Brasil Industries E Comercio Ltda (to be liquidated)
Lincoln Electric Mexicana, S.A. de C.V.
Gardell Corporation (to be liquidated)
NORTH AMERICA
Harris Calorific Division ("Harris")
Lincoln Electric Company of Canada Limited ("Lincoln Canada")
Seal-Seat Division Assets ("Seal Seat")
Lincoln Venezuela Inc. (to be liquidated)
Lincoln Electric GmbH Inc. (to be liquidated)
Indalco Alloy
OTHERS
Any Subsidiaries (other than any Subsidiaries listed above (the "Listed
Subsidiaries")) existing on the date (the "Amendment Date") of effectiveness of
Amendment No.3 to the Credit Agreement dated as of October 23, 1998 among the
Company, the Banks and the Agent which, in the aggregate, do not, and would not,
constitute a "Significant Subsidiary" and (ii) any Subsidiary created after the
Amendment Date to facilitate the consummation of the Reorganization (but only so
long as the Company and its Subsidiaries transfer no assets (other than the
assets held by any Listed Subsidiary) to any such Subsidiary), including any
such Subsidiary to which all the welding technology held by the Company, Harris
and Seal Seat, along with the names "Lincoln", "Harris" and "Seal Seat", may be
transferred.
<PAGE> 1
EXHIBIT 10(d)
INSTRUMENT OF ADOPTION AND AMENDMENT
OF
THE LINCOLN ELECTRIC COMPANY 1988 INCENTIVE EQUITY PLAN
WHEREAS, The Lincoln Electric Company (the "Company") has previously
adopted The Lincoln Electric Company 1988 Incentive Equity Plan (the "Plan");
WHEREAS, pursuant to the terms of the Plan, no Stock Option, Stock
Appreciation Right, Restricted Stock or Deferred Stock can be issued after May
1, 1998;
WHEREAS, certain Stock Options, Stock Appreciation Rights, Restricted
Stock and Deferred Stock are currently outstanding;
WHEREAS, pursuant to an Agreement of Merger dated May 19, 1998 by and
among Lincoln Electric Merger Co., The Lincoln Electric Company and Lincoln
Electric Holdings, Inc. (the "Agreement"), effective as of June 2, 1998, the
Company became a wholly owned subsidiary of Lincoln Electric Holdings, Inc.
("Holdings");
WHEREAS, pursuant to the Agreement all of the Common Shares (as defined
in the Agreement) and Class A Common Shares (as defined in the Agreement) of the
Company were converted into two Holding Common Shares (as defined in the
Agreement);
WHEREAS, pursuant to the Agreement, Holdings shall assume the Plan,
including all obligations associated with any valid Options (as defined in the
Agreement) to purchase or right to receive under restricted stock awards Common
Shares or Class A Common Shares of the Company under the Plan and each such
Option to purchase such Common Shares shall be the valid and enforceable option
to purchase twice such number of Holding Common Shares (as defined in the
Agreement) (instead of such Common Shares) at a purchase price per Holding
Common Share equal to one-half the purchase price per such Common Share; and
NOW THEREFORE, pursuant to the Agreement, Holdings hereby adopts The
Lincoln Electric Company 1988 Incentive Equity Plan, effective as of June 2,
1998, for the purposes of assuming the obligations of the Company thereunder and
administering those Stock Options, Stock Appreciation Rights, Restricted Stock
and Deferred Stock that remain outstanding as of June 2, 1998, and the Plan is
hereby amended as follows:
1. Section 2 of the Plan is amended to add the following new
definition:
"'Holdings' means Lincoln Electric Holdings, Inc., a
corporation organized under the laws of the state of Ohio, or
a successor corporation."
<PAGE> 2
2. All references in the Plan to "the Company", except for such
references in subsections (x) and (xiv) of Section 2 of the Plan and in Section
12 of the Plan, are deleted and the term "Holdings" is substituted for each such
reference.
3. In accordance with the Agreement, and pursuant to Section 5 of
the Plan, the number of shares of Stock of the Company subject to outstanding
options or other outstanding awards granted under the Plan immediately before
June 2, 1998 shall on June 2, 1998 be equal to twice the number of shares of
Stock of Holdings and the purchase price for such shares of Stock of Holdings
shall on June 2, 1998 be equal to one-half the purchase price for such shares of
Stock of the Company immediately before June 2, 1998.
EXECUTED this 27th day of December, 1998.
LINCOLN ELECTRIC HOLDINGS, INC.
