¨
2000
Lincoln Electric Holdings, Inc. Annual Report Lincoln Electric provides advanced welding and cutting technologies to the world’s major industries – transportation, construction, fabrication, petrochemical and others. The company designs and manufactures arc welding products, robotic welding systems, plasma and oxyfuel cutting equipment and is the industry’s world leader with more than $1billion in sales. Lincoln Electric is traded on the NASDAQ under the stock symbol “LECO.”
Founded in 1895 in Cleveland, Ohio, Lincoln Electric today is known world- wide for the highest quality products and services available in the welding and cutting products industry. Lincoln spends approximately $17 million annually to sustain the most aggressive and comprehensive research and development and engineering program in the industry. The Company employs approxi- mately 7,000 people worldwide and has 26 manufacturing plants and facilities in 18 countries. In addition, Lincoln has a sales/distribution net- work serving more than 160 countries. Complementing its products-and- services excellence, Lincoln Electric maintains strong relationships with its employees and the communities where they live and work. Its Incentive Management System is the subject of a Harvard Business School case study that has been taught and dis- cussed in business classes around the world. As a result of its commit- ment to customers, employees and shareholders, Lincoln Electric has been named one of America's Best Big Businesses by Forbes magazine.
CONTENTS
Financial Highlights > 1 Letter to Shareholders > 2 Financial Statements > 12 Report of Independent Auditors > 26 Management’s Discussion and Analysis > 27 Additional Shareholder Information > 31 Directors and Officers > 32 Financial Highlights >
Year Ended December 31 (Dollars in millions, except per share data) 2000 1999 1998
Net Sales $1,059 $1,086 $1,187
Net Income 78 74 94
Net Income excluding non-recurring items 86* 94** 94
Basic Earnings Per Share 1.83 1.63 1.92
Basic Earnings Per Share excluding non-recurring items 2.02* 2.06** 1.92
Diluted Earnings Per Share 1.83 1.62 1.91
Diluted Earnings Per Share excluding non-recurring items 2.02* 2.06** 1.91
Cash Dividends Paid Per Share of Common Stock 0.56 0.48 0.40
Working Capital 168 210 242
Current Ratio 1.7 2.0 2.2
Total Assets $1,790 $1,775 $1,783
Total Shareholders’ Equity 447 452 491
Cash Provided by Operations 121 81 122
Return on Average Shareholders’ Equity 17.4% 15.7% 20.2%
Return on Average Shareholders’ Equity excluding non-recurring items 18.2%* 19.5%** 20.2%
*2000 non-recurring charges were $13,399 ($8,126 after-tax, or $0.19 per diluted share) related principally to the lapsed Charter offer. **1999 non-recurring charge was $32,015 ($19,721 after-tax, or $0.43 per diluted share) related to the sale of the motor business. $1,186.7 $152.7 $490.9 $151.7 $2.06 17.3% $1,159.1 $2.02 $24.0 $1,109.1 16.5% $142.5 $141.5 $1.91 $1,086.2 $451.5 $447.3 $22.1 $1,058.6 $437.2 $1.73 $125.6 14.3% $19.6 $391.8 13.2% $1.49 11.0% $14.1 $11.9 Lincoln Electric Holdings, Inc.
1 96 97 98 99 00 96 97 98 99** 00* 96 97 98 99** 00* 96 97 98 99 00 96 97 98 99 00 96 97 98 99 00 December 31, Net Sales Earnings Before Diluted Earnings Shareholders’ Dividend Debt to Total dollars in millions Interest and Per Share Equity Dollars Paid Capitalization Income Taxes in dollars dollars in millions dollars in millions in percent dollars in millions
*2000 excludes non-recurring charges principally related to the lapsed Charter offer. **1999 excludes the charge related to the disposal of the motor business. Dear Lincoln Electric Shareholders >
Anthony A. Massaro
strategic global grow
2 Since 1895, our Company has earned a well-deserved reputation for superior performance, regardless of market conditions. Last year gave us another opportunity to enhance that reputation. 2000 was both challenging and eventful. We saw world markets soften and experienced a slowdown in our basic businesses in the North American markets. Even so, we continued to strengthen our competitive position, to increase our efficiency, to expand our product lines and to pursue strategic growth opportunities around the world.
All of these actions contribute to our ly announced sale of our motor busi- capability, the Board of Directors ongoing strategies of growing our ness, caused our overall revenue to declared two cash dividends and presence in new and existing markets decline slightly compared with 1999. reinstated the Company’s share and continuing to provide enhanced Sales for the year 2000 were $1.059 repurchase program, reinforcing our value to our customers and share- billion. Net income was $78.1 million, commitment to our shareholders. holders. While 2001 may well turn out or earnings per diluted share of $1.83. The first cash dividend of 14 cents to be a down year for the industrial Excluding non-recurring items, net per share was paid on December 22, sector of the economy, Lincoln income was $86.2 million, or earnings 2000 to shareholders of record on Electric's strengths give us the ability per diluted share of $2.02. The December 15, 2000, replacing the to continue to pursue opportunities Company had an operating profit of previously suspended third-quarter while others retrench. $138.9 million. We increased our dividend. The second cash dividend A major activity in 2000 was our cash flow, one of our key measures, declared was increased 7% to 15 attempted acquisition of Charter plc. 49% to $120.8 million by working cents per share and was paid Even though the acquisition of smarter, making better use of working January 13, 2001 to shareholders Charter’s welding and cutting business capital and by continuing our tradition of record December 31, 2000. would have been a complementary of maintaining strict cost and spending The Board of Directors also ap- fit from a strategic point of view, we controls. Despite the economic slow- proved resumption of the Company’s made the decision to allow the offer down, we continued to grow our mar- share repurchase program for up to to lapse. However, we firmly believe ket share and maintained excellent 2,874,620 common shares, the num- the decision to do so was in the best operating profit margins. ber of shares remaining under an ear- interests of our shareholders and our INCREASING SHAREHOLDER VALUE lier share buyback authorization. We employees. We remain focused on The decisions we have made to firmly believe in increasing sharehold- strategic global growth but we will improve our business for the future er value. We are committed to it and only pursue those opportunities that will also serve well to increase share- we believe our actions demonstrate it. will provide consistently good financial holder value. In addition to these actions, the performance and increase sharehold- Late in 2000, the Board voted to Board reiterated its support of Lincoln’s er value going forward. reinstate and increase the cash divi- global strategy for continued growth. th FINANCIAL FOCUS dend and to resume its previously We continue to believe that a combi- We faced very soft markets in the announced share repurchase pro- nation of internal growth and invest- U.S. and other economies during gram. You’ll recall that the Company ment, joint ventures and acquisitions 2000. In addition, the strength of the suspended its regular third-quarter will increase our leadership in our
U.S. dollar devalued our foreign pro- dividend and suspended the share global markets. We are actively pur- 3 duced product sales by over 12% repurchase program due to the cash suing each of these avenues at the and made our U.S. products that demands of our planned acquisition present time and anticipate continuing much more expensive in foreign mar- of Charter plc. this approach in the future. kets. These issues, plus the previous- In the fourth quarter, after the lapse of the Charter acquisition and due to the Company’s cash-generating Lincoln Smitweld supplied the welding consumables used to fabricate The Øresund Bridge, which links Copenhagen, Denmark, and Malmö, Sweden. The bridge, built by Karlskrona Verft and Kockums, spans 8 km on two levels and is an example of how Lincoln equipment and welding consum- ables are being used to help with infrastructure needs in the Nordic region and the rest of Europe.
