-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, S6grOOjDTlwdHUNuWAKc33TnaHE4nBA7EKoE43O4Vx6PZ3hrbAnCyPEhWqGQT6zj xc/UJFPf62vwC+gUUB/2TA== 0000950152-99-002258.txt : 19990325 0000950152-99-002258.hdr.sgml : 19990325 ACCESSION NUMBER: 0000950152-99-002258 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990323 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LINCOLN ELECTRIC HOLDINGS INC CENTRAL INDEX KEY: 0000059527 STANDARD INDUSTRIAL CLASSIFICATION: METALWORKING MACHINERY & EQUIPMENT [3540] IRS NUMBER: 340359955 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 033-55406 FILM NUMBER: 99570643 BUSINESS ADDRESS: STREET 1: 22801 ST CLAIR AVE CITY: CLEVELAND STATE: OH ZIP: 44117 BUSINESS PHONE: 2164818100 FORMER COMPANY: FORMER CONFORMED NAME: LINCOLN ELECTRIC CO DATE OF NAME CHANGE: 19920703 10-K 1 LINCOLN ELECTRIC HOLDINGS, INC. FORM 10-K 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. 1 2 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 2 3 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:
(IN THOUSANDS OF DOLLARS) 1998 1997 1996 ---------- ---------- ---------- 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 ========== ========== ==========
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. 3 4 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:
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.
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. 4 5 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 - ------------------------------------
NAME AGE POSITION - ------------------ --- --------------------------------------------------------------------- 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.
5 6
NAME AGE POSITION - ------------------ --- --------------------------------------------------------------------- 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.
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:
1998 1997 --------------------------------- ---------------------------------- Dividends Dividends High Low Declared High Low Declared ---- --- -------- ---- --- -------- 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
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 6 7 Item 6. Selected Financial Data -----------------------
Year Ended December 1998 1997 1996 1995 1994 ---------- ---------- ---------- ---------- ---------- (In thousands of dollars, except per share data) 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 ========== ========== ========== =========== =========
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 7 8 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:
Year ended December 31, (Dollars in millions) 1998 1997 1996 ----- ----- ---- Amount % of Sales Amount % of Sales Amount % of Sales ------ ---------- ------ ---------- ------ ---------- 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% ======== ======== ======== ======== ======== ========
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 8 9 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. 9 10 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. 10 11 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 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 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 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 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 --------
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).
15 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 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 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 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. /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
19 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 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 22 LINCOLN ELECTRIC HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
December 31 1998 1997 ----------- ---------- (In thousands of dollars) 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 ========== ==========
22 23 LINCOLN ELECTRIC HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
December 31 1998 1997 --------- --------- (In thousands of dollars, except share data) 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 ========= =========
See notes to these consolidated financial statements. 23 24 LINCOLN ELECTRIC HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31 1998 1997 1996 ----------- ----------- ----------- (In thousands of dollars, except per share data) 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 =========== =========== ===========
See notes to these consolidated financial statements. 24 25 LINCOLN ELECTRIC HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
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 =================================================================================================================== 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 ========================================================================================================= =========
See notes to these consolidated financial statements. 25 26 LINCOLN ELECTRIC HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31 1998 1997 1996 --------- --------- --------- (In thousands of dollars) 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 ========= ========= =========
See notes to these consolidated financial statements. 26 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 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.
1998 1997 1996 ------- ------- ------- 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
28 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 30 LINCOLN ELECTRIC HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued NOTE C - STOCK PLANS - (Continued)
OPTIONS EXERCISE PRICES ------- --------------- 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 =========
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.