By: /s/ Frederick G. Stueber
--------------------------------
Title: FREDERICK G. STUEBER
Senior Vice President,
General Counsel
and Secretary
<PAGE> 1
EXHIBIT 10(g)
AMENDMENT NO. 4
TO THE LINCOLN ELECTRIC COMPANY
DEFERRED COMPENSATION PLAN
The Lincoln Electric Company Deferred Compensation Plan,
effective as of November 15, 1994, is hereby amended, pursuant to Section 7.3
thereof, as follows:
1. A new Section 6.8 is added to the Plan to read as follows:
Section 6.8 Special Distributions. Notwithstanding any other
provision of this Article VI, a Participant, whether or not currently receiving
a distribution, may elect to receive a lump sum distribution of the remaining
balance of his Account if (and only if) the amount in such Account subject to
such distribution is reduced by ten percent (10%). Any distribution made
pursuant to such an election shall be made within 30 days of the date such
election is submitted to the Administrator. The remaining ten percent (10%) of
the electing Participant's Account subject to such distribution shall be
forfeited.
2. A new Section 6.9 is added to the Plan to read as follows:
Section 6.9 Coordination with Other Benefits. Except as
provided in Section 6.10, 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 of
the Corporation. The Plan shall supplement and shall not supersede, modify or
amend any other such plan or program except as may otherwise be expressly
provided.
3. A new Section 6.10 is added to the Plan to read as follows:
Section 6.10 Offset. In the event a Participant receives or
becomes entitled to receive a benefit under The Lincoln Electric Company
Executive Benefit Plan, as it may be amended from time to time ("EBP"), the
benefits to be received under this Plan shall be offset and reduced dollar for
dollar (but not below zero) by the benefits paid under the EBP. In determining
the amount that should offset and reduce benefits under this Plan, the
Participant's (or Beneficiary's) Account hereunder at the time of distribution
commencement shall be reduced by an amount equal to the amount paid or to be
paid under the EBP increased by earnings on such amount, if any, accruing from
the time of distribution from the EBP through the time of the commencement of
distribution hereunder at an earnings rate corresponding to one-half of the
Moody's Corporate Average Bond Yield adjusted on the first business day of each
January, April, July and October.
<PAGE> 2
IN WITNESS WHEREOF, The Lincoln Electric Company has caused
this instrument to be executed in its name by its duly authorized officer
effective as of January 1, 1998.
THE LINCOLN ELECTRIC COMPANY
By: /s/ Frederick G. Stueber
-------------------------------
Its: FREDERICK G. STUEBER
Senior Vice President,
General Counsel
and Secretary
ATTEST
/s/ Gretchen Farrell
- -----------------------------
<PAGE> 3
AMENDMENT NO. 5 TO THE LINCOLN ELECTRIC COMPANY
DEFERRED COMPENSATION PLAN
The Lincoln Electric Company Deferred Compensation Plan,
effective as of November 15, 1994, is hereby amended pursuant to Section 7.3
thereof as follows:
1. Section 2.l(aa) is Amended to read as follows:
(aa) "Settlement Date": The date on which a
Participant terminates employment with the
Corporation. Leaves of absence granted by the
Corporation will not be considered as termination of
employment during the term of such leave. Settlement
Date shall also include (I) with respect to any
Deferral Period, a date selected by a Participant
pursuant to Section 6.3 for distribution of the
amounts deferred during such Deferral Period, and
(II) a date selected by the Participant pursuant to
Section 6.4 which is subsequent to his or her
Retirement and before the date the Participant
attains age sixty-five."
2. Section 3.3 is amended to read as follows:
Section 3.3. Amount of Deferral. With respect to each Plan
Year, a Participant may elect to defer a specified dollar amount or percentage
of his or her Compensation, provided the amount the Participant elects to defer
under this Plan and the Corporation's Employee Savings Plan shall not exceed the
sum of 75% of his or her Base Salary plus 100% of his or her Bonus with respect
to such Plan Year. A Participant may choose to have amounts deferred under this
Plan deducted from his or her Base Salary, Bonus or a combination of both. For
the first Plan Year, a Participant may elect to defer all or any portion of his
or her Base Salary and/or Bonus earned or payable after the later of the
effective date of the Participation Agreement or the date of filing the
Participation Agreement with the Administrator, provided the total deferred
amount for such Plan Year does not exceed the annual limitations under this
Section 3.3 computed for the calendar year. A Participant may change the dollar
amount or percentage of his or her Compensation to be deferred by filing a
written notice thereof with the Administrator. Any such change shall be
effective as of the first day of the Plan Year immediately succeeding the Plan
Year in which such notice is filed with the Administrator. Notwithstanding the
foregoing, any Employment Agreement Contribution shall be deferred in accordance
with the terms of the Employment Agreement.