expanded business
4 GLOBAL COMMITMENT On the sales and marketing front, these issues, our Mexican subsidiary We took a number of steps to our Lincoln Smitweld and Uhrhan & showed impressive gains in sales, improve sales and blunt the effect of Schwill units, working with our Asia/ ending up over 20% for the year. a strong dollar in the global regions Pacific people, expanded our business In addition, Lincoln Electric Mexico where we compete. While several of opportunities into China. Uhrhan & successfully launched several new the Company's markets faced chal- Schwill's unique multi-arc welding products and new consumables man- lenging conditions, our knowledge system is used in the production of ufacturing facilities for both regional of those markets and our financial high-quality pipes for use on gas and sale and export. Lincoln Electric strength positioned us to increase oil pipelines. Our system was chosen Mexico also successfully integrated sales and gain market share. by Julong Steel Pipe Co., Ltd., one the facilities and additional people into In Europe we achieved significant of China’s major pipe manufacturers. our workforce, while maintaining improvements both in sales and in Europe is showing increased indus- growth of sales per employee by over profitability in a difficult and depressed trial production related to the oil and 6% compared with last year. market and a weak euro. Through gas exploration industry. We are mov- During the year, we began produc- cost and expense reductions, the ing aggressively to supply welding tion at our new São Paulo, Brazil, consolidation of businesses and by equipment and consumables for use facility, which provides Lincoln more fully utilizing a newly implemented in the oil exploration and production manufacturing capacity to better European information technology industry in that region and other simi- serve the important Brazilian market system, we achieved the benefits of lar areas around the world. Lincoln as well as the rest of the region. synergies and provided new welding has always been strong in these mar- Brazil's market is the largest in South solutions to European customers. kets, and we will continue to focus our America and the long-term economic We also strengthened our position efforts in these businesses. outlook for Brazil is optimistic. in 2000 by acquiring C.I.F.E. Spa, Another example of our growth in We also posted good results in a major manufacturer of MIG wire, Europe was Lincoln Smitweld’s award Venezuela and Chile and in the based in Italy. With C.I.F.E., we took of contracts to supply wire and rod Caribbean/Central America region. an already productive organization to several shipyards in Croatia. This is With two plants in Mexico and one and made it even better by increasing a very important business for us and in Brazil, and an excellent Latin volume and improving production and one that we continue to pursue. American management team, we efficiency. The C.I.F.E. acquisition Latin America was severely weak- have established Lincoln with strate- solidifies our position as a leader in ened by its own political and eco- gic platforms in two of the largest the European welding consumables nomic problems. However, despite welding products markets in Latin business. America with the capability to deliver into other important Latin opportunities American markets as well.
On the sales and marketing front, our Lincoln Smitweld and Uhrhan & Schwill units, working with our Asia/Pacific people, expanded our business opportunities into China. Uhrhan & Schwill's unique multi-arc welding system is used in the production of high-quality pipes for use on gas and oil pipelines. Our system was chosen by Julong Steel Pipe Co., Ltd., one 5 of China’s major pipe manufacturers. In the region that we refer to as tive effects of the region's economic Since 1995 we have grown at double- RAM – Russia, Africa, and the Middle revitalization after recent years of eco- digit rates in these new and expanding East – religious, political and economic nomic difficulties. Later in 2000 we markets. The growth in the retail pressures dampened markets and, increased our ownership in Kuang Tai market is driven by a more aware hence, sales in 2000. However, with and its Chinese subsidiary, Jin Tai. We and demanding consumer in the self- oil and gas exploration and trans- believe this will improve our position help and home improvement markets. portation growing, we anticipate an in the very large China market as it HARRIS: A GLOBAL BRAND improved economic environment for continues to grow. IN CUTTING PRODUCTS our products in the coming year. In North America, we witnessed Harris, our cutting products sub- We continue to build our market a slowdown in our basic businesses. sidiary, headquartered in Gainesville, contacts in this region and supply our This was caused by a general decline Ga., provided our company with major pipeline-related customers and in the industrial, automotive and fabri- another success story this past year. distributor partners with the support cation segments. Many of our major Even though the industrial and com- and technology they expect from industrial customers, and end-users, mercial markets were difficult, we Lincoln Electric, such as our Autoweld faced – and still face – challenges of experienced strong growth in sales system and specialty welding con- their own. We anticipate those chal- and profitability at Harris. Growth in sumables products, as well as our lenges will not subside in the near the retail market also benefited Harris. world-famous engine drive products. term. The major automobile manufac- Along with our welding machines, In addition, our AS Kaynak joint ven- turers have or will cut production, and Harris cutting equipment and con- ture in Turkey is well positioned to farm and construction equipment sumables can now be found at major take advantage of this market when makers have signaled a difficult road DIY outlets. This is a key area for us it stabilizes and begins its needed ahead. In addition, many of our as we continually build brand aware- infrastructure rebuilding. domestic customers are having diffi- ness on a global basis. The Asian markets provided a very culty with exports of their products AUTOMATION GROWTH good increase in our revenue, and due to the dollar’s strength. We are expanding facilities for the we believe this will continue in 2001. However, we continue to maintain Automation Division based in Euclid, Early in 2000, we acquired a major our market share and, in addition, Ohio. The expansion will more than stake in Kuang Tai, the region’s lead- grow in niche markets. The retail and double the amount of space housing ing producer of welding wire. Our rental market’s explosive growth in the Division’s manufacturing, engi- exclusive rights to distribute Kuang recent years has provided Lincoln neering, training and service. The Tai products to other world markets with increased sales and opportunities. expansion will be completed during added to our product portfolio. We 2001 and will provide increased will continue to experience the posi-
We continue to maintain our market share and, in addition, grow in niche markets. The retail and rental market’s explosive growth in recent years has provided Lincoln with increased sales and opportunities. Since 1995 we have grown at double-digit rates in these new and 6 expanding markets. The growth in the retail market is driven by a more aware and demanding consumer in the self-help and home improvement markets. Lincoln Electric's distribution centers are strategically placed to serve customers. Allan Ward (left), distribution manager for the Cleveland Distribution Center, Dennis Kapostasy, Ohio Valley region distribution manager, and Ann Pope, order associate, are shown with the popular Weld Pak 100 for the retail market. add to product portfolio
7 Cleveland employee Eric Nichols completes testing on a PowerArc 4000 welder/generator prior to shipment.
constant technolog
8 space for service, support and cus- The necessity of addressing poten- development and commercialization. tomer applications laboratories. The tial Y2K problems is now behind us, In March 2001, Lincoln dedicated its Automation unit is one of our fastest- but the “movement” put us ahead new David C. Lincoln Technology growing units, posting double-digit of the game. The additional efforts Center, the culmination of a two-year growth over the past eight years. The accelerated our IT enhancement expansion program at our Cleveland Division produces robotic welding and program and provided our Company headquarters. The new Center exem- cutting systems incorporating state- with an opportunity to upgrade our plifies Lincoln Electric's commitment of-the-art robots and leading-edge existing information technology sys- to constant technological innovation welding equipment and supporting tems and install new business systems. and product leadership. The facilities application software. We installed new systems to are state-of-the-art and will ensure The expanded facility will include increase productivity in our manufac- Lincoln’s continued technological assembly, test and storage areas to turing base and improve scheduling advancement in the future. support industrial customers and of production. The systems in the Other improvements throughout Lincoln’s partners in automation: United States, Europe, Canada and our plants include a remodeled print- Fanuc Robotics of North America, Asia/Pacific can now more accurately ed circuit board assembly operation a unit of Fanuc, Ltd. of Japan, and and quickly access crucial business and redesigned manufacturing space Genesis Systems Group of Davenport, information to book and track orders at the Cleveland plant for more Iowa. Lincoln also opened an automa- and deliveries. We also set up a pro- efficient and faster manufacturing and tion assembly, demonstration and gram with several of our distributor assembly. One major project is our training facility this past year in partners and larger industrial cus- steel fabrication area, which is Mississauga, Canada, near Toronto, tomers to enable them to access presently being refurbished to provide to serve the Canadian market. our systems directly. better productivity, safety and manu- INFORMATION TECHNOLOGY: AGGRESSIVE R&D/ENGINEERING facturing ability on the shop floor. Not A COMPETITIVE ADVANTAGE PROGRAM only will the end result provide higher As we added several important As the technology leader in the productivity, but it will give us the flex- businesses to our portfolio and arc welding field, we continue to seek ibility to change lines to tailor produc- expanded our internal base to make new ways to speed products from the tion runs to schedules and demand. Lincoln a truly global company, we idea or planning stage to the market- To further improve efficiency and augmented our business systems place. 2000 witnessed the introduc- quality, we have initiated a “Six to give us the information we need tion of more than 25 new welding Sigma” program at the Cleveland on a worldwide basis to work smarter machines and consumables, and operations. We have plans to expand and better. continued our lead in new product the program to our other global oper- ical innovation ations in the near future. We believe
As the technology leader in the arc welding field, we continue to seek new ways to speed products from the planning stage to the marketplace. 2000 witnessed the introduction of more than 25 new welding machines and consumables. In March 2001, Lincoln dedicated its new Technology Center, the culmination of a two-year expansion program. 9 this program will allow the knowledge Our hard work and perseverance “Promises Kept,” this campaign base of our employees to be effec- resulted in our 67th consecutive ensures that the customer always tively utilized to improve our competi- bonus paid to our Cleveland employ- gets a high-quality, reliable product tiveness. ees in 2000. or service. We at Lincoln take pride in LEGAL AFFAIRS In the area of people development, adding value to the welding process The strength and durability of our we continued to improve training and and we view customer service as an Lincoln franchise was enhanced in performance measurement for our essential part of the equation. We are 2000 by actions and results that work force through the Performance committed to continuous improve- reduced or eliminated significant legal Development System and the Lincoln ment in customer service. contingencies, including those posed merit rating system. We have also Lincoln has a very rich history. Its by the cases filed in the wake of the partnered with the Thunderbird value system and work ethic are as Northridge earthquake. School of International Management, strong today as when the Company Four years after the first case was based in Phoenix, to develop and was founded 106 years ago. We are filed, Lincoln finally went to trial in Los train managers for global assignments proud of those values and the people Angeles Superior Court last summer, through a program called the Inter- who keep those values alive: the and a jury ruled in our favor. We national Business Development employees, shareholders, distributors, proved that the Company acted program. customers and business partners responsibly and in accordance with On the business side, we built on of Lincoln Electric. prevailing codes and independent our commitment to those people who specifications. Following the trial make Lincoln the success it is today. Thank you for your continuing support. verdict, which was not appealed, Our distributor relationships are key to six other cases have been closed our business growth, and we imple- out, leaving only one case, which mented a number of incentive pro- is not material. grams and workshops to keep our LINCOLN IS PEOPLE AND CARING… distributors trained and updated on The challenge for our employees in Lincoln equipment and products. We Anthony A. Massaro 2000 was to work our way through also hosted a series of seminars for Chairman, President and an abrupt economic slowdown. As I major customers and end-users. Chief Executive Officer mentioned to you in communications To ensure that we remain a cus- during the past year, Lincoln Electric tomer-focused company, we has the culture and the determination launched an internal program to March 20, 2001 to not only survive tough times, but to improve how we serve the people emerge in a strengthened competitive who buy our products. Called position.