1998 1997 1996 ----- ----- ---- Pro Forma Reported Pro Forma Reported Pro Forma Reported --------- -------- --------- -------- --------- -------- 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
30 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:
1998 1997 1996 -------- -------- -------- 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%
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
1997 1998 ------- ------- 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 ======= =======
31 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:
1998 1997 1996 --------- --------- --------- 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 ========= ========= =========
32 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:
1998 1997 1996 -------- -------- -------- 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% ======== ======== ========
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:
1998 1997 -------- -------- 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 ======== ========
33 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:
1998 1997 --------- --------- 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 ========= =========
34 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:
1998 1997 --------- --------- 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 ========= =========
The funded status of the pension plans at December 31, 1998 and 1997 was as follows:
1998 1997 -------- -------- 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 ======== ========
The net prepaid pension expense recognized in the consolidated balance sheets was composed of:
1998 1997 -------- -------- 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 ======== ========
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 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:
1998 1997 1996 -------- -------- -------- 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 ======== ======== ========
Weighted average assumptions used in accounting for the defined benefit plans as of December 31, 1998 and 1997 were as follows:
1998 1997 ---- ---- Discount rate 7.0% 7.2% Rate of increase in compensation 4.9% 5.2% Expected return on plan assets 8.9% 8.9%
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 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:
United Other States Europe Countries Eliminations Consolidated ------ ------ --------- ------------ ------------ 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
37 38 LINCOLN ELECTRIC HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued NOTE G - SEGMENT INFORMATION - (Continued)
United Other States Europe Countries Eliminations Consolidated ------ ------ --------- ------------ ------------ 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
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:
1998 1997 1996 ----------- ----------- ----------- 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 =========== =========== ===========
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 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 40 LINCOLN ELECTRIC HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued NOTE I - FAIR VALUES OF FINANCIAL INSTRUMENTS - (Continued)
December 31, 1998 December 31, 1997 -------------------------- -------------------------- Carrying Fair Carrying Fair Amounts Value Amounts Value ------- ----- ------- ----- 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
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: 1999 $ 6,237 2000 4,916 2001 2,525 2002 1,238 2003 813 Thereafter 712 ------- Total $16,441 =======
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 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)
1998 MAR 31 JUN 30 SEP 30 DEC 31 ---- ------ ------ ------ ------ 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
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 42 SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS LINCOLN ELECTRIC HOLDINGS, INC. AND SUBSIDIARIES (In thousands of dollars)
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 ----------- --------- -------- ---------- ---------- --------- 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
(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 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. 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. 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. EX-10.A 2 EXHIBIT 10(A) 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 philip.vonfischer@prudential.com 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. 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). 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 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 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. 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 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 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 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 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: 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: 12 CREDIT LYONNAIS CAYMAN ISLAND BRANCH By ________________________________ Title: CREDIT LYONNAIS CHICAGO BRANCH By _______________________________ Title: PNC BANK, NATIONAL ASSOCIATION By _______________________________ Title: 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 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. 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. EX-10.B 3 EXHIBIT (B) 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. 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). 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: 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: 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: 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. 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 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 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 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: 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: 12 CREDIT LYONNAIS CAYMAN ISLAND BRANCH By ------------------------------ Title: CREDIT LYONNAIS CHICAGO BRANCH By ------------------------------ Title: PNC BANK, NATIONAL ASSOCIATION By /s/ ------------------------------ Title: 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) 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. EX-10.D 4 EXHIBIT 10(D) 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." 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 EX-10.G 5 EXHIBIT 10(G) 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. 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 - ----------------------------- 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. 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 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 EX-10.J 6 EXHIBIT 10(J) 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 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 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 EX-10.K 7 EXHIBIT 10(K) 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." 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 EX-10.L 8 EXHIBIT 10(L) 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. EX-21 9 EXHIBIT 21 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:
COUNTRY OF PERCENT NAME INCORPORATION OWNERSHIP ---- ------------- --------- 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
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. EX-23 10 EXHIBIT 23 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 EX-24 11 EXHIBIT 24 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 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 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 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 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 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 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 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 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 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 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 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 EX-27 12 EXHIBIT 27
5 1,000 YEAR DEC-31-1998 JAN-01-1998 DEC-31-1998 39,095 311 171,393 3,563 186,321 436,841 551,292 291,501 782,906 195,111 46,766 0 0 4,928 486,005 782,906 1,186,679 1,186,679 729,613 729,613 304,326 0 5,676 147,064 53,345 93,719 0 0 0 93,719 1.92 1.91
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