<PAGE> 4
3. Section 6.3 is amended to read as follows:
Section 6.3. In-Service Distribution. A Participant may elect to
receive an in-service distribution of his or her deferred Compensation for any
Deferral Period in a single lump sum payment on a date which is at least two
years after the end of such Deferral Period. A Participant's election of an
in-service distribution shall be filed in writing with the Administrator at the
same time as is filed his election to participate as provided in Section 3.1.
Any benefits paid to the Participant as an in-service distribution shall reduce
the Participant's Account.
4. Section 6.4 is amended to read as follows:
Section 6.4. Form of Distribution. As soon as practicable after the end
of the Accounting Period in which a Participant's Settlement Date occurs, but in
no event later than thirty days following the end of such Accounting Period, the
Corporation shall commence distribution or cause distribution to be commenced,
to the Participant or, in the event of his death, to his Beneficiary, of the
balance of the Participant's Account, as determined under Section 6.2, under one
of the forms provided in this Section. Notwithstanding the foregoing, if elected
by the Participant, the distribution of the balance of the Participant's Account
may commence on a date between a Settlement Date following his or her Retirement
and the date the Participant attains age sixty-five. Anything in this Plan to
the contrary notwithstanding, if a Participant terminates employment with the
Corporation prior to his Retirement, the balance of his or her Account shall be
distributed in a single lump sum payment.
Distribution of a Participant's Account following his or her Retirement
or death shall be made in one of the following forms as elected by the
Participant:
(a) by payment in cash in five (5) annual installments; or
(b) by payment in cash in ten (10) annual installments; or
(c) by payment in cash in fifteen (15) annual installments; or
(d) by payment in a single lump sum;
provided, however, that in the event of a Participant's death, if the balance in
his or her Account is then less than $35,000, such balance shall be distributed
in a single lump sum payment.
The Participant's election of the form of distribution shall be made by written
notice filed with the Administrator at least one (1) year prior to the
Participant's voluntary termination of employment with, or Retirement from, the
Corporation. Any such election may be changed by the Participant without the
consent of any other person by filing a later signed written election with the
Administrator; provided that any election made less than one (1)
2
<PAGE> 5
year prior to the Participant's voluntary termination of employment of
Retirement shall not be valid, and in such case payment shall be made in
accordance with the Participant's prior election.
The amount of each installment shall be equal to the quotient obtained by
dividing the Participant's Account balance as of the date of such installment
payment by the number of installment payments remaining to be made to or in
respect of such Participant at the time of calculation.
If a Participant fails to make an election in a timely manner as
provided in this Section 6.4, distribution shall be made in cash in ten (10)
annual installments.
IN WITNESS WHEREOF, The Lincoln Electric Company has caused this
instrument to be executed in its name by its duly authorized officer effective
as of January 1, 1998.
THE LINCOLN ELECTRIC COMPANY
By: /s/ Frederick G. Stueber
-------------------------------
Its:
FREDERICK G. STUEBER
Senior Vice President,
General Counsel
and Secretary
ATTEST:
/s/ Gretchen Farrell
- --------------------------
3
<PAGE> 1
EXHIBIT 10(j)
INSTRUMENT OF ADOPTION
OF
THE LINCOLN NON-EMPLOYEE DIRECTORS' RESTRICTED STOCK PLAN
WHEREAS, The Lincoln Electric Company (the "Company") has previously
adopted The Lincoln Non-Employee Directors' Restricted Stock Plan (the "Plan");
WHEREAS, pursuant to an Agreement of Merger dated as of May 19, 1998 by
and among Lincoln Electric Merger Co., The Lincoln Electric Company and Lincoln
Electric Holdings, Inc. (the "Agreement"), The Lincoln Electric Company (the
"Company") became a wholly owned subsidiary of Lincoln Electric Holdings, Inc.
("Holdings"), effective as of June 2, 1998; and
WHEREAS, pursuant to the Agreement, Holdings shall assume the Plan and
all obligations of the Company with respect thereto;
NOW THEREFORE, Holdings hereby assumes the obligations of the Company
under the Plan and adopts The Lincoln Non-Employee Director's Restricted Stock
Plan as hereinafter set forth:
1. On each January 1, each non-employee Director of Holdings
("Director") shall be automatically granted $10,000 worth of
Common Shares, without par value, of Holdings ("Holdings
Shares") subject to the transfer restrictions and risk of
forfeiture hereinafter described ("Restricted Shares").