We at Lincoln take pride in adding value to the welding process and we view customer service as an essential part of the equation. We are committed to continuous improvement in customer service. 10 Pat Brennan (left), lab technologist, and Dennis Crockett, vice president of Consumable Research & Development, conduct a borate fusion for chemical analysis. increasing shareholder value
11 Financial Statements >
Consolidated Balance Sheets
December 31 (In thousands of dollars) 2000 1999 ASSETS Current Assets Cash and cash equivalents $ 11,319 $008,675 Accounts receivable (less allowances of $4,708 in 2000; $3,687 in 1999) 153,253 169,986 Inventories Raw materials and in-process 82,398 82,451 Finished goods 101,775 109,161 184,173 191,612 Deferred income taxes 25,767 23,311 Other current assets 41,570 33,011 TOTAL CURRENT ASSETS 416,082 426,595 Property, Plant and Equipment Land 12,564 11,050 Buildings 130,632 119,519 Machinery and equipment 416,502 419,831 559,698 550,400 Less: accumulated depreciation and amortization 290,685 279,610 269,013 270,790 Other Assets Goodwill 41,173 33,263 Other 64,011 44,751 105,184 78,014 TOTAL ASSETS $790,279 $775,399 Lincoln Electric Holdings, Inc.
12 December 31 (In thousands of dollars, except share data) 2000 1999 LIABILITIES AND SHAREHOLDERS’ EQUITY Current Liabilities Notes payable to banks $142,549 $116,425 Trade accounts payable 62,736 64,482 Accrued employee compensation and benefits 33,260 32,326 Accrued expenses 14,608 15,202 Taxes, including income taxes 47,882 41,326 Dividend payable 6,351 6,228 Other current liabilities 28,369 28,882 Current portion of long-term debt 12,593 11,503 TOTAL CURRENT LIABILITIES 248,348 216,374 Long-term debt, less current portion 38,550 47,207 Deferred income taxes 28,963 28,771 Other long-term liabilities 27,117 31,532 Shareholders’ Equity Preferred Shares, without par value – at stated capital amount: Authorized – 5,000,000 shares in 2000 and 1999; Issued and Outstanding – none — — Common Shares, without par value – at stated capital amount: Authorized – 120,000,000 shares in 2000 and 1999; Issued – 49,282,306 shares in 2000 and 49,283,950 shares in 1999; Outstanding – 42,338,803 shares in 2000 and 44,483,366 shares in 1999 4,928 4,928 Additional paid-in capital 104,893 104,891 Retained earnings 537,271 483,463 Accumulated other comprehensive income (59,988) (43,524) Treasury shares, at cost – 6,943,503 shares in 2000 and 4,800,584 in 1999 (139,803) (98,243) TOTAL SHAREHOLDERS’ EQUITY 447,301 451,515 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $790,279 $775,399
See notes to these consolidated financial statements. Lincoln Electric Holdings, Inc.
13 Consolidated Statements of Income
Year Ended December 31 (In thousands of dollars, except per share data) 2000 1999 1998 Net sales $1,058,601 $1,086,176 $1,186,679 Cost of goods sold 703,503 714,397 789,690 Gross profit 355,098 371,779 396,989 Selling, general & administrative expenses 216,217 223,761 249,581 Loss on disposal of motor business — 32,015 — Operating income 138,881 116,003 147,408 Other income (expense): Interest income 732 1,413 4,119 Other income (expense) (10,553) 2,352 1,213 Interest expense (7,383) (5,517) (5,676) (17,204) (1,752) (344) Income before income taxes 121,677 114,251 147,064 Income taxes 43,585 40,311 53,345 Net income $1,178,092 $1,173,940 $1,193,719 Basic earnings per share $1,1911.83 $1,1851.63 $1,1851.92 Diluted earnings per share $1,1911.83 $1,1851.62 $1,1851.91
See notes to these consolidated financial statements. Lincoln Electric Holdings, Inc.
14 Consolidated Statements of Shareholders’ Equity
Accumulated Class A Additional Other (In thousands of dollars, Common Common Paid-in Retained Comprehensive Treasury except per share data) Shares Shares Capital Earnings Income Shares Total Balance, January 1, 1998 $112,154 $112,768 $1103,722 $1359,639 $1(31,112) $(23,8—$1437,171 Comprehensive income: Net income 93,719 93,719 Currency translation adjustment 2,861 2,861 Total comprehensive income 96,580 Cash dividends declared – $0.42 per share (20,442) (20,442) Net shares issued under certain benefit plans 2 4 1,698 (633) 1,155 2,226 Purchase of shares for treasury (23,823) (23,823) Conversion of Class A Common Shares to Common Shares 2,772 (2,772) (779) (779) Balance, December 31, 1998 4,928 — 104,641 432,283 (28,251) (22,668) 490,933 Comprehensive income: Net income 73,940 73,940 Minimum pension liability adjustment (792) (792) Currency translation adjustment (14,481) (14,481) Total comprehensive income 58,667 Cash dividends declared – $0.50 per share (22,520) (22,520) Net shares issued under certain benefit plans 250 (240) 1,530 1,540 Purchase of shares for treasury (77,105) (77,105) Balance, December 31, 1999 4,928 — 104,891 483,463 (43,524) (98,243) 451,515 Comprehensive income: Net income 78,092 78,092 Minimum pension liability adjustment (429) (429) Currency translation adjustment (16,035) (16,035) Total comprehensive income 61,628 Cash dividends declared – $0.57 per share (24,157) (24,157) Net shares issued under certain benefit plans 2 (127) 645 520 Purchase of shares for treasury (42,205) (42,205) Balance, December 31, 2000 $114,928 $ 1—$1104,893 $1537,271 $1(59,988) $(139,803) $1447,301 Lincoln Electric Holdings, Inc.
15 See notes to these consolidated financial statements. Consolidated Statements of Cash Flows
Year Ended December 31 (In thousands of dollars) 2000 1999 1998 OPERATING ACTIVITIES Net income $178,092 $(73,940 $(93,719 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 34,712 29,122 28,079 Deferred income taxes (2,286) 862 10,199 (Gain) loss on sale of fixed assets and motor business (520) 31,276 (292) Changes in operating assets and liabilities net of effects from acquisitions: Decrease (increase) in accounts receivable 1,905 (16,077) (2,167) Decrease (increase) in inventories 6,005 (30,169) (6,007) (Increase) in other current assets (8,845) (8,228) (6,120) (Decrease) increase in accounts payable (4,963) 6,286 5,768 Increase (decrease) in other current liabilities 12,030 (7,445) (1,467) Gross change in other long-term assets and liabilities (3,342) 3,145 1,770 Other, net 8,046 (1,640) (1,397) NET CASH PROVIDED BY OPERATING ACTIVITIES 120,834 81,072 122,085 INVESTING ACTIVITIES Capital expenditures (34,800) (63,323) (81,411) Acquisitions of businesses and equity investments (18,903) — (10,820) Purchases of marketable securities and other investments — (1,666) (910) Proceeds from sale of marketable securities 6 1,930 10,872 Proceeds from sale of fixed assets and businesses 1,627 36,356 4,577 NET CASH (USED) BY INVESTING ACTIVITIES (52,070) (26,703) (77,692) FINANCING ACTIVITIES Proceeds from short-term borrowings 47,046 124,392 49,147 Payments on short-term borrowings (48,972) (121,036) (49,147) Notes payable to banks – net 29,270 10,087 (87) Proceeds from long-term borrowings 54,294 46,925 320 Payments on long-term borrowings (80,266) (46,129) (11,324) Purchase of shares for treasury (41,560) (75,575) (22,668) Cash dividends paid (24,034) (22,063) (19,594) Other (442) (707) 124 NET CASH (USED) BY FINANCING ACTIVITIES (64,664) (84,106) (53,229) Effect of exchange rate changes on cash and cash equivalents (1,456) (683) 1,369 INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,644 (30,420) (7,467) Cash and cash equivalents at beginning of year 8,675 39,095 46,562 CASH AND CASH EQUIVALENTS AT END OF YEAR $111,319 $( 8,675 $(39,095
See notes to these consolidated financial statements. Lincoln Electric Holdings, Inc.
16 Notes to Consolidated Financial Statements
(In thousands of dollars except share and per share data) December 31, 2000
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.
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, 2000 and 1999, approximately 59% and 64%, respectively, of total inventories were valued using the LIFO method. The excess of current cost over LIFO cost amounted to $39,746 at December 31, 2000 and $40,365 at December 31, 1999.
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 $12,552 and $11,163 in 2000 and 1999, 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. Impairment losses are recorded when the undiscounted cash flows estimated to be generated by those assets are less than the assets carrying amounts.
Revenue Recognition: The Company recognizes revenue at the time of product shipment.
Distribution Costs: Distribution costs, including warehousing and freight related to product shipments, are included in Cost of goods sold.
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 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 Lincoln Electric Holdings, Inc. contracts are recognized in the consolidated statements of income. 17 Research and Development: Research and development costs, which are expensed as incurred, were $16,604 in 2000, $15,403 in 1999 and $17,719 in 1998.
Estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States, 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). 2000 1999 1998 Numerator: Net income $78,092 $73,940 $93,719 Denominator: Denominator for basic earnings per share – Weighted-average shares outstanding 42,670 45,445 48,935 Effect of dilutive securities – Employee stock options 20 130 135 Denominator for diluted earnings per share – Adjusted weighted-average shares outstanding 42,690 45,575 49,070 Basic earnings per share $991.83 $991.63 $991.92 Diluted earnings per share $991.83 $991.62 $991.91
Reclassification: Certain reclassifications have been made to prior-year financial statements to conform to current year classifications.
New Accounting Pronouncement: The Financial Accounting Standards Board has issued Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities. This Statement, along with its amendments SFAS No. 137 and SFAS No. 138, will become effective for the Company for fiscal year 2001. The Company has evaluated the effect of these Statements, and the adoption of the Statement will not have a material impact on the Company’s consolidated financial statements.
Other: Included in Selling, general & administrative expenses are the costs related to the Company’s discretionary employee bonus, net of hospitalization costs, of $54,509 in 2000, $60,074 in 1999 and $76,491 in 1998.
NOTE B — SHAREHOLDERS’ EQUITY
In 1999, the Board of Directors authorized an additional share repurchase program of up to 5,000,000 shares of the Company’s outstanding Common Shares to satisfy obligations under its stock option plans. This share repurchase program is in addition to the 5,000,000 shares authorized for repurchase by the Board of Directors in September 1998. In May 2000, the Company suspended the share repurchase program, pending the outcome of the proposed Charter plc acquisition (see Note H), but reinstituted the program in December 2000 subsequent to the lapse of the offer. In 2000, the Company purchased 2,178,130 shares at an average cost of $19.38 per share, bringing the total shares purchased through December 31, 2000, to 7,125,380 at an average cost of $20.09 per share. 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, 2000 or 1999. The Preferred Shares were authorized to provide the Company flexibility in future financing or acquisitions, and to render more difficult 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 meet the needs of a particular transaction. Each issuance of Preferred Shares may have distinct dividend rights, conversion rights and liquidation preferences.
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 Lincoln Electric Holdings, Inc.
18 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, 2000, under both the Stock Option Plan and the Incentive Equity Plan:
2000 1999 1998 Weighted- Weighted- Weighted Average Average Average Exercise Exercise Exercise Options Price Options Price Options Price Balance, beginning of year 1,567,334 $18.13 1,186,530 $17.27 1,044,580 $15.56 Options granted 787,375 $13.60 459,100 $19.88 294,700 $22.38 Options exercised (29,876) $14.08 (78,296) $15.26 (144,416) $15.43 Options canceled (106,040) $14.36 — — (8,334) $15.79 Balance, end of year 2,218,793 $16.76 1,567,334 $18.13 1,186,530 $17.27 Exercisable at end of year 1,065,512 $17.82 864,405 $16.30 654,466 $15.25
During 1996, options for 335,180 shares were granted to employees in settlement of a lawsuit over performance awards relating to prior years. Exercise prices are $15.00 and $17.00 per share. These options are exercisable over five- and ten-year periods and are fully vested, non-qualified and non-transferable. At December 31, 2000 and 1999, there were 169,982 and 202,198, respectively, 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. The majority of the options granted under both plans vest ratably over a period of three years 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. Under the intrinsic value 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.
2000 1999 1998 Pro Forma Reported Pro Forma Reported Pro Forma Reported Net income $ 76,413 $ 78,092 $ 72,513 $ 73,940 $ 92,763 $ 93,719 Basic earnings per share 1.79 1.83 1.60 1.63 1.90 1.92 Diluted earnings per share 1.79 1.83 1.59 1.62 1.89 1.91 Weighted-average fair value of options granted during the year 5.59 — 7.83 — 8.07 —
In estimating the fair value of options granted, an expected option life of ten years was used. The other weighted-average assumptions were as follows: 2000 1999 1998 Expected volatility 42.60% 34.90% 30.80% Dividend yield 2.90% 2.72% 2.16% Risk-free interest rate 5.17% 6.41% 4.66%
The Stock Option Plan for Non-Employee Directors (“Directors Stock Option Plan”) was adopted in May 2000 to replace The Lincoln Non-Employee Directors Restricted Stock Plan, which was terminated. The Directors Stock Option Plan provides for
the grant of stock options for the purchase of up to an aggregate of 500,000 Common Shares. Options issued under the Directors Lincoln Electric Holdings, Inc.
Stock Option Plan were 18,000 in 2000. Shares issued in connection with The Lincoln Non-Employee Directors’ Restricted Stock 19 Plan were 5,335 in 2000, 5,174 in 1999 and 5,654 in 1998. In 2000, 1,644 shares were forfeited under the service requirements of the plan. At December 31, 2000, there were 3,958,825 shares of common stock available for future grant under all plans, and the weighted-average remaining contractual life of outstanding options was 8.1 years. The price range of all outstanding options was $13.50 to $22.38. 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 26,559 shares purchased in 2000, 18,313 shares purchased in 1999 and 7,619 shares purchased in 1998. NOTE D — SHORT-TERM AND LONG-TERM DEBT
At December 31, 2000 and 1999, long-term debt consisted of the following:
2000 1999 8.73% Senior Note due 2003 (three equal annual principal payments remaining) $28,125 $37,500 Credit Agreement, interest at 6.35% in 1999 — 10,000 Foreign borrowings, interest at 1.5% to 12.4% (3.0% to 12.4% in 1999) 14,430 2,447 Other borrowings due through 2023, interest at 2.0% to 6.2% 8,588 8,763 51,143 58,710 Less current portion 12,593 11,503 Total $38,550 $47,207
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 that require the same interest coverage and funded debt-to-capital ratios. At December 31, 2000, the Company had no borrowings under short-term credit lines in the United States, with uncommitted borrowing capacity of $35,000. Short-term borrowings of foreign subsidiaries were $42,549 and $6,425 at December 31, 2000 and 1999, at weighted-average interest rates of 7.4% and 6.8%, respectively. Uncommitted additional borrowing capacity of foreign subsidiaries was $13,878 at December 31, 2000. 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 three-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, 2000 was 9.55%. 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 on the Senior Note, was $28,125 at December 31, 2000. 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, 2000 are $12,593 in 2001, $14,399 in 2002, $13,674 in 2003, $4,039 in 2004, $1,178 in 2005 and $5,260 thereafter. Total interest paid was $6,957 in 2000, $5,534 in 1999 and $5,593 in 1998.