2. The value of Holdings Shares for the purposes hereof shall be
equal to the last reported trading price for the Holdings
Shares.
3. The aggregate number of Holdings Shares that may be awarded as
Restricted Shares and released from substantial risk of
forfeiture under the Plan shall not exceed 200,000 Holdings
Shares, which may be shares of original issuance or treasury
share or a combination.
4. Restricted Shares held by a Director may not be sold or
otherwise disposed of until, and shall be forfeited if such
Director ceases to serve as a Director of Holdings before, the
restrictions lapse as provided below.
5. The restrictions on each award of Restricted Shares shall
lapse when the Director has served continuously as a Director
of Holdings for a period of three years after the award;
provided, however, that the restrictions shall lapse earlier
if the Director (i) dies or (ii) completes the term in which
the award was received and
<PAGE> 2
is not elected to another term by the shareholders, or (iii)
in the event of a change in control of Holdings as defined in
paragraph 8 hereof.
6. Directors shall have all the rights of shareholders with
respect to such Restricted Shares, provided that such
Restricted Shares, together with any additional shares of
Holdings that a Director may receive by virtue of any share
dividend, merger, reorganization or other change in capital
structure, shall be subject to the restrictions set forth
above.
7. The automatic awards of Restricted Shares herein provided for
may be referred to as "The Lincoln Non-Employee Directors'
Restricted Stock Plan" and shall continue, subject to
availability of shares, until such automatic awards are
discontinued by resolution of the Board of Directors of
Holdings.
8. A "change in control" shall occur upon the happening of any of
the following events:
(a) Holdings is merged or consolidated or reorganized into or with
another company or other legal person, and as a result of such
merger, consolidation or reorganization less than a majority
of the combined voting power of the then-outstanding
securities of such company or person immediately after such
transaction is held in the aggregate by the holders of the
then outstanding securities entitled to vote generally in
election of the Directors of Holdings ("Voting Stock")
immediately prior to such transaction;
(b) Holdings sells or otherwise transfers all or substantially all
of its assets to any other company or other legal person, and
as a result of such sale or transfer less than a majority of
the combined voting power of the then-outstanding securities
of such company or person immediately after such sale or
transfer is held in the aggregate by the holders of Voting
Stock of Holdings immediately prior to such sale or transfer;
or
(c) Any person or group of persons (within the meaning of Section
13 or 14 of the Securities Exchange Act of 1934) shall have
acquired beneficial ownership (within the meaning of Rule 1
3d-3 promulgated by the Securities and Exchange Commission
under said Act) of 30% or more of the outstanding Voting
Stock, excluding (i) any person or group of persons who are
officers, Directors, or employees of Holdings or any
subsidiary as of the date hereof or are related by blood or
marriage to the descendants
<PAGE> 3
of James F. or John C. Lincoln, including any trusts or
similar arrangements for any of the foregoing and any
foundations established by any other foregoing and (ii) any
underwriter or syndicate of underwriters acting on behalf of
Holdings in a public offering of Holdings' securities and any
of their transferees.
EXECUTED this 29th day December, 1998.
LINCOLN ELECTRIC HOLDINGS, INC.
By: /s/ Frederick G. Stueber
------------------------------
Title: FREDERICK G. STUEBER
Senior Vice President,
General Counsel
and Secretary
<PAGE> 1
EXHIBIT 10(k)
AMENDMENT NO.1
TO
THE LINCOLN ELECTRIC COMPANY
NON-EMPLOYEE DIRECTORS' DEFERRED COMPENSATION PLAN
(Effective as of May 24, 1995)
The Lincoln Electric Company, an Ohio corporation, hereby adopts this
Amendment No.1 to The Lincoln Electric Company Non-Employee Directors' Deferred
Compensation Plan (Effective as of May 24, 1995) (the "Plan"). The provisions of
this Amendment shall be effective as of June 2, 1998.
I.
The name of the Plan as it appears on the cover page of the Plan
document, in two places prior to Article I of the Plan, and in Article I of the
Plan is hereby amended to read as follows:
"The Lincoln Electric Holdings, Inc. Non-Employee Directors' Deferred
Compensation Plan."
II.
Section 2.1(h) of the Plan is hereby amended in its entirety to read:
"(h) "Corporation": Lincoln Electric Holdings, Inc. or any successor or
successors thereto."
<PAGE> 2
EXECUTED at Cleveland, Ohio, this 29th day of December, 1998.
THE LINCOLN ELECTRIC COMPANY
By: /s/ F. G. Stueber
-------------------------------
FREDERICK G. STUEBER
Title: Senior Vice President.
General Counsel
and Secretary
LINCOLN ELECTRIC HOLDINGS, INC. hereby adopts the Plan as amended by
this Amendment No. 1.
LINCOLN ELECTRIC HOLDINGS, INC.
By: /s/ F. G. Stueber
-------------------------------
FREDERICK G. STUEBER
Title: Senior Vice President.
General Counsel
and Secretary
<PAGE> 1
EXHIBIT 10(l)
LINCOLN ELECTRIC HOLDINGS, INC. AND SUBSIDIARIES
SUMMARY OF EMPLOYMENT AGREEMENTS
Mssrs. Massaro, Elliott and Stueber entered into employment agreements in July
1993, June 1993 and February 1995, respectively. Those agreements contain many
terms that are no longer in effect. Certain terms do, however, survive.
Surviving terms grant credited service for purposes of the SERP of 29, 32, and
22 years, respectively, as of their respective dates of hire, assuming a normal
retirement age of 60 and service of 45 years at age 65 for all. Messrs. Massaro
and Elliott have a participation factor under the SERP of 100%. The agreements
for Mssrs. Massaro and Elliott also provide for severance pay equal to one
year's base salary if they are terminated without cause. The agreement for Mr.
Stueber provides that if he is terminated without cause, prior to his sixth
anniversary, he will be entitled to severance pay equal to three times his total
compensation (base and bonus) for the preceding year. Thereafter, through his
tenth anniversary, severance pay equals one year's total compensation.
<PAGE> 1
EXHIBIT 21
LINCOLN ELECTRIC HOLDINGS, INC. 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 PERCENT
NAME INCORPORATION OWNERSHIP
---- ------------- ---------
<S> <C> <C>
The Lincoln Electric Company United States 100
Harris Calorific Limited Ireland 100
Harris Calorific S.r.l. Italy 100
Harris Calorific, Inc. United States 100
Indalco Alloys, Inc. Canada 75
Kaynak Teknigi Sanayi ve Ticaret A.S. Turkey 50
Lincoln Electric (Shanghai Holdings) Pte. Ltd. People's Republic of China 68
Lincoln Electric (U.K.) Limited United Kingdom 100
Lincoln Electric Company (Australia)
Proprietary Limited Australia 100
Lincoln Electric Company of Canada Limited Canada 100
Lincoln Electric Do Brasil Ltda. Brazil 100
Lincoln Electric France S.A. France 100
Lincoln Electric Italia S.r.l. Italy 100
Lincoln Electric Mexicana, S.A. de C.V. Mexico 100
Lincoln Electric Norge AS Norway 100
Lincoln Electric Philippines, Inc. Philippines 60
Lincoln Smitweld B.V. The Netherlands 100
Lincoln Smitweld GmbH Germany 100
Lincoln-KD, S.A. Spain 100
PT Lincoln Austenite Indonesia Indonesia 60
Sacit S.r.l. Italy 100
The Lincoln Electric Company
(Asia Pacific) Pte. Ltd. Singapore 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 following registration
statements of our report dated February 2, 1999, with respect to the
consolidated financial statements and schedule of Lincoln Electric Holdings,
Inc. (successor to The Lincoln Electric Company) and subsidiaries included in
the Annual Report (Form 10-K) for the year ended December 31, 1998:
Form S-8 Registration Statement of Lincoln Electric Holdings, Inc. for
the 1998 Stock Option Plan (Form S-8 No. 333 - 58305)
Post-effective Amendment No. 1 to Form S-8 Registration Statement of
Lincoln Electric Holdings, Inc. (as successor to The Lincoln Electric
Company) for The Lincoln Electric Company Employee Savings Plan (Form
S-8 No. 033 - 64187)
Post-effective Amendment No. 1 to Form S-8 Registration Statement of
Lincoln Electric Holdings, Inc. (as successor to The Lincoln Electric
Company) for The Lincoln Electric Company 1988 Incentive Equity Plan
(Form S-8 No. 033 - 25210)
Post-effective Amendment No. 1 to Form S-8 Registration Statement of
Lincoln Electric Holdings, Inc. (as successor to The Lincoln Electric
Company) for the 1995 Lincoln Stock Purchase Plan (Form S-8 No. 033 -
64189)
ERNST & YOUNG LLP
Cleveland, Ohio
March 18, 1999
<PAGE> 1
- Exhibit 24
----------
LINCOLN ELECTRIC HOLDINGS, INC.