NOTE E — INCOME TAXES
The components of income before income taxes are as follows:
2000 1999 1998 U.S. $105,181 $ 91,236 $123,586 Non-U.S. 16,496 23,015 23,478 Total $121,677 $114,251 $147,064
Components of income tax expense (benefit) are as follows:
2000 1999 1998 Current: Federal $32,159 $28,620 $26,724 Non-U.S. 9,278 4,838 9,020 State and local 3,866 5,991 7,402 45,303 39,449 43,146 Lincoln Electric Holdings, Inc. Deferred: 20 Federal 333 (2,463) 11,016 Non-U.S. (2,051) 3,325 (817) (1,718) 862 10,199 Total $43,585 $40,311 $53,345 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:
2000 1999 1998 Statutory rate of 35% applied to pre-tax income $42,587 $39,988 $51,472 Effect of state and local income taxes, net of Federal tax benefit 2,513 3,894 4,811 Taxes in excess of (less than) the U.S. tax rate on non-U.S. earnings, including utilization of tax loss carryforwards and losses with no benefit 1,454 218 (14) Foreign sales corporation (1,437) (1,460) (1,975) Other – net (1,532) (2,329) (949) Total $43,585 $40,311 $53,345 Effective tax rate 35.8% 35.3% 36.3%
Total income tax payments, net of refunds, were $35,699 in 2000, $34,361 in 1999 and $44,432 in 1998. At December 31, 2000, certain non-U.S. subsidiaries had tax loss carryforwards of approximately $54,072 that expire in various years from 2001 through 2010, except for $24,717 for which there is no expiration date. Significant components of deferred tax assets and liabilities at December 31, 2000 and 1999, were as follows:
2000 1999 Deferred tax assets: Tax loss and credit carryforwards $19,140 $17,849 State income taxes 2,765 2,614 Inventory 7,566 7,081 Other accruals 17,996 15,509 Employee benefits 7,131 5,194 Pension obligations 5,013 3,633 Other 13,199 14,075 72,810 65,955 Valuation allowance (16,093) (16,623) 56,717 49,332 Deferred tax liabilities: Property, plant and equipment (22,902) (24,101) Pension obligations (11,920) (10,748) Other (25,091) (19,943) (59,913) (54,792) Total $1(3,196) $1(5,460)
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
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 executive retirement plan for certain key employees. Substantially all U.S. employees are covered under a 401(k) Lincoln Electric Holdings, Inc. savings plan in which they may invest 1% or more of eligible compensation, limited to maximum amounts as determined by the Internal Revenue Service. As the result of a revision made to the plan in the fourth quarter of 2000, the plan provides for Company 21 matching contributions of 35% of the first 6% of employee compensation contributed to the plan. This was an increase over the 25% of the first 6% of employee compensation contributed to the plan under the original plan document. The plan includes 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. 22 Lincoln Electric Holdings, Inc. Unrecognized priorservicecost Amortization oftransitionasset Intangible asset Unrecognized netloss(gain) Amortization ofpriorservicecost Obligation atDecember31 Obligation atJanuary1 The changesinthepensionplans’benefitobligationswere asfollows: Defined contributionplans Amortization ofnet(gain)loss onplanassets Expected return Interest costonprojected benefitobligation during theyear Service cost–benefitsearned and 1999,was$12,316$11,998,respectively; theaggregate fairvalueofplanassetswas$0atDecember31,2000and1999. obligation (ABO)exceededplanassetsatDecember31,2000and1999. Theaggregate ABOofsuchplansatDecember31, 2000 Prepaid pensionexpenserecognized inthebalancesheet Other comprehensive income Accrued pensionliability Prepaid pensioncost The prepaid pensionexpenserecognized intheconsolidatedbalancesheetswascomposedof: Prepaid pensionexpenserecognized inthebalancesheet Unrecognized transitionassets,net Plan assetsinexcessofprojected benefitobligations The fundedstatusofthepensionplansatDecember31,2000and1999,wasasfollows: Plan assetsatDecember31 Plan assetsatJanuary1 The changesinthefairvaluesofpensionplans’assetswere asfollows: eteet utimnsadseiltriainbnft 178 — — Settlement, curtailmentsandspecial terminationbenefits Net pensioncostofdefinedbenefit plans Benefit payments Actuarial loss(gain) Plan amendments Benefit payments Participant contributions Interest cost Service cost Currency translation Total pension expense Currency translation Participant contributions Employer contributions onplan assets Actual return A summaryofthecomponentstotalpensionexpensewasasfollows: A domesticnon-qualifiedpensionplancomprisedthelargestportion of thepensionplansinwhichaccumulatedbenefit $ $12,321 (40,733) 0019 1998 1999 2000 1 31,077 1,177 5,237 2,040 3,197 (436) (209) $445,634 $423,132 $452,697 $475,811 $ $20,744 $30,685 $20,744 (13,055) 5 1,5 $13,013 $13,955 $ 001999 2000 1999 2000 (25,453) (25,453) 001999 2000 1999 2000 3,4)(34,494) (37,148) (1,313) 31,077 12,321 7,064 96828,180 29,618 1 9,673 1,893 5,320 1,221 (5,036) (5,772) 8,918 7,223 ,7 1,123 1,272 ,9 2,090 2,393 ,8 $ 9,984 ,9 7,688 7,591 43 (452) (453) 278 397 397 491 4 318 347 $423,132 $438,704 $475,811 $431,161 $52,679 $16,941 $26,279 $16,941 (44,604) (12,010) 10,696 (21,171) (39,620) (21,171) (1,830) 29,618 13,955 59,680 1 1,880 9,956 4,736 792 492 476 476 678 929 Weighted-average assumptions used in accounting for the defined benefit plans as of December 31, 2000 and 1999, were as follows: 2000 1999 Discount rate 7.4% 7.6% Rate of increase in compensation 4.9% 4.9% 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 post- retirement 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
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 manages its operations by geographic location and has three reportable segments: 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 Note A – Significant Accounting Policies. Financial information for the reportable segments follows: Other United States Europe Countries Eliminations Consolidated 2000: Net sales to unaffiliated customers $705,086 $185,340 $168,175 $11,,88— $1,058,601 Inter-segment sales 70,146 12,108 21,936 (104,190) — Total $775,232 $197,448 $190,111 $(104,190) $1,058,601 Income before interest and income taxes $109,202 $119,571 $118,574 $8(18,981 $1,128,328 Interest income 732 Interest expense (7,383) Income before income taxes $1,121,677 Total assets $507,826 $184,703 $189,253 $1(91,503) $1,790,279 Capital expenditures 20,742 3,545 10,425 88 34,800 Depreciation and amortization 23,806 6,191 5,381 (666) 34,712 1999: Net sales to unaffiliated customers $744,035 $186,615 $155,526 $11,,88— $1,086,176 Inter-segment sales 62,439 9,668 16,378 (88,485) — Total $806,474 $196,283 $171,904 $1(88,485) $1,086,176 Income before interest and income taxes $199,870 $210,599 $118,090 $818,(204) $2,118,355 Interest income 1,413 Interest expense (5,517) Income before income taxes $8,114,251 Total assets $543,948 $164,978 $140,064 $1(73,591) $1,775,399
Capital expenditures 38,996 7,045 19,008 (1,726) 63,323 Lincoln Electric Holdings, Inc. Depreciation and amortization 18,645 6,847 4,255 (625) 29,122 23 Other United States Europe Countries Eliminations Consolidated 1998: Net sales to unaffiliated customers $816,562 $208,782 $161,335 $1(188— $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 $914,935 $410,191 $5(2,198) $1,148,621 Interest income 4,119 Interest expense (5,676) Income before income taxes $9,147,064 Total assets $542,462 $186,666 $119,344 $(65,566) $1,782,906 Capital expenditures 52,632 11,109 19,542 (1,872) 81,411 Depreciation and amortization 18,431 6,704 3,485 (541) 28,079
The United States segment for 2000 included a net charge of $13,399 for costs associated with the lapsed Charter plc offer, net of proceeds from settlement of a dispute with one of the Company’s product liability insurance carriers. The United States segment for 1999 included a $32,015 charge related to the sale of the motor business. See Note H for further information. Inter-segment 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 $60,223 in 2000, $66,019 in 1999 and $92,461 in 1998. No individual customer comprised more than 10% of the Company’s total revenues for the three years ended December 31, 2000. The geographic split of the Company’s revenues, based on customer location, and property, plant and equipment was as follows: 2000 1999 1998 Revenues: United States $1,644,863 $1,678,017 $1,724,101 Foreign countries 413,738 408,159 462,578 Total $1,058,601 $1,086,176 $1,186,679 Property, plant and equipment: United States $1,172,838 $1,176,256 $1,174,188 Foreign countries 99,706 99,494 89,375 Eliminations (3,531) (4,960) (3,772) Total $ 269,013 $1,270,790 $1,259,791
Revenues derived from customers and property, plant and equipment in any individual foreign country were not material for disclosure.