ANNUAL REPORT ON FORM 10-K
POWER OF ATTORNEY
The undersigned director of Lincoln Electric Holdings, Inc., an Ohio Corporation
(the "Corporation"), hereby constitutes and appoints H. Jay Elliot and Frederick
G. Stueber, or either of them, with full power of substitution and
resubstitution, as attorneys or attorney of the undersigned, for him or her and
in his or her name, place and stead, to sign and file under the Securities
Exchange Act of 1934, as amended, the Annual Report on Form 10-K, and any and
all amendments, supplements and exhibits thereto, and any and all other
documents to be filed with the Securities and Exchange Commission pertaining to
the Corporation's reporting obligations, with full power and authority to do and
perform any and all acts and things whatsoever required and necessary to be done
in the premises, hereby ratifying and approving the act of said attorneys and
any of them and any such substitute.
EXECUTED on February 8, 1999.
/s/ Anthony A. Massaro
- --------------------------------
Signature
Anthony A. Massaro, Director
- --------------------------------
Name and Title
<PAGE> 2
LINCOLN ELECTRIC HOLDINGS, INC.
ANNUAL REPORT ON FORM 10-K
POWER OF ATTORNEY
The undersigned director of Lincoln Electric Holdings, Inc., an Ohio Corporation
(the "Corporation"), hereby constitutes and appoints H. Jay Elliot and Frederick
G. Stueber, or either of them, with full power of substitution and
resubstitution, as attorneys or attorney of the undersigned, for him or her and
in his or her name, place and stead, to sign and file under the Securities
Exchange Act of 1934, as amended, the Annual Report on Form 10-K, and any and
all amendments, supplements and exhibits thereto, and any and all other
documents to be filed with the Securities and Exchange Commission pertaining to
the Corporation's reporting obligations, with full power and authority to do and
perform any and all acts and things whatsoever required and necessary to be done
in the premises, hereby ratifying and approving the act of said attorneys and
any of them and any such substitute.
EXECUTED on February 8, 1999.
/s/ John Stropki
- --------------------------------
Signature
John M. Stropki, Director
- --------------------------------
Name and Title
<PAGE> 3
NON-OFFICER DIRECTORS
OF
LINCOLN ELECTRIC HOLDINGS, INC.
ANNUAL REPORT ON FORM 10-K
POWER OF ATTORNEY
The undersigned director of Lincoln Electric Holdings, Inc., an Ohio
Corporation (the "Corporation"), hereby constitutes and appoints Anthony A.
Massaro, H. Jay Elliot and Frederick G. Stueber, or any of them, with full
power of substitution and resubstitution, as attorneys or attorney of the
undersigned, for him or her and in his or her name, place and stead, to sign and
file under the Securities Exchange Act of 1934, as amended, the Annual Report on
Form 10-K, and any and all amendments, supplements and exhibits thereto, and any
and all other documents to be filed with the Securities and Exchange Commission
pertaining to the Corporation's reporting obligations, with full power and
authority to do and perform any and all acts and things whatsoever required and
necessary to be done in the premises, hereby ratifying and approving the act of
said attorneys and any of them and any such substitute.
EXECUTED on February 3, 1999.
/s/ Harry Carlson
- --------------------------------
Signature
Harry Carlson, Director
- --------------------------------
Name and Title
<PAGE> 4
NON-OFFICER DIRECTORS
OF
LINCOLN ELECTRIC HOLDINGS, INC.
ANNUAL REPORT ON FORM 10-K
POWER OF ATTORNEY
The undersigned director of Lincoln Electric Holdings, Inc., an Ohio Corporation
(the "Corporation"), hereby constitutes and appoints Anthony A. Massaro, H. Jay
Elliot and Frederick G. Stueber, or any of them, with full power of substitution
and resubstitution, as attorneys or attorney of the undersigned, for him or her
and in his or her name, place and stead, to sign and file under the Securities
Exchange Act of 1934, as amended, the Annual Report on Form 10-K, and any and
all amendments, supplements and exhibits thereto, and any and all other
documents to be filed with the Securities and Exchange Commission pertaining to
the Corporation's reporting obligations, with full power and authority to do and
perform any and all acts and things whatsoever required and necessary to be done
in the premises, hereby ratifying and approving the act of said attorneys and
any of them and any such substitute.
EXECUTED on February 3, 1999.
/s/ David Gunning
- --------------------------------
Signature
David H. Gunning, Director
- --------------------------------
Name and Title
<PAGE> 5
NON-OFFICER DIRECTORS
OF
LINCOLN ELECTRIC HOLDINGS, INC.
ANNUAL REPORT ON FORM 10-K
POWER OF ATTORNEY
The undersigned director of Lincoln Electric Holdings, Inc., an Ohio Corporation
(the "Corporation"), hereby constitutes and appoints Anthony A. Massaro, H. Jay
Elliot and Frederick G. Stueber, or any of them, with full power of substitution
and resubstitution, as attorneys or attorney of the undersigned, for him or her
and in his or her name, place and stead, to sign and file under the Securities
Exchange Act of 1934, as amended, the Annual Report on Form 10-K, and any and
all amendments, supplements and exhibits thereto, and any and all other
documents to be filed with the Securities and Exchange Commission pertaining to
the Corporation's reporting obligations, with full power and authority to do and
perform any and all acts and things whatsoever required and necessary to be done
in the premises, hereby ratifying and approving the act of said attorneys and
any of them and any such substitute.
EXECUTED on February 3, 1999.
/s/ E.E. Hood Jr.
- --------------------------------
Signature
E.E. Hood Jr., Director
- --------------------------------
Name and Title
<PAGE> 6
NON-OFFICER DIRECTORS
OF
LINCOLN ELECTRIC HOLDINGS, INC.
ANNUAL REPORT ON FORM 10-K
POWER OF ATTORNEY
The undersigned director of Lincoln Electric Holdings, Inc., an Ohio Corporation
(the "Corporation"), hereby constitutes and appoints Anthony A. Massaro, H. Jay
Elliot and Frederick G. Stueber, or any of them, with full power of substitution
and resubstitution, as attorneys or attorney of the undersigned, for him or her
and in his or her name, place and stead, to sign and file under the Securities
Exchange Act of 1934, as amended, the Annual Report on Form 10-K, and any and
all amendments, supplements and exhibits thereto, and any and all other
documents to be filed with the Securities and Exchange Commission pertaining to
the Corporation's reporting obligations, with full power and authority to do and
perform any and all acts and things whatsoever required and necessary to be done
in the premises, hereby ratifying and approving the act of said attorneys and
any of them and any such substitute.
EXECUTED on February 3, 1999.
/s/ Paul E. Lego
- --------------------------------
Signature
Paul E. Lego
- --------------------------------
Name and Title
<PAGE> 7
NON-OFFICER DIRECTORS
OF
LINCOLN ELECTRIC HOLDINGS, INC.
ANNUAL REPORT ON FORM 10-K
POWER OF ATTORNEY
The undersigned director of Lincoln Electric Holdings, Inc., an Ohio Corporation
(the "Corporation"), hereby constitutes and appoints Anthony A. Massaro, H. Jay
Elliot and Frederick G. Stueber, or any of them, with full power of substitution
and resubstitution, as attorneys or attorney of the undersigned, for him or her
and in his or her name, place and stead, to sign and file under the Securities
Exchange Act of 1934, as amended, the Annual Report on Form 10-K, and any and
all amendments, supplements and exhibits thereto, and any and all other
documents to be filed with the Securities and Exchange Commission pertaining to
the Corporation's reporting obligations, with full power and authority to do and
perform any and all acts and things whatsoever required and necessary to be done
in the premises, hereby ratifying and approving the act of said attorneys and
any of them and any such substitute.
EXECUTED on February 3, 1999.
/s/ G. Russell Lincoln
- --------------------------------
Signature
G. Russell Lincoln, Director
- --------------------------------
Name and Title
<PAGE> 8
NON-OFFICER DIRECTORS
OF
LINCOLN ELECTRIC HOLDINGS, INC.
ANNUAL REPORT ON FORM 10-K
POWER OF ATTORNEY
The undersigned director of Lincoln Electric Holdings, Inc., an Ohio Corporation
(the "Corporation"), hereby constitutes and appoints Anthony A. Massaro, H. Jay
Elliot and Frederick G. Stueber, or any of them, with full power of substitution
and resubstitution, as attorneys or attorney of the undersigned, for him or her
and in his or her name, place and stead, to sign and file under the Securities
Exchange Act of 1934, as amended, the Annual Report on Form 10-K, and any and
all amendments, supplements and exhibits thereto, and any and all other
documents to be filed with the Securities and Exchange Commission pertaining to
the Corporation's reporting obligations, with full power and authority to do and
perform any and all acts and things whatsoever required and necessary to be done
in the premises, hereby ratifying and approving the act of said attorneys and
any of them and any such substitute.
EXECUTED on February 3, 1999.
/s/ David C. Lincoln
- --------------------------------
Signature
David C. Lincoln, Director
- --------------------------------
Name and Title
<PAGE> 9
NON-OFFICER DIRECTORS
OF
LINCOLN ELECTRIC HOLDINGS, INC.