NOTE H — ACQUISITIONS AND DIVESTITURE
On April 26, 2000, the Company made a cash offer in the United Kingdom to purchase all of the outstanding shares of Charter plc, a British industrial holding company. In October 2000, the Company’s offer to purchase Charter plc lapsed. As a result, the acquisition was not completed and the Company recorded an additional after-tax charge of $11,608 ($0.27 per diluted share) during the fourth quarter of 2000, representing remaining costs associated with the lapsed bid. For the year, the Company recorded total non-recurring charges of $13,399 ($8,126 after-tax) in Other income and expense. Of this amount, the quarter ended June 30, 2000, included a net gain of $10,183 ($6,273 after-tax) principally related to proceeds received in settlement of a dispute with one of the Company’s product liability insurance carriers. In addition, the quarter ended September 30, 2000, included a net charge of $4,396 ($2,791 after-tax) principally related to costs of foreign currency options purchased in connection with the lapsed
Lincoln Electric Holdings, Inc. Charter plc bid. During the period in which the Charter acquisition was pending, the Company had suspended dividend payments 24 and its share repurchase program; both were reinstituted in December 2000 upon lapse of the offer. During the first quarter of 2000, the Company acquired a 35% equity interest in Kuang Tai, a Taiwan-based manufacturer of welding wire, for $16.7 million and 100% of C.I.F.E. S.r.l., an Italian-based manufacturer of MIG wire, for $2.5 million, plus assumed debt of $10.1 million, which was accounted for as a purchase. On May 28, 1999, the Company sold its motor business to Regal-Beloit, Inc. The Company recorded a pre-tax charge of $32,015 ($19,721 after-tax, or $0.43 per diluted share) reflecting the loss on the sale of motor business assets. The results of operations from the motor business were not material to the Company for the years ended December 31, 1999 and 1998. 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 that 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 $28,312 at December 31, 2000, and $50,030 at December 31, 1999, which approximated fair value. The carrying amounts and estimated fair value of the Company’s significant financial instruments at December 31, 2000 and 1999, were as follows:
December 31, 2000 December 31, 1999 Carrying Fair Carrying Fair Amounts Value Amounts Value Cash and cash equivalents $11,319 $11,319 $38,675 $38,675 Notes payable to banks 42,549 42,549 16,425 16,425 Long-term debt (including current portion) 51,143 51,286 58,710 58,342 Interest rate swap agreements payable — 234 — 561
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 $8,931 in 2000, $8,902 in 1999 and $7,297 in 1998. At December 31, 2000, total minimum lease payments for noncancelable operating leases were $6,740 in 2001, $5,000 in 2002, $3,795 in 2003, $2,213 in 2004, $1,653 in 2005 and $1,302 thereafter.
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 and health, safety and environmental claims. The Company believes it has meritorious defenses to these claims and intends to contest such suits vigorously. All costs associated with these claims, including defense and settlements, have been immaterial to the Company’s consolidated financial statements. Based on the Company’s historical experience in litigating these claims, including a significant number of dismissals, summary judgments and defense verdicts in many cases and immaterial settlement amounts, the Company believes resolution of these claims and proceedings, individually or in the aggregate, will not have a material adverse impact upon the Company’s consolidated financial statements.
NOTE L — QUARTERLY FINANCIAL DATA (UNAUDITED)
2000 Mar 31 Jun 30 Sep 30 Dec 31 Net sales $281,804 $274,238 $251,198 $251,361 Gross profit 96,115 91,973 81,151 85,859 Income before income taxes 38,373 46,268 24,682 12,354 Net income 24,398 29,358 15,675 8,661 Basic earnings per share $3330.56 $3330.69 $3330.37 $3330.20 Diluted earnings per share $3330.56 $3330.69 $3330.37 $3330.20
1999 Mar 31 Jun 30 Sep 30 Dec 31 Lincoln Electric Holdings, Inc. Net sales $282,868 $273,498 $265,937 $263,873 25 Gross profit 96,567 93,588 91,233 90,391 Income before income taxes 5,661 36,376 36,411 35,803 Net income 4,307 23,335 23,303 22,995 Basic earnings per share $3330.09 $3330.51 $3330.52 $3330.51 Diluted earnings per share $3330.09 $3330.51 $3330.51 $3330.51 The quarter ended June 30, 2000, includes a net gain of $10,183 ($6,273 after-tax) principally related to proceeds received in settlement of a dispute with one of the Company’s product liability insurance carriers. The quarter ended September 30, 2000, includes a net charge of $4,396 ($2,791 after-tax) principally related to costs of for- eign currency options purchased in connection with the lapsed Charter plc bid. The quarter ended December 31, 2000, includes a charge of $19,186 ($11,608 after-tax) related to costs associated with the lapsed Charter plc bid. The quarter ended March 31, 1999, includes a $32,015 pre-tax charge ($19,721 after-tax or $0.43 per diluted share) related to the sale of the motor business. See Note H for further information. The quarterly earnings per share (EPS) amounts are each calculated independently. Therefore, the sum of the quarterly EPS amounts may not equal the annual totals due to share transactions that occurred during the years presented.
Report of Independent Auditors
SHAREHOLDERS AND BOARD OF DIRECTORS LINCOLN ELECTRIC HOLDINGS, INC.
We have audited the consolidated balance sheets of Lincoln Electric Holdings, Inc. and subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of income, shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the 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, 2000 and 1999, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States.
Cleveland, Ohio January 31, 2001 Lincoln Electric Holdings, Inc.
26 Management’s Discussion > and Analysis of Financial Condition and Results of Operations
GENERAL
The Company is the world’s largest designer and manufacturer of arc welding and cutting products, manufacturing a full line of arc welding equipment, consumable welding products and other welding and cutting products. The Company sold its motor business in May 1999. On April 26, 2000, the Company made a cash offer in the United Kingdom to purchase all of the outstanding shares of Charter plc, a British industrial holding company. In October 2000, the Company’s offer to purchase Charter plc lapsed. As a result, the acquisition was not completed and the Company recorded an additional after-tax charge of $11,608 ($0.27 per diluted share) during the fourth quarter of 2000 representing remaining costs associated with the lapsed bid. For the year, the Company recorded total non-recurring charges of $13,399 ($8,126 after-tax) in Other income and expense. Of this amount, the quarter ended June 30, 2000, included a net gain of $10,183 ($6,273 after-tax) principally related to proceeds received in settlement of a dispute with one of the Company’s product liability insurance carriers. In addition, the quarter ended September 30, 2000, included a net charge of $4,396 ($2,791 after-tax) principally related to costs of foreign currency options purchased in connection with the lapsed Charter plc bid. During the period in which the Charter acquisition was pending, the Company had suspended dividend payments and its share repurchase program; both were reinstituted in December 2000 upon lapse of the offer. Consolidated net sales decreased 2.5% from 1999 to $1,059 million. Excluding the results of the divested motor business, sales in 1999 would have been $1,064 million, resulting in a year-over-year decrease of 0.5%. Net income increased 5.6% to $78.1 million or $1.83 per share (diluted). Excluding charges for costs associated with the lapsed offer to acquire Charter plc, net proceeds received from a product liability insurance carrier in 2000 and the costs related to the disposal of the motor business in 1999, 2000 net income would have been $86.2 million, a decrease of $7.5 million from 1999. Excluding non-recurring items in both years, the Company had diluted earnings per share of $2.02 and $2.06 in 2000 and 1999, respectively. Earnings per share was positively impacted by the repurchase of 2,178,130 shares in 2000, representing 4.9% of outstanding shares at December 31, 1999. 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 $16.6 million in 2000, compared with $15.4 million in 1999. Expenditures were primarily related to the development of new products. The Company believes that over the past three years, expenditures for research and development activities have been adequate to maintain the Company’s leadership position and to introduce new products at an appropriate rate to sustain future growth.