ANNUAL REPORT ON FORM 10-K
POWER OF ATTORNEY
The undersigned director of Lincoln Electric Holdings, Inc., an Ohio Corporation
(the "Corporation"), hereby constitutes and appoints Anthony A. Massaro, H. Jay
Elliot and Frederick G. Stueber, or any of them, with full power of substitution
and resubstitution, as attorneys or attorney of the undersigned, for him or her
and in his or her name, place and stead, to sign and file under the Securities
Exchange Act of 1934, as amended, the Annual Report on Form 10-K, and any and
all amendments, supplements and exhibits thereto, and any and all other
documents to be filed with the Securities and Exchange Commission pertaining to
the Corporation's reporting obligations, with full power and authority to do and
perform any and all acts and things whatsoever required and necessary to be done
in the premises, hereby ratifying and approving the act of said attorneys and
any of them and any such substitute.
EXECUTED on February 3, 1999.
/s/ Kathryn Jo Lincoln
- --------------------------------
Signature
Kathryn Jo Lincoln, Director
- --------------------------------
Name and Title
<PAGE> 10
NON-OFFICER DIRECTORS
OF
LINCOLN ELECTRIC HOLDINGS, INC.
ANNUAL REPORT ON FORM 10-K
POWER OF ATTORNEY
The undersigned director of Lincoln Electric Holdings, Inc., an Ohio Corporation
(the "Corporation"), hereby constitutes and appoints Anthony A. Massaro, H. Jay
Elliot and Frederick G. Stueber, or any of them, with full power of substitution
and resubstitution, as attorneys or attorney of the undersigned, for him or her
and in his or her name, place and stead, to sign and file under the Securities
Exchange Act of 1934, as amended, the Annual Report on Form 10-K, and any and
all amendments, supplements and exhibits thereto, and any and all other
documents to be filed with the Securities and Exchange Commission pertaining to
the Corporation's reporting obligations, with full power and authority to do and
perform any and all acts and things whatsoever required and necessary to be done
in the premises, hereby ratifying and approving the act of said attorneys and
any of them and any such substitute.
EXECUTED on February 3, 1999.
/s/ Henry L. Meyer III
- --------------------------------
Signature
Henry L. Meyer III, Director
- --------------------------------
Name and Title
<PAGE> 11
NON-OFFICER DIRECTORS
OF
LINCOLN ELECTRIC HOLDINGS, INC.
ANNUAL REPORT ON FORM 10-K
POWER OF ATTORNEY
The undersigned director of Lincoln Electric Holdings, Inc., an Ohio Corporation
(the "Corporation"), hereby constitutes and appoints Anthony A. Massaro, H. Jay
Elliot and Frederick G. Stueber, or any of them, with full power of substitution
and resubstitution, as attorneys or attorney of the undersigned, for him or her
and in his or her name, place and stead, to sign and file under the Securities
Exchange Act of 1934, as amended, the Annual Report on Form 10-K, and any and
all amendments, supplements and exhibits thereto, and any and all other
documents to be filed with the Securities and Exchange Commission pertaining to
the Corporation's reporting obligations, with full power and authority to do and
perform any and all acts and things whatsoever required and necessary to be done
in the premises, hereby ratifying and approving the act of said attorneys and
any of them and any such substitute.
EXECUTED on February 3, 1999.
/s/ Craig R. Smith
- --------------------------------
Signature
Craig R. Smith, Director
- --------------------------------
Name and Title
<PAGE> 12
NON-OFFICER DIRECTORS
OF
LINCOLN ELECTRIC HOLDINGS, INC.
ANNUAL REPORT ON FORM 10-K
POWER OF ATTORNEY
The undersigned director of Lincoln Electric Holdings, Inc., an Ohio Corporation
(the "Corporation"), hereby constitutes and appoints Anthony A. Massaro, H. Jay
Elliot and Frederick G. Stueber, or any of them, with full power of substitution
and resubstitution, as attorneys or attorney of the undersigned, for him or her
and in his or her name, place and stead, to sign and file under the Securities
Exchange Act of 1934, as amended, the Annual Report on Form 10-K, and any and
all amendments, supplements and exhibits thereto, and any and all other
documents to be filed with the Securities and Exchange Commission pertaining to
the Corporation's reporting obligations, with full power and authority to do and
perform any and all acts and things whatsoever required and necessary to be done
in the premises, hereby ratifying and approving the act of said attorneys and
any of them and any such substitute.
EXECUTED on February 3, 1999.
/s/ Frank L. Steingass
- --------------------------------
Signature
Frank L. Steingass, Director
- --------------------------------
Name and Title
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