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, 2000. 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. Lincoln Electric Holdings, Inc. 27 RESULTS OF OPERATIONS
The following table shows the Company’s results of operations: Year ended December 31 (Dollars in millions) 2000 1999 1998 Amount % of Sales Amount % of Sales Amount % of Sales $816.6
$744.0 Net Sales $1,058.6 100.0% $1,086.2 100.0% $1,186.7 100.0% $705.1 Cost of Goods Sold 703.5 66.5% 714.4 65.8% 789.7 66.6% Gross Profit 355.1 33.5% 371.8 34.2% 397.0 33.4% Selling, General & Administrative Expenses 216.2 20.4% 223.8 20.6% 249.6 21.0% $370.1 $353.5 $342.2 Loss on Disposal of Motor Business —— 32.0 2.9% — —% Operating Income 138.9 13.1% 116.0 10.7% 147.4 12.4% Interest Income 0.7 0.1% 1.4 0.1% 4.1 0.3% Other Income (expense) (10.5) (1.0%) 2.3 0.2% 1.2 0.1% 98 99 00 Interest Expense (7.4) (0.7%) (5.5) (0.5%) (5.6) (0.4%) U.S. (includes exports) Non-U.S. Income Before Income Taxes 121.7 11.5% 114.2 10.5% 147.1 12.4% U.S. and Non-U.S. Sales Income Taxes 43.6 4.1% 40.3 3.7% 53.4 4.5% dollars in millions Net Income $1,178.1 7.4% $1,173.9 6.8% $1,193.7 7.9%
2000 COMPARED TO 1999 34.2% 33.5% 33.4% Net Sales. Net sales for 2000 declined 2.5% to $1,058.6 million from $1,086.2 million in 1999. Excluding the results of the divested motor business, sales in 1999 would have been $1,064.4 million, a year-over-year decrease of 0.5%. Third-party sales from U.S. operations declined by 5.2% to $705.1 million from $744.0 million in 1999. U.S. domestic sales declined 4.9% from 1999. Excluding the results of the divested motor business, third-party sales from U.S. operations and U.S. domestic sales declined 2.4% and 1.7%, respectively. The decline was due to lower demand from industrial customers and distributors. U.S. exports were down 8.8% to $60.2 million in 2000, compared with $66.0 million in 1999. Non-U.S. third-party sales increased 3.3% to $353.5 million from $342.2 million in 1999. Manufacturing capacity expansion in Canada, Mexico and Asia have positively impacted sales for 2000, and the February 2000 acquisition of C.I.F.E. S.r.l. in Italy has contributed to the European sales increase. The strengthening of the U.S. dollar, particularly against the euro, continued to negatively impact non-U.S. sales during 2000. Non-U.S. and export 98 99 00 sales for 2000 amounted to 39.1% of the Company’s total sales. Gross Profit Percentage Gross Profit. Gross profit declined to $355.1 million in 2000 from $371.8 million in 1999. Gross profit as a percentage of sales was 33.5% in 2000, compared with 34.2% in 1999. Gross profit margins in the U.S. declined slightly due to lower plant utilization and sales volumes. Non-U.S. gross margins were down year-over-year due to a change in sales mix to lower margin products, competitive pricing pressures and lower plant utilization in Europe.
Selling, General and Administrative (SG&A) Expenses. Selling, general and administrative expenses were $216.2 million in 2000, or 20.4% of sales, as compared to $223.8 million, or 20.6% of sales in 1999. Included in SG&A expenses are the costs related to the Company’s discretionary employee bonus program, net of hospitalization costs. The reduction in SG&A expenses compared to last year were due to lower sales volume, continuing expense reduction efforts and reduced bonus expense, offset in part by increased foreign currency transaction losses. Bonus costs in 2000 were down $5.6 million from 1999 due to lower achievement versus profitability objectives. The strengthening U.S. dollar reduced SG&A costs for non-U.S. operations by $7.7 million.
Interest Income. Interest income decreased $0.7 million, or 50.0%, to $0.7 million in 2000. The decline reflects reduced levels of cash investments due to capital expenditures and purchases of treasury shares.
Other Income. Other income includes a net charge of $13.4 million ($8.1 million after-tax) principally related to the costs associated with the lapsed Charter offer, offset by net proceeds received in settlement of a dispute with one of the Company’s product liability Lincoln Electric Holdings, Inc. insurance carriers. 28 Interest Expense. Interest expense increased $1.9 million or 34.5% to $7.4 million in 2000. The increase in interest expense corresponded to higher debt levels incurred in 2000 to fund share repurchases, the acquisition of C.I.F.E. S.r.l. and a 35% interest in Kuang Tai during the first quarter of 2000.
Income Taxes. Income taxes in 2000 were $43.6 million on income before income taxes of $121.7 million, an effective rate of 35.8%, as compared with income taxes of $40.3 million on income before income taxes of $114.2 million, or an effective tax rate of 35.3%. The increase in the effective tax rate is due to the current inability to utilize non-U.S. tax loss carryforwards. Net Income. Net income was $78.1 million and $73.9 million in 2000 and 1999, respectively. Excluding the non-recurring items from 2000 and the charges for the motor business disposal from 1999, net income would have been $86.2 million in 2000 and $93.7 million in 1999. The effect of exchange rate movement on net income was not material for 2000 or 1999.
1999 COMPARED TO 1998 21.0% 20.6% Net Sales. Net sales for 1999 declined 8.5% to $1,086.2 million from $1,186.7 million in 1998. Third-party sales from U.S. operations 20.4% declined by 8.9% to $744.0 million from $816.6 million in 1998. U.S. domestic sales declined 6.4% from 1998. Excluding the results of the divested motor business, U.S. sales in 1998 would have been $762.9 million, reflecting a year-over-year decline of 5.3%. This sales decline was primarily volume-driven. Worldwide economic conditions, particularly in Asia, South America, and the Middle East combined to impact U.S. exports, which were down 28.6% to $66.0 million in 1999, compared with $92.5 million in 1998. Non-U.S. third-party sales declined 7.6% to $342.2 million from $370.1 million in 1998. Sales declines in the international regions were also primarily volume-driven. The weakening of foreign currencies against the U.S. dollar reduced non-U.S. sales by $12.2 million or 3.5%, caused principally by the devaluation of the European and Brazilian currencies. Non-U.S. and export sales for 1999 amounted to 37.5% of the Company’s total sales. 98 99 00 SG&A Expenses Gross Profit. Gross profit declined to $371.8 million in 1999 from $397.0 million in 1998. Gross profit as a percentage of sales as a Percentage of Sales was 34.2% in 1999, compared with 33.4% in 1998. U.S. margins improved due to the divestiture of the motor business, improved manufacturing efficiencies and lower raw material costs. Gross profit as a percentage of sales fell for the European operations due to lower sales volume, unfavorable manufacturing variances, product mix and downward pricing pressure related to the poor economic environment. Lower sales volume, product mix and price pressure also negatively impacted margins at the Australian operation. $122.1
Selling, General and Administrative (SG&A) Expenses. Selling, general and administrative expenses were $223.8 million in 1999, $120.8 or 20.6% of sales, as compared to $249.6 million, or 21.0% of sales in 1998. Included in SG&A expenses are the costs related to the Company’s discretionary employee bonus program, net of hospitalization costs. The decrease in SG&A from last year is due to lower sales volume, lower planned R&D spending and lower bonus expense. Lower bonus expense was attributable to lower $81.1 profitability versus objectives. The strengthening U.S. dollar reduced SG&A costs for non-U.S. operations by $3.7 million.
Interest Income. Interest income decreased $2.7 million, or 65.9%, to $1.4 million in 1999. The decline reflects reduced levels of cash investments due to capital expenditures, purchases of treasury shares, an increase in the shareholder dividend payout and the increased use of lower yielding, non-taxable investments. 98 99 00 Interest Expense. Interest expense decreased $0.1 million or 1.8% to $5.5 million in 1999. The decline reflects lower debt levels Cash Provided by Operations due to scheduled debt repayments. dollars in millions
Income Taxes. Income taxes in 1999 were $40.3 million on income before income taxes of $114.2 million, an effective rate of 35.3%, as compared with income taxes of $53.4 million in 1998 on income before income taxes of $147.1 million, or an effective tax rate of 36.3%. The decrease in the effective tax rate is primarily attributable to the corporate reorganization.
Net Income. Net income was $73.9 million and $93.7 million in 1999 and 1998, respectively. Excluding the charge for the disposal of the motor business, net income for 1999 was $93.7 million, which was consistent with 1998 results. The effect of exchange rate movements on net income was not material for 1999 or 1998.
LIQUIDITY AND CAPITAL RESOURCES
During 2000, the Company’s debt levels increased 24.8% from $75.1 million at December 31, 1999, to $93.7 million at December 31, 2000. Total percent of debt to total capitalization increased to 17.3% at December 31, 2000, from 14.3% at December 31, 1999, as a result of share repurchases. 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. Lincoln Electric Holdings, Inc. Cash provided from operations was $120.8 million in 2000, an increase of $39.7 million from $81.1 million in 1999. The primary reason for the increase is the improved management of operating working capital. 29 Capital expenditures during 2000 were $34.8 million, a 45.0% decrease from 1999. The decline was largely related to spending on information systems in the U.S. and Europe in 1999. In addition, the Company is no longer expanding plant production capacity, as market growth has slowed. During the first quarter of 2000, the Company acquired a 35% interest in Kuang Tai, a Taiwan-based manufacturer of welding wire, for $16.7 million and 100% of C.I.F.E. S.r.l., an Italian-based manufacturer of MIG wire, for $2.5 million, plus assumed debt of $10.1 million. The stock repurchase program that began in 1998 has continued to lower the Company’s equity base. During 2000, the Company purchased 2,178,130 shares of its common stock on the open market at a cost of $42.2 million, bringing the total shares purchased to 7,125,380 shares at a cost of $143.1 million through December 31, 2000. In December 2000, the share repurchase program, which had been suspended on May 2, 2000, was reinstated subsequent to the lapsed Charter plc offer. A total of $24.0 million in dividends was paid during 2000. In December 2000, the Company paid a cash dividend of 14 cents per share, replacing the regular third quarter dividend. Dividend payments had been suspended earlier in the year due to financing requirements related to the then pending Charter acquisition. Also in December, the fourth quarter dividend was increased from $0.14 per share to $0.15 per share. This dividend was paid in January 2001.
NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has issued Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities. This Statement, along with its amendments SFAS No. 137 and SFAS No. 138, will become effective for the Company for fiscal year 2001. The Company has evaluated the effects of these Statements on its accounting and reporting policies, and the adoption of the Statement will not have a material impact on the Company’s consolidated financial statements.
LITIGATION
The Company, like other manufacturers, is subject from time to time to a variety of civil and administrative proceedings arising in the ordinary course of business. Such claims and litigation include, without limitation, product liability claims and health, safety and environmental claims. The Company believes it has meritorious defenses to these claims and intends to contest such suits vigorously. All costs associated with these claims, including defense and settlements, have been immaterial to the Company’s consolidated financial statements. Based on the Company’s historical experience in litigating these claims, including a significant number of dismissals, summary judgments and defense verdicts in many cases and immaterial settlement amounts, the Company believes resolution of these claims and proceedings, individually or in the aggregate, will not have a material adverse impact upon the Company’s consolidated financial statements.
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:
• 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.
• 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 Litigation discussion above and Note K to the consolidated financial statements for further discussion of litigation. Lincoln Electric Holdings, Inc. • Cyclicality and Maturity of the Welding and Cutting Industry. The United States arc welding and cutting industry is both 30 mature and cyclical. The growth of the domestic arc welding and cutting 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 decreased the domestic demand for arc welding and cutting products in the Company’s largest market.
• 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.
Additional Shareholder Information
MARKET AND DIVIDEND INFORMATION
The Company’s common shares are traded on the Nasdaq Stock Market. The number of record holders of common shares at December 31, 2000 was 2,539. 2000 Dividends Quarter Ended High Low Declared March 31 $24.37 $18.12 $0.14 June 30 22.93 13.75 0.14 September 30 16.87 11.01 —* December 31 20.00 12.00 0.29**
1999 Dividends Quarter Ended High Low Declared March 31 $23.75 $17.63 $0.12 June 30 23.75 18.25 0.12 September 30 22.50 18.31 0.12 December 31 22.94 18.88 0.14
Source: The Nasdaq Stock Market * The Company suspended its regular third quarter dividend, due to its then pending acquisition of Charter plc. ** Due to the lapsed offer of the Charter acquisition, the Company paid its regular third quarter dividend in the fourth quarter.
SELECTED FINANCIAL DATA
Year Ended December 31 (In thousands of dollars, except per share data) 2000 1999 1998 1997 1996 Net sales $1,058,601 $1,086,176 $1,186,679 $1,159,067 $1,109,144 Net income 78,092 73,940 93,719 85,414 74,253 Basic earnings per share $1,0881.83 $1,0881.63 $1,0881.92 $1,0881.73 $1,0881.49 Diluted earnings per share 1.83 1.62 1.91 1.73 1.49 Cash dividends declared 0.57 0.50 0.42 0.325 0.24 Total assets $1,790,279 $1,775,399 $1,782,906 $1,712,190 $1,647,199 Long-term debt $1,138,550 $1,147,207 $1,146,766 $1,154,360 $1,164,148
The per share amounts presented above reflect the corporate reorganization (see note B to the consolidated financial statements). Lincoln Electric Holdings, Inc.
31 32 Lincoln Electric Holdings, Inc. Directors Officers Directors Former Vice ChairmanoftheCompany Former Vice Harry Carlson,*1973 President, LincolnElectricLatinAmerica PresidentVice *1995 Ralph C.Fernandez, President,Vice ReliabilityandQuality Paul F. Fantelli,*1970 Chief FinancialOfficer andTreasurer President,Senior Vice ^H. JayElliott,*1993 President, LincolnElectricEurope PresidentVice Joseph G.Doria,*1972 Consumable Research andDevelopment President,Vice Dennis D.Crockett, *1965 President,Vice Engineering George D.Blankenship,*1985 Executive Officer ofTheGeneralElectricCo. Chairman oftheBoardFormer Vice and Edward E.Hood,Jr., *1993 Financial Corp. Chief ExecutiveOfficer ofCapitolAmerican Former Chairman,President and Principal ofEncinitosVentures David H.Gunning,*1987 Inc. Hayes LemmerzInternational, Chairman andChiefExecutiveOfficer Ranko Cucuz,*2001 & Officers > and ChiefExecutiveOfficer ofAlgan,Inc. Former ChairmanoftheBoard President ofN.A.S.T. Inc. G. RussellLincoln,*1989 Chairman ofLincolnLaserCo. David C.Lincoln,*1958 Westinghouse ElectricCorporation and ChiefExecutiveOfficer of Former ChairmanoftheBoard President ofIntelligentEnterprises,Inc. Paul E.Lego,*1993 of TheLincolnFoundation,Inc. of LandPolicyandPresident Chairman ofTheLincolnInstitute Kathryn JoLincoln,*1995 Corporate Development President,Senior Vice ^James E.Schilling,*1998 Machine Division President,Vice Ronald A.Nelson,*1972 Materials President,Vice Charles H.Murray, *1976 Information Technology President,Vice Charles E.Mehlman,*1997 and ChiefExecutiveOfficer Chairman oftheBoard, President ^Anthony A.Massaro, *1993 President, LincolnElectricAsia PresidentVice Michael J.F. Gillespie,*1995 *Year joinedtheCompany ^Member, ManagementCommittee President, LincolnRussia,Africaand MiddleEast PresidentVice John H.Weaver, *1961 President,Vice HumanResources ^Raymond S.Vogt, *1996 General CounselandSecretary President,Senior Vice ^Frederick G.Stueber, *1995 President, NorthAmerica PresidentExecutive Vice ^John M.Stropki, *1972 Lincoln ElectricCompanyofCanada President andChiefExecutiveOfficer, PresidentVice Richard J.Seif,*1971 *Date electedasadirector President, NorthAmerica,LincolnElectric PresidentExecutive Vice John M.Stropki, *1998 Former President ofBuehler/Steingass,Inc. Frank L.Steingass,*1971 of KeyCorp President andChiefExecutiveOfficer Henry L.MeyerIII,*1994 and ChiefExecutiveOfficer, LincolnElectric Chairman oftheBoard, President Anthony A.Massaro, *1996 A copy of Lincoln Electric’s Form 10-K to the Securities and Exchange Commission or a copy of the 2000 Annual Report may be obtained by contacting Corporate Relations at (216) 383-4893 or sending a fax to (216) 383-8220. If you would like a copy of this Annual Report, please call 1-888-400-7789 or visit our Web site: www.lincolnelectric.com
TRANSFER AGENT AND REGISTRAR
Inquiries about dividends, shareholder records, share transfers, changes in ownership and address changes should be directed to the Transfer Agent and Registrar: National City Bank Dept. 5352 Corporate Trust Operations P.O. Box 92301 Cleveland, Ohio 44193-0900 Attn: Shareholder Services (800) 622-6757
> The Annual Meeting of Lincoln Electric Shareholders is scheduled to be held on Tuesday, May 1, 2001, at 2:00 p.m., at Wellington Center, 777 Alpha Drive, Highland Heights, Ohio 44143
For additional company information, contact: Corporate Relations Lincoln Electric Holdings, Inc. 22801 St. Clair Avenue Cleveland, Ohio 44117-1199, USA Phone: (216) 481-8100 Fax: (216) 383-8220
World Wide Web site: http://www.lincolnelectric.com Lincoln Electric Holdings, Inc. > 22801 St. Clair Avenue > Cleveland, Ohio 44117-1199 > U.S.A. >
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